[Senate Hearing 113-]
[From the U.S. Government Publishing Office]



 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2015

                              ----------                              


                        WEDNESDAY, APRIL 2, 2014

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:20 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Udall, Collins, and Boozman.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. SHAUN DONOVAN, SECRETARY


               opening statement of senator patty murray


    Senator Murray. The subcommittee will come to order. Today, 
we welcome Secretary Donovan before our subcommittee to discuss 
the President's fiscal year 2015 request for the Department of 
Housing and Urban Development (HUD).
    Thank you so much for being here, Mr. Secretary.
    As we consider the request, I am reminded that it was only 
a year ago that sequestration began imposing very harsh cuts 
across the Federal Government. HUD programs were no exception 
to these indiscriminate reductions and the impacts of the cut 
were far reaching.
    Thousands of vouchers were pulled from circulation, leaving 
families unable to access desperately needed affordable 
housing. Public housing authorities deferred maintenance, 
adding to an already significant backlog of capital needs. And 
services for the homeless were cut, taking options away from 
those in need.
    At the end of last year, I worked with Chairman Ryan to 
reach a 2-year bipartisan budget deal. Our budget rolled back 
some of the automatic across-the-board cuts to priorities like 
education and infrastructure and research.
    It prevented another Government shutdown and restored some 
certainty and stability to families and communities, and did it 
in a balanced way, without relying on spending cuts alone.
    As a result of that agreement, Congress passed legislation 
to fund the Government for the rest of fiscal year 2014. That 
achievement was made possible because members on both sides of 
the aisle recognized the need for solutions rather than 
continued disruption and crisis.
    The omnibus reversed some of the most damaging cuts to HUD 
programs, restored funding for section 8 rental assistance, 
homeless assistance grants, and public housing operating 
capital funds.
    Importantly, the budget agreement also set the funding 
level for fiscal year 2015. This provides Congress with the 
opportunity to return to regular order and pass appropriation 
bills, avoiding the kind of year-end crisis with which we have 
become all too familiar.
    While our budget deal was a strong step in the right 
direction, the budget for fiscal year 2015 remains tight, 
requiring difficult choices once again about how to allocate 
funding across transportation and housing programs. This task 
is made more challenging by the fact that nearly 85 percent of 
HUD's budget is dedicated to preserving existing housing and 
homeless programs.
    While I recognize that difficult choices must be made, I am 
concerned about some of the proposals in the President's 
budget.
    In particular, I am concerned about the proposal to 
transition HUD's project-based contracts so that all renewals 
take place at the same time. This may promise some savings in 
the short term, but I do worry about what this change would 
mean for long-term stability of the program, specifically, what 
the implications are for this program and the affordable 
housing it supports in fiscal year 2016 and beyond, if we adopt 
that proposal.
    So I look forward to hearing from you on that today.
    The challenge facing project-based section 8 echoes a 
larger reality HUD faces since the cost of maintaining housing 
in the private market continues to rise faster than 
discretionary funding levels. Yet, if these costs are not paid, 
we will lose critical and likely irreplaceable housing.
    In light of the budget challenges, we need to be thinking 
of new ways to preserve affordable housing within the current 
funding constraints. That includes programs like the rental 
assistance demonstration program. It also means building on the 
success of Choice Neighborhoods, which focuses on innovative 
ways to leverage other public and private sector funds. These 
partnerships provide badly needed additional revenue for 
housing but do much more. They also focus on the other factors 
that are needed to improve the lives of residents.
    Secretary Donovan, you had the opportunity to tour Yesler 
Terrace in Seattle with me, and I am impressed with all of the 
different partners in that project--schools, community 
colleges, workforce training providers, just to name a few.
    We need to think about more ways to create these meaningful 
partnerships so that we can bring additional resources to the 
table and improve outcomes for the families HUD serves.
    While we look for innovation, it is also imperative that 
every dollar is spent appropriately, which requires adequate 
oversight by HUD.
    To help HUD improve its ability to conduct meaningful 
oversight, the subcommittee has worked to provide HUD with new 
or enhanced tools to increase oversight, including additional 
resources for housing inspections, governance and financial 
management training, and oversight staff. We also gave HUD new 
tools to strengthen its ability to hold property owners 
accountable for the quality of their housing.
    And I want to get an update from you today on how HUD is 
using those resources.
    I also continually hear from Public Housing Agencies (PHAs) 
about HUD's burdensome regulations and reporting requirements. 
There is no question HUD must have the information it needs to 
monitor Federal funds, but it must ask for the right 
information and use it effectively.
    That is why we have asked HUD to evaluate the existing 
regulations and requirements for PHAs to determine whether it 
is asking for the right data and make recommendations based on 
those findings.
    Underpinning this oversight work and all of the 
Department's efforts to serve low income families are HUD staff 
and information technology (IT) systems. I remain concerned 
about some of the critical vacancies at the Department, 
including the chief information officer and the chief financial 
officer, as well as HUD's progress in modernizing its IT 
systems. So I want to hear from you today about where we are on 
those efforts and how they are impacting program delivery and 
oversight.
    While HUD faces challenges, it is also important to 
recognize the agency's successes. There is no better example 
than the work being done to end veteran homelessness. In 2008, 
this committee restarted the HUD-Veterans Affairs Supportive 
Housing (HUD-VASH) program. Since then, the committee has 
provided funding for over 60,000 vouchers for permanent 
housing, which are combined with supportive services from the 
Department of Veterans Affairs (VA).
    This has helped take veterans who sacrifice so much for our 
country off the street and put them into permanent housing. To 
me, this program represents the most effective type of Federal 
investment. It involves collaboration between HUD and VA, 
avoiding duplication. It is based on sound research. And, most 
importantly, it is delivering results.
    The program helped reduce homelessness among veterans by 24 
percent between 2009 and 2013, and is putting us on a path of 
achieving the goal of ending veteran homelessness. The success 
of HUD-VASH is also an important reminder of how the Federal 
Government can help address some of the Nation's pressing 
needs.
    Housing is a basic need. It keeps people safe and off the 
streets and provides stability that can help the sick recover 
and children do better in school. Beyond that, housing can be a 
way for families to begin building wealth that they can pass on 
to their children.
    But access to affordable housing, whether you are someone 
who lost your job, or are a working mom or a first-time 
homeowner, remains a significant challenge for millions of 
Americans today.
    Rental housing is out of reach for many, and access to 
credit remains tight. So as we think about the investments we 
need to make in our country for the long-term health of our 
economy, we have to remember this important role that housing 
plays.
    Mr. Secretary, I know you understand that, and I deeply 
appreciate your efforts to make a difference in the lives of so 
many Americans.
    As we move beyond the fiscal year 2015, I will be fighting 
for these families and against efforts to move our country 
backwards with deeper cuts to investments in families and 
seniors, or unfair and irresponsible budget proposals that 
protect the wealthiest Americans and biggest corporations from 
paying their fair share.
    We owe it to our constituents to keep working together to 
build on the success of last year to create jobs, opportunity 
and economic growth.
    Finally, today I do want to take a moment to acknowledge 
the tremendous tragedy that occurred in my State, now less than 
2 weeks ago. On March 22, as all of you know, there was a 
massive landslide near Oso, Washington. I was on the ground 
there several times, including last weekend.
    The impact on the community and the lives of these people 
in that area is really impossible to describe. In addition to 
the lives that have been lost, the landslide has destroyed 
homes. It has devastated infrastructure there. And it took 
nearly everything in its wake.
    So we are out there, very committed right now to remain 
focused on the immediate response, which is ongoing, including 
support of the volunteer recovery efforts. There is an amazing 
number of wonderful people there doing a very, very difficult 
task, and we all want to acknowledge that.
    But I also want to say, in the very near future, we are 
going to have to turn to the long-term recovery of this area, 
so we can ensure that the towns and local economies of Oso and 
Arlington and Darrington are rebuilt.
    So, Mr. Secretary, I will work with you and appreciate all 
of your comments and thoughts so far as we work to provide the 
people of these communities with the support they are going to 
need for a long time to come.
    With that, I would like to recognize my partner, my ranking 
member, Senator Collins, for her remarks.


                 statement of senator susan m. collins


    Senator Collins. Thank you very much, Chairman Murray.
    Before I begin my formal remarks, let me send my 
condolences to the constituents in your State who have been 
affected by this horrendous landslide. Truly, all of us who 
have been following it, send our sympathies to those families 
affected.
    Secretary Donovan, first, let me welcome you. It is always 
a pleasure to have you appear before our subcommittee, and I 
look forward to hearing your testimony.
    Today, our subcommittee will hear the justification for the 
fiscal year 2015 budget request for the Department of Housing 
and Urban Development. As we begin the appropriations process 
this year, we do so, thanks to the efforts of our chairman, 
under a 2-year budget, and thus, we will have much more 
guidance on what the spending levels will be.
    We must all be mindful of the budget constraints, 
particularly as our Nation's debt now exceeds $17.5 trillion, 
an unsustainable amount.
    Balancing the need to deal with this debt, while providing 
housing for our most vulnerable citizens, is a challenge that 
seems to become more and more difficult each year that I serve 
on the subcommittee.
    The administration is proposing $46 billion for HUD, which 
is nearly $200 million below current funding levels. That does 
not, however, take into account the President's request, his 
Opportunity, Growth and Security Initiative, which is $56 
billion Governmentwide above the budget agreement. It includes 
$480 million for HUD programs.
    It is, I will say, astonishing to me that the President has 
proposed to exceed a budget that was just passed and signed by 
such an enormous amount.
    Another issue is that the administration's assumptions for 
Federal Housing Administration (FHA) receipts far exceed the 
Congressional Budget Office's (CBO's) estimates. While we are 
still waiting for CBO's scoring of the administration's 
request, early estimates suggest that that difference could 
amount to as much as $2.7 billion.
    The difference between the Office of Management and Budget 
(OMB) and CBO creates a risk of unreasonable assumptions and 
unsustainable program levels.
    While I know, Mr. Secretary, that the administration's 
economic forecasting models are not under your control, it is 
my hope that you will convey my concerns and encourage the 
administration to work earlier with the CBO to see if there can 
be consistent numbers. That kind of difference serves no one 
well.
    The HUD budget is also structurally challenged by the 
significant percentage of spending that is required merely to 
maintain the status quo.
    Of the 2015 requests, 84 percent support the renewal of 
existing rental assistance, public housing, operating and 
capital expenses, and the renewal of homeless assistance 
grants.
    Given the reality of current and future budget constraints, 
coupled with declining FHA receipts, renewals to simply ensure 
that those currently assisted do not lose their housing are on 
pace to consume HUD's entire budget.
    It is critical that we see the results of efforts to 
streamline our costs and explore more creative approaches to 
housing programs, particularly to those that are not achieving 
their goals.
    Now, as the chairman indicated, there is a program that we 
are both strong supporters of, and very proud to have 
collaborated with the department and the Department of Veterans 
Affairs, that is seeing true results. Since 2010, we have 
reduced veterans' homelessness by 24 percent, and overall 
chronic homelessness by 16 percent.
    The budget would fund 10,000 additional HUD-VASH vouchers 
for our veterans, and I support that request.
    With rental assistance, however, I am not sure that the 
results are as clear or that simply maintaining the status quo 
is a satisfactory approach. It is critical that federally 
subsidized properties comply with all health and safety 
standards. After all, it is inexcusable that vulnerable 
Americans are ever put into substandard housing with serious 
violations, as happened at one point in the State of Maine. But 
it is doubly offensive when taxpayers are subsidizing those 
unfit units.
    And I know the Secretary has been very helpful in 
straightening out the issues in Maine.
    I am pleased to report that the Maine State Housing 
Authority has taken strong actions to cure the problem that it 
had, but it is troubling to hear reports of other housing 
authorities that have failed to address longstanding issues, 
including deplorable physical conditions and inexcusable 
management.
    HUD must invest in effective oversight and management of 
housing authorities, including providing technical assistance 
when needed. And it must take action to impose sanctions where 
appropriate.
    Neither residents nor taxpayers are well served when poor 
conditions are allowed to continue. And that is why Senator 
Murray and I have worked together to provide additional 
resources for just this purpose.
    For oversight to be effective, however, it must be 
relevant, and it must not impose needless burdens on public 
housing authorities that are doing a good job. Regulations 
should serve a purpose and not exist just for the sake of 
existing.
    To put it simply, they must reflect common sense and meet 
the test of effectiveness.
    I recently met with Maine housing authority directors, and 
each of them raised questions and concerns that HUD had not 
fully considered ways to streamline current regulations on PHAs 
to allow them to stretch scarce resources and to spend more 
time serving their clients and less time on unnecessary 
paperwork.
    They are often overburdened with data collection that HUD 
does not use, and face challenges with requirements that stifle 
innovation and discourage effective program delivery.
    Included in the fiscal year 2014 bill that we passed in 
January is a requirement for HUD to report on its effort to 
address these administrative burdens.
    I also want to end by saying that I share the 
administration's continued support for the Community 
Development Block Grant (CDBG) program, and I want to 
underscore its importance, since this is a battle every year 
that we have with some of our colleagues to keep the funding 
for this program.
    This program, which marks its 40th anniversary in August, 
remains the most adaptable, the most welcomed community and 
economic development Federal program for meeting the unique 
needs of communities throughout the country. It is able to be 
tailored to the economic development and community support 
projects that fit a particular area and municipality, and that 
is its strength.
    As always, I look forward to working with you, Mr. 
Secretary, and you, Madam Chairman, as we consider the 
department's requests. Thank you.
    Senator Murray. Thank you very much.
    With that, I will turn to our committee members to make 
quick opening statements before I turn to the Secretary.
    Senator Udall.
    Senator Udall. I will just make a short statement at the 
beginning of questioning. So thank you very much.
    And our hearts really go out to those. I was just in 
Washington, as you know, and Arlington and Darrington, and 
those communities are really in a disastrous situation. And I 
know you are working really hard to remedy it, to the best that 
you can.
    Senator Murray. Thank you very much.
    Senator Boozman.
    Senator Boozman. Thank you, Madam Chair. And again, I will 
defer until after we hear the testimony.
    Senator Murray. OK, Mr. Secretary, with that, we will turn 
to your opening statement.


                summary statement of hon. shaun donovan


    Secretary Donovan. Thank you, Chairman Murray, Ranking 
Member Collins, members of the committee, thank you for this 
opportunity to be with you today.
    Let me join with your colleagues, Senator Murray, in 
sending my heartfelt thoughts to all of the victims of the 
mudslide. Having spent too many hours, too many days, seeing 
the effects that these disasters have on communities, I know 
how terrible it must be for you, for those communities. But I 
also know what your leadership has meant to those families, to 
those communities. And we will do everything that we can to 
help you in that recovery.
    The President's budget provides a roadmap for accelerating 
economic growth, expanding opportunity for all Americans, and 
ensuring fiscal responsibility. HUD's budget is an essential 
component of the President's vision of investing in the things 
we need to grow our economy and create jobs while continuing 
long-term deficit reduction.
    HUD's budget focuses on four principles: first, driving 
economic growth by increasing access to credit and 
strengthening the FHA; second, providing opportunity by 
restoring and increasing assistance to vulnerable families; 
third, creating growth and opportunity through key initiatives; 
and fourth, ensuring fiscal responsibility and increasing 
efficiency.


                        driving economic growth


    FHA has been critical to driving economic growth and 
increasing access to credit, which is the first principle I 
mentioned.
    Since President Obama took office, FHA has helped more than 
3.9 million families buy homes, and in fiscal year 2013 alone, 
more than 500,000, or over 78 percent, of FHA purchase loan 
endorsements were first-time homebuyers. And through its 
streamlined refinance option, FHA helped 500,000 families 
reduce their monthly housing costs by an average of $200 per 
month for an annual savings of $2,400 per family.
    HUD's fiscal year 2015 budget continues our efforts, first 
by showing FHA's increasing financial strength. It estimates 
that the FHA mutual mortgage insurance fund will have $7.8 
billion in reserves at the end of the fiscal year and will not 
require mandatory appropriation from the Treasury.
    It also creates a new housing counseling pilot program 
called Homeowners Armed With Knowledge, or HAWK, to increase 
access to credit for first-time homebuyers underserved by the 
current mortgage market, and to further strengthen FHA. And it 
increases funding for housing counseling to $60 million, an 
increase of 33 percent, or $15 million above the fiscal year 
2014 level.


                   assistance for vulnerable families


    Our second principle is providing opportunity by restoring 
and increasing assistance to vulnerable families. We are 
experiencing the worst rental affordability crisis in our 
Nation's history. Worst case housing needs grew a staggering 
43.5 percent from 2007 to 2011. That is why one of our top 
priorities is reversing the impacts of sequestration, starting 
with Housing Choice Vouchers.
    Sequestration had a tremendous impact on the Housing Choice 
Voucher program. Yet, through the impressive efforts of HUD and 
our partner PHAs, no family was evicted from their home as a 
result of sequestration. However, 74,000 families who either 
had vouchers in hand or were stuck on waiting lists were unable 
to secure housing.
    Our proposal would reverse the effects of sequestration by 
providing $20 billion for Housing Choice Vouchers while also 
providing $6.5 billion to operate and improve the public 
housing stock through the public housing operating and capital 
funds.
    Similarly, through a $9.7 billion request in funding for 
the Project-Based Rental Assistance program, HUD will provide 
rental assistance funding to privately owned multifamily rental 
housing projects serving over 1.2 million families nationwide.
    Also, for the first time, this budget will change the 
Project-Based Rental Assistance (PBRA) contract funding cycle, 
allowing HUD to provide 12 months of funding corresponding to 
calendar year 2015. This would increase the predictability of 
funding under the program, allowing owners to obtain private 
debt and equity on more advantageous terms.


                         opening doors strategy


    This budget also provides $2.4 billion to make progress 
toward the ambitious goals of Opening Doors, the Federal 
strategic plan to prevent and end homelessness, which has 
already, as you both noted, led to a 24 percent reduction in 
veterans' homelessness and a 16 percent reduction in chronic 
homelessness since 2010.
    Unfortunately, due to sequestration cuts, we have been 
forced to push back our goal of ending chronic homelessness by 
the end of 2015. The funding levels in the President's budget 
would put us back on track to end chronic homelessness a year 
later, the end of 2016, but would also keep us on track to meet 
our original goal of ending veterans' homelessness by 2015.
    In order to achieve the goal of ending both chronic and 
veteran homelessness, we need bipartisan support from Congress 
on the targeted investments that we know work, and I want to 
thank the committee for their continuous support of these 
efforts.
    HUD's 2015 budget continues to create growth and 
opportunity through several key community development 
initiatives, which relates to our third principle. In line with 
that principle, I want to mention President Obama's 
Opportunity, Growth and Security Initiative.


