[Senate Hearing 113-313]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-113

TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2014

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

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

                           H.R. 2610/S. 1243

AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND 
HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES FOR THE FISCAL YEAR 
           ENDING SEPTEMBER 30, 2014, AND FOR OTHER PURPOSES

                               __________

              Department of Housing and Urban Development
                      Department of Transportation
                       Nondepartmental Witnesses

                               __________

         Printed for the use of the Committee on Appropriations



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                      COMMITTEE ON APPROPRIATIONS

               BARBARA A. MIKULSKI, Maryland, Chairwoman
PATRICK J. LEAHY, Vermont            RICHARD C. SHELBY, Alabama, Vice 
TOM HARKIN, Iowa                         Chairman
PATTY MURRAY, Washington             THAD COCHRAN, Mississippi
DIANNE FEINSTEIN, California         MITCH McCONNELL, Kentucky
RICHARD J. DURBIN, Illinois          LAMAR ALEXANDER, Tennessee
TIM JOHNSON, South Dakota            SUSAN M. COLLINS, Maine
MARY L. LANDRIEU, Louisiana          LISA MURKOWSKI, Alaska
JACK REED, Rhode Island              LINDSEY GRAHAM, South Carolina
FRANK R. LAUTENBERG, New Jersey \1\  MARK KIRK, Illinois
MARK L. PRYOR, Arkansas              DANIEL COATS, Indiana
JON TESTER, Montana                  ROY BLUNT, Missouri
TOM UDALL, New Mexico                JERRY MORAN, Kansas
JEANNE SHAHEEN, New Hampshire        JOHN HOEVEN, North Dakota
JEFF MERKLEY, Oregon                 MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska                  JOHN BOOZMAN, Arkansas

                   Charles E. Kieffer, Staff Director
             William D. Duhnke III, Minority Staff Director
                                 ------                                

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

                   PATTY MURRAY, Washington, Chairman
BARBARA A. MIKULSKI, Maryland        SUSAN COLLINS, Maine
RICHARD J. DURBIN, Illinois          RICHARD C. SHELBY, Alabama
PATRICK J. LEAHY, Vermont            LAMAR ALEXANDER, Tennessee
TOM HARKIN, Iowa                     LINDSEY GRAHAM, South Carolina
DIANNE FEINSTEIN, California         MARK KIRK, Illinois
TIM JOHNSON, South Dakota            DANIEL COATS, Indiana
FRANK R. LAUTENBERG, New Jersey \1\  ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 JERRY MORAN, Kansas
JACK REED, Rhode Island              JOHN BOOZMAN, Arkansas

                           Professional Staff

                              Alex Keenan
                          Meaghan L. McCarthy
                             Rachel Milberg
                              Dabney Hegg
                      Heideh Shahmoradi (Minority)
                         Ken Altman (Minority)
                       Jason Woolwine (Minority)
                        Rajat Mathur (Minority)

                         Administrative Support

                               Dan Broder

----------
    \1\ Died on June 3, 2013.






















                            C O N T E N T S

                              ----------                              

                        Thursday, April 11, 2013

                                                                   Page

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

                        Thursday, April 18, 2013

Department of Transportation:
    Federal Aviation Administration..............................    51
    Office of Inspector General..................................    51

                         Tuesday, June 4, 2013

Department of Housing and Urban Development:
    Federal Housing Administration...............................   125
    Office of Inspector General..................................   125
Nondepartmental Witnesses........................................   185
 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2014

                              ----------                              


                        THURSDAY, APRIL 11, 2013

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

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. SHAUN DONOVAN, SECRETARY


               opening statement of senator patty murray


    Senator Murray. Good morning. The subcommittee will come to 
order.
    This morning, we welcome Secretary Donovan to the 
subcommittee to discuss the President's fiscal year 2014 budget 
request for the Department of Housing and Urban Development 
(HUD).
    As we begin our discussion of next year's budget, we have 
to really acknowledge where we are today. Because of the 
unwillingness of some in Congress to compromise on fair and 
balanced deficit reduction, we are now living with 
sequestration and the arbitrary cuts to Federal spending that 
it requires.
    Some here in Washington, DC, have claimed that the impact 
is minimal. That is not the story that people all across the 
country who have to live with sequestration's consequences are 
telling.
    The truth is these cuts are having an impact. And in so 
many cases, it is an impact that is being felt by the most 
vulnerable in our society.
    The cut to HUD's section 8 voucher program, for example, is 
more than $938 million, forcing housing authorities to make 
difficult choices to stay within their reduced budgets.
    On the ground, that means tens of thousands of fewer 
vouchers to help our low-income families find safe, affordable 
housing.
    In my home State of Washington, the King County Housing 
Authority announced it will not be reissuing vouchers, leaving 
our low-income Washington families without access to affordable 
housing. Stephen Norman, who is the King County Housing 
Authority director, said immediately after he was forced to 
make these cuts that, ``Because rents are so high, many of 
these families may, quite literally, find themselves out on the 
street as a result of these arbitrary cuts.''
    They are not alone. Many housing authorities across the 
country are being forced to make similar decisions.
    In other communities, families that were in the process of 
finding a place to live after spending months or years on a 
waiting list have been told their voucher has been withdrawn.
    They are losing hope and relief of finally having access to 
affordable housing. Instead, they are left with frustration and 
uncertainty.
    Those families are paying the price for the fact that 
Washington, DC, continues to lurch from crisis to crisis 
instead of compromising around a balanced deficit reduction 
plan.
    As we continue to debate the future of the Federal budget, 
they are a clear reminder that our decisions have consequences, 
because this debate is about more than just numbers, it is 
about people's lives and the Nation's values.
    This debate is also occurring at a critical time for our 
economy. After struggling through the great recession, the 
economy is finally growing. But recent jobs reports highlight 
how fragile our recovery is and that we cannot afford to push 
off the hard choices a budget deal requires.
    Our focus needs to be on creating jobs today, while laying 
a strong foundation for the future.
    A responsible plan will reduce the Nation's deficit. But it 
cannot be at the expense of the most vulnerable or investments 
in things like infrastructure and education that are essential 
for a strong economy.
    The budget we recently passed in the Senate provides a path 
forward that balances responsible spending cuts with necessary 
investments. And I look forward to working with my colleagues 
in both the House and the Senate to try to enact a responsible 
budget compromise.
    This will require hard choices on all sides, but the 
American people expect action.
    So as we continue to work on the budget, we also have to 
begin our work on the fiscal year 2014 appropriations bills. 
And today, this subcommittee begins its work by examining HUD's 
budget request.
    The majority of HUD's budget supports a critical part of 
the Nation's safety net--housing assistance. This includes 
funding for section 8 vouchers, project-based section 8, public 
housing, and homeless assistance grants.
    These programs have long provided low-income Americans with 
safe, affordable housing and shelter in time of crisis. These 
programs are even more important today as families struggle to 
find affordable housing.
    According to HUD's recent report on the worst-case housing 
needs, in 2011, there were over 8.5 million low-income renters 
who spent more than 50 percent of their income on housing, 
lived in severely substandard housing, or both.
    Perhaps even more troubling is the fact that this number 
has grown by 43.5 percent since 2007.
    As we struggle to address the growing housing needs with 
limited resources, Federal programs must be smarter and more 
agile. Neither the taxpayers nor the millions of people who 
rely on these programs can afford waste or inefficiency.
    So it is incumbent upon HUD and this subcommittee to ensure 
accountability. We have to look for ways to improve program 
oversight and delivery by ensuring people are following the 
rules, eliminating outdated regulations, streamlining programs, 
and improving coordination across Government programs to make 
the best use of scarce resources.
    Improving Federal programs goes beyond ensuring compliance. 
It also means focusing on outcomes.
    Successful housing programs are those that create new 
opportunities for their residents so they can improve their 
lives and those of their children.
    In Washington State, I have seen exciting partnerships 
among housing authorities, schools, community colleges, and 
employers designed to reduce poverty and its lasting impacts.
    These partnerships are built on an understanding that 
housing can and should do more than meet the basic need for 
shelter.
    Housing in strong, safe neighborhoods with access to good 
schools, jobs, services, and transportation can help transform 
people's lives.
    The President's budget includes an initiative called 
Ladders to Opportunity, which is focused on creating jobs, 
attracting private investment, improving educational outcomes, 
and increasing economic activity in high-poverty communities 
across the Nation.
    Several proposals in HUD's budget support this initiative, 
including Choice Neighborhoods, the Rental Assistance 
Demonstration, and the Neighborhood Stabilization Initiative.
    In addition, the budget includes a new pilot program to 
help address the needs of the growing low-income elderly 
population, funding to combat mold in Indian country, and 
expansion of the successful Jobs-Plus program for public 
housing residents.
    While all of these proposals address important issues 
facing urban and rural communities across the country, we must 
evaluate both their budgetary cost and HUD's capacity to take 
on new initiatives.
    HUD cannot effectively manage new initiatives at the cost 
of the performance and oversight of their existing programs.
    The Department must improve its oversight of public housing 
authorities and other grantees; deliver on the needed 
investments in its information technology (IT) systems; and 
continue to strengthen the Federal Housing Administration's 
(FHA) Mutual Mortgage Insurance (MMI) Fund, which the budget 
anticipates needing to draw on taxpayer funds for the first 
time in its history.
    As our housing market continues its recovery, now is the 
time to be thinking of the future of the Nation's housing 
policy.
    This conversation is appropriately focused on reforming our 
housing finance system to ensure a strong housing market, 
supported primarily by the private market. But this 
conversation must also address the future of affordable rental 
housing.
    Recently, the Bipartisan Policy Center's Housing Commission 
released recommendations for the future of housing policy. My 
friend, former Senator Kit Bond, was a member. Their 
recommendations support homeownership and the need to reform 
our Nation's housing finance system.
    The commission also reaffirmed the importance of affordable 
housing. Its recommendations provide a very good foundation for 
beginning the discussion of our Nation's housing policy, which 
I look forward to continuing today.

