[Senate Hearing 112-854]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-854

 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2013 

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

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED TWELTH CONGRESS

                             SECOND SESSION

                                   ON

                           H.R. 5972/S. 2322

AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND 
HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES FOR THE FISCAL YEAR 
           ENDING SEPTEMBER 30, 2013, AND FOR OTHER PURPOSES

                               __________

              Department of Housing and Urban Development
                      Department of Transportation
                       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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72-337 PDF                       WASHINGTON : 2013 

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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 1, 2012

                                                                   Page

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

                        Thursday, March 8, 2012

Department of Housing and Urban Development: Federal Housing 
  Administration.................................................    53

                        Thursday, March 15, 2012

Department of Transportation: Office of the Secretary............    85
Nondepartmental Witnesses........................................   127


TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2013

                              ----------                              


                        THURSDAY, MARCH 1, 2012

                                       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 and Collins.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. SHAUN DONOVAN, SECRETARY


               opening statement of senator patty murray


    Senator Murray. Mr. Secretary, welcome back to our 
subcommittee, as we are here today to talk about fiscal year 
2013 budget requests for the Department of Housing and Urban 
Development (HUD).
    As we begin our work on next year's budget, there are 
encouraging signs that our economy is moving now in the right 
direction. Although we aren't moving quickly enough for 
families that continue to struggle, and we certainly have a 
long way to go, the private sector has now been adding jobs for 
almost 2 years, businesses are growing, and confidence is up. 
We seem to have stepped back, finally, from the precipice, 
which, of course, is very good news for the housing market, 
which depends on a strong and stable economy to recover and 
thrive.
    But despite the positive signs, we still face significant 
challenges. Over 22 percent of homeowners are underwater.
    The recent settlement that was announced among the five 
largest banks, the States, and the Federal Government is an 
important step. It holds banks accountable and provides relief 
to homeowners. But the settlement also paves the way for banks 
to proceed with foreclosures that have been stalled in the 
pipeline.
    While it is important to reduce the excess inventory of 
distressed housing, increased sales of these properties at 
reduced prices may further depress home values.
    Climbing back from the housing crash will not be easy, and 
I am interested in hearing your views on how we can increase 
the stability of the market.
    The depressed housing market has also taken its toll on the 
Federal Housing Administration (FHA). This is made clear in the 
President's budget. The budget indicates that, for the first 
time, FHA may require Federal funding to cover its losses. I 
have long been concerned about the solvency of FHA's Mutual 
Mortgage Insurance (MMI) Fund, and I applaud the efforts of the 
Administration to strengthen FHA's risk controls.
    But many of the financial problems facing FHA are related 
to older books of business insured at the height of the housing 
boom. So while these changes to strengthen the program are 
important and long overdue, it will also be important to 
recover or prevent expected losses from older loans.
    I am pleased that the recent mortgage settlement includes 
money for FHA. And other settlements, most notably Bank of 
America, will also provide money to cover losses related to 
improper mortgage originations.
    These settlements should help avoid the need for taxpayer 
funding, and I hope you will continue to look for opportunities 
to recoup losses from fraudulent or poorly underwritten loans.
    Additional changes to FHA premiums contained in the budget, 
as well as those announced on Monday, represent your continued 
efforts to improve the solvency of the MMI Fund and protect the 
taxpayer from having to cover its losses.
    Beyond FHA, today we will also examine other aspects of the 
Administration's request, which is $44.8 billion in gross 
resources to support HUD's programs. While this represents an 
increase of over 3 percent, it is largely a current services 
budget as a result of the numerous offsets included in the 
fiscal year 2012 bill.
    As the Secretary's testimony notes, 83 percent of HUD's 
budget is dedicated to providing housing to the Nation's most 
vulnerable, and these programs require annual adjustments. As 
we continue to live under the caps of the Budget Control Act, 
this presents us with very difficult choices.
    Last year, Senator Collins and I worked very hard to 
protect HUD's core rental assistance programs. But doing so 
meant difficult cuts to programs like the Community Development 
Block Grant (CDBG), HOME, and Housing for the Elderly. The cuts 
to CDBG that began in fiscal year 2011 are being widely felt 
today. Cities and towns are cutting services to vulnerable 
citizens, laying off workers, or delaying critical investments 
in their communities.
    This year's budget faces many of the same challenges we 
struggled with last year. How do you craft a budget that 
protects low-income residents who rely on HUD assistance to 
keep a roof over their heads, makes the economic development in 
affordable investments that strengthen our communities, and 
gives HUD the tools it needs to effectively manage its 
programs?
    While the Administration's fiscal year 2013 budget tries to 
address these goals by balancing priorities, I am concerned 
about some of the proposals. The proposed budget for Project-
Based Rental Assistance will manage within the requested level 
by intentionally not funding contracts for a full 12 months. I 
have seen this policy before. And while this may be manageable 
in the short run, I'm concerned we won't have the resources 
when the bill eventually becomes due.
    In the Tenant-Based Rental Assistance account, I'm also 
concerned that the funding level requested to renew vouchers is 
effectively flat, despite anticipated inflation and the need to 
renew vouchers for the first time. The budget also relies on 
savings from a number of policy changes which are not without 
controversy.
    So as we make the difficult choices in this budget, I want 
to be sure we are making decisions with an understanding of 
their consequences and an eye toward the future.
    Despite my concerns, there are some bright spots in this 
budget. The request, again, seeks $75 million for new HUD-
Veterans Affairs Supportive Housing (HUD-VASH) vouchers, which 
have really helped to reduce homelessness among our veterans by 
12 percent between 2010 and 2011.
    The Administration has worked hard to develop a plan to 
finally end homelessness, and I'm very glad the request for 
homeless programs reflects a continued commitment to that plan.
    At a time when resources are scarce, oversight of HUD's 
programs becomes even more important. I look forward to 
continuing to work with the Department and my colleagues to 
find additional ways to improve HUD's programs.
    I also want to acknowledge today HUD's new inspector 
general, Mr. Montoya, who is with us today. I welcome his 
vision for HUD's Office of Inspector General, and look forward 
to working with him to protect taxpayer dollars and improve the 
efficiency of HUD's programs.
    The fiscal year 2013 budget, once again, requires difficult 
choices to be made. As I work with my colleagues, Senator 
Collins and those on this subcommittee, to put together this 
bill, I will be mindful of the millions of Americans who rely 
on HUD's programs for a place to sleep each night.


                           prepared statement


    Mr. Secretary, I look forward to our discussion today and 
working with you as we develop this 2013 budget. And I 
appreciate everyone accommodating us in moving this hearing up.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
    Mr. Secretary, I want to welcome you back to the subcommittee today 
as we discuss the fiscal year 2013 budget request for the Department of 
Housing and Urban Development (HUD).
    As we begin our work on next year's budget, there are encouraging 
signs that our economy is moving in the right direction. Although we 
aren't moving quickly enough for families that continue to struggle--
and we certainly have a long way to go.
    The private sector has been adding jobs for almost 2 years. 
Businesses are growing, confidence is up, and we seem to have stepped 
back from the precipice. Which, of course, is very good news for the 
housing market--which depends on a strong and stable economy to recover 
and thrive.
                       housing market challenges
    But despite the positive signs, we still face significant 
challenges. Over 22 percent of homeowners are underwater. The recent 
settlement announced among the five largest banks, the States, and the 
Federal Government is an important step. It holds banks accountable and 
provides relief to homeowners.
    But the settlement also paves the way for banks to proceed with 
foreclosures that have been stalled in the pipeline. While it is 
important to reduce the excess inventory of distressed housing, 
increased sales of these properties at reduced prices may further 
depress home values. Climbing back from the housing crash will not be 
easy, and I am interested in hearing your views on how we increase the 
stability of the market.
                              fha solvency
    The depressed housing market has also taken its toll on the Federal 
Housing Administration (FHA); this is made clear in the President's 
budget. The budget indicates that for the first time, FHA may require 
Federal funding to cover its losses.
    I have long been concerned about the solvency of FHA's Mutual 
Mortgage Insurance Fund. I applaud the efforts of this administration 
to strengthen FHA's risk controls.
    But many of the financial problems facing FHA are related to older 
books of business insured at the height of the housing boom.
    So while these changes to strengthen the program are important--and 
long overdue--it will also be important to recover or prevent expected 
losses from older loans.
    I am pleased that the recent mortgage settlement includes money for 
FHA. And other settlements, most notably with Bank of America will also 
provide money to cover losses related to improper mortgage 
originations.
    These settlements should help avoid the need for taxpayer funding. 
And I hope you will continue to look for opportunities to recoup losses 
from fraudulent or poorly underwritten loans.
    Additional changes to FHA premiums contained in the budget, as well 
as those announced on Monday, represent your continued efforts to 
improve the solvency of the MMI Fund and protect the taxpayer from 
having to cover its losses.
                     hud's fiscal year 2013 budget
    Beyond FHA, today we will also examine other aspects of the 
administration's request, which is $44.8 billion in gross resources to 
support HUD's programs.
    While this represents an increase of over 3 percent, it is largely 
a current services budget as a result of the numerous offsets included 
in the fiscal year 2012 bill. As the Secretary's testimony notes, 83 
percent of HUD's budget is dedicated to providing housing to the 
Nation's most vulnerable.
    These programs require annual adjustments. As we continue to live 
under the caps of the Budget Control Act, this presents us with very 
difficult choices. Last year, Senator Collins and I worked very hard to 
protect HUD's core rental assistance programs. But doing so meant 
difficult cuts to programs like Community Development Block Grant 
(CDBG), HOME, and Housing for the Elderly.
    The cuts to CDBG that began in fiscal year 2011 are being widely 
felt today. Cities and towns are cutting services to vulnerable 
citizens, laying off workers, or delaying critical investments in their 
communities.
    This year's budget faces many of the same challenges that we 
struggled with last year. How do you craft a budget that:
  --Protects low-income residents who rely on HUD assistance to keep a 
        roof over their heads;
  --Makes the economic development and affordable housing investments 
        that strengthen our communities; and
  --Gives HUD the tools it needs to effectively manage its programs?
                        budget proposal concerns
    While the administration's fiscal year 2013 budget tries to address 
these goals by balancing priorities, I am concerned about some of its 
proposals.
    The proposed budget for Project-Based Rental Assistance will manage 
within the requested level by intentionally not funding contracts for a 
full 12 months. I have seen this policy before. And while this may be 
manageable in the short-run, I am concerned that we won't have the 
resources when the bill eventually comes due.
    In the Tenant-Based Rental Assistance account, I am also concerned 
that the funding level requested to renew vouchers is effectively 
flat--despite anticipated inflation and the need to renew vouchers for 
the first time.
    The budget also relies on savings from a number of policy changes, 
which are not without controversy. So as we make the difficult choices 
in the budget, I want to be sure that we are making decisions with an 
understanding of their consequences and an eye toward the future.
                           budget highlights
    Despite my concerns, there are some bright spots in the budget. The 
request again seeks $75 million for new HUD-VASH vouchers, which have 
helped to reduce homelessness among veterans by 12 percent between 2010 
and 2011.
    The administration has worked hard to develop a plan to finally end 
homelessness. And I am very glad that the request for homeless programs 
reflects a continued commitment to that plan.
                             hud oversight
    At a time when resources are scarce, oversight of HUD's programs 
becomes even more important. I look forward to continuing to work with 
the Department and my colleagues to find additional ways to improve 
HUD's programs.
    I would like to acknowledge HUD's new inspector general, Mr. 
Montoya, who is with us today. I welcome his vision for HUD's Office of 
Inspector General and I look forward to working with him to protect 
taxpayer dollars and improve the efficacy of HUD's programs.
                                closing
    The fiscal year 2013 budget once again requires difficult choices 
to be made.
    As I work together with Senator Collins and my colleagues on the 
subcommittee to put together this bill, I will be mindful of the 
millions of Americans who rely on HUD's programs for a place to sleep 
each night.
    Mr. Secretary, I look forward to our discussion today and working 
with you as we develop the fiscal year 2013 budget.
    With that I will turn it over to my partner in these efforts, 
Senator Collins.

    Senator Murray. And Senator Collins, thank you for 
accommodating us as well.
    As all of you know, we have a vote in about an hour and 20 
minutes, and I know Senator Collins and I both need to be on 
the floor then.
    So with that, let me turn it over to my colleague, Senator 
Collins. Thank you for being here today.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you very much, Chairman Murray.
    First, let me say how much I enjoyed working with you last 
year as we crafted this important appropriations bill. We did 
so in a truly bipartisan fashion. We share a lot of the same 
priorities.
    And it was also a great pleasure to work with Secretary 
Donovan, and I appreciate his being here today as we discuss 
how to meet the housing and economic development needs of 
families and communities across our Nation.
    As we begin to construct the fiscal year 2013 budget, we 
are mindful that we are once again operating under very 
difficult fiscal constraints. That is even more challenging 
when one considers that more than 80 cents out of every $1 of 
the budget request is required just to continue serving those 
who currently rely on HUD for just housing support.
    Addressing the ongoing challenge of homelessness remains a 
top priority of mine. Chairman Murray and I continue to share 
this commitment, particularly for our Nation's veterans. And we 
worked very hard last year to preserve funding for the HUD-VASH 
program.
    One out of every six men and women in homeless shelters are 
veterans, and unfortunately, veterans are 50 percent more 
likely to fall into homelessness compared to other Americans. 
So I am pleased that the budget request continues funding for 
the HUD-VASH program at $75 million. This level of funding 
should help us serve an additional 10,000 veterans who would 
otherwise likely be homeless.
    Veterans' homelessness fell by nearly 12 percent in the 
year 2010, demonstrating that these programs work. I've also 
always supported funding for the homeless assistance grants 
programs to prevent and end homelessness. The budget proposes 
$2.2 billion for this program. That's an increase of 
approximately $330 million over the previous fiscal year.
    It is, however, important that we focus on what works. And 
one of the models that I've seen work in the State of Maine is 
the Housing First model for aiding those who are homeless.
    We need better data to ensure the effectiveness of all 
housing programs. This particular model is proving its 
effectiveness in my home State of Maine through the Florence 
House, a comprehensive center for homeless women in Portland.
    In addition to programs that effectively serve the 
homeless, HUD, of course, provides support for affordable 
rental housing. The budget proposes more than $19 billion for 
the Tenant-Based Rental Assistance program, of which $1.6 
billion is available for administrative costs. That's an 
increase in direct response to the fact that some public 
housing agencies (PHAs) are having a difficult time 
administering their voucher programs and have actually turned 
back vouchers as a result, and that is very troubling.
    We don't want to overpay them for their administrative 
expenses, but they need to have sufficient expenses to 
efficiently and effectively run the program.
    Another important issue that I'd like to address is HUD's 
oversight of the Maine State Housing Authority Section 8 
Voucher Program. A series of recent newspaper stories revealed 
troubling cases of code violations and other poor conditions in 
Oxford County, Maine. In fact, the local fire chief was so 
upset that he wrote a letter to my office, asking for my help.
    HUD has an obligation to oversee the use of Federal funds 
of public housing agencies nationwide and to ensure that these 
funds are not supporting substandard properties.
    I just want to share, briefly, with my colleagues and the 
people from HUD here, and the inspector general, one of the 
particular units, one of the apartments that was cited in this 
newspaper series. HUD was actually paying $600 a month in 
Federal subsidies for an apartment that had septic backups in 
the kitchen sink, a damaged fire escape, and bat and rodent 
infestation. Totally unacceptable.
    It's bad enough that taxpayers were charged for substandard 
units, but it's appalling that residents were forced to live in 
such horrible conditions. The welfare and safety of tenants 
must be safeguarded, and federally subsidized properties must 
represent fair value to both the tenant and the taxpayer alike.
    I have requested the inspector general to audit HUD's 
oversight of the unit inspections and the Maine State Housing 
Authority's administration of the program. It is clearly 
critical that federally subsidized properties comply with all 
health, safety, and quality standards.
    And I want to commend the Secretary for taking my concerns 
very seriously and for asking the Maine State Housing Authority 
for a corrective action plan.
    And I'm also very pleased that the inspector general has 
stepped in and is investigating this problem.
    I, too, want to echo Senator Murray's concerns about the 
Federal Housing Administration, which plays such a critical 
role in affordable home ownership. The decline in the housing 
market over the past several years has had a tremendous impact 
on families and communities throughout the Nation as well as 
our economy as a whole.
    While I understand that HUD has taken a number of steps to 
increase capital reserves, it remains troubling that the 
capital reserve ratio remains below the congressionally 
mandated level of 2 percent. I'm optimistic that we'll hear 
some good news as a result of the settlements, but that still 
is of concern.
    I also want to discuss in the question period with the 
Secretary what can be done to ensure the greater use of wood 
pellet heating systems in Maine that have not qualified for 
assistance under the FHA program. And those are increasingly 
popular. They are an alternative to fossil fuels. Maine is very 
heavily dependent on home heating oil, the price of which has 
spiked.
    Finally, the level funding for the Community Development 
Block Grant program, proposed at about $3 billion, is 
disappointing. This popular program supports the economic 
growth strategies of communities nationwide, and enables key 
investments in their long-term economic growth. It is programs 
like CDBG that help to build a foundation for future 
prosperity.
    These are just some of the issues before our subcommittee.

                           PREPARED STATEMENT

    And again, Madam Chairman, I look forward to working very 
closely with you again this year.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Thank you, Chairman Murray. I am delighted to join you once again 
as we start the fiscal year 2013 appropriations process and consider 
the Department of Housing and Urban Development's (HUD's) budget 
request.
    Mr. Secretary, it is nice to see you again. I look forward to 
working with you to meet the housing and economic development needs of 
families and communities throughout the Nation.
    As we begin to construct the fiscal year 2013 budget, we will 
continue to face difficult decisions given the fiscal constraints we 
remain under. This is even more challenging when more than 80 cents out 
of every $1 of the fiscal year 2013 request is required just to 
continue serving those who currently rely on HUD for housing support.
    Addressing the ongoing challenge of homelessness remains a top 
priority of mine. Chairman Murray and I continue to share this 
commitment, particularly for our Nation's veterans. One out of every 
six men and women in homeless shelters are veterans, and unfortunately, 
veterans are 50 percent more likely to fall into homelessness compared 
to other Americans.
    I am pleased the budget continues funding for HUD's Veterans 
Affairs Supportive Housing (HUD-VASH) Program at $75 million. This 
level of funding will serve an additional 10,000 veterans, who would 
otherwise be homeless were it not for HUD-VASH. Veterans' homelessness 
fell by nearly 12 percent in 2010, demonstrating that programs like 
HUD-VASH work.
    I have always supported funding for the Homeless Assistance Grants 
program to prevent and end homelessness. The budget proposes $2.2 
billion for this program, $330 million more than fiscal year 2012.
    We need to focus, however, on what works such as the Housing First 
model for aiding those who are homeless. We need better data to ensure 
the effectiveness of all housing programs. This model is proving its 
effectiveness in my home State of Maine through Florence House, a 
comprehensive center for homeless women in Portland.
    In addition to programs that effectively serve the homeless, HUD 
also provides support for affordable rental housing. The budget 
proposes more than $19 billion for the Tenant-Based Rental Assistance 
program, of which $1.6 billion is available for administrative costs. 
This represents a $225 million increase in administrative funding from 
fiscal year 2012. It is my understanding that some public housing 
agencies are having a difficult time administering their voucher 
programs, including HUD-VASH, this fiscal year.
    Another important issue I would like to address is HUD's oversight 
of the Maine State Housing Authority's Section 8 voucher program. A 
series of recent newspaper articles revealed troubling cases of code 
violations and other poor conditions in Oxford County, Maine. HUD has 
an obligation to oversee the use of Federal funds at public housing 
agencies nationwide and to ensure these funds do not support 
substandard properties.
    One of the units cited, for which HUD was paying $600 in Federal 
subsidies, had septic backups in the kitchen sink, a damaged fire 
escape, and bat and rodent infestation. It is bad enough that taxpayers 
were charged for substandard units, but it ,is appalling that residents 
were forced to live in such horrible conditions. The welfare and safety 
of tenants must be safeguarded, and federally subsidized properties 
must represent fair value to the tenant and the taxpayer alike.
    I requested that the Inspector General audit HUD's oversight of 
unit inspections and the MSHA's administration of its program. It is 
critical that federally subsidized properties comply with all health, 
safety, and quality standards.
    In addition to supporting affordable rental housing, HUD plays a 
critical role in affordable home ownership through the Federal Housing 
Administration. The decline in the housing market over the past several 
years has had a tremendous impact on families and communities 
throughout the Nation, from the huge number of foreclosures to the 
substantial decline in home values.
    While I understand HUD has taken a number of steps to increase 
capital reserves, it is troubling that the capital reserve ratio remain 
s below the congressionally mandated level of 2 percent. In questions I 
also want to discuss how HUD regulations can encourage the great use of 
wood pellet heat in FHA-assisted homes.
    Finally, the level funding for the Community Development Block 
Grant (CDBG) program, proposed at $2.95 billion, is disappointing. This 
popular program supports the economic growth strategies of communities 
nationwide and enables key investments in their long-term economic 
growth. It is programs like CDBG that help to build a foundation for 
future prosperity.
    These are just some of the issues we are confronted with on our 
subcommittee this year. Chairman Murray, I look forward to working with 
you as we consider HUD's fiscal year 2013 budget request.

    Senator Murray. Thank you very much, Senator Collins.
    With that, we'll turn it over to you, Secretary Donovan, 
for your opening statement.

                SUMMARY STATEMENT OF HON. SHAUN DONOVAN

    Secretary Donovan. Thank you, Madam Chair, ranking member, 
for the opportunity to be here today. Today, I would like to 
discuss how HUD's fiscal year 2013 budget proposal is essential 
to creating housing and communities built to last and will 
directly support 700,000 jobs.
    Madam Chair, in developing this proposed budget we followed 
four principles. The first is to continue our support for the 
housing market, while bringing private capital back. The 
critical support FHA provided over the last 3 years has helped 
2.8 million families buy a home and more than 1.7 million 
homeowners refinance into stable, affordable products with 
average monthly savings of more than $125.
    At the same time, we have taken the most significant steps 
in FHA history to reduce risks to the taxpayer and reform FHA's 
mortgage insurance premium structure. With the premium 
increases of 10 basis points recently enacted by Congress, 
coupled with additional premium increases on jumbo loans 
reflected in the budget, FHA projects to add an additional $8.1 
billion in receipts to the capital reserve account in 2013.
    And just this week, we announced a series of additional 
premium changes that will increase receipts to FHA above those 
already in the budget by over $1 billion in fiscal years 2012 
and 2013.
    We have also taken significant steps to increase 
accountability for FHA lenders, and continue to seek expanded 
authority via legislation that will further enable us to 
protect the fund, as will the recent settlement with America's 
five largest servicers, through which FHA will receive 
approximately $900 million to compensate for losses associated 
with loans originated or serviced in violation of FHA 
requirements.
    With FHA's current market share declining since 2009, these 
reforms will further help private capital return, while 
ensuring that FHA remains a vital source of financing for 
underserved borrowers and communities.
    Just as importantly, while HUD's fiscal year 2013 request 
is $44.8 billion in gross budget authority, because of FHA and 
Ginnie Mae receipts, the cost to the taxpayer for this budget 
is only $35.35 billion, fully 7.3 percent below the fiscal year 
2012 enacted level, more than meeting our deficit reduction 
targets while still allowing us to improve oversight of our 
core programs.
    The second principle we used to develop our budget was to 
protect current residents and improve the programs that serve 
them. The 5.4 million families who live in HUD-assisted housing 
earn $10,200 per year, as a median, and more than half are 
elderly or disabled. That's why 83 percent of our budget, as 
you both recognized, 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.
    As you know, inflation and stagnant incomes put real 
pressure on the cost of these programs each year. This year, we 
redoubled our efforts to minimize and even reverse these 
increases, not just for this year, but in the years to come.
    For instance, we are working with your colleagues to enact 
Section 8 reform legislation that would save $1 billion over 
the next 5 years, while also supporting the ability of public 
housing authorities in small towns and rural areas to better 
serve the working poor.
    The budget also achieves savings in the Project-Based 
Rental Assistance program by improving oversight of market rent 
studies, capping certain annual subsidy increases, and 
offsetting excess reserves.
    Even still, protecting current families required us to make 
choices we would not have made in a different fiscal 
environment. Requesting $8.7 billion for the Project-Based 
Rental Assistance program allows us to serve the same number of 
families, but it required us to provide less than 12 months of 
funding for the majority of contracts.
    In addition, even though the budget maintains hardship 
exemptions, the budget raises minimum rents throughout our core 
rental assistance programs to a uniform $75 per month.
    These very difficult decisions are the kinds of steps we 
were required to take in this difficult budget environment. 
That's why our third principle, continuing investments that 
leverage private dollars and create jobs, is so important. 
Through our Choice Neighborhoods program, we are helping 
communities engage a broad range of public and private partners 
to transform our poorest neighborhoods and ensure our children 
are prepared for the 21st century economy.
    As the President said, if we are going to compete with 
China and India, we can't leave anyone on the sidelines. 
Likewise, our Sustainable Communities grants challenge 
communities to creatively use existing resources that help them 
insource and bring jobs back to our shores.
    In Memphis, which is using HUD's Community Challenge grant 
to more effectively use Federal and State resources in 
neighborhoods surrounding its international airport, FedEx has 
already created over 3,000 jobs, and companies like Electrolux 
and Nucor Steel are poised to create another 1,500.
    At a time when the fiscal environment has required us to 
make tough choices about CDBG and HOME--dollar-for-dollar, the 
most effective job creators in our budget--these grants are 
essential because they leverage the limited resources of core 
programs even more smartly and efficiently.
    Indeed, reducing regulatory burdens and increasing 
efficiency is the fourth and final principle we used to 
formulate this budget. For example, the budget provides 
flexibilities to public housing agencies to better manage in 
this fiscal environment. And to hold our partners accountable 
for the funding they receive, it also continues our 
Transformation Initiative (TI).
    With your help, we are both continuing the next generation 
management system that will improve monitoring and oversight of 
our largest rental assistance programs, and launching a 
crosscutting technical assistance initiative targeted to PHAs 
so they have the capacity to manage their budgets.
    TI research also allows us to propose increased investments 
in programs we know work, like permanent support of housing and 
rapid re-housing that end homelessness and save money. That's 
why, even in this difficult environment, as both of you have 
championed, we proposed additional funding for homeless 
assistance grants and the HUD-VASH program for homeless 
veterans, ensuring we can end chronic and veteran homelessness 
by 2015.
    All told, despite tough choices, this proposed budget 
allows us to serve 27,000 more vulnerable families. It 
recognizes that the recovery of our housing market is essential 
to our broader economic recovery, and it expresses our belief 
that every American should get a fair shot, do their fair 
share, and play by the same rules.

                           PREPARED STATEMENT

    Thank you for having me here today.
    [The statement follows:]
                Prepared Statement of Hon. Shaun Donovan
    Chairman Murray, Ranking Member Collins, and members of the 
subcommittee, thank you for the opportunity to testify today regarding 
the fiscal year 2013 budget for the Department of Housing and Urban 
Development (HUD), Housing and Communities Built to Last.
    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 3.2 million new private sector jobs have been 
created in the last 22 months, and national unemployment has fallen to 
a near 3-year low. But we know there's still more work to be done to 
ensure that America can create an economy built to last--with good jobs 
that pay well and security for the middle class.
    HUD's fiscal year 2013 budget tackles these challenges head on: By 
helping responsible families at risk of losing their homes; by 
providing quality affordable rental housing to some of our Nation's 
most vulnerable families; 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 our country 
needs. Indeed, this budget will support hundreds of thousands of jobs 
both directly and indirectly, serving as a powerful engine for job 
creation in the places that need them most.
    Our budget provides $44.8 billion for HUD programs, an increase of 
$1.4 billion, or 3.2 percent, above fiscal year 2012. This program 
funding level (i.e., gross budget authority) is offset by $9.4 billion 
in projected Federal Housing Administration (FHA) and Ginnie Mae 
receipts, leaving net budget authority of $35.4 billion, or 7.3 percent 
below the fiscal year 2012 enacted level of $38.2 billion. The budget 
reflects the reality that we cannot create an economy built to last 
without taking responsibility for our deficit. The caps set by the 
Budget Control Act of 2011 promise over $907 billion in total 
discretionary cuts over the next 10 years, and every department shares 
a responsibility to make tough cuts so there's room for investments to 
speed economic growth. To maintain our commitment to fiscal discipline, 
this budget invests in improving the infrastructure and technological 
systems critical to reforming the Government to be leaner, more 
transparent, and ready for the 21st century. Moreover, by providing a 
menu of key reforms--including to some of our largest rental assistance 
programs--this budget simplifies and aligns policies to be more 
efficient and effective, while saving the taxpayer hundreds of millions 
of dollars. To be clear, not all of the reforms we're proposing are 
easy. Indeed, this budget makes tough choices in order to contribute to 
deficit reduction in a substantial way.
                        responding to the crisis
    Much has happened in the 3 years since HUD submitted its fiscal 
year 2010 budget. Only weeks before the Bush administration and 
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, house prices had declined for 30 straight 
months, and consumer confidence had fallen to a 40-year low.
    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 take aggressive steps. The Federal 
Reserve and 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 support for 
Fannie Mae and Freddie Mac, while HUD's Federal Housing Administration 
stepped in to play its critical countercyclical role in helping to 
stabilize the housing market. The administration proposed, and Congress 
enacted, a homebuyer 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. 
Since April 2009, more than 5.6 million borrowers have received 
mortgage modifications with affordable monthly payments, nearly 14 
million families have been able to refinance their homes, and 
foreclosures are down by nearly 50 percent.
                   creating an economy built to last
    Now, having prevented our economy from falling into a second Great 
Depression, the administration is focused on ensuring that we create an 
economy built to last, which makes strategic investments in our 
communities but also takes responsibility for our deficit. For HUD, 
that meant using four 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;
  --Continuing progress on signature initiatives to provide communities 
        with the tools they need to speed economic growth; and
  --Reducing regulatory burdens and increasing efficiency--including 
        streamlining, simplifying, and reforming current programs.
    As such, the Department's budget for fiscal year 2013 follows the 
roadmap the President has laid out for jumpstarting our economy through 
educating, innovating, and building--by targeting our investments to 
the families and geographies that need them the most, and putting 
American back to work. Specifically, this budget helps:
  --Give Hard-Working, Responsible Americans a Fair Shot.--Not only is 
        there more work to do to ensure that the economic security of 
        middle class Americans does not continue to erode, we have a 
        responsibility to directly address the challenges facing the 
        most vulnerable Americans. This budget does so by serving over 
        5.4 million families--the majority of whom are extremely low 
        income--in our rental assistance programs; and by supporting 
        the Choice Neighborhoods initiative ($150 million), which 
        provides communities with the innovative tools they need to 
        revitalize neighborhoods of concentrated poverty--efforts that 
        helped communities leverage over $1.6 billion of private 
        funding last year alone.
  --Ensure Every American Plays by the Same Rules.--Put simply, we 
        cannot settle for a country where a shrinking number of people 
        do really well, while more Americans barely get by. There are 
        still millions of Americans who have worked hard, acted 
        responsibly, and made their mortgage payments on time--who, 
        because their homes are worth less than they owe on their 
        mortgage, can't take advantage of today's historically low 
        interest rates and are facing real economic insecurity. In 
        addition to steps taken by the administration to combat 
        predatory lending practices (discussed in depth below), this 
        budget provides critical funding for the Housing Counseling 
        program ($55 million), which will directly help over 185,000 of 
        low- to moderate-income families in improving access to quality 
        affordable housing, expanding homeownership opportunities, and 
        preserving homeownership through foreclosure mitigation; as 
        well as providing training to over 4,800 counselors nationwide.
    This budget also recognizes that we can no longer tolerate a 
federally supported rental housing system that is ``separate and 
unequal''--one which expects public housing authorities (PHAs) to house 
over 3 million families, subjecting them to overly burdensome 
regulation while denying them access to private capital available to 
virtually every other form of rental housing. To bring our rental 
housing system into the 21st century and begin addressing the $26 
billion in public housing capital needs, this budget includes proposals 
that would increase PHA flexibility to fund critical supportive 
services for assisted families while also moving them toward mainstream 
real estate financing and management practices through the 
consolidation of outmoded funding streams. At the same time, by 
implementing the second year of our Rental Assistance Demonstration, 
the budget will use existing resources to ensure that up to 60,000 
units funded through our public housing and the so-called ``orphan 
programs'' can leverage debt to access private capital and preserve 
affordable housing.
    Create New Jobs in America To Discourage Outsourcing.--In addition 
to the hundreds of thousands of jobs that this budget creates both 
directly and indirectly, it makes an essential contribution to the 
administration's broader effort to discourage outsourcing and encourage 
insourcing. Specifically, 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, and 
transportation networks that move goods and people efficiently--which 
is why this budget restores funding for Sustainable Housing and 
Communities ($100 million), which embodies the President's commitment 
to being a new kind of Federal partner to regions, States, and 
localities as they tackle planning and economic development challenges 
for the 21st century.
    Of course, smart planning requires sustained follow-through. That 
is why HUD is committed to ensuring that its core community and housing 
development work contributes to more and better transportation choices; 
promotes equitable, affordable housing; and aligns Federal policies and 
funding to remove barriers to local collaboration. Accordingly, we will 
continue to make critical investments programs such as the Community 
Development Block Grant (CDBG) ($2.95 billion in formula grants) and 
Native American Housing Block Grant ($650 million). In particular, CDBG 
is an important catalyst for economic growth--helping leaders around 
the country bring retail businesses to their communities, forge 
innovative partnerships and rebuild their economies.
    Reform Government So That It's Leaner, Smarter, More Transparent, 
and Ready for the 21st Century.--It is clear that an economy built to 
last requires a Federal Government that is efficient, streamlined, and 
transparent. As such, the budget proposes reforms to HUD rental 
assistance programs that would save over $500 million in fiscal year 
2013 without reducing the number of families served--by streamlining 
programs and reforming policies. Moreover, this budget once again calls 
for the flexible use of resources (estimated $120 million) \1\ through 
the Transformation Initiative, which the Department needs to invest in 
technical assistance to build local capacity to safeguard and 
effectively invest taxpayer dollars; conduct innovative research, 
evaluations of program initiatives and demonstration programs so we can 
fund what works and stop funding what doesn't; and upgrade the IT 
infrastructure that tracks and monitors our programs.
---------------------------------------------------------------------------
    \1\ The total TI transfer authority in fiscal year 2013 is 
approximately $215 million; however, HUD anticipates transferring 
approximately $120 million.
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             moving the needle, making substantial progress
    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 serve millions of families in thousands of 
communities nationwide; to help create an economy built on American 
manufacturing, American energy, skills for American workers, and a 
renewal of American values.
    Consistent with the previous 2 years, HUD's fiscal year 2013 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 create an economy built to 
last. Indeed, every month, I hold HUDStat meetings on one or more of 
these goals, to assess progress and troubleshoot problems in order to: 
(1) 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 (2) hold our grantees accountable for their expenditure 
of taxpayers' hard-earned dollars.

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

     holding ourselves accountable: moving the needle on veterans 
                              homelessness
    In a year when we have troops returning from two wars, we cannot 
afford to waste any time in the fight to end veterans homelessness. 
That is why the partnership between HUD and the Department of Veterans 
Affairs (VA) is more important than ever. Over the last 2 years alone, 
HUD and the VA have collaborated through the HUD-VASH program to end 
homelessness for more than 40,000 veterans, far surpassing HUD's High 
Priority Performance Goal of 31,000. Overall, HUD and the VA have 
jointly committed to eliminating veterans homelessness by 2015, a goal 
which can only be achieved through effective collaboration, along with 
a joint focus on data-driven accountability as demonstrated in 
processes like HUDStat. VA Deputy Secretary Scott Gould and key VA 
program staff have become regular participants in HUDStat meetings, 
where together we analyze performance data to understand trends, 
identify best practices, and prioritize the actions needed to 
accelerate progress. Through this collaboration, which extends to staff 
throughout the country, I am proud of the work we have done to keep us 
on track to end veteran's homelessness by 2015. However, as President 
Obama has said, until we reach a day when not a single veteran sleeps 
in our Nation's streets, our work remains unfinished.

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

   hud goal 1: strengthen the nation's housing market to bolster the 
                     economy and protect consumers
    This administration entered office confronting the worst economic 
crisis since the Great Depression--as mortgages were sold to people who 
couldn't afford or understand them, while banks packaged them into 
complex securities that they made huge bets on--and bonuses with--other 
people's money. And while the largest factors contributing to this 
crisis were market driven, the American people have turned to Congress 
and the administration for leadership and action in righting our 
Nation's housing market. HUD remains firmly committed to working 
together with communities and individuals to cope with these 
unprecedented challenges.
Responding to the Market Disruption
    The Federal Housing Administration (FHA) and Government National 
Mortgage Association (GNMA) continue to have a significant impact on 
the Nation's economic recovery. The activities of the Federal 
Government are critical to both supporting the housing market in the 
short term and providing access to homeownership opportunities over the 
long term, while minimizing the risk to taxpayers. Over the past 2 
years, HUD has worked with the Department of the Treasury and other 
administration partners to construct a housing finance system that 
relies on an actuarially sound pricing structure, effective lending 
oversight, and adequate organizational capacity to ensure consistent 
access to, and liquidity and stability in, the capital markets.
    In fiscal year 2013, HUD is requesting $400 billion in loan 
guarantee authority for the Mutual Mortgage Insurance Fund, which will 
provide an estimated 0.8 million single-family mortgages (a projected 
$149 billion in loan volume) and $25 billion in loan guarantee 
authority for the General and Special Risk Insurance Fund, which will 
provide an estimated 156,000 units in multifamily housing properties 
and an estimated 80,600 beds in healthcare facilities. The need for 
this investment is clear as FHA has played a critical role in 
stabilizing the Nation's mortgage market. At a time when liquidity and 
access were needed most in the housing market to facilitate the 
recovery of the broader economy, FHA stepped in to ensure that mortgage 
capital continued to flow. However, FHA's expanded role is and should 
be temporary. FHA's loan volume has declined 34 percent from its peak 
in 2009, and its market share is decreasing for the first time since 
2006, thereby laying the ground work for private capital to return to 
the market. FHA is particularly important to borrowers that the 
conventional market does not adequately serve , including qualified 
borrowers who would otherwise be shut out of the mortgage market. Fully 
60 percent of all African American and Hispanic homebuyers using 
mortgages rely upon FHA financing and over 30 percent of all FHA-
insured homebuyers are minorities. Over half of all African Americans 
who purchased a home last year and 45 percent of Hispanics did so with 
FHA financing.
Redoubling Efforts To Keep Homeowners in Their Homes
    While there is work still to be done, HUD is proud of the progress 
this administration has made in tackling ongoing foreclosure 
challenges. Between April 2009 and December 2011, more than 5.6 million 
mortgage modifications were started--including more than 1.7 million 
HAMP trial modification starts and nearly 1.2 million FHA loss 
mitigation and early delinquency interventions. In addition, to date, 
more than 930,000 HAMP trial modifications have resulted in permanent 
modifications--saving these households an estimated $10.5 billion in 
monthly mortgage payments.
    As part of the administration's commitment to help responsible 
homeowners stay in their homes, we have actively sought to use our 
current programs and authorities to make homeownership sustainable for 
millions of American families. Examples of our efforts include:
  --Streamline Refinance.--An option that allows borrowers with FHA-
        insured loans who are current on their mortgage to refinance 
        into a new FHA-insured loan at today's low interest rates 
        without requiring additional underwriting, permitting these 
        borrowers to reduce their mortgage payments. This program 
        benefits current FHA borrowers--particularly those whose loan 
        value may exceed the current value of their home--and by 
        lowering a borrower's payment, also reduces risk to FHA. And, 
        because we see potential for more widespread use of this 
        product, FHA will make changes to the way in which streamline 
        refinance loans are displayed in the Neighborhood Watch Early 
        Warning System (Neighborhood Watch) to reduce lender concern 
        about the potential impact associated with taking 
        responsibility for loans they have not underwritten, making 
        them more willing to offer these loans to borrowers who are 
        current on mortgages already insured by FHA.
  --National First Look Program.--A partnership between HUD, the 
        National Community Stabilization Trust and large financial 
        institutions that offers Neighborhood Stabilization Program 
        grantees an exclusive 12- to 14-day window to evaluate and bid 
        on foreclosed properties.
  --Short Refinance Option.--In 2010, FHA made available an option that 
        offers underwater non-FHA borrowers, who are current on their 
        existing mortgage and whose lenders agree to write off at least 
        10 percent of the unpaid principal balance of the first 
        mortgage, the opportunity to refinance into a new FHA-insured 
        mortgage.
    Finally, as another critical component to the recovery of the 
housing market, the President has also put forward a Homeowner Bill of 
Rights--a single, straightforward set of commonsense rules that 
families can count on when they're shopping for a mortgage, including 
the right to a new, simple, clear form for new buyers that gives people 
confidence when they're making the most important financial decision of 
their lives. And those rights shouldn't end when homeowners get the 
keys to their new home. When Americans lose their job or have a medical 
emergency, they should know that when they call their lender, that call 
will be answered and that their home won't be sold in foreclosure at 
the same time they are filling out paperwork to get help.

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

           funding what works: housing counseling assistance
    In fiscal year 2013, HUD is requesting $55 million in Housing 
Counseling Assistance to improve access to quality affordable housing, 
expand homeownership opportunities, and preserve homeownership, all of 
which are especially critical in today's economic climate. With this 
funding, HUD expects to serve nearly 185,000 low- to moderate-income 
families, as well as provide training to 4,800 counselors nationwide. 
HUD-approved counselors help clients learn about purchasing or 
refinancing a home; rental housing options; reverse mortgages for 
seniors; foreclosure prevention; loss mitigation; preventing evictions 
and homelessness; and moving from homelessness to a more stable housing 
situation. In 2011, HUD-Approved Housing Counseling agencies, with 
grant funds from HUD and other funding sources, assisted over 1.9 
million families, including more than 1 million potential and current 
homeowners with mortgage-related issues.

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

Strengthening FHA and Paving the Way for Private Capital To Return
    The books of business in the few years before 2009 have largely 
driven the high number of claims to the Mutual Mortgage Insurance Fund 
(MMI Fund). This was driven by overall economic and unemployment trends 
as well as by the combined effects of poor underwriting, unscrupulous, 
and non-compliant practices on the part of lenders, and a seller-funded 
downpayment assistance program that allowed many borrowers to obtain 
mortgages without a meaningful down payment. As a result, the books of 
business FHA insured prior to the start of this administration have 
severely impacted the health of FHA's MMI Fund. But thanks to our 
efforts, I can say confidently that FHA is moving in another direction, 
and that the long-term outlook for FHA and the MMI Fund are now much 
better than they were in 2009.
    The change in trajectory in the performance of FHA-insured loans is 
no accident. Immediately upon taking office, this administration acted 
quickly and aggressively to protect FHA's MMI Fund and to ensure its 
long-term viability. We have taken more steps since January 2009 to 
eliminate unnecessary credit risk and assure strong premium revenue 
flows in the future than any administration in FHA history. Indeed, the 
gains FHA has experiences since 2009 are the result of a three-part 
strategy: Systematic tightening of risk controls, increased premiums to 
stabilize near-term finances and expanded usage of loss mitigation 
workout assistance to avoid unnecessary claims.
    And, we continue to take steps to further strengthen the Fund. In 
the 2013 budget we announced a 10 bps annual premium increase on all 
FHA insured loans to comply with the requirement passed by Congress 
late last year, as well as an additional 25 bps annual premium increase 
on ``jumbo'' loans making the total increase for these larger loans 35 
bps. And just this week, we announced a series of premium changes that 
will further increase receipts to FHA by over $1 billion in fiscal 
years 2012 and 2013, beyond the receipts already included in the 
President's budget submission. In addition, we have also taken 
significant additional steps to increase accountability for FHA 
lenders. Via a final rule published a few weeks ago, we clarified the 
bases upon which FHA will require indemnification from lenders 
participating in our Lender Insurance program, making clear the rules 
of the road for lenders and giving FHA a solid basis upon which to 
require indemnification by lenders for violations of FHA guidelines. 
And we continue to seek expanded authority via legislation that will 
further enable us to protect the MMI Fund from unnecessary and 
inappropriate losses associated with lenders who violate our 
requirements.
    The next in a series of steps we have pursued to hold lenders 
accountable for their actions are the recently announced settlements 
with some of America's largest lenders. Through these settlements, FHA 
will receive over $900 million compensation for losses associated with 
loans originated outside of FHA requirements, or for which FHA's 
servicing requirements were violated.
    Despite the unprecedented efforts of this administration to alter 
the trajectory of FHA, considerable risks remain. The FHA MMI Fund has 
two components: The Financing Account, which holds enough money to 
accommodate all expected losses on FHA's insured MMI portfolio as of 
the end of the current fiscal year; and the Capital Reserve Account, 
which is required to hold an additional amount equal to 2 percent of 
the insurance in force. Since 2009, the Fund's capital reserve ratio 
has been below that 2-percent level.
    The President's budget always includes estimates regarding the 
status of the Capital Reserve at the end of the current fiscal year. 
This prediction is based on estimates and projections of future 
economic conditions, including house prices and other economic factors 
which may or may not come to pass. In addition, the 2013 budget 
estimate for the FHA Capital Reserve account does not include added 
revenue from the additional premium increases announced this week or 
the proceeds from FHA-approved lenders under the terms of the mortgage 
settlements. With these additional revenues accounted for, the Capital 
Reserve is estimated to have sufficient balances to cover all future 
projected losses without triggering a mandatory appropriation under the 
Federal Credit Reform Act. Moreover, the budget estimates that FHA will 
add an additional $8 billion to the MMI Capital Reserve Account in 
2013, and return to the congressionally mandated capital reserve ratio 
of 2 percent by 2015.
    The 2013 budget also includes premium increases for FHA's General 
Insurance and Special Risk Insurance programs that serve market rate 
multifamily properties and healthcare facilities. These changes are 
intended to ensure that FHA products are priced appropriately to 
compensate for FHA's risk and encourage the return of private capital 
to our mortgage markets. The proposed increases include: 20 basis 
points for all new construction or substantial rehabilitation loans 
including but not limited to section 220, 221(d), section 231, section 
242, and section 232; 15 basis points for permanent loans in section 
223(f); and 5 basis points for section 223(a)(7). Premiums for 
affordable housing projects (such as those with HUD rental subsidies 
and low-income housing tax credits, as well as those insured under FHA 
risk-sharing programs) will not be increased.
    With the proposed premium increases, FHA Multifamily and Healthcare 
loans will be priced more appropriately to crowd back in private 
capital, while at the same time continuing to ensure sufficient levels 
of available capital in these sectors. The increase in premiums also 
reflect new realities--the Multifamily book of business is five times 
greater than it was just 3 years ago, and the risk profile has changed 
dramatically. FHA's portfolio is now more than 50 percent market rate, 
which adds a new component of risk, and a need to take steps to ensure 
the future viability of the portfolio. With interest rates at a record 
low the existing portfolio loans could remain in FHA's portfolio longer 
than the average timeframes and will need to be managed prudently. FHA 
will publish the proposed increased in the Federal Register in the next 
30-60 days and welcomes feedback during the comment period.
     hud goal 2: meet the need for quality, affordable rental homes
    In an era when more than one-third of all American families rent 
their homes and nearly 7 million unassisted families with very low 
incomes spend more than 50 percent of their income on rent, it remains 
more important than ever to provide a sufficient supply of affordable 
rental homes for low-income families--particularly since, in many 
communities, affordable rental housing does not exist without public 
support. HUD's fiscal year 2013 budget maintains HUD's core commitments 
to providing rental assistance to some our country's most vulnerable 
households as well as distributing housing, infrastructure, and 
economic development funding to States and communities to address their 
unique needs. Overall, 83 percent of HUD's total fiscal year 2013 
budget authority requested will provide rental assistance to over 5.4 
million residents of HUD-subsidized housing, including public housing 
and HUD grants to homeless assistance programs.
    And, I am proud to say that, despite an era of challenging budgets, 
we have increased the number of families served through our rental 
assistance programs every year.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Detailed data shows how vulnerable these families are to the 
economic downturn. In HUD's core rental assistance programs, including 
Tenant-Based Rental Assistance (TBRA), Public Housing, and Project-
Based Rental Assistance (PBRA): 72 percent of families are extremely 
low income (below 30 percent of area median income) and an additional 
20 percent are very low income (below 50 percent of area median 
income). The devastating effect of the tough economic environment on 
the housing circumstances of poor Americans was underscored last year, 
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 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 over a 2-year period in the quarter-century history of 
the survey, and caps an increase of 42 percent since 2001. The need for 
HUD investments in this area is clear.
Preserving Affordable Housing Opportunities in HUD's Largest Programs
    This budget provides $19.07 billion for HUD's Section 8 TBRA 
program, which is the Nation's largest and preeminent rental assistance 
program for low-income families. For over 35 years it has served as a 
cost-effective means for delivering safe and affordable housing in the 
private market. This 2013 funding level is expected to assist 
approximately 2.2 million families by renewing existing vouchers and 
issuing new incremental vouchers to homeless veterans.
    The budget also provides a total of $6.6 billion to operate public 
housing and modernize its aging physical assets through the Public 
Housing Operating ($4.5 billion) and Capital ($2.07 billion) funds, a 
critical investment that will help 1.1 million extremely low- to low-
income households obtain or retain housing. Similarly, through a $8.7 
billion request in funding for the PBRA program, the Department will 
provide rental assistance funding to privately owned multifamily rental 
housing projects to serve over 1.2 million families nationwide.

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

             tough choices: project-based rental assistance
    In fiscal year 2013, HUD's Project-Based Rental Assistance request 
of $8.7 billion represents a $640 million decrease from the fiscal year 
2012 enacted level. This reduction, generated by providing less than 12 
months of funding upfront on some PBRA contracts that straddle fiscal 
years, will not reduce or delay payments to landlords or impact the 
number of families served by the program. Nonetheless, it is a 
difficult choice, and not one that the administration would choose to 
implement in a less austere fiscal environment.

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Reducing Administrative Burdens and Increasing Efficiency
    This budget recognizes the need to simplify, align, and reform 
programs to reduce administration burdens and increase efficiency 
across programs by:
  --Streamlining the Public Housing Operating and Capital Funds.--To 
        both simplify the program and reduce the administrative burden 
        on State and local public housing authorities, the budget 
        proposes to combine the separate Operating and Capital funds 
        into a single Public Housing subsidy stream. As a first step 
        toward consolidation, the budget provides all PHAs with full 
        flexibility to use their operating and capital funds for any 
        eligible capital or operating expense.
  --Providing Flexibility for PHAs To Improve Supportive Services for 
        Assisted Households.--The budget proposes streamlining and 
        flexibility measures to help PHAs improve supportive services 
        for assisted families. The Family Self-Sufficiency (FSS) 
        program will be consolidated and aligned to enable PHAs to more 
        uniformly serve both TBRA and Public Housing residents. This 
        program, which the budget also expands to residents of PBRA 
        housing, aims to connect residents to resources and services to 
        find and retain jobs that lead to economic independence and 
        self-sufficiency. In addition, the budget authorizes PHAs to 
        use a portion of their Public Housing and Housing Voucher 
        funding to augment case management and supportive services 
        provided through FSS or provide other supportive services to 
        increase opportunities for residents.

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       tough choices: cost-savings in rental assistance programs
    The budget includes a menu of reforms to HUD rental assistance 
programs that save over $500 million in 2013 without reducing the 
number of families served.
  --In the Project-Based Rental Assistance program, savings are 
        achieved by improving oversight of market rent studies used to 
        set subsidy payment levels, capping annual subsidy increases 
        for certain properties, and using excess reserves to offset HUD 
        payments to landlords.
  --The budget also aligns policy across rental assistance programs and 
        reduces costs by increasing the minimum rent to $75 per month 
        for all HUD-assisted households, which is comparable to the 
        minimum rent enacted in 1998, adjusted for inflation. 
        Recognizing the potential burden that this higher minimum rent 
        may impose, the budget maintains the current exemption for 
        families facing financial hardship.
  --Finally, this budget request reduces costs by simplifying 
        administration of the medical expense deduction, better 
        targeting rental assistance to the working poor in rural areas, 
        and setting Public Housing flat rents closer to market levels.

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Rebuilding Our Nation's Affordable Housing Stock
    Over the last 75 years, the Federal Government has invested 
billions of dollars in the development and maintenance of public and 
multifamily housing, which serve as crucial resources for some of our 
country's most vulnerable families. Despite this sizable Federal 
investment and the great demand for deeply affordable rental housing, 
we continue to see a decline in the number of available affordable 
housing units. Over the last decade, the public housing stock has 
shrunk at a rate of 10,000 units per year, largely due to a growing 
backlog of unmet capital needs, estimated at $26 billion. To address 
these challenges, HUD's 2012 Appropriations Act authorized the Rental 
Assistance Demonstration (RAD) to test new preservation tools for its 
assisted housing stock allowing for Public Housing and Moderate 
Rehabilitation (Mod Rehab) properties to convert to long-term Section 8 
rental assistance contracts (capped at 60,000 units of converted 
assistance); and Rent Supplement (Rent Supp), Rental Assistance Payment 
(RAP), and Mod Rehab properties, upon contract expiration or 
termination, to convert tenant protection vouchers to project-based 
vouchers. Unlike their current forms of assistance, these contracts 
offer a rental subsidy platform that allows PHAs and owners to leverage 
current Federal appropriations with other private and public capital to 
finance much needed rehabilitation and preserve the assets as 
affordable housing.
    RAD is a limited demonstration, which will be evaluated to assess 
the success of these approaches in preserving affordable housing. Since 
HUD will use funding appropriated for existing programs for 
implementation and anticipates strong interest in RAD, the 2013 budget 
includes a request to exempt Mod Rehab from the 60,000 unit cap on 
projects that could convert assistance, at no cost, to long-term 
Section 8 rental assistance contracts. If enacted, the 60,000 unit cap 
would apply to public housing conversions alone, while the number of 
Mod Rehab conversions would not be constrained.

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             funding what works: taking jobs-plus to scale
    The budget provides that up to $50 million of Public Housing 
capital funds may be targeted to Jobs-Plus competitive grants to fund 
scaled-up implementation of the Jobs-Plus model--a successful, 
evidence-based strategy to increase the employment opportunities and 
earnings of public housing residents through a three-tiered program of 
employment services, rent-based work incentives, and community support 
for work. This investment will increase employment opportunities for 
over 30,000 Public Housing residents, by helping them secure and retain 
employment, keep more of the income they earn, and receive the full 
benefit of work incentives such as the Earned Income Tax Credit (EITC). 
A randomized experiment evaluation of the Jobs-Plus model in three 
demographically diverse sites found that, on average, participants had 
an additional $1,300 in earnings every year from 2000 to 2006--and 
these earning increases were durable beyond the period of the 
intervention. Jobs-Plus competitive grants will scale up this proven 
model by targeting resources to high-capacity PHAs and housing 
developments with enough work-eligible residents to achieve economies 
of scale. The grants will prioritize broad and diverse local 
partnerships that cut across sectors, agencies, and funding streams.