              opportunity, growth and security initiative


    It includes concrete, specific proposals to grow our 
economy, and it would be fully paid for with a balanced package 
of spending and tax reforms. The Opportunity, Growth and 
Security Initiative would fund several HUD programs.
    First, in addition to the $120 million included in the 
President's budget, the initiative provides another $280 
million for the Choice Neighborhoods program to fund 
comprehensive neighborhood revitalization strategies in high 
poverty neighborhoods.
    I would also add, as you noted, Chairman, that this program 
leverages for every $1 we invest $8 of other investment from 
the types of partners that you talked about.
    Second, beyond the $25 million included in the budget, the 
initiative provides $125 million to further expand the Jobs-
Plus program to assist public housing residents in securing 
employment and increasing their earnings.
    And third, the initiative funds $75 million for the 
integrated planning and investment grants program to support 30 
to 40 regional and community planning efforts that coordinate 
housing, land use, economic and workforce development, 
transportation, and infrastructure investments.
    To further our efforts to create growth and opportunity, 
the budget eliminates the rental assistance demonstration cap 
of 60,000 units and appropriates $10 million that would address 
the more than 180,000 units of applications on hand today.
    This would allow us to create approximately $6 billion in 
private financing for the recapitalization of public housing.
    HUD is also requesting $2.87 billion for the CDBG program, 
reaching an estimated 7,000 local governments across the 
country. Even in a constrained Federal budget, HUD is committed 
to supporting municipalities and States, and invest in public 
infrastructure improvements, increase the supply of affordable 
housing for low-income families, and create and retain jobs.
    Finally, this budget will help ensure fiscal responsibility 
and increase efficiency by supporting a Department that is 
leaner, smarter, more transparent, and ready for the future. It 
allocates $80 million to the Transformation Initiative Fund, 
which will help us invest in those programs that work and stop 
funding those that don't.
    Chairman Murray, Ranking Member Collins, members of the 
subcommittee, together this budget and the President's 
Opportunity, Growth, and Security Initiative reflect the 
Administration's recognition of the critical role the housing 
sector must play to ensure that America becomes a magnet for 
jobs that are the strength of the Nation's middle class. Given 
the economic moment that we are in, HUD's 2015 budget proposal 
shows that we can invest smarter and more effectively in our 
Nation's communities to create growth and opportunity for all. 
Thank you.
    [The statement follows:]
                Prepared Statement of Hon. Shaun Donovan
    Thank you, Chairman Murray and Ranking Member Collins, for this 
opportunity to discuss how the Department of Housing and Urban 
Development's (HUD's) fiscal year 2015 budget proposal follows the 
roadmap the President has laid out for jumpstarting our economy through 
educating, innovating, and building. This budget targets our 
investments to the families and geographies that need them the most, 
and puts Americans back to work. Further, the budget adheres to the 
2015 spending levels agreed to in the Bipartisan Budget Act and shows 
the choices the President would make at those levels. But it also shows 
how to build on this progress to realize the Nation's full potential 
with a fully paid for $56 billion Opportunity, Growth, and Security 
Initiative, split evenly between defense and non-defense priorities.
    HUD's budget is an essential component of the President's vision of 
investing in the things we need to grow our economy, create jobs, 
increase skills training and improve education, while continuing long 
term deficit reduction. While our request makes critical investments to 
speed economic growth--growing neighborhoods of opportunity through 
Choice Neighborhoods and providing access to credit through the Federal 
Housing Administration (FHA)--it also includes new savings proposals 
and some very difficult choices we may not have made in a better fiscal 
environment.
    Overall, the President's budget provides $46.66 billion for HUD 
programs, an increase of $1.2 billion above the 2014 enacted level. 
This spending is offset by projected receipts of $14 billion. Increases 
are provided to protect vulnerable families, make significant progress 
toward the goal of ending homelessness, and support community-centered 
investments, including funding to revitalize neighborhoods with 
distressed HUD-assisted housing and concentrated poverty. To build 
evidence of what works, State and local public housing authorities are 
offered program flexibilities in exchange for designing and rigorously 
evaluating innovative programs and policies. The constrained fiscal 
environment also forced tough choices, including funding reductions to 
our two largest block grant programs, the Community Development Block 
Grant (CDBG) program and the HOME Investment Partnerships Program 
(HOME).
    The fiscal year 2015 HUD budget:
  --Supports the Mortgage Market and Provides Access to Credit.--The 
        administration projects that the Federal Housing Administration 
        (FHA) will insure $171.6 billion in mortgage loans in 2015, 
        supporting new home purchases and refinanced mortgages that 
        significantly reduce borrower payments. FHA's loss mitigation 
        program minimizes the risk of financially struggling borrowers 
        going into foreclosure, and since the start of the mortgage 
        crisis, it has helped more than a million homeowners. The 
        budget also includes $60 million for housing and homeowner 
        counseling through HUD.
  --Provides Ladders of Opportunity for Anybody Willing To Work Hard 
        and Play by the Rules.--The budget provides $120 million for 
        Choice Neighborhoods to continue to transform neighborhoods of 
        concentrated poverty into opportunity-rich, mixed-income 
        neighborhoods. This funding level, which is augmented by an 
        additional $280 million in the Opportunity, Growth and Security 
        Initiative, will be used to revitalize HUD-assisted housing and 
        surrounding neighborhoods through partnerships between local 
        governments, housing authorities, nonprofits, and for-profit 
        developers. Preference for these funds will be given to 
        designated Promise Zones--high-poverty communities where the 
        Federal Government is working with local leadership to invest 
        and engage more intensely to create jobs, leverage private 
        investment, increase economic activity, reduce violence and 
        expand educational opportunities. To further support Promise 
        Zones, the budget includes companion investments of $100 
        million in the Department of Education's Promise Neighborhoods 
        program and $29.5 million in the Department of Justice's Byrne 
        Criminal Justice Innovation Grants program, as well as tax 
        incentives to promote investment, jobs and economic growth.
  --Supports Strategic Infrastructure Planning and Investments To Help 
        Make America a Magnet for Jobs.--HUD is committed to ensuring 
        that its core community and housing development work 
        contributes to more and better transportation choices; promotes 
        equitable, affordable housing; helps communities address the 
        lingering neighborhood impacts of the foreclosure crisis; and 
        aligns Federal policies and funding to remove barriers to local 
        collaboration. The budget provides $2.8 billion for the 
        Community Development Block Grant (CDBG) formula program, and 
        proposes reforms to better target CDBG investments to address 
        local community development goals. The budget also maintains 
        its support for the proposed $15 billion Project Rebuild 
        program, which will leverage private capital to bring the 
        benefits of neighborhood stabilization to national scale.
  --Protects the Vulnerable Recipients of HUD Rental Assistance and 
        Makes Progress on the Federal Strategic Plan To End 
        Homelessness.--The budget includes $20 billion for the Housing 
        Choice Voucher program to help more than 2.2 million low-income 
        families afford decent housing in neighborhoods of their 
        choice. This funding level supports all existing vouchers and 
        fully restores the sequestration funding cuts that the 2014 
        appropriations mostly reversed. In addition, the budget 
        provides 40,000 special purpose vouchers, including 10,000 new 
        vouchers targeted to homeless veterans. The budget also 
        includes $9.7 billion for the Project-Based Rental Assistance 
        program to maintain affordable rental housing for 1.2 million 
        families, and provides $6.5 billion in operating and capital 
        subsidies to preserve affordable public housing for an 
        additional 1.1 million families.
    The budget provides $2.4 billion for Homeless Assistance Grants, 
$301 million above the 2014 enacted level. The increased funding will 
enable HUD to maintain existing projects, fund the increased 
competitive renewal demand for Continuums of Care in fiscal year 2015, 
and create 37,000 beds of permanent supportive housing for chronically 
homeless persons to reach the goal of ending chronic homelessness in 
2016. In addition, by investing in permanent supportive housing and 
supportive services programs at both the Department and the Department 
of Veterans Affairs, the budget keeps us on a path to end veterans' 
homelessness in 2015. Backed with new data and emerging best practices 
across the United States, these evidence-based investments will make 
further progress toward all goals laid out in the Federal Strategic 
Plan.
  --Puts HUD-Subsidized Public and Assisted Housing on a Financially 
        Sustainable Path.--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 continue to address the $26 
        billion in public housing capital needs, this budget includes 
        proposals that would facilitate the conversion and preservation 
        of additional public housing and other HUD-assisted properties 
        under the Rental Assistance Demonstration (RAD). At the same 
        time, the budget provides $10 million for a targeted expansion 
        of RAD to public housing properties in high-poverty 
        neighborhoods, including designated Promise Zones, where the 
        administration is also supporting comprehensive revitalization 
        efforts.
  --Improves the Way Federal Dollars Are Spent and Builds Evidence of 
        What Works.--The administration continues to seek legislation 
        to modernize the Housing for Persons With AIDS (HOPWA) program 
        to better reflect the current case concentration and 
        understanding of HIV/AIDS and ensure that funds are directed in 
        a more equitable and effective manner. The budget's $332 
        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 connected to treatment, and therefore improving health 
        outcomes for this vulnerable population.
    The budget also provides $25 million for the evidence-based Jobs-
Plus program, a proven model for increasing public housing residents' 
employment and earnings. Through Jobs-Plus, public housing residents 
will receive on-site employment and training services, financial 
incentives that encourage work and ``neighbor-to-neighbor'' 
information-sharing about job openings, training, and other employment-
related opportunities. The Opportunity, Growth, and Security Initiative 
includes an additional $125 million for Jobs-Plus, which together with 
the base funds could assist up to 50,000 participants.
  --Makes Tough Choices.--The budget provides $950 million for the HOME 
        Investment Partnerships Program, $50 million below the 2014 
        enacted level. At this funding level, HOME will provide grants 
        to State and local governments to supply almost 40,000 
        additional units of affordable housing for low-income families. 
        This funding reduction is mitigated by the investment of $1 
        billion in mandatory funding for the Housing Trust Fund to 
        finance the development, rehabilitation, and preservation of 
        affordable housing for extremely-low income families.
  --Reforms Government So That It's Leaner, Smarter, and More 
        Transparent.--The American economy of the future requires a 
        Federal Government that is efficient, streamlined, and 
        transparent. This budget once again calls for the flexible use 
        of resources through the Transformation Initiative, which the 
        Department will use to invest in technical assistance to build 
        local capacity to safeguard and effectively invest taxpayer 
        dollars, conduct innovative research, and evaluations of 
        program initiatives and demonstration programs so we can fund 
        what works and stop funding what doesn't. The budget also 
        continues to invest in focused upgrades to the information 
        technology (IT) infrastructure to improve service delivery and 
        track and monitor our programs.
    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 2015 budget 
is structured around the five overarching goals the Department adopted 
in its new Strategic Plan 2014-2018. These goals reflect the 
Department's--and my--commitment to ``moving the needle'' on some of 
the most fundamental challenges facing America. Indeed, every month, I 
hold HUDStat meetings on one or more of these goals, to assess progress 
and troubleshoot problems in order to ensure that HUD is as streamlined 
and effective as possible in the way that we administer our own 
programs and partner with other Federal agencies and hold our grantees 
accountable for their expenditure of taxpayers' hard-earned dollars.
 goal 1: strengthen the nation's housing market to bolster the economy 
                         and protect consumers
    This administration entered office confronting the worst economic 
crisis since the Great Depression. 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. This budget drives economic growth 
by increasing access to credit and strengthening the FHA.
    In fiscal year 2015, HUD is requesting $400 billion in loan 
guarantee authority for the Mutual Mortgage Insurance Fund, and $30 
billion in loan guarantee authority for the General and Special Risk 
Insurance Fund. The need for this investment is clear as FHA has 
stepped up in recent years to address the unprecedented challenges 
wrought by the housing crisis, playing an important countercyclical 
role that has offered stability and liquidity throughout the recession. 
While a recovery of the housing market is currently underway, FHA 
continues to act as a crucial stabilizing element in the market, and to 
assure ongoing access to credit for qualified first-time, low-wealth or 
otherwise underserved borrowers. However, FHA's expanded role is and 
should be temporary.
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, and doing both in a way that minimizes risks to taxpayers.
    The fiscal year 2015 budget request will enable FHA to continue its 
mission of providing access to mortgage credit for families with low 
and moderate wealth, and to play an important counter-cyclical role in 
the continued stabilization and recovery of the Nation's housing 
market. By facilitating the availability of vital liquidity through a 
variety of HUD-approved lenders, including community banks and national 
credit unions, FHA has made a number of achievements including:
  --Helping over 3.9 million families buy a home since President Obama 
        took office. In fiscal year 2013, more than 500,000, or over 78 
        percent, of FHA purchase loan endorsements were first-time 
        buyers. These are families that likely would otherwise not be 
        served by the conventional mortgage market.
  --FHA accounted for 54 percent of purchase mortgage financing for 
        Black or African-American and Hispanic borrowers.
  --The total number of first time homebuyers that FHA has supported 
        over the past 3 years now totals 3.3 million.
  --Through its streamline refinance option, FHA helped 500,000 
        families reduce their monthly housing costs by an average of 
        $200 per month, for an annual savings of $2,400 per family.
  --FHA also helped more than 450,000 families avoid foreclosure this 
        past year through its loss mitigation home retention servicing 
        tools.
Managing in a Challenging Mortgage Market
    FHA's share of the mortgage market dropped to a low of 3.1 percent 
of loan originations (by count) in 2005 and then rose to a peak of 21.1 
percent in 2010. Since then, FHA's share of new mortgage originations 
has come down to under 16 percent. FHA's core home-purchase loan 
activity in 2013 had declined to a level comparable to 1997 (702,417 
vs. 704,286 homebuyers, respectively), and was less than the level of 
FHA activity from 1998 through 2002. FHA's current market share remains 
above 1990s levels only because of a substantial decrease in the size 
of the total housing and mortgage market, rather than exceptionally 
high FHA activity today.
    As a result of making major programmatic changes, improving risk 
management, and restructuring pricing, the value of the Mutual Mortgage 
Insurance (MMI) Fund has improved significantly since 2012. The 
improved economic value of the MMI Fund has led the FHA's independent 
actuary to expect the fund to accumulate capital at a much faster rate 
than was projected in 2012, which in turn would enable the MMI Fund to 
reach a 2 percent capital reserve ratio by fiscal year 2015 (2016 if 
reserve is measured by its ratio to the unamortized balance of 
insurance) rather than fiscal year 2017, as was projected in the 2012 
actuarial review.
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. 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. This budget supports 
homeowners, present and future, in the following ways:
  --FHA Homeowners Armed With Knowledge.--The budget includes an 
        innovative demonstration called FHA-Homeowners Armed With 
        Knowledge (HAWK) to explore new opportunities for fulfilling 
        FHA's important role in making homeownership available and 
        sustainable for American families. FHA-HAWK is an umbrella for 
        several FHA initiatives to bring the documented benefits of 
        HUD-approved housing counseling to FHA borrowers. These 
        benefits include improved loan performance, as counseled 
        borrowers perform better than similar borrowers that do not 
        receive housing counseling, and increased access to home 
        mortgages for first-time buyers underserved by the current 
        mortgage market. There is strong and mounting evidence that 
        properly structured and delivered housing counseling provides a 
        significant benefit to borrowers, lenders, servicers and 
        guarantors. In response, many States, local governments and 
        large private lenders mandate or encourage housing counseling.
  --Housing Counseling.--In fiscal year 2015, HUD is requesting $60 
        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 
        estimates that 2,650 HUD-approved counseling agencies employing 
        an estimated 8,000 certified housing counselors will assist a 
        total of 2 million renters and owners. 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.
  --Strengthening FHA and Paving the Way for Private Capital To 
        Return.--The books of business insured from 2007-2009 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 down payment 
        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 
        when this administration took office 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. The steps we have taken to eliminate unnecessary 
credit risk, assure strong premium revenue flows and improve recoveries 
on defaulted loans have been the most sweeping and impactful of any in 
FHA's history. In fact, the improved economic value of the MMI Fund has 
led the FHA's independent actuary to expect the fund to accumulate 
capital at a much faster rate than was projected in 2012, which in turn 
would enable the MMI Fund to reach a 2 percent capital reserve ratio by 
fiscal year 2015 rather than fiscal year 2017, as was projected in the 
2012 actuarial review.
       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 over 8.5 million unassisted families with very low 
incomes spend more than 50 percent of their income on rent and/or live 
in substandard housing, 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 2015 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, 84 percent of HUD's 
total 2015 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.
    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)--75 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 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 43.5 percent in worst case needs renters 
between 2007 and 2011. This is the largest increase in worst case 
housing needs over a 4-year period in the quarter-century history of 
the survey. The need for HUD investments in this area is clear.
Preserving Affordable Housing Opportunities in HUD's Largest Programs
    This budget provides $20 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 2015 funding level is expected to assist 
approximately 2.2 million families and support new incremental vouchers 
for homeless veterans. It is important to note the effect that 
sequestration had on this program and the lengths to which HUD and PHAs 
went to preserve units for families currently receiving assistance. By 
using both program reserves and contingency funding, HUD did not 
terminate any family's assistance due to sequestration. No family 
housed by the program was evicted from that housing. However, 
approximately 74,000 families who could have moved from Housing Choice 
Voucher waiting lists and into housing remain on those waiting lists.
    The budget also provides a total of $6.5 billion to operate public 
housing and modernize its aging physical assets through the Public 
Housing Operating ($4.6 billion) and Capital ($1.9 billion) funds, a 
critical investment that will help over 1.1 million low- to extremely 
low-income households obtain or retain housing. Similarly, through a 
$9.7 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.
Creating Stability in the Project-Based Rental Assistance Program
    The budget request of $9.7 billion for the PBRA program will allow 
HUD to shift to a calendar year funding approach for renewal contracts 
in fiscal year 2015, which is consistent with current practice in the 
Housing Choice Voucher and Public Housing programs, and should result 
in more predictable funding cycles in future years. In fiscal year 
2015, for all multiyear contracts in the middle of their contract 
terms, HUD would place funding on contracts as they come up sufficient 
to carry them through the end of calendar year 2015. For contracts 
whose term expires during fiscal year 2015 and a new contract is 
executed, the approach would be slightly different, as HUD would 
continue past practice of placing 12 months of funding at the time of 
contract execution (however, the subsequent funding event would 
transition those contracts to the calendar year funding cycle). HUD 
does not expect the transition to a calendar year funding approach to 
have significant impact on stakeholders, investors, or lenders because 
there will be no change in underlying contract terms or duration. 
Rather, the Department will only shift the timing for funding of the 
contract, similar to past practice during periods covered by continuing 
resolution and during fiscal year 2013, post-sequestration, which was 
effectuated due to implementation of new business processes and 
information technology systems. HUD believes that 12-month calendar 
year funding will increase the predictability of funding under the 
program, allowing owners to continue leveraging private debt and equity 
on advantageous terms. In addition, this approach will assure funding 
is in place on all multi-year contract renewals during the critical 
first quarter of the following year--a period when funding uncertainty 
can be high.
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:
  --Enabling PHAs To Combine Operating and Capital Funds.--To both 
        simplify the program and reduce the administrative burden on 
        State and local public housing authorities, 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.
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. Unlike other forms of assisted housing that serve very 
similar populations, the public housing stock is nearly fully reliant 
on Federal appropriations from the Capital Fund to make capital 
repairs. Funding and regulatory constraints have impaired the ability 
for these local and State entities to keep up with needed life-cycle 
improvements. The most recent capital needs study of the public housing 
stock, completed in 2010, estimated the backlog of unmet need at 
approximately $26 billion, or $23,365 per unit. Funding for the Capital 
Fund has been insufficient to meaningfully reduce public housing's 
backlog of repair and replacement needs or even meet the estimated $3 
billion in annual accrual needs. Under the strain of this backlog, and 
without financing tools commonly available to other forms of affordable 
housing, the public housing inventory has lost an average of 10,000 
units annually through demolitions and dispositions.
            Rental Assistance Demonstration
    In addition to the public housing stock, the RAD program targets 
certain ``at-risk'' HUD legacy programs. Prior to RAD, units assisted 
under section 8 Moderate Rehabilitation (MR) were limited to short-term 
renewals and constrained rent levels that inhibit the recapitalization 
of the properties, and units assisted under Rent Supplement (RS) and 
Rental Assistance Program (RAP) had no ability to retain project-based 
assistance beyond the current contract term. As a result, as their 
contracts expired, these projects would no longer be available as 
affordable housing assets.
    Conversion to long-term section 8 rental assistance, as permitted 
under RAD, is essential to preserving these scarce affordable housing 
assets and protecting the investment of taxpayer dollars these programs 
represent. Long-term section 8 rental assistance allows for State and 
local entities to leverage sources of private and public capital to 
rehabilitate their properties. While the Department expects and 
continues to process Public Housing conversions of assistance without 
additional subsidy, HUD requests $10 million in 2015 for the 
incremental subsidy costs of converting assistance under RAD for very 
limited purposes. Such funding will be targeted only to public housing 
projects that are: not feasible to convert at current funding levels, 
and located in high-poverty neighborhoods, including designated Promise 
Zones, where the administration is supporting comprehensive 
revitalization efforts. The Department estimates that the $10 million 
in incremental subsidies will support the conversion and redevelopment 
of approximately 5,000 public housing units that would not otherwise be 
feasible to convert and sufficiently stabilize over the long term 
without incremental subsidies, while helping to increase private 
investment in the targeted projects.
    In addition to the funding request, the proposed legislative 
changes to RAD are designed to allow for maximum participation by those 
PHAs and private owners whose current funding levels are sufficient for 
conversion. This includes, for example, elimination of the 60,000 unit 
cap, which will allow for a greater portion of the Public Housing stock 
that can convert at no cost to the Federal Government to participate in 
the demonstration.
Increasing the Production of Affordable Housing Capital Projects
    Since its addition to the tax laws in 1986, the Low-Income Housing 
Tax Credit (LIHTC) program has been used to create affordable rental-
housing units across the country. Annually, the program supports 95,000 
jobs and generates $2.7 billion in State, local, and Federal revenues. 
The LIHTC program is administered by State agencies with assistance and 
guidance from the Treasury Department and the Internal Revenue Service.
    In fiscal year 2015, as part of the interagency Rental Policy 
Working Group, 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 to 
collaborate to pursue 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.
    The administration's fiscal year 2015 revenue provisions reflect 
this collaboration. They include a new proposal to implement 
protections in LIHTC buildings for victims of domestic abuse; they 
enhance a proposal from the previous year that would empower States to 
convert some tax-exempt private activity bond volume cap into allocable 
LIHTCs; and they carry forward four critically important proposals from 
the fiscal year 2014 budget:
  --A new proposal regarding Protections for Victims of Domestic 
        Violence would implement the requirement that bars owners of 
        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.
  --The proposal to create Private Activity Bond Conversion Authority 
        has been enhanced. As was the case last year, the proposal 