                           PREPARED STATEMENT

    And with that, I will turn it over to my partner, Senator 
Collins.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
    The subcommittee will come to order. This morning we welcome 
Secretary Donovan to the subcommittee to discuss the President's fiscal 
year 2014 budget request for the Department of Housing and Urban 
Development (HUD). As we begin our discussion of next year's budget, we 
must acknowledge where we are today.
             sequestration's impact on the most vulnerable
    Because of the unwillingness of some in Congress to compromise on 
fair and balanced deficit reduction, we are now living with 
sequestration and the arbitrary cuts to Federal spending it requires.
    And while some here in Washington, DC, have claimed that the impact 
is minimal, that's not the story that people all across the country who 
have to live with sequestration's consequences are telling. The truth 
is these cuts are having an impact. And in so many cases it's an impact 
that's being felt by the most vulnerable in our society.
    The cut to HUD's section 8 voucher program, for example, is more 
than $938 million, forcing housing authorities to make difficult 
choices to stay within their reduced budgets. On the ground, this means 
tens of thousands of fewer vouchers to help low-income families find 
safe, affordable housing.
    In my home State of Washington, the King County Housing Authority 
announced that it will not be re-issuing vouchers, leaving low-income 
Washington families without access to affordable housing. Stephen 
Norman, the King County Housing Authority director, said immediately 
after he was forced to make these cuts that ``Because rents are so 
high, many of these families may, quite literally, find themselves out 
on the street as a result of these arbitrary cuts.''
    And they are not alone. Many housing authorities across the country 
are being forced to make similar decisions. In other communities, 
families that were in the process of finding a place to live after 
spending months or years on a waiting list have been told that their 
voucher has been withdrawn. They are losing the hope and relief of 
finally having access to affordable housing. Instead they are left with 
frustration and uncertainty. These families are paying the price for 
the fact that Washington, DC, continues to lurch from crisis to crisis 
instead of compromising around a balanced deficit reduction plan. As we 
continue to debate the future of the Federal budget, they are a clear 
reminder that our decisions have consequences.
    Because this debate is about more than just numbers, it is about 
people's lives and the Nation's values. This debate is also occurring 
at a critical time for our economy. After struggling through the Great 
Recession, the economy is finally growing. But recent jobs reports 
highlight how fragile our recovery is and that we cannot afford to push 
off the hard choices a budget deal requires.
    Our focus needs to be on creating jobs today, while laying a strong 
foundation for the future. A responsible plan will reduce the Nation's 
deficit. But it cannot be at the expense of the most vulnerable or 
investments in things like infrastructure and education that are 
essential for a strong economy.
    The budget we recently passed in the Senate provides a path forward 
that balances responsible spending cuts with necessary investments. I 
look forward to working with my colleagues in both the House and Senate 
to try to enact a responsible budget compromise. This will require hard 
choices on all sides, but the American public expects action.
    As we continue work on the budget, we must also begin our work on 
the fiscal year 2014 appropriations bills. And today, this subcommittee 
begins its work by examining HUD's budget request.
    The majority of HUD's budget supports a critical part of the 
Nation's safety net--housing assistance. This includes funding for:
  --section 8 vouchers;
  --project-based section 8;
  --public housing; and
  --homeless assistance grants.
    These programs have long provided low-income Americans with safe, 
affordable housing and shelter in times of crises. These programs are 
even more important today as families struggle to find affordable 
housing.
    According to HUD's recent report on the worst case housing needs, 
in 2011, there were over 8.5 million low-income renters who spent more 
than 50 percent of their income on housing, lived in severely 
substandard housing, or both. Perhaps even more troubling is the fact 
this number has grown by 43.5 percent since 2007.
                improving performance and accountability
    As we struggle to address the growing housing needs with limited 
resources, Federal programs must be smarter and more agile. Neither the 
taxpayers nor the millions of people who rely on these programs can 
afford waste or inefficiency. So it is incumbent upon HUD and this 
subcommittee to ensure accountability. We must look for ways to improve 
program oversight and delivery by:
  --Ensuring people are following the rules;
  --Eliminating outdated regulations;
  --Streamlining programs; and
  --Improving coordination across Government programs to make the best 
        use of scarce resources.
    Improving Federal programs goes beyond ensuring compliance. It also 
means focusing on outcomes. Successful housing programs are those that 
create new opportunities for their residents so that they can improve 
their lives and those of their children.
    In Washington State, I have seen exciting partnerships among:
  --Housing authorities;
  --Schools;
  --Community colleges; and
  --Employers designed to reduce poverty and its lasting impacts.
    These partnerships are built on an understanding that housing can 
and should do more than meet the basic need for shelter. Housing in 
strong, safe neighborhoods with access to good schools, jobs, services, 
and transportation can help transform people's lives. The President's 
budget includes an initiative called ``Ladders to Opportunity'', which 
is focused on:
  --Creating jobs;
  --Attracting private investment;
  --Improving educational outcomes; and
  --Increasing economic activity in high poverty communities across the 
        Nation.
    Several proposals in HUD's budget support this initiative, 
including:
  --Choice Neighborhoods;
  --The Rental Assistance Demonstration; and
  --The Neighborhood Stabilization Initiative.
    In addition, the budget includes a new pilot program to help 
address the needs of the growing low-income elderly population, funding 
to combat mold in Indian Country, and expansion of the successful Jobs-
Plus program for public housing residents.
    While all of these proposals address important issues facing urban 
and rural communities across the country, we must evaluate both their 
budgetary cost and HUD's capacity to take on new initiatives.
    HUD cannot effectively manage new initiatives at the cost of the 
performance and oversight of existing programs. The Department must:
  --Improve its oversight of public housing authorities and other 
        grantees;
  --Deliver on the needed investments in its IT systems; and
  --Continue to strengthen FHA's Mutual Mortgage Insurance Fund, which 
        the budget anticipates needing to draw on taxpayer funds for 
        the first time in its history.
    As our housing market continues its recovery, now is the time to be 
thinking of the future of the Nation's housing policy. This 
conversation is appropriately focused on reforming our housing finance 
system to ensure a strong housing market, supported primarily by the 
private market. But this conversation must also address the future of 
affordable rental housing.
    Recently, the Bipartisan Policy Center's Housing Commission 
released recommendations for the future of housing policy. My friend, 
former Senator Kit Bond, was a member. Their recommendations support 
homeownership and the need to reform our Nation's housing finance 
system.
    The Commission also reaffirmed the importance of affordable 
housing. Its recommendations provide a good foundation for beginning 
the discussion of our Nation's housing policy, which I look forward to 
continuing today.
    With that I turn it over to my partner, Senator Collins.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you, Madam Chairman.
    First of all, let me say that I am delighted to be working 
with you once again this year, as we start the fiscal year 2014 
appropriations process under the new leadership of both 
Chairman Mikulski and Vice Chairman Shelby, as well as the 
members of this subcommittee, including our colleagues, Senator 
Coats and Senator Blunt, who have joined us today. I am always 
glad to see strong representation on the Republican side of the 
dais here.
    Mr. Secretary, it is also a great pleasure to see you 
again. I am very happy that you are apparently going to be 
staying on in the second administration, at least for a while, 
since I have found you to be a real straight-shooter and 
dedicated to improving housing opportunities for the people of 
this country. And I look forward to continuing to work with 
you.
    Obviously, we still have very serious budget issues to deal 
with. And we must find a careful balance to ensure that we deal 
with the ongoing unsustainable $16.7 trillion debt, while 
providing housing for our most vulnerable citizens.
    As we begin to construct this spending bill, we continue to 
face difficult decisions given these fiscal constraints. 
Sequestration is going to make some of these decisions even 
tougher.
    I am concerned for the Maine housing authority directors, 
with whom I recently met, who told me they are being forced to 
reduce spending at the expense of families in need. Some of 
them told me that they were actually turning back vouchers 
because they did not have sufficient administrative funds. And 
that certainly is of great concern.
    Yet, even though sequestration cuts have already taken 
effect, the deficit continues to rise. The budget that HUD has 
submitted is $47.6 billion for fiscal year 2014 and an increase 
of nearly $4.2 billion, or 6.67 percent, over the fiscal year 
2013 sequestration levels.
    What would be helpful to me today, however, is to have you 
describe the total resources that are available to HUD, 
including offsetting receipts, and to give us a comparison to 
the pre-sequestration levels, as well. And I understand that 
you are prepared to do that.
    The vast majority of this funding will support renewals for 
rental and homelessness assistance. The budget also provides 
for investment to revitalize neighborhoods and support economic 
development initiatives in communities throughout the country.
    As we prepare the budget, it is critical that we address 
the ongoing challenges with homelessness, which remains a 
personal top priority of mine.
    Chairman Murray and I continue to share this commitment, 
particularly for our Nation's veterans. One out of every six 
men and women in homeless shelters are veterans. And 
unfortunately, veterans are 50 percent more likely to fall into 
homelessness compared to other Americans.
    I am pleased that the budget continues funding for HUD's 
Veterans Affairs Supportive Housing, the HUD-VASH program, at 
$75 million. This level of funding, I am told, will allow us to 
serve an additional 10,000 veterans.
    And it is important to note that this program is working, 
that veterans' homelessness has fallen, and it fell by nearly 
7.2 percent from 2011 to 2012. That demonstrates that programs 
like this work.
    And that needs to be our focus. We need to focus like a 
laser on what kinds of housing programs work, give us the 
biggest bang for the buck, and what kind really have outlived 
their usefulness, are not expansive, and, most of all, are not 
effective in serving families in need.
    In addition to programs that serve the homeless, HUD 
provides important support for affordable rental housing.
    Another important issue which we discussed at length is the 
oversight and monitoring of HUD's programs. In that regard, Mr. 
Secretary, I want to thank you for your work on an 
investigation in Maine into the Maine State Housing Authority 
section 8 voucher program last year. I requested an 
investigation into the troubling cases of serious code 
violations and other poor conditions that were uncovered in 
Oxford County, Maine, and brought to me by the attention of a 
local fire chief who was so concerned. And I appreciate so much 
the work of your Department in addition to the work of the 
inspector general.
    It is critical that federally subsidized properties comply 
with all health, safety, and quality standards. After all, it 
is inexcusable that we are putting residents in units and 
apartments that had serious violations of welfare and safety 
and health standards. But it is doubly offensive when the 
taxpayers are subsidizing those unfit units.
    So those are just some of the issues. I am pleased with the 
increased funding levels for section 202 housing for the 
elderly. This program has provided over 400,000 affordable 
homes for very low-income elderly individuals through a number 
of different financing structures.
    Many people are surprised to learn that Maine has one of 
the largest elderly populations in the country. In fact, if you 
look at the median age, we are the oldest State in the Nation, 
older than Florida even. That raises certain challenges.
    There is one area that I want to highlight in closing, and 
that is the funding level for the community development block 
grant (CDBG) program. As you know, I believe that the level of 
$2.79 billion is truly disappointing. I am told that, if 
enacted, this would be the lowest level of funding since 1976. 
And yet, this program remains the most adaptable, the most 
welcomed community and economic development Federal program for 
meeting the unique needs of communities throughout this 
country.

                           PREPARED STATEMENT

    These are just some of the many issues we are going to have 
to tangle with this year, and I look forward to working with 
the chairman and the members of this subcommittee as we 
consider HUD's fiscal year 2014 budget request.
    Thank you.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Thank you, Chairman Murray. I am delighted to join you as we start 
the fiscal year 2014 appropriations process under new leadership of 
both Chairman Mikulski and Vice Chair Shelby, as well as the new 
members of this subcommittee.
    Mr. Secretary, it is nice to see you again. I look forward to 
continuing to work with you to meet the housing and economic 
development needs of families and communities throughout the Nation and 
I look forward to your testimony as we consider the Department of 
Housing and Urban Development's (HUD's) fiscal year 2014 budget 
request.
    As we begin to construct this spending bill, we continue to face 
difficult decisions given the fiscal constraints we remain under. 
Sequestration will make these decisions even tougher. I am also 
concerned for the public housing authorities who are being forced to 
reduce spending at the expense of families in need. While sequester 
cuts have already taken effect, the deficit continues to rise. We must, 
however, find a careful balance to ensure that the Nation's most 
vulnerable are provided for.
    The President's fiscal year 2014 HUD budget request is $47.6 
billion, an increase of nearly $4.2 billion or 6.67 percent above 
fiscal year 2013 enacted levels. The vast majority of this funding will 
support the renewals for rental and homelessness assistance. The budget 
also provides for the investment to revitalize neighborhoods and 
support economic development in communities throughout the country.
    As we prepare the budget for fiscal year 2014, it is critical that 
we address the ongoing challenges with homelessness, which remains a 
top priority of mine. Chairman Murray and I continue to share this 
commitment, particularly for our Nation's veterans. One out of every 
six men and women in homeless shelters are veterans, and unfortunately, 
veterans are 50 percent more likely to fall into homelessness compared 
to other Americans. I am pleased the budget continues funding for HUD's 
Veterans Affairs Supportive Housing (HUD-VASH) program at $75 million. 
This level of funding will serve an additional 10,000 veterans 
nationwide. Veterans' homelessness fell by nearly 7.2 percent from 2011 
to 2012, demonstrating that programs like HUD-VASH work.
    I continue to support the Homeless Assistance Grants program to 
prevent and end homelessness. The budget proposes $2.38 billion for 
this program, which is $575 million over current levels.
    In addition to programs that effectively serve the homeless, HUD 
also provides support for affordable rental housing. The budget 
proposes nearly $20 billion for the Tenant-Based Rental Assistance 
program, of which $1.685 billion is available for administrative costs.
    Another important issue is the oversight and monitoring of HUD's 
programs. Mr. Secretary, I want to thank you for your work into the 
investigation of Maine State Housing Authority's section 8 voucher 
program. Last year, I requested an investigation into the troubling 
cases of code violations and other poor conditions that were uncovered 
in Oxford County. I appreciate the work of your Department, in addition 
to that of Inspector General Montoya. It is critical that federally 
subsidized properties comply with all health, safety, and quality 
standards.
    It is bad enough that taxpayers were charged for substandard units, 
but it is appalling that residents were forced to live in such horrible 
conditions. The welfare and safety of tenants must be safeguarded, and 
federally subsidized properties must represent fair value to the tenant 
and the taxpayer alike.
    Nationwide, more than 5.4 million families receive housing 
assistance through the many programs offered at HUD. Altogether, more 
than 65 percent of HUD-assisted households are elderly or disabled. I 
am pleased to see the increased funding levels for the Section 202 
Housing for the Elderly program. This program has provided over 400,000 
affordable homes for very-low-income elderly individuals through a 
number of different financing structures in the past. Maine has one of 
the largest elderly populations in the United States. In fact, Maine 
has the oldest median age population in the United States.
    Finally, the funding level for the Community Development Block 
Grant (CDBG) program, which is proposed at $2.79 billion is truly 
disappointing. If enacted, this would reach the lowest level of funding 
since 1976. With 1,100 grantees served by an estimated 7,000 local 
governments across the country, CDBG remains the largest and most 
adaptable community and economic development Federal program for 
meeting the unique needs within these communities.
    These are just some of the many issues we are confronted with on 
our subcommittee this year. Chairman Murray, I look forward to working 
with you as we consider HUD's fiscal year 2014 budget request.

    Senator Murray. Thank you very much. And, Senator Collins, 
I appreciate the opportunity to work with you again this year 
on a subcommittee we both care passionately about. It is great 
to work with you.
    Senator Coats, do you have an opening statement?