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Increasing the Production of Affordable Housing Capital Projects
    In addition to developing tools to address the growing capital 
needs of America's Public Housing stock, HUD is committed to expanding 
the supply of affordable rental homes in safe, mixed-income communities 
that provide access to jobs, good schools, transportation, and, most 
importantly, economic self-sufficiency. Accordingly, in fiscal year 
2013 HUD is working together with its partners to identify ways to make 
the Low Income Housing Tax Credit (LIHTC) program a more flexible and 
nimble tool for the creation and preservation of affordable housing. As 
the primary tool of the Federal Government for developing and 
rehabilitating affordable rental housing, the LIHTC program is 
administered by State agencies with the assistance of guidance from the 
Treasury Department and the Internal Revenue Service, and attract 
capital to low-income rental housing by satisfying some of the Federal 
income tax obligations of investors in certain low-income rental 
properties.
    Since its addition to the tax laws in 1986, the LIHTC program has 
been used to create 1.8 million in affordable rental-housing units 
across the country. Annually, the program supports 95,000 jobs and 
generated $2.7 billion in State, local, and Federal revenues. In fiscal 
year 2013, as part of a broader effort to align Federal rental 
programs, HUD, the Departments of Treasury and Agriculture, the 
Domestic Policy Council (DPC), the Office of Management and Budget 
(OMB), and the National Economic Council (NEC) will continue partnering 
to allow greater flexibility to State and local agencies that 
administer LIHTC programs, as well as to developers and investors, to 
continue to enable the creation of affordable housing in markets where 
it is needed the most. Specifically, the revenue provisions of the 2013 
budget enhance two revenue proposals that were included in the 2012 
budget and introduce two new proposals:
  --An Income Averaging proposal would encourage a greater range of 
        incomes in LIHTC-supported affordable housing by allowing 
        developers to choose an income-limitation requirement that 
        would be satisfied if households in the low-income units have 
        an average income no greater than 60 percent of AMI, with no 
        household above 80 percent AMI. An additional provision would 
        allow certain existing tenants to remain in residence without 
        impairing the developer's entitlement to LIHTCs.
  --In the context of preserving, recapitalizing, and rehabilitating 
        existing federally assisted affordable housing, a Basis Boost 
        proposal would provide a second mechanism for earning ``4 
        percent'' LIHTCs and would give an extra, up-to-30-percent 
        increase in qualified basis for certain projects that receive 
        ``4 percent'' LIHTCs, either because they are at least half 
        financed with tax exempt-bonds or because they employed the new 
        mechanism.
  --A proposal concerning LIHTCs earned by Real Estate Investment 
        Trusts (REITs) is designed to diversify the pool of investors 
        for LIHTCs and to increase the overall demand for LIHTCs. The 
        proposal would allow a REIT that earns LIHTCs to provide a tax 
        benefit to its investors by paying them tax-exempt dividends in 
        an amount almost triple the amount of the REIT's LIHTCs.
  --A Victims of Domestic Violence proposal would bar LIHTC buildings 
        from discriminating against victims of actual or threatened 
        domestic violence and would clarify that occupancy restrictions 
        or preferences for such victims are an allowable exception to 
        the general-public-use requirement.
    Finally, the recent Worst Case Housing Needs report underscores 
what has been the case since well before the recent recession, namely, 
that extremely low-income renters face the most severe housing shortage 
and cost burden of any Americans. In addition to the Worst Case Housing 
Needs report, the most recent data available from the American Housing 
Survey shows that, for renters below 50 percent of area mean income, 
the shortage of affordable and available units increased from 5.2 to 6 
million from 2007 to 2009, with just 39 affordable and available units 
for every 100 renters in 2009, compared to 44 [units] 2 years prior. 
The 2013 budget once again provides $1 billion in mandatory 
appropriations for the Housing Trust Fund (HTF) to address this 
critical shortage of housing where it is most desperately needed. 
Enacted in 2008, the HTF 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 time has come for Congress 
to provide this crucial funding.
hud goal 3: utilize housing as a platform for improving quality of life
    Stable housing provides an ideal platform for delivering a wide 
variety of health and social services to improve economic, health, and 
broad-based societal outcomes. For some, housing alone is sufficient to 
ensure healthy outcomes, while others require housing with supportive 
services to assist with activities of daily living or long-term self-
sufficiency, as well as proximity to crucial services. HUD's fiscal 
year 2013 budget acknowledges this reality by making critical 
investments in housing and supportive services, and partnering with 
other Federal agencies to maximize resources and best practices. 
Moreover, these investments will save money in the long term, by 
avoiding overuse of expensive emergency and institutional 
interventions.
Preventing and Ending Homelessness, Serving Our Nation's Most 
        Vulnerable
    Nowhere is the relationship between housing and supportive services 
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's budget once again invests in this critical 
effort, by providing $2.23 billion in Homeless Assistance Grants, 
including competitive programs that annually serve over 800,000 
homeless families and individuals. This includes funding for the 
Emergency Solutions Grants program, which will continue the work of the 
Homelessness Prevention and Rapid Re-Housing Program--funded by the 
Recovery Act--that in the last 3 years alone has helped prevent or end 
homelessness for over 1.2 million people nationwide.
    Moreover, HUD continues to focus on the unique needs of veterans 
through both its targeted homeless programs and its mainstream housing 
programs using successful methods and interventions. Currently, an 
estimated one out of every six men and women in our Nation's homeless 
shelters are veterans, and veterans are 50 percent more likely to fall 
into homelessness compared to other Americans. HUD is committed to 
providing affordable housing units to this unique homeless population, 
and has partnered with the Departments of Health and Human Services 
(HHS) and Veterans Affairs (VA) to develop targeted approaches to serve 
the homeless veteran populations. Accordingly, this budget includes $75 
million for the HUD-VASH program, which combines tenant-based voucher 
assistance with case management and clinical services tailored to 
veterans and their families. This funding will provide 10,000 new 
vouchers to help veterans move from our streets into permanent 
supportive housing, in addition to the nearly 38,000 already allocated 
HUD-VASH vouchers provided in previous appropriations, which have been 
critical to a 12-percent reduction in veterans homelessness, and the 
10,000 vouchers that will be awarded through the fiscal year 2012 
appropriation.

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  increasing efficiencies: modernizing the housing opportunities for 
                   persons with aids (hopwa) program
    The budget proposes to update the HOPWA program to better reflect 
the current understanding of HIV/AIDS and ensure that funds are 
directed in a more equitable and effective manner. This modernization 
includes a new formula that will distribute HOPWA funds based on the 
current population of HIV-positive individuals, fair market rents, and 
poverty rates in order to target funds to areas with the most need. It 
also makes the program more flexible, giving local communities more 
options to provide timely, and cost-effective interventions. The 
budget's $330 million investment in HOPWA, in combination with the 
proposed modernization, will assist local communities in keeping 
individuals with HIV/AIDS housed, making it easier for them to stay in 
therapy, and therefore improving health outcomes for this vulnerable 
population.

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Investing in Leveraging and Serving Our Most Vulnerable
    This budget provides a total of $625 million for the Housing for 
the Elderly and Housing for Persons with Disabilities programs, which 
includes $154 million to support 5,300 additional supportive housing 
units. Doing more with less, the budget proposes reforms to the Housing 
for the Elderly program to target resources to help those most in need, 
reduce the up-front cost of new awards, and better connect residents 
with the supportive services they need to age in place and live 
independently.
    Historically, HUD has provided both capital advances and operating 
subsidies to nonprofit sponsors to construct and manage multifamily 
housing for low-income people with disabilities. In an effort to 
maximize the creation of new affordable units in a time of funding 
restraints, in fiscal year 2012, HUD began providing operating 
assistance to State housing agencies that formed partnerships with 
State healthcare agencies for service provision to low-income persons 
with disabilities. These funds are used to set aside supportive units 
for this target population in affordable housing complexes whose 
capital costs are funded through Low Income Housing Tax Credits, HOME 
funds, or other sources. Investing Section 811 funds under this 
authority allows HUD to rely on the expertise of the State housing 
agencies to administer the award and on the State healthcare agency to 
identify the most critical population to be served and guarantee the 
delivery of appropriate services. In fiscal year 2013, HUD is 
requesting similar authority for the Section 202 program. Drawing on 
lessons learned from implementation in the Section 811 program, HUD 
will take advantage of efficiencies inherent in these same agencies' 
oversight responsibilities for tax credits, HOME funds or similar 
housing funding. Assuming requested statutory language is enacted, up 
to 3,450 units could be made available with support from this project 
rental assistance.
     hud goal 4: build inclusive sustainable communities free from 
                             discrimination
    No longer can the American economy tolerate the marginalization 
from the labor force of significant numbers of people because of 
individualized or systemic discrimination, or because they live in 
isolated neighborhoods of concentrated poverty. An American economy 
built to last requires an increased supply of affordable rental homes 
in safe, mixed-income communities that provide access to jobs, good 
schools, transportation, high-quality services, and most importantly, 
economic self-sufficiency. As such, HUD's fiscal year 2013 budget puts 
communities in a position to plan for the future and draw fully upon 
their resources, most importantly, their people.
    Each year HUD dedicates approximately 15-20 percent of its funds to 
the capital costs of housing and economic development projects 
throughout the country. Through this investment, 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. Programs 
such as the Community Development Block Grant (CDBG), and Choice 
Neighborhoods are targeted to areas of need, to provide locally driven 
solutions to overarching economic development challenges. As with HUD's 
rental assistance programs, HUD's capital grants--including the Public 
Housing Capital Fund, Choice Neighborhoods, CDBG, and HOME--tend to 
assist areas of great need, including communities with high 
unemployment.
Preserving HUD's Major Block Grant Programs for Community Development 
        and Housing
    The budget demonstrates the administration's continued commitment 
in a constrained fiscal climate to support municipalities and States as 
they navigate through a challenging fiscal climate. By maintaining the 
fiscal year 2012 CDBG formula funding level of $2.95 billion, CDBG will 
allow over 1,100 State and local governments to improve 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 2011 alone, local 
governments used CDBG funding to directly create and retain 21,482 
jobs, not including any indirect effect on additional jobs. Moreover, 
in fiscal year 2011 CDBG assisted 96,615 households to maintain or gain 
access to safe, decent, and affordable housing; provide public service 
activities to 10.1 million people; and benefit approximately 4.1 
million persons through public improvement investments. 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 eliminate some of these activities from their 
own budgets.

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              tough choices: home investment partnerships
    The HOME Investment Partnerships program is the principal tool for 
the production of affordable housing for low- and extremely low-income 
families by State and local governments. It is also the critical gap 
financing for LIHTC projects--it has created over 1 million units and 
an additional 250,000 households have been assisted with temporary 
rental assistance since the program's inception. The program leverages 
$4 in other public and private funds for every HOME dollar invested, 
totaling more than $88 billion over the life of the program.
    The fiscal year 2013 HOME request reflects the difficult choices 
HUD was faced with, in order to make real progress in reducing the 
national deficit and contribute to creating an economy built to last. 
American families are tightening their belts--and we need to do the 
same. In addition, the fiscal year 2013 budget includes two proposed 
HOME authorizing requests: To Permit recaptured Community Housing 
Development Organizations set-aside funds to be reallocated by formula 
as HOME funds; and to facilitate the removal of dangerous tenants from 
HOME properties. We look forward to working together on these 
proposals.

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Transforming Neighborhoods of Poverty
    The President has made it clear that we cannot create an economy 
built to last if: A fifth of America's children live in poverty, at a 
cost of $500 billion per year--fully 4 percent of GDP--due to reduced 
skills development and economic productivity, increased later life 
crime, and poor health; a growing population lives with the problems of 
concentrated neighborhood poverty--high unemployment rates, rampant 
crime, health disparities, inadequate early care and education, 
struggling schools, and disinvestment--all of which isolate them from 
the global economy.
    That's why HUD's fiscal year 2013 budget provides $150 million for 
the Choice Neighborhoods Initiative to continue transformative 
investments in high-poverty neighborhoods where distressed HUD-assisted 
public and privately owned housing is located. This will reach four to 
six neighborhoods with implementation grants that primarily fund the 
preservation, rehabilitation and transformation of HUD-assisted public 
and privately owned multifamily housing, and will also engage local 
governments, nonprofits, and for-profit developers in partnerships to 
improve the economic conditions in their surrounding communities. 
Moreover, the leveraging power that these grants have is real--to date, 
the five Choice Neighborhoods implementation grantees have leveraged a 
combined $1.6 billion in private funds--over 13 times their total grant 
award amount.
    The Choice Neighborhoods initiative is a central element of the 
administration's inter-agency, place-based strategy to support local 
communities in developing the tools they need to revitalize 
neighborhoods of concentrated poverty into neighborhoods of 
opportunity. The Department's administration of the first rounds of 
funding for Choice Neighborhoods 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.
Supporting Sustainable Communities and Innovative Infrastructure 
        Planning
    Creating an economy built to last requires creating jobs here in 
America to discourage outsourcing and encourage insourcing. But 
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.
    With these realities in mind, the fiscal year 2013 budget supports 
the multi-agency Partnership for Sustainable Communities, an 
administration initiative that integrates resources and expertise from 
HUD, the Department of Transportation, and the Environmental Protection 
Agency. In particular, the budget restores $100 million for the 
Sustainable Communities Initiative, which creates incentives for 
communities to develop comprehensive housing and transportation plans 
to achieve sustainable development, reduce energy consumption and 
greenhouse gas emissions, and increase affordable housing near public 
transit. This includes $46 million to fund about 20 additional regional 
planning grants to help enable communities to align public and private 
investments in housing, transportation, and infrastructure to 
strategically integrate goals for mobility, regional housing choices 
and economic development. In addition, $46 million will be invested in 
neighborhoods and communities to update building codes, zoning, and 
local planning efforts as complementary strategies to the regional 
grants.
    We know how important these planning tools are to regional 
economies--particularly those which rely on integrated supply chains 
that cross national borders and are essential to meeting the 
President's charge to double U.S. exports over the next 5 years. These 
investments will also leverage and increase the ripple effects of other 
administration proposals to overhaul America's deteriorating 
infrastructure, including the Infrastructure Bank, as well as Project 
Rebuild and other elements of the American Jobs Act, as we leverage 
increased residential and commercial construction around transit and 
other infrastructure investments.

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  funding what works: the leveraging power of sustainable communities 
                                funding
    In fiscal year 2010, Austin, Texas, was provided a $3.7 million 
Regional Planning grant through the Sustainable Communities program. 
With this funding, the city is helping link its long-term regional 
transportation plan to 37 mixed-income communities near transit and job 
centers. This grant will help 3,000 small, family-run businesses expand 
or open a second location, provided that each of these businesses hires 
at least one new worker who has been unemployed for a year or more. 
This work is expected to create more than 7,000 permanent jobs and save 
the taxpayer $1.25 billion through better connected housing and 
businesses, more people employed and fewer people dependent on 
Government services.

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Ensuring Inclusivity in Housing Nationwide
    An inclusive 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, expanded training and language assistance, HUD will 
affirmatively further fair housing and the ideals of an open society.
    The Fair Housing Initiatives Program (FHIP) is critical to building 
and sustaining inclusive communities. FHIP is the only grant program 
within the Federal Government whose primary purpose supports private 
efforts to educate the public about fair housing rights and conducts 
private enforcement of the Fair Housing Act. In fiscal year 2013, HUD 
is requesting approximately $41 million in FHIP funds, representing the 
Department's commitment to fair housing, including $28 million to 
support the efforts of private fair housing organizations that conduct 
private enforcement of the Fair Housing Act. The Private Enforcement 
Initiative (PEI) grantees investigate and test housing providers 
alleged to have engaged in discrimination. The requested amount will 
continue funding to support fair housing enforcement by all statutorily 
eligible private fair housing organizations. In addition, it will fund 
fair housing education at the local, regional, and national levels.
    The Fair Housing Assistance Program (FHAP) is a critical component 
of HUD's effort to ensure the public's right to housing free from 
discrimination. FHAP multiplies HUD's enforcement capabilities, 
allowing the Department to protect fair housing rights in an efficient 
and effective manner. In fact, FHAP agencies investigate the majority 
of housing discrimination complaints filed in the United States. FHAP 
provides funding for 98 Government agencies, including 37 States, 60 
localities, and the District of Columbia, to enforce laws that prohibit 
housing discrimination that have been reviewed and deemed substantially 
equivalent to Federal law. In fiscal year 2013, HUD is requesting 
approximately $25 million in FHAP funds.
Ensuring That an Economy Built To Last Includes Opportunities for Rural 
        Americans
    The administration has placed a significant emphasis on ensuring 
that America's rural communities are competitive in the global 
economy--particularly given the reality that rural communities 
generally have less access to public transportation, along with higher 
poverty rates and inadequate housing. Each year, HUD invests billions 
of dollars in rural communities through its core rental assistance 
programs and block grants. The Community Development Block Grant (CDBG) 
program allocates funds to States, which provides approximately $692 
million to rural areas, supporting over 25,000 jobs both directly and 
indirectly, providing needed infrastructure, economic development, and 
affordable housing. Because small towns and rural areas often lack the 
basic modern infrastructure that citizens in larger communities can 
take for granted, States annually spend over 55 percent of their CDBG 
funds on basic public improvements such as water and sewer lines, paved 
streets, and fire stations. HUD also funds over $300 million in rural 
areas for affordable housing and homeownership programs through its 
HOME Investment Partnerships program, directly and indirectly 
supporting over 5,360 jobs.
    In addition, HUD and the Department of Agriculture meet regularly 
through an interagency rental housing policy group to better align and 
coordinate the affordable rental housing programs each operates. 
Altogether, over 800,000 families in rural communities are directly 
assisted through the Housing Choice Voucher, Public Housing, and 
Multifamily programs, with another 450,000 assisted through USDA. For 
homeowners, HUD's Federal Housing Administration (FHA) helps first-time 
homebuyers and other qualified families all over the country purchase 
their own home. More than 1.5 million of the homes currently insured by 
the FHA are in rural areas, and approximately $545 million in current 
FHA loans are to rural healthcare facilities designated as ``critical 
access hospitals.'' In addition to these critical investments, targeted 
rural investments in HUD's 2013 budget include:
  --$5 million in Rural Housing Stability Assistance Program (RHSP), as 
        authorized in the Homeless Emergency Assistance and Rapid 
        Transition to Housing Act (HEARTH Act), designed to assist 
        individuals and families who are homeless, in imminent danger 
        of losing housing, or in the worst housing situations in rural 
        communities. In addition to this focused RHSP initiative, rural 
        communities will continue to have access to HUD's targeted 
        homeless assistance, through the Continuum of Care competition 
        grant, the Emergency Solutions Grant (ESG) program, and the 
        Homelessness Prevention and Rapid Re-Housing Program (HPRP). 
        Rural areas have increasingly gained access to HUD's 
        competitive homeless assistance grants, primarily through the 
        creation of Balance of State and Statewide Continuums of Care, 
        with funds allocated directly to the State. In 2010, the 
        Continuum of Care competition included a selection priority for 
        new projects proposing to serve 100 percent rural areas. 
        Organizations in 69 rural communities submitted applications 
        for 108 new projects, requesting $19 million. HUD will apply 
        the rural selection priority to new projects in the 2011 
        Continuum of Care competition as well.
  --$731 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, programs like 
        Indian Housing Block Grants, Indian Home Loan Guarantees, and 
        Indian Community Development Block Grants support development 
        in remote areas where safe, decent, affordable housing is 
        desperately needed by providing funds to over 550 tribes across 
        the country. 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.
            hud goal 5: transform the way hud does business
    An economy built requires a Government that's leaner, smarter, more 
transparent, and ready for the 21st century. The current economic and 
housing crisis; the structural affordability challenges facing low-
income homeowners and renters; and the new, multidimensional challenges 
facing our urban, suburban, and rural communities all require an agency 
in which the fundamentals matter and the basics function. As such, HUD 
remains committed to transforming the way it does business. This 
transformation is more crucial now than perhaps ever before--HUD 
remains at the forefront of the Federal response to the national 
mortgage crisis, the economic recovery, and the structural gap between 
household incomes and national housing prices--roles that require an 
agency that is nimble and market-savvy, with the capacity and expertise 
necessary to galvanize HUD's vast network of partners. HUD's 2013 
budget reflects these critical roles, by investing in transformation, 
research, and development that will be implemented persistently over 
time. The Transformation Initiative
    Thanks to congressional support for the Transformation Initiative 
(TI), past fiscal year appropriations are today funding a wide range of 
groundbreaking projects, including:
  --Innovative, ``silo-breaking'' OneCPD technical assistance in 
        communities across the country that replaces a fragmented 
        broken system with one that addresses the holistic and cross-
        cutting needs of our grantees, recognizing that these extend 
        beyond the rules and regulations of any single funding stream;
  --Major evaluations and demonstration programs to examine the 
        outcomes of key administration initiatives like the Rental 
        Assistance Demonstration and Choice Neighborhoods, the cost to 
        local public housing authorities of administering the Housing 
        Choice Voucher program, different approaches to rent reform in 
        our largest programs, the housing needs of Native American and 
        Hawaiian communities, and the impact of housing and services 
        interventions on homeless families;
  --Replacement of 30-year-old technology and information management 
        practices to reduce risks, and implement higher performing, and 
        cost-effective business solutions to more effectively 
        administer the Department's rental housing assistance programs.
    The 2013 budget request once again includes transfer authority (up 
to 0.5 percent at the Secretary's discretion, totaling up to $215 
million) to support ongoing improvements of program effectiveness and 
efficiency and to help the Department respond and adapt more 
effectively to its rapidly changing operating environment.\2\ TI is a 
multiyear effort that can only be achieved through the relentless focus 
of agency leadership, full transparency and accountability for real 
results, and sustained and flexible budget resources. Since TI was 
first enacted in 2010, it has bolstered the long-neglected areas of IT 
modernization, research and evaluation, and program demonstrations 
crucial for increasing the efficiency and effectiveness of the 
Department's programs, and remains the primary source of funding for 
this transformation. Further, TI has provided a mechanism for 
innovative, crosscutting technical assistance that goes beyond program 
compliance to improve grantee capacity, performance, and outcomes. 
Finally, recent crises with natural disasters, the housing market, and 
deep fiscal distress among State and local partners have highlighted 
the need for HUD to be more nimble, creative, and collaborative. 
Setting aside a portion of HUD's program accounts through TI to better 
understand and enhance program results reflects recognition that 
planning for continuous improvement and innovation, investing in tools 
and capacity, and assessing results are equally integral for the 
operation of programs with accountability to the public interest.
---------------------------------------------------------------------------
    \2\ HUD estimates that it will transfer approximately $120 million 
into TI in fiscal year 2013.
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Research and Evaluations
    As an integral component of strengthening HUD's capabilities for 
evaluating and improving program effectiveness and efficiency, TI 
provides a predictable stream of funding for high-quality research and 
evaluation of HUD's programs on an on-going, rotating basis to inform 
sound policymaking. HUD anticipates allocating 10-20 percent of TI 
transfers to Research and Evaluations in 2013. Expected projects 
include: A process evaluation of the evidence-based Jobs-Plus pilot, 
seeking to understand the effects of larger scale implementation; 
energy efficiency and utility costs analysis for PHAs and residents of 
public housing; biennial research NOFAs for Sustainable Communities 
Research Grants to inform local governments in preparing and planning 
for disasters; and a long-overdue follow-up to a 1995 HOME 
Affordability Study to assess affordability over time based on 
differing levels of subsidy.
Program Demonstrations
    Program Demonstrations test new options for HUD programs that can 
make them more efficient and effective and establish sound evidence of 
whether and how these options could better achieve HUD's mission. Since 
the 1990s, HUD has done relatively few research demonstrations, largely 
due to budget constraints. Those few demonstrations, however, have been 
HUD's most important and informative research on real program impacts. 
In 2013, HUD expects Project Demonstrations to include research on the 
Rental Assistance Demonstration (RAD), which allows a trial conversion 
of public housing and certain multifamily properties to long-term 
project-based contracts.
Technical Assistance
    Technical assistance (TA) can be seen as a ``force multiplier''--
making program dollars go further and helping communities do more with 
limited Federal and local resources. TA under the Transformation 
Initiative (TI-TA) allows HUD to combine assistance for different 
programs as appropriate, and provide customized help on the issues any 
particular grantee confronts.
    In 2013, HUD will utilize TI-TA for activities such as: Assessments 
and targeted interventions for PHAs; helping local government 
comprehensively assess market trends and implement housing and 
community and economic development programs through OneCPD; and 
targeting underlying, long-term problems like deficits and poor bond 
ratings through the National Resource Network. Flexible, cross-program 
technical assistance could also help grantees and clients adapt to new 
HUD policies, programs, and management approaches, and develop core 
skills and critical competencies required to effectively deliver HUD's 
programs.
Information Technology
    The budget proposes to again use TI funds for Information 
Technology in 2013, to reduce risks, implement higher performing 
standards, and cost-effective business solutions.
    IT transformation efforts to date have helped HUD evolve its 
understanding of opportunities to leverage the foundational toolsets 
being implemented under the FHA Transformation, the Next Generation 
Management project or NGMS (formerly known as NGVMS), and related 
infrastructure modernization projects. These opportunities include ways 
to further reduce the Government's risk in the marketplace, improve 
services to meet the needs of our citizens and employees and reduce 
annual operations costs. For example, recent efforts to define 
opportunities to reduce cost by consolidating back office business and 
administrative services are expected to lead to the need for capital 
investment to transition more of HUD's services from legacy platforms 
to shared enterprise services. HUD plans to use TI transfer authority 
in 2013 to make capital investments in IT to drive these service 
delivery improvements and further cost reduction efforts.
                               conclusion
    Madam Chairman, this budget reflects the administration's 
recognition of the critical role the housing sector must play to ensure 
every American gets a fair shot, everyone does their fair share, and 
everyone plays by the same rules. 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 2013 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 that this budget will contribute substantially to 
economic recovery, to creating pathways to opportunity, and to an 
America built to last. Thank you.

    Senator Murray. Thank you very much, Mr. Secretary. Let me 
begin by asking you about the status of the FHA's Mutual 
Mortgage Insurance Fund. Given the seriousness of this housing 
crisis, it's not surprising that FHA has sustained significant 
losses, and the capital reserve account has served its purpose 
by covering those unexpected losses.
    But I was concerned when the President's budget stated that 
$688 million would be needed to cover FHA losses in fiscal year 
2012. Both the recent settlements and announced premium 
increases are expected to improve the MMI Fund financial 
position, but I wanted you to update us this morning on the 
financial condition of the MMI Fund, of the FHA's MMI Fund.

                     MUTUAL MORTGAGE INSURANCE FUND

    Secretary Donovan. As you correctly stated, the information 
that was in the budget was outdated on the day it was 
published. And in fact, we were waiting to make final decisions 
about premium increases until we knew the outcome of the 
settlement. I wish that had been resolved before the budget was 
finalized, but it wasn't. And that's the reason for what was 
shown in the budget.
    Having said that, with the $900 million that I described 
that is the result of our work to recover for bad loans in the 
FHA program that are in the settlements, and in addition, the 
premium increases that we have announced this week, we do 
expect that the fund will remain positive this year.
    In addition, because of those steps that we have taken, the 
fund will be in a stronger position when the next actuarial 
study is done in the fall. That's the most comprehensive look, 
looking forward. And we do expect that these changes that we 
have made will put us in a significantly better position come 
fall.
    But again, we have to be vigilant. And we will take 
additional steps, if necessary. The single-most important 
determinant of the health of the fund is where house prices go 
this year and beyond. And so we will continue to be vigilant 
and watch carefully to make sure, if we have additional steps 
that we need to take, that we can work with the subcommittee to 
take those.
    Senator Murray. So what are the risks and opportunities 
that we need to look at? The housing prices this year. What 
other things?
    Secretary Donovan. Specifically for the re-estimate this 
year, the only things that will affect that number are the 
premium increases, and so implementing those very quickly is 
critical, and the levels of loan volume that we have this year. 
Our estimates are that it would take loan volumes that are more 
than 20 percent below our expectations to threaten the fund 
through the re-estimate this year.
    More importantly, for next year, as we go to do the new 
actuarial study, the single-most important factor is house 
prices. Our estimates last year showed that it would take 
greater than a 4-percent reduction in house prices this year. 
Our base case predicted a 1-percent increase. It would take 
more than a 4-percent reduction in house prices this year to 
push the fund negative.
    That was before the premium increases that we have 
implemented. So in fact, our estimate now is that it would take 
a much larger decline in house prices, much larger than that 4 
percent, to put the fund in a negative position for the re-
estimate next year.
    Senator Murray. Okay, and you decided to increase the 
upfront and the annual premium. Can you tell me how that will 
affect worthy borrowers who are trying to access credit?
    Secretary Donovan. As you know, Congress made the decision 
to include a 10-basis-point increase in our single-family 
programs as part of the bill that extended the payroll tax 
deduction. In addition, we included a 75-basis-point increase 
in the upfront premium. The 10 basis points equates, for the 
average loan, to about $9 a month for a borrower, and the 
upfront premium increase is about $5 a month for the typical 
borrower.
    The only places where those increases are significantly 
larger is for jumbo loans, those over $625,000, where we 
thought it was prudent to include a larger increase. And so for 
those borrowers, because the average size of the loan is much 
larger and because the increase is more, the increases would be 
significantly larger.

                        SETTLEMENTS WITH LENDERS

    Senator Murray. Okay, thank you. The joint Federal-State 
servicing settlement and the settlement with Bank of America 
represent not only a significant monetary award, but they also 
really send a message to FHA program participants that there 
are serious consequences to not following the rules.
    Just last week, settlements with two additional lenders 
were announced. And since most of the losses to the MMI Fund 
stem from loans insured prior to the reforms you implemented in 
2009, it's really important to pursue opportunities to prevent 
or recover losses from those books of business.
    Are there additional measures that FHA can take to improve 
the outlook for riskier loans that it already has on its books?

             FEDERAL HOUSING ADMINISTRATION INDEMNIFICATION

    Secretary Donovan. There are.
    First of all, let me just compliment David Montoya, our 
inspector general, and his team for their remarkable work to 
lead to both the servicing settlement and these additional 
settlements. They partnered very, very closely with us and the 
Department of Justice to allow us to make those recoveries, not 
just in the servicing settlement, but from Bank of America, 
Citibank, and Flagstar. So those are very important steps, and 
I just want to compliment him and his team.
    The additional steps that we could take--there are a number 
of them that require legislative change. I'm happy to say we're 
working closely with your colleagues on the authorizing side as 
well as Members of the House on the authorizing committee.
    There is a bill in the House that includes a number of the 
steps that would allow us to step up our enforcement. And those 
build on the recent regulation on indemnification that we put 
out, which will allow us to further hold lenders accountable 
for those prior loans that didn't meet FHA standards.
    Senator Murray. Okay. We all think the FHA's current 
outsized role in the market is unsustainable. There's no one 
who doesn't think differently. But it still remains difficult 
for qualified Americans to get a mortgage today. And the 
market's recovery, as we all know, is still very fragile.
    If FHA steps too quickly, it could have some serious 
consequences, not only for our overall economy, as we all know, 
but for the solvency of the MMI Fund. And I wanted to ask you 
how you balance the continued need for FHA to help provide 
access to credit with making room for private capital to return 
to the market.
    Secretary Donovan. Senator, you've asked the $64 trillion 
question. This is what keeps me up at night, and this is 
exactly the key question that we have to balance.
    And frankly, it is not just helping the broader market 
recover, but if we were to take steps to increase our premiums 
too quickly, to take steps that would hurt the market recovery, 
we actually hurt the FHA fund and taxpayers, because our old 
investments, that trillion-dollar portfolio, will perform much 
worse.
    And so in the steps that we have taken--and you asked 
exactly the right question, ``What's the effect for the average 
homeowner?''--we felt that $14 a month, on average, was 
acceptable, particularly given that we have record low interest 
rates today.
    We honestly feel that the biggest barrier holding back 
lending--and I agree with you, too many qualified borrowers 
aren't able to get lending today----
    Senator Murray. Yes.
    Secretary Donovan. It isn't the pricing that's the biggest 
barrier. It would be if we went too quickly on raising our 
premiums. The biggest challenge is the uncertainty that's out 
there in terms of how we will enforce our rules. So we have to 
make clearer what the rules will be.
    That's why our indemnification rule clarifying it is 
important. It is why we think the Federal Housing Finance 
Agency needs to put out a clear policy on buybacks that will 
allow Fannie and Freddie lenders to know what to expect. And it 
is why the servicing settlement was important as well. It 
created a single, clear, strong set of servicing standards and 
clarified foreclosure processes around the country so that that 
market can move forward with greater certainty.
    And again, it is always hard to get that balance perfectly. 
I wouldn't say we are ever done. I sleep on this every night. 
But it is a critically important balance, and I just thank you 
and the ranking member for your understanding of that balance.
    Senator Murray. Okay, very good. I appreciate that. Thank 
you.

             PROJECT-BASED RENTAL ASSISTANCE SHORT FUNDING

    Senator Collins.
    Senator Collins. Thank you, Madam Chairman.
    I want to go back to an issue that Senator Murray touched 
on in her opening statement.
    I am concerned by the Administration's proposal to fund 
thousands of Project-Based Rental Assistance contracts for less 
than 12 months. The reason I'm concerned is that short-funding 
these contracts may create a perverse incentive for landlords 
not to invest in maintenance, to cut expenses, to the detriment 
of some of our most vulnerable households, because of the risk 
of whether or not the full appropriations for the remainder of 
the year is ever going to come through.
    I'm also troubled that some owners may decide to leave the 
program altogether rather than take that risk. I know this had 
to be a difficult decision, and it clearly was budget-driven. 
But how is HUD going to mitigate these risks to the program and 
to the residents?
    Secretary Donovan. Senator, first of all, let me say thank 
you for recognizing this issue. This was one of the most 
difficult decisions we made in our budget. Personally, for me, 
having run the multifamily programs my first time at HUD, it 
was particularly difficult, because I know the impacts.
    What I would say is, there are two real risks here. One is 
an operational risk that we will not be able to mechanically 
get the contracts funded with the short-funding. That happened 
in the past when these contracts were short-funded. And I can 
assure you that I and my team have worked very hard to make 
sure that the operational processes are improved. And in fact, 
over the last 4 years, we haven't had those same kind of issues 
that might spring up with the short-funding.
    We also, operationally, have taken a lot of steps to make 
sure we have processes in place to monitor the physical 
condition of the units. So I appreciate your concern about 
whether this will lead to decreased maintenance. We have new 
risk ranking and reporting that we do on these units. We have 
quality control around our Real Estate Assessment Center (REAC) 
process that we have stepped up. Those are all things that are 
critical to make sure that the kind of effects that you talk 
about don't happen.
    The other risk is an uncertainty around funding, and you 
mentioned that as well. And that's one where, frankly, because 
there is private capital that supports these units, it is 
critical that we not create too much uncertainty around these 
programs. And I do think that is one of the risks here.
    I think what is very important is that we work together to 
make very clear, as Congress has always done, that the funding 
is available for these units. We signed 20-year contracts 
knowing that they're dependent on appropriations each year. And 
the market has been confident that that funding will be there. 
And we want to make clear despite this short-funding that we 
will do everything on our side, and I know that you will as 
well to continue this funding and make sure that it is 
available in subsequent years.

                       SUBSTANDARD UNITS IN MAINE

    Senator Collins. Let me now turn to the issue that I 
mentioned in my opening statement about the poor living 
conditions in some of the HUD-subsidized units in Maine. I'm 
troubled by this not only because taxpayers shouldn't be paying 
for poorly maintained units, but because the health and the 
safety of the people living there is clearly at risk. So 
something went dramatically wrong with the oversight and 
inspection process.
    I was also troubled when we learned of the outright fraud 
in some of the public housing agencies last year. I believe the 
one in Philadelphia, in particular, was found to have fraud.
    So what investments is HUD making in this budget to ensure 
that you have quality controls, internal controls, effective 
audits, a very close relationship with the IG to ensure that we 
are not wasting taxpayer dollars on substandard units that are 
unsafe for the tenants, or on outright fraud where people are 
stealing money that belongs to the taxpayers and is not 
benefiting those who need it most?
    Secretary Donovan. First, Senator, let me just thank you 
for your directness and your focus on these problems--both you 
and Senator Murray.
    Where there are issues, where we have made mistakes, and 
this was clearly--there were mistakes made on these units. 
You've been direct and held us accountable to correct those.
    And I hope you'll agree that when we discovered these 
problems, we worked very closely with you, with David Montoya, 
and I want to really recognize him and his team. We are taking 
steps specifically in Maine that I think will lead to better 
management going forward.
    The contracts with the inspectors, the companies that were 
doing the inspections, have been rescinded. Those are being 
brought back in-house to improve the inspections there. And we 
have a very specific plan that we are monitoring for correction 
of other quality control and things within the main housing 
authority to make sure those are better.
    But I think there are lessons, and you rightly point to 
this. What lessons can we learn more broadly for the work that 
we are doing across the country? And there are really three 
things there.
    One is, we have to make better use of our existing 
resources, staff, and our partnerships with the IG to improve 
oversight. We have, in our budget, proposed shifting public 
housing staff into field offices to increase direct oversight.
    We have also made sure that we are utilizing our 
enforcement center, which previously didn't work as closely 
with public housing authorities. Just in 2011, and so far in 
2012, we have used the enforcement center to review 140 public 
housing agencies across the country. And so that is a better 
use of existing resources.
    The second, we have to do better in coordinating our 
inspection systems. To date, we have one inspection system 
using REAC for our project-based units in public housing. We 
have a separate system for voucher units. What we have started 
now is a pilot to use our REAC inspections for quality control 
and oversight, where they will go behind local inspectors and 
make sure that the results that they're getting are, in fact, 
accurate.
    And that's something that we plan to expand and 
potentially, in the future, to merge those two systems, so we 
have a single set of strong standards for inspections across 
all our programs.
    The third thing is, with your help, the investments we are 
making in information technology. Our Next Generation 
Management System for our voucher program will allow us to do 
things--just to give you one example, right now, we don't have 
the ability to look at the photographs that are taken on those 
inspections. There's nothing that replaces actually seeing, 
with your own eyes, what happens. And this system will allow us 
to download and view anywhere in the country the digital 
photographs that are taken on the inspections that local 
inspectors are doing.
    And that's just one example, but there's a whole series of 
things in that Next Generation Management System. That's been 
one of the two biggest priorities you've had, and you've held 
us accountable to invest in those through our information 
technology. We couldn't agree more that that's a critical step 
we have to take in investing.
    Senator Collins. Thank you. I do want to salute you and the 
inspector general for your responsiveness to the problems in 
Maine and across the country. It is amazing that you don't 
download the photographs. I could lend you my BlackBerry.
    If even I can do that, it's clearly a feasible step that 
should be taken.
    Just one very quick point: Another thing I think the 
Department really needs to look at is, if you have bad actors 
out there, you do have available to you suspension and 
debarment tools, where you can prohibit an individual or even 
an agency from being involved in your programs for a period of 
time. I would encourage you to make more use of those tools in 
egregious cases. Thank you.
    Secretary Donovan. Thank you.
    Senator Murray. Thank you. What's the timeline on being 
able to download those pictures? Do you have a----
    Secretary Donovan. So we have--and we'll follow up with 
detailed information on all the different steps. Those first 
pieces of the Next Generation Management System are going into 
place this year. I think it is within a few months that we'll 
have the photographic capability that I talked about.

                       SECTION 8 VOUCHER FUNDING

    Senator Murray. Sometimes when people know they are going 
to be accountable in bigger ways, it makes a huge difference, 
so I appreciate that.
    And I echo Senator Collins' concerns about short-funding on 
the project-based contracts, so we'll be following that very 
closely from our end.
    You mentioned in your opening remarks that the programs 
that directly support the mission of providing housing to low-
income Americans, most of them who are elderly or disabled, is 
about 83 percent of HUD's budget. When we have continued 
difficult, challenging, constrained resources I know that those 
programs place a lot of pressure on HUD's budget.
    The largest of those is the Tenant-Based Rental Assistance 
program, which, of course, funds the Section 8 vouchers that 
are used by residents to find housing in the private market.
    In this year's budget, the level of funding that is 
requested to renew those existing vouchers is essentially flat. 
While the budget does assume savings associated with 
programmatic changes, it doesn't appear to be sufficient to 
cover the costs of inflation and renewing incremental vouchers 
for the first time. I wanted to ask you how you expect PHAs to 
maintain their existing voucher portfolios without those 
adjustments.
    Secretary Donovan. So two things I would say about this, 
Madam Chair. First of all, and I think you all have been very 
focused on this for a number of years, is how do we balance 
making sure we protect every family with sort of bending the 
cost curve, if you will, of the renewals on these programs. And 
we, through the budget this year, are proposing a whole series 
of steps that would allow us to serve the same number of people 
and keep the costs relatively flat. Some of those are choices I 
think that we could all agree are ones that are common sense 
and easy. Some of those are tougher decisions, and we'll 
obviously need to discuss with the subcommittee and get your 
views and input on whether some of those make sense.
    Specifically in the tenant-based program, there are over 
$200 million of savings that we are proposing to achieve. The 
single-biggest is to change our income targeting in rural 
communities to make sure that more of the working poor can be 
eligible for vouchers. It is part of the old Section 8 Voucher 
Reform Act that we are hopeful will pass in the House in the 
coming weeks and that we would be able to implement. I think 
there's broad support for those.
    But we also have made proposed changes in the medical 
expense deductions as well as the minimum rents that would 
allow us to serve the same number of people.
    So to be very clear, we are maintaining our commitment to 
serving all families there. But it did require taking a number 
of steps to try to lower costs next year to keep those flat and 
to allow us to have lower renewal costs in the out-years.
    The other thing I would just say, briefly, is that an 
important piece here, as you both recognize, is what it takes 
to manage these programs. And we have been very concerned that 
we had two housing authorities, Milwaukee and Akron, that 
actually turned back HUD-VASH vouchers. I have never seen that 
before. Can you imagine the idea of housing authorities saying 
we can't serve any more homeless veterans?
    And just in January alone, we had 13 different housing 
authorities that made the decision to turn back their broader 
voucher programs.

                          ADMINISTRATIVE FEES

    Senator Murray. Because of the costs associated with doing 
them?
    Secretary Donovan. Because they were concerned about the 
inability to fund those.
    Last year's budget made the very difficult decision to fund 
the administrative fees at just over 70 percent in terms of the 
overall need. We are proposing a significant increase there to 
get above 80 percent. But we still think, even with the 
difficult choices that we are making, that there's still some 
risk that housing authorities wouldn't have enough.
    So particularly that line item of admin fees is a critical 
piece that I think we'll need to discuss and work on this year 
in the budget.
    Senator Murray. Okay. Let me ask you about that because 
your request does prioritize funding for Section 8 
administrative fees, which have been cut significantly in 
recent years. Administrative fees aren't exactly an exciting 
part of the budget, but they do fund the basic operations.
    I know you struggled with a lot of difficult choices as you 
put this together, but can you explain why you prioritized 
funding for administrative fees over other needs?
    Secretary Donovan. Clearly, the concerns we had that I just 
mentioned about the number of housing authorities that have 
made the decision not to serve additional veterans, the number 
of housing authorities--that just in January alone have 
determined that they did not want to continue with their 
voucher programs--were critical in terms of that decision.
    And let me give you the precise numbers of what has been 
happening to administrative fees and what we are proposing.
    First of all, in 2012, it was a 74-percent proration that 
we estimated for the budget. For 2013, what we are proposing is 
an 81-percent proration. Just to give you an example of where 
those fees were previously, it was a 90-percent proration in 
2010. So even our 81 percent represents a reduction if you go 
back a few years.
    And that leads to some of the concerns I mentioned, that 
even at 81 percent, we were balancing difficult decisions. I do 
have some concerns that it won't be enough for some housing 
authorities.
    But I would also point out that it represents a significant 
increase in absolute dollars from where we were last year. And 
I'm just looking here for the exact number of what that is to 
make sure. Let me get that to you in a moment.
    But there's an exact number in terms of the increase that 
we are proposing this year in the budget.
    Senator Murray. Okay. I have a couple more questions, but 
let me turn it over to Senator Collins.

                       WOOD PELLET BOILER SYSTEMS

    Senator Collins. Thank you, Madam Chairman.
    I am just going to ask one more question, because I have 
been called to the Senate floor, and submit the rest for the 
record.
    But this one, too, is one that I referred to in my opening 
statement and is extremely important to the State of Maine. 
Maine is the most heavily dependent of any State in the Nation 
on home heating oil. And when you see the spikes in oil prices 
that we've seen this year, and the cutbacks in the Low Income 
Heating Assistance Program, it is causing tremendous hardship 
for so many of our families in Maine.
    It is also very difficult because Maine has the oldest 
housing stock in the Nation, and thus, there are a lot of homes 
that are poorly insulated that would benefit from 
weatherization projects. That's something we ought to invest 
more in as well.
    The large swings in oil have caused many of our residents 
to look to alternatives. The wood pellet boiler industry is 
growing rapidly in Maine. It has the potential to help out 
these families, to allow them to convert from oil, but also to 
create thousands of new jobs in our State.
    Wood pellet manufacturing, boiler technology, and pellet 
delivery systems have progressed dramatically since the days 
when you had to scoop pellets from small bags into a small 
stove every couple of hours. Now the industry has developed 
boilers that don't even require any human intervention during 
the day. There are automatic feeds of pellets.
    HUD has been slow to consider wood pellet boiler systems as 
an acceptable conventional primary heating source. The reason 
this is important is that for the purposes of qualifying for 
FHA programs, you have to have a conventional primary heating 
source.
    I wondered if you could tell me if HUD is looking to 
include these new wood pellet boilers as a conventional heating 
source, which would help more families in Maine have the 
confidence that they could convert to wood without losing their 
eligibility for FHA and other Federal housing programs.
    Secretary Donovan. Senator, first of all, let me thank you 
for raising this issue and putting it on our radar screen, so 
to speak, at HUD. Just as we talked about with your BlackBerry 
a moment ago, I think we could all recognize there are moments 
where the Federal Government and government, in general, can be 
a little bit behind the cutting edge in terms of new 
technologies.
    And I'm happy to report not just that we are looking at 
this, but just yesterday we updated our frequently asked 
questions on our Web site to tell all of our lenders that wood 
pellet stoves are an acceptable heating system for homes under 
our insurance programs. As long as they meet the qualifications 
that any heating system has to meet, it's an acceptable 
technology. We are in the process of updating our handbooks to 
reflect exactly that.
    So not only are we considering it, but we have actually 
considered it and made the decision that you were absolutely 
right and that we should include these in our program. So thank 
you for bringing it to our attention.
    Senator Collins. That's absolutely great news. Again, I 
thank you so much for your willingness to look at that.
    The technology has changed so dramatically, and that's 
going to be great news to a lot of homeowners in Maine. Thank 
you very much.
    Secretary Donovan. Thank you. I'll be coming to borrow your 
BlackBerry later.
    Senator Collins. Any time.
    Senator Murray. Thank you very much, Senator Collins.
    Mr. Secretary, your budget assumes savings associated with 
programmatic changes to the HUD rental assistance accounts, 
including tenant-based and project-based Section 8. You talked 
about this a minute ago, but many of those cost-saving 
measurements require legislative changes, which would involve 
rulemakings.
    What will happen to your savings estimates if all of the 
proposed reforms are not enacted, or they are enacted late in 
this fiscal year and you still need to go through the 
rulemaking process?
    Secretary Donovan. First of all, Senator, just to get back 
on the specific number I was looking for before, the increase 
that we are proposing on admin fees is $225 million this year. 
So it is a substantial increase, and one we thought, even in a 
tough environment, was absolutely critical. And as I said, we 
think it is the minimum necessary to try to get more confidence 
that housing authorities will actually be able to administer 
the programs.
    Specifically, on your question about legislative authority, 
I'm happy to say that, with your urging, we are working very 
closely with your colleagues in the House on the authorizing 
committee and in the Senate here, and I am optimistic about 
getting that legislation passed.
    The large majority of those changes would not require 
extensive rulemaking. There are very few that would require 
rulemaking. They're really around the old Rent Sup and 
Relocation and Acquisition Policies programs, but the large 
majority of them we could implement through notice. So if we do 
get the legislation passed, we could implement them quickly, 
and be prepared for 2013 to be able to implement them and get 
the savings that we're projecting.
    Obviously, if the legislation doesn't pass, that would stop 
us from being able to achieve some, but not all, of the 
savings. We do have a share that we could achieve without 
legislation. And I'd be happy to follow up with a specific 
analysis that shows you precisely which we could do on a 
regulatory basis. Of the $920 million that we are proposing 
over the major programs, a significant share of it we could do 
without any legislative change.
    Senator Murray. Okay. If we can see that, that would be 
extremely helpful.
    Secretary Donovan. Yes.

                         MINIMUM RENT INCREASE

    Senator Murray. But even if HUD was able to achieve these 
changes at the beginning of this fiscal year, we have heard 
concerns that some of these proposals may harm owners and 
tenants alike. Specifically, some are worried about your 
proposal for owners to spend down their property reserves that 
would jeopardize maintenance and rehabilitation projects.
    And I am also really concerned that raising minimum rents 
and increasing medical deduction for tenants could put a real 
burden on some of these tenants in these still tough economic 
times. Can you please talk a little bit about the impact you 
might see there?
    Secretary Donovan. I'd be happy to. And again, let me 
recognize at the outset, these are not decisions we would make 
in anything but very difficult fiscal times, making very 
difficult choices. And along with the Project-Based Rental 
Assistance decision--the short-funding we talked about 
earlier--this minimum rent increase was, I think, the single 
most difficult decision in the budget.
    And I think what's critical is that we need to clarify and 
make sure there's a very strong exception policy for anyone 
where hardship of that increased rent would result. We are 
expecting to do that. We are already working on clarifying and 
strengthening that policy. But there's no question that the 
impact of this will have some real consequences for families 
that are struggling.
    We have analyzed fully in which programs what percentage of 
families would be affected by this, the average rent increases 
that would come out of this. The impact of the minimum rent is 
about $150 million itself, across all the programs. And we'd be 
happy to share with you the specific impact that it has for the 
various tenant-based, project-based, 202/811, all the various 
programs, impacts those would have.

                        RAPID RE-HOUSING PROGRAM

    Senator Murray. Okay, I would really appreciate that.
    Finally, let me just talk about homelessness funding. I 
want to acknowledge your leadership in really developing a 
homelessness plan and fostering coordination across 
departments. It's so important, and I think we are making 
progress there.
    I did want to ask you about the Homelessness Prevention and 
Rapid Re-Housing Program (HPRP), which was funded in the 
Recovery Act and designed to really help homeless families. But 
funding for that program ends this year. The Emergency 
Solutions Grant program allows communities to continue these 
efforts, but on a much smaller scale.
    Can you talk a little bit about what the outcomes have been 
for HPRP?
    Secretary Donovan. Absolutely. I am so glad you asked about 
it.
    And let me just say, first of all, while you asked about 
the HPRP program, without your leadership, we would never have 
made the progress that we made on reducing veterans 
homelessness. In just 1 year, to have 12 percent fewer homeless 
veterans----
    Senator Murray. Amazing.
    Secretary Donovan [continuing]. Eighteen percent fewer 
sleeping on the streets; that is a huge accomplishment. And 
your personal leadership around HUD-VASH has made a huge 
difference.
    Senator Murray. I think the cross-agency coordination on 
that has been really----
    Secretary Donovan. A huge difference.
    So we are concerned about the ending of HPRP, and we're 
concerned because it has been so effective. We thought, 
originally, it would reach about 500,000 people. It's already 
reached more than 1.2 million and still counting.
    And one of the best things about it, 75 percent of the 
folks it has reached are homeless families, who have often been 
the hardest to reach.
    And why have we been able to reach more families? Because 
what we have realized through doing this, what the data has 
shown us, is that for far less money than we expected, we've 
been able to stabilize or rapidly re-house families. It might 
be 1 month's rent, it might be a security deposit, it might be 
just a couple months of utility bills, but that's allowed us to 
serve far more people.
    And really, I think the most exciting thing about it is, 
it's started to reorient many local responses to homelessness, 
where for the first time they see that rapid re-housing in 
particular is a very beneficial step. It can be particularly 
effective with a small amount of money.