        would create much needed flexibility in how States implement 
        the LIHTC program. Specifically, the 2015 proposal would allow 
        States to convert up to 8 percent of their tax-exempt Private 
        Activity Bond authority (PAB cap) into allocable (so-called 9 
        percent) LIHTCs, increasing a State's allocable LIHTCs by 
        almost 23 percent and addressing several other goals as well. 
        First, for many projects, this proposal eliminates the need for 
        going through unnecessary bond issuance procedures, which 
        reduces transaction costs. Second, converting PAB cap into 
        allocable LIHTCs brings more projects into the competitive 
        LIHTC allocation process, effectively giving States more 
        authority to better prioritize projects with limited resources. 
        Third, it would let States avail themselves of the greater 
        flexibility that they have to increase eligible basis (and thus 
        to increase credits) for high-priority projects that are 
        subject to the LIHTC allocation ceiling (as compared with 
        projects subject to the PAB cap). In addition to enabling 
        States to convert PAB cap into allocable LIHTCs, the 2015 
        provisions introduce a proposed alternative method for earning 
        (so-called) ``4 percent'' LIHTCs. If a developer receives an 
        allocation of PAB cap sufficient to issue bonds that would 
        finance at least half of a project, the developer may be able 
        to earn the desired LIHTCs without issuing bonds that are not 
        needed for financing purposes.
    The following proposals are being carried forward:
  --To maintain a preservation focus, the administration is proposing a 
        new Selection Criterion for Preservation of Affordable Housing. 
        Adding this criterion to Qualified Action Plans under Internal 
        Revenue Code (IRC) section 42(m)(1)(C) will encourage States to 
        consider how to address the preservation needs of affordable 
        housing.
  --The administration also builds on the now-expired temporary 9 
        percent credit floor provisions in the Housing and Economic 
        Recovery Act of 2008 and the American Taxpayer Relief Act of 
        2012. This proposal to Improve the Formulas for Allocated 
        Credit Rates will revise the present value formula for 
        allocated LIHTCs to increase the annual credit percentage rate 
        and more accurately reflect market practice.
  --As in the 2014 budget, the administration is proposing an elective 
        Average Income Criterion. This criterion 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 area median income (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.
  --The administration is also addressing LIHTCs Earned by Real Estate 
        Investment Trusts (REITs). This proposal 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 tax-exempt dividends to them in an amount almost triple 
        the amount of the REIT's LIHTCs.
    This budget also continues to propose $1 billion in mandatory 
funding for the National Housing Trust Fund to leverage LIHTC and help 
meet the growing need for quality, affordable housing.
    goal 3: use 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 2015 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
    Nowhere is the relationship between housing and supportive services 
clearer than in the successful efforts in communities around the 
country to address homelessness, which have led to a 24 percent 
reductions in veterans' homelessness and a 16 percent reduction in 
chronic homelessness since 2010. Additionally, this work has yielded a 
substantial body of research, which demonstrates that providing 
permanent supportive housing to 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 
$2.4 billion in Homeless Assistance Grants. This funding level will 
support competitive programs that annually serve over 800,000 homeless 
families and individuals, and create 37,000 beds of permanent 
supportive housing for chronically homeless persons to reach the goal 
of ending chronic homelessness in 2016. This includes funding for the 
Emergency Solutions Grants program, which will continue the work of the 
Homelessness Prevention and Rapid Re-Housing Program.
    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 Department of Veterans Affairs (VA) to 
develop targeted approaches to serve the homeless veteran populations. 
Accordingly, this budget includes $75 million for the HUD-Veterans 
Affairs Supportive Housing (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 more than 62,000 
already allocated HUD-VASH vouchers provided in previous appropriations 
and 10,000 to be allocated in 2014, all of which have been critical to 
the reduction in veterans' homelessness.
Leveraging Capital Resources and Serving Our Most Vulnerable
    This budget provides a total of $600 million for the Housing for 
the Elderly and Housing for Persons With Disabilities programs, which 
includes $20 million to support 3,400 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 non-profit 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 2014, HUD requested, 
and received, 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.
       goal 4: build strong, resilient and inclusive communities
    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 2015 budget puts 
communities in a position to plan for the future and draws fully upon 
their resources, most importantly their people.
    Each year HUD dedicates approximately 16 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, offer choices 
that help families live closer to jobs and schools, and support locally 
driven solutions to overarching economic development challenges. HUD's 
capital grants--including the Public Housing Capital Fund, Choice 
Neighborhoods, CDBG, and HOME--are focused on assisting areas of great 
need, including communities with high unemployment.
Preserving HUD's Major Block Grant Programs for Community Development 
        and Housing
    Through both formula and competitive grants, HUD has partnered with 
local organizations and State and local governments to fund innovative 
solutions to community development challenges. Underpinning these 
partnerships is the fundamental philosophy that local decisionmakers 
are best poised to drive a cohesive development strategy. In 2015, HUD 
is requesting a total of $2.87 billion in funding for the Community 
Development Fund to support economic development initiatives and 
projects that demonstrate the ability to connect private sector growth 
to some of our country's most distressed citizens and communities, and 
$950 million for the HOME program.
    The budget requests $2.8 billion for the Community Development 
Block Grant (CDBG), which remains the largest and most adaptable 
community and economic development program in the Federal portfolio for 
meeting the unique needs of States and local governments. Since its 
inception in 1974, CDBG has invested in economic development at the 
local level, investing in infrastructure, providing essential public 
services and housing rehabilitation, and creating jobs primarily for 
low- and moderate-income families. Altogether, CDBG funding annually 
reaches an estimated 7,000 local governments across the country, in 
communities of all shapes and sizes. However, with the goal of ensuring 
CDBG funds effectively provide targeted benefits to these communities, 
especially to low- and moderate-income populations, HUD proposes a 
suite of reforms to strengthen the program; help grantees target 
funding to areas of greatest need; enhance program accountability; 
synchronize critical program cycles with the consolidated plan; and 
reduce the number of small grantees while providing more options for 
regional coordination, administration and planning.
    Often, CDBG dollars alone are not sufficient to complete crucial 
economic development projects that communities desperately need. In 
those instances, HUD offers another potent public investment tool in 
the form of the section 108 Loan Guarantee program. Section 108 allows 
States and local governments to leverage their CDBG grants and other 
local funds into federally guaranteed loans in order to pursue large-
scale physical and economic investment projects that can revitalize 
entire neighborhoods or provide affordable housing to low- and 
moderate-income persons. In 2015, HUD is requesting section 108 loan 
guarantee authority of $500 million, and continuation of a fee-based 
structure will eliminate the need for budget authority to cover the 
program's credit subsidy.
    In addition, the HOME program is proposed at $950 million and the 
budget proposes legislative changes to better target the assistance 
provided with this funding. HOME is the primary Federal tool of State 
and local governments for the production of affordable rental and for-
sale housing for low-income families. In the past 21 years, HOME has 
completed 1.15 million affordable units. Although the administration is 
committed to addressing the Nation's worst case housing needs by 
increasing the supply of affordable housing to low-income families, the 
Department is requesting reduced funding levels in several programs, 
including a 5 percent decrease in HOME, given the tight fiscal 
situation facing the Federal Government. In addition, the budget 
proposes statutory changes that would revise ``grandfathering'' 
provisions and eliminate the dual allocation threshold for HOME 
participating jurisdictions, permit statewide non-profits to be 
designated as Community Housing Development Organizations (CHDOs), and 
provide for a formula reallocation of recaptured CHDO set-aside funds.
Assisting Native Americans and Native Hawaiians
    Through innovative programming, HUD has found new ways to partner 
with American Indian and Alaska Native tribal governments to help these 
communities craft and implement sustainable, locally-driven solutions 
to economic development challenges. HUD recognizes the right of Indian 
self-determination and tribal self-governance, and has fostered 
partnerships that allow tribal recipients the flexibility to design and 
implement appropriate, place-based housing programs according to local 
needs and customs. In most of these communities, housing and 
infrastructure needs are severe and widespread, disconnected from 
transportation networks and isolated from key community assets 
including jobs, schools and healthcare facilities. In fiscal year 2015, 
HUD is requesting a total of $741 million to fund programs that will 
directly support housing and economic development in American Indian, 
Alaskan Native, and Native Hawaiian communities nationwide, including:
  --$650 million for the Indian Housing Block Grant (IHBG) program, 
        which is the single largest source of funding for housing on 
        Indian tribal lands today. To accelerate implementation of 
        prior-year IHBG funds, the budget also proposes to withhold 
        2015 funds from large tribal grantees that are holding 
        excessive unspent balances, and to allocate any funds withheld 
        to other grantees under the program.
  --$70 million for Indian Community Development Block Grants, a 
        flexible source of grant funds for federally-recognized tribes 
        or eligible Indian entities, requested within the Community 
        Development Fund.
  --$13 million for Native Hawaiian Housing Block Grant program, to 
        develop homeownership units as well as support the prevention 
        of foreclosures and the promotion of responsible homeownership.
  --$8 million for the Indian Housing Loan Guarantee Fund, which 
        provides loan guarantees to increase the availability of 
        mortgage lending on Indian reservations and other Indian areas.
Transforming Neighborhoods of Poverty
    The President has made it clear that we cannot create an economy 
built from the middle class out if: a fifth of America's children live 
in poverty, at a cost of $500 billion per year--fully 4 percent of 
gross domestic product (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 2015 budget provides $120 million for 
Choice Neighborhoods to continue transformative investments in high-
poverty neighborhoods where distressed HUD-assisted public and 
privately owned housing is located. Choice Neighborhoods--along with 
RAD-- is an essential element of the President's Promise Zones 
initiative to create ladders of opportunity for Americans living in our 
most distressed neighborhoods. This initiative is designed to support 
revitalization in some of America's highest-poverty communities by 
creating jobs, attracting private investment, increasing economic 
activity, expanding educational opportunity, and reducing violent 
crime. Other key rungs on the Ladders of Opportunity include raising 
the minimum wage, increasing access to high-quality preschool, 
promoting fatherhood and marriage, and revitalizing America's high 
schools.
    The President announced the first five Promise Zones in January 
2014 and will designate up to an additional 15 Zones in the year ahead. 
Communities compete to earn a Promise Zone designation by identifying a 
set of positive outcomes, developing a strategy, encouraging private 
investment and realigning Federal, State, and local resources to 
support achievement of those outcomes. The Promise Zone designation 
process ensures rural and Native American representation. Promise Zones 
will receive tax incentives, if approved, to stimulate hiring and 
business investment along with intensive Federal support and technical 
assistance aimed at breaking down regulatory barriers and using Federal 
funds available to them at the local level more effectively. Applicants 
from Promise Zones will also receive points for competitive Federal 
grants that will increase the odds of qualifying for support and 
assistance to help them achieve their goals.
    Promise Zones are aligning the work of multiple Federal programs in 
communities that have both substantial needs and a strong plan to 
address them. The Promise Zones initiative builds on the lessons 
learned from existing place-based programs like the Department of 
Education's Promise Neighborhoods and the Department of Justice's Byrne 
Criminal Justice Innovation program, both of which receive substantial 
increases in the budget. Other Federal agencies that will be aligning 
their work with that of local Promise Zone partners include the 
Departments of Commerce, Health and Human Services, and Agriculture.
    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.
Helping Cities, Towns, and Regions To Plan Their Economic Future
    The President is committed to making America a magnet for jobs. 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. When America's metropolitan 
areas and rural communities are struggling to rebound from the economic 
crisis and compete for jobs on a global scale, 20th century practices 
are just not sufficient to attract businesses that have the flexibility 
to locate wherever they see the potential to hire committed and skilled 
workers. Increasingly, mayors and business and community leaders are 
instituting and demanding new economic development approaches that 
simultaneously focus business recruitment on industry clusters, unique 
place-based resources, and community development strategies that ensure 
that employees have affordable housing choices, can get to work quickly 
and affordably, and are able to enjoy a high quality of life.
    The Office of Economic Resilience (OER), located within HUD's 
Office of Community Planning and Development, will foster and incubate 
innovative program, practice and policy throughout the Department and 
with other agencies by focusing on partnering with communities to: 
strengthen and diversify their economies in ways that allow them to 
effectively compete on a global stage, retain and recruit workers that 
demand high quality places with robust local services and amenities, 
address distressed and isolated neighborhoods that minimize access to 
opportunity for residents, and effectively align and deploy Federal, 
State and local funding for development and infrastructure.
    OER will work in partnership with other Federal agencies like the 
Departments of Commerce, Transportation, Agriculture and Energy, Health 
and Human Services, the Environmental Protection Agency, Small Business 
Administration and others--to build the capacity of local, regional and 
State governments, community organizations and business leaders to 
prepare and execute data-driven community economic development and 
infrastructure investment strategies. 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.
Ensuring Inclusive 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 is to support 
private efforts to educate the public about fair housing rights and 
conduct private enforcement of the Fair Housing Act. In fiscal year 
2015, HUD is requesting approximately $45.6 million in FHIP funds, 
representing the Department's strong commitment to fair housing. 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. In 
fiscal year 2015, the budget provides $23.3 million in FHAP grants to 
95 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.
Ensuring That an Economy Built From the Middle Class Out 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. HUD serves families in small 
towns and rural communities through almost every major program it 
funds.
    As the single largest sources of funding for housing on Indian 
tribal lands today, HUD initiatives in Indian country continue to have 
some of the Department's most successful track records. Programs like 
Indian Housing Block Grants, Indian Housing 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. 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. Taken together, in fiscal year 2015 HUD is 
requesting $741 million to fund programs that will support housing and 
development in American Indian, Alaska Native, and Native Hawaiian 
communities.
    In addition, HUD and the Department of Agriculture meet regularly 
through an interagency rental housing policy group to better align and 
coordinate affordable rental housing programs. Altogether, over 800,000 
families in rural communities are directly assisted through the HCV 
program, Public Housing, and Multifamily programs, with another 450,000 
assisted through the Department of Agriculture (USDA). For homeowners, 
the FHA helps first-time homebuyers and other qualified families all 
over the country purchase their own homes.
    HUD has also entered into a Memorandum of Understanding with the 
Department of Treasury's Community Development Financial Institutions 
Fund and the Department Agriculture--Rural Development, to expand the 
capacity of organizations providing loans and investment capital in 
underserved rural regions. The initiative, which is being piloted in 
colonias along the U.S.-Mexico border, will improve the delivery of 
funding from Federal agencies and private sources supporting small 
business, affordable housing and community facilities.
                goal 5: achieving operational excellence
    A 21st century American economy that is a magnet for jobs and 
equips its residents with the skills they need for those jobs demands a 
Government that's leaner, smarter, and more transparent. 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, economic recovery, Hurricane Sandy 
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 2015 budget reflects these critical 
roles, by investing in transformation, research, and development that 
will be implemented strategically.
Investing in Our Staff
    HUD's greatest resource is its dedicated staff. When employees 
attain skills and are motivated to use those skills to help their 
organization reach goals, the capacity of the organization grows and 
employees in the organization grow as well; which is why HUD is 
creating training and leadership development opportunities for 
employees at all levels. Over time, the rules and regulations that 
develop within an organization become hurdles instead of the helpful 
pathways they were intended to be. HUD is in the process of simplifying 
and combining programs, streamlining regulations, and eliminating rules 
and constraints. In addition, the Department is in the middle of a 
major reform of its information technology, human resources, 
procurement, and other internal support functions to give more 
authority to managers and provide better service to HUD customers.
    In 2015, HUD is requesting $1.52 billion in salaries and expenses, 
including $28 million for Ginnie Mae and $129 million for HUD's Office 
of Inspector General (OIG). The HUD request includes several 
initiatives to streamline the HUD organization and increase training 
for our staff. These efforts are supported by a modified resource 
account structure, and justified by increased detail of how HUD staff 
support the programs in the department. HUD is making specific 
investments of more staff to manage major rental assistance programs, 
increasing our ability to enforce new fair housing rules and provide 
more oversight to our community grant programs. The Department will 
continue to improve operations and create a dynamic organization 
capable of addressing some of our Nation's most difficult challenges. 
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.
Creating Efficiency and Effectiveness in HUD Operations
    The budget includes a reorganization plan for the Office of 
Multifamily Housing (MFH) that will ultimately consolidate 52 existing 
Multifamily field offices to 12 field offices. Not only will this plan 
streamline Multifamily processes, but when the current plan is fully 
implemented by fiscal year 2016, it is estimated that Multifamily will 
save over $60 million annually. This transformation will help MFH 
better serve its customers and stakeholders, operate more efficiently 
and consistently, engage and fully utilize staff, and improve its risk 
management. These changes are necessary to ensure MFH's operating model 
keeps pace with current market demands, while providing for future 
flexibility. While this transformation will achieve significant savings 
in a tight budget environment, the primary goal is improving MFH's 
ability to deliver on its mission.
    The transformation builds on the success of past initiatives, such 
as Breaking Ground and Sustaining Our Investments. These initiatives 
helped MFH respond to the financial crisis by reducing backlogs and 
improving application speed, while classifying assets according to 
risk. This provided liquidity and stability during and after the 
crisis. Despite these initiatives, however, MFH continues to operate 
within a harsh financial and fiscal environment, and with a legacy 
operating model unfit to meet the needs of its customers and 
stakeholders in the 21st century.
Carrying Out Critical Program Demonstrations and Research
    HUD's ongoing transformation 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. The Transformation Initiative (TI) remains 
the primary source of funding for this transformation. Since TI was 
first enacted in 2010, it has bolstered research, evaluation, and 
program demonstrations crucial for increasing the efficiency and 
effectiveness of the Department's programs. Further, TI has provided a 
mechanism for innovative, cross-cutting technical assistance that goes 
beyond program compliance to improve grantee capacity, performance and 
outcomes.
    While the Department's transformation is a crucial long-term 
commitment, HUD continues to prioritize these efforts in a responsible 
manner that ensures HUD's constituent services don't suffer at the 
hands of internal transformation. This year's budget proposes a 
Department-wide HUD Transformation Initiative Fund to be funded by 
transfers from program accounts of up to 0.5 percent at the Secretary's 
discretion. In fiscal year 2015, HUD's request includes transfer 
authority of up to $80 million into its Transformation Initiative Fund 
for priorities such as:
  --Research and Evaluation.--To strategically increase efficiency and 
        effectiveness of the Department's programs through examining 
        policy questions and assessing program functioning and 
        outcomes. TI-funded research complements the data 
        infrastructure created through Research and Technology funding 
        of national housing surveys. TI will support research 
        priorities developed in a 5-year Research Roadmap by the Office 
        of Policy Development and Research. The Roadmap reflects a 
        year-long process of consulting with stakeholders about the 
        research questions that are most relevant and crucial for 
        housing and urban development policy and that HUD is best 
        positioned to advance in a timely way.
  --Program Demonstrations.--Demonstrations test new program approaches 
        in a carefully structured and rigorously evaluated manner, and 
        are essential mechanisms for evidence-based policy 
        improvements. For example, the Rental Assistance Demonstration 
        (RAD), approved in fiscal year 2012, supports trial conversion 
        of public housing and certain multifamily properties to long-
        term project-based contracts. TI will enable evaluation of 
        outcomes. HUD is also proposing to implement the successful 
        evidence-based policies established by the Jobs-Plus 
        Demonstration to increase the earnings and employment of public 
        housing residents. A process evaluation conducted in tandem 
        through TI will document successful local adaptations and how 
        this larger scale implementation affects outcomes.
  --Surveys and Data Infrastructure.--The Office of Policy Development 
        and Research (PD&R) provides fundamental support for informed 
        decisions by the Department and national policymakers through 
        data collection, research, policy analysis and program 
        evaluations. PD&R has a key role in the improvement of national 
        housing data infrastructure, rigorous evaluations of major HUD 
        programs, and meeting other key national information needs 
        including disaster response and recovery research. In fiscal 
        year 2015, HUD is requesting $50 million to fund the Nation's 
        basic data infrastructure and share research knowledge on 
        housing and community development. Complementing TI, Research 
        and Technology funds continue the transformation of PD&R into 
        the Nation's leading research organization addressing the wide 
        array of America's housing and urban development challenges.
  --Delivering Strategic and Cross-Cutting Technical Assistance.--To 
        ensure HUD's funds make the most impact in the communities 
        where they are invested, HUD has shifted from making small 
        investments in narrow, compliance-focused assistance to 
        comprehensive, results-oriented capacity building that assists 
        both grantees with deeply-rooted management and financial 
        challenges, as well as those driving innovation by being the 
        first to implement new policies or programs. HUD delivers 
        intensive, place-based technical assistance, working hand-in-
        hand with jurisdictions, housing authorities, and other 
        stakeholders that are experiencing a range of capacity 
        challenges. HUD also provides ongoing training and development 
        on principles fundamental to operating housing and community 
        development programs effectively, such as financial management 
        and using data to drive decisionmaking. HUD's technical 
        assistance (TA) resources and training are increasingly offered 
        online to make access easier for many stakeholders and to 
        reduce the costs of providing TA.
Upgrading the Department's Information Technology Infrastructure
    In 2015, HUD is requesting $272 million in the Information 
Technology Fund, formerly the Working Capital Fund. HUD will continue 
development efforts and primarily focus on delivery of discrete 
capabilities in our rental assistance system, known as the Next 
Generation Management System (NGMS) and FHA systems, as well as the 
implementation of New Core. New Core will enhance capabilities in 
financial management, travel, procurement, and workforce planning to 
better support strategic decisionmaking. New Core will transition HUD's 
core financial management functions to the Treasury Department in the 
largest financial management shared service arrangement established to 
date, and implement a HUD enterprise-wide financial system that will 
allow the Department to resolve material weakness and audit findings 
while optimizing cost sharing though a consolidated shared services 
infrastructure platform. These changes will allow HUD to deliver 
services and manage these multi-billion dollar programs faster, more 
accurately and using better information for analysis. These funds are 
crucial to complement HUD's transformation efforts, providing resources 
for maintaining and improving Department-wide information technology 
systems.
                               conclusion
    Chairman Murray, this budget reflects the administration's 
recognition of the critical role the housing sector must play to ensure 
that America becomes a magnet for jobs that strengthen the Nation's 
middle class, including providing ladders of economic opportunity for 
all Americans, whatever their circumstances. 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 2015 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.