                     STATEMENT OF SENATOR DAN COATS

    Senator Coats. Madam Chairman, I do.
    I thank you. I look forward to serving on this subcommittee 
with you and our ranking member.
    Not to repeat, but I will repeat Senator Collins' point 
that we are operating during a time where the game has changed. 
Instead of coming here every year on the Appropriations 
Committee and saying, ``how much more are we going to spend 
this year?'' we are faced with a fiscal crisis which requires 
us to say, how can we take better care of the taxpayer dollars 
that are being sent here? How can we better manage our 
Departments? How can we be more efficient with perhaps less to 
spend or not as much to spend as we would like? How can we 
separate the essential from the ``well, we would like to do 
this but can't afford it right now,'' from the ``why are we 
doing that in the first place?'' Or maybe that had a sufficient 
function going forward at one time, but we just cannot justify 
that program.
    All of this to address the fiscal issue in one of two ways: 
One, how can we save money and turn it back and reduce our debt 
and deficit? Second, how can we better transfer this money to 
essential programs instead of wasting it on programs that do 
not seem to work very well?
    Let me just mention a couple things.
    Mr. Secretary, I am not sure my time will allow me to be 
here to ask this direct question, but I will just put it out 
there and you can address it in a general way.
    In 2012, the Government Accountability Office (GAO) found 
that the Federal Government is operating 160 separate housing 
assistance programs and tax expenditures within 20 departments, 
agencies, costing about $170 billion. Is there room here to 
eliminate some of this duplication or to consolidate some of 
this, so that we do not have to have each separate entity here 
staffed all the way down through the administrative positions, 
and so forth? Is there room for this type of consolidation and 
coordination?
    Every business in America has had to do this since the 2008 
collapse. And when we mentioned sequester, they say, ``Five 
percent, 7 percent? I mean, we have had to do 15 percent. We 
have had to do 18 percent. But we are a much more leaner, more 
efficient organization now.''
    We see that everywhere in the private sector, but we do not 
see that in the Federal Government.
    HUD provided a community development block grant in the 
amount of $505,000 to a private entity, Sergeant's Pet Care 
Products, Inc., which specializes in pet shampoo and 
toothpaste. Now, maybe there is justification for this small 
business. I do not know. But it is a private company. They are 
expected to bring in revenue of $140 million in 2012. Why are 
we giving CDBG grants to private companies who are earning 
revenues of over $100 million?
    And last, according to HUD's own inspector general, for 
2012 fiscal year, he said HUD could have put over $3.2 billion 
to better use and has paid over $1.3 billion in questionable 
costs. So that is $4.5 billion in public funds that perhaps 
could have shifted to provide better housing or more effective 
housing, or not spent at all.
    So just in a general way, Mr. Secretary, address the 
broader question. You do not have to provide it here exactly 
the details of this particular loan or justify this or that. 
The larger question of what is HUD doing, what are you doing, 
to try to make your Department more efficient, more effective, 
given the scarcity of funds that we have, and the fact that we 
need to be more careful with the taxpayer dollars. So when you 
have a chance to address that, I would appreciate it.
    And, Madam Chairman, thank you.
    Senator Murray. Thank you very much.
    Senator Blunt.

                     STATEMENT OF SENATOR ROY BLUNT

    Senator Blunt. Chairman, thank you for conducting the 
hearing.
    Secretary, thank you for being here. I look forward to 
working with you and Senator Collins on this important 
subcommittee.
    And I have a statement for the record, and I will just 
submit it for the record.
    [The referenced statement was not available at press time.]
    Senator Murray. Thank you very much.
    With that, Secretary Donovan, we will turn it over to your 
opening statement. And we do have a vote around 11 o'clock, but 
I think we have sufficient time for your statement and 
questions from those of us who are here this morning. I will 
turn it over to you.

                SUMMARY STATEMENT OF HON. SHAUN DONOVAN

    Secretary Donovan. Thank you.
    Chairman Murray, Ranking Member Collins, members of the 
subcommittee, thank you for having me here today.

                        HOUSING AND COMMUNITIES

    HUD's fiscal year 2014 budget proposal will help grow our 
economy from the middle class out by supporting the ongoing 
recovery in our housing market and creating Ladders of 
Opportunity in communities across the country.
    As the President said, our economy is strongest when we 
expand opportunity and reward the hard work of everyone. HUD's 
budget does this by supporting the creation and retention of 
620,000 jobs.
    We followed four main principles in creating our 2014 
budget. The first was to continue support for the resurgent 
housing market, while encouraging the return of private capital 
and rebalancing the Nation's housing finance system.
    Today, the housing market is playing a key role in our 
economic recovery. Rising home values lifted 1.7 million 
families back above water, and home equity grew by more than 
$1.6 trillion in 2012.

                     FEDERAL HOUSING ADMINISTRATION

    FHA continues to play an important role in this effort, 
insuring nearly 1.2 million single-family mortgage loans in 
2012. However, due to reverse mortgages and other loans insured 
during the economic crisis, the fiscal year 2014 budget 
projects that FHA will need $943 million in support from 
Treasury. As you know, any decision to draw from the Treasury 
depends on the actual performance of the fund during the 
current fiscal year.
    We have taken aggressive steps to protect the fund and are 
already seeing strong results from those efforts, even with 
stress from the troubled reverse mortgage program and the now 
banned seller-assisted down payment programs. In fact, while 
the gross budget authority HUD requests in 2014 is $47.6 
billion, a 7-percent increase over the fiscal year 2012 enacted 
level, offsetting receipts from FHA and Ginnie Mae totaling 
$14.5 billion bring the cost to the taxpayer to only $33.1 
billion, almost 12 percent below the fiscal year 2012 enacted 
level.
    Despite this progress, we continue to take responsible 
administrative action, and the fiscal year 2014 budget calls on 
Congress to further assist in stabilizing the fund.

                            ASSISTED HOUSING

    The second principle we used in developing our budget was 
to protect current vulnerable residents. There are 5.4 million 
families who live in HUD-assisted housing, a number we have 
increased by more than 219,000 over the last 3 years through 
better management.
    These households earn just $12,500 a year on average and 
nearly two-thirds have a member who is elderly or disabled.
    Fully funding renewals consumes 84 percent of our proposed 
budget just to keep current residents in their homes, support 
homelessness prevention, and provide basic maintenance to 
public housing.
    And again, to echo your words, chairman, this has never 
been more important with the staggering over 40 percent 
increase in worst-case housing needs we have seen in just 4 
years.

                          EXISTING PARTNERSHIP

    The third principle we followed was to build on existing 
partnerships, helping to create Ladders of Opportunity while 
embracing smart, effective, efficient Government. As the 
President made clear in his State of the Union Address, in too 
many hard-hit communities, the life chances of a child are 
determined not by her talents, but by her ZIP Code. The Promise 
Zones proposed by the President expand investments by HUD, the 
Departments of Education and Justice, and other agencies, while 
coordinating and streamlining this work to maximize impact and 
reduce costs.

                          CHOICE NEIGHBORHOODS

    The $400 million we have requested for our Choice 
Neighborhoods program represents a significant increase that 
will allow us to transform public and assisted housing in our 
hardest hit neighborhoods and ensure our children are prepared 
for the 21st century economy.
    Building on the success of three rounds of neighborhood 
stabilization funding, a $200 million Competitive Neighborhood 
Stabilization Initiative within our community development block 
grant program will address the needs of neighborhoods that 
continue to suffer the negative effects of abandonment and 
foreclosure of privately owned housing.
    Our reorganized Office of Economic Resilience, to be 
located within HUD's Community Development and Planning 
Division, would offer $75 million in integrated planning and 
investment grants that support local investments in 
infrastructure and other development to create jobs and build 
diverse, resilient economies.

                           REGULATORY BURDENS

    The final principle we used in creating this budget was to 
increase efficiency, reduce regulatory burdens, and provide 
flexibility to our partners, allowing them to better manage 
resources.

                           SECTION 8 REFORMS

    I look forward to working with Congress to enact the 
section 8 reforms proposed in our budget, which would save 
approximately $2.8 billion over the next 5 years and streamline 
outdated statutes governing our public and assisted housing.
    Expanding initiatives like the Rental Assistance 
Demonstration and the Moving To Work program will allow more 
public housing authorities the flexibility to pilot innovative 
strategies that will better serve residents, consolidate 
programs, and save taxpayers money.

                       TRANSFORMATION INITIATIVES

    This budget also continues the transformation initiative, 
allowing us to propose increased investments in programs we 
know work and stop funding the ones that do not, and to hold 
our partners accountable for the funding they receive.
    Perhaps the best example of this approach is found in 
Opening Doors, the administration's plan to end homelessness, 
which has dramatically reduced chronic and veterans' 
homelessness over the last 2 years.

                             VASH VOUCHERS

    Because we know these programs save lives as well as 
taxpayer dollars, our budget proposes 10,000 new VASH vouchers 
and a significant increase in our homeless assistance grants.
    Unfortunately, sequestration seriously threatens our 
ability to serve families, communities, and even veterans 
across the Nation with hundreds of thousands likely to lose 
assistance we have worked so hard to preserve.
    While we are attempting to reduce these impacts, there is 
simply no way to prevent serious damage this year, or the 
resulting consequences for fiscal year 2014, unless 
sequestration is reversed with the balanced deficit reduction 
plan proposed by the President.