                       EMERGENCY SOLUTIONS GRANT

    Our hope is that by continuing to invest in it through the 
Emergency Solutions Grant (ESG), and I think one of the reasons 
that we proposed a $330 million increase this year for our 
homeless assistance grant account is that we have to continue 
to invest in ESG. We have to grow the investment there. But it 
is never going to be as much as we had in HPRP.
    The hope is--and we are starting to see this in some areas, 
and Washington has been a leader in this, of shifting 
resources, taking them out of, for example, shelters. Shifting 
them from Medicaid funding that's going to emergency rooms and 
putting them into rapid re-housing is lowering costs overall.
    So what we are hoping we see is, with our continued 
increased investment in ESG, along with local investments that 
complement it, that we will continue to see a focused 
investment. We are nervous about that. We are pushing on it. I 
know you've been supporting it.
    But it is something that I saw locally in New York, our 
prevention efforts, our rapid re-housing efforts. It was 
something we were willing to shift our funding into, and that's 
something we want to encourage at the local level.
    Senator Murray. Okay. And I'll be following that very 
closely. So anything you can show us on that, that helps paint 
that picture, I'd really, really appreciate it.
    But again, I appreciate the tremendous work of you and your 
entire staff on an issue that has been at the forefront of our 
Nation. Although sometimes nobody really pays attention to the 
programs, they really are essential in getting us back on 
track. And you've done a great job, and I truly appreciate it.
    Secretary Donovan. Thank you. Thank you for your leadership 
and partnership.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Thank you so much for your accommodation 
today. And we are going to leave the hearing record open for 
anyone who would like to ask 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
     information technology modernization-fha modernization project
    Question. Reliable Data is critical to effective oversight. Time 
and again the lack of good data has hindered HUD and the committee's 
work. You recognize the challenges with HUD's systems and the 
limitations they place on effective program management. To your credit, 
you have requested significant funding to update HUD's IT systems. The 
two biggest IT projects underway are FHA Modernization and the Next 
Generation Voucher Management System, which have been priorities for 
this committee.
    While new technology has the potential to transform departmental 
operations, modernization is a big undertaking for HUD. In response, 
HUD is also changing the way it manages its IT systems. This involves a 
change in culture, which is never easy. What is the current status of 
your IT modernization efforts and these specific projects? Given the 
significant changes needed in process, skills, and personnel, how will 
you ensure that these projects stay on track and on budget?
    Answer. The goal of the FHA Modernization project is to provide 
business process improvements and technological tools that will address 
longstanding constraints that have been impediments to effective risk 
management in our underwriting policies and practices; more robust 
fraud monitoring and detection; counterparty management, and portfolio 
analysis. The scope of the project includes incorporating a 
decommission plan for each legacy system targeted for replacement. 
Benefits of the FHA Modernization capital investment are being realized 
today.
    The cornerstone of the FHA Modernization effort is the acquisition 
of what is branded as ``the Federal Financial Services Platform.'' This 
investment is a configuration of commercial-off-the-shelf products 
which aligns FHA with products and services used by our industry 
partners. Moreover, the investment aligns and establishes the baseline 
for HUD's new and future enterprise architecture. This platform can 
ultimately be extended and provides the capability and capacity to 
replace the Unisys and IBM mainframe systems at some logical point in 
the future. Eighty percent of the initial planned environments are 
built out on the Oracle Exalogic platform; 100 percent by August 31, 
2012. A requisition for additional Oracle Exalogic hardware/software is 
in the procurement pipeline. This additional capacity positions us to 
accept requirements from other offices in the Department (e.g., Public 
and Indian Housing (PIH), Next Generation Management System (NGMS) 
projects); accordingly, this achieves true enterprise capability and 
demonstrates scalability.
    Another element of FHA Modernization is the Lender Electronic 
Assessment Portal (LEAP) application which consists of four modules 
(i.e., Approval, Recertification, Monitoring and Enforcement) that are 
in various stages of development and production. Today LEAP automates 
what largely has been a manual and paper intensive process. The LEAP 
application wholly aimed at improved counterparty (i.e., lender) 
management, addresses vestiges of risk and fraud at the front end (or 
origination) of the loan rather than relying on antiquated process 
during the post-endorsement process. The Approval module went live in 
April 2012 and is successfully processing a steady volume of requests. 
The Recertification generation I module is slated for operational 
capability in the second quarter of fiscal year 2013 with design and 
development of the other modules in ensuing months; LEAP is projected 
to achieve full operational capability in the first quarter of fiscal 
year 2014. Consistent with addressing significant constraints on risk 
and fraud detection, the Loan Review System (LRS), Portfolio Evaluation 
Tool (PET), and Automated Underwriting System capabilities are slated 
to achieve operational capability in early fiscal year 2014. This 
complementary set of tools and capabilities effectively provide 
decision support (and analytics) at every step in the process of the 
loan lifecycle, from origination through post-endorsement technical 
review.
    Over the past 2 years, FHA has improved its project management 
capacity. The FHA Modernization project is staffed with a cadre of 
experienced and certified IT project managers, who are working 
exclusively on FHA initiatives. HUD continues to invest in project 
management training and makes this training available annually as part 
of its HUD Virtual University Curriculum. Over the past 2 years, FHA 
has actively incorporated HUD's Project Planning and Management (PPM) 
framework to increase the occurrences of successful project 
implementation. Information on the number (and types) of certified 
project managers is readily available. The PPM approach provides a 
process-centric methodological framework that is central to eliminating 
waste, reducing variation and ensuring projects maintain time, scope, 
cost, and quality congruence. The FHA Modernization effort has 
tremendous reach to effect sustained productive outcomes and eliminate 
constraints in the areas previously mentioned (e.g., counterparty 
management, portfolio analysis, etc.), the current culture and business 
practices will be modified to take full advantage of improved workflow 
processes, customer relationship management and improved data outputs. 
As new systems are brought online, staff will be trained. Training 
modules and on-demand refresher courses will be developed for ongoing 
capacity building. Hiring managers will seek to hire technology savvy 
candidates to maximize the capacity of FHA staff at headquarters and in 
the field.
    NGMS is being engineered to serve as HUD's enterprise solutions for 
the Rental Housing Assistance (RHA) line of business (LOB). Currently, 
HUD provides rental housing assistance to more than 4.4 million 
households through at least 13 different programs, each with different 
rules administered by the Offices of Public and Indian Housing, 
Housing, Multifamily Housing and Community Planning and Development.
    Currently, RHA operations relies on manual manipulation of data 
using Microsoft Excel and Microsoft Access, which are time-consuming, 
costly, inefficient, and prone to human errors. Despite these 
limitations, HUD continues to rely on these tools to execute critical 
functions that support HUD's mission. With the investment in NGMS, as 
an enterprise solution for the RHA LOB, HUD strives to improve 
operating and administrative efficiencies in providing needed services 
to its constituents.
    During the past years, with the help of contractors, HUD conducted 
searches for an automated enterprise solution to satisfy requirements 
of RHA LOB. This was very challenging because of inherent business and 
organizational complexities.
    The NGMS program previously focused efforts on the development of 
the Next Generation Voucher Management System (NGVMS). Since then, the 
program has been re-focused to include needed functionality to support 
HUD's RHA LOB. NGMS now focuses on:
  --The activities necessary to develop, test, and implement Oracle 
        Enterprise solutions as the standard technology and platform 
        for NGMS; and
  --Planning a new path forward for NGMS.
    HUD has taken several positive steps to ensure the success of the 
NGMS program, including:
  --Establishing a cross-organization Executive Steering Committee that 
        provides program oversight and ensuring appropriate 
        representation from the IT and business communities;
  --Establishing a technology training program for HUD personnel;
  --Working with the Chief Procurement Officer to enforce contract 
        administration;
  --Hiring a new overall program manager who reports directly to the 
        General Deputy Assistant Secretary;
  --Establishing a Program Management Office (PMO);
  --Supporting the PMO's efforts to improve program performance;
  --Implementing active oversight of the program;
  --Establishing a NGMS system change control process; and
  --Establishing an Executive Steering Committee (ESC).
    Going forward the overall program manager (PM) will be held 
accountable for the following:
  --Earned value management;
  --Performance reporting;
  --Status reports;
  --Risk tracking and mitigation;
  --Issue tracking;
  --Stakeholder reporting;
  --Working with HUD's Chief Information Officer and IT vendors to make 
        sure business and functional requirements are properly 
        developed, tested, and implemented; and
  --Working with HUD's Chief Information Officer and oversee 
        Independent Verification and Validation (IV&V) of developed 
        NGMS modules.
    The NGMS program has clearly learned important lessons from the 
previous challenging efforts. With the formal establishment of the PMO, 
the NGMS program, with direct oversight from the Deputy Secretary, 
structured development and execution efforts will allow the program to 
produce expected results and to avoid repeating past missteps.
    Leveraging the Chief Technology Officer's knowledge and past 
experiences and the Federal Housing Administration's experiences, HUD 
chose Oracle Corporation technologies as the technology platform of 
choice for NGMS.
    In conjunction with the Chief Procurement Officer and the Chief 
Information Officer, the NGMS PMO is in the process of executing the 
following tasks:
  --Issuing task order for Requirement Definition for RHA LOB--August 
        2012;
  --Defining business priority for the RHA LOB--August 2012;
  --Developing NGMS program project plan--August 2012;
  --Exploring the use of other agency's Governmentwide Acquisition 
        Contract for architect, design, engineering and 
        implementation--Ongoing;
  --Issuing task order for PMO support--August 2012;
  --Issuing task order for Independent Verification and Validation--
        September 2012;
  --Developing training strategies for HUD technical employees--August 
        2012; and
  --Updating business plan and Alternative of Analysis--August 2012.
    Once completely implemented, NGMS will have included modules that 
will satisfy business requirements from offices across HUD. While all 
required NGMS modules are being finalized, the following modules are 
being considered as NGMS priorities and will be included in Phase I 
development:
  --Budget forecasting and formulation;
  --Cash management;
  --Customer relationship management;
  --Portfolio management; and
  --New robust RHA data architecture.
                  information technology modernization
    Question. When do you think that we will begin to see the results 
of these efforts?
    Answer. Benefits of the FHA Modernization capital investment are 
being realized today. Acquisition of the Federal Financial Services 
Platform (using Oracle Exalogic hardware, featuring the integrated 
Fusion Middleware software stack) is the cornerstone IT investment. 
This platform ultimately has enterprise extensibility and provides the 
capability and capacity to replace the less agile Unisys and IBM 
mainframe systems at some logical point in the future. Eighty percent 
of the initial planned environments have been on the Oracle Exalogic 
platform; 100 percent will be built by August 31, 2012. A requisition 
for additional Oracle Exalogic hardware/software is in the procurement 
pipeline. This additional capacity positions us to accept requirements 
from other Offices in the Department (e.g., Public and Indian Housing 
(PIH), Next Generation Management System (NGMS) projects), and Policy 
Development and Research. Accordingly, this achieves true enterprise 
capability and demonstrates scalability. The Lender Electronic 
Assessment Portal (LEAP) application consists of four modules (i.e., 
Approval, Recertification, Monitoring, and Enforcement) that are in 
various stages of development and production. Today, LEAP automates 
what largely has been a manual and paper- intensive process. The LEAP 
application wholly aimed at improved counterparty (i.e., lender) 
management, addresses vestiges of risk and fraud at the front end (or 
origination) of the loan rather than relying on the current antiquated 
reviews at the post-endorsement process. The Approval module went live 
in April 2012 and is successfully processing a continuous volume of 
lender requests. The Recertification Generation I module is slated for 
operational capability in the second quarter of fiscal year 2013, with 
design and development of the other modules in ensuing months, LEAP is 
projected to achieve full operational capability in the first quarter 
of fiscal year 2014. In April 2012, FHA staff was given real-time 
online access to access to borrower and collateral risk analytical 
tools that have improved the capacity of FHA to capture data that is 
currently not collected in existing systems. These data profiles help 
to identify emerging fraudulent trends and practices. Consistent with 
addressing significant constraints risk and fraud detection, the Loan 
Review System (LRS), Portfolio Evaluation Tool (PET), and Automated 
Underwriting System capabilities are slated to achieve operational 
capability in the first quarter of fiscal year 2014. This complimentary 
set of tools and capabilities effectively provide decision support (and 
analytics) and every step in the process from loan origination through 
post-endorsement technical review.
              meeting the housing needs of women veterans
    Question. In recent years, homelessness among women veterans has 
increased significantly, posing challenges for the VA. For example, 
many of the programs that traditionally serve homeless veterans aren't 
open to families, posing a barrier to homeless women veterans who have 
children. HUD-VASH has been one tool that has been successful in 
housing veterans with families, but we need to do more to make sure the 
needs of women veterans are met.
    GAO recently released a report that I requested on meeting the 
housing needs of women veterans. It recommends that both HUD and VA 
improve data collection. What steps is HUD taking to obtain better data 
on homeless women veterans and how are you coordinating these efforts 
with the VA?
    Answer. Beginning in 2013, HUD will begin to identify women 
veterans as an individual element in its annual sheltered Point-in-Time 
(PIT) count and biennial unsheltered PIT count of persons experiencing 
homelessness. These PIT counts are administered by HUD's homeless 
providers and reported to HUD through our annual Continuum of Care 
grant competition.
    HUD's coordination efforts with the VA include frequent meetings 
with senior leadership and staff of both agencies under our ``Solving 
Homelessness as One'' initiative and conducting ``Housing First Boot 
Camps'' with HUD-VASH communities to increase the coordination and 
performance of participating Public Housing Agencies and VA Medical 
Centers. The Department is also planning another HUD-VASH Webinar in 
September 2012, part of HUD's ``Ready, Set, Go'' training and education 
series. This joint Webinar will focus on increasing the participation 
of local Continuum of Care systems in the planning and implementation 
of the HUD-VASH program.
    Female veterans and veterans with families are a particular focus 
of the Veterans Homeless Prevention Demonstration Program. HUD is 
currently administering this $10 million demonstration program at five 
sites, in collaboration with the Department of Veterans Affairs and the 
Department of Labor. This program is designed to explore ways HUD can 
offer early intervention homelessness prevention for veterans. Through 
this program, HUD is gathering data on veterans, including female 
veterans, who are assisted. There will also be an evaluation of the 
demonstration which will examine the effectiveness of efforts to assist 
female veterans in preventing homelessness.
                                 ______
                                 
                Questions Submitted by Senator Herb Kohl
               changes in medical deduction for section 8
    Question. One of the proposed section 8 savings measures included 
in the 2013 budget is a provision which will increase the threshold for 
the unreimbursed medical deduction from 3 percent of a senior's income 
to 10 percent of a senior's income. As chairman of the Aging Committee, 
I am concerned that this policy will have a disproportionate impact on 
seniors with low incomes and high unreimbursed medical expenses, 
causing untenable rent increases. Not only do these seniors face paying 
for medical expenses that are currently reimbursed, but they will also 
be faced with a substantial monthly rent increase. I am concerned that 
vulnerable seniors will be forced to choose between paying their rent 
and buying food, or taking their medications or obtaining needed 
medical procedures if the co-payment is too high. What do you estimate 
the savings to be from this new requirement?
    Answer. The figure of $165 million is the amount of the medical 
deduction savings.
    Question. Will HUD provide a hardship exemption for poor seniors 
where this change in the medical deduction creates a rent increase that 
is too onerous?
    Answer. The President's budget does not contemplate a hardship 
exemption. Such an exemption would result in substantial administrative 
burden for PHAs and owners, and the reduction of administrative burden 
was an important goal of the proposal. The current deduction does not 
assist the lowest income seniors, who are eligible for Medicaid and 
therefore receive no additional subsidy under this provision. The 
proposal would align HUD assistance policy with the Internal Revenue 
Code, which allows for deductions for healthcare costs above 10 percent 
of income but not below that level.
                           rental assistance
    Question. While I appreciate HUD's intent to stretch section 202 
dollars further and the request funding for new development under the 
section 202 program, I have a number of concerns and questions about 
the proposals as described in the budget.
    While I support the idea of mixed-income developments, I am 
concerned that the administration's proposal for rental assistance may 
be a mix that is infeasible. Rents will simply have to be too high in 
the non-202 units to cover the cost of debt service. Has HUD done any 
analysis of the amount of operating costs and/or debt service the 
requested PRAC amounts will support?
    Answer. Section 202 currently only provides on-going subsidy 
sufficient to cover a project's operating costs absent debt service. 
However, the Low Income Housing Tax Credit program produces 
approximately 100,000 affordable units each year. Of these, HUD 
estimates approximately 40 percent are set aside for elderly only 
affordable housing. The large majority of these elderly affordable tax 
credit projects are financed with permanent debt from the properties' 
net operating income (tax credit restricted rents less operating 
expenses). Non-section 202 tax credit rents are almost always in excess 
of operating expenses and therefore sufficient to leverage debt 
financing. HUD is currently assessing allowing section 202 rents to 
include debt service as an eligible expense (as it currently does under 
the section 8 program), such contracts would be capped at fair market 
rents which in almost all jurisdictions are greater than tax credit-
restricted rents.
    Question. Do you have any intention of requesting a change in 
authority so that the Project Rental Assistance or operating assistance 
that you are requesting (without capital advances) can cover debt 
service?
    Answer. Under existing statutory authority, HUD determines eligible 
costs allowed under section 202 Project Rental Assistance contracts. 
However, debt service is not currently an allowable expense under 
existing administrative rule making, as codified under 24 CFR part 891. 
HUD is assessing the possibility of providing some limited regulatory 
relief along those lines.
                         section 202 prac units
    Question. A necessary part of successful models of ``aging in 
place'' is the role of service coordinator. I am concerned that 
projects with a limited number of 202 PRAC units are unable to pay for 
the cost of the required service coordinator. To date, few tax credit 
or privately financed senior housing developments have been able to 
afford a service coordinator. The service coordinator should available 
to help the entire senior resident population, not only for the PRAC-
assisted units. Can you comment on how you intend service coordinators 
to be supported?
    Answer. Tax credit or privately financed senior housing typically 
serves a more affluent, younger, and healthier elderly population than 
the section 202 program. These households typically have less service 
needs and/or have additional resources to directly access services on 
their own. However, having a service coordinator in place to serve this 
population is important, particular as those households age in place. 
For the last 10 years, the section 202 program has accommodated mixed-
finance projects that include some units financed with tax credits and 
other sources and some units that were financed with section 202 PRAC 
assistance. Going forward, similar to what HUD has historically allowed 
under the mixed-finance program, the section 202 units could cover the 
costs of a part-time service coordinator. Compensation for a full-time 
service coordinator could be provided either by including a service 
coordinator line-item as an operating expense on the non-202 units or 
by relying on funding from local area Agencies on Aging or other local/
philanthropic sources.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy
  impact of cuts to the community development block grant program and 
          home investment partnerships program on rural areas
    Question. Mr. Secretary, on that topic, two of the most effective 
programs Vermont and rural States around the country have come to rely 
upon have been the Community Development Block Grant (CDBG) Program and 
the HOME Investment Partnerships Program. The CDBG Program is one of 
the most effective Federal programs to revitalize communities with 
proven results. CDBG helps to fund homeownership assistance, housing 
rehabilitation, economic development projects and improvements to 
public services while creating jobs, efforts I know the Department 
supports. However, the communities that rely on this funding to serve 
their most vulnerable residents, principally low- and moderate-income 
persons, have been negatively impacted by recent cuts to the program 
totaling 28 percent in the last 2 years alone. The CDBG formula 
allocation has been cut by over $1 billion since 2000 and the level 
funding request would keep this allocation at its lowest funding level 
since 1992. These cuts have left State CDBG programs oversubscribed. 
During Vermont's most recent grant round, nearly three out of four 
projects submitted were denied funding. This directly translated to 
Vermont creating one quarter the number of requested affordable housing 
units; this translated to the inability of Vermont to create three out 
of four proposed new jobs; and it left millions of dollars in State, 
local, and private dollars usually leveraged by the CDBG program on the 
table.
    The HOME program serves as the largest Federal block grant program 
to State and local governments designed exclusively to produce 
affordable housing for low-income families. Since Congress created the 
program it has been the cornerstone in the United States' affordable 
housing finance system. HOME provides a flexible resource to meet the 
communities' highest priority affordable housing needs. At a time when 
States continue to face significant affordable housing shortages, the 
program has helped produce more than 1 million affordable homes 
nationally and helps approximately 143,000 families secure affordable 
housing each year. Funding for the HOME program has also successfully 
leveraged more than $88 billion of public and private funds for 
affordable housing.
    Despite recent criticisms of the program, the vast majority of HOME 
projects are completed successfully, on time and with surprising 
success given the impact of the current housing and economic crisis. 
The HOME program has continued to provide much needed funds to local 
communities for tenant-based rental assistance, rehabilitation of 
affordable rental and ownership housing, and construction of affordable 
housing. Additionally, the HOME program provides down-payment 
assistance to help creditworthy families become homeowners, and housing 
vouchers to low-income families and those on the brink of homelessness. 
HOME funds often assist seniors, persons with disabilities, and the 
homeless in ways which directly respond to local priorities and needs. 
As the need for affordable housing continues to grow, for many States 
and local governments HOME is the only reliable funding for affordable 
and special needs housing development available. Despite the growing 
need for HOME funds this program faced a 38-percent cut in last year's 
funding bill.
    Mr. Secretary, in your testimony you pointed to the Department's 
support of the Community Development Block Grant Program and HOME 
Investments Partnership Program as the primary assistance the 
administration provides to rural communities. When I look at the 
overall budget request, one that sustains significant cuts, I see a 
shift of priorities that heavily favors urban communities over rural 
ones. I am concerned about what this level of funding would mean for 
these programs, and particularly concerned about what they mean to 
rural America. Do you feel the funding request for CDBG and HOME 
adequately addresses the housing needs of rural communities given the 
current oversubscription of the programs?
    Answer. HUD recognizes that the economic downturn has dramatically 
impacted rural communities across the country, and the Department 
remains committed to continuing its investment in rural America. The 
administration was required to make very difficult decisions during the 
fiscal year 2013 budget development process, and HUD supports the 
requested level of funding for CDBG and HOME given the current fiscal 
situation. The requested levels should not disproportionately impact 
rural communities. Both the CDBG and HOME programs are formula 
programs. Consequently, the proportion in distribution of funding 
between urban and rural areas will remain the same.
    The CDBG request will provide more than $880 million for the State 
CDBG program in fiscal year 2013. While HUD acknowledges the requested 
funding level is the same as the request for fiscal year 2012 and 
results in a $116 million decrease for States below the fiscal year 
2011 appropriated level, it is important to remember that grantees have 
a great deal of discretion regarding the development of programs that 
best meet the needs of their communities. Grantees may have to rethink 
how they prioritize CDBG funding to have the greatest positive impact, 
and HUD will continue providing the resources and technical assistance 
necessary to assist grantees in achieving the highest level of 
performance and positive outcomes from CDBG allocations.
    The HOME request will provide more than $400 million for State HOME 
participating jurisdictions in fiscal year 2013. While HUD acknowledges 
the requested funding level is the same as the fiscal year 2012 
appropriation and results in level funding for States and is also 38 
percent below the fiscal year 2011 appropriated level, it is important 
to remember that, like CDBG, State-participating jurisdictions have a 
great deal of discretion regarding the location of HOME projects that 
best meet the needs of their rural communities. Just as in CDBG, 
participating jurisdictions may have to rethink how they prioritize 
HOME project funding and HUD will continue to provide the resources and 
technical assistance necessary to assist them.
                     impact of cuts on rural areas
    Question. What steps is the Department taking to ensure budget cuts 
do not disproportionately impact rural communities?
    Answer. The administration was required to make difficult decisions 
during the fiscal year 2013 budget process. Despite the subsequent 
reductions in funding requests for some of HUD's programs, these 
reductions should not disproportionately impact rural communities. Both 
the Community Development Block Grant and the HOME Investment 
Partnerships programs are formula programs. Consequently, the 
proportion in distribution of funding between urban and rural areas 
will remain the same, though the actual dollars allocated will be 
reduced as a result of smaller appropriations.
    The Department recognizes the importance of the CDBG program for 
rural areas and works with grantees to help them carry out successful 
programs while adhering to the requirements of the Housing and 
Community Development Act of 1974, as amended. From CDBG program 
inception to 1981, HUD administered a small cities CDBG program, 
awarding 20 percent of formula funds on a competitive basis. In 1981, 
Congress formally established the State CDBG program. This statutory 
change required 70 percent of CDBG funds allocated by formula go to 
entitlement jurisdictions, and the other 30 percent go to non-entitled 
communities (small cities, small towns, and rural areas). This 
provision, referred to as the 70/30 split, remains in place to date.
    By statute, 40 percent of the annual appropriation for HOME is 
allocated directly to States. In 24 CFR 92.201, the HOME program 
regulation requires that ``Each State participating jurisdiction is 
responsible for distributing HOME funds throughout the State according 
to the State's assessment of the geographical distribution of the 
housing needs within the State, as identified in the State's approved 
consolidated plan. The State must distribute HOME funds to rural areas 
in amounts that take into account the non-metropolitan share of the 
State's total population and objective measures of rural housing need, 
such as poverty and substandard housing, as set forth in the State's 
approved consolidated plan. To the extent the need is within the 
boundaries of a participating unit of general local government, the 
State and the unit of general local government shall coordinate 
activities to address that need.''
    Both of these block grant programs leave the distribution of the 
grant funds for small cities and rural areas to the individual States. 
Statutorily, each State has a broad discretion on how to prioritize the 
use of these funds. HUD continues to offer support to States, small 
cities, and rural areas that will help them discover areas with the 
highest level of need.
                         proposed rule for home
    Question. Mr. Secretary, I commended the Department's efforts to 
improve the monitoring of the HOME program following last year's 
criticism highlighting some unfortunate delays and mismanagement in an 
otherwise successful and cost-effective program. I am, however, 
concerned about the Department's proposed regulation to address these 
criticisms. The proposed HOME Program rules appear to have a 
disproportionate impact on rural HOME programs despite the fact that 
rural communities have dependably ranked as some of the most efficient 
and effective recipients of HOME program funding. I know my home State 
of Vermont has been awarded two HOME Program Doorknocker Awards and has 
consistently been ranked first among State-participating jurisdictions 
over the past 6 years based on their administration of the HOME 
program. And yet, the proposed regulation would make it difficult, and 
in some cases impossible, for rural communities to continue to use HOME 
funding.
    Of particular concern is the change in how Community Housing 
Development Organizations (CHDOs) are required to demonstrate capacity. 
The proposed rule would require CHDOs to have paid staff with 
development experience and will not allow them to rely on consultants 
to demonstrate capacity. This requirement will undoubtedly negatively 
impact small rural CHDOs who rely on small staffs and often 
partnerships with groups in the community with housing development 
experience.
    Additionally, the proposed changes to the set aside requirement 
changes the definition of ``sponsor'' in a way that would require the 
CHDO to be the sole general partner in a limited housing partnership. 
In Vermont this would be a significant problem as our CHDOs often are 
partners with Housing Vermont, a Statewide nonprofit syndication and 
development company.
    While I understand the intent of the proposed rule, I worry that 
the rule contains changes could have unintended consequences which 
could prove to be costly, duplicative or time-consuming especially for 
participating jurisdictions and States in rural areas with limited 
staff and resources.
    In preparing the proposed regulation how did the Department take 
into consideration the often unique circumstances facing rural 
communities using HOME funds and what steps were taken to ensure that 
this regulation would not negatively impact small rural communities?
    Answer. In preparation for the publication of the Proposed HOME 
Rule, the Office of Affordable Housing conducted ``Listening Sessions'' 
with both Statewide and local stakeholders. At the stakeholder meeting 
held with State agencies on January 14, 2010, HUD asked ``Do rural 
Participating Jurisdictions (PJs) have any particular comments or 
concerns about the administration of the HOME program?'' Several States 
provided input on the challenges experienced by CHDOs and expressed 
concern about the lack of capable CHDOs in rural areas. Many States 
expressed the opinion that most CHDOs could not be expected to 
undertake complex housing development due to their lack of capacity. 
Several suggestions addressed ways to provide CHDOs with more funding 
for operating costs (e.g., salaries for experienced staff), including 
monitoring fees, and different structures for developer fees. To 
mitigate some of those concerns, the Department has also made clear in 
the proposed rule that project-related soft costs can be paid for with 
HOME funds (e.g., underwriting, market analysis).
    In summary, with respect to the performance of CHDOs, and in 
particular, the performance of CHDOs in rural areas, the Department 
received input prior to rulemaking and public comments on the proposed 
rule regarding proposed changes to definitions and requirements related 
to CHDOs. HUD acknowledges the concerns raised by commenters, 
particularly regarding the effects of some of the provisions on rural 
areas. HUD has carefully considered these comments in drafting the 
final rule. The Department will provide technical assistance to PJs and 
CHDOs to help them meet the new requirements.
    Question. Will you commit to working with me and my staff to ensure 
that when a final rule is published by HUD later this year that 
accommodations for small, rural States and CHDOs are made?
    Answer. The Department has given careful consideration to the 
comments it received on the proposed rule, including comments regarding 
the effect of proposed changes on rural areas. The Department is 
confident that many CHDOs in rural areas will be able to increase their 
capacity in order to be in compliance with the Final Rule. The 
Department will offer several different types of technical assistance 
and examples of best practices that will assist States with rural areas 
and CHDOs in rural areas to modify their programs and build capacity in 
order to meet the new requirements of the HOME Final Rule. The new 
OneCPD Resource Exchange, https://www.onecpd.info/, will also provide a 
forum for CHDOs and States to engage in peer-to-peer assistance.
                                 ______
                                 
             Question Submitted by Senator Susan M. Collins
                     duplicative economic programs
    Question. The Government Accountability Office notes in its 2011 
follow up report on duplicative economic development programs that HUD, 
Commerce, SBA, and USDA have made minimal progress collecting data and 
assessing the effectiveness of their overlapping economic development 
programs. Further, HUD is the only agency of the four identified to not 
yet have taken steps to define common outcomes with other Federal 
agencies. I know that building collaborative relationships is an 
important goal of yours. What limits your ability to reach common goals 
and results with other agencies?
    Answer. HUD strongly agrees with the concept of collaboration, and 
it continues to work with other agencies to ensure that its grants are 
effective and useful to the communities they are meant to serve.
    HUD's core community and economic development program, the 
Community Development Block Grant program (CDBG), is distinct from 
programs administered by other agencies in both its objectives and 
design. It has a statutory requirement that grantees expend in excess 
of 70 percent of grant funds on activities that benefit low- and 
moderate-income persons. In addition, the CDBG authorizing language is 
clear that funding priorities and other decisions are to be made at the 
State and local levels; the program provides grantees with a high 
degree of flexibility to respond to local economic conditions with 
priorities tailored to meet those needs. As a result, many of the 
program's intended outcomes are unique from those of other Federal 
economic development programs. This has made it difficult to coordinate 
goals and results with other agencies. However, CDBG has been a major 
factor in allowing these other programs to be effective: Grantees 
regularly leverage CDBG funds with these other Federal grant programs 
and private resources to achieve common goals.
    Despite these differences, HUD, through the Office of Economic 
Development, has initiated collaborative discussions with several 
agencies administering economic development programs. These 
conversations are intended to provide information to HUD grantees to 
assist them in making strategic investments of block grant and 
competitive resources. HUD plans to disseminate information gained 
through these collaborative efforts using the OneCPD Resource Exchange 
Web site, the Department's new online portal designed to share news, 
events, resources, and information on all HUD Community Planning and 
Development programs.
    While, due to differences in program objectives and design, HUD may 
not be able to fully align CDBG with other Federal economic development 
programs, it does strongly believe that collaboration with other 
programs can help make sure that it is effective in building strong 
communities across America.
                                 ______
                                 
                Questions Submitted by Senator Roy Blunt
                             fha's solvency
    Question. As one of the only games in town, the Federal Housing 
Administration (FHA) continues to have a ballooning portfolio, well 
above the intended size. As the Administration's white paper proposes 
various reform options for the Government-sponsored enterprises (GSEs) 
Fannie Mae and Freddie Mac, how can the Department of Housing and Urban 
Development (HUD) ensure that FHA won't become the lender of last 
resort for home loans should the private market move slowly to fill the 
space where the GSE once operated?
    Answer. FHA plays a counter-cyclical role in the housing market, 
experiencing higher volume during times of market constriction and 
lower volumes when there is sufficient access to mortgage capital in 
the conventional market. Regardless of the market environment, FHA 
loans are typically 30-year, fixed-rate products and lenders 
originating these loans must follow FHA guidance in originating and 
servicing these loans. Since 2009, FHA has made significant changes to 
credit policy to ensure that future books of business continue to yield 
positive economic value to the fund. In addition, FHA has adopted a 
number of measures that hold lenders accountable for their actions, 
including, among others, rules that require lenders to indemnify FHA on 
loans found to be materially deficient. FHA is still seeking 
legislative authority to pursue indemnification and other heightened 
enforcement authority with respect to all FHA approved lenders. FHA has 
also enhanced its underwriting guidance and modified its automated 
mortgage scoring system to require more underwriter oversight of 
riskier loan applications. Finally, FHA's loss mitigation strategies, 
already considered among the strongest in the mortgage industry, have 
been further improved to protect both homeowners as well as FHA. Taken 
together, these actions are designed to ensure that creditworthy 
borrowers have a safe and affordable means of obtaining homeownership 
while at the same time encouraging only responsible lending on the part 
of FHA's approved mortgage lenders. As the economy continues to recover 
and FHA's counter-cyclical role becomes less critical, FHA and HUD will 
work with the broader administration and Congress on efforts to ensure 
that FHA's role in the market does recede and a stable, sustainable 
housing market evolves.
    Question. The administration's budget once again requests increases 
in MMI premiums to help strengthen the fund. While I'm encouraged by 
the increase in liquidity to protect against risk to the solvency of 
the fund, I question whether the already bloated portfolio will grow in 
2013 rather than shrink as your budget assumes. What steps are being 
taken to encourage private lenders to originate quality, non-FHA 
insured loans? How can HUD encourage the private market to provide home 
loans for minorities who disproportionately rely on FHA's Government 
guarantee?
    Answer. In February 2012, HUD announced an increase in both FHA 
annual and upfront mortgage insurance premiums, effective in April 
2012. The decision to adjust FHA premiums for the fourth time since 
2009 was made by balancing several factors--FHA's mission of providing 
access to credit for low wealth, creditworthy borrowers, the health of 
the Mutual Mortgage Insurance Fund and FHA's long-term role in the 
Nation's housing finance system. As a result of these premium 
adjustments, FHA has been able to continue to serve its countercyclical 
role in the mortgage market--providing access to credit to creditworthy 
borrowers during this time of market constriction--but has seen overall 
volume decline. According to Amherst Securities' June 14, 2012, Amherst 
Mortgage Insight Report, the composition of FHA loans in Ginnie Mae 
securities has actual declined. This is in large part because these 
pricing changes have made conventional loans more competitive; high 
FICO borrowers who may have chosen to take out an FHA-insured loan 
rather than a loan with private mortgage insurance are now finding the 
costs of private versus federally backed mortgage insurance more 
comparable. However, adjusting premiums is only one lever. Currently, 
FHA is the only federally backed institution able to originate high-
priced loans (loans above $625,500). As a result, borrowers seeking 
these ``jumbo'' loans only have one outlet--FHA. In its housing finance 
reform white paper, the Administration urged Congress to allow the 
higher loan limits to expire. Unfortunately, in November 2011, Congress 
elected to extend these limits for FHA while allowing the GSE loan 
limits to go back to pre-crisis levels. This does create a disincentive 
to originate non-FHA loans in some markets and so we would once again 
urge Congress to allow FHA loan limits to step back to the HERA levels.
                    government-sponsored enterprises
    Question. The future of Fannie Mae and Freddie Mac remain uncertain 
at this point but I am interested in hearing your views. What are your 
views about the future of Fannie and Freddie? If Fannie and/or Freddie 
continue to exist in some form, what are your views on reconciling the 
conflicting goals of private profits and public good? How important are 
the mortgage GSEs to carry out Federal housing policy?
    Answer. The administration is currently working diligently on a 
number of interagency projects set forth in the white paper that was 
published in February 2011, including a detailed exploration of the 
three options for the future of housing finance. Of those three 
options, the third one does provide considerations around maintaining 
some Government presence through a model that would serve as a back-
stop in the form of reinsurance behind significant layers of private 
capital at a guarantor level. Below is greater detail on the strengths 
and weaknesses of this third option. However, to be clear, the 
administration is still working with a number of stakeholders, 
including Members of Congress, to fully explore all three.
    At the same time, the administration is equally engaged on topics 
that directly involve the GSEs, such as the development of national 
servicing standards, a transition plan for the wind down of Fannie Mae 
and Freddie Mac from their current status and reducing the footprint of 
the Federal Housing Administration (FHA). It is important to remember 
that the FHA and GSEs continue to provide an important source of credit 
availability as Government and industry work collectively to reduce the 
barriers of uncertainty that block a robust return of private capital. 
Thus, while the administration supports decreasing the role of FHA, 
Fannie Mae, and Freddie Mac and re-invigorating the private market, we 
also believe that any approach must be measured and comprehensive to 
address the tensions your questions above elicit.
                              homelessness
    Question. In your testimony, you say that HUD and the VA have 
partnered for the past 2 years to make strides in ending veteran 
homelessness by 2015. While I appreciate the ambitious goal and the 
collaboration between these two agencies, how will your fiscal year 
2013 budget address the significant increase in homelessness for 
veterans in Missouri?
    Answer. HUD is aware that the number of homeless veterans in 
Missouri has increased from 529 veterans in 2009 to 853 veterans in 
2011 and is working hard to end veteran homelessness. Despite the 
significant current economic challenges, in the fiscal year 2011 
Continuum of Care competition, Missouri was awarded $27,371,596, an 
increase upon the $27,357,782 awarded in 2010. In 2012, HUD allotted 
100 HUD-VASH vouchers to the State of Missouri, doubling the number of 
HUD-VASH vouchers allotted to Missouri and bringing the total number of 
vouchers to 495 Statewide. HUD will continue to request funding in 
order to address the significant increase in veteran homelessness in 
Missouri and elsewhere.
    HUD is currently administering the $10 million Veterans Homeless 
Prevention Demonstration Program at five sites in collaboration with 
the Departments of Veterans Affairs and Labor. This is a 3-year 
demonstration designed to explore ways HUD can offer early intervention 
homelessness prevention for veterans--primarily veterans returning from 
the wars in Iraq and Afghanistan. While none of the sites for the 
demonstration is in Missouri, the lessons learned will be important in 
addressing the unique needs of these veterans and will support efforts 
to identify, reach, and assist them to regain and maintain housing 
stability. An evaluation of the program will also provide HUD with 
additional information to inform programs addressing means of 
preventing homelessness among veterans in the future. HUD expects to be 
able to provide preliminary results which will guide us in policy 
formation.
    Question. How does your budget ensure that those who have received 
assistance for adequate housing won't become homeless again?
    Answer. Performance metrics codified in the Homeless Emergency 
Assistance and Rapid Transition to Housing Act (HEARTH Act) of 2009 
require communities to be able to track length of homelessness, 
recidivism rates, and the number of persons experiencing homelessness 
for the first time. Under the HEARTH Act, additional funding is 
provided to communities to conduct planning and evaluation, including 
this performance measurement. HUD's fiscal year 2013 budget includes a 
request for the funds needed to continue the transition to the 
McKinney-Vento Homeless Assistance Act, as amended by the HEARTH Act. 
As communities receive the funds necessary to conduct these critical 
evaluations they will be able to better ensure that persons who enter 
the homeless system will be served with the most appropriate 
interventions to stabilize their housing and foster independent living.
    Question. Do you believe that there is enough emphasis placed on 
prevention and homebuyer education to prevent another crisis?
    Answer. In response to the recent economic crisis, the American 
Recovery and Reinvestment Act (ARRA) was enacted, which included the 
funding of the Homelessness Prevention and Rapid Re-housing Program 
(HPRP). Over 75 percent of the assistance provided with the $1.5 
billion allocation was used for homelessness prevention. HUD has used 
the lessons learned from HPRP in its drafting of the interim 
regulations for the Emergency Solutions Grant (ESG) program, a 
McKinney-Vento Homeless Assistance Act program amended by the HEARTH 
Act of 2009. As of fiscal year 2013, HUD will no longer have HPRP funds 
available to continue that program--to offset this loss, HUD is 
emphasizing the funding for the ESG program.
                     rural housing and development
    Question. Investing in rural communities is very important to me 
and my constituents. I realize there are common goals within HUD and 
USDA in this area and am interested in your views on how the two 
overlap in this space. The most recent GAO report acknowledges this 
overlap; however, it remains unclear whether the two agencies will 
continue to maintain similar but separate housing goals. How can HUD 
further protect rural America's needs as funding reaches the States and 
large urban areas?
    Answer. In fiscal year 2013, HUD will continue to fund programs 
that will directly support housing and economic development in rural 
communities. Small towns and rural communities across America are 
facing an acute need for more affordable housing, while also searching 
for sustainable economic development strategies that link rural housing 
to job centers. Recognizing the unique challenges in these 
decentralized areas, HUD continues to tailor its programs to provide 
rural communities with the resources they need to craft innovative 
solutions. While specific appropriations for programs in rural 
communities ended in 2011, HUD has continued to partner with rural 
communities with programs like Community Development Block Grants, HOME 
Investment Partnerships, and the Housing Choice Voucher Program (HCVP). 
It also directly supports homeownership in rural areas through FHA 
insurance for homeowners. HUD's field offices in rural communities 
continue to provide technical assistance resources and to link to other 
HUD programs and other Federal agencies. Moreover, HUD is committed to 
the development of the poorest areas in America, specifically Indian 
Country. Through programs like the Indian Housing Block Grant, HUD 
partners with rural American Indian and Alaska Native tribal 
governments to support efforts to create locally driven solutions to 
economic development challenges. Below, HUD outlines some of the 
current programs rural communities are using to address their housing 
and community development needs.
                   collaborations with other agencies
    HUD meets regularly with other agencies involved in housing through 
an interagency rental housing policy group to better align and 
coordinate the affordable rental housing programs each operates. The 
Rental Policy Working Group, created by the Domestic Policy Council and 
consisting of the Departments of Housing and Urban Development, 
Agriculture, and Treasury, has released proposals that will more 
efficiently align rental programs across Government agencies, including 
inspections, financial reporting, appraisals, energy efficiency 
standards, and fair housing compliance enforcement, among others. This 
working group has increased collaboration between the rural housing 
policies of HUD and USDA.
    One specific way HUD is working with other agencies is an effort to 
improve access to capital from private sources in isolated rural areas. 
The first step in this effort is the Border Community Capital 
Initiative (``Border Initiative'') is the first step in a collaborative 
effort among HUD, the Department of the Treasury's Community 
Development Financial Institutions Fund (CDFI Fund) and the Department 
of Agriculture--Rural Development (USDA-RD). The Initiative's goal is 
to increase access to capital for affordable housing, business lending 
and community facilities in the chronically underserved and 
undercapitalized United States/Mexico border region. Specifically, it 
will provide direct investment and technical assistance to community 
development lending and investing institutions that focus on affordable 
housing, small business and community facilities to benefit the 
residents of colonias. The United States Code defines a colonia as a 
community that (1) is in the State of Arizona, California, New Mexico, 
or Texas; (2) is within 150 miles of the United States-Mexico border, 
except for any metropolitan area exceeding 1 million people; (3) on the 
basis of objective criteria, lacks adequate sewage systems and lacks 
decent, safe, and sanitary housing;
    HUD, USDA-RD and the CDFI Fund have all identified lack of capacity 
among organizations serving the colonias and similar persistent poverty 
communities as a limiting factor in the effectiveness of Federal 
programs. Organizations specializing in affordable housing, small 
business support, and community facilities cannot sustain themselves 
and grow. The Border Initiative focuses on using each agency's 
resources to effectively improve these organizations, empowering them 
to improve colonias communities. Depending upon the programmatic 
lessons of the Border Initiative and availability of resources, the 
agencies hopes to adapt this collaborative approach to improving 
capital access in other rural regions.
                       on-going rural assistance
    Beyond targeted efforts to alleviate housing and development issues 
in rural America, HUD serves families in small towns and rural 
communities through almost every major program it funds. While many 
think of HUD programs as mainly for urban communities, HUD supports 
communities across the country.
  --In 2012, the State Community Development Block Grant (CDBG) program 
        provided approximately $882 million to rural areas, supporting 
        over 25,000 jobs both directly and indirectly, providing needed 
        infrastructure, economic development, and affordable housing. 
        The State of Missouri received over $20 million of CDBG funding 
        for rural areas.
  --HUD also provided almost $400 million in rural areas in 2012 for 
        affordable housing and homeownership programs through its HOME 
        Investment Partnership program, directly and indirectly 
        supporting over 5,360 jobs. The State of Missouri received over 
        $9 million of HOME funding for areas outside of large 
        metropolitan areas.
  --Altogether, over 800,000 families in rural communities are directly 
        assisted through the Housing Choice Voucher Program, Public 
        Housing, and Multifamily programs.
  --For homeowners, HUD's Federal Housing Administration (FHA) helps 
        first-time homebuyers and other qualified families all over the 
        country purchase their own home. More than 1.5 million of the 
        homes currently insured by the FHA are in rural areas, and 
        approximately $545 million in current FHA loans are to rural 
        healthcare facilities designated as ``critical access 
        hospitals.'' HUD recognizes the unique challenges in these 
        rural areas, and continues to develop innovative, community-
        based programming to meet those needs.
                       homeless assistance grants
    According to HUD's most recent Annual Homeless Assessment Report, 
the number of people using homeless shelter in suburban and rural areas 
has increased 57 percent since 2007. Suburban and rural homelessness 
makes up 36.2 percent of the total homeless population in America. The 
reason for this increase is unclear. However, with the Federal 
Government's commitment to the Federal Strategic Plan to End 
Homelessness, it is crucial that the Department confront this growing 
problem.
    On May 20, 2009, President Obama signed the Homeless Emergency 
Assistance and Rapid Transition to Housing (HEARTH) Act, which includes 
the establishment of the Rural Housing Stability Assistance Program 
(RHSP) within HUD's Homeless Assistance Grants program. RHSP is 
designed to assist individuals and families who are homeless, in 
imminent danger of losing housing, or in the worst housing situations 
in rural communities. In 2013, HUD is requesting $5 million for the 
Rural Housing Stability Assistance program. These grant funds will be 
awarded outside of the existing Continuum of Care competition and will 
introduce activities that have not historically been available through 
HUD's homeless assistance programs. For example, if someone's house is 
uninhabitable, RHSP funds can be used to make repairs, preventing that 
individual from becoming homeless.
    In addition to this focused RHSP initiative, rural communities will 
continue to have access to HUD's targeted homeless assistance, through 
the Continuum of Care competition grant and the Emergency Shelter Grant 
(ESG) program. Rural areas have increasingly gained access to HUD's 
competitive homeless assistance grants, primarily through the creation 
of Balance of State and Statewide Continuums of Care, with funds 
allocated directly to the State to assist areas not currently in 
Continuums of Care. In 2012, the State of Missouri received over $2.5 
million to fight homelessness in non-urban areas. In 2011, the 
Continuum of Care competition included a selection priority for new 
projects proposing to serve 100 percent rural areas and an additional 
41 projects in rural areas received funding, resulting in nearly $16 
million for new projects in rural areas.
      american indian, alaska native, and native hawaiian programs
    As the single largest sources of funding for housing on Indian 
tribal lands, HUD initiatives in Indian country continue to provide 
crucial resources to America's poorest communities. Programs like 
Indian Housing Block Grants, Indian Home Loan Guarantees, and Indian 
Community Development Block Grants support development in remote areas 
where safe, 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. HUD recognizes the right of 
Indian self-determination and tribal self governance by allowing the 
recipients the flexibility to design and implement appropriate, place-
based housing programs according to local needs and customs. All 
together, in fiscal year 2013, HUD is requesting $731 million to fund 
programs that will support housing and development in American Indian, 
Alaska Native, and Native Hawaiian communities, which will directly and 
indirectly support over 14,000 jobs.
                  sustainable housing and communities
    Recognizing the strong demand among communities for help in 
connecting economic development with future infrastructure and housing 
investments, HUD established the Office of Sustainable Housing and 
Communities (OSHC) in 2010. Its mission is to both directly assist 
those communities looking for assistance in planning for sustainable 
growth and to infuse sustainability into HUD policies and programs. HUD 
has found that the demand for planning assistance is strong in rural 
areas as they attempt to plan for a sustainable future. Through 
partnerships with other Federal agencies to align resources and reduce 
barriers, HUD has developed the Sustainable Communities Initiative 
(SCI) to provide incentives to encourage communities of all shapes and 
sizes to use sustainable planning and development strategies. SCI 
funding includes special funding categories for smaller communities. In 
2011, over 40 percent of the OSHC Community Challenge Grants went to 
communities with populations below 50,000. In fiscal year 2013, HUD is 
requesting $100 million in SCI funding within the Community Development 
Fund, of which a portion will once again be designated for small- and 
mid-sized communities.

                          SUBCOMMITTEE RECESS

    Senator Murray. This hearing is recessed until Thursday, 
March 8, at 10 a.m., at which time we will hear testimony from 
the acting FHA Commissioner, Carol Galante, on the Federal 
Housing Administration.
    [Whereupon, at 10:33 a.m., Thursday, March 1, the 
subcommittee was recessed, to reconvene at 10 a.m., Thursday, 
March 8.]


TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2013

                              ----------                              


                        THURSDAY, MARCH 8, 2012

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:06 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray and Collins.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                     Federal Housing Administration

STATEMENT OF HON. CAROL GALANTE, ACTING FEDERAL HOUSING 
            ADMINISTRATION COMMISSIONER AND ASSISTANT 
            SECRETARY FOR HOUSING, DEPARTMENT OF 
            HOUSING AND URBAN DEVELOPMENT

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Good morning, and welcome to Acting Federal 
Housing Administration (FHA) Commissioner Carol Galante. We 
appreciate your coming today and your testimony. You have 
assumed this role at a very pivotal time for both the market 
and FHA. And we really want to thank you for your service and 
coming today.
    Back in early 2007, this subcommittee held a hearing on FHA 
that raised questions about its role and relevance as its 
market share had fallen to around 3 percent. At that time, home 
prices were on a seemingly unstoppable climb, and based on the 
belief that home prices would continue to rise, credit was 
flowing freely.
    Millions of Americans became homeowners, many through 
exotic mortgage products that required very little 
documentation, and included attractive offers like interest-
only payments and no down payments. FHA's traditional 30-year 
fixed mortgage, which required documentation and underwriting, 
simply could not compete.
    But the promises made to homeowners and investors alike 
were too good to be true. When the risks associated with these 
mortgages began to materialize, it was far too late. And when 
defaults and foreclosures skyrocketed, the impact was felt not 
only by defaulting homeowners, but by entire communities that 
watched their home values plummet, investors who bet on these 
products and lost, and older Americans who saw their pensions 
disappear.
    FHA quickly stepped in after the crash to ensure a 
functioning mortgage market, the primary function for which it 
was designed during the Great Depression. There is no question 
that stepping into the faltering housing market exposed FHA to 
greater risk, but it took on this risk in order to support the 
broader housing market, and without its support, the cost of 
the market and to taxpayers today would likely be far higher.
    So, today we are not asking about FHA's role and relevance. 
FHA now supports nearly 30 percent of the purchase market, and 
almost 16 percent of all loans, including refinances. And its 
value has been made clear over the past few years. Instead we 
are now asking how we protect the taxpayer from the risks 
associated with its increased role in the market, and how and 
when do we scale back FHA's presence in the market?
    FHA's fiscal soundness depends in large part on broader 
market and economic conditions. As Secretary Donovan testified 
last week, the biggest factor in the health of FHA's Mutual 
Mortgage Insurance (MMI) Fund is the direction of home prices. 
While we are seeing signs that the housing market has hit 
bottom and is starting its climb back up, risks remain. With 
over 22 percent of mortgages in the United States underwater, 
elevated levels of foreclosures, and an extensive shadow 
inventory of properties, the path of home prices remains 
uncertain.
    I look forward to having this discussion about the 
potential risks that remain in the market, and what steps can 
and should be taken to strengthen the market and FHA.
    This week, the President announced changes to the FHA's 
Streamline Refinance Program that will make it easier for 
existing FHA borrowers to benefit from low interest rates. And 
in February, the administration released a plan to further aid 
the market by creating opportunities for homeowners to 
refinance into more affordable mortgages. It has also pushed 
for a greater use of principal write-downs.
    These proposals offer opportunities to make mortgages more 
affordable for homeowners, while at the same time putting money 
back into their pockets, and in some cases, giving them a 
chance to build equity once again.
    These proposals are not written without their own risks and 
costs. Allowing conventional borrowers to refinance into FHA 
loans adds risks to FHA, even if not directly to the MMI Fund. 
Under the administration's proposal, this cost would be covered 
by a financial crisis responsibility fee paid by banks. In 
addition to the financial risks, policies such as principal 
write-downs also raise concerns about moral hazard. In 
evaluating these proposals, we must have an understanding of 
what is currently holding the market back from a stronger 
recovery, and if the long-term benefits of public intervention 
outweigh the shorter term costs.
    The administration is looking at ways also to address the 
growth in the number of Government-owned properties. FHA along 
with Fannie Mae (the Federal National Mortgage Association) and 
Freddie Mac (the Federal Home Loan Mortgage Corporation) own 
about one-quarter of 1 million foreclosed properties. These 
properties are costly for the Government to manage and 
contribute to the decline of home prices.
    As we look for ways to address the shadow inventory, 
millions of Americans are unable to find affordable housing. 
According to a study released by the Department of Housing and 
Urban Development (HUD) last year, over 7 million Americans pay 
more than 50 percent of their income on housing, which 
represents a 20-percent increase in worst case housing needs 
between 2007 and 2009.
    So, I am glad to see FHA, along with the Federal Housing 
Finance Agency (FHFA), the conservator of Fannie Mae and 
Freddie Mac, is looking at converting real estate-owned (REO) 
properties into rental housing. I am interested in hearing from 
Acting Commissioner Galante on the interest this proposal has 
garnered, as well as the challenges and benefits that are 
associated with it.
    While much of FHA's fiscal soundness depends on the overall 
market, there are measures that FHA can take to improve its 
financial standing. The administration recently announced 
premium increases to provide additional funding to the MMI 
Fund. In addition, the budget also includes proposals to 
increase premiums for its Multifamily and Healthcare Programs. 
Similar to its single-family business, FHA's presence in these 
areas has grown in recent years, and these premiums should help 
strengthen the General and Special Risk Insurance Fund.
    Amid the discussions about solvency of the funds and FHA's 
future in the market, this subcommittee cannot lose sight of 
FHA's day-to-day operations, so I will be asking critical 
questions, including: Does FHA have the appropriate staff to 
manage its portfolio? Does it have the tools it needs to assess 
and manage risk? And does it have the means and authority to 
protect taxpayers from fraudulent lenders and excessive losses?
    In recent years, this subcommittee has worked to provide 
FHA with the resources to increase its hiring, support a new 
risk office, and invest in much needed technology upgrades. In 
a constrained budget environment, Federal employees and 
administrative expenses are often the first items to be cut, 
but in the long term, costs resulting from weak oversight are 
bound to outweigh any savings that would result from cutting 
FHA's workforce.
    And as we climb back from this housing crash, we must also 
remember the lessons learned from the rise and the fall of the 
housing market. We must have soundly underwritten mortgages and 
a process that is fair and transparent from the moment a 
potential homeowner applies for a mortgage, all the way through 
loss mitigation or foreclosure.
    This crisis has also taught us the importance of having a 
balanced national housing policy, one that includes both rental 
and homeownership opportunities. At the same time, we must be 
careful not to over correct, as is happening today, and close 
the door to homeownership for hardworking, responsible 
Americans.

                           PREPARED STATEMENT

    I believe we should continue to strive for a market in 
which Americans who work hard, provide for their families, and 
pay their bills have an opportunity to own a home. And I think 
FHA will continue to be a part of that vision.
    So, I look forward to hearing from Mrs. Galante.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
    Good morning, I want to welcome Acting Federal Housing 
Administration (FHA) Commissioner Carol Galante to the subcommittee 
today to talk about FHA. Ms. Galante, you have assumed this role at a 
pivotal time both for the market and FHA and I want to thank you for 
your service.
                  fha's role in supporting the market
    Back in early 2007, this subcommittee held a hearing on FHA that 
raised questions about its role and relevance, as its market share had 
fallen to around 3 percent. At that time, home prices were on a 
seemingly unstoppable climb. And based on the belief that home prices 
would continue to rise, credit flowed freely.
    Millions of Americans became homeowners--many through exotic 
mortgage products that required little documentation, and included 
attractive offers like interest-only payments and no down payment. 
FHA's traditional 30-year fixed mortgage, which required documentation 
and underwriting, simply could not compete.
    But the promises made--to homeowners and investors alike--were too 
good to be true. When the risks associated with these mortgages began 
to materialize, it was far too late. And when defaults and foreclosures 
skyrocketed, the impact was felt not only by defaulting homeowners, but 
also by entire communities that watched their home values plummet, 
investors who bet on these products and lost, and older Americans who 
saw their pensions disappear.
    FHA quickly stepped in after the crash to ensure a functioning 
mortgage market, the primary function for which it was designed during 
the Great Depression.
    There is no question that stepping into the faltering housing 
market exposed FHA to greater risk. But it took on this risk in order 
to support the broader housing market, and without its support, the 
cost to the market and to taxpayers today would likely be far higher.
    So, today, we are not asking about FHA's role and relevance. FHA 
now supports nearly 30 percent of the purchase market and almost 16 
percent of all loans, including refinances. And its value has been made 
clear over the past few years. Instead, we are now asking: How we 
protect the taxpayer from the risks associated with its increased role 
in the market, and how and when do we scale back FHA's presence in the 
market?
        fiscal soundness of fha's mutual mortgage insurance fund
    FHA's fiscal soundness depends in large part on broader market and 
economic conditions. As Secretary Donovan testified to last week, the 
biggest factor in the health of FHA's Mutual Mortgage Insurance (MMI) 
Fund is the direction of home prices.
    While we are seeing signs that the housing market has hit bottom 
and is starting its climb back up, risks remain. With over 22 percent 
of mortgages in the United States underwater, elevated levels of 
foreclosures, and an extensive shadow inventory of properties, the path 
of home prices remains uncertain.
    I look forward to having a discussion about the potential risks 
that remain in the market, and what steps can and should be taken to 
strengthen the market and FHA.
                    new proposals to aid the market
    This week, the President announced changes to the FHA Streamline 
Refinance Program that will make it easier for existing FHA borrowers 
to benefit from low interest rates.
    And in February, the administration released a plan to further aid 
the market by creating opportunities for homeowners to refinance into 
more affordable mortgages. It has also pushed for greater use of 
principal write-downs.
    These proposals offer opportunities to make mortgages more 
affordable for homeowners while, at the same time, putting money back 
into their pockets and in some cases giving them a chance to build 
equity once again.
    These proposals aren't without their own risks and costs. Allowing 
conventional borrowers to refinance into FHA loans adds risk to FHA--
even if not directly to the MMI Fund. Under the administration's 
proposal, this cost would be covered by a Financial Crisis 
Responsibility fee paid by banks.
    In addition to the financial risks, policies such as principal 
write-downs also raise concerns about moral hazard. In evaluating these 
proposals, we must have an understanding of what is currently holding 
the market back from a stronger recovery, and if the long-term benefits 
of public intervention outweigh the short-term costs.
    The administration is also looking at ways to address the growth in 
the number of Government-owned properties. FHA, along with Fannie Mae 
and Freddie Mac, own about a quarter of a million foreclosed 
properties. These properties are costly for the Government to manage 
and contribute to the decline of home prices.
    As we look for ways to address the shadow inventory, millions of 
Americans are unable to find affordable housing. According to a study 
released by HUD last year, over 7 million Americans pay more than 50 
percent of their income on housing, which represents a 20-percent 
increase in worst case housing needs between 2007 and 2009.
    So, I am glad to see that FHA, along with the Federal Housing 
Finance Agency, the conservator of Fannie Mae and Freddie Mac, is 
looking at converting real estate-owned (REO) properties into rental 
housing.
    I am interested in hearing from Acting Commissioner Galante on the 
interest this proposal has garnered, as well as the challenges and 
benefits associated with it.
                       support for fha operations
    While much of FHA's fiscal soundness depends on the overall market, 
there are measures that FHA can take to improve its financial standing.
    The administration recently announced premium increases to provide 
additional funding to the Mutual Mortgage Insurance Fund.
    In addition, the budget also includes proposals to increase 
premiums for its multifamily and healthcare programs.
    Similar to its single-family business, FHA's presence in these 
areas has grown in recent years, and these premiums should help 
strengthen the General and Special Risk Insurance Fund.
    Amid the discussions about solvency of the funds and FHA's future 
in the market, this committee cannot lose sight of FHA's day-to-day 
operations. So, I will be asking critical questions, including: Does 
FHA have the appropriate staff to manage its portfolio? Does it have 
the tools it needs to assess and manage risk? And does it have the 
means and authority to protect taxpayers from fraudulent lenders and 
excessive losses?
    In recent years, this committee has worked to provide FHA with the 
resources to increase its hiring; support a new Risk Office; and invest 
in much-needed technology upgrades.
    In a constrained budget environment, Federal employees and 
administrative expenses are often the first items to be cut, but in the 
long term, costs resulting from weak oversight are bound to outweigh 
any savings that would result from cutting FHA's workforce.
                                closing
    And as we climb back from the housing crash, we must also remember 
the lessons learned from the rise and fall of the housing market.
    We must have soundly underwritten mortgages and a process that is 
fair and transparent from the moment a potential homeowner applies for 
a mortgage all the way through loss mitigation or foreclosure.
    This crisis has also taught us the importance of having a balanced 
national housing policy--one that includes both rental and 
homeownership opportunities.
    At the same time, we must be careful not to overcorrect--as is 
happening today--and close the door to homeownership for hardworking, 
responsible Americans.
    I believe that we should continue to strive for a market in which 
Americans who work hard, provide for their families, and pay their 
bills, have an opportunity to own a home.
    And I think that FHA will continue to be part of that vision.
    I look forward hearing from Ms. Galante and with that I turn it 
over to Senator Collins.

    Senator Murray. And with that, I turn it over to Senator 
Collins for her opening statement.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you very much, Madam Chairwoman. And 
thank you for holding this hearing on FHA and the future of the 
housing finance market. I join you in welcoming Acting 
Commissioner Carol Galante before our subcommittee this 
morning.
    I want to begin my remarks by commending the 
administration's new protections for our Active Duty military 
servicemembers and veterans based on the recent settlement with 
the Nation's largest banks. It is appalling to think that 
lenders were taking advantage of the very people protecting our 
Nation. While not every lender was culpable, obviously, the 
fact that any of them were doing this is totally unacceptable.
    While the administration has made several announcements 
regarding existing housing programs, the administration has yet 
to present a comprehensive plan to stabilize the housing market 
and to reinvigorate private sector participation.
    HUD faces many challenges in balancing the goal of 
strengthening responsible homeownership while minimizing the 
financial risk to the FHA and, thus, the taxpayers. Ultimately, 
FHA should play a more limited role in the mortgage market and 
help encourage the private sector to reassert its primacy.
    Since its inception, FHA has provided mortgage insurance 
for more than 39 million single-family home mortgages, and 
53,000 multifamily mortgages. This program finances nearly 30 
percent of home purchase loans and about 10 percent of 
refinance loans nationwide.
    FHA continues to partner with current and prospective 
homeowners during these difficult economic times. In addition 
to helping FHA program participants refinance to take advantage 
of lower interest rates, FHA also assists non-FHA homeowners in 
refinancing untenable mortgages. When financially sound, FHA is 
an essential component of the recovery of the housing market.
    The weakening of our housing sector over the past several 
years has had a tremendously negative impact on far too many 
families and communities throughout the Nation. The housing 
market recession is not yet over, and a sustained recovery is 
still uncertain. The Federal Reserve recently reported that on 
average, national housing prices had fallen 33 percent from 
their peak in 2006. Underscoring the Federal Reserve's view 
that housing prices remain under pressure, Standard & Poor's 
Case-Shiller Index for U.S. home prices is down 4 percent from 
last year. This is particularly troubling since FHA currently 
insures over $1 trillion in mortgages.
    The agency's role has dramatically expanded since the 
beginning of the housing crisis. Prior to the crisis, FHA 
accounted for less than 4 percent of the single-family housing 
market. HUD now estimates that FHA accounts for nearly 16 
percent of the overall market share.
    It is also troubling that for the third consecutive year, 
FHA has not met its statutory requirement of maintaining a 2-
percent capital reserve ratio. Further, the budget indicates 
that FHA could have required as much as $688 million from the 
Treasury in order to remain solvent. Fortunately, it has, in 
essence, been bailed out by the recent foreclosure settlement 
agreement.

                           PREPARED STATEMENT

    These are not easy issues to resolve, but they are 
critically important to our Nation's long-term economic health, 
and to the housing needs of many American families. I remain 
concerned that we must reform our present housing finance 
programs, but in doing so, we must remain ever mindful to limit 
the taxpayer's exposure to additional financial losses.
    Thank you, Madam Chairman.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Chairman Murray, thank you for holding this important hearing on 
the Federal Housing Administration (FHA) and the future of the housing 
finance market. I join you in welcoming Acting Commissioner Carol 
Galante before our subcommittee this morning.
    I want to start by commending the Administration's new protections 
for our active military servicemembers and veterans based on the recent 
settlement with the Nation's largest banks. It is appalling to think 
that lenders were taking advantage of the very people protecting our 
Nation.
    While the Administration has made several announcements regarding 
existing housing programs, they have yet to present a comprehensive 
plan to stabilize the housing market and reinvigorate private sector 
participation.
    The Department of Housing and Urban Development (HUD) faces many 
challenges in balancing the goal of strengthening responsible 
homeownership while minimizing the financial risk to FHA and the 
taxpayer. Ultimately, FHA should play a more limited role in the 
mortgage market and help encourage the private sector to reassert its 
primacy.
    Since its inception, FHA has provided mortgage insurance for more 
than 39 million single-family home mortgages and 53,000 multifamily 
mortgages. The program finances nearly 30 percent of home purchase 
loans and about 10 percent of refinance loans nationwide.
    FHA continues to partner with current and prospective homeowners 
during these difficult economic times. In addition to helping FHA 
program participants refinance at lower interest rates, FHA also 
assists non-FHA homeowners in refinancing untenable mortgages. A 
financially sound FHA is an essential component in the recovery of the 
housing market.
    The weakening of our housing sector over the past several years has 
had a tremendous impact on families and communities throughout the 
Nation. The housing market recession is not yet over, and a sustained 
recovery is still uncertain. The Federal Reserve recently reported that 
on average national housing prices have fallen 33 percent from their 
2006 peak. Underscoring the Federal Reserve's view that housing prices 
remain under pressure, Standard & Poor's Case-Shiller index for U.S. 
home prices is down 4 percent from last year.
    This is particularly concerning since FHA currently insures over $1 
trillion in mortgages. The agency's role has dramatically expanded 
since the beginning of the housing crisis. Prior to the crisis, FHA 
accounted for less than 4 percent of the single family housing market; 
HUD now estimates that FHA accounts for nearly 16 percent of the 
overall market share.
    It is troubling that for the third consecutive year, FHA has not 
met its statutory requirement of maintaining a 2-percent capital 
reserve ratio. Further, the budget indicates FHA could have required as 
much as $688 million from Treasury in order to remain solvent, had it 
not been bailed out by the recent foreclosure settlement agreement.
    These are not easy issues to resolve, but they are critically 
important to our Nation's long-term economic health. I remain concerned 
that we must reform our present housing finance programs. In doing so, 
we must remain mindful to limit taxpayers' exposure to additional 
financial losses.
    I look forward to working with you on these important issues.
    Thank you.