    Senator Murray. Thank you very much.
    Before I go to questions on the budget, since you are in 
front of me today, I did want to go back to the landslide for 
just a second.

                       WASHINGTON STATE MUDSLIDE

    It is hard to describe. Pictures just do not do justice for 
the massiveness of this. But when I was there this weekend 
talking to folks in Darrington, a very small town north of the 
slide, cut off now from the communities below, their real needs 
are so critical. The teachers can't get into the school because 
they have been cut off by the slide, so they don't know how 
they are going to make sure that their schools stay open. 
People don't know where they are going to live now. We have a 
lot of folks who don't even know how they are going to pay 
their mortgage for a home that no longer exists.
    The town of Oso itself is only 180 people, so this a 
community where literally everyone knows someone who has been 
lost.
    I wanted to ask you, while you are here today, I know HUD 
is currently engaged a bit with Snohomish County, but are there 
any steps that we can take that you can advise us about? The 
mayor of Darrington said to me, ``I don't know what to ask you 
for.'' And I said, ``Well, let's help you ask for the right 
things so you get it.'' And I want to ask you sort of the same 
thing. Are we asking you for everything we need? Is there 
anything else we should be asking for?
    Secretary Donovan. Senator, we have already begun working 
extensively with your team to provide the flexibility that we 
can. That begins with the ability to change the investment of 
block grant funds, which you know are the most flexible funds 
that we have.
    Snohomish County receives about $4 million a year between 
CDBG and the HOME Investment Partnerships Program (HOME). We 
can immediately provide flexibility for them to redirect the 
funds they already have. In addition, their fiscal year starts 
on July 1, and we can work with them ahead of that to put 
together an action plan that would direct funding that they 
will be getting in their new fiscal year to recovery and relief 
in that county as well for the disaster.
    I would add that should the Federal Emergency Management 
Agency (FEMA) make a major disaster declaration, that gives us 
additional flexibility that would allow us to waive certain 
restrictions under CDBG, as well as allows us to take steps 
around, for example, you mentioned families paying their 
mortgages, to provide relief through FHA and new loans that can 
help with rebuilding.
    Senator Murray. OK, very good. I really appreciate that.
    You were very involved in the Sandy task force, I know. 
Maybe if you can share some lessons about the most effective 
way for Federal agencies to work in partnership when this 
happens, so we can know what to be watching for.
    Secretary Donovan. Absolutely. We look forward to working 
with your team on that.
    One of the key things that we saw that was provided in the 
Sandy supplemental was greater flexibility for agencies to be 
able to work together and expedite assistance. Clearly, in 
terms of the work between not only FEMA, the Small Business 
Administration (SBA), and HUD, who all provide funding toward 
rebuilding of homes and businesses, better coordination with 
insurance companies who are a key piece of this, but frankly 
too often have not been fast enough to provide relief.
    So I would suggest that we sit down immediately with your 
team, with FEMA, with SBA, to look at the options there, but 
also bring in State officials who can help us bring the 
insurance companies to the table, so that we can coordinate 
that as quickly as possible.
    Senator Murray. I really appreciate that. We will take you 
up on that offer. Thank you.

                  PROPOSED PBRA CALENDAR YEAR FUNDING

    With that, let me turn to the budget at hand and ask you 
about the Project-Based Rental Assistance (PBRA). In the 
project-based section 8 program, private property owners are 
under contract with HUD to provide affordable rental housing to 
low-income families and seniors.
    Today, these contracts expire and are renewed throughout 
the year. What your budget proposes now is to change that so 
that all the contracts expire at the same time. And I 
understand that what we are trying to do is allow HUD to 
realize some the short-term cost savings in fiscal year 2015.
    But it also means that HUD will need to cover the full cost 
of all project-based contracts at the same time at the start of 
2016. So if Congress were to approve this request to move 
forward, I wanted to understand what will be the cost of fully 
funding these contracts when we get to fiscal year 2016.
    Secretary Donovan. This is a very important question, 
Chairman. I want to be very clear about this, because it is a 
complicated set of changes, to some degree.
    But to be very specific, the cost that we believe would be 
needed in 2016 to fully renew is about $10.8 billion.
    However, should we not make this change, should we stay on 
the current path where contracts are supposed to be funded at 
the time that they are renewed throughout the year, the cost 
would still be $10.8 billion for 2016.
    So to be very clear, this does not increase the cost one 
penny for 2016. And we believe it is a better way to go.
    Unless the subcommittee is able to find an additional $1.3 
billion to close all the shortfalls that currently exist in the 
program, as we are funding it right now, we believe it is 
better to move to a calendar year funding cycle, just as we do 
section 8, and be able to give certainty to owners that they 
know how much they are going to be getting and when they are 
going to be getting it.
    I want to be clear about one other point. We are actually 
not proposing to renew contracts all on January 1. We are 
proposing to separate out the renewal dates, which would happen 
throughout the year, and when funding is added. Because of 
technological advances at the agency, we can now do that in a 
way that sort of is invisible to owners.
    What we would be able to do, just as we do in section 8, is 
to have the funding year be January 1 to January 1. That 
provides one-time savings, but also allows us to get off of 
what has really been a roller coaster cycle for owners these 
past few years where we have had real uncertainty. Will they 
get a full year's funding? Will they not?
    And what that has meant is that it is more expensive to get 
the private financing--higher interest rates, greater 
reserves--than if we could move to a system as we are proposing 
where we can say, look, we are resetting the baseline. We are 
going to go from January 1 to January 1 each year just on the 
funding, not on the renewal themselves, and be able to have a 
more reliable, clear system available.
    We think that that actually lowers cost to taxpayers in the 
end, because it means that private financing would be less 
expensive.
    Senator Murray. OK. And this budget resolution, obviously, 
ends, and we have to have a new budget agreement for 2016. If 
that doesn't happen and we end up on a continuing resolution 
(CR), will this effect HUD's ability to manage the program's 
finances, if there is a prolonged continuing resolution, or 
some other challenge that we don't foresee?
    Secretary Donovan. Typically, what we have seen, and this 
is why we asked for an advance appropriation of $400 million 
each year, because it gives us some flexibility to be able to 
manage through a continuing resolution. It gives us some 
buffer, if you will, for the contracts that expire at the 
beginning of the year.
    If we have a continuing resolution, this does not hurt our 
ability to take whatever increment of funding you would provide 
through the continuing resolution, add it to that $400 million, 
and fund in increments.
    So we don't see this as introducing greater risk to a CR, 
as long as the CR includes a prorated amount of funding.
    Senator Murray. Thank you.
    Senator Collins.
    Senator Collins. Thank you, Madam Chairman.
    Mr. Secretary, as I mentioned in my opening statement, I 
recently met with Maine's public housing authority directors. 
And to a person, they expressed concerns about the regulatory 
guidance from HUD.
    Senator Angus King and I wrote to you about this issue, and 
you very promptly responded, which I very much appreciate, with 
a list of certain rules that you are considering.
    Now, I do think that we need to be careful not to open the 
door to fraud, as we look at some of these issues of self-
certification, for example, or changing how often you determine 
family incomes. So there is a balance.

                  OPERATING CAPITAL FUNDS FLEXIBILITY

    There is one proposal in the letter that the public housing 
authority directors are very enthusiastic about, and that is 
allowing them to have full flexibility to use their operating 
and capital funds for any eligible expense under both programs.
    I am unclear, however, from your letter, whether you need 
legislation in order for that to occur, or whether you can do 
that through regulation.
    Secretary Donovan. Specifically on that point, what we call 
fungibility between the operating and capital funds, we do need 
legislative authority. We have actually proposed that in our 
budget for 2015.
    And I want to recognize, Senator, and the chairman, that in 
addition to the heroic efforts to get a budget agreement this 
year, that you recognized in your opening statement, one of the 
great benefits of the 2014 budget is that it did give us 
greater flexibility legislatively in a number of areas that we 
think are quite important. And we are in the process of 
implementing those.
    We have additional legislative authority that we have asked 
for in the 2015 budget, including the fungibility between 
operating and capital that you mentioned.
    But there are also additional steps, which, with your 
urging, we will make sure to move forward on, where we don't 
need legislative authority.
    And we did issue a notice recently that implements a range 
of flexibility. There are further steps that we are looking at, 
as we mentioned in our letter, and we do expect to issue a 
regulation that would make more permanent many of those changes 
that we introduced by notice.
    So we will continue to work with you and be happy to 
respond and appreciate your interest in this.
    Senator Collins. Thank you.

                     UPDATING HANDBOOKS AND SYSTEMS

    Another related issue that several of the PHA directors 
have raised with me is the issue of outdated handbooks that HUD 
has.
    For example, HUD's minimum property standards for housing, 
apparently, was last updated in 1994. Well, an awful lot has 
changed in terms of standards and technology since then.
    And to give you an example, there is a section of the 
handbook which requires emergency pull cords in elderly units 
with an intercommunicating telephone system connected to a 
switchboard, which is monitored 24 hours a day. The chuckles I 
am hearing in the audience makes it obvious that I don't have 
to read to you further on why that technology is totally 
outdated.
    Well, here is the irony. When HUD inspectors come in, they 
do not subtract points from sites that have had those outmoded 
systems removed. But they will reduce scores, if the system is 
still there but not working.
    And there is also an issue where tenants that have cats end 
up tying up the pull cord to prevent the cats constantly 
playing with them.
    The point is that is clearly very outmoded technology. And 
that is an example of why those handbooks need to be updated 
more than once every 20 years.
    Could you respond to that concern, please?
    Secretary Donovan. Absolutely. First of all, while we have 
made sort of what I would describe as incremental updates to 
the handbooks, we are in the process of doing a fuller 
comprehensive review and updating of them.
    I would also say, specifically on these inspection 
standards, one of the problems that we have had, as you know 
well from the experience that we had with the Maine State 
Housing Authority, is that our voucher program operates on a 
housing quality standards, or HQS, system, which is not as 
effective as the system that we use for our multifamily housing 
and now for public housing. And we are in the process, in part 
thanks to your urging, that we look at it. Based on the Maine 
experience, we are moving to this Uniform Physical Condition 
Standards (UPCS) standard across the board. We are piloting 
that right now, and we would expect to move fully to that 
system going forward, so that we have a single improved 
standard.
    I would also, last, say that I promise not to call you on 
the Senate switchboard to get you a fuller response to this 
question.
    Senator Collins. Thank you.

                   PRIVACY ISSUE IN BACKGROUND CHECKS

    Mr. Secretary, turning to a very troubling incident, I read 
a news report earlier this year about a housing authority, 
which was conducting a routine background check on a rental 
assistance applicant. And during that review, it was determined 
that the individual had an active warrant for sexual assault of 
a child.
    The PHA believed that HUD regulations prevented its 
personnel from notifying the police and that it could only 
inform HUD. That is just appalling to me.
    Two of the employees did call the police to notify them, 
only to, it is alleged, be fired by the executive director for 
doing so, which I just find it extraordinary.
    It is very difficult for me to understand why HUD rules 
would prevent a PHA from notifying the police in the case where 
there is an outstanding warrant for someone who is applying to 
live there.
    And HUD's response was also very troubling, because it 
basically acknowledged that this was an issue and that it was a 
case where HUD's regulations conflict with the moral thing to 
do.
    Are you familiar with the case? And have any steps been 
taken to change the regulations in this regard?
    Secretary Donovan. Senator, I have reviewed it with my 
team. And the fact is that the statement that was issued did 
not reflect adequate review of the facts here.
    Based on a much fuller review, we don't believe there is 
anything in HUD's statutes or regulations that would stop those 
employees from reporting this.
    There are requirements in terms of the process that need to 
be followed to do that, so that you protect the privacy. But 
there are clear exceptions that include risk to life and safety 
for being able to disclose this kind of information.
    And as long as State law doesn't restrict it, which we 
believe in this case, we look at the Nebraska State statutes--
we are not the official interpreters of those--but we don't 
believe there is any bar in State law. And, therefore, we 
believe that, had they followed the process correctly, they 
could have disclosed this.
    Unfortunately, the housing authority director never spoke 
to HUD about this. Just made an assumption and that was what 
led to the process that happened here.
    And again, the statement from our employees should----
    Senator Collins. It was really appalling.
    Secretary Donovan. I would not disagree with you, Senator.
    Senator Collins. OK, because I am just going to read very 
quickly, for the record, what HUD's initial response was, and I 
do hope it has been clarified across the board to all PHAs.
    HUD responded: ``There are instances where there may be 
conflicts between HUD guidelines and what is morally right. 
This appears to be one of those rare occasions. In instances 
like this, we would have hoped that the executive director 
would have come in and posed the question. While there are 
limits to what the PHA could have done with this information, 
HUD may have been able to provide other options.''
    Here's the really disturbing part: ``Having said this, we 
are not going to second-guess the decision of the executive 
director'', who fired the individuals allegedly for doing this 
report.
    But the first sentence is appalling, too, that there are 
instances where there are conflicts between HUD guidelines and 
what is morally right. This is a case for a warrant for sexual 
abuse of a child.
    So I am glad to get your response that you agree that this 
is an appalling response. Thank you.
    Secretary Donovan. Yes, I would add, Senator, you can ask 
my staff, as they read me that quote what my face looked like.
    Senator Murray. Thank you.
    Senator Udall.
    Senator Udall. Thank you, Chairman Murray.
    I thank you, Secretary Donovan, for being here. I was 
really impressed with the exchange between both you and Senator 
Murray on this disaster, because it is just such a good example 
of how you have a situation where people really need help. I 
think close to 30 people have lost their lives.
    In your exchange, you talked about how we take the programs 
that are on the books, and if we have a disaster declaration, 
we can move in and really act very quickly.
    And so it is a tribute to both of you that you are willing 
to respond to that. And I really appreciate it.

                     LOW-INCOME HOUSING TAX CREDITS

    Your agency administers programs that are critical to the 
well-being and prosperity of many New Mexicans. And while there 
are many programs that have a significant impact on housing 
conditions in New Mexico, things like supportive housing, 
especially for veterans and homelessness prevention, to loan 
guarantees, I would like to focus on a couple concerns I hear 
the most about.
    The first one has to do with low-income housing tax credits 
in rural areas. As I travel across New Mexico, and especially 
in southeastern New Mexico, I hear from local elected officials 
and economic development groups that the lack of affordable 
housing is limiting economic expansion. They are having big 
economic expansion, but they don't have affordable housing.
    Approximately one-third of the New Mexicans are renters, 
and half of them pay more than 30 percent of their income 
toward rent. The low-income housing tax credit is one of the 
best tools to increase the production of affordable housing 
capital projects, and I appreciate your efforts to continually 
improve the program.
    Can you speak to how you see the proposed changes improving 
affordable housing production in rural areas?
    Secretary Donovan. Absolutely.
    First of all, as you know, Senator, the decisions about the 
allocation of low-income housing tax credits are made at the 
State and local level. And I think it is important that there 
be a focus on how those are allocated and to make sure the 
rural areas are getting their fair share.
    But the fact is, given the rental affordability crisis that 
I spoke about in my opening remarks, we must do more to provide 
funding. That is why we believe the HOME program is critical 
within HUD's budget, in addition to the CDBG program, which I 
spoke about. It is why the President has spoken out that we 
should not just maintain but actually increase investment in 
low-income housing tax credits with any tax form.
    And finally, it is why the administration is fighting so 
hard that as part of the housing finance reform bill that is 
being considered by the Senate Banking Committee that we ought 
to increase our investment in National Housing Trust Fund, as 
well as other investments that would increase the investment in 
affordable housing, both in urban and rural areas.

                       HOUSING IN INDIAN COUNTRY

    Senator Udall. Thank you very much. And one of the other 
areas I hear a lot about is Native American housing needs. 
Sadly, housing conditions in Indian country continue to be 
substandard.
    According to 2012 data, over 25 percent, or almost 274,000 
of American Indian housing units, have severe housing needs. 
Twenty-eight percent of reservation households lack adequate 
plumbing in housing. And despite these conditions, the lack of 
housing is so great that overcrowding continues to be a 
problem.
    For example, the Zuni Pueblo in New Mexico have only 1,488 
occupied housing units for a population of 11,770. And 
improving these conditions is complicated by challenges of 
coordinating between HUD and other agencies like HUD and the 
U.S. Department of Agriculture (USDA).
    Given these needs, do you believe that the requested levels 
will significantly improve conditions? And can you give us an 
update on your efforts to improve coordination with the Bureau 
of Indian Affairs (BIA) to maximize the delivery of housing 
services in Indian country?
    Secretary Donovan. First of all, Senator, the $650 million 
that we are proposing for Native American housing block grants 
are our most important tool in helping to increase the quality 
and availability of housing in Indian country.
    I would not tell you that I think it is enough. I would 
like more investment there. And in fact, we are well underway 
on a comprehensive study of housing needs in Indian country, 
which showed the terrible, terrible conditions that you talked 
about.
    But given the budget constraints that we have, we do 
believe that $650 million is a substantial investment and will 
go a long way toward at least beginning to address those needs.
    I would also say that one of the most critical things that 
we do with BIA, the Bureau of Indian Affairs, is that they 
control often the land permitting and ability to construct new 
housing. And too often in the past, the process to get those 
approvals has taken months if not years, in some cases. So we 
have been working closely with them to accelerate that process 
to get approval for building in Indian country. And it is one 
that we will continue to focus on, to be able to increase the 
availability of affordable housing in Indian country.
    Senator Udall. Great.

                    TECHNICAL ASSISTANCE SAFEGUARDS

    And the final area has to do with technical assistance. In 
recent years, HUD has made changes to its technical assistance 
programs. And what you have done there is kind of centralize 
the awards. And while I applaud your efforts to streamline 
programs and maximize efficiency, I have heard concerns from my 
constituents that services are not as accessible as they once 
were.
    How is HUD tracking the effectiveness of this change? And 
does HUD have safeguards in place to ensure that the level of 
service is not diminished by the changes to the technical 
assistance program?
    And I have short time, so you can give a short answer, and 
maybe expand on it in your written testimony.
    Secretary Donovan. Senator, I would like to follow-up with 
you directly on this. Frankly, I am surprised, because our 
OneCPD effort, I hear from mayors and other partners all the 
time that this has dramatically increased the speed with which 
we are able to provide technical assistance. So it may be that 
there is a specific issue in New Mexico that we need to focus 
on and deal with. I will follow up with you.
    Senator Udall. We will work with you on that.
    And I am sorry for running over, Madam Chair.
    Senator Murray. Absolutely.
    Senator Boozman.
    Senator Boozman. Thank you, Madam Chair.
    Thank you, Mr. Secretary, for being here. We appreciate 
your agency's hard work.

                                HUD-VASH

    I want to commend you for your efforts to reduce veteran 
homelessness. Certainly, that is a huge problem throughout the 
country. And in your testimony you talk about partnering with 
the Department of Health and Human Services (HHS) and VA to 
develop a targeted approach to serve veteran homeless 
populations.
    Can you talk about some of the successes that you have 
encountered in the area? And then maybe some of the challenges 
as we go forward?
    Secretary Donovan. Absolutely, Senator.
    So first, I think, as the chairman mentioned, one of the 
great successes here has been in the HUD-VASH program, and that 
is a program that combines the vouchers through the section 8 
program with case management and other services from the 
Veterans Administration. And while the program had great 
promise, initially, what we found is that the vouchers were not 
being used effectively when we came into office.
    So we have made a very concerted effort to work closely 
with the Veterans Administration and to reform the process of 
how those vouchers are used, including what we call boot camps 
that are happening around the country where we bring together 
all of the players, completely reform the process. That has 
allowed us to cut the time it takes to put veterans in housing 
by 60 percent, 70 percent, in many cases.
    And what that has led to is a dramatic increase. We have 
now over 40,000 veterans that are using these vouchers, and we 
think it is the single most important factor in driving down 
the levels of chronic homelessness among veterans.
    As you know, veterans are 50 percent more likely than the 
average American to be homeless and particularly to be 
chronically homeless. And it is just a terrible tragedy.
    And one of the things we have seen is that the share of 
veterans who are chronically homeless who are using VASH has 
gone up significantly because of those efforts.
    In addition to the VASH vouchers, however, one of the 
things I really want to commend Secretary Shinseki and the VA 
for is they have adopted many best practices, particularly 
rehousing. That is an effort that they are significantly 
increasing funding this year where we can take a family or 
individual who may not have the same intense needs as a 
chronically homeless veteran and get them out of a shelter very 
quickly into housing.
    Oftentimes, that means helping them with a security deposit 
or a very small amount of one-time money that can help them 
make that transition. We have seen great success. More than 90 
percent of those individuals are successfully housed a year 
later, using rapid rehousing.
    So that is another big innovation we have piloted and now 
are doing it full scale with the VA.
    Senator Boozman. That is great. Again, it sounds like lots 
of positive things happening. I think it is a good illustration 
that when the agencies work together on some of these problems 
that we can get a lot more done collaborating.
    And, certainly, in the past and now we don't sometimes do 
as good of a job as we should. So we appreciate your example.