                           PREPARED STATEMENT

    I look forward to working with you, both on the fiscal year 
2014 budget and on reversing the harmful cuts imposed by 
sequestration.
    Thank you for the opportunity to testify today. I look 
forward to your questions.
    [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 2014 budget proposal will grow our 
economy from the middle class out--not from the top down--while 
supporting the recovery in our housing market and economy. The 
investments in the Department's programs that this budget makes are 
essential to delivering on the President's promise to make America a 
magnet for jobs and manufacturing, equip every American with the skills 
they need to do those jobs, and ensure that hard work leads to a decent 
living.
    Overall, this budget furthers the Department's mission of 
supporting home ownership, access to affordable housing free from 
discrimination, and community development. The 2014 President's budget 
provides $47.6 billion for HUD programs to support these efforts, in 
addition to a receipts projection of $14.5 billion--representing a net 
decrease of $3.2 billion from the 2012 enacted level. Increases are 
provided to protect vulnerable families and employ proven tools to 
revitalize neighborhoods with distressed HUD-assisted housing and 
concentrated poverty. To build more 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 programs that increase the 
supply of affordable housing.
    The Department's budget for fiscal year 2014 follows the roadmap 
the President has laid out for jumpstarting our economy through 
educating, innovating, and building--by targeting our investments to 
the families and geographies that need them the most, and putting 
American back to work. Specifically, this budget:
    Supports the Mortgage Market and Helps Borrowers Who Are at Risk of 
Foreclosure.--The Administration projects that the Federal Housing 
Administration (FHA) will insure $178 billion in mortgage loans in 
2014, supporting new home purchases and refinanced mortgages that 
significantly reduce borrower payments. FHA financing was used for 27 
percent of home purchase loans in 2011, including an estimated 41 
percent of first-time homeowners. 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. Recent increases in FHA premium levels 
will boost FHA's capital reserves and increase Federal revenues.
    The budget also includes $132 million for housing and homeowner 
counseling through HUD and the Neighborhood Reinvestment Corporation 
(NeighborWorks). Over half of these funds are dedicated to foreclosure 
assistance. NeighborWorks' National Foreclosure Mitigation Counseling 
program has assisted over 1.4 households since its inception in 2008.
    Provides Ladders of Opportunity for Anybody Willing To Work Hard 
and Play by the Rules.--The budget provides $400 million for Choice 
Neighborhoods to continue to transform neighborhoods of concentrated 
poverty into opportunity-rich, mixed-income neighborhoods. This funding 
level, which is $280 million above 2012 enacted, will be used to 
revitalize HUD-assisted housing and surrounding neighborhoods through 
partnerships between local governments, housing authorities, 
nonprofits, and for-profit developers. A portion of these funds will be 
targeted to designated Promise Zones--high-poverty communities where 
the Federal Government will partner with local leadership to create 
jobs, leverage private investment, increase economic activity, reduce 
violence, and improve educational opportunities. To further support 
Promise Zones, the budget includes companion investments of $300 
million in the Department of Education's Promise Neighborhoods program, 
$35 million in the Department of Justice's Byrne Criminal Justice 
Innovation Grants program, and continues to support the Strong Cities, 
Strong Communities initiative as well as tax incentives to promote 
investment and economic growth.
    Supports Strategic Infrastructure Planning and Investments To Help 
Make America a Magnet for Jobs.--In addition to the hundreds of 
thousands of jobs that this budget creates both directly and 
indirectly, it makes an essential contribution to the Administration's 
broader effort to discourage outsourcing and encourage ``insourcing.'' 
Specifically, attracting new businesses to our shores depends on urban, 
suburban, and rural areas that feature more housing and transportation 
choices, homes that are near jobs, and transportation networks that 
move goods and people efficiently--which is why this budget includes 
funding for the Office of Economic Resiliency which, as part of the 
Administration's multiagency partnership between HUD, the Department of 
Transportation, and the Environmental Protection Agency, will 
administer $75 million in Integrated Planning and Investment Grants. 
These grants will create incentives for communities to develop and 
implement comprehensive housing and transportation plans, such as 
updates to building codes, land use, and zoning ordinances that result 
in more resilient economic development, improve housing supply response 
to demand, and increase affordable housing near public transit. This 
funding, which builds upon the progress made through Sustainable 
Communities program, would support about 30 additional regional and 
neighborhood planning and implementation grants to enable communities 
to plan for their economic future. This funding embodies the 
President's commitment to being a new kind of Federal partner to 
regions, States, and localities as they tackle planning and economic 
development challenges in the 21st century.
    Of course, smart planning requires sustained follow-through. That 
is why HUD is committed to ensuring that its core community and housing 
development work contributes to more and better transportation choices; 
promotes equitable, affordable housing; 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 $3 billion for the Community Development Block 
Grant (CDBG) program and neighborhood stabilization activities, and 
proposes reforms to better target CDBG investments to address local 
community development goals. This funding level includes $200 million 
in new competitive funds to continue mitigating the impacts of the 
foreclosure crisis. This funding will provide essential new resources 
to help communities hardest hit by the foreclosure crisis while 
creating jobs through rehabilitating, repurposing, and demolishing 
vacant and blighted properties. 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 provides 10,000 new vouchers targeted to homeless 
veterans. The budget also includes $10.3 billion for the Project-Based 
Rental Assistance program to maintain affordable rental housing for 1.2 
million families, and provides $6.6 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, 
$480 million above the 2012 enacted level. This funding maintains the 
approximately 325,000 HUD-funded beds that assist the homeless 
nationwide and expands rapid re-housing and permanent supportive 
housing. Backed with new data and emerging best practices across the 
United States, this evidence-based investment will make further 
progress towards the goals laid out in the Federal Strategic Plan to 
End Homelessness.
    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 1 million families in public housing while subjecting them 
to overly burdensome regulation and denying them access to private 
capital available to virtually every other form of rental housing. To 
bring the public housing program toward mainstream real estate 
financing and management practices and begin to address the $26 billion 
in capital needs, the Department will continue to implement the Rental 
Assistance Demonstration (RAD) enacted in 2012. 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 budget proposes to scale up the Moving To Work (MTW) 
program, which gives high-performing State and local public housing 
authorities (PHAs) various flexibilities in their use of Housing Choice 
Voucher and public housing funds. In exchange for this flexibility, 
PHAs will help design and test innovative policies to support self-
sufficiency and other positive outcomes for families, streamline and 
consolidate program delivery, and reduce long-term costs. In addition, 
PHAs will report on outcomes associated with their MTW activities, and 
those that choose to implement work requirements, time limits on 
assistance, or major rent reform initiatives will participate in 
rigorous evaluations.
    The budget also modernizes the Housing Opportunities 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. This update includes 
a new formula that will distribute HOPWA funds based on the current 
population of people living with HIV/AIDS, fair market rents, and 
poverty rates in order to target funds to areas with the most need. It 
also makes the program more flexible, giving local communities more 
options to provide targeted, timely, and cost-effective interventions. 
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.
    Makes Tough Choices.--The budget provides $950 million for the HOME 
Investment Partnerships Program, 5 percent below the 2012 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.
    The budget provides a total of $526 million for the Housing for the 
Elderly and Housing for Persons with Disabilities programs, $13.6 
million below the 2012 enacted level. This funding level will support 
all 150,000 existing units in these programs, but limits new 
construction to $40 million for additional supportive housing units. 
These investments directly support research that will build our 
understanding of the intersection between supportive housing and 
healthcare costs, and help identify what works best in allowing seniors 
to age-in-place.
    Reforms Government So That It's Leaner, Smarter, More Transparent, 
and Ready To Succeed.--The American economy of the future requires a 
Federal Government that is efficient, streamlined, and transparent. As 
such, the budget proposes reforms to HUD rental assistance programs 
that would save nearly $400 million in fiscal year 2014 without 
reducing the number of families served--by streamlining programs and 
reforming policies. Moreover, this budget once again calls for the 
flexible use of resources 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, evaluations of program initiatives and 
demonstration programs so we can fund what works and stop funding what 
doesn't; and upgrade the IT infrastructure that tracks and monitors our 
programs.
    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, helping to make America a magnet for jobs, and 
ensuring that our workers have the skills they need for those jobs. 
Consistent with its budget proposals in the first term, HUD's fiscal 
year 2014 budget is structured around the five overarching goals the 
Department adopted in its Strategic Plan 2010-2015. These goals reflect 
the Department's--and my--commitment to ``moving the needle'' on some 
of the most fundamental challenges facing America. Indeed, every month, 
I hold HUDStat meetings on one or more of these goals, to assess 
progress and troubleshoot problems in order to: (1) ensure that HUD is 
as streamlined and effective as possible in the way that we administer 
our own programs and partner with other Federal agencies; and (2) hold 
our grantees accountable for their expenditure of taxpayers' hard-
earned dollars.
 goal 1: strengthen the nation's housing market to bolster the economy 
                         and protect consumers
    This Administration entered office confronting the worst economic 
crisis since the Great Depression--as mortgages were sold to people who 
couldn't afford or understand them, while banks packaged them into 
complex securities that they made huge bets on--and bonuses with--other 
people's money. And while the largest factors contributing to this 
crisis were market driven, the American people have turned to Congress 
and the Administration for leadership and action in righting our 
Nation's housing market. HUD remains firmly committed to working 
together with communities and individuals to cope with these 
unprecedented challenges.
Responding to the Market Disruption
    The Federal Housing Administration (FHA) and Government National 
Mortgage Association (GNMA) continue to have a significant impact on 
the Nation's economic recovery. The activities of the Federal 
Government are critical to both supporting the housing market in the 
short term and providing access to homeownership opportunities over the 
long term, and doing both in a way that minimizes risks to taxpayers.
    In 2014, HUD is requesting $400 billion in loan guarantee authority 
for the Mutual Mortgage Insurance Fund, which will provide an estimated 
1.2 million single-family mortgages (at a projected $199.3 billion in 
loan volume) and $30 billion in loan guarantee authority for the 
General and Special Risk Insurance Fund, which will provide an 
estimated 273,000 units in multifamily housing properties and an 
estimated 75,700 beds in healthcare facilities. 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.
    FHA's share of the mortgage market has gone from a low of 3.1 
percent of loan originations in 2005, up to a peak of 21.1 percent in 
2010, and more recently down to 16.5 percent in the 4th quarter of 2012 
(U.S. Housing Market Conditions Report, 4th Quarter 2012). In fact, the 
number of FHA single family loan endorsements has declined to levels 
comparable to those seen in fiscal years 2002 and 2003, when FHA's 
market share was lower than it is today, indicating that FHA's current 
slightly elevated market share is primarily due to a substantial 
decrease in the size of the total mortgage market rather than 
exceptionally high FHA loan volumes. As the market continues to recover 
and private capital returns at more normal levels, FHA's role will 
naturally recede.
    As has been true throughout its history, FHA is particularly 
important to borrowers that the conventional market does not adequately 
serve, including qualified borrowers who would otherwise be shut out of 
the mortgage market. Fully 60 percent of all African American and 
Hispanic homebuyers using mortgages rely upon FHA financing and over 30 
percent of all FHA-insured homebuyers are minorities. According to the 
latest Home Mortgage Disclosure Act data, half of all African Americans 
who purchased a home in 2011, and 49 percent of Hispanics, did so with 
FHA financing.
Redoubling Efforts To Keep Homeowners in Their Homes
    While there is work still to be done, HUD is proud of the progress 
this Administration has made in tackling ongoing foreclosure 
challenges. Between April 2009 and February 2013, more than 6.4 million 
foreclosure prevention actions were taken--including nearly 1.7 million 
FHA loss mitigation and early delinquency interventions and 1.5 million 
homeowner assistance actions through the Making Home Affordable 
program, including more than 1.1 million permanent modifications 
through the Home Affordable Modification Program (HAMP)--saving these 
households an estimated $18.5 billion in monthly mortgage payments.
    As part of the Administration's commitment to help responsible 
homeowners stay in their homes, we have actively sought to use our 
current programs and authorities to make homeownership sustainable for 
millions of American families. Examples of our efforts include:
  --Streamline Refinance.--An option that allows borrowers with FHA-
        insured loans who are current on their mortgage to refinance 
        into a new FHA-insured loan at today's low interest rates 
        without requiring additional underwriting, permitting these 
        borrowers to reduce their mortgage payments. This program 
        benefits current FHA borrowers--particularly those whose loan 
        value may exceed the current value of their home--and by 
        lowering a borrower's payment, also reduces risk to FHA. And, 
        because we see potential for more widespread use of this 
        product, FHA made changes to the way in which streamline 
        refinance loans are displayed in the Neighborhood Watch Early 
        Warning System (Neighborhood Watch) to encourage lenders to 
        offer this product more widely to homeowners with FHA-insured 
        mortgages.
  --Changes to FHA's Loss Mitigation Waterfall.--A mortgagee letter 
        published on November 16, 2012, outlined changes to FHA's loss 
        mitigation home retention options. One of the key elements of 
        this update was moving FHA's Home Affordable Modification 
        Program (HAMP) product up in FHA's loss mitigation waterfall so 
        servicers could more quickly offer deeper payment relief to 
        struggling FHA borrowers, resulting in an increase in the 
        number of borrowers being able to retain their homes.
  --Housing Counseling.--In 2014, HUD is requesting $55 million in 
        housing counseling assistance, to improve access to quality 
        affordable housing, expand homeownership opportunities, and 
        preserve homeownership, all of which are especially critical in 
        today's economic climate. With this funding, HUD estimates that 
        2,650 HUD-approved counseling agencies employing an estimated 
        8,000 newly certified housing counselors, will assist a total 
        of 2.5 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. In 2012, 2,410 HUD-approved housing 
        counseling agencies, with grant funds from HUD and other 
        funding sources, assisted over 1.9 million renters and owners.
      HUD's new Office of Housing Counseling has several initiatives to 
        ensure borrowers have access to all rights and remedies 
        afforded to them to stay in their homes. HUD has worked closely 
        with interested States to determine effective ways in which 
        funds from the National Mortgage Servicing Settlement can be 
        used to expand housing counseling resources, resulting in more 
        than $300 million in settlement funds committed to housing 
        counseling or legal services for affected borrowers. HUD-
        approved housing counseling agencies continue to provide 
        foreclosure prevention services, reaching 774,000 families in 
        fiscal year 2012. In addition, FHA is exploring ways to further 
        integrate housing counseling into its loss mitigation program, 
        offering distressed FHA borrowers additional resources with 
        which to assess their options and make decisions appropriate to 
        their situation.
  --Short Refinance Option.--In 2010, FHA made available an option that 
        offers underwater non-FHA borrowers, who are current on their 
        existing mortgage and whose lenders agree to write off at least 
        10 percent of the unpaid principal balance of the first 
        mortgage, the opportunity to refinance into a new FHA-insured 
        mortgage. FHA made enhancements to the program in March of last 
        year and announced an extension to the expiration date of the 
        program in order to increase the number of borrowers who will 
        benefit from this initiative.
  --Strengthening FHA and Paving the Way for Private Capital To 
        Return.--The President's budget shows that FHA, while still 
        under stress from legacy loans, has made significant progress 
        and is on a sound fiscal path moving forward. Like nearly all 
        mortgage market institutions, FHA sustained significant losses 
        due to the precipitous fall in the housing market and home 
        prices, and is putting additional funds aside this year to 
        cover those legacy losses. But, again, like most mortgage 
        lenders, recent and future books of mortgage business are 
        expected to bring healthy gains.
    Throughout the economic crisis, as the FHA's fiscal health faced 
challenges, this Administration took swift and effective action to 
protect the FHA and the American taxpayer alike, as FHA continued to 
fulfill its dual mission of supporting the housing market during tough 
times and providing access to homeownership for underserved 
populations. FHA is currently insuring the strongest loans in its 
history. In contrast to legacy loans, and thanks in large part due to 
changes the Administration has put in place regarding pricing, lender 
enforcement, and risk reduction, the books of business FHA has insured 
since 2010 are vastly superior to any others from recent years, as 
measured by early delinquencies and other metrics. In addition, the 
Administration has raised annual insurance premiums for most FHA 
mortgages by 0.8 percentage points, greatly increasing revenue for the 
FHA fund. And healthier house prices have reduced FHA losses on 
defaulted mortgages.
    Due to the higher quality and large volume of current loans, we 
project FHA will generate $18 billion in receipts during fiscal year 
2013, including $3 billion generated from the new premium increase that 
went into effect April 1, 2013, and reversal of a policy that caused 
FHA to forfeit collection of mortgage insurance premium (MIP) after a 
loan reached 78 percent of its original principal balance. Further, as 
a result of these same changes, the fiscal year 2014 budget projects 
FHA receipts of almost $13 billion, even as FHA market share and loan 
volume continues to be reduced (down to 13.9 percent according to U.S. 
Housing Market Conditions Report, 3rd quarter 2012).
    For FHA's legacy loans, the President's budget forecasts the FHA 
Mutual Mortgage Insurance (MMI) Fund, which provides the fiscal capital 
to support FHA's single family and reverse mortgage guarantees, will 
use $943 million of its mandatory appropriation authority to supplement 
its reserves at the end of fiscal year 2013. The MMI Fund currently has 
approximately $32 billion in cash available to pay claims, so this is 
not a cash problem; it is one of setting the right size of loan loss 
reserves aside. The $943 million figure is based on an annual Office of 
Management and Budget (OMB) re-estimate of the reserves FHA will need 
to hold as of September 30, 2013, for the payment of expected losses 
over the next 30 years on its portfolio of guaranteed loans as of last 
September, based upon Federal Credit Reform Act (FCRA) scoring. This 
potential appropriation is largely due to the existing reverse mortgage 
(HECM) portfolio. This product, particularly as it has been structured 
to date, is sensitive to home prices and economic conditions. This 
results in a negative value of $5.248 billion and a disproportionately 
negative impact to the Fund from the HECM program. The actual need for 
a mandatory appropriation from the Treasury General Fund to the MMI 
fund will not be determined until September 2013, and will be based on 
FHA's realized revenues through the end of the fiscal year. Notably, 
any mandatory appropriation to FHA would not involve approval from 
Congress, as all Federal loan programs have this standing authority. As 
we consider this potential appropriation, let us not forget that FHA 
played a crucial, countercyclical role in bringing the housing market 
from the brink of collapse to a place where it is positive and growing 
again.
       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 severely inadequate conditions, it is more important than ever to 
provide a sufficient supply of affordable rental homes for low-income 
families--particularly since, in many communities, affordable rental 
housing does not exist without public support. HUD's fiscal year 2014 
budget maintains HUD's core commitments to providing rental assistance 
to some of 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 fiscal year 2014 budget authority requested will 
provide rental assistance to over 5.4 million residents of HUD-
subsidized housing, including public housing and HUD grants to homeless 
assistance programs. And, I am proud to say that, despite an era of 
challenging budgets, we have increased the number of families served 
through our rental assistance programs every year.