    Senator Murray. Thank you very much. With that, we will 
turn to you for your opening statement, and appreciate your 
being here again today. Thank you.

                SUMMARY STATEMENT OF HON. CAROL GALANTE

    Ms. Galante. Thank you, Chairman Murray and Ranking Member 
Collins, for the opportunity to testify on the fiscal year 2013 
budget request for the Federal Housing Administration. 
Encompassing HUD's Single Family, Multifamily, and Healthcare 
Financing Programs, as well as HUD's Housing Counseling 
Program, our office is critical to ensuring more Americans have 
the opportunity to realize or maintain the economic security of 
the middle class.
    And the work this administration has done is going a long 
way to create an economy built to last. Three years ago, with 
the housing market collapsing and private capital in retreat, 
we took decisive action to address the crisis and lay the 
groundwork for recovery.

                 FEDERAL HOUSING ADMINISTRATION REFORM

    Since the start of this administration, FHA has helped 
nearly 2.8 million families buy a home, and over 1.7 million 
homeowners refinance into stable, affordable loans. And with 
your help, we have taken the most significant steps in FHA's 
history to reduce risk to the taxpayer and reform FHA 
practices. We have ensured that FHA has the flexibility 
necessary to price its products appropriately for current risks 
and market conditions, and we have transformed FHA's risk 
management system to better align with the needs and realities 
of the 21st century mortgage market. These reforms have 
contributed to the most profitable books of business in FHA's 
78-year history.
    Still, FHA continues to be strained by loans originated 
before this administration took office. That is why we continue 
to take action to strengthen FHA's MMI Fund. Our budget 
reflects the implementation of the 10-basis-point increase to 
FHA's single-family annual mortgage insurance premiums, as well 
as an additional 25-basis-point increase to annual premiums for 
jumbo loans. With these changes, FHA is projected to add $8.1 
billion in receipts to the Capital Reserve account in 2013.
    In addition, in the past week, FHA has announced two 
premium changes: An increase in our up-front mortgage insurance 
premium by 75 basis points, and an adjustment in premiums for 
Streamline Refinance loans. FHA's Streamline Refinance allows 
current FHA borrowers who are current on their mortgages to 
refinance their homes, which at today's low interest rates, can 
result in $3,000 in annual savings for the typical borrower and 
bolster their ongoing ability to pay, thereby lowering their 
risk to FHA.
    Those changes to our premiums not included in the budget 
are expected to produce an additional $1 billion in budget 
receipts this fiscal year and next, above what is already 
projected in the President's budget.
    We also continue to take significant steps to strengthen 
accountability for FHA lenders, including the recent servicing 
and origination settlements with some of the Nation's largest 
mortgage lenders, which will provide FHA with over $900 million 
to compensate for losses resulting from their serious 
violations of FHA requirements by these lenders. And we are 
seeking expanded authority via legislation that will further 
enable us to protect the MMI Fund.
    While FHA will continue to play an important role in 
supporting the housing recovery in the year ahead, we are 
committed to reducing the Government's footprint over time. 
With FHA's loan volume already down 34 percent from its peak in 
2009, and our market share declining to its current level of 
15.6 percent, we have set the stage for private capital to 
return, while ensuring that FHA remains a vital source of 
financing for underserved borrowers and communities.
    While additional risks clearly remain for FHA as the 
economy continues to recover, the significant reforms and 
strong enforcement efforts undertaken by this administration 
are yielding sound and profitable businesses, positioning FHA 
well for the future.
    Despite FHA's important work throughout the crisis, there 
remain sectors of the housing finance market where additional 
liquidity is still needed. One of those areas is in small 
building finance for rental homes. Nearly one-third of the 
Nation's renters live in small properties of 5 to 49 units, but 
these properties are at risk of disinvestment because they can 
be expensive to finance. That is why, as part of the 
President's budget, HUD is seeking authority to facilitate 
lending to small multifamily properties through minor changes 
to our Risk Share Program, and we look forward to working with 
Congress on this initiative.

                           HOUSING COUNSELING

    Critical to ensuring success of much of FHA's work is 
housing counseling, and we are making significant improvements 
to HUD's program. Not only did we get our NOFA (Notice of 
Funding Availability) on the street within days of the fiscal 
year 2012 budget passage, but we plan to announce grant awards 
next week.
    And we are also well on our way to setting up a new Office 
of Housing Counseling. In recognition of the hard work of 
housing counselors last week, the White House and HUD honored 
them in a Champion of Change Award. I was honored to 
participate in this event and meet with people who are tackling 
this Nation's issues head on.
    Finally, as we look to make all of our programs more 
efficient and effective, the FHA Transformation Initiative will 
enable us to replace outdated systems with modern technology. 
These efforts will allow FHA to better assess risk, monitor 
market trends, and ensure that FHA programs are available for a 
long time to come.

                           PREPARED STATEMENT

    And so, Madam Chair, this budget reflects this 
administration's belief that the recovery of our housing market 
is essential to the restoration of our economy by targeting 
resources where they are most needed, while ensuring the 
protection of taxpayer interests. HUD's Office of Housing is 
doing its part to create housing and communities built to last.
    Thank you.
    [The statement follows:]
                Prepared Statement of Hon. Carol Galante
    Chairman Murray, Ranking Member Collins, and members of the 
subcommittee, thank you for the opportunity to testify today regarding 
the fiscal year 2013 budget request for the Federal Housing 
Administration (FHA).
    When this administration took office, the economy was on the brink. 
Only weeks before this administration took office, the Nation was 
losing 753,000 jobs a month, our economy had shed jobs for 22 straight 
months, house prices had declined for 30 straight months, and consumer 
confidence had fallen to a 40-year low and dramatic steps were taken to 
prevent a complete financial meltdown. Today, an economy that was 
shrinking is growing again--and instead of rapid job loss, more than 
3.7 million new private sector jobs have been created in the last 23 
months, and national unemployment has fallen to a near 3-year low.
    And, because the Obama administration moved to keep interest rates 
low and restore confidence in the housing market more than 13 million 
homeowners have refinanced their mortgages since April 2009--putting 
nearly $22 billion a year in real savings into the hands of American 
families and into our economy. As financing options tightened for 
millions of Americans due to uncertainties in the credit markets, the 
Federal Housing Administration played a critical role in returning 
stability to the housing market by providing access to credit to the 
millions of families seeking to purchase a home during the worst 
housing market in generations. This countercyclical role is part of 
FHA's core mission, and it remains vital as we take further steps to 
strengthen the housing market.
    Today, because we provided a range of solutions to responsible 
families fighting to hold on to their homes, more than 5.6 million 
families have been able to reduce their payments and modify their loans 
to more sustainable terms and foreclosure notices are down nearly 50 
percent since early 2009. The resources we provided for communities 
struggling with concentrated foreclosures have enabled them to fund 
better uses for almost 100,000 vacant and abandoned properties through 
our Neighborhood Stabilization Program. Most important of all, because 
of our commitment to economic growth and recovery, our economy has 
added private sector jobs for 23 straight months, totaling 3.7 million 
jobs.
    But we know there's still more work to do to ensure that America 
can create an economy built to last. The fiscal year 2013 budget for 
the Department of Housing and Urban Development (HUD) tackles these 
challenges head on. And, as part of HUD's efforts, FHA is continuing 
its efforts to help responsible families at risk of losing their homes 
and providing quality affordable rental housing to some of our Nation's 
most vulnerable families. The President's fiscal year 2013 budget also 
reflects the reality that we cannot create an economy built to last 
without taking responsibility for our deficit. The caps set by the 
Budget Control Act of 2011 promise over $907 billion in total 
discretionary cuts over the next 10 years, and every department shares 
a responsibility to make tough cuts so there's room for investments to 
speed economic growth. Indeed, the overall HUD budget makes tough 
choices in order to contribute to deficit reduction in a substantial 
way.
    The HUD budget provides $44.8 billion for HUD programs, an increase 
of $1.4 billion, or 3.2 percent, above fiscal year 2012. This program 
funding level (i.e., gross budget authority) is offset by $9.4 billion 
in projected FHA and Ginnie Mae receipts, leaving net budget authority 
of $35.4 billion, or 7.3 percent below the fiscal year 2012 enacted 
level of $38.2 billion. Today, I would like to discuss FHA's 
contributions to the HUD budget and the overall housing market with you 
in more detail.
                  responding to the market disruption
    This administration entered office confronting the worst economic 
crisis since the Great Depression--as mortgages were sold to people who 
couldn't afford or understand them, while banks packaged them into 
complex securities that they made huge bets on, leaving American 
homeowners with the tab. And, while the largest factors contributing to 
this crisis were market driven, the American people have turned to 
Congress and the administration for leadership and action in righting 
our Nation's housing market.
    HUD remains firmly committed to working together with communities 
and individuals to cope with these unprecedented challenges. The 
Federal Housing Administration and Government National Mortgage 
Association (GNMA) continue to have a significant impact on the 
Nation's economic recovery. The activities of the Federal Government 
are critical to both supporting the housing market in the short term 
and providing access to homeownership opportunities over the long term, 
while minimizing the risk to taxpayers. FHA has stepped up to face 
these unprecedented challenges, playing an important countercyclical 
role in the housing market today.
    Three years ago, as credit markets froze, FHA remained one of the 
few vehicles available for homeowners to obtain financing through 
purchase and refinance loans. As a result, FHA's market share grew. 
This increase in volume reinforced the need for FHA to strengthen 
credit policy and risk management practices and make lenders 
accountable. FHA has also taken steps to adjust its premium structure 
and improve recoveries on its Real Estate Owned (REO) portfolio. These 
efforts combined are intended to ensure that the Mutual Mortgage 
Insurance Fund (MMIF) has sufficient resources to account for its 
growth, while also supporting the housing market. And as a result of 
these efforts, the books of business originated since this 
administration took office reflect higher credit quality than FHA 
historical averages. Yet, we know that there is much work to be done.
    While the number of homeowners at risk of losing their home is down 
significantly, there are still too many families that face hardships 
and are underwater, and unaffordable monthly payments put them at an 
increased risk of default, dragging down markets, reducing labor 
mobility and consumer spending alike. That is why FHA is also taking 
steps to ease the process whereby FHA borrowers can refinance into new 
FHA insured loans and take advantage of today's low interest rates, and 
will work with Congress and other stakeholders to allow non-GSE 
homeowners who are underwater to refinance into a separate FHA 
refinance program.
    And in areas where the housing crisis has hit the hardest, 
foreclosures, large volumes of vacant properties, and resultant blight 
and abandonment, continue to drag down property values and destabilize 
communities. That is why FHA is working with its Federal partners at 
Treasury and the Federal Housing Finance Agency to develop programs to 
convert REO properties to rental properties. By reducing vacancy rates 
and lowering the overhang of foreclosed properties, this initiative has 
the potential to stabilize both house prices and neighborhoods, 
contributing to a more rapid recovery for communities struggling to 
emerge from the recent recession.
    Overall, the efforts of FHA have been integral in providing 
liquidity in a time of market constriction, keeping people in their 
homes and addressing the shadow inventory.
              overview of the fha fiscal year 2013 budget
    FHA has insured over 40 million mortgages through its Single 
Family, Multifamily and Healthcare programs since its inception in 
1934. In exchange for adherence to strict underwriting, application and 
servicing requirements established by HUD and the payment of mortgage 
insurance premiums, FHA-approved lenders are able to file a claim with 
the FHA if a borrower defaults on their mortgage loan.
    FHA, directly and through its partners in the housing counseling 
industry, has played a key role in mitigating the effect of economic 
downturns in the real estate market. Due to FHA's traditional 
countercyclical role, the volume of FHA insured loan products increased 
substantially beginning in 2009 and, while FHA loan volumes have 
decreased since that peak, the pressures on FHA and its borrowers have 
also increased due to the economic downturn.
    In fiscal year 2013, HUD is requesting $400 billion in loan 
guarantee authority for the Mutual Mortgage Insurance Fund (MMIF), 
which will provide an estimated 0.8 million single-family mortgages, 
and $25 billion in loan guarantee authority for the General and Special 
Risk Insurance Fund (GI-SRI), which will provide an estimated 156,000 
units in multifamily housing properties and an estimated 80,600 beds in 
healthcare facilities.
    The need for this investment is clear as FHA has played a critical 
role in stabilizing the Nation's mortgage market. At a time when 
liquidity and access were needed most in the housing market to 
facilitate the recovery of the broader economy, FHA stepped in to 
ensure that mortgage capital continued to flow. However, FHA's expanded 
role is and should be temporary and, to that end, FHA is taking steps 
in all of its business lines to encourage the return of private capital 
into the mortgage market while balancing the need to remain a 
supportive mechanism for all types of housing moving forward.
FHA Multifamily and Healthcare Mortgage Insurance Programs
    FHA Multifamily and Healthcare Mortgage Insurance Programs operate 
under FHA's GI-SRI Fund. These programs encourage critical mortgage 
financing opportunities that strengthen communities by addressing 
specialized financing needs including insurance for loans to develop, 
rehabilitate, and refinance multifamily rental housing, nursing home 
facilities and hospitals.
    FHA has steadily provided liquidity in the market during times of 
economic constriction. Combined with historically low interest rates, 
FHA has seen exponential growth in this area. Commitments for FHA 
insured multifamily housing and healthcare facilities rose from $4.3 
billion in fiscal year 2008 to $17.5 billion in 2011. FHA's multifamily 
and healthcare programs have helped private lenders fill the gap left 
with the shrinkage of the conventional finance resources. And while 
this market seems to be rebounding, we continue to expect high levels 
of mortgage insurance activity for the remainder of fiscal year 2012 
and through fiscal year 2013, albeit below the peak in 2011. As of 
September 2011, the FHA's portfolio of multifamily and healthcare loan 
guarantees had an unpaid principal balance of $76.4 billion on 12,666 
loans and counting.
    Given this unprecedented increase in the number and dollar volume 
of loans insured under GI-SRI, the fiscal year 2013 budget also 
includes premium increases for FHA's General Insurance and Special Risk 
Insurance programs that serve market rate multifamily properties and 
healthcare facilities. These changes, the first premium increase in 10 
years for these programs, are intended to ensure that FHA products are 
priced appropriately to compensate for FHA's risk and encourage the 
return of private capital to our mortgage markets. The proposed 
increases range from 5 basis points for 223(a)(7) refinancing to 20 
basis points for 221(d)(4) new construction or rehabilitation activity. 
Premiums for affordable housing projects (such as those with HUD rental 
subsidies and low-income housing tax credits, as well as those insured 
under FHA risk-sharing programs) will not be increased.
    With the proposed premium increases, FHA Multifamily and Healthcare 
loans will be priced more appropriately to encourage the return of 
private capital while, at the same time, continuing to ensure 
sufficient levels of available capital in these sectors. The increase 
in premiums also reflect new realities--the Multifamily annual book of 
business is five times greater than it was just 3 years ago, and the 
risk profile has changed dramatically. FHA's multifamily apartment 
portfolio is now more than 50 percent market rate by unit count and 70 
percent by unpaid principal balance (UPB), which adds a new component 
of risk, and a need to take steps to ensure the future viability of the 
portfolio. With interest rates at a record low the existing portfolio 
loans could remain in FHA's portfolio longer than the average 
timeframes and will need to be managed prudently. FHA will publish the 
proposed increased in the Federal Register in the next 30-60 days and 
welcomes feedback during the comment period.
    During this period of increased activity, FHA has also taken steps 
to reduce the processing time of loan applications. The Office of 
Multifamily Housing has centralized processing of Section 223(a)(7) 
loans to the Office of Affordable Housing Preservation which allows 
Multifamily Field Office staff to work on the increasingly complex 
transactions in their pipeline. Additionally, Multifamily Housing and 
Healthcare have initiated a queue and early warning screening system in 
order to more efficiently manage workload and provide greater 
transparency to lenders and borrowers regarding the status of their 
loan applications. Finally, FHA is conducting monthly performance 
dialogues with field staff to discuss progress toward meeting 
processing goals and identify proactive solutions to address 
performance deficiencies in order to ensure that every effort is taken 
to reduce processing times and get funds into communities.
    This process is already producing results. Survey results 
demonstrate that staff morale has improved significantly in the offices 
participating in the pilot roll out of this new process. HUD staff feel 
encouraged to come up with new and better ways of doing things and 
these offices are processing applications for multifamily insurance 
more efficiently and effectively. Offices that had a large backlog of 
applications have begun to methodically clear out older applications. 
For instance, our Denver office went from having 30 applications that 
were older than 90 days in their pipeline to having only 24 overdue 
applications. In Chicago, 100 percent of the 223(a)(7) loans were 
processed in less than 30 days and 50 percent of its 223(f) 
transactions in less than 45 days in January.
    In addition, as part of the efforts of FHA's Multifamily and 
Healthcare programs to strengthen communities by addressing specialized 
financing needs, HUD is seeking authorization to extend support for 
Critical Access Hospitals and Small Multifamily Buildings (5-50 units).
    We are appreciative of the Congress' longstanding support for 
Critical Access Hospitals by amending section 242 to permit these 
important facilities to be eligible for FHA insurance. The most recent 
amendment to the statute expired on July 31, 2011, and without action 
to once again to extend the authority under section 242 to allow these 
hospitals to be eligible, no additional Critical Access Hospitals will 
be endorsed for FHA insurance. We are grateful to the bipartisan group 
of Senators that has co-sponsored S. 1431, which would provide this 
important extension for 5 additional years and we hope that the House 
(where H.R. 2573 would also extend the critical access authority) and 
Senate will pass this language this year.
    Additionally, as part of the fiscal year 2013 budget, HUD is 
seeking authority to facilitate lending to small multifamily properties 
which are an important provider of affordable, but unsubsidized, 
housing for low- and moderate-income families. According to the 2010 
American Community Survey, nearly one-third of renters live in 5- to 
50-unit buildings. These buildings also tend to have lower median rents 
than do larger properties: $400 per month for 5-49 unit properties as 
compared to $549 per month for properties with 50 of more units. 
Because they are expensive to finance, particularly in this 
environment, these properties are at risk of divestment. We look 
forward to working with Congress to ensure the availability of these 
unsubsidized, affordable housing units.
    The efforts of FHA's Multifamily and Healthcare programs are 
essential in achieving the Department's mission of strong, sustainable, 
inclusive communities and quality, affordable housing and services for 
all Americans.
FHA Single Family Mortgage Insurance Program
    The MMIF is the largest fund covering activities of FHA, and is 
used to pay the claims associated with FHA insured single family 
mortgage loans. Since 1934, mortgage insurance provided by FHA has made 
financing available to neighborhoods and geographic areas facing 
economic uncertainty and to individuals and families not adequately 
served by the conventional mortgage market. Over 30 percent of all FHA-
insured homebuyers are minorities, with 60 percent of all African 
American and Hispanic homebuyers relying on FHA insured mortgage 
financing to purchase their homes. In the last year, over half of all 
African Americans and 45 percent of Hispanics who purchased a home did 
so with FHA-insured mortgage products. In addition, 75 percent of 
first-time homebuyers use FHA insured financing.
    The fiscal year 2013 budget request will enable FHA to continue its 
mission of providing access to mortgages for low- and moderate-income 
families and to play an important countercyclical role in the 
stabilization and recovery of the Nation's housing market. By 
facilitating the availability of credit through a variety of FHA-
approved lenders, including community banks and credit unions, FHA has 
helped over 2 million families buy a home since President Obama took 
office.
    Due to reduced liquidity in the conventional mortgage market, FHA 
saw a surge in activity, reaching a peak in 2009. However, FHA's loan 
volume has declined 34 percent from its peak in 2009, and its market 
share is decreasing for the first time since 2006, thereby laying the 
ground work for private capital to return to the single family market. 
Today, FHA's total market share is 15.6 percent, down from 17 percent 
in 2010 and over 21 percent in 2009.
            Strengthening FHA Mutual Mortgage Insurance Fund and Paving 
                    the Way for Private Capital To Return
    While FHA's portfolio has grown in recent years, the fund has also 
experienced significant losses. The books of business in the few years 
before 2009 have largely driven the high number of claims to the MMIF. 
This was driven by overall economic and unemployment trends as well as 
by the combined effects of, unscrupulous and non-compliant practices on 
the part of lenders, and a seller-funded downpayment assistance program 
that allowed many borrowers to obtain mortgages without a meaningful 
down payment. As a result, the books of business FHA insured prior to 
the start of this administration have severely impacted the health of 
FHA's MMIF. But thanks to our efforts since taking office, I can say 
that the long-term outlook for FHA and the MMIF are now much better 
than they were in 2009.
    The change in trajectory in the performance of FHA-insured loans is 
no accident. Immediately upon taking office, this administration acted 
quickly and aggressively to protect FHA's MMI Fund and to ensure its 
long-term viability. We have taken more steps since January 2009 to 
eliminate unnecessary credit risk and assure strong premium revenue 
flows in the future than any administration in FHA history. Indeed, the 
gains FHA has experiences since 2009 are the result of systematic 
tightening of risk controls, increased premiums to stabilize near-term 
finances, and expanded usage of loss mitigation workout assistance to 
help homeowners avoid foreclosure, stricter lender enforcement, and 
improved recovery strategies for FHA's REO portfolio.
    And, we continue to take steps to further strengthen the fund. In 
the 2013 budget we announced a 10-bps annual premium increase on all 
FHA insured loans to comply with the requirement passed by Congress 
late last year, as well as an additional 25 bps annual premium increase 
on ``jumbo'' loans making the total increase for these larger loans 35 
bps. And just last week, we announced a 75-bps increase in FHA's 
upfront mortgage insurance premium that will further increase receipts 
to FHA by over $1 billion in fiscal years 2012 and 2013, beyond the 
receipts already included in the President's budget submission, while 
having minimal impact on consumers.
    In addition, we have also taken significant additional steps to 
increase accountability for FHA lenders. Via a final rule which took 
effect on February 24, 2012, we clarified the basis upon which FHA will 
require indemnification from lenders participating in our Lender 
Insurance program, making clear the rules of the road for lenders and 
giving FHA a solid foundation for requiring indemnification by lenders 
for violations of FHA guidelines. And we continue to seek expanded 
authority via legislation that will further enable us to protect the 
MMI Fund from unnecessary and inappropriate losses associated with 
lenders who violate our requirements. Specifically, FHA is pursuing 
authority to hold our Direct Endorsement (DE) lenders to the same 
standards as our Lender Insurance (LI) lenders by instituting required 
lender indemnification for DE lenders who do not following FHA 
requirements. Current FHA only has this authority for LI lenders. 
Additionally, FHA is seeking authority to take enforcement actions 
against all lenders on a broader, geographic basis rather than just at 
the branch level. This authority would allow FHA to address systematic 
risk to the MMIF.
    Recently, we announced another step to hold lenders accountable for 
their actions via the settlements with some of America's largest 
lenders. Through these settlements, FHA will receive over $900 million 
compensation for losses associated with loans originated outside of FHA 
requirements, or for which FHA's servicing requirements were violated.
    Despite the unprecedented efforts of this administration to alter 
the trajectory of FHA, considerable risks remain. The FHA MMI Fund has 
two components: The Financing Account, which holds enough money to 
accommodate all expected losses on FHA's insured MMI portfolio as of 
the end of the current fiscal year; and the Capital Reserve Account, 
which is required to hold an additional amount equal to 2 percent of 
the insurance in force. Since 2009, the fund's capital reserve ratio 
has been below that 2-percent level.
    The President's budget always includes estimates regarding the 
status of the Capital Reserve at the end of the current fiscal year. 
This estimate is based on estimates and projections of future economic 
conditions, including house prices and other economic factors which may 
or may not come to pass. The 2013 budget estimate for the FHA Capital 
Reserve account does not include the almost $1 billion of added revenue 
over the remainder of fiscal year 2012 and fiscal year 2013 from the 
additional premium increases announced this week or the proceeds from 
FHA-approved lenders under the terms of the mortgage settlements. With 
these additional revenues accounted for, the Capital Reserve is 
estimated to have sufficient balances to cover all future projected 
losses, as long as economic conditions do not significantly worsen. 
Moreover, the budget estimates that FHA will add an additional $8 
billion to the MMI Capital Reserve account in 2013, and return to the 
congressionally mandated capital reserve ratio of 2 percent by 2015.
Office of Housing Counseling
    HUD's Housing Counseling Assistance program was developed over 40 
years ago at a time of severe divestment in housing, unaffordable 
interest rates, high unemployment, and irresponsible lending practices. 
Over time, this program has evolved in depth and complexity, as have 
the issues that it has had to address. Today, housing counseling is 
more critical than ever as homeowners seek assistance to navigate the 
many hurdles associated with obtaining a modification. We know that but 
for the work of counselors, many homeowners wouldn't have received 
assistance at all and would likely have lost their home to foreclosure. 
And it is critical for the many first-time homebuyers looking to secure 
financing in a market where credit and underwriting standards have 
dramatically tightened. Housing counseling also assists renters to 
budget, save, repair their credit, avoid scams, and access unbiased 
information about housing and financial choices. Last year, HUD housing 
counseling grants resulted in direct assistance to approximately 
186,000 households and leveraged additional non-Federal funding so that 
HUD-approved housing counseling agencies could educate and counsel 
nearly 2 million American households last year.
    It is tragic that public and private support for housing counseling 
has been shrinking at a time of great need. We hear anecdotally that 
housing counseling agencies are laying off skilled, trained housing 
counselors as traditional sources of funding such as charitable 
contributions from financial institutions has diminished. Yet recent 
studies confirm the value of HUD-approved housing counseling. Research 
evidence documents the role of housing counseling in reducing mortgage 
delinquency and foreclosure, on helping first-time buyers access and 
sustain homeownership, and on the special role of counseling related to 
HECM reverse mortgages. Most studies have found that pre-purchase 
counseling leads to positive results, reducing delinquency anywhere 
from 19 to 50 percent, although one study reported no impact.
    HUD-approved housing counseling is also effective in the context of 
mortgage delinquency and default. A nationwide Urban Institute study by 
Mayer, et al., (2010) of the foreclosure mitigation counseling program 
(which uses the HUD housing counseling program infrastructure as a 
base) found that borrowers in foreclosure were 70 percent more likely 
to get up-to-date on payments if they received the counseling. The same 
Urban Institute study showed that homeowners who received a mortgage 
modification to resolve a serious delinquency were 45 percent more 
likely to sustain that modification if it was obtained with the help of 
counseling.
    Today, HUD approves, monitors, and supports more than 2,600 
counseling organizations. Through the new Office of Housing Counseling, 
HUD will support a network of agencies and counselors, trained and 
certified to provide tools to current and prospective homeowners and 
renters so that they can make responsible choices to address their 
housing needs in light of their financial situation. Further, the 
Office of Housing Counseling will work to make this network accessible 
throughout the country to those who need objective and reliable 
information in order to make sound housing and budget decisions, 
especially those with low to moderate incomes or otherwise underserved, 
or those at risk of housing loss or homelessness.
    For fiscal year 2013, HUD requests $55 million for the Housing 
Counseling Assistance Program which is expected to inform over 186,000 
households about their housing choices in the areas of purchase or 
refinancing of their home; rental housing options; reverse mortgages 
for seniors as part of required Home Equity Conversion Mortgage (HECM) 
counseling; foreclosure prevention; loss mitigation; preventing 
evictions and homelessness; and moving from homelessness to a more 
stable housing situation. These funds will also be used to launch the 
Office of Housing Counseling which was created as part of the Dodd-
Frank Wall Street Reform Act.
    The majority of the funds requested in the budget, nearly $45.5 
million, are expected to be distributed competitively to support direct 
provision of a holistic range of services that are appropriate for 
local market conditions and individual needs. An additional $6 million 
will be used to strengthen the quality of housing counseling through 
training grants which will ensure that individual counselors and 
organizations develop the knowledge and capacity to meet the new 
certification requirements which HUD must implement under Dodd-Frank. 
The remaining $3.5 million will be used for administrative contracts 
and support geared towards streamlining internal HUD processes and 
enhancing oversight.
    Last fiscal year, Congress appropriated $45 million for this 
program. I am proud to tell you that we expect that the awards for the 
portion of those funds used for grants will be announced next week, 
ahead of the aggressive schedule set by the Fiscal year 2012 
Appropriations Act. This will ensure that these funds get into the 
hands of the counseling agencies that need them as quickly as possible.
  fha as part of the administration's efforts to bolster the housing 
                                 market
    The increase in FHA's market share is directly tied to its 
countercyclical role in the recent economic crisis. In addition, FHA is 
playing a critical role in the administration's work in tackling 
ongoing foreclosure challenges. Between April 2009 and December 2011, 
more than 5.6 million mortgage modifications were started--including 
more than 950,000 permanent HAMP modification saving households an 
estimated $11 billion in monthly mortgage payments and nearly 1.2 
million FHA loss mitigation actions and early delinquency 
interventions.
    Between April 2009 and December 2011, more than 5.6 million 
mortgage modifications were started--including more than 950,000 
permanent HAMP modification and nearly 1.2 million FHA loss mitigation 
actions and early delinquency interventions--saving households an 
estimated $11 billion in monthly mortgage payments.
    As part of the administration's commitment to help responsible 
homeowners stay in their homes, we have actively sought to use our 
current programs and authorities to make homeownership sustainable for 
millions of American families. Examples of our efforts include:
  --FHA Streamline Refinance.--An option that allows borrowers with 
        FHA-insured loans who are current on their mortgage to 
        refinance into a new FHA-insured loan at today's low interest 
        rates without requiring additional underwriting, permitting 
        these borrowers to reduce their mortgage payments. This program 
        benefits current FHA borrowers--particularly those whose loan 
        value may exceed the current value of their home--and by 
        lowering a borrower's payment, also reduces risk to FHA. To 
        help more FHA borrowers take advantage of this program, this 
        week FHA announced an adjusted premium structure for these 
        loans, reducing premiums for all Streamline Refinance 
        transactions that are refinancing FHA loans endorsed on or 
        before May 31, 2009, to further incentivize refinance activity. 
        These changes--reducing the upfront mortgage insurance premium 
        for these loans to 1 bp and the annual to 55 bps--will ensure 
        that borrowers benefit from a net reduction in their overall 
        mortgage payment while still ensuring FHA has the resources to 
        pay any necessary claims. This change to the premium structure 
        of Streamline Refinances is also consistent with the annual 
        premium that these borrowers were subject to when their loans 
        were originated.
      And, because we see potential for more widespread use of this 
        product, FHA will make changes to the way in which streamline 
        refinance loans are displayed in the Neighborhood Watch Early 
        Warning System (Neighborhood Watch) to reduce lender concern 
        about the potential impact associated with taking 
        responsibility for loans they have not underwritten, making 
        them more willing to offer these loans to borrowers who are 
        current on mortgages already insured by FHA.
  --Short Refinance Option.--In 2010, FHA made available an option that 
        offers underwater non-FHA borrowers, who are current on their 
        existing mortgage and whose lenders agree to write off at least 
        10 percent of the unpaid principal balance of the first 
        mortgage, the opportunity to refinance into a new FHA-insured 
        mortgage.
      To protect FHA's MMI Fund, a line of credit in the amount of $8 
        billion has been set up to cover losses the fund might incur as 
        a result of the FHA Short Refinances having a higher than 
        normal default rate. The funds, from the TARP program, are 
        available in the event any of the short-refis go into default. 
        To date, there have been no claims filed for the short-refis 
        and the program has not used any of the TARP funds.
  --Homeowner Bill of Rights.--As another critical component to the 
        recovery of the housing market, the President has also put 
        forward a Homeowner Bill of Rights--a single, straightforward 
        set of commonsense rules that families can count on when 
        they're shopping for a mortgage, including the right to a new, 
        simple, clear form for new buyers that gives people confidence 
        when they're making the most important financial decision of 
        their lives. And those rights shouldn't end when homeowners get 
        the keys to their new home. When Americans lose their job or 
        have a medical emergency, they should know that when they call 
        their lender, that call will be answered and that their home 
        won't be sold in foreclosure at the same time they are filling 
        out paperwork to get help.
      FHA servicing standards will be updated to incorporate the 
        principles in the Homeowner Bill of Rights.
  --REO to Rental.--A glut of vacant foreclosed properties continues to 
        drag down property values and meanwhile, rental rates are 
        rising as those who lose their homes to foreclosure seek rental 
        housing, creating an unprecedented imbalance of supply and 
        demand between the purchase and rental markets. This problem 
        requires a creative, innovative mode of addressing the 
        inventory of unoccupied homes in our communities. When there 
        are vacant and foreclosed homes in neighborhoods, it undermines 
        home prices and stalls the housing recovery. The administration 
        began tackling this issue through the Neighborhood 
        Stabilization Program (NSP) and our efforts have expanded our 
        efforts through the REO to Rental initiative.
      As part of the administration's effort to help lay the foundation 
        for a stronger housing recovery, the Department of Treasury and 
        HUD have been working with the FHFA on a strategy to transition 
        REO properties into rental housing. Repurposing foreclosed and 
        vacant homes will reduce the inventory of unsold homes, help 
        stabilize housing prices, support neighborhoods, and provide 
        sustainable rental housing for American families.
      With about a quarter of a million foreclosed properties owned by 
        HUD and the GSEs, this August, HUD joined with the Federal 
        Housing Finance Agency (FHFA) and Treasury to issue a Request 
        for Information (RFI) to generate new ideas for absorbing 
        excess inventory and stabilizing prices. In all, about 4,000 
        submissions were received and, over the past several months, 
        the interagency task force has been reviewing the submissions 
        and formulating strategies based on the best practices gathered 
        from the RFI. Throughout this process, the task force has 
        continuously met with industry members, community groups, and 
        other key stakeholders to make sure they are heard in the 
        strategy development process. Ultimately, we expect a range of 
        strategies to emerge; however the most commonly discussed 
        centers around selling REO properties to buyers who will 
        convert and market them as rental units.
      Last week, Fannie Mae announced the first pilot program as part 
        of the RFI, releasing details on its plan to sell homes that 
        are part of its tenant in place portfolio. This is the first of 
        a several collaborative efforts to clear the Nation's shadow 
        inventory, an effort that FHA is an active part of. We plan to 
        learn and leverage all we can from this initial pilot as we 
        work towards conducting a series of additional pilots 
        throughout the rest of the year.
  --Broad Based Refinance.--Last, the President has called on Congress 
        to open up opportunities to refinancing for responsible 
        borrowers who are current on their mortgage but whose loans 
        aren't backed by FHA or the GSEs. Under the proposal, borrowers 
        with standard non-GSE, non-FHA loans will have access to 
        refinancing through a new program run through FHA.
      The program will be simple and straightforward. Any borrower with 
        a loan that is not currently guaranteed by the GSEs or insured 
        by FHA can qualify if they meet the following criteria--each of 
        which is designed to help reduce risk to the taxpayer:
    --They are current on their mortgage: Borrowers will need to have 
            been current on their loan for the past 6 months and have 
            missed no more than one payment in the 6 months prior.
    --They meet a minimum credit score. Borrowers must have a current 
            FICO score of 580 to be eligible. Approximately 9 in 10 
            borrowers have a credit score adequate to meet that 
            requirement.
    --They have a loan that is no larger than the current FHA loan 
            limits in their area: Currently, FHA limits vary 
            geographically with the median area home price--set at 
            $271,050 in the lowest cost areas and as high as $729,750 
            in the highest cost areas.
    --The loan they are refinancing is for a single family, owner-
            occupied principal residence. This will ensure that the 
            program is focused on responsible homeowners trying to stay 
            in their homes.
    --They are currently employed. To determine a borrower's 
            eligibility, a lender need only confirm that the borrower 
            is employed.
      Borrowers will apply through a streamlined process designed to 
        make it simpler and less expensive for both the borrower and 
        the lender. The President's plan includes additional steps to 
        reduce program costs, including:
    --Establishing loan-to-value limits for these loans. The 
            administration will work with Congress to establish risk-
            mitigation measures which could include requiring lenders 
            interested in refinancing deeply underwater loans (e.g., 
            greater than 140 loan-to-value) to write down the balance 
            of these loans before they qualify. This would reduce the 
            risk associated with the program and relieve the strain of 
            negative equity on the borrower.
    Cost-Savings to the Borrowers Who Participate in This New 
Program.--Given today's record low interest rates, we estimate that on 
average, borrowers who participate in this program would reduce their 
monthly payments by between $400 and $500 a month.
    Option To Rebuild Equity in Their Homes Through This Program.--All 
underwater borrowers who decide to participate in this refinancing 
program through the FHA outlined above will have a choice: They can 
take the benefit of the reduced interest rate in the form of lower 
monthly payments, or they can apply that savings to rebuilding equity 
in their homes. The latter course, when combined with a shorter loan 
term of 20 years, will give the majority of underwater borrowers the 
chance to get back above water within 5 years, or less.
    To encourage borrowers to make the decision to rebuild equity in 
their homes, we are proposing that the legislation provide for 
incentives to borrowers who chose this option. Possible incentives 
include paying for closing costs or a lower MIP. To be eligible, a 
participant in this option must agree to refinance into a loan with a 
term of no more than 20 years and with monthly payments roughly equal 
to those they make under their current loan.
    A Separate FHA Fund.--The broad-based refinance program will have a 
separate fund that is funded through premiums established and direct 
funding provided under this program with its net cost offset by the 
financial crisis fee. The program's premium structure will be designed 
in a way to ensure that homeowners have the incentive for lower monthly 
payments through the program. By maintaining a separate fund and 
funding source for this program the broad-based refinance will not be 
contingent on appropriations action and will have no impact on FHA's 
MMI Fund.
    Expanded refinance options for homeowners with non-GSE and non-FHA 
loans, along with changes to the FHA Streamline Refinance, create a 
critical patchwork of refinance programs for responsible borrowers who 
are current on their mortgage loans. Through the efforts of HUD and its 
administration partners, working together with Congress, we can ensure 
that every family can have the opportunity to take advantage of today's 
historically low interest rates. This will save homeowners thousands of 
dollars a year, and as a result provide much needed payment relief and 
further strengthen the economy.
                               conclusion
    Madam Chairman, this budget reflects this administration's belief 
that the recovery of our housing market is essential to the restoration 
of our economy and that FHA is critical to restore health and 
confidence to the housing market in particular. By targeting resources 
where they are most needed, making tough choices in order to do more 
with less, and ensuring the protection of taxpayer interests, FHA's 
Single Family, Multifamily, Healthcare and Housing Counseling Programs, 
are ensuring more Americans have the opportunity to realize or maintain 
the economic security of the middle class. And the work this 
administration has done has established a strong foundation upon which 
we will construct an economy built to last.
    Thank you.

      FEDERAL HOUSING ADMINISTRATION--STREAMLINE REFINANCE PROGRAM

    Senator Murray. Thank you very much for your testimony.
    Let me start by asking you about earlier this week when the 
President announced changes to the FHA Streamline Refinance 
Program. FHA borrowers can already do streamline refinances, 
but the changes would reduce the costs.
    Specifically, any borrower who is current on their mortgage 
and has a mortgage that was originated before June 2009 would 
pay an up-front premium, I understand, of .01 percent, and an 
annual premium of .55 percent? Normally borrowers would have to 
pay the current up-front premium of 1.75 percent and an annual 
premium of 1.25 percent.
    This change has the potential to help borrowers enjoy the 
benefits of lower interest rates, but we are all focused on 
solvency of the MMI Fund. So, I am concerned about the impact 
of that change on that fund.
    So, first of all, I wanted to ask you, who will benefit 
from this change, and how many you would expect to benefit? And 
second, what effect do you think that will have on the MMI 
Fund?
    Ms. Galante. Thank you for the question.
    So, there are a large cohort of borrowers who will benefit 
from this. Something in the magnitude of 2.5 million borrowers 
are eligible under those criteria that you mentioned. And these 
are people who are already paying 55 basis points on an annual 
basis for their mortgage insurance premium, so they will 
continue to pay the same amount and receive the full benefit, 
essentially, of a reduction in interest rate from wherever they 
are today, which obviously varies, but somewhere between 6.5 
percent down to today's rates of around 4-plus percent.
    So, there is significant benefit to them in monthly 
savings. Again, these are borrowers that already need to be 
current on the mortgages, so they are good, paying borrowers at 
this point in time. However, we all know that everyone is under 
stress in this economy, and if we can help those borrowers put 
some additional money in their pocket, we believe that over the 
long term, that strengthens their ability to continue to pay 
their mortgage payment, and does not cost FHA anything to get 
that essentially additional layer of security that they will 
continue to pay.
    So, the only cost to this, really, would be the assumption 
that there were some people who would have refinanced at the 
higher mortgage insurance premiums, and we will not receive--
there is an opportunity cost for not refinancing those people 
at the higher mortgage insurance premium. But in the mix, it is 
a very low amount to pay for that extra so-called insurance 
that doing the Streamline Refinance Program will benefit.
    And with our other changes, the 75 basis points up front 
for all other borrowers combined, we will net between fiscal 
years 2012 and 2013 an additional $1 billion in premium 
increases.
    Senator Murray. So, you do not see an impact on the MMI 
Fund, or you think it will benefit the MMI Fund.
    Ms. Galante. I think, long term, it will benefit the MMI 
Fund. And with the up-front premiums that we are charging for 
the balance of borrowers, again, we believe we are going to 
net, in addition to what is already in the President's budget, 
$1 billion in budget receipts.
    Senator Murray. Okay. When you announced the policy change, 
you also said some lenders are resistant to doing streamline 
refinances because they are concerned about how those loans 
might impact their performance assessments that are done 
through the Neighborhood Watch System. This system compares the 
performance of a lender's loans with other similar lenders.
    And so, to ease those lenders' concerns, the new policy is 
to exclude those loans from the compare ratio. I certainly want 
to see more borrowers take advantage of low interest rates, but 
I also want to make sure we are monitoring FHA lenders. So, how 
can you ensure us that lenders will still be held accountable 
for poor performance?
    Ms. Galante. Right. So, a very good question. And they will 
continue to be held accountable. Whoever originated that loan 
is still accountable for the origination. If there was fraud or 
there was a problem in that original origination of that loan, 
that lender can still be held accountable under our 
indemnification processes.
    So, we do not think that that change will have a material 
effect on our ability to monitor lenders for their origination 
errors.

     FEDERAL HOUSING ADMINISTRATION--MUTUAL MORTGAGE INSURANCE FUND

    Senator Murray. Okay. The most recent quarterly report to 
Congress on the MMI Fund shows an increase in early period 
delinquencies for Streamline Refinance mortgages. That raises 
some concerns about the current proposal. However, the report 
does note that changes to the program have been made requiring 
lenders to certify income and employment at the time of 
refinance.
    Can you explain the changes that you made to the program 
requirements and what impact you expect that to have on the 
performance of Streamline Refinance loans going forward?
    Ms. Galante. So, when the Streamline Refinance was first 
being used in the beginning of this crisis, there were not some 
of the controls that you just mentioned on the program. Putting 
those controls in, we believe, will significantly help the re-
default ratio of those loans.
    It is true that people who are being refinanced because 
they are under some kind of stress, even though they are 
current on their mortgage, may have a slightly higher default 
ratio than other people. But on the other hand, we are going to 
be better off if they do not ultimately default because we have 
lowered their interest rate. If we can help them stay out of 
default by lowering their interest rate and putting more money 
in their pocket, ultimately, we are going to benefit from that.
    Senator Murray. Okay. When the Secretary was here last 
week, we spent a bit of time talking about the health of the 
MMI Fund and the current expectation that an appropriation will 
not be needed to cover the re-estimate.
    In the past few weeks, there have been a lot of numbers 
released on the MMI Fund related to all the various settlements 
and premium increases. And I understand that the settlements 
have not been filed in court, so these numbers still are not 
final. But if you could, can you give us just a walk through on 
what has happened and where we see these, including the premium 
increases in various settlements, and the impact on the MMI 
Fund?
    Ms. Galante. Right. So, the budget projection in the 
President's budget was that if there were no additional policy 
changes and MIP (mortgage insurance premium) increases, and no 
additional funds through enforcement actions, and the economics 
that the projections were based on stayed the same and the 
volume stayed the same, that we could need to draw $688 million 
from Treasury.
    Given the policy changes in the premiums, which will 
generate, as I said, over fiscal year 2012 and into fiscal year 
2013, more than $1 billion of receipts, and the approximately 
$900 million that comes from the settlement negotiations, those 
two things obviously take away the need for the $688 million 
and leave us in the plus category to some degree.
    Now, all of this is based on assuming that there is not any 
major change in our volume from the projections that were in 
the President's budget, or from some other worsening of 
economic conditions.
    So, there is still some risk, and we do not pretend that 
there is not. But it is much less likely given the policy 
changes that we have put into place.
    Senator Murray. Okay. Thank you very much.
    Senator Collins.
    Senator Collins. Thank you, Madam Chairwoman. I want to 
follow up on the very issue that you were just discussing with 
Senator Murray. It does appear that the FHA, contrary to the 
projections in the President's budget, will narrowly avoid 
requiring funds from the Treasury in this fiscal year. But 
there are circumstances under which these steps that have been 
taken, such as the increase in mortgage insurance premiums and 
the funds from the settlement, might not be sufficient to keep 
the FHA from requiring an infusion of cash from the Treasury.
    You mentioned broader economic issues. But if you could be 
more specific on what could cause the Treasury, to be needed 
after all, despite the insurance premium increase and the 
settlement funds.
    Ms. Galante. So, I think the major issue is if house prices 
decline and they decline significantly from the projections 
both under the President's budget and from our actuarial, which 
had different projections. So, there is a range here.
    But the fact is, everyone is at risk of where house prices 
are going relative to the whole economy. We are starting to see 
some stabilization there. We are starting to see some good 
signs. But we have seen the beginning of some good signs 
before, and so we do not want to take that for granted, that it 
is just absolutely going to turn the corner here.
    So, we are continuing to do everything that we can, 
including increasing premiums, including additional enforcement 
actions. The settlements that you have seen are not necessarily 
the end of FHA's enforcement actions to keep lenders 
accountable.
    We are also making changes in our REO processes, as has 
been widely publicized. Again, if we can recover more dollars 
as we dispose of our REO, if we can stabilize the housing 
market through those kinds of actions, all of that will 
ultimately help the MMI Fund.
    So, we are going to continue to monitor this very closely. 
We are going to continue to take additional actions that we 
need to take to keep the fund healthy.

                        MORTGAGE INSURANCE FEES

    Senator Collins. But it seems that the administration is 
going in contrary directions when it comes to fees and mortgage 
premiums. On the one hand, you are increasing the premiums, but 
as part of the FHA's Streamline Refinance Program, you are 
actually substantially reducing fees and premiums.
    Now, I recognize that that is great news for hundreds of 
thousands of families, potentially lowering their monthly 
payments. But that obviously has a negative impact, I would 
think, on the FHA's capital reserves.
    Now, you said in response to a question from Senator Murray 
that ultimately you think that it is going to benefit the fund. 
I am trying to understand how cutting the fees will benefit the 
fund. Is it that you expect to make it up in volume? It seems 
inconsistent with your overall approach of increasing premiums.
    Ms. Galante. So again, this does get a little bit 
confusing. But these are borrowers who are already in our 
portfolio, who are paying 55 basis points on an annual basis 
today.
    And what we have done under the Streamline Refinance that 
was announced this week is we have said, if they want to 
refinance at today's current interest rates, essentially they 
get to keep the same premium that they have as opposed to 
having to pay the new current premiums that we have increased, 
not just this past week, but that we have increased over the 
past 3 years.
    And so, if they had to pay those higher premiums, the $175 
up front and 1.25 points over time, that would so significantly 
cut into their net benefit on a monthly basis that many of them 
simply would not choose to refinance. So, they would just stick 
where they are, and they would in some ways be a higher risk to 
us because they are paying a higher interest rate today, and 
they are not being able to take advantage of the lower interest 
rate.
    So, that is why we really believe that this is different 
than charging new borrowers for higher mortgage insurance 
premiums.
    Senator Collins. I understand that, but are you not 
actually cutting their fees compared to the fees that they are 
currently paying? I understand they are not going to have to 
pay the higher fee, but it was my understanding that you were 
going to cut the annual fee in one-half and cut the up-front 
insurance premium costs from 1 percent of the loan balance to 
.01 percent.
    Ms. Galante. So, here is where it gets a little difficult. 
For the current borrowers, they are already paying that 55 
basis points. What we are saying is we are not going to jack 
you up to the higher mortgage insurance premiums. And we had 
been doing that to other borrowers. That is how we have been 
running this program until June 1 when we have this go into 
effect.
    So, it is not cutting the existing borrowers' fees. It is 
that they will not have to pay the higher fee, if that makes 
sense.

                            CAPITAL RESERVES

    Senator Collins. Let me move to the statutorily mandated 
level of 2 percent for the capital reserves. This really 
troubles me because this is not a guideline. It is not a best 
practice. It is not a suggestion. It is not a recommendation. 
It is the law. And for the third year in a row, FHA has not met 
that level.
    Now, I understand why, and the total collapse of the 
housing market--and I know that you are putting in new premium 
increases and proposing new rules related to lender oversight. 
I guess my question is, are you confident that that is going to 
be adequate?
    I do not think you should be relying on a one-time windfall 
from the lender's settlement to get you back to the statutorily 
required level.
    Ms. Galante. So, we certainly are not relying exclusively 
on the settlement funds to get us back to the level. I mean, 
$900 million is not going to get us back to a 2-percent capital 
reserve. That is why we have been over the past 3 years 
increasing mortgage insurance premiums significantly.
    So, we have between the start of this administration and 
the premium increases announced last week, we have doubled the 
mortgage insurance premium on FHA loans. And we are financing 
borrowers at very low interest rates. Those loans are going to 
stay with us and continue to be paying a mortgage insurance 
premium for many years to come.
    And we are not going to get there up to the 2-percent 
capital reserve in 2013. It is going to take a couple of years 
of the loans that we have and that we have put this additional 
premium increase on. It is going to take a couple of years to 
late 2014, early 2015, before we project we will back to the 2 
percent. And it is not a result of just the settlement. It is a 
result of these ongoing increases in premiums to help us get 
there, as well as other activities, other policy changes that 
we are making.

                         RISK ASSESSMENTS TOOLS

    Senator Collins. Thank you, Madam Chair.
    Senator Murray. Clearly the re-estimates are going to be 
impacted by the conditions in the market that is outside, has 
control, if prices of homes decline or whatever. I think 
everybody understands that. But we also know that HUD has to 
work to improve its ability to monitor its risk and its 
estimates. And the Government Accountability Office (GAO) has 
recommended improving your risk assessment tools to better 
incorporate the risk of future economic volatility.
    In years past, the Congressional Budget Office (CBO) has 
raised concerns about your estimates, and I understand that you 
currently have a contract that will allow you to use stochastic 
modeling in the next actuarial review.
    Can you explain how that modeling is different than what 
you are doing today, and how that will change your estimates?
    Ms. Galante. Sure. I will take a stab at it. We, first of 
all, appreciate the help that Congress has given us in funding 
a number of important initiatives that help us get the modeling 
as up to date as possible.
    And stochastic modeling allows us to really have more 
dynamic scenarios built in, more variables built in, to monitor 
many different increases and changes in market conditions. And 
so, it will enable us to have many more points of range of--
under different economic conditions, what happens?
    So, it is going to provide us significantly more 
information than we have under the current modeling. But I 
would also say the modeling has been improved over the past 
couple of years. It has not been a static situation.
    Senator Murray. Does that address the concerns that GAO 
outlined for you?
    Ms. Galante. I believe so, yes.
    Senator Murray. In your testimony, you said HUD has 
clarified the rules around lender indemnification for insurance 
lenders. What aspect of the rules did you feel were important 
to clarify, and what effect will those changes have on 
enforcement going forward?
    Ms. Galante. So, the most important thing was to define 
material and serious violation so that lenders--this cuts two 
ways--lenders will know that we are not going after minor 
little box checking errors, but it is clear what they will be 
held accountable for. So, that helps them understand the 
standard that we are going to be looking at. So, that was the 
most important thing.
    Senator Murray. Okay. You expressed an interest in getting 
two additional authorities to strengthen FHA's enforcement 
abilities, including lender indemnification requirements to 
direct endorsement lenders, and expanding your authority to 
remove lenders from the program on a national basis. Can you 
explain why those different rules currently apply to those 
different classes of lenders, and what impact those proposals 
will have on your enforcement?
    Ms. Galante. So, right now the indemnification rules apply 
to our lender insurance program, which covers, I think, 70 
percent of our volume, but only 30 percent of our lenders. So, 
we kind of have a reverse situation here where the largest 
lenders doing the most amount, we can get indemnities from. But 
for the smaller lenders who are direct endorsers, we do not 
have that authority. So, that would be a smaller volume, but it 
is still important to be able, in our view, to have the same 
authority for both types of lenders. So, that is one statutory 
requirement that we would like.
    The other is, right now, it is incredibly cumbersome to go 
after lenders when we see a systematic problem with a lender 
that operates in multiple jurisdictions, because we need to 
look at their offices on a geography by geography basis and 
what problems they have in that office. So, this makes it very 
hard when we are in the 21st century where lenders are 
operating all across different geographies, and our statutory 
requirements have not really kept up with the need to have that 
kind of systematic overview.
    Senator Murray. Okay, good. And the HUD Office of Inspector 
General has recommended that you seek legislative and program 
changes to prevent lenders and their corporate officers from 
reentering the program as an officer with the same or a new 
lender. Is that a recommendation you agree with?
    Ms. Galante. We do conceptually agree with that. We have 
got to figure out exactly what the legal statutory language 
would be to walk a path of ensuring that we are keeping the bad 
guys out from just coming in the back door with another lender, 
but not trapping everybody who has worked for an institution, 
for example, that had issues, but perhaps were not directly 
involved in the----
    Senator Murray. So, the concept you agree with.
    Ms. Galante. The concept we absolutely agree with.
    Senator Murray. The language, we have to be careful with.
    Ms. Galante. Correct. That is correct.

                      REAL ESTATE-OWNED PROPERTIES

    Senator Murray. Okay. As a result of foreclosures and home 
price declines, the rental housing market is really tightening. 
So, on the one hand we have an excess supply of distressed 
housing, and on the other we have increased demand for rental 
housing and a shortage of affordable housing.
    Last August, FHA, Treasury, and the Federal Housing Finance 
Agency put out a request for information to determine interest 
in a proposal to sell distressed properties more 
systematically.
    FHFA recently announced a pilot sale of real properties, 
which would include the sale of 2,500 properties in bulk. Your 
testimony mentioned that following that pilot, FHA would do its 
own. What, specifically, is HUD considering in terms of a 
pilot, and do you have a timeframe on that?
    Ms. Galante. So, yes, thank you. There are a couple of 
things we are doing on that. The first is the Fannie pilot; the 
initial pilot is for properties where they had already tenants 
in place, and so it is a little bit separate from the rest of 
the REO-to-rental strategy that we are, as FHA, also working 
with FHFA and Government-sponsored enterprises (GSEs) on. And 
we, together, are looking at other pilot communities where all 
three of us--it might make sense to have a pilot where there is 
stock from each of those institutions, because one of the 
things we are trying to get to is ensuring that there is a 
reasonable number of units in a geography so that someone could 
actually own and manage these homes as rental housing in a 
cost-effective manner.
    Frankly, all of us have been working down our REO at the 
moment, and so there are limited geographies where it makes 
sense to do this all together. So, we are identifying those 
places, and I would hope in the next month or two that we would 
be able to announce where we would want to continue to work 
together.
    FHA is doing some other things on its own. We are 
interested in ramping up our Notes Sale Program. And without 
getting into the details, that is essentially a pre-REO sale of 
the note with the existing borrower in place. And then whoever 
buys that note has the opportunity to and requirement to work 
that borrower, maybe rent them back, maybe put them in a lease-
to-own. There are a variety of mitigation measures that they 
can do before the property reaches REO, because by that point, 
we are already losing a significant amount of money. So, there 
are a number of other things that we are working on around that 
pilot.
    Senator Murray. Okay, great. Appreciate it.
    Senator Collins.
    Senator Collins. Thank you, Madam Chairwoman.
    The administration has proposed paying for its broad-based 
refinancing plan by charging a fee on large financial 
institutions, a so-called bank tax.
    This fee has previously been proposed and rejected by 
Congress. When Secretary Donovan was before us, and also in an 
interview that he gave with reporters, he said that while he 
personally believes the fee is the right approach, HUD is open 
to exploring alternatives.
    What alternatives is HUD looking at?
    Ms. Galante. So, Senator, I would say I do not have a 
particular alternative to put on the table. The President's 
proposal does include the financial responsibility fee. If 
there are other ideas--I think what we are saying is that we 
are open to consider other alternatives for this. But it is 
important, back to the health of the FHA fund--we really think 
it makes sense to do this broad-based refinance program, but we 
also think it is important to have segmented from the MMI Fund, 
and whatever risk is in that fund to be funded from a separate 
pot of money.
    Senator Collins. I would suggest to the administration that 
since this proposal did not go anywhere in the past, that it 
would be really helpful if you came forward with other 
approaches that might be better received. I told the Secretary 
that too. I know it is a little bit out of your lane, but I did 
want to bring it up today.
    Madam Chair, I am going to submit the rest of my questions 
for the record because I do have to go to the floor to present 
an amendment.
    Senator Collins. But thank you for holding this important 
hearing. And Ms. Galante, thank you for being here today.
    Ms. Galante. Thank you.
    Senator Murray. Thank you very much, Senator Collins. And I 
just have a couple of questions left, and I appreciate your 
answering. Many of our questions we will have to submit in 
writing today.