           HOME/SELF-HELP HOMEOWNERSHIP OPPORTUNITY PROGRAMS

    Can you talk a little bit about the Self-Help Ownership and 
Opportunity Program (SHOP) in regard to why it was eliminated 
as a standalone account and shifted into the HOME Investment 
Partnerships program?
    Secretary Donovan. Absolutely.
    Just to be clear, we are proposing that it be funded under 
the HOME program. So this is not an elimination of the funding.
    What we are proposing is $10 million within the HOME 
account, if you will. And we did that because this is a program 
that works very closely within the sort of HOME rules and is 
something that can very effectively be used in partnership with 
the broader HOME grants that are made available to communities 
around the country.
    Senator Boozman. Very good.

                 SEQUESTRATION CREATED HARDSHIP ON PHAS

    One of the things that has come up in Arkansas is, getting 
out and about and visiting with our public housing folks, the 
Arkansas public housing authorities have dealt with lingering 
financial concerns from 2012, regarding when the offset was 
imposed on operating subsidies, leaving many housing 
authorities with zero operating funds from HUD and relying 
solely on their reserve balances to pay expenses.
    They worry about the continued offset of public housing 
authority reserve funds. Can you comment a little bit about 
their concerns?
    Secretary Donovan. Absolutely.
    Let me be clear, Senator, the budget pressures that we felt 
through broader cuts as well as sequestration last year have 
imposed hardships on housing authorities that are frankly 
unacceptable. And to have, for example, administrative fees 
that were about 60 percent of what the formula would suggest 
are their actual needs have imposed all kinds of hardships.
    We do believe that if housing authorities are not using the 
money they get each year, particularly in these difficult 
budget times, and they are building up reserves that are far 
higher than what they would need for regular operations, that 
giving us the flexibility to be able to draw down those 
reserves and put that money to work more quickly is the right 
thing to do in these difficult budget times.
    Having said that, though, I think the most important thing 
we can do is to provide a more adequate level of funding as we 
are proposing to do in our budget.
    For example, a $200 million increase up to $4.6 billion in 
the operating funds that housing authorities would receive, we 
think that is the most important thing that we can do, along 
with increased administrative fees, to make sure that housing 
authorities don't continue to need to dip into reserves just to 
run their regular programs. Clearly, sequestration made that 
problem worse.
    Senator Boozman. And very quickly, as I close, in regard to 
the comment that was made about the HUD guidelines concerning 
that there might be--this was an example of a moral situation 
where the guidelines were in conflict with that, implying that 
there were other things.
    I do think we have a problem. You are saying that is not 
the case, and yet, obviously, you have people in very high 
positions that feel like that is the case, in that that came 
out.
    So one of the things, one of the problems that we have in 
the country, is that we have a loss of faith in our 
institutions, in Government. This is the kind of thing that 
drives people just absolutely crazy. So I would like for you to 
follow up specifically on that. Ask whoever was involved 
specifically what they are talking about, about these other 
things.
    And again, if you could get back to the subcommittee and 
explain how that is getting resolved, and if legislatively, we 
need to do something.
    But the number 1 thing, we need to protect privacy, but we 
also need to respect and protect the safety of the occupancy of 
those buildings. And that has been a huge problem in the past. 
Thank you.
    Secretary Donovan. I would be happy to follow up with you. 
Thank you.

                    FINANCE AND GOVERNANCE TRAINING

    Senator Murray. Secretary Donovan, in some of our previous 
hearings, we have talked about the importance of oversight and, 
in particular, oversight of public housing authorities. It has 
become very clear through your work and that of the inspector 
general that the source of most of the problems at our troubled 
housing authorities is poor financial management and 
governance.
    So to help address that in the 2014 bill, we provided some 
additional funding for financing governance training and 
required that HUD work with the Inspector General (IG) to 
determine what skills the board members should have to 
effectively oversee some of these housing authorities and how 
HUD can help make sure that they have these skills.
    Can you update us this morning on some of your 
conversations with the IG, what you are considering in terms of 
some of those requirements, and how you plan to utilize the 
finance and governance training funding?
    Secretary Donovan. Absolutely.
    So first of all, thank you for your continued focus on this 
and the specific investments that you made in the budget toward 
making sure not only that this training happens, but that we 
are adequately staffed and the Office of Public and Indian 
Housing (PIH) department as well.
    Not only do we plan to fully comply with your direction 
that we invest $3 million in our transformation initiative 
technical assistance (TA) resources, but we are going to go 
beyond that to invest a total of $12.5 million of those 
resources in PHAs. So in addition to the financial management 
and governance training that you specifically focused on, there 
is additional funding that is going to go into making sure that 
we are doing technical assistance, particularly with our at-
risk and troubled housing authorities.
    We have seen some real success with that, where, 
historically, there have been about 175 troubled housing 
authorities on average each year. We had brought that down over 
the first few years of the administration to about 75. We have 
then introduced, something we call the Public Housing 
Assessment System Interim Rule (PHARS), which is a sort of SWAT 
team, if you will, focused on the most troubled and at-risk 
housing authorities.
    We have now reduced by an additional 50 percent the number 
of troubled housing authorities. So we are down to less than 40 
around the country that are troubled.
    So that is not to say we solved all the problems. And I 
think the training in particular around financial management 
and governance we see consistently with housing authorities 
that we need to make improvements there. So we think you are on 
the right track.
    We are going to implement it, along with these other steps 
that we are taking to catch housing authorities earlier in the 
process, particularly around financial issues.
    Senator Murray. OK, very good.

                         REPORTING REQUIREMENTS

    As I talked about in my opening statement, I continue to 
hear from a lot of these public housing authorities about the 
burdensome number of reporting requirements and the chorus is 
getting louder as PHAs have seen lower administrative fees in 
recent years.
    There is no question HUD has to have the information. It 
needs to monitor the use of Federal funding. No one disagrees 
with that. But oversight really requires, as I said, more than 
just asking for more information. It requires asking for the 
right information.
    Last year, we required HUD to review its regulations and 
submit a report recommending regulatory changes that will help 
streamline some of these reporting requirements and improve 
some of the oversight. Can you give us an update on that 
review, and what you are seeing?
    Secretary Donovan. We are on track with that review. It has 
a due date of July, and I will make sure that you have that by 
that date. We are on track in doing it, and it includes many of 
the provisions that I talked about earlier that are included 
both on a statutory basis. And again, I want to thank you for 
the progress that we made in the 2014 budget on that front.
    There are further steps in 2015 that we think statutorily 
could help us in terms of reducing burdensome requirements. But 
there are additional steps that will be included in the report 
that we can take with our own administrative authority and 
through regulatory reform.
    Senator Murray. OK. We look forward to seeing that, when 
that comes out. Thank you for that.

            AFFORDABLE HOUSING FOR PERSONS WITH DISABILITIES

    Under the Americans with Disabilities Act and the Supreme 
Court's Olmstead decision, States are required to favor 
community-based care solutions for persons with disabilities 
over institutional care.
    Unfortunately, the lack of affordable housing has been a 
barrier to State efforts to achieve that integration. So to 
address that problem back in 2012, this subcommittee funded a 
demonstration program to help States create affordable housing 
to meet those requirements. Under that program HUD provides 
grants to States where the housing finance agencies and health 
and human services agencies have joined together to really help 
transition people from costly institutional care to housing and 
services within their community.
    That initiative really makes sure the rights of disabled 
persons across the country are respected, and we hope it will 
allow States to deliver the same quality of care for a lower 
cost.
    Can you tell us today what kind of cost savings and other 
benefits are being realized as people move out of these 
institutions and into community settings?
    Secretary Donovan. Well, just to give you a sense of it, 
Senator, and this really goes to Senator Boozman's question 
earlier about the homeless efforts as well, one of the real 
opportunities here is, as we invest in these innovative 
efforts, we have the potential for huge cost savings, 
particularly on the health care side.
    So to give you a specific example, typically, we are 
looking at a housing cost of somewhere just north of $5,000 a 
year. When you think about a typical homeowner community-based 
waiver that would come through Medicaid, you may be looking at 
$15,000 a year, which sounds like a lot, so a total combined 
cost of about $20,000 a year. Compare that, though, to the 
typical nursing home, which is about $70,000 a year.
    So if we can effectively target, and this is really what we 
are doing working closely with HHS and other partners, is to 
make sure that we are targeting both on our 811 program, but as 
well as with seniors in the 202 program, those that are most 
likely to end up in nursing homes or are already there, and to 
be able to make sure that, as we invest in these efforts, we 
are significantly reducing costs on that front.
    And we are tracking this extremely closely with very 
detailed research efforts with HHS to make sure that we are 
achieving the savings that we think are possible.
    Senator Murray. OK. I have one last question and let me do 
that and then I will turn it back to Senator Collins.

                         RENTAL ASSISTANCE DEMO

    In 2012, Congress included language in the Transportation 
and Housing and Urban Development (THUD) bill to allow HUD to 
launch the rental assistance demonstration, and the goal really 
was to explore ways to address the capital needs of public 
housing by leveraging private sector resources. We asked HUD 
select housing authorities of different sizes and different 
geographic areas to see if the model could work more broadly.
    When the program was created it wasn't clear if simply 
changing the subsidy type would be enough to allow housing 
authorities to actually address their capital needs. That 
program is now in high demand. There are now housing 
authorities in my State, including the Spokane Housing 
Authority, they want to participate in this program, but they 
can't because of the cap on the number of units that can 
participate in the demonstration.
    I wanted to ask you what you have learned from this 
demonstration, and how much funding have participating housing 
authorities been able to leverage?
    Secretary Donovan. Well, Senator, I am glad you asked.
    We have seen overwhelming demand. As you said, there was a 
cap of over 60,000 units. As of December 31, we had about 
180,000 units of applications. And we believe it is absolutely 
critical that we lift the cap beyond the 180,000 units.
    Senator Murray. Well, we proposed increasing the cap last 
year. When we did that, one of the concerns that was raised was 
adding units to the section 8 program would increase the burden 
on them or their costs. Can you respond to that?
    Secretary Donovan. To be very clear, this has no net 
increase on Federal costs. All we are doing is taking a dollar 
out of public housing funding streams and moving them to the 
project-based section 8. So the net cost is zero.
    If anything, I would say, in the long run, on the principle 
of fix the roof today or pay more later, that by raising what 
would be about $6 billion without a single dime more from the 
Federal taxpayer--$6 billion of investments in those 180,000 
units--we could avoid potential greater cost to the taxpayer 
down the line. So we think that this is quite innovative.
    The other thing I would add----
    Senator Murray. So you support raising that cap?
    Secretary Donovan. Absolutely. And it is also allowing us 
to consolidate programs. We have older versions of section 8. 
The WRAP and rent sup program, a sort of alphabet soup, we have 
already had applications to consolidate about two-thirds of 
those programs into section 8.
    So it simplifies and reduces costs for us. It brings in new 
private capital. And as you said about Choice Neighborhoods, it 
will create a greater mix and vitality in those communities by 
bringing in other kinds of investments--grocery stores, other 
kinds of economic development that will help in those cases as 
well.
    The last thing I would say, Senator, is, while you called 
it a demonstration, we are converting these to a time-tested 
method of funding housing. We are using project-based section 
8, project-based vouchers. Those have been tested across the 
country.
    So it is not really like this is a brand new or untested 
direction. And that is why we are confident that it makes sense 
to go more quickly on this, but to raise the cap and really be 
able to meet the demand that housing authorities have.
    It also is deregulatory, from their point of view. It puts 
them in a program that is actually simpler, doesn't have the 
same kind of extensive rules that both you and the ranking 
member have been talking about here.
    So there are lots of benefits to this that we think make a 
lot of sense, particularly in a constrained budget environment.
    Senator Murray. OK. I really appreciate that.
    Senator Collins.
    Senator Collins. Thank you.

            GOVERNMENT ACCOUNTABILITY OFFICE RECOMMENDATIONS

    Last year, Mr. Secretary, the Government Accountability 
Office (GAO) did a report that compared FHA's performance in 
disposing of foreclosed properties with the performance of both 
Fannie Mae and Freddie Mac. And for example, the GAO found that 
FHA took about 340 days after disclosure to dispose of real 
estate owned (REO) properties, compared to around 200 days for 
Freddie and Fannie.
    So it took FHA more than 60 percent longer to disclose of 
these foreclosed properties.
    GAO concluded that had FHA's performance been more similar 
to Freddie and Fannie, that FHA could have increased its 
proceeds by as much as $400 million and decreased its holding 
costs by about $600 million for the year. That is real money 
that could make a real difference.
    The GAO report included 10 recommendations to increase 
FHA's returns on the disposition of these foreclosed 
properties. Could you tell us whether those recommendations 
have been implemented, and whether we are seeing improvement?
    Secretary Donovan. Senator, we are on track in implementing 
those recommendations. We laid out a timeline from the report 
last June. We are not fully implemented, but we are on track 
with the GAO to have those fully implemented this year.
    In addition, we have made a series of other changes to the 
way that we manage our troubled assets, and those include 
claims without conveyance of title. They include a greatly 
expanded loan sale program.
    All in all, what this means is that this year, we are 
actually recovering between $100 million and $200 million more 
each month on our troubled assets.
    So the combination of recommendations from the GAO, along 
with other changes that we made, have had a dramatic impact on 
improving our recoveries.

                             HOUSING FIRST

    Senator Collins. I want to turn to the issue of homeless 
funding. You and I have had a discussion before on the success 
of the Housing First model, which I have since become a convert 
to, having seen the real success in Portland, Maine, of using 
that approach.
    I will confess that I was a real skeptic at first. But, 
boy, the data are overwhelming about its success.
    I wanted to let you know of a study that had been done in 
2009 of 100 homeless individuals in Portland who found in their 
second year of stable housing, individuals cost taxpayers more 
than $600,000 less than they would have if they had been in 
shelters or living on the street.
    This was fascinating to me. We also saw better outcomes, 
fewer emergency room visits, a far lower number of police 
calls, less violence. And giving people a stable housing 
environment and then working with them on their substance abuse 
and other problems has turned out, at least in my State, to be 
a successful model.
    How is HUD ensuring that the projects being renewed by 
homeless assistance grants are effective the way this one is--
and there is more than one in Maine taking this approach--and 
not crowding out these newer, proven, more effective 
approaches?
    In other words, if you just automatically renew everybody 
no matter what their outcomes are, I am concerned that you are 
going to crowd out these more effective models.
    Secretary Donovan. Absolutely.
    And I am not sure if you saw Anderson Cooper's piece on 60 
Minutes around Housing First a few weeks ago. Housing First, 
among those like you who know almost as well, is familiar, but 
this is reaching a much broader audience, I think, with how 
exciting this advance is and how much progress we have made.
    Specifically, we, for the first time this last year in our 
continuum of care competition, gave much more explicit policy 
direction that included Housing First, rapid rehousing, a 
number of these advances that are proven. And what we have 
seen, and we don't have full results yet, but we have just 
gotten back the responses to that competition. We are looking 
through them.
    The initial review shows that about over 50 percent of 
continuums around the country did exactly this kind of 
reallocation where they are taking money from existing 
programs, transitional housing, social services only, that 
don't make as much sense and are transferring them to permanent 
supportive housing on a Housing First model, rapid rehousing, 
other things that we think really are tested.
    So we are encouraged by these early results. We will 
obviously share them with the committee as we are going 
through. We are looking behind those to make sure that they are 
actually doing it, and not just saying that they are doing it.
    But this has really been a big push that for the first time 
we have been able to do in the last couple years. We have our 
new competition that is coming out, and we are going to do more 
of this based on the early results.
    Senator Collins. I am really glad to hear that. As I said, 
I was a real skeptic at first. I thought it would make sense to 
make sure that people agreed to participate in programs to 
address their substance abuse and mental illness, and other 
issues. And it turns out the reverse, that it works more 
effectively, at least based on the results that I am seeing in 
Maine.
    And I will take a look at that Anderson Cooper piece as 
well.
    I have other questions that I am going to submit for the 
record, with the chairman's permission.