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    Detailed data shows how vulnerable these families are to the 
economic downturn. In HUD's core rental assistance programs, including 
tenant-based rental assistance (TBRA), public housing and project-based 
rental assistance (PBRA): 72 percent of families are extremely low-
income (below 30 percent of area median income) and an additional 20 
percent are very low-income (below 50 percent of area median income). 
The devastating effect of the tough economic environment on the housing 
circumstances of poor Americans was underscored this year, when HUD 
released its latest 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 2014 funding level is expected to assist 
approximately 2.2 million families by renewing existing vouchers and 
issuing new incremental vouchers to homeless veterans.
    The budget also provides a total of $6.6 billion to operate public 
housing and modernize its aging physical assets through the public 
housing operating ($4.6 billion) and capital ($2 billion) funds, a 
critical investment that will help approximately 1.1 million extremely 
low- to low-income households obtain or retain housing. Similarly, 
through a $10.3 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.
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 Public Housing Authorities 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 aims to connect residents to 
        resources and services to find and retain jobs that lead to 
        economic independence and self-sufficiency. In addition, the 
        budget authorizes PHAs to use a portion of their public housing 
        and TBRA funding to augment case management and supportive 
        services coordination provided through FSS or provide other 
        supportive services to increase opportunities for residents.
  --Expanding the Moving To Work (MTW) Program.--The budget proposes to 
        scale up the Moving To Work (MTW) program, which gives high-
        performing State and local public housing authorities (PHAs) 
        various flexibilities in their use of Housing Choice Voucher 
        and public housing funds. In exchange for this flexibility, 
        PHAs will help design and test innovative policies to support 
        self-sufficiency and other positive outcomes for families, 
        streamline and consolidate program delivery, and reduce long-
        term costs. In addition, PHAs will report on outcomes 
        associated with their MTW activities, and those that choose to 
        implement work requirements, time limits on assistance, or 
        major rent reform initiatives will participate in rigorous 
        evaluations.
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 lifecycle 
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. Available funding is 
vastly insufficient to meet accruing needs of approximately $3 billion 
per year. Under the strain of this backlog, and without financing tools 
commonly available to other forms of affordable housing, the public 
housing inventory loses an average of 10,000 units annually through 
demolitions or dispositions.
            Rental Assistance Demonstration
    In addition to the public housing stock, the Rental Assistance 
Demonstration (RAD) program targets certain ``at-risk'' HUD legacy 
programs. The 24,000 units assisted under section 8 Moderate 
Rehabilitation (MR) are limited to short-term renewals and constrained 
rent levels that inhibit the recapitalization of the properties. The 
approximately 21,000 units assisted under Rent Supplement (RS) and 
Rental Assistance Program (RAP) have no ability to retain long-term 
project-based assistance beyond the current contract term. As a result, 
as their contracts expire, we can no longer depend on these projects to 
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 fiscal year 2014 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: (1) not feasible to convert at current 
funding levels; and (2) 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 3,300 public housing 
units that would not otherwise be feasible to convert and sufficiently 
stabilize over the long-term, while helping to increase private 
investment in the targeted projects and surrounding neighborhoods.
    In addition to the funding request, each of the legislative 
requests in the 2014 budget for RAD are designed to allow for maximum 
participation by those PHAs and owners whose current funding levels are 
sufficient for conversion. In the first component of RAD, an increase 
in the 60,000 unit cap to 150,000 units, and the exclusion of section 8 
MR properties from the cap will both allow for a greater portion of 
both the public housing and MR stock that can convert at no cost to the 
Federal Government to participate in the demonstration.
            Small Building and Housing Finance Agency Securitization
    Nearly a third of the Nation's renters, more than 20 million 
households, live in small, unsubsidized housing. These 5- to 49-unit 
properties tend to be owned by small businesses--the engines of our 
communities--and are typically more affordable to low- and moderate-
income families. But these properties are at risk of continued 
disinvestment because they can be expensive to finance. Small building 
owners are less likely than other multifamily property owners to be 
able to secure financing to make repairs and improvements. Small 
properties are less likely to have mortgage financing (86 percent of 
large multifamily properties are mortgaged, compared to 61 percent of 
small multifamily properties). Just 14 percent of all fiscal year 2010 
FHA-insured properties were for projects with fewer than 50 units.
    To address this problem, the fiscal year 2014 budget includes a 
legislative provision to support small building finance, and to 
strengthen the Risk Share program as a rental finance tool, seeks 
Congressional authority for Ginnie Mae to guarantee securities 
containing FHA Multifamily Risk Share loans, thereby increasing 
liquidity and decreasing cost of capital. This proposal would apply to 
both State and local Housing Finance Agency Risk Share lenders under 
section 542(c) and new Risk Share lending under section 542(b). The 
proposal would also amend section 542(b) of the statute to allow for 
flexibility in how affordability is determined in order to make it a 
more effective tool to recapitalize existing naturally affordable 5-49 
unit rental properties.
Increasing the Production of Affordable Housing Capital Projects
    In addition to developing tools to address the growing capital 
needs of America's public housing stock, HUD is committed to expanding 
the supply of affordable rental homes in safe, mixed-income communities 
that provide access to jobs, good schools, transportation, and most 
importantly, economic self-sufficiency. Accordingly, in fiscal year 
2013 HUD is working together with its partners to identify ways to make 
the Low Income Housing Tax Credit (LIHTC) program a more flexible and 
nimble tool for the creation and preservation of affordable housing. As 
the primary tool of the Federal Government for developing and 
rehabilitating affordable rental housing, the LIHTC program is 
administered by State agencies with assistance and guidance from the 
Treasury Department and the Internal Revenue Service. It attracts 
capital to low-income rental housing by satisfying some of the Federal 
income tax obligations of investors in certain low-income rental 
properties.
    Since its addition to the tax laws in 1986, the LIHTC program has 
been used to create 1.8 million in affordable rental-housing units 
across the country. Annually, the program supports 95,000 jobs and 
generated $2.7 billion in State, local, and Federal revenues. In fiscal 
year 2014, as part of an ongoing effort to better align Federal rental 
programs, HUD, the Departments of Treasury and Agriculture, the 
Domestic Policy Council (DPC), the Office of Management and Budget 
(OMB), and the National Economic Council (NEC) will continue partnering 
to allow greater flexibility to State and local agencies that 
administer LIHTC programs, as well as to developers and investors, to 
continue to enable the creation of affordable housing in markets where 
it is needed the most.
    Specifically, the revenue provisions of the 2014 budget update 
several revenue proposals that were included in the 2013 budget, and 
the budget also introduces two new proposals:
  --A new proposal for Private Activity Bond Conversion authority that 
        will create much needed flexibility in how States implement the 
        LIHTC program. Specifically, this request will allow States to 
        convert a portion of their tax-exempt Private Activity Bond 
        authority (volume cap) into allocated (so-called 9 percent) 
        LIHTCs to accomplish several goals. First, for many complex 
        preservation projects this proposal eliminates the need for 
        going through unnecessary bond issuance procedures, which 
        reduces transaction costs. Second, not only does the proposal 
        allow States to increase their pool of 9 percent credits, but 
        it brings more projects into the competitive LIHTC allocation 
        process. This effectively gives 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 cap (as compared with projects subject to the tax-
        exempt bond cap).
  --A new proposal for a Selection Criterion for Preservation of 
        Affordable Housing. Adding this criterion to Qualified Action 
        Plans under IRC Sec. 42(m)(1)(C) will encourage States to 
        consider how to address the preservation needs of affordable 
        housing.
  --A modification and permanent fix to the Congress' temporary 9 
        percent credit floor provisions in HERA and the American 
        Taxpayer Relief Act of 2012. This proposal to improve the 
        computation of 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.
  --An income averaging proposal from the President's fiscal year 2013 
        budget that would encourage a greater range of incomes in 
        LIHTC-supported affordable housing by allowing developers to 
        choose an income-limitation requirement that would be satisfied 
        if households in the low-income units have an average income no 
        greater than 60 percent of AMI, with no household above 80 
        percent AMI. An additional provision would allow certain 
        existing tenants to remain in residence without impairing the 
        developer's entitlement to LIHTCs.
  --A LIHTCs earned by Real Estate Investment Trusts (REITs) proposal 
        from the President's fiscal year 2013 budget that is designed 
        to diversify the pool of investors for LIHTCs and to increase 
        the overall demand for LIHTCs. The proposal would allow a REIT 
        that earns LIHTCs to provide a tax benefit to its investors by 
        paying them tax-exempt dividends in an amount almost triple the 
        amount of the REIT's LIHTCs.
    Finally, the recent Worst Case Housing Needs report underscores 
what has been the case since well before the recent recession, namely, 
that extremely low-income renters face the most severe housing shortage 
and cost burden of any Americans. The 2014 budget once again proposes 
$1 billion in mandatory appropriations for the Housing Trust Fund (HTF) 
to address this critical shortage of housing where it is most 
desperately needed. Enacted in 2008, the HTF was designed to provide 
capital resources to build and rehabilitate housing to fill this 
precise--and growing--gap in the Nation's rental housing market. The 
time has come for Congress to provide this crucial funding.
  goal 3: utilize housing as a platform for improving quality of life
    Stable housing provides an ideal platform for delivering a wide 
variety of health and social services to improve economic, health, and 
broad-based societal outcomes. For some, housing alone is sufficient to 
ensure healthy outcomes, while others require housing with supportive 
services to assist with activities of daily living or long-term self-
sufficiency, as well as proximity to crucial services. HUD's fiscal 
year 2014 budget acknowledges this reality by making critical 
investments in housing and supportive services, and partnering with 
other Federal agencies to maximize resources and best practices. 
Moreover, these investments will save money in the long term, by 
avoiding overuse of expensive emergency and institutional 
interventions.
Preventing and Ending Homelessness, Serving Our Nation's Most 
        Vulnerable
    Nowhere is the relationship between housing and supportive services 
clearer than in the successful efforts in communities around the 
country to address homelessness, which have led to nearly 20 percent 
reductions in veterans homelessness and a 10 percent reduction in 
chronic homelessness over the past 2 years.
    Additionally, this work has yielded a substantial body of research, 
which demonstrates that providing permanent supportive housing to 
chronically ill, chronically homeless individuals and families not only 
ends their homelessness, but also yields substantial cost saving in 
public health, criminal justice, and other systems. This year's budget 
once again invests in this critical effort, by providing $2.381 billion 
in Homeless Assistance Grants, including competitive programs that 
annually serve over 1.5 million homeless families and individuals. This 
includes funding for the Emergency Solutions Grants program, which will 
continue the work of the Homelessness Prevention and Rapid Re-Housing 
Program (in the form of a $60 million set aside)--funded by the 
Recovery Act--that in the last 3 years alone has helped prevent or end 
homelessness for over 1.4 million people nationwide.
    Moreover, HUD continues to focus on the unique needs of homeless 
veterans through both its targeted homeless programs and its mainstream 
housing programs using successful methods and interventions. Currently, 
an estimated one out of every six men and women in our Nation's 
homeless shelters are veterans, and veterans are 50 percent more likely 
to fall into homelessness compared to other Americans. HUD is committed 
to providing affordable housing units to this unique homeless 
population, and has partnered with the Departments of Health and Human 
Services (HHS) and Veterans Affairs (VA) to develop targeted approaches 
to serve the homeless veteran populations. Accordingly, this budget 
includes $75 million for HUD's 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 nearly 48,000 already allocated HUD-VASH vouchers, as 
well as the 10,000 vouchers that will be awarded through the fiscal 
year appropriation.
Investing in Leveraging and Serving Our Most Vulnerable
    This budget provides a total of $526 million for the Housing for 
the Elderly and Housing for Persons with Disabilities programs, which 
includes $40 million to support 4,100 additional supportive housing 
units. Doing more with less, the budget proposes reforms to the Housing 
for the Elderly program to target resources to help those most in need, 
reduce the up-front cost of new awards, and better connect residents 
with the supportive services they need to age in place and live 
independently.
    Historically, HUD has provided both capital advances and operating 
subsidies to nonprofit sponsors to construct and manage multifamily 
housing for low-income people with disabilities. In an effort to 
maximize the creation of new affordable units in a time of funding 
restraints, in fiscal year 2012 HUD began providing operating 
assistance to State housing agencies that formed partnerships with 
State healthcare agencies for service provision to low-income persons 
with disabilities. These funds are used to set aside supportive units 
for this target population in affordable housing complexes whose 
capital costs are funded through Low-Income Housing Tax Credits, HOME 
funds, or other sources. Investing section 811 funds under this 
authority allows HUD to rely on the expertise of the State housing 
agencies to administer the award and on the State healthcare agency to 
identify the most critical population to be served and guarantee the 
delivery of appropriate services. In fiscal year 2014, HUD is 
requesting similar authority for the Section 202 program. Drawing on 
lessons learned from implementation in the section 811 program, HUD 
will take advantage of efficiencies inherent in these same agencies' 
oversight responsibilities for tax credits, HOME funds or similar 
housing funding.
       goal 4: build inclusive sustainable communities free from 
                             discrimination
    The American economy suffers when significant numbers of its labor 
force experience individualized or systemic discrimination, or when 
families 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 2014 budget puts communities in a position to plan for the future 
and draw fully upon their resources, most importantly their people.
    Each year HUD dedicates approximately 15 percent of its funds to 
the capital costs of housing and economic development projects 
throughout the country. Through this investment, HUD and its partners 
are able to provide better opportunities for people living in 
neighborhoods of concentrated poverty and segregation, and offer 
choices that help families live closer to jobs and schools. Programs 
such as the Community Development Block Grant (CDBG) and Choice 
Neighborhoods provide funding for locally driven solutions to 
overarching economic development challenges in areas of need. As with 
HUD's rental assistance programs, 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, based on a 
keen perception of local needs and priorities. In fiscal year 2014, HUD 
is requesting a total of $3.14 billion in funding for the Community 
Development Fund. These programs aim 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.
    As part of CPD programming, the Community Development Block Grant 
(CDBG) 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 over $135 billion 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. In fiscal year 2014, HUD is 
requesting that $2.8 billion in CPD funds be dedicated to the CDBG 
formula program. Altogether, CDBG funding annually reaches an estimated 
7,000 local governments across the country, in communities of all 
shapes and sizes.
    To begin to respond to concerns that CDBG formula funds need to be 
better targeted to need and be used more effectively, the budget 
proposes several reforms to the program. The budget includes changes to 
establish a minimum CDBG grant threshold and eliminate the community 
``grandfathering'' provision. This will ensure that communities receive 
grants large enough to be effective in advancing the goals of the 
program. Local governments affected by these changes would not lose 
access to CDBG funding; funding would be available through an urban 
county or State-administered CDBG program. In addition to better 
targeting CDBG formula funds, the budget provides $200 million in 
community development funding for a new competitive grant program 
targeted to areas hardest hit by the foreclosure crisis and specific 
activities that support neighborhood stabilization. Where appropriate, 
these grants will be linked to the above-mentioned Promise Zones 
initiative. HUD will seek input from stakeholders over the coming 
months regarding further programmatic changes that would improve the 
targeting of CDBG formula funds and strengthen their accountability and 
performance.
    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 is the 
loan guarantee provision of the CDBG program and allows States and 
local governments to leverage their CDBG 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 fiscal year 
2014, HUD is requesting Section 108 loan guarantee authority of $500 
million and is proposing to implement a fee-based program that will 
eliminate the need for budget authority to cover the program's credit 
subsidy.
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 2014, 
HUD is requesting a total of $739 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 program, which is 
        the single largest source of funding for housing on Indian 
        tribal lands today
  --$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.
  --$6 million for the Indian Housing Loan Guarantee Fund.
Transforming Neighborhoods of Poverty
    The President has made it clear that we must build our economy from 
the middle class out. But that necessity is imperiled when a fifth of 
America's children live in poverty, at a cost of $500 billion per 
year--fully 4 percent of GDP--due to reduced skills development and 
economic productivity, increased later life crime, and poor health, and 
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 2014 budget provides $400 million for 
the proven tools in the Choice Neighborhoods Initiative, 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. This initiative will revitalize 
many of America's highest-poverty communities by creating jobs, 
attracting private investment, increasing economic activity, improving 
affordable housing, improving educational opportunities, and reducing 
violent crime. Promise Zones are key rungs on the Administration's 
Ladders of Opportunity initiative, which also includes raising the 
minimum wage, increasing access to high-quality preschool, redesigning 
America's high schools, and promoting fatherhood and marriage.
    High-need communities will engage in an open, transparent, 
competitive process to apply for a Promise Zone designation. The 
Promise Zone designation process will ensure rural and Native American 
representation. If approved by Congress, Promise Zones will receive tax 
incentives to stimulate hiring and business investment, alongside with 
Federal partnership and technical assistance aimed at breaking down 
regulatory barriers and using Federal funds available to them at the 
local level more effectively. Promise Zones will be able to access 
investments that further the goals of job creation, additional private 
investment, increased economic activity, expanded educational 
opportunity, and reduction in violent crime. These could include Choice 
Neighborhoods at HUD, Promise Neighborhoods at the Department of 
Education, and Byrne Criminal Justice Innovation at DOJ. The Promise 
Zones initiative builds on the lessons learned from these existing 
place-based programs, for which the budget reflects increases in 
investment across agencies. 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 recruit businesses based on industry clusters, unique 
resources available in the community, and implement 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 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. OER will fund $75 million in 
Integrated Planning and Investment Grants that will seed or enhance 
locally created, comprehensive blueprints that strategically direct 
public and private investments in development and infrastructure to 
projects that result in: attracting jobs and building diverse and 
resilient economies; significant municipal cost-savings; and stronger, 
more unified local leadership. These grants will create incentives for 
communities to develop and implement comprehensive housing and 
transportation plans, such as updates to building codes, land use, and 
zoning ordinances that result in more resilient economic development, 
improve housing supply response to demand, and increase affordable 
housing near public transit. Integrated Planning and Investment Grants 
will incorporate some of the same features of the previously funded 
Regional Plans for Sustainable Communities and the Community Challenge 
Grants offered by the Office of Sustainable Housing and Communities, 
but using lessons learned from those programs and feedback from local 
leaders and Congress, will prioritize supporting actionable economic 
development strategies, reducing redundancy in federally funded 
planning activities, setting and monitoring performance, and 
identifying how Federal formula funds can be used smartly and 
efficiently in support of economic resilience. As with the previous 
efforts, priority will be placed on directing grants to rural areas, 
cities, counties, metropolitan areas and States that demonstrate 
economic need and are committed to building the cross-sector, cross-
disciplinary partnerships necessary to tackle the tough decisions that 
help make places economically competitive.
    We know how important these planning tools are to regional 
economies--particularly those that rely on integrated supply chains 
that cross national borders and how essential they are to meeting the 
President's charge to double U.S. exports over the next 5 years. These 
investments will leverage other Administration proposals (e.g., 
Infrastructure Bank, Project Rebuild) to help overhaul America's 
deteriorating infrastructure and increase residential and commercial 
construction around transit.
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 
2014, HUD is requesting approximately $44 million in FHIP funds, 
representing the Department's strong commitment to fair housing, 
including $28 million to support the efforts of private fair housing 
organizations that conduct private enforcement of the Fair Housing Act. 
The Private Enforcement Initiative (PEI) grantees investigate and test 
housing providers alleged to have engaged in discrimination. The 
requested amount will continue funding to support fair housing 
enforcement by all statutorily eligible private fair housing 
organizations. In addition it will fund fair housing education at the 
local, regional, and national levels.
    The Fair Housing Assistance Program (FHAP) is a critical component 
of HUD's effort to ensure the public's right to housing free from 
discrimination. FHAP multiplies HUD's enforcement capabilities, 
allowing the Department to protect fair housing rights in an efficient 
and effective manner. In fact, FHAP agencies investigate the majority 
of housing discrimination complaints filed in the United States. In 
fiscal year 2014, the budget provides $24.6 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. The State-administered Community Development Block Grants 
(CDBGs) provide approximately $692 million to rural areas, supporting 
over 25,000 jobs both directly and indirectly, providing needed 
infrastructure, economic development, and affordable housing. HUD also 
funds over $300 million in rural areas for affordable housing and 
homeownership programs through its HOME Investment Partnership program, 
directly and indirectly supporting over 5,360 jobs.
    As the single largest sources of funding for housing on Indian 
tribal lands today, 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 and Native Hawaiian Loan Guarantee 
Program. HUD recognizes the right of Indian self-determination and 
tribal self-governance by allowing the recipients the flexibility to 
design and implement appropriate, place-based housing programs 
according to local needs and customs. Taken together, in fiscal year 
2014 HUD is requesting $739 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 (USDA) 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 Housing Choice Voucher program, public housing, and 
Multifamily programs, with another 450,000 assisted through USDA. For 
homeowners, the FHA helps first-time homebuyers and other qualified 
families all over the country purchase their own homes. More than 1.5 
million of the homes currently insured by the FHA are in rural areas, 
and approximately $545 million in current FHA loans are to rural 
healthcare facilities designated as ``critical access hospitals.'' HUD 
recognizes the unique challenges in these rural areas, and continues to 
develop innovative, community-based programming to meet those needs.
    HUD has also entered into a memorandum of understanding with the 
Department of Treasury's Community Development Financial Institutions 
Fund and the Department of 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 United States-Mexico border, will improve the 
delivery of funding from Federal agencies and private sources 
supporting small business, affordable housing and community facilities.
              goal 5: transform the way hud does business
    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 2014 budget reflects these critical 
roles, by investing in transformation, research, and development that 
will be implemented persistently over time.
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. This is why HUD is 
providing its employees training and leadership development 
opportunities. In addition, many internal rules and regulations have 
become hurdles instead of being helpful. In response, HUD is in the 
process of simplifying and combining programs, streamlining 
regulations, and eliminating rules and constraints. The Department is 
also in the middle of a major reform of its information technology, 
human resources, procurement, and other internal support functions to 
give more authority and flexibility to managers and provide better 
service to HUD customers.
    In fiscal year 2014, HUD is requesting $1.467 billion in salaries 
and expenses, including $127.7 million for HUD's Office of Inspector 
General (OIG). This funding request represents just a 0.6 percent 
increase from the fiscal year 2012 enacted level, and reflects HUD's 
commitment to lean and smart management. The HUD request includes 
several initiatives to streamline the HUD organization, including 
restructuring the accounts, increasing training for our staff, and 
providing significantly more detail on how HUD staff supports programs 
and strategic goals. HUD is making specific investments of more staff 
to manage major rental assistance programs, increasing our ability to 
enforce new fair housing rules, and providing 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. These roles require an agency that is nimble and 
market-savvy, with the capacity and expertise necessary to galvanize 
HUD's vast network of partners, including local officials, nonprofits, 
and faith-based organizations, among others.
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 the long-neglected areas of IT 
modernization, research and evaluation, and program demonstrations 
crucial for increasing the efficiency and effectiveness of the 
Department's programs. 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. The 2014 budget requests transfers of $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. For example, one fiscal year 2014 priority project would 
refine HUD's utility models to enable the Department to more accurately 
account for energy usage in housing assistance programs in which 
utility costs are paid by tenants, and thereby help HUD to more 
effectively disburse funds for utilities that are actually consumed.
    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 the 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, within the Public 
Housing Capital Fund, a $15 million pilot of the evidence-based 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) also provides fundamental support for informed 
decisions by the Department and national policy makers through data 
collection and research dissemination. PD&R has a key role in the 
improvement of national housing data infrastructure and meeting other 
key national information needs. In fiscal year 2014, HUD is requesting 
$50 million to fund the Nation's basic data infrastructure and share 
research knowledge on housing and community development. Complementing 
TI, this funding to support foundational housing market surveys 
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 polices 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 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 fiscal year 2014, HUD is requesting $285 million to support and 
modernize its information technology infrastructure. This request 
includes $45 million for the development, modernization, and 
enhancement of key outdated systems; $116 million for the operations 
and maintenance of our current systems; and $124 million to complete 
the transition to our new IT Infrastructure system, HUDNET. In fiscal 
year 2014, HUD will focus our development efforts on transitioning the 
Department's IT infrastructure from the current antiquated environment 
to a modern, sustainable infrastructure, continued development of a 
modern financial management system that will improve HUD's ability to 
measure, track, and report on program costs and efficacy, and 
transitioning the current FHA systems to a modern platform. These 
changes will allow HUD to deliver services and manage its 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
    Madam Chairman, 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. 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 2014 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, Mr. Secretary. And I 
will begin the questioning by talking about the status of FHA's 
Mutual Mortgage Insurance (MMI) Fund. Your budget states that 
$943 million may be needed to cover expected FHA losses in the 
single-family insurance fund in the fiscal year 2013. That 
follows on the most recent actuarial report showing that the 
capital reserve account would go negative. Can you talk about 
how the condition of the fund has changed in the past year, and 
how HUD arrived at its 2013 shortfall estimate?
    Secretary Donovan. Absolutely.