                       UNDERWATER MORTGAGE RELIEF

    Senator Murray. We are beginning to see signs of life in 
this housing market, but there are still some looming concerns, 
especially about the number of underwater mortgages and the 
shadow inventory that is eventually going to hit the market. 
The settlement with those five largest servicers includes $17 
billion in direct consumer relief that will be provided to 
borrowers through help, like principal write-downs and short 
sales. It also includes $3 billion to support mortgage 
refinancing for underwater borrowers.
    I wanted to ask you how you expect the servicers to 
allocate the direct consumer relief among various relief 
options, and what do you expect the impact of that $3 billion 
to be?
    Ms. Galante. So, again, I think some of this is going to be 
worked out over time. Each servicer has an allocation of the $3 
billion of refinancing and the $17 billion in principal 
reduction and other consumer relief. And they have allocations 
based on a State-by-State basis.
    So, we do expect that--the combination of all of those menu 
of services across the country will help somewhere in the 
magnitude of 1.7 million owners through a variety of those 
activities. And it is going to depend on what their individual 
portfolio looks like, what State they are in, and a number of 
other factors.
    Senator Murray. So, we could see a different picture and 
different----
    Ms. Galante. Different picture in different States and by 
different institution depending on, again, what kind of 
borrowers they have in their portfolio.

                             MORTGAGE SCAMS

    Senator Murray. Okay. And finally, I wanted to ask you 
about mortgage scams. An important part of the recent 
settlement is that it provides relief to homeowners. But 
throughout this housing crisis, we have seen a lot of scam 
artists who are preying on vulnerable homeowners. And those 
perpetrating those scams have been incredibly skilled at 
adjusting their tactics as new opportunities arise. Are you 
concerned that scam artists could try and take advantage of 
homeowners who may be eligible for relief through this 
settlement?
    Ms. Galante. We are concerned, not just about the 
settlement, about that, but more broadly. When I was out at the 
event with the housing counselors that I mentioned in my 
testimony, that was one of the big things I heard, that the 
housing counseling community is trying to stay ahead of the 
scam artists. And, they get people who come into them after 
they had been taken advantage of. And it is a serious problem.
    I would say that we have a campaign that we are working 
with a number of other agencies and nonprofits that is a 
consumer education campaign. And in fact, this week is National 
Consumer Protection Week, and we are launching a campaign down 
in Atlanta today actually. The press release probably is coming 
out today. It is called Know It, Avoid It, Report It, and there 
is----
    Senator Murray. Know, Avoid It, Report It?
    Ms. Galante. Know It, Avoid It, Report It. So this is 
reaching out to borrowers to make sure that they understand 
that there are scam artists, and if they see it, if they are 
being asked for money to do certain activities, there is a 
number they can call. There is a Web site they can go to to 
report the scams that they are seeing.
    Senator Murray. Okay. I urge you to be really aggressive on 
that because these scam artists are really aggressive and stay 
ahead of us. So, I appreciate that, and we will be following 
that closely as well.
    Ms. Galante. Right.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. I believe that is all the questions that we 
have for you at this time. Again, we will leave the record open 
for additional questions and your comments back.
    [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
                            evaluating risk
    Question. Given the volume of loans that FHA insures, it is 
critical that it has the capacity to monitor and assess risk. Two 
important aspects of this are: Staff with the appropriate expertise, 
and modern IT systems. In the fiscal year 2012 bill, the committee set 
aside $8.2 million for the Office of Risk and Regulatory Affairs to 
support increased risk controls. What is the current status of this 
relatively new office?
    Answer. Led by a Deputy Assistant Secretary with extensive 
experience in assessing credit risk, the Office of Risk Management and 
Regulatory Affairs (ORMRA) recently received its delegation of 
authority to carry out, in concert with program offices, all risk 
management, analysis, and evaluation functions, including decisions and 
corrective measures related to risk assessment, risk management 
strategy, and risk governance policies. With several credit risk 
officers already on staff, the office is in the process of hiring 
additional staff with credit risk and operational risk expertise to 
ensure that there is sufficient coverage and expertise to review and 
report risk across all FHA platforms.
    The Office of Risk Management and Regulatory Affairs is authorized 
to conduct risk management and risk assessment activities including, 
but not limited to the following:
  --Recommend actions to support FHA's ability to reduce risk exposure 
        to its insurance funds while meeting its housing mission and 
        operating in compliance with statutory capital requirements;
  --Promote transparency and comprehensive communication of FHA's risk 
        profile by establishing reporting metrics for key constituents, 
        both internal and external, in order to communicate, both 
        qualitatively and quantitatively, FHA's risk levels, trends, 
        priorities, risk mitigation activities, and impacts;
  --Identify the policies and processes that are key drivers of risk 
        via a structured risk identification framework: I.e., recommend 
        risk mitigation strategies for FHA and specific program areas 
        and provide independent oversight and assessment of risk 
        remediation activities; provide input and guidance to program 
        areas on key risk analytics, policies and practices, including, 
        but not limited to, algorithms and underwriting used to 
        identify, measure, and manage risk-related to endorsement and 
        management of Single Family, Multifamily, and Healthcare 
        programs, and collaborate with program areas regarding 
        counterparty risk (lenders and servicers), portfolio asset 
        management strategies, and enforcement practices to protect 
        FHA's insurance funds;
  --Design and maintain a comprehensive Risk Governance infrastructure, 
        including implementing policies, processes, and committees to 
        reduce risk exposure to the insurance funds; i.e., advise and 
        provide oversight for the implementation of policies, 
        processes, and committees that comprise the governance 
        structure;
  --Ensure the timely and proper conduct of statutorily mandated and 
        other necessary risk analyses, including the annual actuarial 
        study of the Mutual Mortgage Insurance Fund and front-end risk 
        assessments (FERA) for new and high-impact programs and 
        activities, in accordance with Federal standards, and in 
        concert with other Office of Housing offices; and
  --Ensure that risks are measured, monitored, and managed according to 
        an integrated framework across FHA and Office of Housing 
        program areas.
    In order to carry out its functions, the ORMRA has instituted 
monthly credit risk committees with each FHA program office to evaluate 
loan performance data and make informed policy decisions which account 
for risk. In addition, the Office is utilizing the work of FHA 
Transformation to create and obtain monthly reports based on various 
model scenarios that will allow FHA to evaluate the health of the FHA 
fund on a more regular basis throughout the year.
    ORMRA's Office of Evaluation assesses the financial impact of new 
or revised HUD/FHA programs and policies; new or proposed legislation; 
and/or new or proposed directives, studies or rules of the Office of 
Management and Budget (OMB), the Government Accountability Office 
(GAO), the Department of the Treasury (Treasury), or other agencies. 
The Office of Evaluation is responsible for actuarial analyses and 
cash-flow projections of the FHA insurance funds and evaluates 
relationships between current market conditions and FHA program goals 
and objectives. The Office of Evaluation estimates the financial impact 
of policy changes or external factors on FHA programs. In addition, 
that Office conducts a quarterly analyses of economic developments and 
ongoing portfolio analyses of FHA's insurance funds.
    The operational risk team within ORMRA has begun adopting GAO's 
recommendations from its November 2011 Report on Improvements Needed in 
Risk Assessment and Human Capital Management. This includes employing 
stochastic modeling for the 2012 actuarial report. Recently, the Office 
briefed GAO on its accomplishments to date in connection with such 
report.
    Question. GAO has noted the importance of integrated and updated 
risk assessments to the solvency of the Mutual Mortgage Insurance (MMI) 
Fund. Will the Risk Office assist in more integrated risk assessments?
    Answer. Yes, the Office of Risk Management and Regulatory Affairs 
(ORMRA) will assist in more integrated risk assessments. ORMRA is 
leveraging the current process utilized by the Office of Single Family 
Housing in its quarterly Internal Quality Control Reports to populate a 
baseline operational risk assessment. This baseline operational risk 
assessment will be used in conducting the annual risk assessment. ORMRA 
and Single Family will partner in conducting the annual risk assessment 
so that it is a more integrated and coordinated effort. In addition, 
ORMRA and the program offices plan to hold quarterly operational risk 
committee meetings to review the Internal Quality Control Reports, the 
risk assessments, and monitor the remediation plans.
    Question. Modern IT systems are necessary for FHA to assess risk 
effectively. Unfortunately, many of HUD's IT systems are decades old. 
This committee has provided HUD with millions of dollars, primarily 
through the Transformation Initiative, to modernize FHA systems. What 
is the status of that project? And when can we expect to see the 
benefits of these updated systems?
    Answer. The project is maximizing the funds appropriated by 
Congress to the greatest extent. We have completed several studies 
documenting a roadmap to follow for implementing business services on 
the Federal Financial Services Platform. We have identified the 
required Risk and Fraud tool, along with a Portfolio Evaluation tool. 
Procurement and deployment of the tools are underway. We need funding 
in fiscal year 2013 and beyond to continue to implement the vision of 
FHA Transformation which is a priority of the committee.
    Benefits of the FHA Modernization capital investment are being 
realized today. Acquisition of the Federal Financial Services Platform 
(using Oracle Exalogic hardware, featuring the integrated Fusion 
Middleware software stack) is the cornerstone IT investment. This 
platform ultimately has enterprise extendibility and provides the 
capability and capacity to replace the Unisys and IBM mainframe systems 
at some logical point in the future. Eighty percent of the initial 
planned environments are built out on the Oracle Exalogic platform; 100 
percent by August 31, 2012. A requisition for additional Oracle 
Exalogic hardware/software is in the procurement pipeline. This 
additional capacity positions us to accept requirements from other 
offices in the Department (e.g., Public and Indian Housing (PIHs), Next 
Generation Management System (NGMS) projects); accordingly, this 
achieves true enterprise capability and demonstrates scalability. The 
Lender Electronic Assessment Portal (LEAP) application consists of four 
modules (i.e., Approval, Recertification, Monitoring and Enforcement) 
that are in various stages of development and production. Today LEAP 
automates what largely has been a manual and paper intensive process. 
The LEAP application wholly aimed at improved counterparty (i.e., 
lender) management, addresses vestiges of risk and fraud at the front 
end (or origination) of the loan rather than relying on the antiquated 
process during the post-endorsement process. The Approval module went 
live in April 2012 and is successfully processing a steady state volume 
of request. The Recertification Generation I module is slated for 
operational capability in the second quarter of fiscal year 2013 with 
design and development of the other modules in the ensuing months; LEAP 
is projected to achieve full operational capability in the first 
quarter of fiscal year 2014. Consistent with addressing significant 
constraints on risk and fraud detection, the Loan Review System (LRS), 
Portfolio Evaluation Tool (PET) and Automated Underwriting System 
capabilities are slated to achieve operational capability in early 
fiscal year 2014. This complementary set of tools and capabilities 
effectively provide decision support (and analytics) at every step in 
the process of the loan lifecycle, from origination through post-
endorsement technical review.
    Question. Given FHA's significant presence in the market, the 
systems FHA uses to conduct its business are constantly in use. 
Therefore when new systems come online, transitioning from the existing 
systems to new ones will require careful planning. What are your plans 
for making sure that the transitions to new systems are as smooth as 
possible?
    Answer. FHA will continue to fully embrace HUD's Project Planning 
and Management (PPM) framework. New system deployments will be 
coordinated with all stakeholders to minimize disruptions and training 
costs. FHA will assess the operational readiness of each system, prior 
to its ``go live'' phase. Consistent with the PPM methodology, FHA will 
so document and detail the plans and procedures to decommission legacy 
systems as they are no longer needed. Launch of the business services 
will follow the industry best practices of beta testing, soft launch 
and full scale launch. Appropriate communications will be shared with 
users of the business services, to include citizens.
                                 ______
                                 
                Questions Submitted by Senator Roy Blunt
                             fha's solvency
    Question. As one of the only games in town, the Federal Housing 
Administration (FHA) continues to have a ballooning portfolio, well 
above the intended size. The administration's white paper proposes 
various reform options for the Government-sponsored enterprises (GSEs) 
Fannie Mae and Freddie Mac. How can the Department of Housing and Urban 
Development (HUD) ensure that FHA won't become the lender of last 
resort for home loans should the private market move slowly, if at all, 
to fill the space it once filled?
    Answer. The administration is currently working diligently on a 
number of interagency projects set forth in the white paper that was 
published in February 2011, including a detailed exploration of the 
three options for the future of housing finance. Of those three 
options, the third one does provide considerations around maintaining 
some Government presence through a model that would serve as a back-
stop in the form of reinsurance behind significant layers of private 
capital at a guarantor level. Below is greater detail on the strengths 
and weaknesses of this third option. However, to be clear, the 
administration is still working with a number of stakeholders, 
including Members of Congress, to fully explore all three.
    At the same time, the administration is equally engaged on topics 
that directly involve the GSEs, such as the development of national 
servicing standards, a transition plan for the wind down of Fannie Mae 
and Freddie Mac from their current status and reducing the footprint of 
the FHA. It is important to remember that the FHA and GSEs continue to 
provide an important source of credit availability as Government and 
industry work collectively to reduce the barriers of uncertainty that 
block a robust return of private capital. Thus, while the 
administration supports decreasing the role of FHA, Fannie Mae, and 
Freddie Mac and re-invigorating the private market, we also believe 
that any approach must be measured and comprehensive to address the 
tensions your questions above elicit.
    Question. The administration's budget once again requests increases 
in MMI premiums to help strengthen the fund. While I'm encouraged by 
the increase in liquidity to protect against risk to the solvency of 
the fund, I question whether the already bloated portfolio will grow in 
2013 rather than shrink as your budget assumes. What steps are being 
taken to encourage private lenders to originate quality, non-FHA 
insured loans? How can HUD encourage the private market to provide home 
loans for minorities who disproportionately rely on FHA's Government 
guarantee?
    Answer. In February 2012, HUD announced an increase in FHA annual 
and upfront mortgage insurance premiums, effective in April 2012. The 
decision to adjust FHA premiums for the fourth time since 2009 was made 
by balancing several factors--FHA's mission of providing access to 
credit for low-wealth, creditworthy borrowers, the health of the Mutual 
Mortgage Insurance Fund and FHA's long-term role in the Nation's 
housing finance system. As a result of these premium adjustments, FHA 
has been able to continue to serve its counter-cyclical role in the 
mortgage market--providing access to credit to creditworthy borrowers 
during this time of market constriction--but has seen overall volume 
decline. According to Amherst Securities' June 14, 2012, Amherst 
Mortgage Insight Report, the composition of FHA loans in Ginnie Mae 
securities has actually declined. This is in large part because these 
pricing changes have made conventional loans more competitive; high 
FICO borrowers who may have chosen to take out an FHA insured loan 
rather than a loan with private mortgage insurance are now finding the 
costs of private versus federally backed mortgage insurance more 
comparable. However, adjusting premiums is only one lever. Currently, 
FHA is the only federally backed institution able to originate high-
priced loans (loans above $625,500). As a result, borrowers seeking 
these ``jumbo'' loans only have one outlet--FHA. In its housing finance 
reform white paper, the administration urged Congress to allow the 
higher loan limits to expire. Unfortunately, in November 2011, Congress 
elected to extend these limits for FHA while allowing the GSE loan 
limits to go back to pre-crisis levels. This does create a disincentive 
to originate non-FHA loans in some markets and so we would once again 
urge Congress to allow FHA loan limits to step back to the HERA levels.
                           commercial lending
    Question. In my home State of Missouri, we have a large man-made 
lake with a substantial volume of lakefront properties, as well as 
continued commercial development. That said, HUD continues to promote 
mixed-use properties as needed housing stock diversity for communities. 
FHA's condo rules prohibit the purchase of a condominium in a property 
with more than 25 percent commercial space. What is the purpose of this 
restriction, and doesn't it run contrary to the new ``town center'' 
model that HUD is promoting?
    Answer. While FHA's requirement regarding permissible commercial 
space is less restrictive than the industry standard of 20 percent, and 
FHA has provided for an exception to 35 percent for those projects 
meeting additional eligibility criteria, we have been working on 
changes to our requirements that will better accord with the growing 
trend of mixed-use development while simultaneously managing risk to 
FHA. Prior to recent changes in the housing market, mixed-use 
properties were not submitted for FHA condominium project approval. Now 
that they are subject to FHA project approval, FHA must develop 
standards for approval of these projects. Until standards are fully 
developed, these projects are reviewed on a case-by-case basis, taking 
into consideration that they tend to be riskier and often times the 
primary use is more non-residential than residential. Therefore, there 
is a need to review these projects carefully to ensure that approved 
projects contribute to FHA's mission of providing affordable, 
sustainable housing opportunities while balancing the risk to the 
Mutual Mortgage Insurance Fund. We expect to issue updated guidance 
regarding mixed-use development very soon.
                               appraisals
    Question. In my office, we often hear concerns from prospective 
buyers, builders, lenders, and other industry representatives about 
serious problems with the FHA appraisal process. Are you receiving 
complaints at your agency? Are you concerned with the current appraisal 
environment?
    Answer. Consumers and realtors may often have value issues with 
appraisals that complicate transactions they are involved with, but it 
is important to recognize that both parties have a vested interest in 
the properties they seek to purchase and/or sell. Appraisers, by law, 
are required to comply with the Uniform Standards of Professional 
Appraisal Practice (USPAP), which, among other standards, requires 
appraisers to perform assignments with impartiality, objectivity, and 
independence. The appraiser's role as a disinterested third party is to 
provide an unbiased opinion of value. This may, at times, be at odds 
with the negotiated contract purchase price, which while reflective of 
market activity may not reflect market values in a given area. 
Appraisal issues tend to center around a perceived inability of the 
consumer or realtor to be able to communicate directly with the 
appraiser because of the Dodd Frank Wall Street Reform and Consumer 
Protection Act of 2010, which prohibits undue pressure on the 
appraiser, and a separation of production and compliance in the 
lender's operation. This has caused some confusion in the markets 
regarding what is allowed in terms of communication to the appraiser 
among all parties to the transaction including the appraiser. FHA has 
released guidance to appraisers and lenders through the release of 
Mortgagee Letter 2009-28 (entitled Appraiser Independence) to clarify 
what is acceptable.
    Question. Also, what appeal process, if any, exists when homes that 
were appraised far below or above another appraisal? What appeal 
process exists for builders or lenders when an appraiser values a home 
well below the price offered and under contract?
    Answer. The mechanism for an appraisal appeal is known as a 
reconsideration of value. A reconsideration of value is a request to 
the FHA Roster appraiser to reconsider the analysis and conclusions of 
his or her appraisal based on information that was not presented on the 
appraisal report, but was relevant to the appraisal and available to 
the appraiser in the normal course of business as of the effective date 
of the appraisal.
    Only the lender's underwriter can request a reconsideration of 
value from the FHA Roster appraiser. Information regarding comparable 
sales, listings, or under- contract-of-sale properties that the 
appraiser did not cite in the appraisal report but was available to the 
appraiser in the normal course of business as of the effective date of 
the appraisal are appropriate data to be provided to the appraiser. The 
appraiser is required to consider the data provided by the lender. The 
reconsideration may or may not result in an amended report. The 
underwriter should include all relevant data with the request for the 
reconsideration. Information available at the time of the appraisal but 
not provided in the original report should be in the appraiser's file.
                             treble damages
    Question. The GSEs and other major mortgage investors require 
lenders to repurchase loans that do not meet their underwriting or 
servicing guidelines. FHA has additional authority, under the False 
Claims Act and the National Housing Act to assess treble damages on 
lenders for origination and servicing violations. Clearly, lenders who 
commit fraud should be penalized and barred from participating in the 
FHA program. But for more routine mistakes, repurchases and 
indemnification exist as a remedy.
    For large institutions, treble damages on enough loans would be a 
significant business cost, but for smaller lenders the impact is even 
greater if they have to pay three times the claim amount. Small, 
independent mortgage bankers are struggling with compliance business 
costs that they incur now because of increased industry regulation.
    My concern is instances where lenders acted in good faith and there 
was no fraudulent activity. For some of the smaller lenders, the cost 
of simply defending themselves could be devastating. Can you tell us 
under what circumstances FHA would see itself using this more stringent 
authority rather than having lenders simply repurchase or indemnify 
loans?
    Answer. FHA is an insurer; it does not own loans originated by FHA-
approved lenders. Therefore, repurchase is not a means for resolving 
violations of FHA origination, underwriting, or servicing violations. 
In instances of material non-compliance, HUD often attempts to settle 
with the lender by obtaining an agreement from the lender to indemnify 
FHA against losses. Indemnification may also be compelled under HUD's 
Lender Insurance Program in response to violations of HUD's origination 
and/or underwriting requirements. Since 2010, FHA has pursued statutory 
authority to extend this indemnification authority to FHA-approved 
Direct Endorsement Lenders.
    With respect to treble damages, section 536 of the National Housing 
Act (12 U.S.C. sections 1735f-14) authorizes HUD to impose a penalty in 
the amount of three times the amount of any insurance benefits claimed 
by the mortgagee for any mortgage where the servicer has failed to 
engage in loss mitigation in compliance with HUD's requirements. 
Imposing treble damages under this authority requires a demonstration 
that the lender has acted knowingly (demonstrated through evidence of 
actual or constructive knowledge) and that the misconduct is material. 
HUD regards treble damages as appropriate only for egregious violations 
of its requirements, and has not yet imposed treble damages for 
servicing violations.
    The Department of Justice (DOJ) has authority under the False 
Claims Act to pursue treble damages for, inter alia, knowingly 
presenting or causing to be presented false claims to the Government or 
making false records to get a false claim paid. The False Claims Act is 
only employed where there is evidence of fraud.
    While the size of the lender bears no relationship to the extent of 
its misconduct or, as a result, the amount of damages and penalties 
sought, both HUD and DOJ consider the lender's ability to pay in the 
context of settlement discussions.
    Question. Has FHA considered how the indemnification polices and 
the penalty of treble damages impacts smaller lenders versus larger 
lenders?
    Answer. When HUD's Mortgagee Review Board (MRB) is determining the 
appropriate penalty to impose upon FHA-approved lenders who have 
violated FHA's requirements, and when HUD's enforcement lawyers are 
negotiating settlements with lenders who have violated FHA's 
requirements, HUD consistently takes into consideration the lenders' 
abilities to pay the proposed penalties.
    Question. How do you see FHA striking the right balance between 
fighting fraud while ensuring that honest lenders are not discouraged 
from participating in FHA programs? Does FHA have the authority to 
cease business with known bad actors?
    Answer. HUD, along with DOJ, have powerful enforcement tools to 
wield against those attempting to defraud the Federal Government, but 
employs these only in cases where there is evidence of fraud or knowing 
and material violations of HUD's requirements. Moreover, HUD's 
enforcement procedures provide lenders with considerable due process. 
Lenders receive written notices of HUD's findings and the underlying 
basis for those findings. Lenders then have the opportunity to respond 
and, if appropriate, to resolve the issues through, inter alia, 
provision of mitigating information or an agreement to indemnify HUD 
against harms before any enforcement action is taken. It is only in 
those instances when the matter cannot be resolved without enforcement 
actions that the case is referred to HUD's Mortgagee Review Board 
(MRB). HUD's MRB, after a thorough review of the violations and any 
preliminary responses from the lenders, issues a formal notice of its 
intent to pursue sanctions, if any, and provides additional 
opportunities for lenders to dispute and/or settle HUD's allegations. 
If the MRB determines that penalties are appropriate, HUD's enforcement 
lawyers initiate administrative proceedings, which enable lenders to 
dispute HUD's determinations before administrative law judges.
    The substantial due process outlined above assures entities that 
abide by HUD rules that they will have sufficient opportunity to show 
that any actions that may cause concern do not rise to the level of 
fraud or knowing and material violations while still deterring bad 
actors with the threat of sanctions. If HUD obtains sufficient evidence 
of misconduct by a ``bad actor,'' and that evidence warrants suspension 
or withdrawal of the lender's approval to participate in FHA's 
programs, HUD's MRB has the authority to suspend or withdraw the 
lender's FHA approval. Any such action by the MRB is subject to 
adjudication before administrative law judges and review by the Federal 
courts.

                          SUBCOMMITTEE RECESS

    Senator Murray. But I appreciate your testimony, and your 
time, and your staff today. And with that, this hearing is 
recessed. Thank you.
    Ms. Galante. Thank you very much.
    [Whereupon, at 10:56 a.m., Thursday, March 8, 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 2013

                              ----------                              


                        THURSDAY, MARCH 15, 2012

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

                      DEPARTMENT OF TRANSPORTATION

                        Office of the Secretary

STATEMENT OF HON. RAY LAHOOD, SECRETARY

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Good morning. This subcommittee will come 
to order.
    Today, we will hear testimony from Transportation Secretary 
Ray LaHood on the President's budget request for fiscal year 
2013.
    Mr. Secretary, welcome back to our subcommittee. It is 
always good to have you here. And just personally, 
congratulations on your son's safe return. We are all glad he 
is home; I am sure you are as well.
    As we begin our work on next year's budget, there are 
encouraging signs that our economy is moving in the right 
direction. Although we are obviously not moving quickly enough 
for families that continue to struggle, and we certainly have a 
long way to go, the private sector has been adding jobs for 
almost 2 years, businesses are growing, confidence is up, and 
we seem to have stepped back from the precipice. That is 
encouraging, but to keep growing these improvements over time, 
we need a transportation system that supports job creation, 
fosters economic growth, is sustainable, and most importantly, 
is safe to use.
    Unfortunately, today we have a transportation system that 
is riddled with bottlenecks, slowing down the movement of 
freight, and leading to higher costs for our businesses. We 
have a system that makes airline passengers suffer through 
flight delays and keeps commuters stuck in traffic jams instead 
of allowing them to get to work or get home for their families.
    Independent assessments show us that the infrastructure of 
our country is falling behind and holding us back. All of these 
reports reach the same conclusion: That the need to invest in 
our transportation infrastructure is huge and needs to be done.
    Many of us have 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-minus.'' Our Nation's rail network earned a paltry ``C-
minus,'' and transit only rates a ``D.''
    Last year, the World Economic Forum ranked U.S. 
infrastructure 23rd in the world; 10 years ago, we were 6th. 
And without aggressive investment, I am very concerned about 
where we will be 10 years from now.
    The U.S. Chamber of Commerce found that, given expected 
growth in population and trade, we need to invest an additional 
$50 billion a year in our highway and public transportation 
system just to maintain current performance, and we need to 
double that number each year to improve performance.
    Taken together, these assessments are alarming, and sadly 
the condition of our Nation's infrastructure comes at 
significant costs. On average, Americans now spend an extra 
$400 per year on car maintenance as the result of driving on 
poor roads, money every family, I know, could put to better 
use. We spend an extra 4 billion hours a year sitting in our 
cars due to traffic congestion, burning through an almost extra 
3 billion gallons of fuel in the process.
    We have the world's worst air traffic congestion with 
delays that average twice as long as those in Europe. And 
freight delays have gotten so bad that bottlenecks cost the 
economy an estimated $200 billion a year. And let us be clear, 
holding back on investing in transportation infrastructure does 
not actually save us money. It simply turns a budget deficit 
into an infrastructure deficit. In fact, kicking the can down 
the road will end up costing our Nation even more over the long 
term, and forces the next generation to pay to clean up our 
mess.
    So we can invest now and lay down a strong foundation for 
long-term growth, or we can let the system continue to crumble 
and pay even more later. I think the choice is clear.
    To address this problem, the President's budget request for 
next year proposes to reauthorize the service transportation 
programs at a funding level of $476 billion over the next 6 
years. This is a substantial increase over current funds.
    The reauthorization proposal is very similar to the one the 
President included in his budget request last year, and like 
last year, I applaud the administration's effort to promote 
investment in our Nation's infrastructure. I am glad we are 
seeing progress on a reauthorization bill, but I am still very 
concerned about how we are going to move forward on financing 
transportation programs this coming year. We have significant 
challenges ahead of us.
    The Appropriations Committee is now working under tight 
caps on discretionary spending set by the Budget Control Act, 
and unfortunately, the budget request does not offer a 
realistic picture of how to fund transportation under those 
caps. The President's budget, again, seeks to reclassify as 
mandatory spending at least $4 billion in programs that have 
long been funded by this subcommittee. That request leaves a 
big hole this subcommittee will have to fill. In addition, 
there is a long way to go before a reauthorization bill is 
signed into law, and it is not yet clear what kind of package 
will be considered in the House.
    This leaves us with a lot of questions for how we are going 
to sustain the Highway Trust Fund and fund transportation 
programs next year. Recent projections from both CBO (the 
Congressional Budget Office) and the administration show the 
Highway Trust Fund may not stay solvent throughout fiscal year 
2013. And even though the Senate reauthorization bill would 
address this problem, no legislation is effective until it is 
enacted into law. In addition, until the reauthorization bill 
is completed, or until we see a full-year extension of the 
transportation program, we do not know what levels of contract 
authority there will be for next year.
    For the past 3 years, I have been put in the position of 
writing appropriation acts without knowing the full-year levels 
of contract authority. I am prepared to do that again, but this 
is not how a program should be funded. We all know that State 
departments of transportation need a stable source of funding 
in order to build transportation infrastructure. They need 
predictability. They deserve better than a few months of 
funding at a time, and more than that, our commuters who are 
stuck in traffic and businesses trying to get their goods to 
market deserve a better transportation system.
    Despite these concerns, I do want to take a minute to 
acknowledge some areas where the Department of Transportation 
(DOT) has made progress.
    Not long ago, the En Route Automation Modernization (ERAM) 
program at the Federal Aviation Administration (FAA) fell years 
behind schedule, putting the agency's Next Generation Air 
Transportation System (NextGen) program at risk. For too long 
the agency was unwilling to work with its own air traffic 
controllers on getting ERAM back on track. The Department has 
come a long way. The program is under new management, 
stakeholders have a seat at the table, and it is achieving new 
milestones. In addition, the recent reorganization at the FAA 
has placed a stronger emphasis on the management of its 
technology programs. That was the right move to make.
    In the area of highway safety, the Department has led a 
very public campaign to address distracted driving. This past 
week, Mr. Secretary, you announced a partnership with Consumer 
Reports aimed at getting young people to put down their phones 
while they are behind the wheel, which is an effort to save 
lives.
    The Department has also raised the profile of rail 
transportation. It is a reliable, safe, and environmentally 
sound means of passenger and freight transportation. Building 
more roads and wider roads is not enough. We need to continue 
to make targeted rail investments to improve mobility in and 
between America's congested cities.
    Mr. Secretary, these are some of the areas where your 
leadership has truly made a difference, and we thank you.

                           PREPARED STATEMENT

    During this hearing, I look forward to discussing these 
issues and addressing some questions we have, but before 
turning this over to Senator Collins, I want to thank you for 
your efforts. As Secretary of Transportation, Mr. Secretary, 
you really have proven strong leadership for this agency, and 
you have always worked on a bipartisan basis, which is 
something we do not see often enough today. And I truly want to 
thank you for that.
    With that, let me turn it over to my colleague, Senator 
Collins.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
    The subcommittee will come to order. Today we will hear testimony 
from Transportation Secretary Ray LaHood on the President's budget 
request for fiscal year 2013.
    Mr. Secretary, welcome back to the subcommittee. Thank you for 
being here.
    And congratulations on your son's safe return. The past 2 months 
must have been a difficult time to say the least. I can only imagine 
what a relief it must be for you and your family.
    As we begin our work on next year's budget, there are encouraging 
signs that our economy is moving in the right direction.
    Although we aren't moving quickly enough for families that continue 
to struggle--and we certainly have a long way to go. The private sector 
has been adding jobs for almost 2 years. Businesses are growing, 
confidence is up, and we seem to have stepped back from the precipice.
    This is encouraging. But to keep growing these improvements over 
time, we need a transportation system that supports job creation, 
fosters economic growth, is sustainable, and most importantly, is safe 
to use.
    Unfortunately, today we have a transportation system that is 
riddled with bottlenecks, slowing down the movement of freight and 
leading to higher costs for businesses.
    We have a system that makes airline passengers suffer through 
flight delays, and keeps commuters stuck in traffic jams--instead of 
allowing them to get to work or get home to their families.
    Independent assessments show us that the infrastructure of our 
country is falling behind and holding us back.
    All of these reports reach the same conclusion--that the need to 
invest in our transportation infrastructure is huge.
    Many of us have 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-'' (minus). Our 
Nation's rail network earned a paltry ``C-'' (minus), and transit only 
rates a ``D.''
    Last year, the World Economic Forum ranked U.S. infrastructure 23rd 
in the world. Ten years ago we were sixth. And without aggressive 
investment, I am very concerned about where we will be 10 years from 
now.
    The U.S. Chamber of Commerce found that, given expected growth in 
population and trade, we need to invest an additional $50 billion a 
year in our highway and public transportation system just to maintain 
current performance. And we would need to double that number each year 
to improve performance.
    Taken together, these assessments are alarming. And sadly, the 
condition of our Nation's infrastructure comes at a significant cost. 
On average, Americans now spend an extra $400 per year on car 
maintenance as a result of driving on poor roads--money every family 
could be putting to better use. We spend an extra 4 billion hours a 
year sitting in our cars due to traffic congestion, burning through 
almost an extra 3 billion gallons of fuel in the process. We have the 
world's worst air traffic congestion, with delays that average twice as 
long as those in Europe. And freight delays have gotten so bad that 
bottlenecks cost the economy an estimated $200 billion a year.
    And let's be clear--holding back on investing in transportation 
infrastructure doesn't actually save us money. It simply turns a budget 
deficit into an infrastructure deficit.
    In fact, kicking the can down the road will end up costing our 
Nation even more over the long term and forces the next generation to 
pay to clean up our mess. So we can invest now and lay down a strong 
foundation for long-term growth, or we can let this system continue to 
crumble and pay even more later. I think the choice is clear.
   the department of transportation's budget proposal and safetea-lu
    To address this problem, the President's budget request for next 
year proposes to reauthorize the surface transportation programs at a 
funding level of $476 billion over the next 6 years. This is a 
substantial increase over current funding levels.
    The reauthorization proposal is very similar to the one the 
President included in his budget request last year. And like last year, 
I applaud the administration's effort to promote investment in our 
Nation's infrastructure.
    I am glad that we are seeing progress on a reauthorization bill, 
but I am still very concerned about how we are going to move forward on 
financing transportation programs this coming year. We have significant 
challenges ahead of us.
    The Appropriations Committee is now working under tight caps on 
discretionary spending set by the Budget Control Act. And 
unfortunately, the budget request does not offer a realistic picture of 
how to fund transportation under those caps.
    The President's budget again seeks to reclassify as mandatory 
spending at least $4 billion in programs that have long been funded by 
this subcommittee. This request leaves a big hole that this 
subcommittee will have to fill.
    In addition, there is a long way to go before a reauthorization 
bill is signed into law. It is not yet clear what kind of package will 
be considered on the House floor.
    This leaves us with a lot of questions for how we are going to 
sustain the Highway Trust Fund and fund transportation programs next 
year.
    Recent projections from both the Congressional Budget Office (CBO) 
and the administration show that the Highway Trust Fund may not stay 
solvent throughout fiscal year 2013. And even though the Senate 
reauthorization bill would address this problem, no legislation is 
effective until it is enacted into law.
    In addition, until the reauthorization bill is completed--or until 
we see a full-year extension of the transportation programs--we do not 
know what levels of contract authority there will be for next year.
    For the past 3 years, I've been put in the position of writing 
appropriations acts without knowing the full-year levels of contract 
authority.
    I am prepared to do that work again, but this is not how our 
programs should be funded.
    We all know that State departments of transportation need a stable 
source of funding in order to build transportation infrastructure. They 
need predictability. They deserve better than a few months of funding 
at a time. And more than that, commuters stuck in traffic and 
businesses trying to get their goods to market deserve a better 
transportation system.
                            accomplishments
    Despite these concerns, I would like to take a minute to 
acknowledge some areas where the Department of Transportation has made 
progress.
    Not long ago, the En Route Automation Modernization (ERAM) program 
at the Federal Aviation Administration (FAA) fell years behind 
schedule, putting the agency's Next Generation Air Transportation 
System (NextGen) program at risk.
    For too long, the agency was unwilling to work with its own air 
traffic controllers on getting ERAM back on track. But the Department 
has come a long way. The program is under new management, stakeholders 
have a seat at the table, and it is achieving new milestones.
    In addition, the recent re-organization at the FAA has placed a 
stronger emphasis on the management of its technology programs. This 
was the right move to make.
    In the area of highway safety, the Department has led a very public 
campaign to address distracted driving. This past week, you 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.
    The Department has also raised the profile of rail transportation. 
It is a reliable, safe, and environmentally sound means of passenger 
and freight transportation.
    Building more roads and wider roads is not enough. We need to 
continue to make targeted rail investments to improve mobility in and 
between American's congested cities.
    Mr. Secretary, these are some of the areas where your leadership 
has been making a difference.
                                closing
    During this hearing, I look forward to discussing these issues and 
addressing some other questions that I have.
    But before turning this over to Senator Collins, I want to thank 
you for your efforts as Secretary of Transportation.
    You provided strong leadership for the Department, and you have 
always worked on a bipartisan basis. Which is something we don't see 
often enough today.
    I will now turn it over to my partner on the subcommittee, Senator 
Collins.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you, Chairman Murray. Your final 
comments echo my opening comments to the Secretary.
    I too want to welcome Secretary LaHood and thank him for 
his very strong leadership. We used exactly the same terms at 
the Department and for working so closely with both sides of 
the aisle as we worked together to promote fiscally responsible 
investments in our Nation's transportation infrastructure. Like 
the chairman, I too am so relieved that your son, Sam, his 
wife, and other Americans are safely out of Egypt. I just 
cannot imagine what a difficult time that must have been for 
you, and we are so happy that he is safely home.
    Transportation investments create jobs and establish the 
foundation for future economic growth, but it is equally 
important to our economic future that we rein in Federal 
spending and keep our national debt under control. The 
administration is proposing a $74.5 billion budget for the DOT. 
That is approximately a 2-percent increase over fiscal year 
2012.
    This request helps insure that transportation investments 
keep pace with the latest advancements in technology and that 
Federal programs continue to promote innovation, and help meet 
the needs of our municipalities and States.
    One of the most innovative DOT programs is the National 
Infrastructure Investments program, a nationally competitive 
program known as Transportation Investment Generating Economic 
Recovery (TIGER), and a program that Senator Murray and I have 
both strongly supported on a bipartisan basis. I am very 
pleased to see that the President's budget proposes $500 
million for this vital program. By design, TIGER has the 
flexibility to fund a wide range of transportation projects as 
long as they demonstrate national or regional significance to 
economic growth. Most TIGER projects are multimodal, 
multijurisdictional, or otherwise challenging to fund through 
existing programs. So this funding supports critical projects 
nationwide that otherwise would not be built and yet are 
absolutely essential to the communities that they are 
supporting.
    An interesting component of TIGER is the eligibility to 
receive credit assistance through the Transportation 
Infrastructure Finance and Innovation Act (TIFIA) loan program. 
I am pleased to see that the administration is proposing to 
dramatically increase funding for the TIFIA program from $122 
million to $500 million, and here is why. On average a TIFIA 
loan allows every dollar provided in Federal funding to 
leverage approximately $30 in additional transportation 
infrastructure investment. That is a great ratio, a great 
return, and it is the kind of innovation in infrastructure 
finance that we need to produce a greater return to taxpayers, 
particularly at this time of budget constraint.
    In addition to innovative programs, this budget makes 
investments in several important technology improvements. The 
Federal Aviation Administration (FAA) is in the middle of 
undertaking the Next Generation Air Transportation System 
(NextGen), the largest transformation of the air traffic 
control system ever, and the budget provides more than $1 
billion to advance this technology.
    Through the use of satellite surveillance, new methods of 
routing pilots, planes, and landing procedures, NextGen will 
change how Americans fly. It will ensure that the traveling 
public is flying in an even safer and more efficient airspace. 
But obviously, any program of this type is not without its 
challenges.
    For investments in our roads and bridges, the budget 
includes $42.6 billion for the Federal Highway Administration; 
$2.7 billion more than last year. I appreciate the inclusion of 
reform proposals designed to simplify the program structure and 
improve upon project delivery to bring the benefits of these 
investments to the public sooner. These investments and reforms 
will help modernize our highway system, and as Senator Murray 
has pointed out, that is long overdue and much needed.
    I also look forward to working closely with the 
administration to urge States to pass stronger distracted 
driving laws to avoid tragic accidents, and to ensure that 
traffic fatality numbers continue dropping from current 
historic lows.
    I share the administration's belief that investment in 
transportation is critical to our economy. We must balance this 
commitment, however, with other pressing needs. I was, and am, 
disappointed to see that the budget continues to request a 
substantial investment for high-speed rail at a time when too 
many of our roadways and bridges are crumbling, and require 
billions of dollars in investments.
    The continuation of a multibillion dollar commitment to 
high-speed rail is particularly troubling in light of our 
ongoing battle to control deficits, and the endless spiraling 
costs of high-speed rail projects. The map is very clear that 
the challenges that we are facing, Highway Trust Fund revenues 
and balances over the next 6 years, support approximately $260 
billion in spending, and the budget request implies a 6-year 
surface transportation reauthorization that spends $476 billion 
out of a trust fund that is projected to be insolvent some time 
in the next fiscal year.
    [The referenced map was not available at press time.]
    Congress and the administration must work together. I know 
the Secretary said that numerous times, to come up with a 
better, more solvent plan for investing in our transportation 
system.

                           PREPARED STATEMENT

    I look forward to working with the Secretary and his able 
staff, and with you, Chairman Murray, and the rest of the 
subcommittee members as we consider this budget request.
    Thank you.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Thank you, Chairman Murray. Welcome, Secretary LaHood. I appreciate 
your strong leadership at the Department of Transportation (DOT) and 
look forward to continuing to work together to promote fiscally 
responsible investments in our Nation's transportation infrastructure. 
And I am so relieved that your son, Sam, and other Americans are now 
safely out of Egypt.
    Transportation investments create jobs and establish the foundation 
for future growth. But it is equally important to our economic future 
that we rein in Federal spending and keep our national debt under 
control.
    The administration is proposing a $74.5 billion budget for DOT, a 
2-percent increase over fiscal year 2012. This request helps ensure 
that transportation investments keep pace with the latest advancements 
in technology and that Federal programs continue to promote innovation.
    One of the most innovative DOT programs is the National 
Infrastructure Investments program, a nationally competitive program 
that we all know as Transportation Investment Generating Economic 
Recovery (TIGER). I am pleased to see the $500 million request for this 
vital program. By design, TIGER has the flexibility to fund a wide 
range of transportation projects so long as they demonstrate national 
or regional significance to economic growth. Most TIGER projects are 
multimodal, multijurisdictional, or otherwise challenging to fund 
through existing programs so this funding supports critical projects 
nationwide that would not otherwise be built.
    An interesting component of TIGER is the eligibility to receive 
credit assistance through the Transportation Infrastructure Finance and 
Innovation Act (TIFIA) loan program. I am pleased to see that the 
administration is proposing to dramatically increase funding for TIFIA 
from $122 million to $500 million. On average, a TIFIA loan allows 
every $1 provided in Federal appropriations to leverage approximately 
$30 in additional transportation infrastructure investment. That's the 
kind of innovation in infrastructure finance that we need to produce a 
greater return for taxpayers.
    In addition to innovative programs, this budget makes investments 
in several important technology improvements. The Federal Aviation 
Administration (FAA) is in the middle of undertaking the Next 
Generation Air Transportation System (NextGen), the largest 
transformation of air traffic control ever, and the budget provides 
over $1 billion to advance the NextGen air traffic control technology. 
Through the use of satellite surveillance, new methods of routing 
pilots, planes, and landing procedures, NextGen will change how 
Americans fly. It will ensure the traveling public is flying in an even 
safer and more efficient airspace.
    For investments in our roadways and bridges, the budget includes 
$42.6 billion for the Federal Highway Administration, $2.7 billion more 
than fiscal year 2012. I appreciate the inclusion of reform proposals 
designed to simplify the program structure, and improve upon project 
delivery to bring the benefits of highway and bridge investments to the 
public sooner. These investments and reforms will help modernize our 
highway system. I also look forward to working with the administration 
to urge States to pass distracted drivers' law to avoid tragic 
accidents and to ensure that traffic fatality numbers continue dropping 
from current historic lows.
    I share the administration's belief that investment in 
transportation is critical to our economy. We must balance this 
commitment, however, with other pressing needs. I was disappointed to 
see the budget continue to request a substantial investment for high-
speed rail, at a time when too many of our roadways and bridges are 
crumbling and require billions of dollars in investment.
    The continuation of a multibillion dollar high-speed rail proposal 
is particularly troubling in light of our ongoing battle to control 
deficits. This budget request implies a 6-year surface transportation 
reauthorization that spends $476 billion out of a trust fund that is 
projected to be insolvent sometime in the next fiscal year. While I 
share the administration's commitment to investing in our future 
transportation needs, responsible budgeting is just as important as 
responsible investing. The math here is clear: Highway Trust Fund 
revenues and balances over the next 6 years support approximately $260 
billion in spending. Congress and the administration must work together 
to come up with a better plan for investing in our transportation 
system while reducing an unsustainable deficit.
    I look forward to working with you, Chairman Murray, as we consider 
the Department's fiscal year 2013 budget request.

    Senator Murray. Thank you very much, Senator Collins.
    Senator Pryor, do you have an opening remark?

                           PREPARED STATEMENT

    Senator Pryor. Thank you, Madam Chairman.
    I do, but I will just submit it for the record. Thank you.
    [The statement follows:]
                Prepared Statement of Senator Mark Pryor
    Thank you, Chairman Murray and Ranking Member Collins for holding 
this hearing. I look forward to visiting with Secretary LaHood and 
learning more about the administration's budget proposal for fiscal 
year 2013.
    Given the fiscal predicament facing our country, it's obvious that 
Congress will have to make some difficult decisions and identify areas 
to save taxpayer dollars and reduce spending at the Department of 
Transportation (DOT) and every other agency. No agency should consider 
itself exempt from needing to find savings. However, we must not back 
down from making the needed investments in areas that will foster 
short-term and long-term economic growth as well as areas that protect 
consumers. If we fail to make such investments, the United States will 
struggle to compete in the global market in the coming years.
    As a strong proponent in developing transportation infrastructure, 
I'm hopeful Congress and the administration can agree on a bold 
commitment to meeting the transportation demands of the coming years by 
addressing our aging infrastructure while also carrying a vision for 
the future. I also hope we can come together and find reasonable and 
creative ways to finance these investments. We cannot afford to 
continue to pile up deficits while pretending revenues are matching our 
needs and investments.
    Another high priority for me is continuing to improve upon highway, 
automobile, and motor carrier safety. I hope to work closely with the 
administration and my colleagues in this area. We've made great strides 
in recent years, and we must continue to improve.
    As this subcommittee reviews the fiscal year 2013 budget request 
for the DOT, I look forward to working with the chair and ranking 
member to ensure that taxpayer dollars are spent responsibly.
    Again, I thank Senators Murray and Collins for conducting this 
hearing. I look forward to Secretary LaHood's testimony and look 
forward to discussing the fiscal year 2013 budget request.

    Senator Murray. Okay. Thank you very much.
    We will then turn it over to Secretary LaHood for your 
testimony this morning.
    Again, thanks for joining us.

                  SUMMARY STATEMENT OF HON. RAY LAHOOD

    Mr. LaHood. Thank you, Madam Chair, and Ranking Member 
Collins, and Senator Pryor.
    Really good to be with all of you today. This is really a 
hallelujah day for transportation for what you all did 
yesterday.
    I think passing a bipartisan bill reflects the very best 
values of the Senate. Transportation has always been 
bipartisan, and you all proved it again yesterday. I hope the 
House will take your lead. I hope you have shined a bright 
light on the House that the values that people really 
understand in America about transportation were carried out 
yesterday.
    And big, big congratulations to Senator Boxer and Senator 
Inhofe. They worked very hard together, they really did, but 
without the votes of all of you, it would not have happened. I 
just cannot say enough about the way the Senate worked in a 
very bipartisan way and in a way that has always been about the 
way that transportation has been passed. The bill was a 
significant step forward, and as I said, we hope the House will 
move swiftly in a similar bipartisan fashion.
    As you know, transportation has been in the news a lot, and 
that is a good thing. There is good news on the horizon and 
reason for optimism. For one thing, after 23 short-term 
extensions, Congress finally passed, and President Obama 
signed, the FAA bill. President Obama has detailed his vision 
for a long-term transportation infrastructure bill, part of his 
Blueprint for an America Built to Last. All of this would be 
fully paid for.
    President Obama is proposing to cap the funding for 
overseas contingency operations over the next 10 years, thereby 
saving hundreds of billions of dollars. We would use half of 
these savings to pay down the debt, and the other half on a 6-
year transportation bill, which lets us do some nation-building 
right here at home.
    The facts are that our budget proposal has three broad 
goals: Creating jobs by investing in infrastructure, spurring 
innovation across our transportation system, and maintaining a 
laser focus on safety, which is our number one job. Let me take 
these goals one at a time.

                     REBUILDING OUR INFRASTRUCTURE

    An America Built to Last needs a strong transportation 
infrastructure. The President's budget will improve America's 
highways, railways, and transit networks, and will continue to 
ensure that these systems are safe.
    The President's fiscal year 2013 budget request, includes 
$42.6 billion to fund roads and bridges, $305 billion is 
proposed over 6 years for this program. This is a 34-percent 
increase over the previous authorization for roads and bridges.
    Investing in our transit systems is another critical need. 
The President's budget includes $10.8 billion in fiscal year 
2013; a total of $108 billion is proposed over 6 years for 
transit, a 105-percent increase. It will prioritize projects 
that rebuild and rehabilitate existing transit systems, and 
include an important new $45 million transit safety program. 
That program was actually included in the bill that passed 
yesterday, and we are grateful that transit safety is now being 
addressed.
    The President's budget provides $2.5 billion in 2013 as a 
part of $45 billion 6-year investment to continue support of 
intercity passenger rail, including the construction of a 
national highway rail network.
    I consider it unfortunate that the fiscal year 2012 
appropriation bill did not include funding for high-speed rail. 
You know that I am very passionate about that. You know that I 
made a plea to all of you for that funding. This is a very high 
priority. It is a very big vision that the President has for 
the next generation of transportation for the next generation 
in America.
    For the more than $10 billion in grant funding that 
Congress has provided, we received applications from 39 States, 
the District of Columbia, and Amtrak. These applications, which 
were well in excess of available funding, were for funding and 
corridors in every region of the country. Our current high-
speed rail funds are being used in five key corridors around 
the Nation. These corridors will create new choices for 
travelers, reduce national dependence on oil, foster livability 
in urban and rural communities, and promote economic expansion 
across the Nation.

                               INNOVATION

    As we rebuild, we can no longer afford to continue 
operating our transportation system the same way we did 50 
years ago with outdated processes and financial tools that were 
made for yesterday's economy. The President's 2013 budget will 
invest in research and technologies that our children and 
grandchildren will use to bolster America's economic 
competitiveness.
    The Federal Aviation Administration is in the midst of the 
largest transformation of the air traffic control system ever 
undertaken. The 2013 President's budget request includes $15.2 
billion to support FAA programs. More than $1 billion of these 
funds will be used to advance the modernization of our air 
traffic control through NextGen, the next generation of air 
traffic control technology.
    Our proposal will also elevate the vital role research 
plays in transportation decisionmaking by moving the Research 
and Innovation Technology Administration (RITA) into the 
Secretary's office, into a position as an Assistant Secretary 
for Research and Technology. This change will provide a 
prominent, centralized focus on research and technology, which 
will improve collaboration and coordination among the 
Department's operating administrations through research 
programs.

                                 SAFETY

    Keeping our transportation system safe will always be our 
top priority. Consistent with this commitment, President Obama 
has proposed a record level of investment in safety. The 
President's proposal will provide $981 million in fiscal year 
2013, and $7.5 billion over the next 6 years to the National 
Highway Traffic Safety Administration (NHTSA) to promote 
seatbelt use, get drunk drivers off the road, and reduce 
distracted driving. This will help ensure that traffic fatality 
numbers continue dropping from current historic lows.
    We will also double the investment in highway safety 
infrastructure funding by providing $2.5 billion in fiscal year 
2013 and $17 billion over 6 years to Federal Highway 
Administration safety construction programs. The budget will 
also dedicate $580 million in fiscal year 2013 and $4.8 billion 
over 6 years to the Federal Motor Carrier Safety Administration 
(FMCSA). These dollars will ensure that commercial trucks and 
bus companies maintain high operational standards, and that our 
dedicated safety professionals can get high-risk trucks and bus 
companies, and their drivers, off our roadways.
    Our safety focus must also include the transportation of 
hazardous materials in our network of pipelines. The 
President's budget requests $276 million for Pipeline and 
Hazardous Material Safety Administration. These resources will 
ensure that families, communities, and the environment are 
unharmed by the transportation of the very chemicals and fuels 
on which our economy relies.