                             AGING IN PLACE

    I just want to touch on one final issue with you today, and 
that is the State of Maine, you may be surprised to learn, has 
the highest or the oldest, I guess I should say, median age of 
any State in the country. Most people would say it is Florida, 
but in fact it is Maine. And it has the second oldest 
population based on the proportion of people age 65 or older.
    So for Mainers and for so many others across the United 
States, the challenge of enabling our residents to age in place 
is becoming more and more critical. And as the ranking member 
of the Aging Committee, we are spending a lot of time on the 
changing demographics of our country.
    Allowing people to stay in their own homes, or giving them 
alternatives that don't uproot them and cause them to have to 
go into institutional care and nursing homes, or leave their 
communities, is becoming more and more important, both from a 
quality-of-life perspective and also from a financial 
perspective, when you consider the cost to Medicare and 
Medicaid of people moving to institutional care.
    Is HUD working with the Department of Health and Human 
Services and the private sector and other partners to make 
aging in place a more feasible option for more of our seniors?
    Secretary Donovan. Absolutely.
    I mentioned earlier, in the question about Olmsted, some of 
the work that we are doing. On seniors, in particular, we have 
done an extensive data match with HHS to be able to look at our 
residents to match up their health care costs. And with the 
investment that the committee made last year of $20 million in 
a new effort to match rental assistance with capital 
investments from States, we are going to have a very detailed 
study that we are doing to make sure that not just are we 
seeing better housing conditions, but that we are getting these 
reduced health care costs that we think we can get.
    And the idea here, honestly, I will be frank, with 550,000 
seniors around the country, extremely low income seniors, who 
are paying more than 50 percent of their income toward rent, 
that are increasingly frail, we are not investing enough to 
meet those needs, but we hope that just like on homelessness, 
we just talked about Housing First, if we can show that 
investing on the front end in housing like 202 that is better 
targeted in the way that we are doing under this demonstration, 
if we can show that it pays for itself, or even better, saves 
money, we hope that we can come back to you in future years to 
really make the case that this is a smarter investment and we 
ought to be expanding 202 and doing even more than we are 
proposing to do in the budget now.
    Senator Collins. Right. Thank you, Mr. Secretary.
    And thank you, Madam Chairman.
    Senator Murray. Yes.
    Secretary Donovan. Thank you.
    Senator Murray. So that is a great revelation that is good 
for our Northern States, that it is better to be colder. You 
live longer. I like that.
    With that, I want to remind our colleagues that the hearing 
record will be open for a week.
    [The following questions were not asked at the hearing, but 
were submitted to the Department subsequent to the hearing:]
              Questions Submitted by Senator Patty Murray
                           youth homelessness
    Question. In recent years, we have made a lot of progress on the 
issue of homelessness, but I remain very concerned about the problem of 
youth homelessness. Youth are among the fastest growing portion of the 
homeless population. According to the 2013 Annual Homeless Assessment 
Report, there were nearly 47,000 unaccompanied homeless children and 
youth counted on a single night, and most of these were between the 
ages of 18 and 24. As alarming as this number is, we also know that it 
can be difficult to get an accurate count of this population.
    What steps is HUD taking to ensure that homeless youth are 
accurately reflected in HUD's point-in-time count?
    Answer. In 2012, HUD partnered with the U.S. Interagency Council on 
Homelessness, the U.S. Department of Health and Human Services, and the 
U.S. Department of Education, to implement the Youth Count! Initiative, 
a study of the promising practices that nine communities across the 
country use to enumerate homeless youth. To help HUD and its Federal 
partners gain the most from Youth Count!, the Urban Institute conducted 
a process study, complete with recommendations for improving the way 
communities can count homeless youth. HUD analyzed the recommendations 
specific to its Point-in-Time (PIT) count and is updating its 
methodology guidance to include the recommendations. HUD plans on 
releasing this guidance in the summer of 2014 so that communities can 
use the guidance for their 2015 PIT counts (a required year).
    For the 2014 data collection process, HUD required communities to 
identify on their Housing Inventory Count how many beds are dedicated 
to serving homeless youth, as well as the age groups those beds are 
targeted to (i.e., under 18, 18-24, or all youth up to 24). For 2015, 
HUD is also working to require demographics information based on the 
youth defined age categories.
    Question. Homeless youth often require different interventions than 
other homeless populations. What is HUD doing to develop and share 
successful youth-specific interventions?
    Answer. HUD continues to work on youth homelessness in a variety of 
ways. Some of the more significant items are listed below.
            LGBTQ Youth Pilot Project
    HUD is leading an initiative in partnership with the Departments of 
Health and Human Services (HHS), Education (ED), Justice, and the 
United States Interagency Council on Homelessness (USICH). The 
initiative is designed to support two communities, Cincinnati/Hamilton 
County, Ohio and Houston/Harris County, Texas, in the development and 
implementation of a comprehensive communitywide plan to prevent 
homelessness among homeless lesbian, gay, bi-sexual, transgendered, and 
questioning (``LBGTQ'') youth. These two communities have begun 
strategic planning with HUD's technical assistance team.
            Coordinated Assessment with Youth and Families
    HUD is leading a new subgroup under the USICH Families Workgroup 
designed to coordinate best practices and agency strategies around the 
implementation of coordinated assessment and its effect on families. 
The group will also focus on victims fleeing domestic violence and 
youth.
            USICH Youth Workgroup
    HUD continues to be a leading member of the USICH youth workgroup. 
This workgroup has been a critical catalyst for collaboration among the 
Federal partners striving to prevent and end youth homelessness.
            Data standards and RHYMIS integration
    HUD is collaborating with HHS to integrate HHS's Runaway and 
Homeless Youth Management Information System (``RHYMIS'') with our 
Homeless Management Information Systems (``HMIS''). This is a top 
priority on the USICH Youth Framework agenda and both HUD and HHS 
expect integration to begin in the coming year.
            Reducing barriers to partnership with ED
    HUD and ED developed a roadmap to align reporting data elements and 
explore and propagate innovative practices in data sharing. The first 
goal is for ED to adopt HUD housing status definitions which will allow 
communities, agencies, and researchers to better compare HUD and ED 
homeless data.
            Follow up to Youth Count
    HUD is incorporating lessons learned from the 2013 Youth Count! 
Initiative into its general Point-in-Time Count guidance to help 
communities improve their methods for surveying youth during future PIT 
Counts.
              youth-specific provisions of the hearth act
    Question. What steps is HUD taking to ensure that members of the 
continuum of care understand and are implementing youth-specific 
provisions of the HEARTH Act?
    Answer.
Application Requirements
  --The fiscal year 2013--fiscal year 2014 Continuum of Care (CoC) 
        Notice of Funding Availability (NOFA) reinforced the importance 
        to HUD of all four Federal strategic plan goals, including the 
        goal of ending homelessness for families and youth by 2020. It 
        made sure to clarify that youth are a special population and 
        that certain interventions may be specifically appropriate for 
        them, including transitional housing. The NOFA also detailed 
        the scoring criteria for CoC applications, including a focus on 
        youth and family homelessness.
  --For several years the (CoC) application and the individual project 
        application for funding in the CoC Program Competition has 
        included questions concerning the Act's educational assurances. 
        In the CoC application, the continuum lead agency has been 
        required to describe the policies in place and collaborations 
        developed across the community that will ensure all children 
        and youth served are guaranteed an equal and fair public 
        education, including early childhood education, according to 
        our regulations. In the project application, applicants must 
        certify that they have policies in place to guarantee the 
        education assurances and that they have a staff person 
        designated to the task. CoCs are scored based on the strength 
        of their narrative responses and project awards are conditioned 
        if they have indicated a failure to comply with the Act.
  --For the past two CoC Program competitions, the CoC application has 
        included a question that requires communities to describe their 
        current efforts in addressing homeless among unaccompanied 
        youth. There are additional questions that require a 
        description of the outreach provided to homeless families and 
        youth. These sections are scored based on the strength of their 
        narrative.
  --The project application has been modified over the past two 
        competitions to include data elements for the age group 18 to 
        24 and includes a field allowing projects to self-identify as 
        youth projects. While this serves an important data collection 
        purpose for HUD, we also hope that by recognizing youth 
        projects and the youth they serve, up to 25, we are 
        communicating to youth providers that they are important and 
        that we recognize that the population they serve is distinct 
        from the adult population.
Webinars and Briefing Documents
  --In fiscal year 2013, HUD co-led a webinar and co-drafted a brief 
        with our counterparts at the Department of Education 
        highlighting the importance of collaboration between local 
        education and homeless service stakeholders. The discussion was 
        designed to help communities understand the language and 
        requirements of each agency's programs and to avoid and/or 
        reduce barriers to collaboration. HUD also co-hosted a webinar 
        with several offices from the Department of Health and Human 
        Services (HHS) to highlight the importance of early childhood 
        education. The webinar was designed to remind HUD grant 
        recipients of the inclusion of early childhood education in our 
        education assurance requirements and to provide them with 
        overview of the Federal programs that are available to them. As 
        a follow-up, HUD coordinated with HHS on the release of their 
        birth to 5 tool kit, in part designed to help Emergency 
        Solutions Grants and CoC recipients implement recommended best 
        practices and promising strategies into their housing programs. 
        Both webinars included participation from local agencies 
        leading the way in early childhood and youth homeless education 
        collaborations.
  --In fiscal year 2014 HUD has participated in a webinar with HHS 
        concerning the importance of home visiting and connecting 
        Maternal, Infant, and Early Childhood Visiting Program staff 
        with CoC housing programs.
  --HUD works with its Federal partners to circulate important youth 
        related documents, including funding opportunities, training 
        resources and best practice guidance, through our provider 
        listservs.
Future Communications
  --HUD is in the process of developing resources and guidance, 
        together with its Federal partners, in support of youth 
        providers. The communication will include, but will not be 
        limited to, the incorporation of youth and families into 
        community coordinated assessment systems and research based 
        assessment tools and housing strategies designed for youth and 
        families. HUD will also discuss performance measures.
                       public housing fungibility
    Question. The President's budget proposes to provide public housing 
authorities (PHAs) with unlimited fungibility between its public 
housing operating and capital funds. This is intended to provide the 
PHAs with flexibility to better manage their real estate assets.
    It is common industry practice for property owners to maintain 
reserves to address capital projects that arise. In fact, financial 
institutions that finance such projects typically require such 
reserves, and HUD has clear guidance for replacement reserves for its 
FHA-insured projects. However, under current rules, PHAs are not 
allowed to have a capital reserve fund, and instead are allowed only to 
maintain an operating reserve. Why does HUD require replacement or 
capital fund reserves for its multifamily properties?
    Answer. The use of a capital reserve in the programs you cite is 
focused on preserving and ensuring the availability and physical 
quality of the housing inventory. The Public Housing program works on a 
different model in that it has a separate appropriated and significant 
capital fund that none of these other programs have. HUD requires 
replacement or capital fund reserves (referred to as Reserve for 
Replacements) to pay for the repair or replacement of capital items--
i.e., items that have a useful life of more than a year, and that 
extend the expected life or enhance the long-term capacity of the use 
of the property--for properties with FHA Insurance, and a Section 8 
Housing Assistance Payments (HAP) Contract, HUD-Held properties, and 
properties with only a Section 8 HAP Contract or HUD Subsidy (Section 
236, Section 202, etc.).
    For properties with FHA insurance, a Project Capital Needs 
Assessment (PCNA) is done during underwriting to define a project's 
immediate and long term capital needs and a plan for financing the 
capital needs, including funding the Reserve for Replacements account. 
Deposits to the Reserve for Replacements account are determined during 
underwriting through the PCNA and adjusted based on rent increases over 
the life of the property. Releases from the Reserve for Replacements 
account generally follow the schedule for capital repairs defined in 
the PCNA for FHA insured properties, but the reserves are available for 
other capital repairs that may be needed outside of the defined 
schedule. A Reserve for Replacements account is also required in a 
Section 8 Housing Assistance Payments Contract and in the Regulatory 
Agreement or other business agreement of HUD-Held and HUD-subsidized 
properties. For this subset of properties, monthly deposits are 
determined based on expected capital repair requirements as indicated 
by a capital needs assessment or like review.
    For all property types, the Reserve for Replacements account is 
necessary to extend the useful life of the property and prevent 
physical default, so that the physical life of the property lasts for 
the duration of the economic life of the property. Maintaining a 
Reserve for Replacements account ensures that the property has adequate 
funds to make needed capital repairs and maintain marketability.
    Question. Why doesn't HUD allow or even require PHAs to have a 
capital fund reserve?
    Answer. Currently, Section 9(j) of the United States Housing Act of 
1937 has specific obligation and expenditure deadlines for Capital Fund 
grants which would prohibit holding Capital Funds in a capital reserve 
account. Large PHAs (250 units or more) in particular are also 
restricted by statute with regard to the eligible use of funds. These 
PHAs are generally not permitted to use Operating Funds for capital 
items. Therefore, the Department would need statutory changes to 
implement a Capital Fund reserve, or to allow large PHAs to use 
Operating Funds (including Operating Fund reserves) directly for 
capital expenses.
    Public Housing Fungibility
    Question. Did the Department consider allowing PHAs to establish a 
capital reserve account instead of its proposal for increased 
fungibility? If so, what was the specific issue (or issues) with 
establishing capital fund reserves?
    Answer. The Department did consider the possibility of establishing 
a Capital Fund reserve. We believe that granting the Capital Fund/
Operating Fund fungibility best provides PHAs increased flexibility to 
administer capital and ongoing maintenance expenses. Establishing a 
Capital Reserve instead of increased fungibility would not address 
issues such as being able to use Operating Reserves for capital 
improvements, and eliminating distinctions between what can be paid 
through the Capital Fund versus the Operating Fund.
    Question. Since 2011, there has been confusion about what 
activities qualify as capital expenses to be funded out of the Public 
Housing Capital Fund, and what expenses are instead deemed regular 
maintenance to be funded through the Public Housing Operating Fund. 
What criteria does HUD use to determine if an expense is capital versus 
operating?
    Answer. The United States Housing Act of 1937 (the 1937Act) in 
Section 9(d)(1) enumerates eligible activities for the Capital Fund, 
such as the development, financing and modernization of public housing 
projects; vacancy reduction; etc. Similarly, Section 9(e)(1) of the 
1937 Act defines operation and management activities to be funded, such 
as procedures and systems to maintain and ensure the efficient 
management and operation of public housing units etc. These statutory 
requirements are codified in regulation 24 CFR 905 for the Capital Fund 
and 24 CFR 990 for the Operating Fund.
    Question. Since some of these expenses may fall into a gray area, 
what guidance does HUD provide to PHAs on how to determine what type of 
expense it is?
    Answer. The Department is deeply committed to providing PHAs 
maximum flexibility under the 1937 Act and committed to the 
preservation of public housing. In conformance with the statute, the 
Operating Fund regulations at 24 CFR 990 reiterate that the Operating 
Fund was established for the purposes of the operation and management 
of public housing. Additionally, all maintenance activities 
specifically listed in Section 9(e) of the 1937 Act are eligible 
Operating Fund activities. HUD issued PIH Notice 2012-2 on January 20, 
2012 to provide guidance on eligible uses of Operating Funds. This 
notice described eligible uses for both Operating Funds and Operating 
Reserves.
    The Department is currently preparing a new guidebook to implement 
the recently issued Capital Fund final rule. The chapter on Capital 
Fund eligible activities addresses the distinction between Operating 
and Capital Fund expenses.
                     federal housing administration
    Question. In the lead up to the housing crisis, credit was flowing 
freely and many borrowers got into unaffordable mortgages. Since the 
crisis ended, the pendulum has swung in the other direction, and now 
many families are struggling to find credit to buy a home.
    What are you seeing in the market in terms of access to credit for 
families today?
    Answer. This crisis has certainly led to tighter credit, making it 
harder for creditworthy borrowers to obtain a home. According to the 
Federal Reserve, from 2007 to 2012, mortgage lending to borrowers with 
credit scores over 780 fell by a third. Loans to those with scores 
between 620 and 680 fell 90 percent. As the housing market recovery 
continues and FHA's countercyclical role shrinks further, FHA's focus 
can shift away from responding to the crisis and move toward improving 
affordable access for underserved borrowers and communities. As the 
President has noted, responsible access to credit helps build pathways 
to the middle class.
    There has been some evidence that mortgage lenders are beginning to 
ease credit restrictions put in place after the housing crisis, as 
evidenced by recent media reports of large lenders loosening credit 
restrictions. This includes the announcement in February by Wells 
Fargo, FHA's largest lender, that they would reduce their minimum 
credit score requirement for FHA insured loans. As this is a recent 
change by many lenders, FHA has not yet seen a significant change in 
the credit characteristics on loans being endorsed.
    FHA is taking action on a number of policy changes aimed at 
improving access to credit. These new policies will have the added 
benefit of further protecting the Fund, even as they enhance access.
  --In the fiscal year 2015 Budget, FHA announced a proposal to enable 
        FHA to charge a fee to FHA approved lenders, upon their annual 
        recertification, which will allow FHA to invest in processes, 
        creating clarity and making it easier for lenders to do 
        business with FHA. In turn, we believe lenders will allow more 
        creditworthy borrowers an opportunity at homeownership.
  --This increase in FHA Administrative contract expenses will allow 
        FHA to raise up to $30 million by collecting a fee from FHA-
        approved lenders.
  --FHA is introducing a new quality assurance framework designed to 
        increase lender confidence in originating loans across a 
        broader spectrum of FHA-eligible creditworthy borrowers. This 
        framework includes taking steps to ensure that lenders clearly 
        understand our policies and procedures.
  --FHA is also making it easier and clearer to navigate guidelines by 
        completely overhauling the policy-making process, including 
        consolidating all policy guidance to create a new FHA handbook, 
        a definitive guide for working with FHA.
  --Further, implementation of the quality assurance framework as well 
        as a number of other portfolio monitoring initiatives will 
        require dedicated resources.
  --FHA Manual Underwriting and other Back to Work efforts will both 
        support access to credit for FHA's traditional borrowers and 
        continue to improve the performance of the fund by reducing 
        risk.
  --HUD's HAWK (Homeownership Armed With Knowledge) for New Homebuyers 
        program will provide incentives to first-time homebuyers who 
        commit to housing counseling from HUD-approved nonprofit and 
        governmental agencies. HAWK Homebuyers will receive reductions 
        or incentives on the upfront and/or annual mortgage insurance 
        premium if they commit to housing counseling at key points in 
        time during the home purchase process. This will both expand 
        access to credit and strengthen the MMI Fund. Research shows 
        that counseled homebuyers have lower risk of default and 
        foreclosure than homebuyers with a similar credit profile who 
        did not complete housing counseling.
                 homeowners armed with knowledge (hawk)
    Question. In the 2015 budget, you are proposing a pilot program, 
``Homeowners Armed with Knowledge'', or HAWK. The program would provide 
counseling and premium incentives to help people access mortgages. What 
did the Department see in terms of the overall housing market and 
within its own programs that led you to propose this new initiative?
    Answer. The HAWK program fulfills three goals: (1) it provides 
consumers with access to the services of HUD-approved independent 
nonprofit housing counseling agencies, who provide consumers with 
information and skills to meet their housing goals; (2) it protects the 
Mutual Mortgage Insurance Fund (MMIF) by encouraging lending to a 
motivated and educated class of borrowers who according to recent 
research are significantly less likely to default on their mortgage 
than uncounseled borrowers with similar credit profiles; and (3) 
finally, although HAWK does not change underwriting standards or credit 
requirements for FHA-insured purchase mortgages, it will make those 
mortgages more affordable. Moreover, consumers who work with a housing 
counseling agency may improve their own savings and credit profile in 
order to better meet today's higher underwriting standards.
    In addition to recent research on the effectiveness of housing 
counseling on loan performance, and the key role housing counseling 
plays in home retention and foreclosure prevention, HUD has also noted 
numerous reports documenting consumer confusion about the homeownership 
process, and the difficulty for first-time homebuyers in purchasing 
homes in the current environment. For example, a Fannie Mae study found 
that lower income borrowers want loan terms and costs that are easier 
to understand. Http://www.fanniemae.com/portal/research-and-analysis/
010214-topicanalysis.html-20. This group relies on advice from others, 
such as a real estate agent, mortgage professional, friends and/or 
family, to choose a lender and/or determine how much to borrow. By 
contrast, higher income borrowers are more likely to choose a lender 
based on the offer. They also make their own calculations to figure out 
how much to borrow.
    A 2013 Zillow Mortgage Marketplace survey found that homebuyers do 
not understand how to secure the best possible interest rate and loan 
terms, with 26 percent incorrectly believing they are obligated to 
close their loan with the lender that pre-approved them, and 24 percent 
incorrectly believing that the best interest rates and fees can always 
be found through the bank they currently do business with. 
Additionally, one-third of buyers believe all lenders are required by 
law to charge the same fees for credit reports and appraisals. In fact, 
homebuyers should always shop multiple lenders to compare rates and 
fees in order to find the best loan for their situation. http://
zillow.mediaroom.com/index.php?s=159&item=350
    Question. How does this initiative differ from HUD's traditional 
counseling programs?
    Answer. HUD's traditional housing counseling program is not linked 
to any FHA mortgage incentive today, although many State and local 
governments and private lenders require housing counseling by a HUD-
approved housing counseling agency as a condition of affordable 
mortgage products or down payment assistance. In addition, the elements 
of housing counseling for the HAWK program are customized to the needs 
of that program and go beyond standard HUD requirements. FHA expects 
that counseled HAWK first-time homebuyers will have less likelihood of 
default, resulting in a reduction in claims to the Mutual Mortgage 
Insurance Fund (MMIF). FHA has structured the HAWK program so that 
consumers share in the benefit of reduced claims in the form of upfront 
and annual mortgage insurance premiums incentives. Other HAWK 
initiatives will incorporate housing counseling in the loss mitigation 
process.
                              fha-new fees
    Question. The President's budget proposes to charge a new fee on 
FHA lenders that would be used to bolster oversight, primarily by 
increasing the number of loan reviews.
    Can you tell us exactly how you would spend the $30 million this 
new fee is expected to generate?
    Answer.
  --The fiscal year 2015 request for Federal Housing Administration 
        (FHA) Administrative Contract Appropriations is $170 million, a 
        $43 million increase from fiscal year 2014. The proposed 
        increase is necessary to improve FHA's risk management (see 
        Table 1). These are all new activities that are currently not 
        funded. Moreover, a thorough scrub of the current allocation of 
        $127 million (See Table 2) makes clear that unless FHA is able 
        to increase its funding allocations, there is no room within 
        the current funding ceiling to fund these new activities. Of 
        the $43 million increase, the objective is to raise $30 million 
        through a new fee charged to lenders.
  --The first and most important priority for fee funding is the Single 
        Family effort to build a stronger quality assurance framework. 
        The quality assurance framework is part of a broad suite of 
        risk management initiatives on which FHA has been focused since 
        the crisis. This new framework will establish clear rules of 
        the road for the loan manufacturing process, giving lenders the 
        confidence to make loans to the full spectrum of FHA-eligible 
        borrowers. Making loans without fear of arbitrary penalty 
        improves access and helps more qualified Americans become 
        homeowners.
  --This administrative fee will provide deeper support for an array of 
        additional FHA risk management practices. FHA is committed to 
        strengthening its ability to assess the fiscal health of the 
        Mutual Mortgage Insurance (MMI) Fund by developing the capacity 
        to conduct in-house modeling of the MMI Fund. Having the 
        ability to internally assess the health of the fund would allow 
        FHA to respond more quickly to market changes.
  --Building modeling capacity in other areas is also a high priority 
        for fee funding. Collecting and analyzing data to refine Real 
        Estate Owned (REO) pricing strategies, to identify potentially 
        risky origination trends, and to respond to emerging economic 
        changes are examples of areas where greater resources are 
        needed.
  --Many stakeholders in the housing market depend on FHA, and with 
        this fee, FHA can better meet their expectations of being 
        dependable, efficient, and easy to work with. Leveraging the 
        fee to continue building strong, transparent, effective risk 
        management and quality assurance policies and procedures 
        ensures our long-term health and viability. Ultimately the 
        efforts supported by the fee will make it possible for FHA to 
        continue to enhance access, helping to place homeownership 
        within reach of more Americans.