                     MUTUAL MORTGAGE INSURANCE FUND

    I am glad you raised the actuarial report and where we are. 
Before that report and since, we have taken aggressive actions 
to protect the fund--five different premium increases, 
including most recently at the beginning of this month, that 
will help protect the funds. That leads to, obviously, the 
significant receipts we expect in the budget this year, the 
$14.5 billion that I referred to.
    What that shows you is that the new loans that we are 
making in the fund are the best quality that we have ever seen 
in FHA. And I do not believe, at this point, that we should be 
taking further steps to increase premiums. What we really 
should be focusing on are the loans that are causing the 
damage.
    And those steps that we have already taken, as you can see, 
move us from a negative $16 billion number that was in 
actuarial report to the under negative $1 billion that we have 
in the President's budget.
    The further steps that we need to be taking focus on the 
loans that are causing the deficit. If you just took out the 
reverse mortgage loans from the FHA fund, we would be in a 
positive $4 billion----
    Senator Murray. Why are these such a problem?
    Secretary Donovan. Frankly, the program needs reforms. And 
unfortunately, we do not have the authority to implement those 
reforms without full notice-and-comment rulemaking. That is a 
process that could take 18 months. And one of the things that 
we are asking Congress to do as quickly as possible is give us 
the ability to make these changes to the program through a 
mortgage letter much more quickly rather than having to go 
through this full notice-and-comment rulemaking.

                         REVERSE MORTGAGE LOANS

    The other thing I would say in particular is that, because 
of the nature of the reverse mortgage loans, they are more 
highly sensitive to changes in house prices. So the recent 
economic crisis and housing crisis has had a more severe 
impact.
    So we need to change the Home Equity Conversion Mortgage 
(HECM) program. We are asking for the authority to do that as 
quickly as possible, in addition to the changes we have already 
made.
    The second thing I would say is we need to continue to 
increase the collections that we can make on older loans 
outside of the HECM program. We made a number of changes this 
year. We are going to continue to do that, streamlining short 
sales, improving loan sales. All of those can bring billions of 
dollars to the fund. But we also need help from Congress in 
increasing our enforcement authorities; for example, allowing 
us to remove servicing from lenders that are not doing a good 
enough job helping homeowners and helping protect the taxpayer.
    Senator Murray. Okay, I appreciate that.
    Let me ask you about sequestration. You testified before 
the full Appropriations Committee a few weeks ago about the 
impact on HUD's programs and the people who rely on those. 
Those cuts have now been implemented with some real 
consequences. I am hearing a lot about this at home. I 
mentioned that in my statement.
    Can you talk about how public housing authorities are 
responding to these cuts, and what is their effect, especially 
since this has come so late in the fiscal year?
    Secretary Donovan. Absolutely.