                           PREPARED STATEMENT

    And so with that, again, thank you for all your leadership 
from this subcommittee of the Committee on Appropriations, 
particularly when it comes to transportation. We have had a 
great partnership and we look forward to continuing that.
    [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 2013 budget request for the 
U.S. Department of Transportation. The President is requesting $74 
billion for Transportation in fiscal year 2013.
    The President has called on us to rebuild America--to put people 
back to work repairing our roads, bridges, transit systems, and 
airports. To achieve this, he has laid out a blueprint for ``an America 
that's built to last''--a plan that will equip American workers to 
seize the opportunities of tomorrow and make certain that businesses 
and families have the safest, fastest, and most efficient ways to 
connect with these opportunities.
    President Obama has proposed a 6-year transportation jobs plan that 
puts people back to work rebuilding our airports, roadways, railways, 
and transit systems. The fiscal year 2013 President's budget reflects 
the first year of this bold 6-year $476 billion reauthorization 
proposal that will transform the way we manage surface transportation 
for the future.
    This proposal will be fully paid for. We will pay for the 
investments proposed under the Surface Transportation Reauthorization 
Proposal with the savings achieved from ramping down overseas military 
operations to do some Nation-building right here at home.
  investing in america's future by rebuilding our infrastructure and 
                             creating jobs
    Investment in transportation is critical to the success of our 
Nation's economy. The fiscal year 2013 President's budget for the 
Department of Transportation will enable us to build America's 
infrastructure for the future--while putting people back to work today. 
The President's $476 billion 6-year surface transportation 
reauthorization proposal will improve the Nation's highways, transit, 
and rail infrastructure and will ensure that these systems are safe.
    The President's fiscal year 2013 budget requests $2.5 billion, the 
first year of $47 billion over 6 years, to continue construction of a 
national high-speed rail network. The Federal Railroad Administration 
is working with States across the country to plan and develop high-
speed and intercity passenger rail corridors. These projects include 
upgrades to existing services, as well as entirely new rail lines 
exclusively devoted to 125 to 220 miles per hour trains. These 
corridors will promote economic expansion, create new choices for 
travelers, reduce national dependence on oil, and foster livable urban 
and rural communities.
    We are already putting America on track toward providing rail 
access to new communities and improving the reliability, speed, and 
frequency of existing lines. To date, Congress has provided more than 
$10 billion in grant funding for high-speed rail through the American 
Recovery and Reinvestment Act (ARRA) and annual Appropriations for 
fiscal year 2009 and 2010. Interest in this program is strong: 39 
States, the District of Columbia, and Amtrak have submitted 
applications--well in excess of the available funding--for projects and 
corridors in every region of the country.
    As shown in the attached map, our current high-speed rail funds are 
being used in five key corridors. We are focusing on projects offering 
the greatest public benefits, as well as those projects ready for 
implementation. The funding that has been provided to date will be used 
to improve upon existing services, spur new passenger rail 
capabilities, and initiate long-term planning activities. Ninety-five 
percent of the funding is committed to corridors that will operate at 
90 miles per hour or faster--and nearly 50 percent will operate at 
speeds greater than 125 miles per hour. These projects will ultimately 
lay thousands of miles of track and ties, build new stations and make 
existing facilities more functional, comfortable, and accessible for 
all passengers, install advanced signaling and communications systems, 
and procure hundreds of modern and more efficient and comfortable 
locomotives and passenger cars.
    [The referenced map follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    The President's fiscal year 2013 budget requests $42.6 billion, the 
first year of $305 billion over 6 years, in funding for road and bridge 
improvements and construction--a 34-percent increase over the previous 
authorization. It will also simplify the highway program structure, 
accelerate project delivery, and realize the benefits of highway and 
bridge investments to the public sooner. These investments and reforms 
will modernize our highway system while creating much-needed jobs. The 
proposal consolidates more than 55 programs into five new programs that 
invest in roads most critical to the national interest: The National 
Highway Program; Highway Safety; Livable Communities; Federal 
Allocation; and Research, Technology, and Education. It also 
establishes a performance-based highway program in the critical areas 
of safety and state of good repair, and provides resources and 
authorities to spur innovations that will shorten project delivery and 
accelerate the deployment of new technologies.
    The President's fiscal year 2013 budget requests $10.8 billion, the 
first year of $108 billion over 6 years--a 105-percent increase--in 
funding for transit. It will prioritize projects that rebuild and 
rehabilitate existing transit systems, include an important new transit 
safety program, and allow larger transit authorities (in urbanized 
areas of 200,000 or more in population) to temporarily use formula 
funds to cover operating costs in limited circumstances.
    The administration's Surface Transportation Authorization proposal 
also 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.
    Recognizing that competition often drives innovation, the fiscal 
year 2013 budget requests $700 million, the first year of nearly $20 
billion over 6 years, for a ``race-to-the-top''-style incentive 
program, called the Transportation Leadership Awards, to encourage 
fundamental reforms in the planning, building, and management of the 
transportation system. This program would reward States and regions 
that implement proven strategies that further the Department's 
strategic goals, strengthen collaboration among different levels of 
government, focus on performance and outcomes, and encourage the 
development of a multimodal transportation system that connects people 
to opportunities and goods to markets. Examples of best practices that 
applicants might implement to compete in this program include passage 
of a primary seatbelt law, use of lifecycle cost analysis, aggressive 
deployment of operating practices that reduce need for more costly 
congestion solutions and implementation of a performance-based funding 
distribution system.
    We will also be leveraging our Federal investment farther than we 
ever have before through the use of Federal infrastructure loans, which 
enable State and local governments to significantly leverage Federal 
dollars when financing transportation infrastructure. The fiscal year 
2013 budget requests $500 million, the first year of $3 billion over 6 
years, for the Transportation Infrastructure Finance and Innovation Act 
(TIFIA) program. The TIFIA program leverages each $1 of Federal funds 
into $10 of credit assistance, which supports $30 in transportation 
infrastructure investment. Therefore, our $3 billion TIFIA investment 
is expected to produce up to $90 billion in transportation 
infrastructure projects.
    In addition, the President's budget makes the investments that we 
need to strengthen 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.
  modernizing our nation's transportation system through research and 
                               technology
    The fiscal year 2013 President's budget request will support the 
success of our economy by ensuring that our transportation investments 
keep pace with the latest innovations and advancements in technologies.
    For example, the Federal Aviation Administration (FAA) is in the 
middle of undertaking the largest transformation of air traffic control 
ever. The fiscal year 2013 President's budget requests $15.2 billion to 
support the FAA current programs in the areas of air traffic controller 
and safety staffing, research and development, and capital investment--
and over $1 billion of these funds will be used to advance the 
modernization of our air traffic system through ``NextGen''--the next 
generation of air traffic control technology. Using satellite 
surveillance, new methods of routing pilots, planes, and landing 
procedures, NextGen will change how Americans fly.
    In addition, we will be focusing our efforts on unmanned aircraft 
systems (UAS), which will play an increasing role in both Federal and 
civil missions, including homeland security, national defense, law 
enforcement, weather monitoring and surveying. Currently, technical and 
procedural barriers still exist in the interoperation of UAS with 
manned aircraft in the National Airspace System (NAS). In fiscal year 
2013, the Joint Planning and Development Office (JPDO) will lead 
efforts with the NextGen partners to formulate and develop a national 
plan that will achieve the integration of UAS into the NAS, and 
accelerate strategic decisionmaking on UAS implementation issues.
    The fiscal year 2013 budget also proposes to elevate the vital role 
research plays in transportation decisionmaking by moving the Research 
and Innovative Technology Administration (RITA) into a new Office of 
the Assistant Secretary for Research and Technology. This proposal will 
strengthen research functions across the Department by providing a 
prominent centralized focus on research and technology, which will 
improve collaboration and coordination between the Department's 
Operating Administrations.
    We will also promote research into Intelligent Transportation 
Systems, including Vehicle-to-Vehicle technologies. Vehicle-to-Vehicle 
(V2V) connectivity provides constant communication between vehicles to 
warn drivers of the potential risk of a collision. In fiscal year 2013, 
the Intelligent Transportation Systems (ITS) program will dedicate a 
total of $22.4 million to the V2V program, and the corollary programs 
including human factors research, the implementation of a safety pilot, 
vehicle connectivity policy research and standards development to 
further explore and advance technologies that will ultimately reduce 
the number of collisions and save lives.
                       pressing forward on 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 the Department. In fiscal year 2010, highway fatalities 
were the lowest since 1949--and yet over 30,000 lives are still lost 
each year on our Nation's highways.
    Our budget proposes a record level of investment in safety. The 
fiscal year 2013 budget requests $981 million, the first year of $7.5 
billion over 6 years, for the National Highway Traffic Safety 
Administration to promote seatbelt use, get drunk drivers off the road, 
and ensure that traffic fatality numbers continue dropping from current 
historic lows. Within this amount, $50 million in fiscal year 2013 and 
$330 million over 6 years is provided for the Department's ongoing 
campaign against America's distracted driving epidemic. In addition, we 
will almost double the investment in highway safety infrastructure 
funding over 6 years. The fiscal year 2013 budget requests $2.5 
billion, the first year of $17 billion over 6 years, for Federal 
Highway Administration (FHWA) safety construction programs. The fiscal 
year 2013 budget also requests $580 million, the first year of $4.8 
billion over 6 years for the Federal Motor Carrier Safety 
Administration (FMCSA) to ensure that commercial truck and bus 
companies maintain high operational standards, while removing high-risk 
truck and bus companies and their drivers from operating.
    Transit safety is another important priority. Rail transit provides 
over 4 billion passenger-trips each year, and safely moves millions of 
people each day. However, as shown by recent accidents and safety-
related incidents, we need to strengthen the existing Federal transit 
oversight authorities in order to maintain the safe performance of our 
transit systems. The fiscal year 2013 President's budget proposes $45 
million to enable the Federal Transit Administration to oversee rail 
transit safety across America. Funds will be used to develop, promote, 
and conduct safety oversight activities for rail transit systems 
nationwide.
    Finally, our safety focus must also include the transportation of 
hazardous materials and our network of pipelines. The President's 
fiscal year 2013 budget requests $276 million for the Pipeline and 
Hazardous Materials Safety Administration to help ensure that families, 
communities, and the environment are unharmed by the transport of 
chemicals and fuels on which our economy relies. We are proposing a new 
Pipeline Safety Reform initiative that will expand the oversight of our 
Nation's pipeline system. Under this initiative, we will hire 120 new 
inspectors and provide an additional $20.8 million in grant funding to 
work collaboratively with the States on the oversight of interstate and 
intrastate pipeline facilities.
                               conclusion
    Thank you for the opportunity to appear before you to present the 
President's fiscal year 2013 budget proposal for the Department of 
Transportation and our Surface Transportation Reauthorization proposal. 
Our infrastructure belongs to all of us. It is more than the way we get 
from one place to another; it is the way we lead our lives and pursue 
our dreams. The President's plan charts a bold new course for 
transportation infrastructure investment in the United States over the 
years to come. I look forward to working with the Congress to put 
people back to work making a transportation system that is the envy of 
the world--and an America that is built to last.
    I will be happy to respond to your questions.

    Senator Murray. Mr. Secretary, thank you very much for all 
your work on this, again.
    Senator Lautenberg. I'd like to make a statement, if I 
might.
    Senator Murray. Turn your mike on.

                STATEMENT OF SENATOR FRANK R. LAUTENBERG

    Senator Lautenberg. My wife never tells me I need a mike.
    I'd like to congratulate Secretary LaHood for a job well 
done. A lot of hard work, but it is a little bit of a salutary 
moment. One, is to congratulate him for the return of his son 
from----
    Mr. LaHood. Thank you.
    Senator Lautenberg [continuing]. Incarceration in Egypt.
    Two, to say to our colleague from Maine that we wish her 
well in the impending marriage and soon engagement.
    Senator Murray. I decided not to embarrass her and bring 
that up.
    Senator Lautenberg. I ask that my full statement be put in 
the record.
    Senator Murray. Without objection. Absolutely.
    [The referenced statement was not submitted.]

                         VOW TO HIRE HEROES ACT

    Senator Murray. Again, Secretary, thank you.
    I wanted to ask you about one of my highest priorities, 
which is to help veterans transition from their life in the 
military into civilian employment.
    Last year, we passed the VOW To Hire Heroes Act, which 
includes a number of provisions to help our servicemembers as 
they transition, plan for employment after they leave the 
military, to help translate their military skills into the 
private sector, and to gain civilian work experience.
    I understand that the Federal Motor Carrier Safety 
Administration, the Department of Defense (DOD), and the 
teamsters have worked together on a commercial driver's license 
(CDL) veterans-to-work initiative to help our military drivers 
transition to the commercial motor carrier industry.
    And as part of the effort, FMCSA issued a regulation last 
May that gave State DMVs (departments of motor vehicles) the 
ability to streamline their licensing process for veterans so 
that they can meet certain comparable standards of experience.
    Today, we only have 15 States that have taken advantage of 
this new authority. Three are in the process, and 8 States have 
declined, the remainder are still talking about it.
    Can you share with us any knowledge that you have about why 
States are not taking advantage of that new authority?
    Mr. LaHood. Senator, first of all, let me thank you for 
your leadership on Veterans Affairs, and the interest that you 
have taken in veterans.
    We are working to increase opportunities for veterans. In 
May 2011, our Federal Motor Carrier group promulgated a new 
regulation that does allow States to waive the skills test 
portion of the CDL licensing process for military personnel who 
can prove 2 years of safe driving experience. The regulation 
makes it easier for current military CMV (commercial motor 
vehicle) drivers to become licensed through a civilian DMV. We 
are working with the American Association of Motor Vehicle 
Administration and the U.S. Army to implement the regulation.
    But your statistics are correct. We need to continue to 
work with States on this to promote this program, to make sure 
that States understand that this opportunity exists. At this 
time, 15 States now offer the waivers of the skills test for 
military personnel who do provide proof of safe driving 
experience. Three States are moving to make this happen, 8 
States have declined, and 25 other States have not indicated 
their plans.
    I want to commit to you that we will continue. We have 
great partners at the States on these safety programs, and our 
motor carrier organization provides money to States for other 
safety. And we want to, we are going to step up on this, we 
really are.
    Senator Murray. Okay. I really appreciate that, and if you 
can find out for us, is it a barrier in those States? Is there 
something we do not see? Or is it just a matter of them not 
knowing the program is available?
    Mr. LaHood. Yes, I think it is probably a matter of whether 
we have not been as aggressive as we can be, and really going 
to legislative leaders, and Governors, and asking them to 
really make this available. I think we can do better.
    [The information follows:]

    The Federal Motor Carrier Safety Administration (FMCSA) administers 
the commercial driver's license (CDL) program nationwide by assuring 
that State Driver Licensing Agencies (SDLA) are in compliance with 
Federal statutes and Agency regulations. Each State has authority to 
issue CDLs following guidelines (Regulations) promulgated by FMCSA. 
These guidelines represent the minimum States must do. States may 
implement additional requirements on drivers seeking a CDL.
    In May 2011, FMCSA promulgated a new rule (49 CFR 383.77) that 
allows SDLAs to waive the CDL skills test for military personnel with 2 
years of safe driving experience. The latest survey shows that 17 
States now offer to waive the skills test; 5 States are in the process 
of instituting this option; and 8 States have opted not to take 
advantage of the option at this time. The remaining 21 States have not 
responded to queries of their status. The States that do not offer the 
waiver explain that for a variety of reasons, this is not a priority. 
These reasons include that instituting the waiver may require State 
legislative revisions or instituting new administrative and technical 
processes. In some cases, States provide budgetary and personnel 
limitations as reasons for not implementing the provision.
    When comparing the civilian equivalent of a CDL to the military 
heavy-duty truck license, the best comparison is the Army's 88M 
training, which both the Army and Marine Corps use to gain this 
qualification. FMCSA, in cooperation with the American Association of 
Motor Vehicle Administrators (AAMVA) and the U.S. Army Reserve 
Command's MPO, has developed a standardized process to make the 
transition from 88M qualification to a CDL less burdensome. A waiver 
form has been created that allows a State to validate the soldier, 
sailor, airman, or marine's safe driving record in the appropriate 
vehicle, supported by the signature of the soldier's commanding 
officer.
    FMCSA is currently exploring additional opportunities to help 
servicemembers and veterans that operate or have operated a CMV in the 
military to get a CDL. These options include waiving the domicile rule 
requirement for military personnel (which would require an act of 
Congress) as well as designating the military as a third-party tester 
for the standardized CDL skills test.

    Senator Murray. Yes, okay. Good. I know the Army has been a 
really great partner in that effort.
    Mr. LaHood. Right.
    Senator Murray. Is there any way we can expand that 
collaborative partnership that you have developed with the Army 
to help our other services?
    Mr. LaHood. Maybe what I should do is try and meet with the 
Secretaries of the other armed services, and I will do that, 
and the appointed secretaries and make them aware of this 
program. That is a good idea.
    Senator Murray. Okay, great. I would really appreciate 
that, and certainly let me know if there is anything I can do 
to help----
    Mr. LaHood. Thank you.
    Senator Murray [continuing]. Help move that along. I would 
also encourage you to work with the Department of Labor and let 
them know what you are doing, as they have been involved with a 
lot.
    Mr. LaHood. Good idea.

                      SAFETY FITNESS DETERMINATION

    Senator Murray. Great. I appreciate that.
    Since 2000, the National Transportation Safety Board (NTSB) 
has recommended that the FMCSA change its method of evaluating 
the safety and performance of carriers. And as a result, FMCSA 
began to implement its Comprehensive Safety and Accountability 
program, known as CSA, back in 2004.
    The Safety Fitness Determination rulemaking is the 
cornerstone of that program, and the rule was initially 
scheduled to be finalized in 2009. It has been delayed 
repeatedly. Until the rule is finalized, FMCSA is still using 
the review system that NTSB believes is inadequate.
    So I wanted to ask you when you expect to publish the 
Notice of Proposed Rulemaking (NPRM), and if you still intend 
to assess driver fitness, and what the plan and timetable is 
for that.
    Mr. LaHood. This is, obviously, a part of our safety 
agenda. It is very important and our staff is working with our 
colleagues at Office of Management and Budget (OMB) to make 
sure that we get it right.
    But for the record, I will get back to you and give you 
some clearer date on when we will be issuing the----
    Senator Murray. Okay. So is the challenge at OMB at this 
point?
    Mr. LaHood. The challenge is just working through this, and 
making sure we get it right, and working with our colleagues at 
the White House.
    [The information follows:]

    The Federal Motor Carrier Safety Administration (FMCSA) is 
preparing to publish a notice of proposed rulemaking (NPRM) later this 
year that will revise how the Agency determines the safety rating of 
motor carriers. This NPRM will incorporate a motor carrier's on-road 
safety performance and compliance data into the Agency's safety fitness 
determination (SFD) while continuing to use the findings from 
investigations that currently determine a carrier's safety rating. This 
will allow the Agency to incorporate for the first time data from more 
than 3.5 million annual roadside inspections into a motor carrier's 
safety rating and will ensure sustained safe performance by the motor 
carrier industry.
    This rulemaking will only cover the safety ratings of carriers 
because FMCSA does not currently have explicit authority to include 
drivers. The Agency contends it has explicit authority to establish 
safety fitness provisions applicable to CMV ``owners and operators'' 
but it is not clear that these provisions expressly apply to drivers.
    FMCSA provided technical drafting assistance to Congress in May 
2011 that would clarify its authority to determine the safety fitness 
of commercial motor vehicle (CMV) drivers. The Senate included this 
provision in its surface transportation reauthorization bill that 
passed the Senate on April 24, 2012. Enacting the Senate provision 
would strengthen FMCSA's ability to identify high-risk commercial 
drivers and remove them from service.
    Conceptually, a driver SFD would entail the Agency establishing an 
SFD standard through which it would rate a driver unfit based on a 
series of factors rather than waiting for the driver to be convicted of 
a disqualifying offense. This would allow the Agency the opportunity to 
look at a driver's overall safety and compliance history (violation 
rates, crashes, etc.) and determine that the driver's safety 
performance is poor enough to warrant a proposed SFD of ``unfit.''
    This clarification would help the Agency address recommendations 
and concerns from the Government Accountability Office, the National 
Transportation Safety Board, and stakeholders.

    Senator Murray. Okay. Senator Collins.

                           DISTRACTED DRIVING

    Senator Collins. Thank you, Chairman.
    Mr. Secretary, as I mentioned in my opening statement, you 
have demonstrated very strong leadership on the growing safety 
problem that is caused by distracted driving. In fact, I read 
one newspaper story that said you have been known to drive 
around Washington honking at drivers who are using their 
portable devices when they should be paying attention to the 
road ahead and behind them.
    But the fact is, this is a very serious problem. Just last 
week in my home State of Maine, text messaging was the key 
factor in a crash that killed the driver and seriously injured 
her passenger. In 2009, hundreds of thousands of people were 
injured in crashes reported to involve some kind of 
distraction, and the proliferation of electronic devices is 
clearly contributing to this growing problem.
    Could you explain to the subcommittee what the Department 
is doing through its budget to encourage greater public 
awareness of the dangers of distracted driving, and also, to 
urge States to pass distracted drivers laws?
    Mr. LaHood. Thank you.
    This is obviously something that is at the top of our 
safety agenda. When we started this campaign 3\1/2\ years ago, 
only 8 States had passed laws. Now 35 States plus the District 
of Columbia and Guam have passed laws. We need every State to 
pass a law.
    In the past, in the Senate, there have been bills 
introduced about distracted driving, and I would encourage any 
of you. We would be happy to provide any of you technical 
assistance if you all wanted to introduce a bill on distracted 
driving. We get asked all the time, ``Will there be a Federal 
law?'' And I do not know that there have been any bills 
introduced this year in this session of Congress about 
distracted driving. So if we can be helpful on that, we 
certainly would be.
    We are making progress. The money that is being proposed in 
the budget would be used for grants to States, similar to what 
we did with ``Click It Or Ticket'' so that law enforcement 
people can give tickets to people who are not wearing their 
seatbelts. As a result of two decades of Click It Or Ticket--
good enforcement, good laws--86 percent of the people, the 
first thing they do when they get in their car is buckle up, 
but it has taken two decades, good laws, good enforcement, and 
some of these grants.
    We would also similarly use some of the money to give to 
communities like we did for Hartford and Syracuse. We gave them 
each $200,000. They matched it with $100,000. They put police 
on street corners; that is how they used the money. They wrote 
tickets for people that were on cell phones; and distracted 
driving went down. So that is one of the ways we would 
obviously raise awareness, use it for enforcement. When States 
want to pass laws, we have model legislation that we provide to 
them.
    Senator Collins. Thank you for that update.
    I think that kind of technical assistance and helping to 
share best practices that the Department has found is very 
helpful. And that is very impressive that the number of States 
with such laws has grown from 8 to 35.
    Mr. LaHood. Yes.

                     HIGHWAY TRUST FUND INSOLVENCY

    Senator Collins. And I think that is directly due to the 
fact that you have personally made it a priority, and put a 
real spotlight on it.
    Let me turn now to the Highway Trust Fund. This is a very 
difficult issue. As you know, it has been operating at an 
unsustainable deficit since 2008, and has required 
approximately $35 billion in transfers, and those are deficit 
finance transfers in order to keep the Fund solvent. CBO 
estimates that the Fund will, once again, be insolvent or 
bankrupt sometime in the next fiscal year.
    The President's budget request really does nothing to fix 
that shortfall. In fact, you could argue that the spending 
increases will make matters worse, and yet we have such needs 
out there.
    The administration's solution appears to be to transfer 
billions of dollars from the General Fund to the Highway Trust 
Fund every year. And it is my understanding that the budget 
estimates some $17 billion in transfers will be required to 
keep the Trust Fund solvent through the end of fiscal year 
2013.
    Are you concerned that using the General Fund in this 
matter undermines the whole concept of the Highway Trust Fund?
    Mr. LaHood. We know the Highway Trust Fund has been 
diminished because people are driving less and driving more 
fuel efficient cars. So the money is just not there for all the 
things we need to do in America.
    The President this year in his budget proposed using the 
Highway Trust Funds, plus the funds that have been used for 
Iraq and Afghanistan, half of those funds as a means to pay for 
his budget. And I do want to send up a flare, and I want to 
send up a little alarm.
    You all have done your work here. You passed a 
transportation bill. If the House does not pass a 
transportation bill, and passes another short-term extension, 
to be honest, in a State like yours, Senator Collins, where you 
have a very short construction window because of the weather in 
Maine, it will be very difficult for your State DOT to really 
do anything big in your State.
    We need a transportation bill. We need the bipartisan bill 
that was passed in the Senate. If that happens, then we do have 
a big blueprint. In the absence of that, a short-term extension 
does no good for your State in terms of your ability to really 
fix up roads and bridges, and it is of great concern to us.
    I know that really was not your question, but since you 
raised the issue of funding and the Highway Trust Fund, and the 
fact that you all have passed a bipartisan bill, it is another 
way for us to emphasize this to the House of Representatives, 
this idea of passing just a short-term bill is not going to be 
good for States like Maine.
    Senator Collins. I certainly concur with that. And the fact 
is, short-term extensions drive up the cost because contractors 
cannot plan. They cannot hire----
    Mr. LaHood. That is right.
    Senator Collins. Their employees and thus, they are forced 
to bid a higher amount.
    Mr. LaHood. That is right.
    Senator Collins. Because of the uncertainty. So that part, 
we agree on.
    Senator Murray. Senator Pryor.

                              MARIAH'S LAW

    Senator Pryor. Thank you.
    Mr. Secretary, let me thank you for being here, and begin 
with a thank you for helping the Conway Airport in Arkansas.
    Mr. LaHood. Yes, sir.
    Senator Pryor. You helped move it out of a very congested 
area abutting a freeway and a neighborhood, where there have 
been some fatalities. Thank you for your help, and my 
understanding is that Conway is happy because they have moved 
from a 5-year plan down to a 3-year plan with your assistance, 
so thank you for that.
    Also, thank you for mentioning bipartisanship. I think the 
way we all feel around here is that if Senator Boxer and 
Senator Inhofe can agree on important things, then we all ought 
to be able to agree on important things because they are at 
different ends of the spectrum, but they really provided a 
great example for us.
    And one point of clarification is that in the bill that we 
passed yesterday, there is a provision on distracted driving 
called Mariah's Law, which sets up incentive programs for 
States to try to pass----
    Mr. LaHood. Great. Thank you.
    Senator Pryor. More laws against distracted driving, so 
that may have missed your attention, but I hope you will look 
at that.
    Mr. LaHood. Yes, thank you.

                             SEQUESTRATION

    Senator Pryor. And help us implement that.
    Let me start with a question that I know you do not want to 
answer, you do not want to get into, and that is sequestration. 
If that does happen and there is sequestration, have you looked 
at what it will do to the Department of Transportation's 
programs?
    Mr. LaHood. Let me ask our CFO (chief financial officer) 
just to comment on that.
    Senator Pryor. OK.
    Mr. LaHood. Chris Bertram.
    Senator Pryor. Sure.
    Mr. Bertram. We have not done a very detailed analysis of 
that yet. I think part of the question will have to be to what 
extent trust funded programs from the Highway and Aviation 
Trust Funds are affected as opposed to the General Fund, but we 
do not have a detailed analysis of that yet.
    Senator Pryor. Thank you for that. As you do that analysis, 
I think it would be helpful if you would get back with the 
subcommittee here and let us know what the ramifications----
    Mr. LaHood. We will do that.

                           PRIORITY CORRIDORS

    Senator Pryor. Of sequestration might be.
    Also, I have a question about future interstate corridors. 
I know that we are in a very difficult budget environment and 
difficult fiscal times for the Federal Government. However, I 
think it is critical that we continue to invest in our 
infrastructure that not only creates jobs now, but it is huge 
investment in the future.
    I know that when you look at a map of the various 
interstate highway systems in the country, there are several 
highways that have not been built, several interstates have not 
been built. In these difficult budget times, I know that we do 
not really take care of that in the recently passed surface 
transportation bill, but as we look out to the future, do you 
have a recommendation for how we should fund these future 
significant corridors or these high-priority corridors to try 
to make sure that we actually do get them built, given the 
constraints that we have?
    Mr. LaHood. I think the States need to get into a position 
of getting everything planned, get the environmental work done 
so that if there are resources available, they are in a 
position to come to the Department of Transportation.
    This idea that we cannot continue to make progress without 
earmarks is not accurate. We got $48 billion in the economic 
recovery plan. It came directly to DOT, and because of the 
great partnerships we had with States and transit districts and 
airports, we spent that in 2 years on 15,000 projects and put 
65,000 people to work, and there were no earmarks.
    So if States are ready with projects, and they have their 
environmental work done, and the money becomes available, we 
are ready to go and they are ready to go.
    I think if nothing else, that is what one thing that the 
economic recovery, our stimulus money, proved--that we can do 
this without earmarks because of the great partnerships we have 
with the States.

                            VETERANS TO WORK

    Senator Pryor. Okay. Thank you for that.
    Let me also follow up on something that Senator Murray said 
a few moments ago when she was talking about veterans.
    Mr. LaHood. Yes.
    Senator Pryor. And obviously, that is important to you and 
you all have discussed the Veterans to Work Initiative.
    We do something in our State that is not directly related 
to veterans, but could be, and it could be a national model, 
and that is the trucking industry has partnered with some 
community colleges to do some training. If someone finishes 
their training, and gets their CDL and gets a job, then part or 
maybe all of their tuition is forgiven to help them jumpstart 
their career.
    We could very easily tailor that towards veterans, and it 
sounds very similar to what you are doing.
    Mr. LaHood. Yes.
    Senator Pryor. If you are not aware of what they are doing 
in Arkansas, I would encourage your people to look at it.
    Mr. LaHood. Yes.
    Senator Pryor. And see if it could apply, because really, 
that is a good example of a State and industry partnership.
    Mr. LaHood. Yes.
    Senator Pryor. And you could fit the Federal Government, 
the VA (Department of Veterans Affairs), and everybody else in.
    Mr. LaHood. Sure.

                              TIGER GRANTS

    Senator Pryor. It could really help a lot of our veterans.
    I am really out of time here, so let me just ask if you 
have a timeframe on when you will release or announce this 
round of TIGER grants?
    Mr. LaHood. Late May.
    Senator Pryor. Late May.
    Mr. LaHood. Yes.
    Senator Pryor. So they are due about now.
    Mr. LaHood. They are due next Monday.
    Senator Pryor. Okay. So late May we will know.
    Mr. LaHood. Yes.
    Senator Pryor. Okay. Thank you, very much.
    Mr. LaHood. Thank you for all of your leadership, Senator. 
It has been great to work with you, not only for the country, 
but for your State, and we look forward to doing that.
    Senator Pryor. Thank you.
    Senator Murray. Thank you very much.
    Senator Lautenberg.

                         AMTRAK GATEWAY TUNNEL

    Senator Lautenberg. Thanks, Madam Chairman. And thanks 
again, Mr. Secretary.
    Amtrak has proposed building the Gateway Tunnel under the 
Hudson River to increase high-speed rail and commuter rail 
capacity. The current tunnel is at capacity during rush hour 
and ridership is expected to double in the next two decades.
    It is not unlike the development of the highway system 
being done in the early 1950s when the country had a population 
of 170 million. Now we have a population of 310 million and we 
are suffering from not having done the things that we should 
have done many years ago.
    You have looked at this proposal many times. What impact 
might the Gateway Tunnel project have on mobility and the 
economy in the Northeast corridor?
    Mr. LaHood. We are working with both New Jersey and New 
York. We know this tunnel is absolutely critical and we will 
continue our work.
    Look, if this is the priority for the region, then it 
becomes a priority for us.
    Senator Lautenberg. Mr. Secretary, do you see this tunnel 
in a larger context because what happens there in terms of rail 
service affects much of the country, much of the Atlantic 
coast. And it also would get some over 20,000 cars a day off 
the highway. And so it is of national interest, whether it is 
convenience and reliability or whether it is better air and 
less dependence on foreign oil.
    We have a situation in New Jersey where we have a 100-year-
old bridge called the Portal Bridge. It is one of the few 
things in New Jersey that is older than I am. The bridge has 
persistent problems that delay trains and cause devastating 
ripple effects in the entire Northeast corridor (NEC).
    What is the Administration's plan for helping to upgrade 
this important, critical bridge?
    Mr. LaHood. The Department has funded about $1.7 billion in 
NEC through the high-speed rail funds. The Portal Bridge 
replacement, $38 million for the final design and the Moynihan 
Station Phase 1, $83 million. Both projects are 100 percent 
obligated.

                            TRANSIT FUNDING

    Senator Lautenberg. Public transportation use is 
approaching record levels. Yet, our friends in the House 
recently tried to eliminate dedicated funding for transit 
programs.
    What impacts would commuters face if they prevail and had 
their way, and transit funding was not protected?
    Mr. LaHood. Senator, one of the reasons that I said that 
that particular House bill was the worst House bill that I had 
seen in 35 years of public service is because it gutted 
transit. When gasoline prices go up, transit ridership goes up. 
We know gasoline prices are going up. Transit is the lifeblood 
of transportation for many people in America to get to work, to 
get to a doctor's appointment, to go to the grocery store.
    And certainly in your area, which is a transportation-
centric center of the world, transit is absolutely critical. We 
need a good, strong transit program to continue state of good 
repair, but also to innovate and create new opportunities.

                           NATIONAL RAIL PLAN

    Senator Lautenberg. I agree with that. The number of jobs 
that could be created almost instantly is enormous, and the 
subsequent job opportunities for commutation and travel through 
the area represent an almost magic look at what could be.
    My 2008 Amtrak law required DOT to complete a comprehensive 
national rail plan. The Surface Transportation Bill that the 
Senate approved this week was a good bill, bipartisan, 
excellent bill, really. Each side gave a little bit, and each 
side took a little bit. It really is a great move forward.
    So the bill that the Senate approved this week further 
details the need for the plan. When might we see a final 
national rail plan from DOT?
    Mr. LaHood. We are working on it and we will, for the 
record, get you a date certain when we will be complete.
    [The information follows:]

    The Federal Railroad Administration (FRA) published a Preliminary 
National Rail Plan (NRP) in October 2009 following the direction of 
Congress, and a subsequent update of the NRP was made in the September 
2010 Progress Report. These documents--combined with the policies and 
funding levels described in the Administration's fiscal year 2013 
budget proposal and 6-year investment strategy--articulate the future 
of intercity passenger rail for America.
    In October 2011, FRA submitted to Congress a Public Investment and 
Business Case for four major corridor programs that were funded through 
fiscal year 2010 appropriations (Los Angeles-San Francisco, Chicago-
Detroit, Chicago-St. Louis, and Chicago-Iowa City). Consistent with 
requirements established in the fiscal year 2010 appropriations, these 
documents summarized the need for these investments, quantitatively and 
qualitatively assessed benefits and costs, and reviewed implementation 
and operating plans.
    Since fiscal year 2009, State and Federal rail planning has 
progressed significantly as well as their experience with new rail 
development. The need to revise and update the NRP will be incorporated 
as the program matures. FRA continues to undertake a number of 
interrelated planning and analysis efforts--all of which include 
substantial engagement with our State partners and other stakeholders--
that will result in further iterations of the NRP and related 
documents.

    Senator Lautenberg. I would appreciate that. Thanks very 
much.
    Mr. LaHood. Senator, I look forward to being with you on 
Monday. You and Senator Menendez, I think, were going to be 
together in Hoboken talking about the transportation bill and 
about transit.
    Senator Lautenberg. Yes, I look forward to that.
    The Secretary was in New Jersey yesterday, Madam Chairman 
and colleagues, at a funeral for a Congressman Donald Payne. 
And the place was overflowing with, yes, sadness, but also the 
fact that he was almost an icon in terms of being the first 
minority member of the House from New Jersey. And the Secretary 
was there and made a very good speech, and it was very helpful, 
and we thank you.
    You are always welcome in New Jersey, and if you cannot get 
a ticket on the train, I know some people. Thank you.

                             FERRY SYSTEMS

    Senator Murray. Thank you, Senator Lautenberg.
    Mr. Secretary, when you came out and visited my home State 
of Washington, you saw and rode on our ferry system, and saw 
how essential it was to our transportation system. And you know 
that the Federal partnership that supports our ferry system is 
very important.
    In the Senate transportation bill that we hope the House 
takes up, I worked to create a formula to really prioritize and 
target Federal funding to our Nation's largest ferry systems, 
and it requires enhanced coordination among the numerous DOT 
agencies and programs that support ferries. These changes, we 
believe, will help reduce administrative costs and improve the 
efficiency and effectiveness of our Federal investments.
    I am going to continue working for a Federal program that 
will support our Nation's ferry systems, but you already have 
the authority to make improvements at DOT on coordination and 
data collection. And I wanted to ask you if you will work with 
me to make sure DOT is focused on that.
    Mr. LaHood. The way the trains are important for the 
Northeast corridor, ferries are important for the Northwest, 
and we recognize that. And certainly the opportunity that you 
provided to me to see firsthand the importance of it--you have 
my commitment that we will make sure that the Northwest, and 
particularly the State of Washington, has the ability to 
deliver people around on ferries.

                       PASSENGER FACILITY CHARGES

    Senator Murray. I appreciate that very much.
    Another topic. Your budget request would cut airport grants 
drastically and focus the program only on general aviation and 
small commercial airports. To replace the grants that would 
have gone to the large and medium airports, you are asking 
Congress to increase the cap on passenger facility charges 
(PFCs).
    This request, as you know, is the same one that you 
submitted last year. However, last year, Congress was still 
developing its bill to reauthorize the FAA. This year, we have 
enacted FAA reauthorization laws and it does not include an 
increase to the cap on PFCs.
    So I wanted to ask you how you now propose paying for 
airport infrastructure when we do not have an increase to PFCs?
    Mr. LaHood. I am going to let Chris just talk about this 
for a minute, because he has worked with OMB on this.
    Mr. Bertram. Senator, our proposal would only take effect 
if there were a change in the PFC cap. So in the absence of a 
change in the PFC cap, we would propose to have the same 
funding level as we had last year, the baseline level for AIP 
(Airport Improvement Program).
    Senator Murray. Okay. We have got to make sure airports can 
make capital investments, and airport grants and PFCs both play 
a really important role in that.
    So as part of the next reauthorization bill, would you 
support allowing large and medium airports to voluntarily opt 
out of the airport grant program in order to increase their 
PFCs?
    Mr. LaHood. We believe airports are a real economic engine 
for communities. They provide a lot of jobs, and obviously, we 
have to have modern airports. Airports need the ability to 
improve infrastructure and to build new facilities and to make 
sure they have the capability to continue, that planes can fly 
in and out safely. I certainly would be willing to work with 
all of you on that and also with airports.

               NEXT GENERATION AIR TRANSPORTATION SYSTEM

    Senator Murray. Okay. On another topic.
    Your budget request includes over $1 billion for NextGen, 
the effort to modernize our air traffic control system. For 
NextGen to work, each aircraft has to be equipped with 
compatible technology, as you well know. The FAA has mandated 
that aircraft be equipped with some of this technology by the 
end of the decade, but there is no guarantee that airlines will 
be able to meet that requirement.
    The FAA reauthorization law allows DOT to set up a program 
to provide loan guarantees to support the equipage of aircraft 
with this NextGen technology.
    Can you talk a little bit about what steps you have taken 
to explore setting up that program?
    Mr. LaHood. We have had many, many meetings with our 
colleagues at the White House, particularly those on the 
economic team, about this. And we have involved the airlines in 
this also.
    We recognize that the airlines are starting to come back. 
They are starting to be more financially viable. Many are 
actually starting to make money, and we want to make sure that 
putting a requirement for this kind of technology in every 
airplane does not inhibit their ability to continue to make 
progress financially.
    We are trying to figure out a way that we can be helpful 
with the funding, so that the airlines keep up with the 
progress we are making in putting the technology in the TRACONS 
(terminal radar approach control facilities). We have had a lot 
of meetings about this, and I think everybody recognizes that 
some way, shape or form we have to be helpful here to the 
airlines, at least in the early stages as this technology is 
being put in airplanes.
    Senator Murray. Do you have all the legal authority you 
need as a Department to implement something to----
    Mr. LaHood. Yes, I believe we do.
    Senator Murray. Okay. I appreciate that.
    Senator Collins.

                      REINCARNATED MOTOR CARRIERS

    Senator Collins. Thank you, Madam Chairman.
    Mr. Secretary, there are unscrupulous motor carriers that 
reregistered themselves under new identities in an effort to 
evade accountability for past poor safety practices.
    So, one of the goals discussed in your budget is preventing 
these chameleon carriers from reentering the commercial motor 
carrier industry. However, only about 2 percent of new carriers 
each year are examined by FMCSA prior to entering the industry.
    What are your plans to try to prevent these reincarnated 
bad actors from invading FMCSA enforcement action by reentering 
the industry as supposedly new carriers?
    Mr. LaHood. I want to say that our administrator, Anne 
Ferro, has worked very hard on this. This is a very, very 
serious problem.
    If safety is our number one priority, which it is, then it 
has to be safety in all modes including trucking and busing. We 
have motor coach carriers doing the same thing; put them out of 
business, and they slap another name up on the bus.
    And so, what Anne has done is set up a taskforce where she 
gets all of the key people in the room, and they begin to track 
these companies, and make sure that they are not just putting 
another name up on the company so that they can continue to 
operate. And we are working very hard on this; it is a top 
priority.
    We have a taskforce that works 24/7 to make sure that these 
companies do not operate.
    Senator Collins. That is great to hear, and this is 
something where I believe the industries, whether the motor 
coach side or the commercial truckers, are very eager to work 
with you.
    Mr. LaHood. They are.
    Senator Collins. They do not want to see----
    Mr. LaHood. They do not.
    Senator Collins. Those bad actors on the road.
    Mr. LaHood. You are absolutely right.

                            CONTRACT TOWERS

    Senator Collins. Next, I would like to turn to another 
provision of the budget, which proposes an increase in the 
local share for the Contract Tower Cost-Sharing Program.
    Under the budget proposal, the local share, which is 
currently capped at 20 percent, would increase to 50 percent. 
Now, that does help the Federal budget. It results in savings 
of about $2 million. But I worry that smaller community 
airports will simply not have the funds to contribute more than 
the current 20 percent, and could potentially be forced to shut 
down operations.
    As these changes were evaluated, were the impacts on 
smaller airports considered and included in your 
decisionmaking?
    Mr. LaHood. Let me say that the fiscal year 2013 budget 
that the President proposed was released shortly before the FAA 
authorization. We need to get the two in sync here; we know how 
important these contract towers are, and we know that people 
have limited resources.
    We will make sure that what we do comports with the idea 
that, number one, the contract towers are important. And number 
two, that we do not impede on their ability to really be able 
to continue these.
    Senator Collins. Thank you.
    Thank you, Madam Chairman.
    Senator Murray. Thank you very much, and we have been 
joined by the distinguished chairman of our subcommittee. We 
are delighted to have him here.
    Senator Inouye.

                         HONOLULU RAIL PROJECT

    Senator Inouye. Thank you very much.
    Mr. Secretary, I thank you for your request of $250 million 
for the city and county of Honolulu rail project, and I 
understand that this was the single largest request in the New 
Starts portfolio, and I thank you for your support of this 
important project for my State.
    The city and county of Honolulu is currently involved, as 
you may be aware, in a Federal court case regarding the rail 
project. According to media reports in Hawaii, as part of the 
discovery process, emails from 2006 and 2009, written by 
Federal Transit Administration staffers, express concerns about 
the rail project.
    So Mr. Secretary, I wonder whether you could share with us 
the Department of Transportation's stance on this project at 
this moment.
    Mr. LaHood. Senator, the press reports, the emails that you 
make reference to were prior to my taking this position. And 
since I have taken this position, I have had the privilege of 
being with you in your State. We have talked about this 
project. You were kind enough to convene a meeting about this 
and other projects in Hawaii. And I want you to know that we 
are committed to this project.
    This is an important project. This will deliver people all 
over the island. It is an important project, and at this point, 
we are going to continue to work through whatever issues need 
to be worked through. We are committed to this. We are 
committed to the money. We are committed to the project, and 
until we hear differently from others who are intimately 
involved in this, I see no reason why we will not go forward.
    Senator Inouye. Mr. Secretary, thank you very much. On 
behalf of all the people of Honolulu, thank you.
    Mr. LaHood. Thank you, sir.
    Senator Inouye. Thank you, Madam Chairman.

                           CHAMELEON CARRIERS

    Senator Murray. Thank you, very much, Senator Inouye.
    I just wanted to quickly follow up on Senator Collins's 
discussion of the chameleon carriers. I know that you are 
looking at passenger and business, but freight is an important 
part of that. I know the GAO (Government Accountability Office) 
report identified that as a concern as well.
    Are you going to include freight in that?
    Mr. LaHood. We have really focused on motor coach and 
trucks, but we can take a look at freight, sure.
    Senator Murray. Okay. The GAO identified that as a concern 
as well.
    Mr. LaHood. Okay.

                     COLUMBIA RIVER CROSSING BRIDGE

    Senator Murray. So I appreciate Senator Collins bringing 
that up.
    I did want to ask you about a local project that you know a 
lot about as well--the Columbia River Crossing Bridge. I really 
appreciate your focus on that. It is so important to us in the 
Pacific Northwest. We have been working on it for years. It is 
a very complex project, but it is making progress and, in fact, 
in December, all the environmental planning work was completed. 
And last month our State Senate approved tolling authority that 
they need to help pay for it. So I am really pleased to see 
that your budget includes funding for it as well.
    But I was concerned to see some recent press reports that 
there may be disagreements between your Department and other 
Federal agencies about the bridge's planned height, an issue 
everyone thought, frankly, was resolved years ago. And I wanted 
to ask you what kind of impact would changing the design of the 
Bridge at this point, as the Coast Guard is suggesting, have on 
this project?
    Mr. LaHood. First of all, we are totally committed to the 
Columbia River Crossing. This is going to be a model for 
multimodal transportation. When you look at all the different 
modes of transportation that will be involved with that bridge, 
it truly is multimodal, and it is bi-State, it is bipartisan, 
it is about everything, any way you can describe it. It is a 
great project.
    What I would like to suggest, Senator, is either you, or 
you and I convene a meeting, maybe in your office as soon as 
you want to do that to make sure everybody is on the same page, 
and that the deadlines are met.
    Senator Murray. Okay.
    Mr. LaHood. We have had a little hiccup here, but that is 
not going to stand in the way of this project moving forward. 
We are not going to let it stand in the way of that, but to 
make sure that everybody knows what the facts are.
    Senator Murray. Right.
    Mr. LaHood. What the deadlines are--if you want to convene 
a meeting, or if you want me to, or you and I both, we will get 
the Coast Guard, DOT, and everybody else that is involved in 
this, the two States, and make sure everybody is on the same 
page so there are no delays.
    Senator Murray. Okay. Very good. I would really like to do 
that, and perhaps the FAA as well, because if you make the 
bridge----
    Mr. LaHood. Fine. Yes. Perfect.

                                BIOFUELS

    Senator Murray [continuing]. Higher than the airport--it is 
a complex project. Okay. Very good. We will follow up with 
that.
    Let me ask you about rising gas prices, an issue that 
everybody is concerned about. We are seeing increases in 
transit ridership, as she talked about a few moments ago. Gas 
prices are hurting everyone. And as you and I have talked about 
before, we need to look at all the alternatives to fossil fuels 
when it comes to cars, and buses, and ferries, and ships, and 
planes.
    One of those alternatives is biodiesel, which is a cleaner 
burning, homegrown product that has huge potential. And I am 
working with the Department of Defense, major airlines, and a 
lot of people to expand the availability and market for 
biodiesel and other biofuels, working with agriculture and the 
biofuels industry. So I think there is a real capacity here.
    And I wanted to ask you today, what do you think it will 
take to expand the use of biodiesel and other biofuels across 
the modes of transportation, so we can help expand and really 
get a market for these types of alternatives?
    Mr. LaHood. As you know, this administration from the 
President to just about every Cabinet Secretary involved has 
worked very hard on fuel efficiency. You know where we have 
gotten.
    By 2025, cars will get 54.5 miles per gallon. Every car 
manufacturer has signed off on this. They stood with the 
President when he made the announcement. This is an 
extraordinary opportunity for our country to set the very 
highest standards possible, and we have worked very closely 
with the Environmental Protection Agency to develop these 
standards.
    On biodiesel and on the use of diesel, I think if Congress 
sends a loud message, you are not going to hear any heartburn 
or criticism from the administration. We need good partners on 
this and if you all send a message, I think it can be very 
helpful.
    Senator Murray. Okay. Very good. Thank you very much, Mr. 
Secretary.
    Mr. LaHood. Thank you.
    Senator Murray. Senator Collins.
    Senator Collins. Thank you, Madam Chairman. I am going to 
submit the vast majority of the rest of my questions for the 
record.

                            HIGH-SPEED RAIL

    Senator Collins. I do just want to raise one more issue on 
high-speed rail, even though I hate to end on a note where we 
have different views when we agree on so much.
    But one of the concerns that I have is whether States are 
going to be able to sustain the investment, and California is a 
perfect example of that.
    The administration has put $3 billion into the California 
High-Speed Rail Project. Recently the GAO has confirmed that 
the cost of building the line is likely to increase from $33 
billion to $98 billion. Now that is GAO's opinion, maybe there 
are other estimates, but that obviously is of great concern.
    One of my concerns is if the Department makes this kind of 
investment of billions of dollars, and then the States prove to 
be unable to do their share, and the cost estimates go through 
the roof, then we have not accomplished the goal the 
administration wants. I would rather see that money spent on 
traditional mass transit, and roads, and bridges.
    So my question is, what is the Department doing to ensure 
when you give money to a State for a project like this, that 
the State is going to be able to handle it financially?
    Mr. LaHood. First of all, I think we are at the point in 
this country when the interstate system was started. It took 50 
years to build it and it was not all built in 1 day. I 
guarantee you, when the interstate system was conceived, not 
everybody knew where all the lines were going to be, and 
certainly I do not think people knew where all the money was 
going to come from.
    But I know this: All the money is not going to come from 
the Federal Government. You all have made that pretty clear in 
the money that you have not given us in our last request. But 
for the States that have received money, $3 billion, the 
largest share, has gone to California, over $2 billion to 
Illinois, and a lot on the Northeast corridor. And the States 
are our partners.
    I just spent a week in California. I spent a lot of time 
with the legislature there. In some States what they have done 
is they have passed referendums and they have passed bonding 
issues. So that will be part of what the State will put up.
    There are several foreign companies in California right 
now, meeting with Governor Brown on their ability to invest in 
high-speed rail. I think there will be three sources of funding 
for most States, particularly in California where we really 
will have high-speed rail. You will have trains going 200 miles 
an hour.
    I think the funding sources will be: The Federal 
Government--we have made a good investment, as you mentioned, 
$3 billion; the State will be putting money in through the 
selling of bonds; and I think there will be a lot of foreign 
investment. I really do. These foreign investments are there, 
foreign investors are there. They are meeting with the 
governor. They are talking about partnerships.
    The same is true in Illinois. The Illinois governor is 
working with some foreign investors to make investments in the 
corridor in Illinois. And of course, our partners along the 
Northeast corridor have been Amtrak. Amtrak is doing very well. 
Ridership is up. They are making money. They have good 
leadership. Things have really improved. We just invested about 
$1 billion in Amtrak for new cabinetry, for new cars, and to 
fix up some of the tracks.
    So I do not see all the money coming from the Federal 
Government. There is not enough money. I do see other sources, 
but as an example, the people are way ahead, with all due 
respect, the people are way ahead of Washington on this. And 
what I mean by that is if you look at our TIGER guidance, we 
put in there up to $100 million for high-speed rail. As of 
today, we have $1 billion worth of requests for that $100 
million.
    People in America want different forms of transportation. 
The next generation of transportation for America, for the next 
generation, is high-speed rail. It is what Americans want. 
Every State now has their interstate build out and where 
communities have good transit, they want their highways in a 
state of good repair. But they want passenger rail. They do, 
and that is not just Ray LaHood saying it, or President Obama 
saying it. It is what the people want, and that is reflected in 
the request that we have received for $1 billion for up to $100 
million.
    When Florida gave back their money, $2.3 billion, we got 
$10 billion worth of requests. This is not for Ray LaHood. It 
is not for you two, with all due respect. It is for our kids 
and grandkids.
    What are we going to do for the next generation? What is 
the next generation of transportation? It is not the 
interstate. That is pretty much built out. It is not transit. 
We are doing well with transit. It is high-speed rail. That is 
what we need to leave to the next generation.

                              FREIGHT RAIL

    Senator Collins. Thank you, Mr. Secretary, I know you feel 
very passionately about this issue.
    Let me just end my comments today by thanking you and the 
Department for your commitment, which helped us save freight 
rail----
    Mr. LaHood. Exactly.
    Senator Collins [continuing]. In northern Maine. This was 
233 miles of freight rail track that was going to be completely 
abandoned, cutting off the top half of my State. Through a 
partnership that involved a State bond, private sector 
investment, and the Federal funding, we were able to save that 
track.
    And I want to report to you that it is going extremely 
well, that shipments are up, the track is being repaired so the 
service is so much better. And that was really a lifeblood that 
saved literally an estimated 1,700 jobs in a part of the State 
that really needed those jobs. So thank you.
    Mr. LaHood. Look, Senator, it is thanks to you. I mean, we 
would not have known about that if you had not pointed it out 
to us at one of these hearings that we had. Both of you 
senators have been great leaders on transportation.
    You are never going to hear a complaint from me or a 
criticism for either one of you for the work that you do, the 
partnership that we have had, in being in your States, and 
making sure that the transportation needs of your State are 
met, whatever they are. And we will continue to do that. It is 
very important.
    You all have been great, great friends and great partners, 
and we could not do the work we do without great leadership 
from both of you.
    Senator Collins. Thank you.
    Senator Murray. Thank you, Mr. Secretary. We really 
appreciate all your work in this, your passion, your energy, 
and we will continue to work with you throughout this year to 
put the best bill we can together. So thank you very much.
    Mr. LaHood. Thank you.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. With that, I will remind my colleagues that 
the hearing record will be open for 1 additional week for 
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 Richard J. Durbin
            air quality--union station and diesel emissions
    Question. After the Chicago Tribune reported Metra passengers and 
workers were exposed to excessively high levels of diesel soot, Metra 
took quick action to improve air quality in their cars by installing 
cabin air filters, switching to cleaner burning diesel fuel, and 
employing automatic idle shut-offs on many of their engines. Amtrak 
worked to identify additional solutions for the area around the train 
station itself. These actions had an immediate effect, reducing 
pollution emissions by as much as 75 percent.
    Are other transit agencies taking similar steps to assess and, if 
needed, improve the air quality at their stations and in their train 
cars?
    Answer. While transit agencies across the country work with local 
governments to meet air quality goals of the Clean Air Act administered 
by the Environmental Protection Agency (EPA), these goals are not 
specifically tied to individual transit stations or within transit 
vehicles. EPA regulates emissions from diesel-hauled rail transit 
vehicles and locomotives. The Federal Railroad Administration (FRA) 
regulates most aspects of intercity, regional, commuter, and light 
(interurban) rail transit systems operating on the General Railroad 
System. This would include diesel-hauled commuter and interurban 
systems. Additionally, while the EPA maintains exhaust emission 
standards for heavy-duty highway compression-ignition engines and urban 
buses, these standards are focused on tailpipe emissions and not 
focused on specific environments such as the inside of a transit 
vehicle or station.
    Federal agencies must ensure that their actions such as grants or 
approvals in nonattainment or maintenance areas conform to State air 
quality plans for achieving and maintaining air quality standards. Air 
quality factors are considered through the Department of Transportation 
(DOT) and metropolitan planning organization must comply with EPA's 
General Conformity or Transportation Conformity regulations, as 
applicable.
    EPA's Office of Transportation and Air Quality's (OTAQ) mission is 
to reconcile the transportation sector with the environment by 
advancing clean fuels and technology, and working to promote more 
livable communities. OTAQ is responsible for carrying out laws to 
control air pollution from motor vehicles, including their engines, and 
fuels. Mobile sources include: Cars and light trucks, large trucks and 
buses, farm and construction equipment, lawn and garden equipment, 
marine engines, aircraft, and locomotives. OTAQ's activities include: 
Characterizing emissions from mobile sources and related fuels; 
developing programs for their control, including assessment of the 
status of control technology and in-use vehicle emissions; carrying out 
a regulatory compliance program, in coordination with the EPA Office of 
Enforcement and Compliance Assurance, to ensure adherence of mobile 
sources to standards; fostering the development of State Motor Vehicle 
Emissions Inspection and Maintenance Programs; and implementing 
programs for the integration of clean-fueled vehicles into the market.
    Question. Have any studies been conducted to assess which transit 
agencies and stations are most in need of taking corrective steps to 
improve air quality for their passengers and transit workers?
    Answer. To our knowledge no specific study or synthesis report has 
been compiled specifically documenting transit agency stations in need 
of taking corrective steps to improve air quality specifically for 
transit passengers or transit employees. Within current operational 
environments, it is not unusual to detect a slight odor of diesel 
exhaust inside the one or two passenger cars directly behind the 
locomotive, inside diesel-hauled interurban trains, and on station 
platforms where such platforms are protected from breezes and other 
natural air circulation. This usually passes naturally once the vehicle 
is at speed or a few moments after the vehicle has departed the 
station. Operations in tunnels, covered stations and other below-grade 
configurations may exacerbate this issue.
    While the Federal Transit Administration (FTA) does sponsor 
research centered on reducing transit emissions through advanced and 
innovative technologies, there is no specific research targeting the 
passenger environment in vehicles and on station platforms. Further, 
there are currently no transit industry standards or FTA Requirements 
that address air quality specifically for passengers.
    Question. How can DOT help improve the air quality in diesel 
powered trains and around train stations?
    Answer. On a continuing basis, DOT, through its various modal 
administrations and programs, works with State and local communities to 
address air quality. FTA specifically has targeted its Transit 
Investments for Greenhouse Gas and Energy Reduction (TIGGER) program 
and its Clean Fuels program grant funds to transit agencies in both 
attainment and non-attainment areas to help them adopt new technologies 
that reduce vehicle idle time, overall energy usage, and harmful 
emissions. For example, using fiscal year 2010 TIGGER funding, FTA 
provided Metra, through the Illinois Department of Transportation, 
Federal funds to modify locomotives by implementing innovative 
automatic shut-down/start-up systems to reduce unnecessary idle time.
      faa airport privatization program--midway and other airports
    Question. The recent Federal Aviation Administration (FAA) 
reauthorization doubled the number of airports that can apply for the 
FAA Airport Privatization Pilot Program from 5 to 10. The privatization 
of such large publicly held assets naturally raises questions regarding 
responsible stewardship, particularly during times of economic 
uncertainty.
Midway Airport
    Midway Airport in Chicago is currently the only large-hub airport 
in this privatization program. How much total Federal funding has gone 
to build and maintain Midway Airport?
    Answer. Since 1982, Chicago's Midway Airport has received a total 
of $378,350,793 in Federal Airport Improvement Program (AIP) funds 
under the Airport and Airway Improvement Act of 1982.
    Question. 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. Since 1982, Chicago's Midway Airport has received a total 
of $378,350,793 in Federal Airport Improvement Program funds under the 
Airport and Airway Improvement Act of 1982. If a private operator is 
selected for the airport, it may apply for an exemption under the FAA's 
Airport Privatization Pilot Program. At that time, FAA will evaluate 
the application for exemption.
    Question. What other large hub airports have expressed interest in 
the privatization program?
    Answer. To date, no other large hub airport has approached FAA with 
a formal request to participate in the program. From time to time, we 
do receive informal inquiries from airports.
Other Airports
    Question. Puerto Rico is currently soliciting bids to sell or lease 
Luis Munoz Marin International Airport. How much total Federal funding 
has gone to build and maintain this airport?
    Answer. Since 1982, Puerto Rico's San Juan Luis Munoz Marin 
International Airport has received a total of $180,353,147 in Federal 
Airport Improvement Program funds under the Airport and Airway 
Improvement Act of 1982.
    Question. How much Federal funding would Puerto Rico 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. Since 1982, Puerto Rico's San Juan Airport has received a 
total of $180,353,147 in Federal Airport Improvement Program funds 
under the Airport and Airway Improvement Act of 1982. If a private 
operator is selected for the airport, it may apply for an exemption 
under the FAA's Airport Privatization Pilot Program. At that time, FAA 
will evaluate the application for exemption.
    If an airport is required to repay Federal funding, what would DOT 
do with those funds?
    Answer. The existing privatization statute does not have any 
specific direction on how repayments are to be handled. In the 16 years 
that the airport privatization program has been in effect, no 
repayments have been required. Repayments would be handled on a case-
by-case basis.
    Question. Does DOT believe there are sufficient public interest 
protections in the current Airport Privatization Pilot Program law and 
regulations?
    Answer. The statute and regulation creating the FAA Airport 
Privatization Pilot Program (Program) specify how FAA evaluates the 
competencies of a proposed private operator. The FAA will not grant a 
part 139 airport operating certificate to a private operator that is 
unable to demonstrate the ability to meet or exceed existing airport 
operating requirements and standards. The FAA must also be satisfied, 
under the Program, with the private operator's plans to maintain, 
modernize and improve the airport, including its 5-year capital 
improvement plan. The Program also requires the FAA to find that the 
public sponsor undertook a process consistent with aeronautical users' 
interests, including consultation, limitations on fees, rights to 
object to the sponsor's planned use of proceeds, and impact on general 
aviation users, and that the private operator's plans with respect to 
aeronautical users are also consistent with their interests under the 
Program. Further, pursuant to the Program, the FAA must find that the 
privatization transaction will not abrogate any collective bargaining 
agreement that covers airport employees and that is in effect on the 
date of the transaction. In addition, the FAA must find that operations 
of the privatized airport will not be interrupted in the event of 
bankruptcy. Finally, all airports that have accepted Federal grants, 
regardless of public or private ownership, must meet the same grant 
assurance and safety requirements.
                     general highway privatization
    Question. A 2008 Government Accountability Office (GAO) report was 
critical of highway privatization deals. The report recommended several 
actions for Congress and the administration. Specifically, GAO 
recommended Congress require the Secretary of Transportation to develop 
and submit objective criteria for identifying national public interests 
in highway public-private partnerships.
    Does DOT currently have the legal authority to develop public 
interest criteria for highway public-private partnerships?
    What additional legal authority does DOT need to develop public 
interest criteria to ensure national public interests are protected in 
future highway public-private partnerships?
    What action is DOT taking now to ensure that national interests are 
considered in proposed highway public-private partnerships like the 
Ohio Turnpike?
    Answer. DOT does not have any statutory authority to require States 
to use any particular public interest criteria when determining whether 
and how to pursue a public-private partnership (P3) for highway 
infrastructure development. However, section 1534 of Public Law 112-141 
Moving Ahead for Progress in the 21st Century Act (MAP-21) directs the 
Department to develop and post information on best practices in P3s, 
including ``policies and techniques to ensure that the interests of the 
traveling public and State and local governments are protected'' in any 
P3 agreement. That section also allows DOT to provide technical 
assistance to a State, public transportation agency, or other public 
official ``in analyzing whether the use of a public-private partnership 
would provide value compared with traditional public delivery methods'' 
if requested to do so. DOT is currently working to implement this 
provision and could provide such technical assistance for the Ohio 
Turnpike if requested to do so.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy
                         emergency relief fund
    Question. Secretary LaHood, I want to thank you and your whole 
Department for all of the help and support you have provided to the 
State of Vermont in the wake of Hurricane Irene's devastation last 
August. I am amazed at how quickly the engineers and construction crews 
have rebuilt roads, bridges, and rail lines that were completely washed 
away just a few months ago. I'm especially grateful that we were able 
to get the Federal Highway Administration (FHWA) the additional 
Emergency Relief (ER) funding that the States need and the flexibility 
to grant waivers lifting the State cap and emergency-operations 
deadline. I really appreciate you granting of these waivers, which have 
been crucial to Vermont's rebuilding efforts.
    What is the current status of the Emergency Relief Fund? Do you 
anticipate needing more than the statutory $100 million in ER funding 
in fiscal year 2013 to deal with the backlog? How do you plan to cover 
potential shortfalls as Vermont and other States continue to request 
funding as they rebuild from past disasters?
    Answer. FHWA is authorized $100 million annually in Emergency 
Relief funds. In addition, the Consolidated and Further Continuing 
Appropriations Act, 2012 (Public Law 112-55) provided a one-time 
general fund appropriation of $1.662 billion. As of July 31, 2012, FHWA 
had a balance of $197,573,131.79 in ER funds from both the annual funds 
and the one-time funds. A large portion of this balance is the result 
of FHWA's more aggressive review of unobligated ER balances that States 
have been holding for work that is complete. Since January of this 
year, FHWA has recovered over $200,000,000 in unneeded ER funds for 
completed events that resided in State Department of Transportation 
(DOT) accounts. These funds can now be used to cover expenditures for 
other events.
    In addition, FHWA has $19,000,000 in Public Law 107-117 and Public 
Law 107-206 funds which were appropriated for damages associated with 
9/11. These funds are still needed to complete roadway infrastructure 
work when the reconstruction of the World Trade Center site is 
completed.
    FHWA also has a balance of $40,776,019.62 of Fiscal Year 1990 
Supplemental Appropriations (Public Law 101-130), which were 
appropriated for the Loma Prieta Earthquake and are no longer needed. 
Since the funds were specifically appropriated for the Loma Prieta 
Earthquake, they cannot be used for other events.
    In October 2012, FHWA anticipates asking field offices for their 
2013 obligation needs beyond the funding they have in hand.
    The available funding is sufficient to cover immediate needs. 
However, a major disaster in the late summer or fall of this year could 
impact our ability to respond to that event along with previous events.
    FHWA will continue to review unobligated balances and redistribute 
ER funding as necessary to maximize available ER resources.
                  restoring amtrak service to montreal
    Question. Secretary LaHood, Vermont used to have cross-border 
Amtrak service along the old Montrealer line between Washington, DC, 
and Montreal, Quebec. Passenger rail access to Montreal went away in 
1995, though, when St. Albans, Vermont, became the terminus for 
Amtrak's new Vermonter train.
    The State of Vermont is very interested in reestablishing Amtrak 
service to Montreal--and our Governor, Peter Shumlin, has made it one 
of his administration's top priorities.
    One of the major obstacles to cross-border travel today is 
passenger security screening, and I am pleased that easing the burdens 
of cross-border train travel is a goal of the recently announced Beyond 
the Border Initiative with Canada.
    With other trains already operating across the Northern Border in 
New York State and Washington State, I know it can be done. We just 
need help and support from Amtrak and U.S. Customs and Border 
Protection to make it happen.
    Will you work with me, the State of Vermont, the Department of 
Homeland Security, Amtrak, and the Canadians to explore reestablishing 
passenger train service to Montreal and finding reasonable solutions to 
the passenger screening issue?
    Answer. DOT stands ready to support the improvement of existing 
rail corridors and the development of new rail corridors where markets 
exist. The development of such services is driven by the State and 
regional plans for intercity passenger rail. Vermont's initial planning 
efforts to extend intercity passenger rail service through the State 
and on to Montreal has focused on the cross-border and customs 
requirements of the proposed service. Those issues are the subject of 
the United States-Canada Transportation Border Working Group (TBWG), 
which includes United States and Canadian transportation agencies as 
well as Federal Railroad Administration (FRA), the Department of 
Homeland Security, U.S. Customs and Border Protection, State and 
provincial governments, and other relevant agencies. The TBWG's 
passenger rail subcommittee, as well as other interested parties such 
as Amtrak, met on April 17-18, 2012, to address cross-border 
transportation issues including security and customs procedures that 
would affect service to Montreal. FRA will continue fully engaging with 
the TBWG, Congress, and other stakeholders to address these important 
issues.
    When Vermont's planning process advances to the next stage, we're 
prepared to provide technical assistance where necessary for their full 
Service Development Plan (SDP). The SDP process includes the analysis 
of a multitude of technical, financial, and policy considerations 
unique to the corridor and a completed SPD will be a critical next step 
to securing Federal funding, should additional funds become available, 
or identifying State and other funding resources to build the service.
                                 ______
                                 