 TABLE 1: BUDGET FOR ADDITIONAL $43 MILLION FHA ADMINISTRATIVE CONTRACTS
------------------------------------------------------------------------
               Area                  Spend request        Rationale
------------------------------------------------------------------------
Quality Assurance.................     $35 million  --FHA currently has
                                                     capacity to
                                                     complete quality
                                                     control (QC)
                                                     reviews on 35,000
                                                     adverse loans
                                                     (loans that enter
                                                     delinquency, go to
                                                     claims, etc.)
                                                    --Experience from
                                                     the past several
                                                     years suggests that
                                                     this is not
                                                     sufficient and that
                                                     the adverse sample
                                                     size should be
                                                     nearly doubled to
                                                     65,000 (e.g., to
                                                     include 100 percent
                                                     of seriously
                                                     delinquent loans
                                                     within their first
                                                     3 years).
                                                    --In addition to
                                                     increasing the
                                                     adverse sample, FHA
                                                     currently does not
                                                     employ an industry
                                                     best practice known
                                                     as random sampling.
                                                     Employing this
                                                     important practice,
                                                     covering 10 percent
                                                     of endorsements,
                                                     would require FHA
                                                     to QC an additional
                                                     65,000 loans.
                                                    --Based on FHA
                                                     experience and
                                                     several industry
                                                     benchmarks the cost
                                                     per loan reviewed
                                                     is $350. Thus
                                                     increasing loans
                                                     reviewed to 100,000
                                                     would require FHA
                                                     to spend an
                                                     additional $35
                                                     million more per
                                                     year, which HUD
                                                     proposes raising by
                                                     levying a new
                                                     lender fee.
                                                    --This investment is
                                                     expected to
                                                     generate an
                                                     additional $115
                                                     million in
                                                     recoveries.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Risk Modeling and Analytics.......      $8 million  --When the Office of
                                                     Risk Management was
                                                     created, it
                                                     received very
                                                     little FHA
                                                     Administrative
                                                     contracts funding
                                                     except for that
                                                     which supports the
                                                     actuarial and a few
                                                     other small
                                                     contracts.
                                                    --Recent experience
                                                     with the IT
                                                     Transformation
                                                     efforts (known as
                                                     the Portfolio
                                                     Evaluation Tool)
                                                     and experience with
                                                     two actuarial has
                                                     led HUD to the
                                                     conclusion that
                                                     robust analytical
                                                     services support is
                                                     necessary for the
                                                     Risk Management
                                                     Office to do its
                                                     job effectively.
                                                    --These analytical
                                                     services include
                                                     financial modeling
                                                     capabilities, best
                                                     disposition
                                                     execution analysis,
                                                     optimal pricing and
                                                     negotiation in REO,
                                                     significantly
                                                     better reporting
                                                     and trend analysis.
                                   ----------------
    Total.........................     $43 million
------------------------------------------------------------------------


              TABLE 2: CURRENT ADMIN CONTRACTS EXPENDITURE
------------------------------------------------------------------------
                       Description                            Amount
------------------------------------------------------------------------
Financial Servicing Support.............................     $79,467,612
    Construction Inspections
    Data & Quality Monitoring
    Review Appraisal
    Financial Advisor Services
    M&M Mortgage Compliance Manager
    Operations Assessment of REO Properties
    Miscellaneous Services
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Monitoring and Oversight................................      31,838,081
    Call Center Services
    Document Managing
    Accounting & Financial Operations Services
    Insurance Endorsement Processing Services
    Portfolio Management Support
    Underwriting Services
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Financial Analysis and Reporting........................      12,066,584
    Multifamily Premium Audits
    Risk Management & Analysis
    Actuarial Review
    Tax Review & Appeal
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Industry Education......................................       1,048,002
Subscriptions...........................................       1,797,434
Credit Report Services..................................         782,287
                                                         ---------------
    Total...............................................    $127,000,000
------------------------------------------------------------------------

                 hud's proposal to expand loan reviews
    Question. I have heard concerns about HUD's proposal to expand loan 
reviews. Some worry that there isn't clear guidance on what types of 
errors will lead to indemnification, and in some instances HUD guidance 
is inconsistent with current policy. Do you agree that HUD needs to be 
clearer about what will trigger indemnification and if so, do you have 
a plan, including a timeframe, for providing greater clarification?
    Answer. FHA plans to provide additional guidance around defects and 
related severities for new lending activities. It will do so through 
its Defect Taxonomy effort which will pair eight defect codes with 
specific sources and causes, providing lenders with actionable data 
regarding their defects. FHA is also exploring the potential to provide 
specificity around those defects/source/cause combinations that will 
generally result in indemnification and those that will not. FHA 
expects to complete its draft of the new Defect Taxonomy, including 
severity transparency rates, during the summer of 2014 and then will 
share the draft with key stakeholders, including the Department of 
Justice, HUD's Department of Inspector General, lenders and others for 
feedback before finalizing and posting the taxonomy.
                   multifamily housing reorganization
    Question. Last Spring, HUD announced a major reorganization of the 
Office of Multifamily Housing. Under the proposal, HUD would 
consolidate 54 offices into 12, with the goal of improving the 
consistency and distribution of work across offices. The proposal is 
also expected to save hundreds of millions of dollars.
    This would represent a major change in the way HUD has operated for 
decades. It would affect hundreds of HUD employees, as well as the 
communities in which offices are located.
    We have worked on an interim step of consolidating some functions 
of Multifamily, while keeping all existing offices open for the time 
being.
    How will you be monitoring the first phase of the reorganization 
and how will you quantify the effectiveness of these changes?
    Answer. HUD will monitor the transformation to ensure the 
effectiveness of the updates to Multifamily's business model. In 
particular, HUD will ensure that responses to customers are timely, 
that service quality to stakeholders is of high quality, and that there 
is an increase in the ability of Multifamily to flexibly adapt to 
market fluctuations. We will collect input from lenders and property 
owners regarding their satisfaction with our performance, and plan to 
track various productivity metrics, such as processing time, to gauge 
improvement. We have also retained a management consulting firm to help 
analyze the effectiveness and facilitate changes for subsequent waves 
should they be necessary.
    Internally, HUD will monitor the rate at which employees 
voluntarily relocate to core offices and will occasionally poll 
employees on their engagement during the transformation period. HUD 
will also keep track of and tabulate the actual savings incurred as a 
result of the transformation.
    Question. Will you be willing to make changes to the proposal if 
problems emerge?
    Answer. HUD will review its performance measures and engage 
employees during and after each wave to determine how the 
transformation can continually improve. The rationale behind rolling 
out in waves is to allow us to appraise our progress over time. HUD 
will evaluate the progress of the transformation and, if appropriate, 
will consider making adjustments to achieve the objective of the 
transformation, which is to improve the long-term ability of the Office 
of Multifamily Housing to deliver on its mission to partners and 
stakeholders.
                                hud-vash
    Question. Last year, we included language in the Senate bill that 
set-aside funding within VASH for Native Americans veterans living on 
reservations who are homeless or at risk of homelessness, but cannot 
access VASH because tribal housing authorities aren't eligible to 
participate in the Section 8 program. The President's fiscal year 2015 
budget includes a similar proposal.
    The challenges facing homeless veterans on reservations are often 
not well understood, and over the years, we have had discussions on how 
to better serve these veterans with HUD, the VA, the U.S. Interagency 
Council on Homelessness, as well as Senator Johnson and his 
Subcommittee on Veterans Affairs.
    What have you learned during your time at the Department about the 
needs of veterans living on reservations, and how will your proposal to 
open HUD-VASH up to tribes allow HUD to better serve this population?
    Answer. HUD has learned that there is both interest and demand for 
making HUD-VASH more accessible to veterans living on reservations and 
other tribal areas. Although homeless Veterans on reservations may be 
eligible for HUD-VASH, the program is not currently reaching homeless 
Native American Veterans living on tribal lands for several reasons, 
including the way homelessness presents itself in Indian Country. 
Additionally, public housing authorities generally do not serve tribal 
areas.
    In response to increased tribal interest in HUD-VASH, HUD and the 
Department of Veterans Affairs (VA) formed a working group, which 
included staff from VA, the Office of Native American Programs (ONAP), 
the Office of Housing Choice Vouchers (HCV), Special Needs Assistance 
Programs (SNAPS), and the Office of General Council (OGC). This working 
group was established to explore the possibility of a pilot project 
that works within the current regulatory and statutory framework. The 
group was able to quantify a level of need, identifying veterans living 
in tribal areas that currently receive VA services and determined to be 
homeless by a VA caseworker, based on VA data. Based on this 
information, HUD's Office of Public and Indian Housing (PIH) set aside 
100 vouchers for a pilot project.
    Through the implementation of this pilot project, the group 
identified several challenges to overcome. For example, Native American 
Housing Assistance and Self-Determination Act of 1996 (NAHASDA) 
precludes Tribes and Tribally Designated Housing Entities (TDHEs) from 
receiving housing choice vouchers/assistance. This required that 
neighboring or State PHAs had to manage the vouchers for tribes. As a 
result, HUD concluded that it would be best to pursue a legislative 
route that would enable the TDHEs to directly administer the vouchers 
because they would be in a better position to more effectively address 
issues specific to Indian Country, and allow for statutory waivers to 
make the two programs compatible. This provision was proposed in the 
fiscal year 2015 Budget.
    HUD concluded that it would be best to pursue a legislative route 
that would enable the TDHEs to directly administer the vouchers, and 
allow for statutory waivers to make the two programs compatible. This 
provision was proposed in the fiscal year 2015 budget.
        information technology-next generation management system
    Question. I.T. is a critical component of effective oversight. When 
we look at recommendations from both the Inspector General and GAO, 
there is a common emphasis on better collection and use of data. While 
new technology has the potential to transform HUD operations, 
developing and fielding new systems is not easy.
    This Subcommittee has been focused on the Next Generation 
Management System, since it is expected to improve oversight of housing 
assistance programs--the largest programs in HUD's budget. But the 
project has encountered delays.
    What steps have you taken to address the problems encountered 
during the development of this system, what tools are currently in use, 
and when will HUD be fully transitioned to the new system?
    Answer. HUD has taken several key actions to improve IT development 
project performance and to reduce the risk of delays. In the specific 
case of NGMS, we have taken the following actions:
  --Implemented an improved development and testing platform that 
        enables structured testing and improved collaboration between 
        the development team and the Affordable Housing user-community. 
        This enhanced development environment supports an agile, 
        iterative development process and ensures user requirements are 
        met and development delays are minimized.
  --Acquired licenses for automated testing tools that will improve the 
        testing process and reduce the time to product delivery. These 
        tools are intuitive for both developers and system users 
        requiring minimal training or test experience. The tools 
        support standardized and repeatable test processes reducing 
        both the risk of unidentified system errors and the time to 
        test completion.
  --Acquired software development support tools to better manage system 
        requirements from design through development and testing, to 
        deployment. These tools will ensure that the final system 
        delivers quality software applications and services to the user 
        community, while increasing the speed of NGMS delivery. The 
        tool suite includes functions to support team communication and 
        content management that foster collaboration and support 
        management of the entire development lifecycle.
    Beyond the steps taken at the project-level, HUD has also 
implemented Project Planning and Management (PPM) v2.0 that provides 
management controls and project oversight by the Office of the Chief 
Information Officer to improve IT project performance. We are also 
implementing a new Enterprise Portfolio & Project Management (EPPM) 
solution designed to help monitor projects, address development 
obstacles as they arise, and to prevent significant delays. EPPM will 
support periodic assessments of the IT portfolio and projects, which 
will provide the information needed for HUD leadership to objectively 
measure the return on HUD's IT investment dollars and promptly take 
corrective actions that address unexpected performance issues.
    As with the development of any IT initiative, the particular 
contours of NGMS have evolved over time, and we expect that it will 
continue to evolve as we continue to deliver NGMS modules. At present, 
the planning for the following modules is in an advanced state, with 
the project initiation phase completed for the first three:
  --Budget Formulation and Forecasting (``BFF'') Capital Fund--a module 
        that gives HUD an IT system to administer the annual Capital 
        Fund formula for over 3,100 Public Housing Agencies (PHAs). 
        This will result in an IT system that is more robust, 
        comprehensive, secure, and reliable than the current tool used 
        to administer the formula.
  --BFF Operating Fund--a module that creates an IT system to 
        administer the annual Operating Subsidy formula for over 7,000 
        applications. This eliminates HUD's reliance on contractors to 
        process the applications.
  --Cash Management (``CASH'')--a module which enables HUD to calculate 
        Housing Assistance Payment funds based on near real-time data, 
        and perform continuous budget reconciliations for the Housing 
        Choice Vouchers (``HCV'') program.
  --Affordable Housing Lifecycle Information Center (``AHLIC'')--a 
        module which replaces the PIH Information Center with a 
        transactional system that will support the entire life cycle of 
        HUD program participants and partners. The life cycle will 
        include case initiation through case-closeout, and all 
        transactional processes in between. This module will provide 
        internal and external partners with secure access to all case 
        information relating to participants, including financial, 
        demographic, building/unit, etc., which will in-turn provide 
        the underlying basis for operations management of affordable 
        housing programs.
  --HCV Payment Processing--a module that will leverage the 
        requirements developed in earlier capabilities to build final 
        systems necessary to make payments to PHAs based on tenant-
        level data and to develop the system necessary to address HCV 
        program needs related to the transition to the New Core 
        Financial Services initiative.
    Given our current assumptions regarding the availability of IT DME 
funding, we expect these modules to be fully implemented by Q4 2018.
    Per HUD's vision for NGMS additional functionality may be sought in 
future years. Dependent upon funding, such functionality includes:
  --a system for identifying and managing PHA risks;
  --collection of Moving to Work PHA plan and budget details in order 
        to improve performance monitoring;
  --integration of Physical Needs Assessment and Energy and Performance 
        Information Center data with AHLIC lifecycle information in 
        order to assess PHA capital planning effectiveness; and
  --adding the capability to monitor a track Choice Neighborhood and 
        HOPE VI grant performance.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy
  departmentwide disadvantage for grant applications from rural states
    Question. In the Department's General Section to the Department's 
fiscal year 2014 Notice of Funding Availability for Discretionary 
Programs [Docket No. FR-5800-N-01], the Department added a new 
preference point under the heading of ``Promoting Economic Development 
and Economic Resilience'' for applicants that demonstrate that 
activities will be conducted and projects sited at locations that will 
help households reduce their transportation costs. Under this 
requirement metropolitan areas (defined per 42 U.S.C. Sec. 5302(a)(3)) 
must be within one-half mile of amenities that are appropriate to the 
served population in order to receive the preference point. 
Nonmetropolitan sites, which would include all other applicants that 
are not metropolitan areas, must be within one mile of amenities that 
are appropriate to the served population.
    In rural communities, it is fairly common for the nearest neighbor 
may be more than one mile away and therefore no rural State or rural 
area application would ever qualify for this preference point. Very 
often in grant competitions the difference between an application 
receiving funding and those that do not, is a single point. For 
programs like Lead-Based Paint Hazard Control (LHC) and the Lead Hazard 
Reduction (LHRD) grant programs, which does important work in many 
rural communities, applicants would be unable to qualify for the 
preference point and therefore unlikely to receive funding if they 
aimed to abate lead in one of the 23 million housing units with lead-
based hazards, including the 1.1 million low-income households with 
children simply because their home is not located within a mile of a 
school and hospital.
    This priority point creates a Departmentwide disadvantage for any 
rural applicant applying for grant funding from HUD. What steps will 
the Department take to ensure that rural communities are not put at a 
disadvantage when applying for grants?
    Answer. It is important to highlight that this priority point in 
question is just one of several from which program NOFA drafters may 
choose. HUD endeavors to select preference points that are appropriate 
for each specific NOFA. This bonus point, with its emphasis on the 
decision where to locate a development or services center, would not be 
appropriate for lead abatement, which by definition occurs where the 
lead is. In fact, neither Lead Hazard Reduction Demonstration nor Lead 
Based Paint Hazard Control chose this priority for their fiscal year 
2014 NOFA as it would not be applicable to the NOFA activities.
    HUD addresses the needs of rural and tribal areas through a number 
of programs, and targets these needs specifically through programs 
including Rural Capacity Building for Community Development and 
Affordable Housing Grants, Indian Community Development, and the Main 
Street program.
    Question. Will you commit to adding a priority point for applicants 
serving largely under-served rural and tribal areas to even the playing 
field? Or alternatively create a reasonable distance requirement for 
rural communities to qualify for the Reducing Transportation Costs/
Proximity to Amenities preference points?
    Answer. We re-evaluate priority points each year, and continue our 
efforts to ensure the points offer an even playing field for each the 
intended NOFA audience, including underserved rural and tribal areas.
                   changes to home regulations-chdos
    Question. Under the Housing and Urban Development's HOME Program, 
new regulations at 92.300(a)(4) require Community Housing Development 
Organizations (CHDOs) to act as the sole general partner in order for 
tax credit projects to qualify for the required 15 percent CHDO set-
aside. The required minimum 15 percent set-aside of HOME annual 
allocations for projects ``owned, developed, or sponsored'' by CHDOs 
rightfully prioritizes strong ownership and local presence in the 
community. Unfortunately, in rural States that rely on partnerships 
among housing providers to expend Federal tax credits, the affordable 
housing delivery system demands a co-general partnership model in order 
to provide management, as well as financial stability. In the past, 
this model has been recognized by HUD for building CHDO capacity in 
rural communities that ensure attractive investment opportunities. 
While HUD does acknowledge this example, these new regulations stress 
the sole general partner language in order to comply with the intent of 
the HOME statute.
    As described, the co-general partnership model does comply with the 
intent of the HOME statute; the CHDO remains the managing general 
partner, as required by 92.300(a)(i), with the co-general partner 
acting exclusively as the financial general partner. What steps will 
the Department take to accommodate alternative partnership models that 
meet the sufficient requirements of the intent of the HOME statute, as 
written by 92.300(a)(i)?
    Answer. Contrary to the statement above, the HOME regulations at 24 
CFR 92.300(a)(1) have always required that, if a CHDO owns a project in 
partnership or through its wholly owned subsidiary, it must be the 
managing general partner. Further, the HOME regulations have always 
explicitly required that the CHDO have effective management control of 
the HOME-assisted project. These provisions implement the statutory 
intent that CHDOs maintain control of the project both during 
development and operation of a project funded with CHDO set-aside 
funds.
    In the HOME final rule published in July 2013, HUD clarified the 
language in the regulation to make clear that the CHDO must be the 
``sole'' managing member or ``sole'' general partner of the partnership 
that owns the HOME project. This clarification was made because HUD 
learned in the proposed rulemaking process that many CHDOs were acting 
as a ``co-general partner'' with respect to HOME projects, in violation 
of the HOME regulations. Many participating jurisdictions apparently 
permitted this practice because their CHDOs did not have the requisite 
capacity to develop, own or manage a HOME project, e.g., to exercise 
effective control over the development process or over the subsequent 
operations of the property. These organizations did not meet the 
definition of CHDO in effect before the publication of the July 2013 
HOME final rule and should not have been awarded CHDO set-aside funds.
                         changes to home-chdos
    Question. Does the Department foresee an opportunity for States 
that meet the sufficient requirements of the intent of the HOME 
statute, as written by 92.300(a)(i), to receive a waiver to the sole 
general partner requirement as long as they remain in high performance 
standing?
    Answer. HUD may consider a waiver of the requirement that the CHDO 
be the sole managing partner in instances in which the CHDO retains 
sole control of the development process and the ongoing management of 
the project independent of the co-general partner.
       formal guidance regarding modifications to final home rule
    Question. Since the modifications to the HOME rule were published 
in Federal Register in July 2013, limited formal guidance has been 
provided to Participating Jurisdictions on new requirements (at 92.251 
and 92.504). As a result, concerns regarding how these changes may be 
duplicative and may modify administration costs without commensurate 
increase in profit benefit exist. What is the expected timeline of the 
release of formal guidance on these changes?
    Answer. HUD plans to issue formal guidance on the new requirements 
for property standards (24 CFR 92.251) and ongoing property inspections 
(24 CFR 92.504(d)) this summer. While many provisions of the new HOME 
final rule published in July 2013 are effective, HUD established a 
delayed effective date for certain requirements in order to provide 
time for HUD to issue guidance and offer training and technical 
assistance to participating jurisdictions. The requirements for new 
property standards and inspection requirements were made applicable to 
projects to which a participating jurisdiction commits HOME funds on or 
after January 24, 2015. All other projects are subject to the previous 
rules for property standard and inspections. Also, you may be 
interested to know that the Department's OneCPD Resource Exchange 
contains additional information on the HOME final rule, including links 
to webcasts and other resources.
    Question. What steps is the Department taking to ensure States are 
provided consistent, sufficient technical assistance to transition to 
these new regulations without resulting penalties?
    Answer. Later this year, HUD will begin providing nationwide 
training and technical assistance to assist HOME participating 
jurisdictions in implementing the property standard and ongoing 
property inspection requirements. The new HOME program requirements 
draw on existing widely used international building codes and property 
inspection protocols frequently used in Federal Housing Administration 
(FHA) and Low Income Housing Tax Credit (LIHTC) properties. Many States 
and localities are already familiar with these requirements.
    Currently, through an initiative of the White House Rental Policy 
Working Group, HUD is conducting a pilot with several States (including 
Vermont) on alignment of property inspections in properties that 
receive multiple sources of Federal funding (e.g., from LIHTC, FHA, 
USDA, HOME). This alignment is expected to reduce duplicative 
inspections and administrative burden for States.
        national environmental policy act (nepa) review of cdbg
    Question. Section 24 CFR Part 58.22 of HUD's environmental review 
procedure prohibits taking ``choice-limiting'' actions on projects 
prior to the completion of the environmental review and approval of a 
Request for Release of Funds. In the past, Purchase & Sales agreements 
that are conditioned on the satisfactory completion of an environmental 
review had been used and under the new or updated interpretation of 
NEPA are now being considered choice limiting actions.
    One effect of this requirement is to preclude municipalities and 
their development partners from entering into a purchase and sale 
agreement for the acquisition of a project property until after the 
review is completed and approved. This can include conducting 
environmental assessments, a sometimes lengthy and costly process. It 
is difficult for communities and development partners to understand why 
a conditional P&S cannot allow for the appropriate review and 
environmental protection and improvement we all seek. New England's 
Regional Environmental Officer, Beth Held, has been very responsive to 
questions on this and has offered extensive technical assistance, 
however the HUD guidance remains problematic to implement.
    What steps will the Department take to ensure that rural 
development projects are not in jeopardy as a result of this new 
definition of ``choice-limiting'' actions?
    Answer. HUD has not changed its definition or interpretation of 
choice-limiting actions. Once an application for HUD assistance has 
been submitted, HUD's regulations at 24 CFR 58.22 prohibit applicants 
and other development partners from taking a choice-limiting action 
until the environmental review has been complete. Choice-limiting 
actions include property acquisition and any physical action such as 
construction, rehabilitation or grading. Although HUD does not allow 
conditional purchase and sales agreements, HUD regulations explicitly 
permit applicants to enter into option agreements before the 
environmental review is complete.
    The National Environmental Policy Act requires an analysis of an 
unprejudiced analysis of alternatives. An executed purchase and sales 
contract, even with a condition of a satisfactory environmental review, 
inherently limits the consideration of alternative sites.
    Question. When can States expect formal guidance from HUD regarding 
this change and what technical assistance can be expected from 
Headquarters to assist PJs in this implementation?
    Answer. There has been no change in guidance for what constitutes a 
choice-limiting action; therefore HUD will not be issuing formal 
guidance. However, since there may be some confusion about this policy 
among field staff and grantees, HUD will issue a clarification to field 
staff to ensure clarity and consistency.
                                 ______
                                 