          SEQUESTRATION'S IMPACT ON PUBLIC HOUSING AUTHORITIES

    First of all, and you really talked about this in your 
statement, Senator, more than 100,000 families that we expect 
to lose vouchers, and we have already seen--you talked about 
the example of King County, where families who are on the 
waiting list who would have gotten a voucher are going to 
remain at risk of homelessness in terrible situations by not 
getting that voucher.
    But there are even more extreme examples around the 
country. We have identified over 700 housing authorities where, 
even if they fully draw down their reserves, stop leasing new 
vouchers, that we do not think will be enough. That means that 
they will literally have to start cutting off families from the 
program----
    Senator Murray. Who are currently in section----
    Secretary Donovan. Who are currently served, or other 
extreme measures, reducing payment standards and other things 
that would have direct impacts on families that are already 
severely stressed. And so we are most concerned about those.
    In the most extreme example, and I know this is 
particularly important to you and the ranking member, we have 
seen housing authorities start to turn back their entire 
programs. In other words, they say we can't administer vouchers 
anymore.
    Senator Murray. Because they do not have the personnel to 
do it?
    Secretary Donovan. Because they do not have the ability to 
do it. Thirteen housing authorities in the first 3 months of 
this year, that is a more than tripling of the rate that we saw 
last year. And last year was already high because of the cuts 
that we have seen in prior--we even have housing authorities 
turning back VASH vouchers. Can you imagine a housing authority 
saying I can't serve a veteran of this country to get them off 
the street?
    Senator Murray. Not because they don't have a population 
that needs it, but because they do not have the personnel?
    Secretary Donovan. Absolutely. Only because they do not 
have the funding.
    Senator Murray. Right.
    Secretary Donovan. Now, beyond that, thanks to the work 
that you did in the recent continuing resolution, we have gone 
from expecting about 100,000 people in our homeless programs to 
be back on the streets--that is down to 60,000. So it is better 
than the 100,000, but it is still 60,000 people that could be 
hurt that way.
    I would also just point to one other example. As Senator 
Blunt knows, Joplin is still recovering from the devastating 
tornado we saw there. You all worked hard to make sure that 
funding was available through the Sandy supplemental. We have 
allocated over $100 million there to Joplin.
    But we are going to see, just in the CDBG program, over 
$800 million of cuts. We believe that is 20,000 jobs in 
reconstructing, not to mention the more than 10,000 families 
and businesses who may never get rebuilt as a result of that.
    Overall, what we are talking about, and you pointed to 
this, just at a time when we are really seeing the economy with 
the ability to take off, just in HUD's budget, we are talking 
about 50,000 jobs lost from sequestration, combining both the 
supplemental funding and the work that we are doing across our 
other programs.
    So these are real impacts on the middle class, on our most 
vulnerable families, and they are happening today, and they 
will continue to grow for the rest of the year if we do not 
reverse sequestration.
    Senator Murray. Yes, and what I am seeing is the impact on 
the broader community, too. As I see that constriction, people 
are once again stopping spending. They are stopping expanding. 
It has had a real impact, so I appreciate your perspective.
    Senator Collins.
    Senator Collins. Thank you, Madam Chairman.
    Mr. Secretary, I was very interested in the exchange that 
you had with Senator Murray about reverse mortgages, because 
over the past couple of years, a retired mortgage banker in 
Maine has repeatedly contacted me to express her well-informed 
view that, in many cases, our seniors are getting into these 
reverse mortgages, and they are turning out to be a disaster 
for them. And she keeps asking why isn't HUD doing more, why 
isn't Congress doing more, to regulate this financial product?
    So it is very interesting to learn today, and to learn 
based on the Home Equity Conversion Mortgage program, I believe 
you called it HECM?
    Secretary Donovan. HECM.
    Senator Collins. HECM. That HECMs are contributing to the 
financial instability of FHA's MMI Fund due to factors that 
included longer mortgage terms than were expected, declining 
home values, and an increase in the number of homes conveyed to 
HUD.
    So I was very glad when Senator Murray asked you about the 
impact of those reverse mortgages on the MMI Fund, especially 
since we are concerned about that fund drawing on the Federal 
Treasury.
    But I am also concerned about the impact on seniors of the 
wider spread use of reverse mortgages.
    For example, the surviving spouse of a borrower with a HECM 
insured loan, if not a party to the mortgage him or herself, 
must pay off the loan upon the mortgager's spouse's death. And 
I am wondering if the spouse even realizes that when the 
reverse mortgage is granted.
    So what is HUD doing to ensure that borrowers and their 
spouses understand that consequence and other potential 
problems with getting a reverse mortgage? We see these ads on 
television. It sounds like it is the best thing since sliced 
bread, and yet, I am hearing that there are a lot of problems. 
And the fact that you are seeing such a negative impact on the 
MMI Fund suggests this is an area that we really need to look 
at.

                 HOME EQUITY CONVERSION MORTGAGE REFORM

    Secretary Donovan. Absolutely. And just to take this 
specific point, Senator, about the spouse, this is an issue 
that does need work and clarification. We are asking for 
legislative language that would clarify this in our budget. But 
we have also made sure that, in the counseling that we require, 
that this is a much more clear focus when seniors are making a 
decision about whether to take a reverse mortgage or not.
    I agree with you that we need to do more outreach and make 
it more clear. We do believe that it is important that a spouse 
should be on the mortgage, be not just a part homeowner but 
actually signed on the mortgage for the financial integrity of 
the program. But we also have taken a number of steps to create 
more options; for example, to create more flexibility to allow 
a sale through the estate to ensure that there are ways to 
recover short of foreclosure in those situations.
    So both the counseling and the flexibility on sale are 
things that we have done. But we need the clarification legally 
to make sure we all understand, because there is pending 
litigation on this, and that has created a lack of clarity as 
well.
    More broadly, I would just say, quickly, for the reverse 
mortgage program, we have taken a number of steps to create 
safer products. We introduced a safer version a few years ago. 
We have enhanced the financial tools in addition to counseling 
that we provide. And we are seeing significant improvement in 
loans that were originated after these changes were put in 
place in 2011. Using an apples-to-apples comparison, default 
rates have come down in half. So we are seeing improvements in 
the safety of the loans.

                    MORATORIUM ON FULL DRAW PROGRAM

    But we are very concerned about what we call the full draw 
program. We have put a moratorium on that program to stop it. 
And we will only reinstitute it if we can get the legislative 
authority we need to make the changes quickly. Otherwise, it 
will take us, as I said, through full notice-and-comment 
rulemaking, probably 18 months or so to be able to institute 
those changes.
    And unfortunately, if we do not have them sooner, we are 
going to have to take more drastic measures that would really 
harm the seniors that should have a reverse mortgage, where it 
can be a productive tool, because by the end of the fiscal 
year, we have to have the program back to making money. We have 
to have it with what we call negative credit subsidy, so have 
it be a profitable program for the Federal Government.
    And the only way that we can do that without this 
legislative change is to impose significant changes on 
principal limit factors and other things that we think do more 
harm than good in some ways.
    Senator Collins. Thank you for that response. That is 
something I am very interested in working with you and the 
chairman on.
    I do recognize that a reverse mortgage can be very helpful 
to some of our seniors, but it seems to me it is fraught with 
risks for others. And the fact that your fund is being hit hard 
suggests that it is also fraught with risk for the Federal 
Government. And of course, those two facts are connected.
    So I do think that we need to take a look at that.
    Let me just touch on one other issue. The budget proposes 
to increase the loan guarantee commitment authority for FHA's 
General and Special Risk Insurance programs from $25 billion to 
$30 billion. And as you are well aware, Chairman Murray and I 
tried very hard to get this anomaly included in the continuing 
resolution. Unfortunately, we were unable to include provisions 
that could prove problematic to final passage, and this was one 
of them, although it should not have been, in my view.
    This important program provides mortgage insurance for the 
construction of multifamily housing, hospitals, and healthcare 
facilities. Based on commitments recorded through January of 
this year, the total demand for mortgage insurance during this 
fiscal year is expected to exceed the commitment limitation 
available.
    If funding is depleted, delays in the approvals of mortgage 
insurance could jeopardize construction projects that add jobs 
to our economy.
    So my question for you, Mr. Secretary, is when do you 
anticipate that the program will reach its current limitation 
of commitment authority during this fiscal year, since we were 
unable to get it increased through the continuing resolution?

        GENERAL AND SPECIAL RISK INSURANCE COMMITMENT AUTHORITY

    Secretary Donovan. Based on our latest projections, we 
expect to run out of commitment authority and have to shut down 
the program in mid-August. So that would be 6 weeks before the 
end of the fiscal year.
    Let me just be clear. There are three reasons why we should 
do this, and we want to push hard to get this. We have done 
this in past years. We want to get this done during the rest of 
the year.
    First, and you made this point, that $5 billion in 
commitment authority is 22,000 jobs. Second, we are also using 
that commitment authority to refinance existing loans that are 
already in the program to record low interest rates. That 
actually saves taxpayers money by making those loans safer 
going forward. Third, the new loans, that $5 billion, will 
actually make the taxpayers about $200 million, because those 
new loans we are making at the higher premiums that are 
charging today make money. And so, in lots of different ways, 
not doing this would be a real mistake.
    Senator Collins. I completely agree with you, and it should 
have been done as part of the continuing resolution. We tried 
mightily to get it in there as an anomaly.
    Secretary Donovan. I know you did, and I appreciate it. I 
think we know where the resistance has been. And I think if we 
work together--I certainly have had conversations already on 
the House side about this. I hope we can get there. We have 
been able to in the past, and really, for the private sector, 
in terms of these jobs and being able to move forward, it would 
be a shame at the time our housing market is recovering to 
reverse that progress.
    Senator Collins. Absolutely. Those three arguments are very 
solid. Thank you.
    Senator Murray. Senator Blunt.
    Senator Blunt. I thank the chairman.
    Secretary Donovan, on the last page of the booklet I have 
here on fiscal year 2014, if I am looking at these figures 
right, it looks like to me that, in the billions, the number 
you had available in fiscal year 2012, was $44.341 billion. The 
number you asked for 2014 is 10 percent higher than that.
    What number did you actually wind up with available to you 
in 2013?
    Is that $44.615 billion what you had available or is that 
pre-sequestration?
    Secretary Donovan. You are looking at 2013?
    Senator Blunt. I am.
    Secretary Donovan. That is pre-sequestration.
    Senator Blunt. So how much did you----

                      SEQUESTRATION BUDGET NUMBERS

    Secretary Donovan. So post-sequestration would be $42.4 
billion. And again, that is on a gross basis. Our receipts from 
FHA and Ginnie Mae total $11.2 billion in 2013. So, on a net 
basis, it would be $31.2 billion.
    And I do not believe the table you have includes those 
receipts, if I am correct.
    Senator Blunt. I think it has $11.204----
    Secretary Donovan. Yes, I am sorry.
    Senator Blunt. A lot higher than 2012 and 2011, more than 
twice as high as 2012 and 2011.
    Secretary Donovan. That is correct. And that is both due to 
the better quality of the loans that we are making, as well as 
the increase in premiums.
    Senator Blunt. And does that affect overall programs, or 
just the programs where those receipts come in?
    Do you actually get to spend that money like it was other 
money available to you?
    Secretary Donovan. Ultimately, that is up to the Congress 
to determine in the allocations for the budget, how much of 
those receipts would stay----
    Senator Blunt. What happened here? What happened here? Did 
you have $11 billion more to spend on other things as supposed 
to the year before, where you had $5.8 billion?
    Secretary Donovan. Again, I do not have the discretion to 
spend that money. But it is a net benefit to the taxpayer. It 
does offset the cost of our programs. So Congress determines 
how to use those receipts.
    Senator Blunt. Okay, back to my earlier point then. Your 
total spending in fiscal year 2013 was higher even with 
sequestration than fiscal year 2012, because of those receipts?
    Secretary Donovan. So with sequestration, it is about a 
$1.9 billion reduction.
    Senator Blunt. Reduction.
    Secretary Donovan. In gross spending. So that is the $44.3 
billion going down to the $42.4 billion.
    Senator Blunt. Why did you decide to submit the numbers as 
if sequestration or the budget caps would not be utilized again 
this year? Was that the direction you got from the Office of 
Management and Budget (OMB)? Or did you decide that on your 
own?
    Secretary Donovan. We wanted to provide both pieces of 
information.
    Here is the reason, fundamentally. The President believes, 
I believe, that, as I said very clearly, that sequestration is 
damaging; it is not the right way to manage these programs; and 
that we should, before the fiscal year is out, we hope to reach 
a comprehensive agreement with Congress that would reverse 
sequestration and put in place a balanced deficit reduction 
plan. And, therefore, we think it is critical to look at not 
just where we are today with sequestration, but also to provide 
the information that shows where we would be without that 
sequestration, as well.
    Senator Blunt. But do you have a list of proposals to show 
where you would be with sequestration? I noticed the President 
yesterday, according to Reuters, had to submit a document that 
reduced his own budget he submitted the day before by $91 
billion, but with no particular prioritization, just taking it, 
I guess, out of the budget like sequestration.
    You do know that is the law, of course?
    Secretary Donovan. Obviously, it is the law, and we are 
living with the consequences.
    In fact, if the----
    Senator Blunt. We also live with the consequences of not 
acting like it is the law. September 28, OMB sent out a 
document to you and everybody else that I put in the 
Congressional Record a couple months ago that said, spend your 
money beginning October 1 as if the law will not be followed. I 
think it actually said, ``as if Congress will change the law,'' 
which is, of course, a nicer way to say that.
    But it would seem to me that we would want to set the 
priorities you want with the money you are likely to get, as 
opposed to the priorities you want with lines that will, in all 
likelihood, I believe, now will be cut. But that is just my 
view as opposed to yours.
    Answer a question for me about veterans' housing, homeless 
veterans. You said you had 60,000 people unserved instead of 
100,000? Was that the comment you made?
    Secretary Donovan. That is in our homeless programs more 
broadly, not just----
    Senator Blunt. Not veterans. Homeless programs more 
broadly.
    What did we do in the continuing resolution that allowed 
you to at least close 40,000 of that anticipated gap from 
100,000 to 60,000?