            Questions Submitted by Senator Dianne Feinstein
                            pipeline safety
    Question. When will the Department of Transportation (DOT) begin 
verifying pressure testing records and requiring pressure testing of 
grandfathered pipelines that were never tested, as required by the 
recently enacted Pipeline Safety legislation?
    Answer. On April 13, 2012, the Pipeline and Hazardous Materials 
Safety Administration (PHMSA) published a notice (72 FR 22387) to 
inform the public of the agency's intention to modify its information 
collection requirements. This information collection modification, 
which will be reflected in gas transmission annual reports, will allow 
PHMSA to collect operator pressure test information. Further, the 
operator pressure test information will be used to support proposed 
rulemaking (ANPRM--August 25, 2011) (76 FR 5308) relating to removal of 
the grandfather clause.
    Question. About 50 percent of pipeline miles, including a majority 
of the oldest and highest risk lines, cannot be inspected using ``smart 
pigs'' due to the design of the pipelines themselves. What is your 
Department doing to develop a better smart pig, capable of inspecting 
more pipeline miles?
    Answer. Many pipelines cannot be ``smart-pigged'' using current in-
line inspection technology. Assessing the integrity of these pipelines 
requires new, innovative solutions and technologies. PHMSA is actively 
promoting increased development of smart pig technology through 
Research and Development (R&D) projects that are typically co-sponsored 
with industry; PHMSA is neither structured nor funded to independently 
develop smart pig equipment.
    On July 18 and 19, 2012, PHMSA hosted a public R&D forum to 
identify technology gaps in addressing the key technical challenges 
facing pipeline integrity assurance. The forum was to allow public, 
Government, and industry pipeline stakeholders to develop a consensus 
on the technical gaps and challenges for future government-led 
research. R&D forums like this one, allow the Government to learn what 
research projects are already underway by other stakeholders. At these 
forums participants discuss which projects deserve Government funding 
by analyzing and prioritizing the research project plans. This helps 
ensure PHMSA does not direct funding towards a project that is already 
being paid for or that is not beneficial to its mission. The national 
research agenda coming out of these types of events is aligned with the 
needs of the pipeline safety mission, makes use of the best available 
knowledge and expertise, and considers stakeholder perspectives.
    Question. The President's fiscal year 2013 budget request proposes 
a significant increase in pipeline inspectors. Please describe how 
these inspectors will likely increase safety.
    Answer. In fiscal year 2013 PHMSA requested additional inspection 
and enforcement staff to successfully implement the Pipeline Safety 
Reform initiative. Additional personnel will be used to help determine 
the safety and fitness for service of pipelines. PHMSA will continue to 
raise the bar on the safety of the Nation's pipeline infrastructure, 
making sure that companies comply with the critical safety rules that 
protect people and the environment from potential dangers.
    In 2011, Secretary LaHood issued a national Call to Action for all 
stakeholders to address the need for repair, rehabilitation, and 
replacement of high-risk pipeline facilities transporting hazardous 
liquids and flammable gases through American communities and 
environmentally sensitive areas. PHMSA is working with State regulatory 
communities, rate-setters, and the pipeline industry to establish 
remediation programs for these high-risk pipelines. Additional 
inspection and enforcement staff members are needed to assure these 
facilities practice good risk analysis and aggressively apply integrity 
management principles until these pipelines are repaired or replaced.
    Further, the Nation is experiencing a boom in development of 
unconventional energy resources, i.e., gas shales and oil plays 
throughout the country. Along with swift commercial development of 
these resources, pipelines are being constructed at an increasingly 
rapid pace to transport the oil and gas from the source to processing 
facilities. More inspectors are needed to assure these pipeline 
facilities are safely constructed and in accordance with applicable 
standards and regulatory requirements.
                    federal aviation administration
    Question. According to the Congressional Research Service, 36 
percent of Airport Improvement Program dollars go to airports without 
commercial service. However, more than 99 percent of travelers fly 
commercial. Do you think this is the right balance of funding 
priorities in this time of shrinking budgets?
    Would you support a higher percentage of Airport Improvement 
discretionary funding going to improving the safety and facilities of 
airports that most Americans use?
    Answer. The goal of the Airport Improvement Program (AIP) is to 
maintain and improve the Nation's airport system. AIP funds are awarded 
(based on national priorities) to different-sized airports so they can 
address critical airport safety, capacity, and security projects.
    General Aviation airports provide the national airport system with 
specialized services like emergency medical services, aerial 
firefighting, and law enforcement and border control. However, they do 
not have access to airport development funding such as passenger 
facilities charges and the bonds market that are otherwise available to 
airports with commercial service.
    The FAA-issued study, General Aviation Airports: A National Asset 
(May 2012), provides additional information on the Nation's general 
aviation airports. A copy of the study can be accessed at http://
www.faa.gov/airports/planning_capacity/ga_study/.
                       los angeles subway system
    Question. The people of Los Angeles want rapid construction of 
their subway system, and no one that has experienced LA traffic can 
blame them. What can and should the Federal Transit Administration and 
Los Angeles do to get the two subway projects seeking full funding 
grant agreements in fiscal year 2013 prepared to execute that 
agreement?
    Answer. FTA has been very supportive of the two projects, including 
recommending the Regional Connector project for $31 million and the 
Westside Subway Extension project for $50 million in the President's 
fiscal year 2013 budget to help advance the projects through 
preliminary engineering and final design. Additionally, in response to 
their transmittal of a Letter of Interest, the Department invited the 
Los Angeles County Metropolitan Transportation Authority (LACMTA) to 
submit an application for a Transportation Infrastructure Finance and 
Innovation Act (TIFIA) loan for the Westside Subway Extension project.
    Before the two projects will be ready for Full Funding Grant 
Agreements (FFGAs), they must complete engineering and design, obtain 
firm funding commitments for all non-New Starts funding sources, and 
obtain a satisfactory rating from FTA under the statutory evaluation 
criteria. Currently the financial plan submitted by LACMTA assumes an 
extension of the Measure R half-cent sales tax that will be placed on 
the upcoming November election ballot and approved by voters. This vote 
would need to occur and be successful, or the financial plan would need 
to be revised to demonstrate other available and committed resources, 
before FTA could move forward with the FFGAs.
    Question. Last year DOT invited the Westside Subway to the Sea to 
file its final TIFIA loan application, which should lead to loan term 
negotiations. What is the status of this loan?
    Answer. The Westside Subway to the Sea project is a major transit 
investment that is expected to improve mobility and connectivity in the 
city of Los Angeles. Recognizing these and other important benefits, 
DOT invited the project sponsor to apply for TIFIA financing in 
response to the fiscal year 2011 TIFIA Notice of Funding Availability 
(NOFA). As with other major projects, there are a number of milestones 
that the project sponsor, the Los Angeles County Metropolitan 
Transportation Authority (LACMTA), needs to reach in order to move 
toward closure on a TIFIA financing. The environmental review of the 
project was finalized with the record of decision date of August 9, 
2012. In addition, the project is advancing through the Federal Transit 
Administration (FTA) New Starts program with the eventual aim of 
financing the project in part through a full funding grant agreement. 
It is our understanding that with the progress that has been made in 
these areas, LACMTA plans to submit a TIFIA loan application for the 
project in the fall. When DOT receives the loan application the TIFIA 
office will commence its review of the application including a 
comprehensive credit evaluation of the project.
    Question. ``America Fast Forward'' is a proposal to build transit 
more rapidly using subsidized bonding and low interest lending. The 
Transportation-HUD Subcommittee has increased the size of the TIFIA and 
Transportation Investment Generating Economic Recovery (TIGER) TIFIA 
lending programs in recent years to grant your Department more than 
three times the lending authority it had just a few years ago. Do you 
agree that expanding the TIFIA program has been an important step in 
implementing America Fast Forward?
    Answer. In recent years national demand for TIFIA credit assistance 
has been overwhelming. The increased funding for TIFIA provided in 
Moving Ahead for Progress in the 21st Century Act (MAP-21) will enable 
the Department to provide credit assistance to significantly more 
projects.
                            high-speed rail
    Question. Will you direct someone within your office to serve as 
the full-time point person, trouble shooter, and leader of the 
Department's high-speed rail effort full-time?
    Answer. FRA has organized its grant project development and 
delivery office into geographic teams with a leader of each of its nine 
regions spanning the United States. This regional lead manages 
oversight efforts for projects and acts as single, centralized point of 
contact for State officials and other stakeholders. In turn, each 
regional lead coordinates an FRA team composed of project managers, 
engineers, environmental specialists, grant managers, attorneys, and 
other experts. Together these regional teams used a risk-based approach 
to track project progress, provide grantee technical assistance, and 
conduct grant monitoring and oversight efforts.
    For the California HSR project in particular, FRA has recently 
hired a Senior Executive Service-level Project Manager, who has been 
designated as DOT's senior point-person on high-speed rail issues to 
oversee the California High-Speed Rail project on a full-time basis.
                          fuel economy labels
    Question. The fiscal year 2012 Transportation-HUD Senate Report 
directed the Department of Transportation to develop fuel economy 
labels for medium-duty vans and pickup trucks like the Ford F-250 
within 3 model years. Small businesses--often in the construction 
business--buy many of these types of vehicle. But the business owner 
has no way to calculate the fuel costs of various models until this 
sticker is added to these vehicles. What is the National Highway 
Traffic Safety Administration doing to comply with this subcommittee's 
direction that these labels be required within 3 years?
    Answer. NHTSA is currently focused on completing the final 
rulemaking for the Corporate Average Fuel Economy (CAFE) standards for 
model year 2017-2025 vehicles. On July 29, 2011, President Obama 
announced plans for these rules and charged NHTSA and the Environmental 
Protection Agency with developing these rules. The two agencies issued 
a proposal last November, have held numerous public hearings around the 
country, and are working to complete the rulemaking. NHTSA is devoting 
all focus and energy to finalize this presidential priority rulemaking 
as expeditiously as possible. After the conclusion of this important 
rulemaking effort, the agency will determine the timing and resources 
needed to address the committee's concerns about fuel economy labels 
for medium trucks and pick-ups.
                              truck safety
    Question. A few years ago I wrote to your Department supporting 
mandatory use of electronic onboard recorders to enforce hours of 
service limits on truck drivers. Some of my constituents have been 
killed by tired truck drivers who were falsifying paper records. I 
learned there is almost no enforcement to prevent this kind of hours of 
service violation, and it is believed to be widespread.
    At the time, the Department of Transportation said that the 
electronic onboard recorders were too expensive. I understand that the 
Department has proposed a draft regulation to require these recorders 
in some cases, but costs remains an issue.
    My staff informs me that there is now an iPhone application that 
can perform all of the key functions of an electronic onboard recorder 
at no substantial cost.
    What is DOT doing to consider this technology in its rulemaking?
    Answer. FMCSA is committed to the development of electronic logging 
device technical specifications focused on hours of service compliance, 
and fulfilling all of the requirements included in MAP-21. The Agency 
does not believe the technical specifications it is currently 
considering would preclude the use of low-cost innovative approaches to 
electronic logging, such as smart phones, provided such devices have a 
means of meeting the MAP-21 requirement concerning electronic 
communications between the device and the commercial motor vehicle to 
ensure accurate date, time, and location information the beginning and 
end of driving time periods, i.e., integral synchronization of the 
device with the commercial motor vehicle.
    FMCSA acknowledges that an electronic logging device mandate would 
impose nearly $2 billion in costs on the commercial motor vehicle (CMV) 
industry. This estimate is based on the Agency's Regulatory Impact 
Analysis (RIA) for the 2011 notice of proposed rulemaking (NPRM) in 
which the Agency estimated initial total costs of $1.984 billion per 
year.
    While the estimated costs are economically significant, the 
electronic logging device rulemaking would be considered cost-
beneficial. The Agency estimated total benefits of $2.699 billion 
resulting in an annual net benefit of $715 million. A significant 
portion of these benefits would come from $1.965 billion in annual 
paperwork reduction--a savings of $688 per driver each year--due to 
drivers no longer completing and submitting logbooks. Therefore, FMCSA 
continues to believe that a mandate for electronic logging devices, 
potentially including smart phones with an hours-of-service 
application, would be cost-beneficial.
    The Agency is currently preparing a supplemental NPRM that will re-
examine the estimated costs and benefits (both paperwork savings and 
safety) associated with an electronic logging device mandate for 
carriers using handwritten records of duty status (RODS), and all of 
the MAP-21 requirements concerning this rulemaking.
                                 ______
                                 
           Question Submitted by Senator Frank R. Lautenberg
    Question. The Obama administration has yet to release a 
comprehensive National Rail Plan as required by my 2008 Amtrak law. 
This Amtrak law required the Department of Transportation (DOT) to 
develop a National Rail Plan in order to ensure that the administration 
was focused on the long-term needs of the intercity passenger rail 
system, and to make sure that Amtrak and States can successfully meet 
the public's increasing demand for passenger rail. The Plan should also 
ensure a cohesive, efficient, and optimized rail system for the 
movement of goods and people.
    Yesterday, the Senate passed the surface transportation 
reauthorization, which further detailed the need for this Plan and 
clarified steps that the Department of Transportation should take to 
complete it. Additionally, the DOT Inspector General's office recently 
released a report and noted that DOT does not have an expected 
completion date for the entire plan.
    When will we see a final National Rail Plan from DOT?
    Answer. The Federal Railroad Administration (FRA) published a 
Preliminary National Rail Plan (NRP) in October 2009 following the 
direction of Congress, and a subsequent update of the NRP was made in 
the September 2010 Progress Report. These documents--combined with the 
policies and funding levels described in the administration's fiscal 
year 2013 budget proposal and 6-year investment strategy--articulate 
the future of intercity passenger rail for America.
    In October 2011, FRA submitted to Congress a Public Investment and 
Business Case for four major corridor programs that were funded through 
fiscal year 2010 appropriations (Los Angeles-San Francisco, Chicago-
Detroit, Chicago-St Louis, and Chicago-Iowa City). Consistent with 
requirements established in the fiscal year 2010 appropriations, these 
documents summarized the need for these investments, quantitatively and 
qualitatively assessed benefits and costs, and reviewed implementation 
and operating plans.
    Since fiscal year 2009, State and Federal rail planning has 
progressed significantly as well as their experience with new rail 
development. The need to revise and update the NRP will be incorporated 
as the program matures. FRA continues to undertake a number of 
interrelated planning and analysis efforts--all of which include 
substantial engagement with our State partners and other stakeholders--
that will result in further iterations of the NRP and related 
documents.
                                 ______
                                 
            Questions Submitted by Senator Susan M. Collins
    Question. The continued delay in issuing the final Notice of 
Proposed Rule Making (NPRM) for part 145 repair stations has created a 
growing problem for industry and a continued frustration for security 
regulatory agencies. Recognizing that much of the remaining work is 
dependent on the Transportation Security Administration (TSA), can you 
provide a sense of when the final NPRM will be issued? What will be the 
process for new certifications once the final NPRM is issued?
    Answer. The public comment period for TSA's Proposed Aircraft 
Repair Station Security Rule closed February 19, 2010. The rules are 
intended to improve the security of maintenance and repair work 
conducted on aircraft and aircraft components at domestic and foreign 
repair stations certificated by the Federal Aviation Administration 
(FAA) (14 CFR part 145), thereby reducing the likelihood of a terrorist 
attack on civil aviation via a certified repair station. The NPRM 
proposed that repair stations (both foreign and domestic) would be 
required to adopt and carry out a standard security program developed 
by TSA and comply with TSA-issued security directives.
    According to the Federal Register (July 7, 2011), the proposed 
rules were then in the final rulemaking stage. No additional 
information is available at this time as to when a final rule will be 
published.
    Absent a final rule, current law prohibits FAA from certificating 
new foreign repair stations.
    Upon the publication of the final rule, FAA intends to prioritize 
applications using the agency's Certification Services Oversight 
Process (CSOP).
    Question. The Government Accountability Office (GAO) issued a 
report in 2009 with 47 recommendations addressing internal control 
weaknesses at the U.S. Merchant Marine Academy (USMMA). What progress 
has the U.S. Maritime Administration (MARAD) made in addressing GAO's 
recommendations to improve the Academy's internal controls?
    Answer. GAO completed a follow-up audit of the USMMA, and issued 
report GAO-12-369, in July 2012. The report confirms closure of 32 
recommendations, and acknowledged agency actions and progress 
addressing all of the recommendations. The report identified no new 
issues in the areas of concern identified in the 2009 audit report. GAO 
reports ``the Academy and MARAD had made substantial progress in 
addressing weaknesses related to specific control activities by 
successfully implementing 32 of the 46 control deficiency-related 
recommendations identified in our 2009 report. For example, the 
corrective actions taken to improve controls were sufficient for us to 
conclude that all recommendations related to training vessel use, 
personal service acquisitions, accountability for Academy reserves, and 
NAFI camps and clinics using Academy facilities were successfully 
implemented.'' Additionally, the July 2012 GAO report identified one 
new recommendation for the USMMA concerning capital improvement 
management.
    The report indicated a need for additional documentation or action 
for 14 remaining recommendations, and identified one recommendation as 
overarching, for examination after all other recommendations have been 
addressed and closed. In those areas where GAO subsequently determined 
that additional detail would need to be taken to fully address 
recommended actions, MARAD is working to complete the actions by 
December 31, 2012.
    Question. While the FAA pursues new regulations overseeing the 
public and for-private use of unmanned aircraft, can you assure the 
modeling community that FAA will not promulgate new regulations for 
recreational use of model aircraft unless consistent with the language 
and intent of the Special Rule?
    Answer. FAA can assure that any regulatory actions involving 
modelers will be consistent with the FAA Reauthorization and 
Modernization Act of 2012 regarding model aircraft.
    Question. FMCSA's Compliance Safety Accountability (CSA) program 
counts crashes against motor carriers and truck drivers, including 
crashes they did not cause. For example, a wrong-way crash where a car 
is going the wrong direction on an interstate and runs into a truck 
could be counted against the truck by CSA. To better target those 
carriers and drivers accountable for crashes, I understand DOT is 
planning to screen accident reports for crashes that were unavoidable. 
I think that is extremely important; otherwise CSA, is unfairly 
labeling companies and their drivers guilty unless proven innocent. 
What is DOT's timetable for improving the CSA crash data and fully 
implementing a Crash Accountability program? Will you commit to making 
this change a priority?
    Answer. The Federal Motor Carrier Safety Administration (FMCSA) 
agrees that better understanding a carrier's role in a crash is 
important. After discussions with stakeholders and taking an initial 
look at the use of police accident reports (PARs), FMCSA concluded that 
more work was necessary to develop a program that is fair, uniform and 
administratively feasible.
    On July 23, 2012, FMCSA began conducting a study to research the 
safety benefits of adjusting crash weights in the Agency's Safety 
Measurement System (SMS) based on the carrier's role in the crash 
(i.e., preventability). FMCSA is considering modifying the Crash 
Indicator to weight crashes not only based on severity and timeliness 
but also on the role of the motor carrier in the crash. FMCSA designed 
the SMS to be continually improved as better data, information, and 
analysis become available. This research study is expected to conclude 
in the summer of 2013. Upon completion of the research study, FMCSA 
will publicize the results and announce next steps. FMCSA's Crash 
Weighting Research Plan can be found at 
http://csa.fmcsa.dot.gov/Documents/CrashWeightingResearchPlan_7-
2012.pdf.
    SMS is the Agency's system for identifying high-risk carriers, and 
it scores any carrier that meets our data sufficiency requirements. 
Currently, SMS uses all crashes within the Crash Indicator regardless 
of the role of the motor carrier in those crashes. This safety 
measurement area has proven to be one of the better predictors of 
future crash risk, irrespective of the cause of the crash. Recent 
analysis has demonstrated that SMS is an effective tool in identifying 
those carriers most likely to have crashes. FMCSA's data system 
identifies 525,000 active motor carriers; 200,000 of those carriers 
have sufficient data to be assessed in at least one of our SMS Behavior 
Analysis and Safety Improvement Categories (BASIC). These 200,000 
carriers have been involved in 92 percent of crashes reported to FMCSA.
    Question. I understand DOT's analysis of the recently published 
Hours of Service rule demonstrates the estimated safety benefits of the 
changes to the rule do not outweigh the costs. In this difficult 
economy, it is important the Federal Government adequately consider the 
costs of regulatory changes. I am concerned the elements of the final 
rule may violate this important cost-benefit principle. I understand 
the American Trucking Association recently filed a petition with the 
U.S. Circuit Court of Appeals for the District of Columbia asking the 
court to review the new rule. How does the administration plan to 
address stakeholder concerns like those raised in the ATA's court 
petition?
    Answer. In 2010 alone, large truck crashes resulted in 3,675 
fatalities. In these large truck crashes, fatigue is a leading factor. 
In 2009, large truck crashes cost nearly $20 billion in societal costs, 
including medical, insurance, infrastructure damage, lost wages, and 
productivity. These far-reaching impacts on the economy and taxpayers 
point to the need for policies that reduce the causes of truck 
accidents, including driver fatigue, in order to prevent needless 
tragedies on our highways.
    FMCSA's 2011 final rule concerning hours of service contains 
estimated costs of $470 million per year, which are less than half the 
costs in FMCSA's preliminary plan published in the notice of proposed 
rulemaking, which were estimated to be $1 billion. This new safety rule 
will result in many public safety benefits, as well as benefits due to 
improved driver health. The final rule provides $280 million in annual 
economic benefits from reducing crashes and $350 million in economic 
benefits from improved driver health, totaling $630 million in 
benefits. Based on FMCSA's regulatory impact analysis, the economic 
benefits significantly exceed the $470 million annual costs of the 
rule.
    Question. FAA has recently undertaken successful service-based 
programs including the surveillance broadcast services (SBS) for 
nationwide ADS-B deployment. In these times when budget constraints are 
the norm not the exception, what is FAA's view of expanding its use of 
fee for service contracts like SBS in areas including communication, 
navigation, surveillance, and automation?
    Answer. Automatic Dependent Surveillance-Broadcast (ADS-B) services 
are procured by the FAA in the same way that power and 
telecommunications services are secured. The FAA owns the surveillance 
and flight data transmitted and received between aircraft and the ATC 
ground stations, but does not own the actual hardware and other 
components necessary to provide the services.
    The FAA will consider performance-based service contracts as a 
potential method of procuring communication, navigation, surveillance, 
automation, and other services. The FAA's Acquisition Management System 
encourages the use of this method of contracting. As with all 
procurements, however, the acquisition strategy will be evaluated to 
determine the most cost-effective approach and the approach most likely 
to result in the best value for the agency and taxpayer. Should another 
major procurement be done utilizing the service-based approach, the 
agency will utilize lessons learned from the ADS-B and other 
performance based service acquisitions.

                         CONCLUSION OF HEARINGS

    Senator Murray. And with that, this subcommittee is 
recessed until further notice.
    [Whereupon, at 10:14 a.m., Thursday, March 15, 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 2013

                              ----------                              

                                       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 2013 budget 
request for programs within the subcommittee's jurisdiction.]
 Prepared Statement of the American Indian Higher Education Consortium
    This statement focuses on the Department of Housing and Urban 
Development (HUD).
    On behalf of the Nation's 37 Tribal Colleges and Universities 
(TCUs), which compose the American Indian Higher Education Consortium 
(AIHEC), thank you for the opportunity to express our views and 
recommendations regarding the Department of Housing and Urban 
Development Tribal Colleges and Universities' Program (TCUP) for fiscal 
year 2013.
                          summary of requests
    Department of Housing and Urban Development (HUD).--Beginning in 
fiscal year 2001, a TCU initiative had been administered by the HUD--
Office of University Partnerships as part of the University Community 
Fund. This competitive grants program enabled TCUs to build, expand, 
renovate, and equip their facilities that are available to, and used 
by, their respective reservation communities. We strongly urge the 
subcommittee to reject the recommendation included in the President's 
fiscal year 2013 budget request and to support the goals of Executive 
Order 13592 to strengthen TCUs by funding the competitive HUD-TCU 
Program, at the fiscal year 2010 level of $5.435 million. Additionally, 
we request that language be included to permit that a small portion of 
the funds appropriated may be used to provide technical assistance to 
institutions eligible to participate in this competitive grants 
program.
        tcu shoestring budgets: ``doing so much with so little''
    Tribal Colleges and Universities are accredited by independent, 
regional accreditation agencies and like all United States institutions 
of higher education, must periodically undergo stringent performance 
reviews to retain their accreditation status. TCUs fulfill additional 
roles within their respective reservation communities functioning as 
community centers, libraries, tribal archives, career and business 
centers, economic development centers, public meeting places, and child 
and elder care centers. Each TCU is committed to improving the lives of 
its students through higher education and to moving American Indians 
toward self-sufficiency.
    TCUs have advanced American Indian higher education significantly 
since we first began four decades ago, but many challenges remain. 
Tribal Colleges and Universities are perennially underfunded. In fact, 
TCUs are the most poorly funded institutions of higher education in the 
country.
    The tribal governments that have chartered TCUs are not among the 
handful of wealthy gaming tribes located near major urban areas. 
Rather, they are some of the poorest governments in the Nation. Tribal 
Colleges are home to some of the poorest counties in America.
    The Federal Government, despite its trust responsibility and treaty 
obligations, has never fully funded the principal institutional 
operating budgets, authorized under the Tribally Controlled Colleges 
and Universities Assistance Act of 1978. The Tribal College Act 
authorizes basic institutional operations funding on a per Indian 
student basis; yet the funds are not appropriated in the same manner. 
In fiscal year 2011, Congress proposed level funding for TCU 
institutional operating grants and appropriated the communal pot of 
funds at the same level as fiscal year 2010. However, due to a spike in 
enrollments at the TCUs of over 1,660 Indian students in a single year, 
the TCUs are receiving funds at $549 less per Indian student toward 
their institutional operating budgets. Fully funding TCUs' operating 
budgets would require $8,000 per Indian student. TCUs are currently 
operating at $5,235 per Indian student. By contrast, Howard University 
located in the District of Columbia, the only other Minority-Serving 
Institution to receive institutional operations funding from the 
Federal Government, is funded at approximately $19,000 per student. We 
are by no means suggesting that Howard University does not need this 
funding, only that the TCUs' operating budgets are clearly grossly 
underfunded.
    While TCUs do seek funding from their respective State legislatures 
for the non-Indian State-resident students (sometimes referred to as 
``non-beneficiary'' students) that account for 20 percent of their 
enrollments, successes have been at best inconsistent. TCUs are 
accredited by the same regional agencies that accredit mainstream 
institutions, yet they have to continually advocate for basic operating 
support for their non-Indian State students within their respective 
State legislatures. If these non-beneficiary students attended any 
other public institution in the State, the State would provide that 
institution with ongoing funding toward its operations.
    TCUs effectively blend traditional teachings with conventional 
postsecondary curricula. They have developed innovative ways to address 
the needs of tribal populations and are overcoming long-standing 
barriers to success in higher education for American Indians. Since the 
first TCU was established on the Navajo Nation in 1968, these vital 
institutions have come to represent the most significant development in 
the history of American Indian higher education, providing access to, 
and promoting achievement among, students who might otherwise never 
have known postsecondary education success.
    Tribal Colleges and Universities provide access to higher education 
for American Indians and others living in some of the Nation's most 
rural and economically depressed areas. According to U.S. Census 
data\1\, the annual per capita income of the U.S. population is 
$26,059. By contrast, the annual per capita income of American Indians 
is $15,671 or about 40 percent less. In addition to serving their 
student populations, TCUs offer a variety of much needed community 
outreach programs.
---------------------------------------------------------------------------
    \1\ Source: U.S. Census Bureau, 2010 American Community Survey.
---------------------------------------------------------------------------
    Inadequate funding has left many TCUs with no choice but to 
continue to operate under severely distressed conditions. The need for 
HUD-Tribal Colleges and Universities Program (TCUP) funding remains 
urgent for construction, renovation, improvement, and maintenance of 
key TCU facilities, such as basic and advanced science laboratories, 
computer labs, and increasingly important student housing, day care 
centers, and community services facilities. Although the situation has 
greatly improved at many TCUs in the past several years, some TCUs 
still operate--at least partially--in donated and temporary buildings. 
Few have dormitories, even fewer have student health centers and only 
one TCU has a science research laboratory. At Sitting Bull College in 
Fort Yates, North Dakota, competitively awarded HUD grant funds have 
been leveraged to expand the college's usable space from 12,000 square 
feet (sf) to 100,000 sf over 10 years. Additionally, HUD grant dollars 
have been used to address three leaking roofs that creating a mold 
problem in the area referred to at the college as the ``Hall of 
Buckets.'' Currently, funds are being used to complete a renovation on 
its learning center, correcting major deficiencies, including recurring 
sewer and water issues, handicap accessibility problems, lack of 
effective safety/security measures (surveillance and alarm systems), 
and outdated washroom facilities.
    As a result of more than 200 years of Federal Indian policy--
including policies of termination, assimilation and relocation--many 
reservation residents live in conditions of poverty comparable to that 
found in third world nations. Through the efforts of TCUs, American 
Indian communities are availing themselves of resources needed to 
foster responsible, productive, and self-reliant citizens.
                             justifications
    Department of Housing and Urban Development.--Executive Order 13592 
addressing American Indian education and strengthening of Tribal 
Colleges and Universities holds Federal agencies accountable to develop 
plans for integrating TCUs into their programs. TCUs work with tribes 
and communities to address all aspects of reservation life, including 
the continuum of education, housing, economic development, health 
promotion, law enforcement training and crime prevention. Likewise, 
Federal agencies need to work with TCUs. To achieve results, Congress 
needs to hold the administration accountable for strengthening the TCUs 
including their physical plants and that they are routinely included as 
full partners in all existing and potential Federal higher education 
programs. The HUD-TCU competitive grants program, administered by the 
Office of University Partnerships, is an excellent place to start. This 
competitive grants program has enabled TCUs to expand their roles and 
efficacy in addressing development and revitalization needs within 
their respective communities. No academic or student support projects 
have been funded through this program; rather, funding was available 
only for community based outreach and service programs and community 
facilities at TCUs. Through this program, some TCUs have been able to 
build or enhance child care centers, including Head Start facilities 
and social services offices; help revitalize tribal housing; establish 
and expand small business development; and enhance vitally needed 
community library services. Unfortunately, not all of the TCUs were 
able to benefit from this small but very important program. The program 
staff at the Department has no budget to provide technical assistance 
with regard to this program. If a small portion of the appropriated 
funds were to be available for program staff to conduct workshops and 
site visits, more of the TCUs and their respective communities could 
benefit from this vital opportunity. We strongly urge the subcommittee 
to support the HUD-TCU competitive grants program at $5,435,000, and to 
include language that will allow a small portion of these funds to be 
used to provide technical assistance to TCUs, to help ensure that much 
needed community services and programs are expanded and continued in 
the communities served by the Nation's Tribal Colleges and 
Universities.
                  president's fiscal year 2013 budget
    The President's fiscal year 2013 budget request provides no funding 
for the University Community Fund, which housed the TCU program and 
other Minority-Serving Institutions (MSI) programs. We respectfully 
request that the subcommittee reject the administration's 
recommendation and continue to recognize the abundant need for 
facilities construction and improvement funds for TCUs and appropriate 
funding for the Tribal Colleges and Universities Program, and the other 
MSI-HUD programs, namely: Historically Black Colleges and Universities; 
Hispanic Serving Institutions Assisting Communities; and Alaska Native 
and Native Hawaiian Serving Institutions Assisting Communities, to be 
allocated competitively within their individual programs.
                               conclusion
    We respectfully request that beginning in fiscal year 2013, 
Congress illustrate its support for the goals of the new Executive 
order aimed at strengthening TCUs by restoring the HUD-TCU competitive 
grants program and provide for technical assistance to help these vital 
institutions improve and expand their facilities to better serve their 
students and communities. Thank you for your continued support of the 
Nation's TCUs and for your consideration of our fiscal year 2013 HUD 
appropriations requests.
                                 ______
                                 
  Prepared Statement of the American Public Transportation Association
    Madam Chairwoman 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 2013 
Transportation and Housing and Urban Development Appropriations bill as 
it relates to Federal investment in public transportation and high-
speed and intercity passenger rail.
    APTA's highest priority continues to be the enactment of a well-
funded, multi-modal surface transportation authorization bill. 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, and remind Congress that investment in 
transportation infrastructure puts Americans to work. Failure to invest 
will force private sector businesses in the transit industry and other 
industries to lay off employees and to invest overseas, while increased 
Federal investment addresses the need for much-needed capital 
investments and the growth of the industry. For the Nation's tens of 
millions of transit riders, any cuts will mean less service, fewer 
travel options, higher costs and longer commutes. Americans took 10.4 
billion trips on public transportation in 2011, a 2.31 percent increase 
from 2010 and the second highest annual ridership total since 1957. 
Only ridership in 2008, when gas rose to more than $4 a gallon, 
surpassed last year's ridership, and today gas prices are continuing to 
rise.
                               about apta
    APTA is a nonprofit international association of 1,500 public and 
private member organizations, including transit systems and high-speed, 
intercity and commuter rail operators; planning, design, construction, 
and finance firms; product and service providers; academic 
institutions; transit associations and State departments of 
transportation.
             overview of fiscal year 2013 funding requests
    First, let me applaud the Senate for its work on passing the Moving 
Ahead for Progress in the 21st Century Act (MAP-21), with strong 
bipartisan support. It has been more than 2 years since the expiration 
of SAFETEA-LU, and we are excited to see progress being made toward a 
new authorization law. However, in the absence of a finalized piece of 
legislation, APTA continues to look towards existing law, 
appropriations, and current budget proposals for appropriations request 
guidance.
    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. In the 
Obama administration's fiscal year 2013 budget proposal, along with 
their proposed 6-year surface transportation authorization proposal, 
the President requests $10.8 billion for public transportation programs 
in fiscal year 2013 and would additionally include $50 billion for a 
one-time state of good repair investment program, spread across highway 
and transit programs. The President's proposal also requests $2.5 
billion for high-speed and intercity passenger rail. APTA applauds the 
President's proposed public transportation budget request.
    While we recognize the growing pressures that are impacting general 
fund budget authority allocations, APTA urges 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. In particular, many in the transit industry were 
particularly concerned about cuts in fiscal year 2012 to the Transit 
Cooperative Research Program (TCRP), an important program that produces 
basic research that is used by transit agencies nationwide to improve 
efficiency, safety and technical capacity.
    Finally, we encourage 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 authorized 
annually through fiscal year 2013, to assist with the implementation of 
congressionally mandated positive train control systems. The Federal 
deadline for implementation of positive train control systems is 
rapidly approaching, and to date, Congress has not provided the 
necessary funding to support implementation of this important safety 
program.
                the need for federal transit investment
    In previous testimony to this subcommittee, APTA presented the case 
for increasing Federal investment in public transportation. The U.S. 
Department of Transportation estimates that a one-time investment of 
$78 billion is needed to bring currently operating transit 
infrastructure up to a state of good repair, and this does not include 
annual costs to maintain, expand or operate 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.
    APTA's overall funding recommendation continues to be informed by 
our recommendations for surface transportation authorization and the 
estimated Federal funding growth required to meet at least 50 percent 
of the $60 billion in annual transit capital needs. These levels are 
intended to support a projected doubling of transit ridership over the 
next 20 years. It is important 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. Public transportation is a vital component of the Nation's 
total transportation infrastructure picture, and with ridership 
projected to grow, dependable public transportation systems will be 
vital to the transportation needs of millions of Americans. While 
Congress continues to consider how to proceed on a well-funded, multi-
modal surface transportation bill, it remains critically important that 
annual appropriations bills support both current and growing needs.
                federal transit administration programs
    Capital Investment Grants (New Starts).--APTA was pleased to see 
the Senate continues to support the New Starts program in MAP-21. The 
New Starts program is the primary source of Federal investment in the 
construction or expansion of heavy rail, light rail, commuter rail, and 
bus rapid transit projects. The success of these major, multi-year 
capital projects requires predictable support by Congress and the FTA. 
Congress established Full Funding Grant Agreements (FFGAs) to provide 
this predictability. A continued commitment to Federal investment will 
also influence the willingness of private financial markets to finance 
public transportation projects and it will help ensure that the bond 
ratings will remain high and interest rates will remain low.
    We urge the Congress to recognize the importance of long-term, 
predictable funding for all highway and transit programs, including New 
Starts. APTA believes that the New Starts program should grow at the 
same rate as the rest of the transit program, as it 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.--APTA seeks to continue funding 
for existing formula programs, including urban and rural formula, small 
transit intensive cities (STIC), fixed guideway modernization, and 
others at a rate consistent with overall FTA funding growth. These 
formula programs address core needs of our public transportation 
systems, and deserve the continued support of Congress. APTA has 
recommended that Congress equitably balance the various needs of the 
Nation's diverse bus systems, including those operated by multimodal 
agencies. APTA has called for 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.
    MAP-21, the Senate authorization bill, creates a new structure for 
State of Good Repair grants with a new formula program (high intensity 
motorbus state of good repair) that focuses on systems that have a 
large number of bus rapid transit, express bus or other high intensity 
bus routes that may no longer qualify for fixed guideway formula funds. 
The Senate-passed version of MAP-21 also provides a new $75 million 
general fund bus discretionary program authorization. The new program 
provides another source of assistance for bus capital needs beyond the 
new formula funds the bill makes available, with priority consideration 
provided to bus-only transit agencies.
    Transit Research/Transit Cooperative Research Program (TCRP).--APTA 
strongly urges the subcommittee to take a renewed look at the TCRP 
program and restore funding to previous levels. Funding for the program 
was cut by 35 percent in fiscal year 2012 and these cuts are having a 
significant impact in the production of high-quality, peer-reviewed 
research that assists transit agencies, their employees and even their 
governing boards to become more efficient and effective at delivering 
safe, reliable and dependable transit services. The TCRP is an applied 
research program that provides solutions to practical problems faced by 
transit operators. Over the TCRP's 20 years of existence, it has 
produced over 500 publications/products on a wide variety of issues of 
importance to the transit community. Research has produced a variety of 
transit vehicle and infrastructure standards and specifications, as 
well as a variety of handbooks addressing many relevant subject areas 
of interest to the transit community.
                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 Positive Train Control (PTC) through the Railroad Safety 
Technology Grants Program, section 105 of the Rail Safety Improvement 
Act (RSIA) of 2008. APTA is very discouraged that no funding was 
provided for PTC in fiscal year 2012. The RSIA requires that all 
passenger railroads implement positive train control PTC systems by 
December 31, 2015. The cost of implementing PTC on public commuter 
railroads alone is estimated to exceed well over $2 billion, not 
including costs associated with acquiring the necessary radio spectrum. 
APTA is urging Congress to significantly increase the authorized levels 
for implementation of mandated PTC systems.
    Our Nation's commuter railroads 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. Recognizing the difficulties related to implementing PTC, 
the House and Senate have both included extensions of the 
implementation deadline in their respective surface transportation 
authorization bills. If enacted, the proposed extensions will assist 
publicly funded commuter railroads in meeting the mandate. However, 
substantial Federal funding is also necessary. Many commuter railroads 
are being forced to delay critical system safety state of good repair 
projects in order to install PTC by 2015. Additional funding provided 
by Congress for the Railroad Safety Technology grants is fundamental to 
the industry's ability to implement PTC.
    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 demand for commuter rail service has also remained strong, with 
ridership on this mode increasing nationally by 2.5 percent in 2011, 
and six commuter rail systems seeing double digit increases in 2011. 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.
    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. Thirty-two States plus the District of 
Columbia are forging ahead in planning and implementing passenger rail 
improvements. It is more important than ever for the United States to 
invest in its infrastructure as the efficient movement of people and 
goods is essential for sustained economic growth and recovery.
                               conclusion
    We thank the subcommittee for allowing us to share APTA's views on 
fiscal year 2013 public transportation and high-speed and intercity 
rail appropriations issues. APTA looks forward to working with the 
committee 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 and 
ask Congress to continue investing in a high-speed rail system. 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.
                                 ______
                                 
     Prepared Statement of the Coalition of Northeastern Governors
    The Coalition of Northeastern Governors (CONEG) is pleased to share 
with the Subcommittee on Transportation, Housing and Urban Development, 
and Related Agencies its views on fiscal year 2013 appropriations for 
surface transportation, rail, and community development programs. The 
CONEG Governors deeply appreciate the subcommittee's longstanding 
support of funding for the Nation's highway, transit, transportation 
safety, and rail programs. Federal support is vital to maintain the 
Nation's transportation system, enhance its capacity to meet diverse 
and enormous needs, and contribute to a balanced, integrated national 
transportation system that supports the Nation's current and future 
economic growth. As the Nation's population grows and the economy 
recovers, these needs confront all of us--Federal, State and local 
governments and the private sector.
    We recognize that the subcommittee, in crafting the fiscal year 
2013 appropriations measure, faces a very difficult set of choices in 
this environment of severe fiscal constraints. The current economic 
situation exacerbates the shortfall in the Highway Trust Fund (HTF), 
even as it has contributed to one of the highest demands for public 
transportation in more than 50 years. The national debate on the scope 
and scale of the surface transportation authorization and funding has 
advanced significantly, but has not yet resulted in a new authorization 
framework, including the potential for new approaches to fund, 
restructure and finance highway and transit programs. In spite of these 
challenges, we urge the subcommittee to continue a strong Federal/State 
partnership so vital for a national, integrated, multi-modal 
transportation system. This system underpins the competitiveness of the 
Nation's economy; broadens employment opportunities; and contributes to 
the efficient, safe, environmentally sound, and energy-efficient 
movement of people and goods.
                         surface transportation
    As the surface transportation authorization moves to completion, 
the CONEG Governors urge the subcommittee to fund the highway 
obligation ceiling at the $42 billion level, adequately fund safety and 
innovative financing programs, and maintain at least the fiscal year 
2012 levels for public transit programs. This level of Federal 
investment is the minimum needed to slow the decline in infrastructure 
conditions and maintain the safety of the Nation's highways, bridges, 
and transit systems.
    Continued and substantial Federal investment in these 
infrastructure improvements--in urban, suburban, exurban, and rural 
areas--is necessary to safely and efficiently move people and products 
and to support the substantial growth in freight movement projected in 
the coming decades. The Federal Government has invested significant 
resources in the Nation's transportation systems, and it has a 
continuing responsibility to maintain and enhance the capacity of the 
Nation's transportation infrastructure to keep America competitive in a 
global economy.
    Specifically, the CONEG Governors urge the subcommittee to:
  --Fund the highway obligation ceiling at the $42 billion level;
  --Maintain public transit funding at no less than the fiscal year 
        2012 appropriated levels, with full funding for the current 
        transit formula and capital investment and preserving the 
        historic funding balance between these programs;
  --Ensure that Federal transit funds are released to States and 
        designated recipients in a timely manner; and
  --Expand the use of innovative financing and public-private 
        partnerships to supplement direct Federal funding, including 
        Federal loan guarantees and credit assistance, such as the 
        Transportation Infrastructure Finance and Innovation Act 
        program (TIFIA).
                                  rail
    The Governors deeply appreciate the subcommittee's past support for 
intercity passenger rail, and we urge that it again provides funding in 
fiscal year 2013 that will allow efficient intercity passenger rail 
corridors to be developed as part of a national, multi-modal 
transportation system. In the Northeast, continued, adequate Federal 
investment is critical to bring the current system to a state of good 
repair; help expand its capacity to meet the growing ridership; provide 
improved service to communities; attract State, local and private 
sector investments in the Nation's intercity passenger rail system; and 
develop a coordinated, comprehensive vision and plans for future 
services. These investments are essential for the accessible, reliable, 
frequent and on-time service that attracts and retains ridership and 
grows revenues.
    The Northeast has one of the oldest and most extensive multi-modal 
transportation systems in the world. This system faces major congestion 
and capacity constraints which, if not addressed, have the potential to 
curtail future commerce and mobility in a region that is densely 
populated and serves as an economic engine for the Nation. To begin to 
address these capacity constraints, the northeast States have invested 
significantly in the passenger rail corridors of the region--the 
Northeast Corridor (NEC), the Empire Corridor, the Northern New England 
Corridor, and the Keystone Corridor. They have leveraged Federal funds 
appropriated for intercity passenger rail projects eligible under the 
framework created by the Passenger Rail Investment and Improvement Act 
(PRIIA). The intense efforts of the States, Amtrak and freight 
railroads in recent years are now showing results in the Nation's 
busiest rail corridor. However, continued significant investments in 
this corridor network are needed to meet the growing intercity 
passenger travel market. The joint planning and funding efforts over 
the past 3 years are part of an on-going coordinated effort to reduce 
travel times, increase speed, improve service reliability and on-time 
performance, eliminate choke points, improve stations, replace aging 
bridges and electrical systems, install track and ties, replace 
catenary wires, and purchase new locomotives. Among the current 
projects that are employing thousands of workers using American-made 
supplies are the following:
  --High speed rail improvements between New York City and Trenton, New 
        Jersey are boosting capacity, reliability, and speed on a 22-
        mile segment of track capable of supporting train speeds up to 
        160 miles-per-hour.
  --The Harold Interlocking improvement will alleviate delays for 
        trains coming in and out of Manhattan by providing new routes 
        that allow Amtrak trains to bypass the busiest passenger rail 
        junction in the Nation.
  --Installation of high-speed third track near Wilmington, Delaware 
        will allow for increased speeds.
  --Track improvements in Kingston, Rhode Island will add an additional 
        1.5 miles of third track and improve capacity.
  --Access improvements for passengers using Union Station in 
        Washington, DC will improve passenger travel.
    Amtrak.--The Amtrak fiscal year 2013 budget request contains 
specific funding levels provided for operations, capital and debt 
service. These funding levels will enable Amtrak to continue a balanced 
program of adequate, sustained capital investment in infrastructure and 
fleet modernization programs that are vital for an efficient intercity 
passenger rail system that can meet the rising demand for reliable, 
safe, quality services.
    The Amtrak capital request encompasses urgently needed investments 
in infrastructure, more cost-efficient equipment replacement, and 
safety and security improvements in the NEC and corridors across the 
Nation. Timely action on a systematic plan to replace aging equipment 
used throughout the system can help modernize the current Amtrak fleet, 
offer the prospect of more efficient procurement by Amtrak and by 
States, and help stimulate the growth of the domestic rail 
manufacturing sector.
    We also strongly urge the subcommittee to provide Amtrak the 
requested $60 million for the Gateway and other integrated 
infrastructure and equipment projects that will allow improved 
intercity service on the NEC--the backbone of a passenger rail network 
that connects the entire Northeast and extends rail service to 
communities in the South, West, and Canada. These projects are initial 
steps required to address the backlog of deferred investments, and to 
make investments in near-term improvements in track, bridges, tunnels 
and equipment that will increase the capacity of the NEC to offer more 
reliable and frequent intercity service that can deliver more riders to 
their destination in less travel time. Improvements on the NEC can also 
help address the congested highway corridors and crowded northeast 
airports that are a major source of airport travel delays nationwide.
    Intercity Passenger Rail Corridors.--To advance the initial 
investments made by the Federal Government and the States, the 
Governors urge the subcommittee in fiscal year 2013 to fund the 
competitive Intercity Passenger Rail Corridor Capital Assistance 
Program, and to provide provisions that fund the planning activities 
for the development of passenger rail corridors, including multi-state 
corridors. The multi-state planning funds are the source of the monies 
that support the initial work being led by the Federal Railroad 
Administration (FRA) to develop an updated service development plan and 
environmental analysis that reflect the current and projected demand 
for passenger rail service on the NEC. A funding level of $22 million 
is needed in fiscal year 2013 for these analyses which are required for 
any future major improvements for high speed intercity passenger rail 
service on the NEC.
    Since these corridors serve diverse travel markets, we urge that 
these grant funds be available to States to advance plans for reliable, 
travel-time competitive service, regardless of maximum speed 
requirements. In light of the stringent FRA requirements for intercity 
passenger rail grants, we also request the subcommittee to waive the 
current statutory requirement that projects be part of an approved 
State rail plan, since this requirement might curtail thoughtful and 
well advanced efforts already underway by the States.
    Northeast Corridor Infrastructure and Operations Advisory 
Commission.--The Governors thank the subcommittee for providing funding 
for the Northeast Corridor Infrastructure and Operations Advisory 
Commission (Commission). Consistent with its responsibilities defined 
under PRIIA, the Commission is working actively to facilitate mutual 
cooperation and planning among the States, Amtrak, freight railroads, 
and the FRA for intercity, commuter and freight use of the Corridor--
and to also maximize the economic growth and the energy and 
environmental benefits of the larger regional NEC Network.
    The Commission has extensive responsibilities to set corridor-wide 
policy goals and recommendations that encompass passenger rail 
mobility, intermodal connections to highways and airports, energy 
consumption, air quality improvements, and local and regional economic 
development of the entire northeast region. It is also tasked to 
develop a standardized formula to determine and allocate the costs, 
revenues and contributions among NEC commuter railroads and Amtrak that 
use each other's facilities and services. The Commission's work will 
also guide the vision and service development plans that are a pre-
requisite to fund projects that can improve the capacity of the NEC. To 
conduct the assessments required by Congress in a timely manner, the 
Commission needs resources, data and expert analysis that exceed that 
which is currently available through the staff of the States, Amtrak 
and FRA. Continued funding in fiscal year 2013 will ensure the 
Commission's ability to secure all essential resources for conducting 
these assessments.
    Other Programs.--A number of other national rail and intermodal 
programs are important components of the evolving Federal-State-private 
sector partnerships to enhance passenger and freight rail across the 
country.
    The Railroad Rehabilitation and Improvement Financing Program 
(RRIF) can be an important tool for railroads (particularly regional 
and short-line railroads) and public agencies to access the financing 
needed for critical infrastructure and intermodal projects. We also 
encourage the subcommittee to provide funding for the Rail Line 
Relocation program, the Next Generation Corridor Train Equipment Pool, 
and critical rail safety programs.
    We support the continuation of the Transportation Investment 
Generating Economic Recovery, or TIGER Discretionary Grant program, at 
$500 million to encourage investment in multi-modal, multi-
jurisdictional or other road, rail, transit and port projects that help 
achieve critical national objectives.
    Adequate funding is needed for the Surface Transportation Board to 
carry out its expanded responsibilities for intercity passenger rail 
corridor service, including its specific responsibilities under PRIIA 
regarding equitable cost-sharing formulas among States, Amtrak and 
commuter railroads.
                   community development block grant
    The CONEG Governors urge the subcommittee to provide funding for 
the Community Development Block Grant (CDBG) program at least at the 
fiscal year 2012 level of $2.95 billion. By enabling States to invest 
in improved local infrastructure, rehabilitated affordable housing, and 
local economic development and jobs, the CDBG program provides needed 
assistance to redevelop and improve neighborhoods and communities 
nationwide.
                               conclusion
    In conclusion, the CONEG Governors urge the subcommittee to:
  --Fund the highway obligation ceiling at the $42 billion level and an 
        expanded TIFIA program;
  --Maintain Federal public transit funding at no less than the fiscal 
        year 2012 appropriated levels, with full funding for the 
        transit formula and capital investment programs, and preserving 
        the historic funding balance between these programs;
  --Fund Amtrak at levels that will support sound operations and a 
        balanced capital investment program, including the NEC capacity 
        improvements;
  --Maintain provisions to fund the Northeast Corridor Infrastructure 
        and Operations Advisory Commission;
  --Provide funding for the Intercity Passenger Rail Service Corridor 
        Assistance Program for corridor planning and capital 
        investment, including provisions for multi-state corridor 
        planning;
  --Provide funding for such national rail programs as the Next 
        Generation Corridor Train Equipment Pool, the Rail Line 
        Relocation program and the RRIF program;
  --Provide $500 million for the TIGER program;
  --Provide adequate funding for the Surface Transportation Board; and
  --Maintain funding for the Community Development Block Grant at the 
        $2.95 billion level.
    The CONEG Governors thank the entire subcommittee for the 
opportunity to share these priorities and appreciate your consideration 
of these requests.
                                 ______
                                 