               Questions Submitted by Senator Tom Harkin
              multifamily transformation-des moines office
    Question. I am concerned by a proposal in your budget that would 
result in the closure of the Multifamily Housing Program Office in Des 
Moines Iowa. I have previously written you with my concerns about the 
impact that this proposed reorganization will have on my constituents, 
including the HUD employees in Iowa, as well as HUDs long-term presence 
in the State.
    Unlike other States of similar size, the HUD office in Des Moines 
is not home to any other program offices. All other HUD employees in 
Des Moines, besides the Field Policy and Management staff, are out-
stationed employees from other program offices. As part of the 
Multifamily Program transformation, HUD has proposed allowing existing 
Multifamily staff to move to other program offices. However, that is 
not a viable option for the Multifamily Housing staff in Des Moines 
given that there are no other program offices in the State. Therefore, 
what is HUD doing to ensure that HUD Multifamily Program Office 
employees in Des Moines that want to remain in Des Moines are afford 
the same chance to do so as other Multifamily Housing staff outside of 
Iowa?
    Answer. Under the modified transformation plan which we are 
currently implementing, all Multifamily Asset Management staff will be 
permitted to remain in place and perform asset management duties. 
Multifamily Production employees in Des Moines who do not wish to 
relocate may be able to take advantage of the opportunity to exchange 
jobs with a comparably qualified employee in a different HUD program 
area or in Multifamily Asset Management. Currently, there are 24 HUD 
employees located in the Des Moines office, twelve of whom work in 
other HUD program areas. Ten of these twelve non-Multifamily 
individuals are currently eligible for retirement and may wish to take 
advantage of a buyout incentive by participating in the job exchange 
program. We believe these opportunities will mitigate the impact for 
Production staff that are otherwise required to relocate.
    Question. Should HUD move forward with the Multifamily office 
closure in Des Moines, Iowa will be left without any offices that 
deliver one of HUD's core programs. When HUD announced the closure of 
16 field offices in April, 2013, it justified the closure by stating 
that ``the affected offices have in common the fact that they are not 
home to Hubs or Centers delivering any of HUD's core programs, i.e., 
Housing, CPD, FHEO, PIH.'' Given that the closure of the Multifamily 
Housing Program office would leave Iowa without an office that delivers 
one of HUD's core programs, I am deeply concerned about what this would 
mean for HUDs long-term presence in Iowa should HUD engage in a future 
round of office closures.
    While I understand that HUD has no current plans to close any 
additional offices, I am not reassured by the responses I have received 
so far about HUD's long-term commitment to maintaining a presence in 
Iowa. Many States with fewer residents than Iowa have multiple core 
program offices including Mississippi, Arkansas, and Kansas. Given this 
fact, not only would it be deeply unfair if Iowa were to lose the only 
remaining core program office in the State, but also it would be a 
troubling statement of HUDs long-term commitment to remaining in Iowa.
    So, can you reassure me that HUD will maintain its office in Des 
Moines Iowa for the long-term? What will you do to ensure that HUD does 
not do anything to reduce its future presence in Iowa, particularly 
given that it would leave Iowans deeply underserved compared to 
residents of similarly sized States?
    Answer. HUD currently maintains an office in Des Moines that is 
staffed by both Multifamily and Field Policy Management staff. There 
are no plans to close the Des Moines office; HUD's Field Policy 
Management presence in Iowa would remain in all scenarios. The 
Department is committed to maintaining a presence in every State, and 
providing effective program delivery and quality customer service to 
every community.
    As it relates to Multifamily, Congress's modified plan for HUD's 
Multifamily transformation would retain Asset Management in all 
existing locations, including Des Moines, and consolidating leadership 
and much of our business operations into 12 core offices.
    However, through the fiscal year 2015 budget process, HUD has 
requested authority to consolidate Asset Management into 12 core 
offices and continues to believe that doing so will best position 
Multifamily to provide superior service to Iowa stakeholders for years 
to come. With this request, HUD will continue to serve Iowa 
stakeholders and would be able to do so more effectively and 
efficiently.
    As we move forward, HUD is committed to providing its employees in 
Des Moines as many options as feasible. For example, it has offered 
Multifamily Production employees several options for remaining in the 
Des Moines office, even in the full Multifamily Transformation plan. 
Multifamily Production employees in Des Moines who do not wish to 
relocate may be able to take advantage of the opportunity to exchange 
jobs with a comparably qualified employee in a different HUD program 
area. Currently, there are 24 HUD employees located in the Des Moines 
office, twelve of whom work in other HUD program areas. Ten of these 
twelve non-Multifamily individuals are currently eligible for 
retirement and may wish to take advantage of a buyout incentive by 
participating in the job exchange program. We believe these 
opportunities will mitigate the impact for Production staff that are 
otherwise required to relocate.
    As we move forward, we will continue our discussions with all 
Members on the ways that HUD can position itself to effectively serve 
the Nation's communities and its people.
                                 ______
                                 
            Questions Submitted by Senator Richard C. Shelby
      financial health of the federal housing administration (fha)
    Question. Last year, due to projected losses on its Mutual Mortgage 
Insurance (MMI) portfolio, the FHA was forced to withdraw $1.7 billion 
from the U.S. Treasury. While the budget request for fiscal year 2015 
does not include another expected transfer from the Treasury, last 
year's budget underestimated the amount of an FHA bailout by about $700 
million. What economic assumptions and other factors have you used to 
determine that the FHA will not require another mandatory transfer this 
year?
    Answer. Each year the President's Budget is prepared using a 
consistent set of economic assumptions across all Federal agencies. For 
the MMI Fund, this process determines the dollar amount of funds to be 
transferred either to or from the Capital Reserve account to assure FHA 
has the required amount of loss reserves in its MMI operating account. 
In recent years, FHA has made significant transfers from the Capital 
Reserve to the operating account to address growing losses from a long 
and deep economic recession.
    As a result of making major programmatic changes, improving risk 
management, and restructuring pricing, the value of the MMI Fund has 
improved significantly since 2012. The improved economic value of the 
MMI Fund has led the FHA's independent actuary to expect the fund to 
accumulate capital at a much faster rate than was projected in 2012, 
which in turn would enable the MMI Fund to reach a 2 percent capital 
reserve ratio by fiscal year 2015 (2016 if reserve is measured by its 
ratio to the unamortized balance of insurance).
    The required transfer of funds for fiscal year 2014 was made at the 
end of March, leaving a Capital Reserve balance of $2.2 billion as of 
March 31, 2014. This means we are now building our Capital Reserve 
balance with every loan we insure. The expected balance at the end of 
this fiscal year is around $8 billion, based on current volume 
projections.
    Question. What is the current cash position of the FHA's MMI 
portfolio?
    Answer. As of March 31, 2014, the MMI Fund held $44.4 billion in 
cash on hand.
    Question. How does it compare to the capital reserve account 
balance, which is based on the net present value of expected future 
cash flows?
    Answer. The MMI Capital Reserve balance was $2.2 billion at the end 
of March, following the booking of our required budget re-estimate. 
That balance is held in securities at Treasury that can be redeemed at 
any time to provide cash. The Capital Reserve Account is not directly 
tied to the net present value of future cash flows.
    Question. In general, what steps is the FHA taking to make sure 
that Congress has better real-time information on the financial health 
of the MMI book of business?
    Answer. FHA is committed to transparency. The President's Budget 
provides projections of endorsements and expected Capital balances as 
of September 30 for each year. We provide a number of public reports 
each month on the volume and quality of newly insured loans, and on 
delinquency and foreclosure patterns of all of our business lines.
    Our Quarterly Report to Congress on the Financial Status of the MMI 
Fund has a wealth of information on loan quality and financial health. 
There we provide detailed business operation cash flows and the 
balances of our Financing and Capital Reserve Accounts. We also provide 
information on credit score and LTV migration and serious delinquency 
patterns by book-of-business.
                 homeowners armed with knowledge (hawk)
    Question. The Administration's budget proposes a new FHA initiative 
called HAWK (Homeowners Armed With Knowledge), a program that connects 
HUD-approved housing counselors with FHA borrowers. In order to promote 
these services, the FHA will provide ``incentives'' to borrowers, which 
are estimated to reduce FHA's receipts by $10 million in the short 
term. How are such incentives determined?
    Answer. The HAWK for New Homebuyers pilot, one of several HAWK 
initiatives, will offer incentives to first-time homebuyers who 
complete several elements of housing counseling and education with a 
HUD-approved housing counseling agency. HAWK first-time homebuyers are 
expected to have fewer delinquencies, defaults and claims compared to 
homebuyers with a similar credit profile who are not counseled. HUD 
plans to share the benefits of this reduced claim risk by lowering FHA 
mortgage insurance premiums for HAWK first-time homebuyers. The 
incentives will be structured as a reduction in the amount of the 
upfront mortgage insurance premium (MIP) and a permanent reduction in 
the annual MIP in order to provide an incentive to those first-time 
homebuyers that agree to complete the housing counseling requirements. 
The incentives are designed to motivate consumer behavior to obtain 
just-in-time education and tools to shop for a home, understand a 
mortgage, and all of the other responsibilities of homeownership. The 
amount and structure of the MIP incentives will be set based on the 
estimated impact on consumer behavior, and the impact of the program 
and the incentives on reducing the cost of claims to the MMIF.
    Question. What data has HUD used to determine that this program 
will provide longer-term benefits to taxpayers?
    Answer. Several large research studies have demonstrated the 
relationship between homebuyers working with HUD-approved housing 
counseling agencies and successful homeownership outcomes, including a 
significant reduction in mortgage delinquency and default. Some of the 
studies are listed below.
  --Counseling reduces the delinquency rate by 29 percent for first 
        time homebuyers and by 15 percent overall. (Working Paper April 
        2013) http://www.freddiemac.com/news/blog/pdf/
        benefits_of_pre_purchase.pdf.
  --Borrowers receiving pre-purchase counseling and education . . . are 
        one-third less likely to become 90+ days delinquent over the 2 
        years after receiving their loan. (2013) http://www.nw.org/
        network/newsroom/documents/ExperianMayer_FullReport.pdf.
  --The monthly payments of households [at risk of foreclosure] that 
        received counseling [before loan modification] were, on 
        average, $176 less than those who did not participate in 
        counseling. Counseling also made it 67 percent more likely that 
        the homeowner would sustain those payments after modification. 
        http://www.urban.org/uploadedpdf/412475-National-Foreclosure-
        Mitigation-Counseling-Program-Evaluation.pdf.
               housing counseling- certification testing
    Question. Dodd-Frank requires that in order to become a ``certified 
housing counselor,'' individuals must demonstrate competence through a 
written examination, which tests understanding of concepts such as 
financial management, housing laws, and mortgage defaults. In fiscal 
year 2013, HUD awarded a contract to assist with the design and 
administration of this exam. Yet HUD has recently proposed that under 
``certain conditions,'' taking a training program could be a substitute 
for passing the written examination. If HUD does not require a written 
examination for housing counselors, how can it assure Congress that the 
counselors it certifies will have sufficient skillsets to perform their 
jobs?
    Answer. HUD's proposal will ensure that housing counselors have the 
skills to meet statutory requirements, whether they are tested directly 
by HUD or whether--as proposed--they complete training and pass an 
examination through an alternative provider qualified to meet HUD 
standards.
    HUD has established specific learning objectives for each Dodd-
Frank topic that housing counselors will be tested for competency. If 
this legislative proposal is passed, these learning objectives will be 
used as the basis for evaluating other training and certification 
programs. Eligible coursework would be approved by HUD based on two 
criteria: (1) meeting Dodd-Frank learning objectives and (2) requiring 
students to pass a proctored examination for course completion. To 
demonstrate competency, housing counselors would be allowed to submit 
any combination of HUD-approved coursework necessary to satisfy all HUD 
Dodd-Frank learning objectives.
    HUD has already identified numerous entities and certification 
programs covering
    Dodd-Frank topics, including: foreclosure mitigation, pre-purchase, 
financial management, lending, and fair housing. Established 
certification programs often provide more in-depth training than 
required under HUD's housing counselor certification program. The 
process outlined above for substituting existing coursework and 
examinations for a new examination ensures housing counselors have 
demonstrated competency for the same Dodd-Frank learning objectives 
that HUD will require for the Housing Counselor Certification 
Examination. This proposal will allow housing counselors that have 
already invested valuable agency resources and time on training and 
certification to demonstrate competency without the additional 
financial burden of examination preparation time and testing fees.
                        worst place to work--hud
    Question. The Partnership for Public Service's 2013 report, ``The 
Best Places to Work in the Federal Government,'' rated HUD as the 
lowest-ranked mid-sized agency, with a score of 43.2 out of 100. This 
follows a continued drop in recent years from the 2010 level of 57.1. 
In addition, OPM's government-wide Employee Viewpoint Survey (EVS) 
reflects a similar trend, as HUD's Global Satisfaction Index score has 
gone from 62 in 2010 to 49 in 2013. These scores and trends continue to 
be troubling. What steps is HUD taking to address these issues?
    Answer. We are not pleased with our scores either. We believe that 
a more engaged workforce is premised on creating organizational values 
that align our employees more closely with what HUD is trying to 
accomplish and how each employee can be a part of that mission each and 
every day.
    Governmentwide scores on the Best Places to Work in the Federal 
Government Index have been declining since 2010. This index is built 
off of data collected from the Employee Viewpoint Survey, and generally 
moves in sync with EVS data. Until last year, HUD's declines in Best 
Places to Work Scores were similar to or better than the general 
Government trend (HUD declined 1.4 in 2011 and a 1.7 in 2012 compared 
to a Governmentwide decline of 1.0 in 2011 and 3.2 in 2012), and HUD's 
relative ranking was increasing. Last year, HUD announced 7 days of 
furloughs and began reorganization shortly before the EVS was 
administered. This contributed to a drop in EVS scores and associated 
Best Places scores that was larger than the governmentwide decline for 
2013 (10.8 for HUD, 3 for governmentwide scores).
    Since receiving our scores last October we have been developing 
strategies to make sure that our employees feel listened to and valued, 
and that they are given a part to play in making HUD better. Already we 
have:
  --Invested heavily in leadership education and development at all 
        levels.
  --Piloted an Innovation Time program that showed improvements in the 
        EVS scores of participating employees, and is now being used by 
        OPM as a model for their GovConnect Initiative.
  --Piloted a developmental rotations program which will become fully 
        operational beginning 3rd quarter of this year.
  --Increased the number of Labor Management Forums held and have made 
        concerted efforts to include our unions in pre-decisional 
        program and policy development.
  --Through the process of negotiating a new AFGE collective bargaining 
        agreement, HUD has identified and addressed a number of issues 
        and Union concerns regarding employee working conditions that 
        have given rise to grievances and complaints.
    In addition, we are developing a number of new initiatives that 
will further reinforce the changes we are making. Specifically:
  --Department leadership has continued efforts to embed our core 
        values in our performance standards, awards, and leadership 
        communications to employees.
  --We are developing an engagement framework to ensure each employee 
        is empowered to own and improve their own engagement and knows 
        that HUD supports them in that journey.
  --We are piloting a Quarterly Manager Feedback Survey tool, which 
        will enable employees to provide anonymous quantitative 
        constructive feedback to their direct supervisor on a quarterly 
        basis.
  --We are developing new internal communications vehicles to help 
        employees see the connection between their work and the people 
        we serve.
  --We are preparing for a larger second pilot of the successful 
        Innovation Time program.
  --In partnership with our Unions, we are developing a Center for 
        Conflict Resolution which will incorporate a collaborative 
        conflict resolution process in response to the issues discussed 
        between management and the Union.
  --After an initial pilot, we are improving and relaunching our 
        Clearinghouse program which facilitates lateral movement around 
        the Department.
  --We are working to rebuild and stabilize the Office of the Chief 
        Human Capital Officer after many years of turnover and loss of 
        talent.
                        hud workforce grievances
    Question. Federal agencies annually submit time and attendance data 
to OPM on the use of official time by Federal unions. The latest data 
published by OPM indicates HUD's union spends substantially more time 
dealing with employee dispute resolutions than any other Federal 
agency. In fact, HUD spends 45-50 percent of its time on this activity, 
roughly three times more than other agencies. This data suggests 
serious systemic problems within the Department. What is the Department 
doing to identify and address these issues, which are both costly and 
undermine the effectiveness of the agency?
    Answer. HUD recognizes that it has a high level of employee 
complaints which cause increased levels of union involvement in 
employee conflict resolution through the grievance process and our 
existing alternative dispute resolution process (ODEEO process). To 
address this problem, HUD is pursuing a multi-layered strategy to 
reduce the volume of disputes and ensure prompt resolution.
  --HUD is attempting to reduce the time spent on employee dispute 
        resolution by providing for informal resolution of grievances 
        in its National Federation of Federal Employees (NFFE) and 
        American Federation of Government Employees (AFGE) collective 
        bargaining agreements (CBAs). Specifically, the CBAs encourage 
        resolution through the informal resolution of grievances--
        recognizing that ``grievances arise from misunderstandings and 
        disputes which may be settled promptly and satisfactorily at 
        the immediate supervisor level.
  --Upon ratification and execution, the new AFGE CBA, Management 
        anticipates improved workplace dispute resolution. The proposed 
        CBA addresses union concerns in the performance management 
        article which includes language to facilitate union presence at 
        performance planning meetings; incorporates alternative 
        discipline actions in the disciplinary action article; and 
        includes a provision in the leave article which allows a 
        manager the discretion to provide additional leave under the 
        Family and Medical Leave Act (FMLA). As a result of these 
        provisions in the proposed CBA, the parties should experience a 
        decrease in employee grievances and complaints. Further, the 
        Union and Management will work on the development of a 
        collaborative conflict resolution process and the development 
        of specific conflict resolution training.
  --As a result of the proposed articles in the new CBA, the Office of 
        the Chief Human Capital Officer is working collaboratively with 
        the Office of Departmental Equal Employment Opportunity 
        (ODEEO), and the Office of the General Counsel (OGC) to develop 
        a preliminary structure for the HUD Center for Conflict 
        Resolution (CCR) and has, most recently, reached out to two of 
        our Unions to include them in the planning process and final 
        development stage. The CCR will incorporate a collaborative 
        conflict resolution process in response to the issues discussed 
        between management and the Union. The CCR will reduce the 
        amount of time devoted to formal adversarial activities and, by 
        extension, the amount of time that the unions are devoting to 
        employee conflict resolution. The CCR will be accessible to all 
        HUD employees for the purpose of resolving conflicts at the 
        earliest possible opportunity.
  --As an adjunct to the CCR, HUD is resurrecting its Ombudsman 
        program--providing an additional resource for employees to 
        redress their grievances before raising their issues to a 
        formal stage. The Ombudsman program will be housed with the 
        Center for Conflict Resolution and add an extra layer to this 
        dispute resolution program.
  --Further, HUD is providing training on the appropriate use of EEO 
        ADR resources. This training, in conjunction with the new CCR 
        process, will assist employees in resolving disputes promptly 
        by identifying the best avenue for a quick resolution.
    Question. What percentage of HUD's workforce is unionized?
    Answer. Excluding the HUD OIG, HUD's approximate workforce as of 
April 2014 was 7,810. Of that amount, HUD's bargaining unit employees 
are approximately 5,877. This includes--NFFE, NFFE professionals, AFGE, 
and AFGE professionals. This figure (5,877) represents approximately 75 
percent of HUD's workforce.

                          SUBCOMMITTEE RECESS

    Senator Murray. I really appreciate your testimony today. 
And the next hearing for this committee is Wednesday, April 9, 
at 9:45 a.m., at which time we will hold a hearing on keeping 
our railways safe for our passengers and communities. So thank 
you very much.
    Secretary Donovan. Thank you.
    [Whereupon, at 11:44 a.m.,Wednesday, April 2, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]