      Prepared Statement of the Institute of Makers of Explosives
           interest of the institute of makers of explosives
    The Institute of Makers of Explosives (IME) is the safety and 
security association of the commercial explosives industry. Commercial 
explosives underpin the economy. They are essential to energy 
production, construction, demolition, and the manufacture of any metal/
mineral product. Explosives are transported and used in every State. 
Additionally, our products are distributed worldwide, while some 
explosives must be imported because they are not manufactured in the 
United States. The ability to transport and distribute these products 
safely and securely is critical to this industry.
                               background
    The production and distribution of hazardous materials is a 
trillion-dollar industry that employs millions of Americans. While 
these materials contribute to America's quality of life, unless handled 
properly, personal injury or death, property damage, and environmental 
consequences can result. The threat of intentional misuse of these 
materials also factors into public concern. To protect against these 
outcomes, the Secretary of Transportation (Secretary) is charged under 
the Hazardous Materials Transportation Act (HMTA) to ``provide adequate 
protection against the risks to life and property inherent in the 
transportation of hazardous materials in commerce by improving'' 
regulation and enforcement.\1\ The Secretary has delegated the HMTA 
authorities to various modal administrations, with primary regulatory 
authority resting in the Pipeline and Hazardous Materials Safety 
Administration (PHMSA).
---------------------------------------------------------------------------
    \1\ 49 U.S.C. Chapter 51.
---------------------------------------------------------------------------
    PHMSA regulates hazardous material (hazmat) transportation so 
closely that it may not be moved any distance, via any mode of 
transportation unless a Department of Transportation (DOT) regulation, 
permit or approval authorizes the movement of a material. This blanket 
prohibition against transportation unless there is a specific DOT 
authorization for that transportation makes efficient consideration of 
such authorizations critical to the industries involved and the 
millions of workers they employ, as well as to the national defense, 
the security of our homeland, and the economy at large. Accordingly, 
how PHMSA performs its regulatory function has a significant impact on 
our industry.
 significance of phmsa's special permits and approvals program to the 
                     commercial explosives industry
    The permits (designated ``special permits'') and approvals that 
PHMSA issues require applicants to establish that the function to be 
performed provides an equivalent or a greater level of safety than 
would be achieved by conforming to the agency's rules. They are not 
authorizations that allow someone to do something unsafe that otherwise 
would be prohibited under the rules. In both instances, the 
authorizations are issued to specifically identified individuals, in 
response to detailed applications (that are incorporated by reference 
in the authorizations), under criteria that are defined by or at least 
as stringent as the applicable regulations. These conditions can be 
changed by PHMSA at will, with limited rights for affected parties to 
petition for redress.
    The process of applying for and maintaining such authorizations 
involves more paperwork and accountability than is required to petition 
for rule changes. Moreover, holders of these special authorizations 
face the constant risk of having them revoked, suspended, or modified. 
All special permits and many approvals also have expiration dates, 
requiring timely filing of applications for renewal. All require 
reporting of the holder's experience with the authorization so that 
PHMSA can properly evaluate the appropriateness of the authorization. 
The biggest difference between a special permit and an approval is that 
a special permit is an alternative means to comply with the regulations 
in domestic commerce, while an approval may apply to domestic or 
international transportation and can only be issued if there is a 
specific reference to the activity authorized by the approval in 
PHMSA's regulations.
    Currently, there are thousands of special permits and approvals 
within the PHMSA program; many have been renewed without change for 
decades. Entire industries now find themselves regulated through 
special permits and approvals. The commercial explosives industry is a 
case in point. Billions of pounds of bulk explosive precursors and 
blasting agents are transported annually in the United States in 
vehicles operating under special permit. Without these permits, the 
industry would collapse. Likewise, the commercial explosives industry 
is uniquely dependent on PHMSA's approval authority. Manufacturers of 
commercial explosives, as opposed to other classes of hazardous 
materials, may not self-classify these products. The Hazardous 
Materials Regulations (HMR) require that new explosives be classified 
by PHMSA before they are offered for transport. These explosives 
classification approvals are the largest type of approval issued by the 
agency. Prior to approval, the HMR require that explosives be examined 
and tested by a laboratory approved by PHMSA. The testing criteria are 
based on standards recognized worldwide, and typically cost tens of 
thousands of dollars per application. The expense of this rigorous 
testing, both in terms of product sacrificed as well as the costs of 
the tests, is borne by the applicant.
    Congress never intended special permits or approvals to be a long-
term solution for the transportation innovations they authorize. The 
expectation is that proven special permits and approvals that have 
future, long-term use would be incorporated into the HMR. According to 
DOT, no deaths have been attributed to packages shipped under special 
permits or approvals for decades.\2\ PHMSA's failure to incorporate 
proven special permits into its regulations now exposes many industries 
to the current whims of agency action.
---------------------------------------------------------------------------
    \2\ PHMSA claims that a maritime incident in 2008 which resulted in 
three deaths was caused by the violation of a special permit. However, 
the deaths were not the proximate result of a special permit violation. 
Testimony in the resultant litigation showed the deaths were due to 
negligence of a number of parties involved in the shipment.
---------------------------------------------------------------------------
   phmsa's fiscal year 2013 budget increase request and user tax are 
                              unjustified
    As noted above, the HMTA requires that PHMSA's regulations be risk-
based. The agency, in turn, measures the success of its hazmat safety 
program by the number of transportation-related deaths and ``serious 
injuries'' (i.e., hospitalizations) are attributed to the hazardous 
materials.\3\ The agency acknowledges that these numbers ``have 
declined an average of 4 percent every 3 years over the long term.'' 
\4\ Last year, 11 deaths, all due to human error, not a failure of a 
regulatory standard, were attributed to hazardous materials. None, 
since the early 1970s, have been attributed to commercial explosives. 
This contrasts with thousands of deaths annually that result from 
crashes involving large trucks, for example. Despite these compelling 
statistics and the current budget climate, PHMSA requests a 19.7-
percent increase over fiscal year 2012 and 22 new positions, a 12.6-
percent increase in full-time positions (FTP), for the hazmat program. 
Completely unjustified is PHMSA's proposal to devote 24 percent of the 
agency's budget to the processing of applications for special permits 
and approvals where there is no record of death.
---------------------------------------------------------------------------
    \3\ DOT 2011 Annual Performance Report, February 2012, page 9.
    \4\ Fiscal Year 2013 PHMSA Budget Justification, page 3.
---------------------------------------------------------------------------
    While investigations into the Special Permits and Approvals program 
in the last Congress revealed that PHMSA had misplaced many documents 
from applications, none were attributed to a death or serious injury. 
Instead of asking holders of these authorities to provide the missing 
documents, PHMSA proceeded without notice and comment to restructure 
the program from one that took weeks to process applications to one 
that takes months, with double or triple the paperwork, and to 
establish a complex tiered system of applications reviews, including 
costly site visits, based on unpublished and unknown standards. In 
short, the agency created a paperwork empire, with no commensurate 
safety benefit. The cost and delay that have resulted from the agency's 
unfettered administrative actions are impediments to U.S. businesses 
dependent on these authorizations in the global race to market.
    To finance this new special permit and approval processing 
hierarchy, PHMSA requested, as it did in fiscal year 2012, user fees of 
between $700 and $3,000 per application. PHMSA estimates that the fees 
will generate $12 million. This user ``tax'' is without merit:
  --The user fee revenue would be used to underwrite the agency's 
        general fund, although only a fraction of the regulated 
        community are holders of special permits and approvals.
  --No death has been attributed to special permits or approvals since 
        1971 when agency records began to be kept.
  --The Federal Government, not private companies, is the largest 
        holder of approvals and special permits. The Government will 
        pay no fees.
  --Historically, fees have not been imposed on foreign entities for 
        fear of retaliatory fees on U.S. exports giving foreign 
        shippers a competitive advantage in the United States.
  --PHMSA states that it needs funds to implement its Special Permits 
        and Approvals Action Plan. However, PHMSA and the DOT/Office of 
        Inspector General have said that the action plan implementation 
        is complete.
  --Nowhere in the budget request does PHMSA reveal its special permit 
        and approval workload. Yet, the agency has reported to industry 
        that there is no longer a backlog of applications, suggesting 
        that the agency is managing with current resources.
  --PHMSA estimates it processes 25,000 applications per year. At 
        25,000 applications per year, the cost per application should 
        be no more than $533. Using the $700-$3,000 fee range, PHMSA 
        will generate between $17.5 million and $75 million in new 
        revenue; nearly 1.5 to over 6 times the $12 million the agency 
        estimates it will need.
  --Additional Federal workers will have to be hired to administer and 
        collect the fee.
  --It is the business activity, not the size, of a company that 
        determines how many applications may be filed. Many payers will 
        be small businesses.
  --With the fee, there would be no incentive for PHMSA to incorporate 
        proven special permits into the Hazardous Materials 
        Regulations.
  --The fee would be payable per application, creating an incentive for 
        PHMSA to deny or reject applications on trivial pretexts thus 
        generating new fees.
  --Other DOT modal administrations issue approvals or what amount to 
        special permits; none assess fees.
  --This program, which provides safety benefits to the public, has 
        been successfully run for decades without user fees. PHMSA's 
        proposal could be the start of a trend for user fees for other 
        regulatory actions including letters of interpretations or 
        petitions for rulemaking necessary for compliance and good 
        government.
    PHMSA claims that the House Transportation and Infrastructure 
Committee mandated the programmatic changes necessitating the fees. 
However, there is no such statutory requirement, and neither has 
Congress provided PHMSA authority for this user fee. This user fee is 
really a hidden tax on companies that innovate and produce goods needed 
strengthen and rebuild the U.S. economy. The user fee initiative should 
be rejected.
    Rather than be party to the agency's costly empire building scheme, 
including six new FTP this year, the subcommittee should be asking what 
the agency is doing to ``streamline'' the application process; why 
``increasingly stringent monitoring'' of permit and approval holders is 
necessary given the safety record of these entities; how the agency 
hopes to ``accelerat[e] incorporation of special permit[s] into the 
HMR'' when no new resources above baseline were requested to support 
rulemaking activity; and why the agency is devoting scarce staff 
resources to second-guess the results of government-established tests 
performed at government-approved laboratories for explosives 
classification approvals.\5\
---------------------------------------------------------------------------
    \5\ Fiscal Year 2013 PHMSA Budget Justification, pages 68 and 100.
---------------------------------------------------------------------------
                   other budgetary issues to consider
    Staffing and Workload.--PHMSA's budget request provides no baseline 
empirical workload metrics to judge PHMSA's performance or the merit of 
the budget request. For example, the request is silent on the causes or 
rates of special permit or approval denials and resubmissions, which 
would drive workload and user fee receipts. The information, when 
provided, is prospective, not retrospective. The agency's budget 
increase is driven by requests for new FTP. These staffing enhancements 
are mis-allocated. The subcommittee should deny these requests:
  --Field Operations (FO).--The number of FO positions has nearly 
        doubled since 2003 to 63 FTP, with a FTP increase of 16 in 
        fiscal year 2010. This year, PHMSA is requesting another 12 
        FTP, with no more justification than that the agency has only 
        been able to inspect ``2 percent of facilities under their 
        jurisdiction.'' However, a 2-percent inspection rate may be 
        appropriate given the ``minimal rate of non-compliance'' within 
        the regulated community.\6\ At the same time, PHMSA provides no 
        retrospective information on the actual number of inspection/
        investigation reports have been filed and how the inspections 
        are categorized.
---------------------------------------------------------------------------
    \6\ Fiscal Year 2013 PHMSA Budget Justification, page 67.
---------------------------------------------------------------------------
  --Radioactive Materials.--PHMSA requests two additional FTP to 
        address emergency threats from radioactive materials. However, 
        quantities of high level radioactive waste or spent nuclear 
        fuel are not moving from nuclear power plants in the absence of 
        a permanent repository. Likewise, PHMSA's concern about cargo 
        containers arriving in U.S. ports with surface radioactive 
        contamination is a Customs and Border Protection concern. This 
        request is without merit.
    Grants Programs (GPs).--PHMSA operates three GPs funded by fees 
assessed on the hazardous materials community. We have long looked for 
evidence of program accomplishment and question the agency's claims 
about achievements ascribed to these programs. In 2005, Congress 
directed the agency to annually provide a detailed accounting of all 
grant expenditures.\7\ In the intervening 7 years, the agency has 
released only one such report, and that report did not provide the 
retrospective accounting necessary to determine if grant recipients 
were using funds appropriately.\8\ This year, an audit of the GPs by 
the Office of Inspector General found systemic mismanagement and misuse 
of grant funds.\9\ PHMSA's request increases the fees allocated to 
administer the GPs from 2 percent to 4 percent although such fees are 
limited to 2 percent by statute.\10\ These programs warrant increased 
oversight by the subcommittee.
---------------------------------------------------------------------------
    \7\49 U.S.C. 5116(k).
    \8\ http://phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/Files
/Report_to_Congress_HMEP_Grants_Program 2005_2006.pdf.
    \9\ OIG, DOT, AV-2012-040, January 12, 2012.
    \10\49 U.S.C. 5116(i)(4).
---------------------------------------------------------------------------
                               conclusion
    The transport of hazardous materials is a multi-billion dollar 
industry that employs millions of Americans. This commerce has been 
accomplished with a remarkable degree of safety. PHMSA has silenced the 
voice of the regulated community by refusing to submit its special 
permit and approval ``standard operating procedures'' and ``fitness 
criteria'' to notice and comment rulemaking. The subcommittee needs to 
make difficult decisions about where to save scarce Federal resources. 
Cutting the self-contrived administrative bloat from PHMSA's hazmat 
safety program would be a place to start. In addition to rejecting the 
proposed user fee, we strongly recommend that the subcommittee deny new 
staffing requests as explained, but redirect any new resources to 
enhance PHMSA's information technology and rulemaking capacities.
                                 ______
                                 
      Prepared Statement of the Institute of Makers of Explosives
           interest of the institute of makers of explosives
    The Institute of Makers of Explosives (IME) is the safety and 
security association of the commercial explosives industry. Commercial 
explosives underpin the economy. They are essential to energy 
production, construction, demolition, and the manufacture of any metal/
mineral product. Explosives are transported and used in every State. 
The ability to transport and distribute these products safely and 
securely is critical to this industry. At some point, virtually all 
explosives are transported by truck. Among these explosives are 
products classed as Division 1.1, 1.2, and 1.3 materials, which with 
other select hazardous materials, may only be transported by motor 
carriers holding a ``hazardous materials safety permit'' (HMSP) issued 
by the Federal Motor Carrier Safety Administration (FMCSA). According 
to program data, carriers of explosives make up the largest segment, 
roughly half, of the universe of HMSP holders.
    Our industry has maintained an exceptional safety record for 
decades. According to the Hazardous Materials Information System 
(HMIS), no deaths have been attributed to commercial explosives since 
the Department of Transportation began collecting data in the 1970s. 
Despite the safety record of our industry, we have members who struggle 
when it comes maintaining their HMSP qualification.
                         implementation issues
    We will be the first to admit that we failed to appreciate the full 
impact of the disqualifying out-of-service (OOS) thresholds when FMCSA 
finalized the HMSP rule in 2004. First, the preamble and the regulatory 
text set forth in the 2003 proposal, as well as the preamble to the 
HMSP final rule, describes the agency's intent to issue HMSPs to motor 
carriers with a ``satisfactory'' safety rating.\1\ Those without a 
satisfactory safety rating would be eligible for a temporary HMSP if 
they have ``a crash rate in the top 30 percent of the national average, 
or a driver, vehicle, hazardous materials, or total [OOS] rate in the 
top 30 percent of the national average.'' (Emphasis added.) Second, the 
``or total'' OOS rate suggested that the 30 percent national average 
disqualification would, in the aggregate, disqualify only 30 percent of 
carriers. As FMCSA has implemented this program, however, these were 
not the standards that a carrier could rely on to obtain a permit. 
Instead, no HMSP may be issued to a carrier who performs in the top 30 
percent of each OOS category.
---------------------------------------------------------------------------
    \1\ 68 FR 49737, 49752 and 49753 (August 19, 2003); 69 FR 39367, 
39352 (June 30, 2004).
---------------------------------------------------------------------------
    Since the HMSP program's inception in 2005, we have urged FMCSA, in 
meetings, letters, and petitions, to relook at this program and make 
needed reforms. Over these 7 years, the HMSP program has been plagued 
by administrative missteps including double counting OOS inspections 
and thousands of erroneous denials of applications. Questions remain 
unanswered about the statistical basis used by FMCSA to calculate the 
program's most critical criterion, the hazardous material (hazmat) OOS 
rate. We have documented the inherent unfairness of a system that 
relies on OOS rates. Roadside inspections are not random (nor should 
they be given limited resources), nor are they without the bias of 
personal judgment. Further, the methodology used to determine 
``significance'' of the inspection data lacks statistical confidence. 
Even if a carrier survives this flawed qualification process, it 
provides no assurance that the same level of performance will enable 
the carrier to retain its HMSP as carriers are subject to a relative, 
not absolute, standard of ``safety.'' Please know that we do not object 
to a HMSP; we do object to the bias and uncertainty that this program 
breeds, especially when the program has shown no nexus to safety 
enhancement.
                  safety benefits of the hmsp unproven
    FMCSA estimated that implementing the HMSP program would prevent 
seven hazmat truck-related crashes per year. The agency stated that the 
safety benefits derived from the projected crash reductions would be 
``large because of the number of conventional crashes that may be 
prevented.'' This has not proved to be the case. The experience after 
the nearly 6 years of the HMSP and during the 6 years immediately 
preceding the implementation of the HMSP shows that: \2\
---------------------------------------------------------------------------
    \2\ Data from the Hazardous Materials Information System (HMIS), 
12/13/2011.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          1999-2004                 2005-2010                    All hazmat highway incidents
                                                 -------------------------------------------------------------------------------------------------------
                  HMSP material                                                                               1999-2004                 2005-2010
                                                    Crashes     Fatalities    Crashes     Fatalities ---------------------------------------------------
                                                                                                        Crashes     Fatalities    Crashes     Fatalities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Explosives (1.1, 1.2, 1.3)......................            9          \2\           13          \2\  ...........  ...........  ...........  ...........
RAM (HRCQ \1\)..................................            4  ...........            1  ...........  ...........  ...........  ...........  ...........
TIH.............................................           43  ...........           46  ...........  ...........  ...........  ...........  ...........
Methane.........................................            1  ...........  ...........  ...........  ...........  ...........  ...........  ...........
                                                 -------------------------------------------------------------------------------------------------------
      Total.....................................           57  ...........           60  ...........        1,909           62        2,190           60
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ It may be that none of these crashes are HRCQ. From the data in HMIS, it was possible to eliminate some incidents that were clearly not HRCQ. Where
  there was doubt the incident was counted.
\2\ The HMIS includes records of two off-highway, non-crash incidents that resulted in fatalities involving materials covered by the HMSP. Both
  incidents involve fireworks stored on trucks, and both incidents occurred after delivery. Consequently, the American Pyrotechnics Association disputes
  whether these incidents are transportation-related. In 2003, four workers were killed after the local government asked that a show for another
  location be removed from the site. In 2009, five workers were killed while setting up a show using a truck as a workroom for assembling the display.

    For HMSP holders, this record highlights the need for an immediate 
reconsideration of the disqualifying standards that are threatening 
their livelihoods. Keep in mind that the vast majority of carriers 
subject to the HMSP are not long-haul, freight-all-kinds carriers. They 
serve niche markets that rely on local, often rural delivery, and 
require specialized equipment. As such, these carriers do not frequent 
routes with inspection stations. Once these carriers get into trouble 
based on the non-random, often subjective OOS calls by inspectors, it 
is virtually impossible for these carriers to accrue sufficient 
``good'' inspections to overcome the ``bad.'' For example, it is not 
uncommon for a carrier to have less than 15 inspections in the 12 
months prior to the expiration of the carrier's HMSP. If two of those 
inspections result in an OOS \3\, it would take 56 ``clean'' 
inspections to requalify the carriers. And, the later into the 12-month 
qualification period the second OOS occurs, the more unlikely it is 
that a carrier could recover. These carriers do not have the option to 
carry non-HMSP freight while working to requalify for a permit. The 
irony is that, when these carriers get into jeopardy, FMCSA does not 
routinely suspend or revoke the HMSP; rather the carrier is allowed to 
operate until it is time to apply for renewal. The regulations allow 
for appeals when permits are suspended or revoked, but not if the 
carrier is applying for renewal.
---------------------------------------------------------------------------
    \3\ This assumes that the OOS citation was corrected issued. CSA 
experience shows that FMCSA's ``Data Q'' process is overwhelmed and 
State ability and/or willingness to expend resources on these 
challenges is a growing concern.
---------------------------------------------------------------------------
                      request for expedited relief
    Last year, FMCSA accepted a petition for rulemaking from IME and 
other affected industry associations filed to reform the HMSP 
disqualification standards. While we are pleased that FMCSA has 
accepted our petition, we are disappointed that ``the agency has 
determined that this rulemaking should not be initiated until the CSA 
Safety Fitness Determination (SFD) final rule is published, as it will 
be used as the basis for initiating this rule.'' \4\ (Emphasis added.) 
We would like to strongly suggest that the HMSP rulemaking should take 
precedence over the SFD rulemaking. First, the HMSP program is being 
used now as the SFD standard for covered materials. Covered carriers 
that do not meet the contested HMSP standards may be shutdown. Non-HMSP 
carriers do not yet face this outcome. Second, the problematic HMSP 
disqualification standards are based on inspections and OOS 
determinations. These same metrics are expected to be the basis of the 
standards to be proposed in the SFD rulemaking. Third, the HMSP 
regulated community is very small relative to the universe of carriers 
that will be subject to the SFD. We believe FMCSA should immediately 
act to fix the HMSP disqualification standards and export that refined 
SDF model to the larger commercial trucking universe under CSA.
---------------------------------------------------------------------------
    \4\ Letter to IME from FMCSA, November 14, 2011, page 1.
---------------------------------------------------------------------------
    The agency's reluctance to immediately address the shortcomings of 
the HMSP is particularly troubling because implicit in FMCSA's plan to 
address by rulemaking many of the issues raised by industry is an 
acknowledgment of deficiencies with the current program. These 
deficiencies will persist over the intervening years between now and 
the time that they are resolved through the rulemaking process. The 
adverse impacts to the regulated community are undeserved.
    Given these facts, we are concerned that neither legislation nor 
regulation will move fast enough to prevent relatively good carriers 
from losing their HMSP and, as explained, being put out of business 
based on limited data anomalies. We have asked FMCSA to immediately 
address these pressing concerns by issuing an interim final rule (IFR) 
to at least provide for an additional level of fitness review prior to 
the denial, revocation, or suspension of a safety permit until such 
time that the agency proceeds with the full rulemaking based on our 
petition. The additional level of administrative fitness review would 
consider the safety management controls of the applicant or holder not 
just OOS violations rates, and it would provide the applicant or holder 
an opportunity to file a corrective action plan to address identified 
concerns.\5\
---------------------------------------------------------------------------
    \5\ This opportunity should not be available to applicants or 
holders that present an imminent hazard or evidence of a pattern of 
willful and knowing non-compliance with safety regulations.
---------------------------------------------------------------------------
    We have not heard from FMCSA whether the agency would be willing to 
pursue the IFR option we have described. At the same time, it is 
concerning to us that nowhere in FMCSA's fiscal year 2013 budget 
estimate does it reference, let alone discuss, the issues described.\6\ 
Justice will not be served by inattention to these pressing concerns. 
The uncertainty of when FMCSA will be able to carry out the HMSP 
rulemaking coupled with the urgency to take some action based on 
acknowledged program deficiencies compel us to ask the subcommittee to 
deny funds to administer this program until FMCSA provides interim 
measures to ensure that HMSP holders are not denied permits based 
solely on the flawed disqualification standards in place now.
---------------------------------------------------------------------------
    \6\ The HMSP is mentioned once in the Department of Transportation 
Annual Performance Report, Fiscal Year 2011, page 22, ``FMCSA will 
continue to seek to implement programs and regulations that `raise the 
bar' to entry into the motor carrier industry, including. . . expanding 
enforcement of and compliance with the [HMSP] requirements. . . .''
---------------------------------------------------------------------------
                               conclusion
    Neither IME nor its members object to the need for a HMSP. We do 
object to the current standards for disqualification. They are not 
risk-based. Inspection frequency and outcome do not seem to correlate 
to crashes or fatalities. Thank you for your attention to these 
concerns.
                                 ______
                                 
   Prepared Statement of the National American Indian Housing Council
    Chairwoman Murray, Vice Chairwoman Collins and members of the 
subcommittee. I am submitting this statement regarding the President's 
budget request (PBR) for fiscal year 2013 on behalf of the National 
American Indian Housing Council (NAIHC). My name is Cheryl A. Causley 
and I am the chairwoman of the National American Indian Housing Council 
(NAIHC), the only national tribal nonprofit organization dedicated to 
advancing housing, physical infrastructure, and economic and community 
development in tribal communities throughout the United States. I am 
also an enrolled member of the Bay Mills Indian Community in Brimley, 
Michigan, and the Executive Director of the Bay Mills Indian Housing 
Authority. I want to thank the subcommittee for the opportunity to 
submit written testimony for the subcommittee's consideration as it 
reviews the PBR.
       background on the national american indian housing council
    The NAIHC was founded in 1974 and has, for 38 years, served its 
members by providing invaluable training and technical assistance (T/
TA) to all tribes and tribal housing entities; providing information to 
Congress regarding the issues and challenges that tribes face in terms 
of housing, infrastructure, and community and economic development; and 
working with key Federal agencies to address these important and, at 
times, vexing issues, and to help meet the challenges. The membership 
of NAIHC is expansive, comprised of 271 members representing 463 \1\ 
tribes and tribal housing organizations. The primary goal of NAIHC is 
to support Native housing entities in their efforts to provide safe, 
decent, affordable, culturally appropriate housing for Native people.
---------------------------------------------------------------------------
    \1\ There are approximately 566 federally recognized Indian tribes 
and Alaska Native villages in the United States, all of whom are 
eligible for membership in NAIHC. Other NAIHC members include State-
recognized tribes that were deemed eligible for housing assistance 
under the 1937 Housing Act and grandfathered in to the Native American 
Housing Assistance and Self-Determination Act of 1996.
---------------------------------------------------------------------------
   brief summary of the problems regarding housing in indian country
    While the country has been experiencing an economic downturn that 
many have described as the worst global recession since World War II, 
this economic reality is greatly magnified in Indian communities. The 
national unemployment rate seems to have peaked at an alarming rate of 
nearly 10 percent; however, that rate does not compare to the 
unemployment rates in Indian Country, which average 49 percent.\2\ The 
highest unemployment rates are on the Plains reservations, where the 
average rate is 77 percent.\3\
---------------------------------------------------------------------------
    \2\ Bureau of Indian Affairs Labor Force Report (2005).
    \3\ Many of these reservations are in the State of South Dakota, 
which has one of the lowest unemployment rates in the Nation. On some 
South Dakota reservations, the unemployment rate exceeds 80 percent.
---------------------------------------------------------------------------
    Because of the remote locations of many reservations, there is a 
lack of basic infrastructure and economic development opportunities are 
difficult to identify and pursue. As a result, the poverty rate in 
Indian country is exceedingly high at 25.3 percent, nearly three times 
the national average.\4\ These employment and economic development 
challenges exacerbate the housing situation in Indian Country. Our 
first Americans face some of the worst housing and living conditions in 
the country, and the availability of affordable, adequate, safe housing 
in Indian Country falls far below that of the general U.S. population.
---------------------------------------------------------------------------
    \4\ U.S. Census Bureau, American Indian and Alaska Native Heritage 
Month: November 2011. See http://www.census.gov.
---------------------------------------------------------------------------
  --According to the 2000 U.S. Census, nearly 12 percent of Native 
        American households lack plumbing compared to 1.2 percent of 
        the general U.S. population.
  --According to 2002 statistics, 90,000 Indian families were homeless 
        or under-housed.
  --On tribal lands, 28 percent of Indian households were found to be 
        over-crowded or to lack adequate plumbing and kitchen 
        facilities. The national average is 5.4 percent when structures 
        that lack heating and electrical equipment are included. 
        Roughly 40 percent of reservation housing is considered 
        inadequate, compared to 5.9 percent of national households.
  --Seventy percent of the existing housing stock in Indian Country is 
        in need of upgrades and repairs, many of them extensive.
  --Less than half of all reservation homes are connected to a sewer 
        system.
    There is already a consensus among many members of Congress, 
Department of Housing and Urban Development (HUD), tribal leaders, and 
tribal organizations that there is a severe housing shortage in tribal 
communities; that many homes are, as a result, overcrowded; that many 
of the existing homes are in need of repairs, some of them substantial; 
that many homes lack basic amenities that many of us take for granted, 
such as full kitchens and plumbing; and that at least 250,000 new 
housing units are needed in Indian Country.
    These issues are further complicated by the status of Indian lands, 
which are held in trust or restricted-fee status. As a result, private 
financial institutions will generally not recognize tribal homes as 
collateral to make improvements or for individuals to finance new 
homes. Private investment in the real estate market in Indian Country 
is virtually non-existent, with tribes almost entirely dependent on the 
Federal Government for financial assistance to meet their growing 
housing needs. The provision of such assistance is consistent with the 
Federal Government's well established trust responsibility to American 
Indian tribes and Alaska Native villages.
   the native american housing assistance and self-determination act
    In 1996, Congress passed the Native American Housing Assistance and 
Self-Determination Act (NAHASDA) to provide Federal statutory authority 
to address the above-mentioned housing disparities in Indian Country. 
NAHASDA is the cornerstone for providing housing assistance to low 
income Native American families on Indian reservations, in Alaska 
Native villages, and on Native Hawaiian Home Lands.
    The Indian Housing Block Grant (IHBG) is the funding component of 
NAHASDA, and since the passage of NAHASDA in 1996 and its first fiscal 
year of funding in 1998, NAHASDA has been the single largest source of 
funding for Native housing. Administered by the Department of Housing 
and Urban Development, NAHASDA specifies which activities are eligible 
for funding.\5\ Not only do IHBG funds support new housing development, 
acquisition, rehabilitation, and other housing services that are 
critical for tribal communities; they cover essential planning and 
operating expenses for tribal housing entities. Between 2006 and 2010, 
a significant portion of IHBG funds, approximately 24 percent, were 
used for planning, administration, and housing management and services.
---------------------------------------------------------------------------
    \5\ Eligible activities include but are not limited to down-payment 
assistance, property acquisition, new construction, safety programs, 
planning and administration, and housing rehabilitation.
---------------------------------------------------------------------------
  american recovery and reinvestment act and fiscal year 2010 indian 
                             housing funds
    NAIHC would like to thank Congress for its important work to 
increase the much-needed investment in Indian housing during the past 
several years. In fiscal year 2010 the American Recovery and 
Reinvestment ACT (ARRA) of 2009 provided over $500 million for the IHBG 
program. This additional investment in Indian Country supported 
hundreds of jobs, permitted some tribes to start on new construction 
projects, and assisted still other tribes in completing essential 
infrastructure for housing projects that they could not have otherwise 
afforded with their yearly IHBG allocations. Tribes have complied with 
the mandate to obligate the funds in an expeditious manner, thus 
helping stimulate tribal, regional and the national economies.
    In addition to ARRA funding, Congress appropriated $700 million for 
the IHBG in fiscal year 2010, the first significant increase for the 
program since its inception. This positive step reversed a decade of 
stagnate funding levels that neither kept pace with inflation nor 
addressed the acute housing needs in Native communities. As you know, 
the Congress did not continue the upward trajectory in Indian housing 
funding and the appropriations have remained flat for each the past two 
fiscal years at $650 million.
 the president's 2013 budget request for the indian housing block grant
    President Obama released his fiscal year 2013 budget request on 
February 13, 2012. The PBR established total spending of level of $3.80 
trillion, up from an estimated $3.79 trillion enacted in fiscal year 
2012. This spending level includes $44.8 billion in budget authority 
for HUD, a 3.2 percent increase above the fiscal year 2012 funding 
level.
    Despite the increase in overall HUD spending, the administration 
has proposed level funding for the Indian Housing Block Grant (IHBG) at 
$650 million for fiscal year 2013. Were the President's budget proposal 
to be accepted, it would mark the third consecutive year that the 
budget would be flat-lined. The budget proposal also includes $60 
million for the Indian Community Development Block Grant (ICDBG), the 
same level of funding that was appropriated in fiscal year 2012, and 
zero funding for the widely acclaimed training and technical assistance 
(T/TA) program. NAIHC respectfully requests that funding for the 2013 
ICDBG be set at $100 million for the much-needed housing, 
infrastructure and economic development activities that the ICDBG 
provides, and that the T/TA funding be no less than $4.8 million.
    The NAIHC is the only national Indian housing organization that 
provides comprehensive training and technical assistance (T/TA) on 
behalf of tribal nations and their housing entities. Because they know 
the value added by NAIHC, the NAIHC membership has voted unanimously 
during each of their annual conventions since 2006 to support a 
resolution that seeks to set aside a portion of their own Indian 
Housing Block Grant funding to support NAIHC's T/TA program. In 
addition, NAIHC members have expressed concerns about the quality of 
training provided by HUD contractors. Again, to ensure high quality T/
TA, the NAIHC should be funded at not less than $4.8 million.
    I want to again express, on behalf of the 271 tribal housing 
programs representing some 463 tribes that make up the NAIHC 
membership, our sincere gratitude for the subcommittee's support. It is 
worth noting that the ARRA funding spend-out rate for tribal programs 
exceeded the spend-out rate of HUD's non-Indian ARRA-funded programs. 
Spending rates for the tribal programs were at the 95 percent level, 
which is fully 10 percent more than the total HUD expenditure rate of 
85 percent. When tribal communities are provided access to much needed 
housing funding, they are able to efficiently and effectively utilize 
these dollars to address the longstanding housing and infrastructure 
needs of their communities. Sustained Federal investment in housing and 
infrastructure for Native peoples is essential to maintaining the 
momentum gained by recent investment.
               other indian housing and related programs
The Title VI and Section 184 Indian Housing Loan Guarantee Programs
    The President's budget request includes $2 million for the Federal 
guarantees for Financing Tribal Housing Activities, also known as the 
Title VI Loan Guarantee program, and $7 million for the Indian Housing 
Loan Guarantee Program, also known as the Section 184 Program. The 
Title VI program is important because it provides a 95 percent loan 
guarantee on loans made by private lenders, which is an incentive for 
lenders to get involved in the development of much needed housing in 
tribal areas.
    The Section 184, Indian Home Loan Program, is specifically intended 
to facilitate home loans in Indian Country. NAIHC believes that, based 
on several years of experience, the PBR for these two programs, funded 
at $2 million for the title VI program as requested in the PBR, but 
respectively request that the funding for the Section 184 program be 
restored to the $9 million level that was enacted for fiscal year 2009.
Indian Community Development Block Grant
    While appreciated, the President's proposal of $60 million for the 
ICDBG is insufficient to meet the current needs for essential 
infrastructure, including sewer and running water, in Indian Country. 
We request that this program be funded at $100 million.
Native Hawaiian Housing
    Low income Native Hawaiian families continue to face tremendous 
challenges, similar to those that tribal members face in the rest of 
the United States. The President's funding request of $13 million for 
the Native Hawaiian Housing Block Grant is appreciated; however, NAIHC 
recommends this program be funded at $20 million. And the budget 
includes no funding for the section 184A program in Hawaii. While it 
has taken some time to get this program started--because lenders are 
not familiar with the section 184A program--providing no funding would 
be a step backward for Native Hawaiian families working toward 
homeownership. We urge Congress to consider this before agreeing to the 
administration's proposal to eliminate funding for the program.
   training and technical assistance and the proposed transformation 
                               initiative
    The President's proposed budget eliminates entirely the much-
needed, exceptional T/TA that has been provided by NAIHC since the 
inception of NAHASDA. The provision of T/TA is critical for tribes to 
build their capacity to effectively plan, implement, and manage tribal 
housing programs. Eliminating funding for T/TA would be disastrous for 
tribal housing authorities and would be a huge step in the wrong 
direction. Tribes need more assistance in building capacity, not less.
    Since NAIHC's funding for T/TA was restored in 2007, requests for 
T/TA have steadily grown. The funding that NAIHC is currently receiving 
is insufficient to meet the continuous, growing demand for T/TA. 
Therefore, we are forced to make difficult decisions regarding when, 
where, and how to provide the most effective T/TA possible to our 
membership.
    The budget request proposes an agency-wide Transformation 
Initiative Fund (TIF) with up to 0.5 percent of HUD's total budget, 
which would draw funds away from essential housing programs, including 
$3.3 million from the IHBG account, ``to continue the on-going 
comprehensive study of housing needs in Indian Country and native 
communities in Alaska and Hawaii.'' While the NAIHC membership believes 
the TIF may have merit, we do not believe that transferring nearly $3.3 
million from the IHBG is a wise or even defensible use of IHBG funds.
    More importantly, the $3.3 million affects funding that has 
historically been appropriated to NAIHC for T/TA. As I have previously 
noted, the NAIHC membership has repeatedly taken the position that a 
portion of the IHBG allocation should be provided to NAIHC for T/TA, 
which is a reflection of their confidence in NAIHC and the continuing 
demand for the essential capacity-building services that we provide. We 
request that funding in the amount of $4.8 million for T/TA be included 
in the fiscal year 2013 budget.
                               conclusion
    NAHASDA was enacted to provide Indian tribes and Native American 
communities with new and creative tools necessary to develop culturally 
appropriate, safe, decent, affordable housing. While we value and 
appreciate the investment and efforts that this administration and the 
Congress have made possible, NAIHC has very specific concerns, 
enumerated above, with the President's proposed budget for the Indian 
housing funding levels and hopes that Congress, with the leadership of 
this important committee, will work with the NAIHC and the 
administration to recognize the acute housing needed that continue to 
exist in tribal communities.
    Consider these needs against a backdrop that includes the following 
observation from the Government Accountability Office (GAO) in their 
report 10-326, Native American Housing, issued in February 2010 to the 
Senate Committee on Banking and the House Committee on Financial 
Services which noted that the following:

    ``NAHASDA's first appropriation in fiscal year 1998 was $592 
million, and average funding was approximately $633 million between 
1998 and 2009. The highest level of funding was $691 million in 2002, 
and the lowest was $577 million in 1999. For fiscal year 2009, the 
program's appropriation was $621 million. However, when accounting for 
inflation, constant dollars have generally decreased since the 
enactment of NAHASDA. The highest level of funding in constant dollars 
was $779 million in 1998, and the lowest was $621 million in 2009.'' 
\6\
---------------------------------------------------------------------------
    \6\ See GAO Report 10-326 at www.gao.gov/products/GAO-10-326.

    The needs in Indian Country have not lessened since this report was 
issued just 2 years ago. In fact, a cursory review of the Department of 
Commerce's Bureau of the Census suggests the needs continue to increase 
along with a growing and ever younger population. In a report prepared 
in November 2011 \7\ the Census reported that:
---------------------------------------------------------------------------
    \7\ See Census at http://www.census.gov/newsroom/releases/archives/
facts_for_features
_special_editions/cb11-ff22.html.
---------------------------------------------------------------------------
  --The Nation's American Indian and Alaska Native population increased 
        by 1.1 million between the 2000 Census and 2010 Census, or 26.7 
        percent, while the overall population growth was 9.7 percent;
  --The median income of American Indian and Alaska Native households 
        was $35,062 compared with $50,046 for the Nation as a whole;
  --The percent of American Indians and Alaska Natives that were in 
        poverty in 2010 was 28.4 percent compared to the 15.3 percent 
        for the Nation as a whole; and
  --The percentage of American Indian and Alaska Native householders 
        who owned their own home in 2010 was 54 percent compared with 
        65 percent of the overall population.
    I wish to conclude this written testimony by thanking Chairwoman 
Murray, Ranking Member Collins, and all of the members of this 
subcommittee for allowing us to express our views and our aspirations. 
NAHASDA is a key element in improving the overall living conditions in 
Native America. The path to a self-sustaining economy is not achievable 
without a robust housing sector and tribal housing conditions will not 
be improved without adequate funding. NAHASDA is not just about 
constructing houses. It is about building tribal communities--
communities where health and safety are a top priority and where 
education can take place. Not only is the tribal economy impacted, but 
so too are the lives of families and individuals who live in 
substandard housing.
    I know we can count on you to support our efforts. Together, we can 
continue the important work of building communities in Indian Country. 
Your continued support of Native American communities is truly 
appreciated, and the NAIHC is eager to work with you and your 
professional staff on any and all issues pertaining to Indian housing 
programs and living conditions for America's indigenous people.
                                 ______
                                 
   Prepared Statement of the University Corporation for Atmospheric 
                                Research
    On behalf of the University Corporation for Atmospheric Research 
(UCAR), I submit this written testimony to the Senate Committee on 
Appropriations, Subcommittee on Transportation, Housing and Urban 
Development, and Related Agencies, for the committee record. UCAR is a 
consortium of over 100 research institutions, including 77 doctoral-
degree granting universities, which manages and operates the National 
Center for Atmospheric Research (NCAR). I respectfully urge the 
subcommittee to support:
  --The Federal Aviation Administration's (FAA's) Research, Engineering 
        and Development account--$180 million, including $18 million 
        for the Weather Program and $10 million for Weather Technology 
        in the Cockpit.
  --FAA's Facilities and Equipment account--$285 billion which includes 
        $57.2 million for System-Wide Information Management (SWIM) and 
        $23.8 million for Common Support Services.
  --The Federal Highway Administration's (FHWA's) Intelligent 
        Transportation Systems (ITS) program--the full request of $110 
        million which includes $46.1 million for IntelliDrive V-V and 
        V-I Communications for Safety and $15.5 million for Dynamic 
        Mobility Applications.
    Life and property could be spared, and economic performance 
improved across the Nation, if weather information were utilized more 
effectively by decision makers such as airline pilots, personal vehicle 
drivers, and the trucking industry. Over the past two and a half 
decades, the Department of Transportation (DOT), in partnership with 
NCAR and the academic community, has creatively and economically 
developed technologies to foresee weather-related problems and mitigate 
the effects of meteorological hazards, including wind shear, icing, and 
turbulence. Leveraging the expertise of the research community, the FAA 
and FHWA depend on their partners to develop weather-resilient systems 
and infrastructure. I would like to comment on the following programs 
that support continued collaborative partnerships between the DOT, FAA, 
and FHWA and the atmospheric science community:
                    federal aviation administration
    Current and projected growth in the volume, complexity, and 
economic importance of air transportation clearly demonstrates the need 
for a new paradigm supporting air traffic services in the 21st century. 
Many new factors compound the new century's challenge to safe and 
efficient air operations. For example, aircraft passenger and freight 
load requirements will be 2-3 times higher, increasing use of polar 
routes will introduce new hazards to crews and passengers, and new 
navigational technologies that allow more flexible routing and 
separation of aircraft are not fully compatible with the current air 
traffic control system. Capacity will become an increasingly limiting 
factor at many airports. Efficiency of flight operations en-route will 
become more critical. Since weather conditions seriously affect air 
traffic operations (the cost to divert a flight, for example, is 
upwards of $150,000), the manner by which weather is observed, 
predicted, disseminated and used within air traffic decision processes 
and systems is of critical national importance. Thus, it is critical to 
invest in Federal research and development efforts that will help 
mitigate these costs and increase safety.
           faa research, engineering, and development (re&d)
    The fiscal year 2013 request continues important work in current 
research areas, including aviation weather research. The proposed 
budget supports enhanced Next Generation Air Transportation System 
(NextGen) research and development efforts in the areas of air-ground 
integration, weather information for pilots, and environmental research 
for aircraft technologies as well as 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 2013 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 Aviation Digital 
Data Service (ADDS). This strong collaboration between the FAA and the 
National Weather Service provides the latest forecasting breakthroughs 
to the entire aviation community to help reduce significant safety 
hazards and major causes of system delays. Using ADDS, accurate 
forecasts of aviation weather 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 will not support the 
R&D needs of the Weather Program. The request for this program is down 
from the fiscal year 2010, fiscal year 2011, and fiscal year 2012 
funding levels and is operating at half the level of funding of 10 
years ago. Yet our skies have become more crowded, with more than 
87,000 flights in each day according to the National Air Traffic 
Controllers Association, and the need for this research greater. To 
address the challenges and to meet the research needs of NextGen, I 
urge you to support $18 million, at a minimum, for the Weather Program 
for fiscal year 2013.
    Weather Technology in the Cockpit.--Pilots currently have little 
weather information as they fly over remote stretches of ocean where 
some of the worst turbulence is encountered. At the very least, 
providing pilots with an approximate picture of developing storms could 
help guide them safely around areas of potentially severe turbulence.
    In addition, the most vulnerable pilots, those engaged in General 
Aviation activities, are forced to make critical weather decisions in 
the cockpit without support of a ground-based dispatcher for 
assistance. Weather Technology in the Cockpit is launching a project to 
develop a mobile meteorological capability for use by this community.
    Weather Technology in the Cockpit 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 
disappointed that the President's fiscal year 2013 request of $4.8 
million for this small but life-saving program was reduced almost 50 
percent from fiscal year 2012 levels. I urge the subcommittee to fund 
the Weather Technology in the Cockpit program at $10 million, at a 
minimum.
                      faa facilities and equipment
    Within Facilities and Equipment, I would like to call your 
attention to the following extremely important programs:
    NextGen Network Enabled Weather (NNEW).--Delays in the National 
Airspace System (NAS) are primarily attributable to weather. According 
to the FAA, over the last 5 years more than 70 percent of delays of 15 
minutes or more, on average, were caused by weather. Weather also 
affects safety. Between 1994 and 2003, weather was determined to be a 
contributing factor in over 20 percent of all accidents. Currently, 
most operational decision tools do not utilize weather information 
effectively or at all. 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. 
The NNEW multiagency project is 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-Dimensional (4-D) Weather Data Cube. This will provide 
standardized information from disparate contributors and locations, to 
a variety of end-users such as air traffic managers and pilots.
    In the fiscal year 2013 request, the NNEW activity is listed under 
System-Wide Information Management (SWIM). Funding for the R&D work 
contributing to the 4-D Weather Data Cube will come from Common Support 
Services within SWIM, requested at $23.8 million. These services 
disseminate aviation weather information in a network enabled 
environment. From fiscal year 2008 to fiscal year 2012, UCAR helped the 
FAA frame and establish this effort under the name NextGen Net-Enabled 
Weather (NNEW). I strongly urge the subcommittee to support the $23.8 
million request for Common Support Services within System-Wide 
Information Management (SWIM) and recommend that Congress retain the 
NextGen Network Enabled Weather (NNEW) title.
    NextGen Reduce Weather Impact.--The current weather observing 
network of the National Airspace System is inadequate to meet the needs 
of NextGen. The NextGen Reduce Weather Impact program will increase 
network capacity, reducing congestion and meeting projected demand in 
an environmentally sound manner. Working with appropriate scientific, 
modeling and user communities, current sensor information and 
dissemination shortfalls will be identified and evaluated. Technologies 
for optimizing and improving automated aircraft weather reporting will 
be investigated to meet NextGen requirements. The Reduce Weather Impact 
portfolio will leverage the NNEW transformational program that will 
interface with NOAA's 4-D Weather Data Cube, for universal common 
access to weather information. To continue the work of NextGen Reduce 
Weather Impact, I urge the subcommittee to increase the fiscal year 
2013 funding for the program from the requested $16.6 million to $43.2 
million.
                     federal highway administration
    According to the National Highway Traffic Safety Administration, 
there are over six million vehicle crashes on average each year. 
Twenty-four percent of these crashes--over 1.5 million--are weather-
related. Weather-related crashes are defined as those crashes that 
occur in adverse weather (i.e., rain, sleet, snow, and/or fog) or on 
slick pavement (i.e., wet pavement, snowy/slushy pavement, or icy 
pavement). On average, 7,130 people are killed and over 629,000 people 
are injured in weather-related crashes each year. The FHWA Road Weather 
Management Program seeks to better understand the impacts of weather on 
roadways, and promote strategies and tools to mitigate those impacts. 
UCAR and its partners are key contributors the FHWA's vision of 
``Anytime, Anywhere Road Weather Information'' for road users and road 
operating agencies. Central to this commitment is the FHWA's 
Intelligent Transportation Systems program within its Research, 
Technology and Education Program.
    Intelligent Transportation Systems (ITS) within the Department of 
Transportation's Research and Innovative Technology Administration 
(RITA).--The Connected Vehicle Technology (formerly IntelliDrive) 
program remains the centerpiece of the DOT ITS 2010-2014 Strategic 
Research Plan. This program creates partnerships between government, 
industry, academia and others to specify, develop and produce the 
necessary technology to continuously gather and broadcast information 
about a moving vehicle, including its surrounding weather conditions.
    An example of leading edge applications and services supported by 
ITS is the Vehicle Data Translator, a prototype tool being developed at 
UCAR that will give drivers near-immediate information about unforeseen 
hazards. The system, which underwent field testing this past winter in 
Minnesota and Nevada, will inform drivers of what weather conditions 
they can expect to encounter in the next few seconds and minutes, 
giving them a critical opportunity to slow down or take other action. 
Once the system is operational, an onboard digital memory device will 
collect weather data such as temperature, and indirect indications of 
road conditions such as windshield wipers being switched on, or the 
activation of antilock brakes. The processed data will then be used to 
warn motorists about upcoming hazards--everything from icy roads to a 
nearby vehicle that is being driven erratically--and suggest alternate 
routes, if appropriate. The system will also alert emergency managers 
to hazardous driving conditions and help road crews clear snow more 
efficiently.
    To meet its core research and technology transfer mission, and 
support projects like the Vehicle Data Translator, I urge the 
subcommittee to support the requested amount of $110 million for ITS, 
which includes $46.1 million for IntelliDrive V-V and V-I 
Communications for Safety and $15.5 million for Dynamic Mobility 
Applications.
    On behalf of UCAR, I want to thank the subcommittee for its 
leadership in supporting research and development and technology 
transfer programs within the FHWA and FAA and for your commitment to 
ensuring safer, more efficient air and road travel. I urge you to 
support these relatively small but critically important R&D programs 
within the FHWA and FAA fiscal year 2013 budgets.


       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page

American:
    Indian Higher Education Consortium, Prepared Statement of the   127
    Public Transportation Association, Prepared Statement of the.   129

Blunt, Senator Roy, U.S. Senator From Missouri, Questions 
  Submitted by..................................................46,  81

Coalition of Northeastern Governors, Prepared Statement of the...   132
Collins, Senator Susan M., U.S. Senator From Maine:
    Prepared Statements of..................................7,  59,  91
    Questions Submitted by.....................................45,  124
    Statements of...........................................5,  57,  90

Donovan, Hon. Shaun, Secretary, Office of the Secretary, 
  Department of Housing and Urban Development....................     1
    Prepared Statement of........................................    11
    Summary Statement of.........................................     8
Durbin, Senator Richard J., U.S. Senator From Illinois, Questions 
  Submitted by...................................................   117

Feinstein, Senator Dianne, U.S. Senator From California, 
  Questions Submitted by.........................................   120

Galante, Hon. Carol, Acting Federal Housing Administration 
  Commissioner and Assistant Secretary for Housing, Department of 
  Housing and Urban Development..................................    53
    Prepared Statement of........................................    61
    Summary Statement of.........................................    59

Institute of Makers of Explosives, Prepared Statements of the.135,  139

Kohl, Senator Herb, U.S. Senator From Wisconsin, Questions 
  Submitted by...................................................    41

LaHood, Hon. Ray, Secretary, Office of the Secretary, Department 
  of Transportation..............................................    85
    Prepared Statement of........................................    96
    Summary Statement of.........................................    93
Lautenberg, Senator Frank R., U.S. Senator From New Jersey:
    Question Submitted by........................................   124
    Statement of.................................................   100
Leahy, Senator Patrick J., U.S. Senator From Vermont, Questions 
  Submitted by.................................................43,  119

Murray, Senator Patty, U.S. Senator From Washington:
    Opening Statements of...................................1,  53,  85
    Prepared Statements of..................................3,  56,  88
    Questions Submitted by......................................38,  79

National American Indian Housing Council, Prepared Statement of 
  the............................................................   143

Pryor, Senator Mark, U.S. Senator From Arkansas, Prepared 
  Statement
  of.............................................................    93

University Corporation for Atmospheric Research, Prepared 
  Statement of
  the............................................................   147


                             SUBJECT INDEX

                              ----------                              

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                     Federal Housing Administration

                                                                   Page

Additional Committee Questions...................................    78
Appraisals.......................................................    82
Capital Reserves.................................................    74
Commercial Lending...............................................    82
Evaluating Risk..................................................    79
Federal Housing Administration (FHA):
    As Part of the Administration's Efforts To Bolster the 
      Housing Market.............................................    67
    Fiscal Year 2013 Budget, Overview of the.....................    63
    Mutual Mortgage Insurance (MMI) Fund.........................    71
    Reform.......................................................    60
    Role in Supporting the Market................................    56
    Solvency.....................................................    81
    Streamline Refinance Program.................................    70
Fiscal Soundness of FHA's Mutual Mortgage Insurance Fund.........    56
Housing Counseling...............................................    61
Mortgage:........................................................
    Insurance Fees...............................................    73
    Scams........................................................    78
New Proposals To Aid the Market..................................    56
Real Estate-Owned (REO) Properties...............................    76
Responding to the Market Disruption..............................    62
Risk Assessments Tools...........................................    74
Support for FHA Operations.......................................    57
Treble Damages...................................................    83
Underwater Mortgage Relief.......................................    77

                        Office of the Secretary

Additional Committee Questions...................................    38
Administrative Fees..............................................    33
American Indian, Alaska Native, and Native Hawaiian Programs.....    50
Budget:
    Highlights...................................................     5
    Proposal Concerns............................................     4
Changes in Medical Deduction for Section 8.......................    41
Collaborations With Other Agencies...............................    49
Cost-Savings in Rental Assistance Programs, Tough Choices........    18
Creating an Economy Built To Last................................    12
Department of Housing and Urban Development (HUD):
    Fiscal Year 2013 Budget......................................     4
    Goal 1: Strengthen the Nation's Housing Market To Bolster the 
      Economy and Protect Consumers..............................    14
    Goal 2: Meet the Need for Quality, Affordable Rental Homes...    16
    Goal 3: Utilize Housing as a Platform for Improving Quality 
      of Life....................................................    20
    Goal 4: Build Inclusive Sustainable Communities Free From 
      Discrimination.............................................    21
    Goal 5: Transform the Way HUD Does Business..................    25
    Oversight....................................................     5
Duplicative Economic Programs....................................    45
Emergency Solutions Grant (ESG)..................................    37
Federal Housing Administration (FHA):
    Indemnification..............................................    28
    Solvency.....................................................4,  46
Government-Sponsored Enterprises (GSEs)..........................    47
Home Investment Partnerships, Tough Choices......................    22
Homeless Assistance Grants.......................................    50
Homelessness.....................................................    47
Housing:
    Market Challenges............................................     3
    Counseling Assistance, Funding What Works....................    15
Impact of Cuts:
    On Rural Areas...............................................    44
    To the Community Development Block Grant (CDBG) Program and 
      HOME Investment Partnerships Program on Rural Areas........    43
Increasing Efficiencies: Modernizing the Housing Opportunities 
  for Persons With Aids (HOPWA) Program..........................    21
Information Technology (IT) Modernization........................    40
    FHA Modernization Project....................................    38
Leveraging Power of Sustainable Communities Funding, Funding What 
  Works: The.....................................................    23
Meeting the Housing Needs of Women Veterans......................    41
Minimum Rent Increase............................................    36
Moving the Needle:
    Making Substantial Progress..................................    13
    On Veterans Homelessness, Holding Ourselves Accountable......    13
Mutual Mortgage Insurance (MMI) Fund.............................    27
On-Going Rural Assistance........................................    49
Project-Based Rental Assistance (PBRA):
    Short Funding................................................    29
    Tough Choices................................................    17
Proposed Rule for HOME...........................................    44
Rapid Re-Housing Program.........................................    36
Rental Assistance................................................    42
Responding to the Crisis.........................................    11
Rural Housing and Development....................................    48
Section:
    8 Voucher Funding............................................    32
    202 PRAC Units...............................................    42
Settlements With Lenders.........................................    28
Substandard Units in Maine.......................................    30
Sustainable Housing and Communities..............................    50
Taking Jobs-Plus To Scale, Funding What Works....................    19
Wood Pellet Boiler Systems.......................................    34

                      DEPARTMENT OF TRANSPORTATION

                        Office of the Secretary

Accomplishments..................................................    89
Additional Committee Questions...................................   117
Air Quality--Union Station and Diesel Emissions..................   117
Amtrak Gateway Tunnel............................................   107
Biofuels.........................................................   114
Chameleon Carriers...............................................   113
Columbia River Crossing Bridge...................................   113
Contract Towers..................................................   111
Department of Transportation's Budget Proposal and SAFETEA-LU, 
  the............................................................    89
Distracted Driving...............................................   103
Emergency Relief Fund............................................   119
Federal Aviation Administration (FAA)............................   121
    Airport Privatization Program--Midway and Other Airports.....   118
Ferry Systems....................................................   109
Freight Rail.....................................................   116
Fuel Economy Labels..............................................   123
General Highway Privatization....................................   119
High-Speed Rail...............................................114,  123
Highway Trust Fund (HTF) Insolvency..............................   104
Honolulu Rail Project............................................   112
Innovation.......................................................    94
Investing in America's Future by Rebuilding Our Infrastructure 
  and Creating Jobs..............................................    96
Los Angeles Subway System........................................   122
Mariah's Law.....................................................   105
Modernizing Our Nation's Transportation System Through Research 
  and Technology.................................................    98
National Rail Plan...............................................   108
Next Generation Air Transportation System (NextGen)..............   110
Passenger Facility Charges (PFCs)................................   110
Pipeline Safety..................................................   120
Pressing Forward on Safety.......................................    99
Priority Corridors...............................................   106
Rebuilding Our Infrastructure....................................    94
Reincarnated Motor Carriers......................................   111
Restoring Amtrak Service to Montreal.............................   120
Safety...........................................................    95
    Fitness Determination........................................   102
Sequestration....................................................   105
Tiger Grants.....................................................   107
Transit Funding..................................................   108
Truck Safety.....................................................   123
Veterans To Work.................................................   106
Vow To Hire Heroes Act...........................................   100

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