                     SHORTFALLS UNDER SEQUESTRATION

    Secretary Donovan. There was funding added to our homeless 
assistance grants that allowed us to renew more of the existing 
units that are there. We still are going to have to, if 
sequestration continues, and the continuing resolution, we are 
going to have to eliminate existing programs that house the 
homeless if sequestration is not reversed. And that would be 
about the 60,000 number that I cited.
    Senator Blunt. So the continuing resolution update was 
better for this program than if we had just continue to go with 
past priority-setting efforts.
    Secretary Donovan. Senator, I would just add, to go to your 
question earlier, to be clear, we do believe sequestration 
should be reversed. We believe that is the right course. And 
the President is not going to give up on that.
    But I would also say that if sequestration continues, it 
will make the budget picture worse next year and increase needs 
in many of our programs. Just to give you one example, if 
sequestration continues, we will go into next year with a $1.2 
billion shortfall in our project-based section 8 program. Those 
are contracts that we signed with private owners who manage 
housing that says here is the rent that they are entitled to. 
And so, for us to live up to those contracts, we are in a 
position, if sequestration is not reversed, where, in addition 
to the funding that we have here, is an additional $1.2 billion 
that would be needed to live up to those contracts.
    Senator Blunt. And would those contracts be a priority?
    Secretary Donovan. Absolutely. And as I said in my 
testimony----
    Senator Blunt. Absolutely. So why wouldn't you want to be 
dealing with this subcommittee to try to be sure we were 
helping you meet your priorities before you meet anything else?
    Secretary Donovan. That is exactly why this was a priority 
for us in the budget as I laid it out. Eighty-four percent of 
our budget that goes to renewals is the top priority for us, 
and we have made sure in the budget for next year that every 
single family that is currently served could continue to be 
served.
    Senator Blunt. Well, I am sure you are not the only agency 
that has had to approach this, or decided to approach this, 
this way. But my sense would be that, at some point, we are 
either going to decide we are going to change the law, or it is 
actually the law, and we all need to figure out how to deal 
with that as we are helping set priorities as opposed to vote 
for an appropriations bill that is going to be cut in areas 
that we wouldn't want it cut on a line-by-line basis, and other 
things that were new and aspirational might have had a broader 
debate if you knew they were truly areas that were going to be 
impacted by these funding programs.
    Chairman, thank you for the time.
    Senator Murray. Thank you. And I would just remind all of 
us that we are in a position now where we are trying to work 
between the White House, the House, and the Senate on what 
those levels are going to be. Meanwhile, we have to move our 
appropriations bills forward, and we are all trying to manage 
through that.
    Mr. Secretary, in recent years, examples of housing 
authorities that misused Federal funds or failed to comply with 
important safety regulations have really highlighted the 
importance of oversight. As you work now to improve HUD's 
oversight, it is important to make sure we are not just adding 
new requirements or just asking for more information, but we 
are instead asking for the right information and using it 
effectively.
    What steps are you taking to improve oversight and 
streamline reporting requirements and update regulations?

            OVERSIGHT OF TROUBLED PUBLIC HOUSING AUTHORITIES

    Secretary Donovan. Well, first, I would point to the 
critical section 8 reform legislation that we have proposed. As 
I said, we are looking at $0.5 billion in savings just next 
year, $2.7 billion over 5 years. That is enormously important. 
This does go to Senator Blunt's point as well.
    There are important steps that we can take while serving 
the same number of families to lower costs in the programs.
    We have also taken substantial steps to make sure that the 
minority of public housing authorities, the small number that 
are violating program rules, that are in serious difficulties, 
and are not living up to the standards that we have set, those 
troubled housing authorities, that we are focusing on them and 
either enforcing against them or working with them to correct 
those problems.
    And I do think we are making progress there. If you go back 
to the beginning of administration, we had about 175 troubled 
housing authorities around the country. We are now down to 52. 
And I think that we will continue to make progress. We would be 
happy to provide more information on how we are doing that 
through our FARs effort.
    We have over 100 teams around the country that are working 
with these housing authorities, both to enforce and to improve 
them.
    We made enough progress that we have started working on the 
near-troubled agencies. We have seen about a 10-percent 
reduction in the number of those, and we are going to take 
additional steps. We are looking forward to seeing the results 
of those assessments this year to see if we made further 
progress. And we are actually going to go further upstream to 
those that are, for some reason, in the risk-ranking that we 
are doing, appear to be at risk of troubles.
    So those are all important.
    The other thing I would just make sure we understand here, 
HUD needs to live up to its responsibilities to oversee these 
housing authorities. But these are local entities created under 
State law with boards of directors, executives that have 
authorities for oversight themselves. And we are going to be 
aggressive, and we have been aggressive, in going after 
individuals who are not living up to their standards and also 
that may be violating our rules.
    We are debarring and taking other steps against individuals 
who are not living up to their responsibilities. We need to 
make sure that local responsibility is met.
    Just the last thing I would say is, even where these folks 
are doing a great job--you mentioned Steve Norman in King 
County. Senator Collins mentioned the improvements that we have 
made in the Maine State Housing Authority. They are also not 
magicians. And when you are operating at under 70 percent of 
administrative fees, we have to recognize that the risk here, 
no matter what we do to make the programs more efficient and 
effective, is that oversight will fail, that we will get more 
units, because there are not capital funds to fix them up, that 
are not in decent condition.
    And so while we do everything that we can to create more 
flexibility, the fungibility between operating and capital fund 
is a good example in our budget, to increase oversight, there 
is a limit as to what we can do. And even some of these efforts 
we would like to undertake, we will have to put aside or delay, 
given the funding levels that we have.
    Senator Murray. An excellent point. And on the local 
governance issue, that really is important. And I would like to 
work with you and the inspector general on ways to improve the 
ability of housing authorities and other governing boards to 
identify some of these problems.
    I want to quickly talk about some of the new initiatives. 
As I have traveled around my home State, I have been excited to 
see some of the partnerships housing providers have created to 
address the housing and service needs of people seeking 
assistance.
    Tacoma, King County housing authorities are doing really 
great and exciting work around education. Longview and Walla 
Walla in my State are doing some really great work with our 
veterans' groups. Seattle's Yesler Terrace project supported by 
Choice Neighborhoods involves partnerships with schools, 
community colleges, local employers. And that project is going 
to redevelop housing and the whole surrounding neighborhood, 
while also increasing opportunities for families living in 
them.
    Your budget proposes to make a significant investment in 
Choice Neighborhoods, and I wanted to ask you, how does Choice 
encourage the kind of partnerships and leveraging happening in 
Seattle?

                          CHOICE NEIGHBORHOODS

    Secretary Donovan. Yes, I very much appreciate you raising 
this because the President strongly believes that we can reach 
our balanced deficit reduction while still investing more in 
the programs that are going to create jobs and growth, and help 
people be ready for those jobs through these Ladders to 
Opportunity.
    And I would just quibble a little bit with your use of the 
term ``new initiatives.'' I do want to be very clear that 
everything in this budget, whether it is in Choice 
Neighborhoods, the Neighborhood Stabilization Investment, Jobs-
Plus, some of the other things that you mentioned, those are 
all things that are tested at this point and that we have done.
    We are proposing an effort to coordinate these better 
through Promise Zones, but it is not a new program, in the 
sense that it is simply scaling up existing initiatives or 
things that we have proposed before.
    One of the things that I think is so impressive about 
Choice Neighborhoods--and you have seen it directly, just about 
anybody who goes to see the transformation of these 
neighborhoods--is that they have enormous leveraging of what 
work is being done, whether it is at the Department of 
Education, that is why we want to link up with their Promise 
Neighborhoods effort. But it also brings so much private 
capital.
    So just take the nine grantees that we have done so far in 
implementation grants for Choice Neighborhoods. They have 
raised over $2 billion in capital for investment and job 
creation. That is over eight times a multiple of the money that 
we have put in on the Federal side.
    So some people might say, well, we ought to put this money 
into the regular capital fund account. But I think we can get 
more bang for the buck if we put it into Choice Neighborhoods 
and leverage all of this other private capital that can go to 
work creating jobs.
    The other thing that it recognizes is, what is the cost of 
the child that grows up in that neighborhood and ends up in a 
homeless shelter, that ends up not being able to get a job 
because they are not getting a decent education?
    Senator Murray. Never finishes, yes.
    Secretary Donovan. We estimate that the 20 percent of kids 
growing up in poverty in this country costs us $0.5 trillion a 
year in lost productivity and wages.
    And that is a cost that we have to avoid. And that is why 
the President focused on this Promise Zones coordination 
effort, to make sure that not only we are giving these kids a 
chance, we are living up to the American promise, but that we 
are also avoiding those enormous costs of failure.
    Where are our future workers going to come from if we are 
leaving all these kids behind? And that is a cost we can't 
afford to bear.
    Senator Murray. Right. Well, I really appreciate that. And 
as I have seen in my State, the partnerships that are created 
through these initiatives really do make a difference.
    Secretary Donovan. Seattle Housing Authority Yesler is a 
terrific example.
    Senator Murray. Great example, yes.
    Senator Collins.
    Senator Collins. Thank you, Madam Chairman. Madam Chairman, 
I am going to submit the remainder of my questions for the 
record, because I think if I get into a long exchange, we will 
get into the vote that is coming up very shortly, which 
probably makes the Secretary very happy. But I do want to make 
one----
    Secretary Donovan. This is one of the few hearings I love 
spending time in.
    Senator Collins. He is tactful as well.
    I do want to say that the budget presentation--and this 
isn't just HUD's, it is across the board. Because of the way it 
was done this year, comparing to fiscal year 2012 rather than 
to the enacted sequestered amount, is extremely confusing.
    I had to have my staff write out for me, and HUD's is even 
more confusing because you have offsetting receipts, which a 
lot of agencies and departments don't. So I had to have them 
write out for me fiscal 2012 enacted, then what is the amount 
with receipts; fiscal 2013, the sequester year, what is the 
amount with receipts; fiscal 2014, what is the request and what 
is the amount with receipts.
    And I think to prevent confusion as we begin marking up and 
putting together a bill, we need a clearer chart from you. I 
mean, you can glean it from some of this, but it isn't easy.
    And I suspect that that is because you were instructed by 
OMB to pretend the sequestration is going to go away and do 
your comparisons to fiscal year 2012.
    Is that an accurate assumption on my part, or can we get a 
more straightforward chart?
    Secretary Donovan. I will hand you this in about 30 seconds 
when we finish. So, yes, we do have that.
    And look, obviously, we want to provide whatever 
information you need to make decisions.
    I do think it is a fundamental point here that the 
President believes, we all believe, that sequestration is not 
the right policy, and that we ought to reverse it, that we can 
reverse it. And particularly building into our budget, for 
instance, this $1.2 billion hole for project-based section 8, 
if we believe we can get there and not have that was not just a 
``we were instructed'' but it was a policy choice that we made 
that we fully believe in.
    Senator Murray. Can I just say that this is all going to 
have to be resolved? The House is looking at a different number 
than the Senate, and, at some point, we are going to have to 
have an agreement.
    But we are moving forward as if we are enacting a budget 
that has--well, we will hear from our chairman of the 
Appropriations Committee what exactly our subcommittee 
allocations are. But they have to move forward now. We can't 
wait for several months for the budget to be decided between 
the House and the Senate.
    So this will all come to a head at some point, but I think 
we are trying to manage between the guesses at this point.
    Senator Collins. And I agree with that, and I also am no 
fan of sequestration. We do need to reduce our spending. But to 
do these mindless automatic meat axe cuts does not reflect 
priority setting, which is what we are supposed to do.
    But that doesn't mean that we shouldn't be looking at 
budget constraints and reduce spending.
    I am just trying to figure out what the real numbers are 
here and you need to make that----
    Senator Murray. So is the Appropriations Committee 
chairman.
    Senator Collins. You need to make that easier for us, not 
harder, just by your views on sequestration, which I may well 
largely share, and despite the hope that this goes away and 
that we come up with a more rational priority-based budget.
    But it truly was extremely difficult to follow the figures.

                    RENTAL ASSISTANCE DEMONSTRATION

    Secretary Donovan. I apologize. And I also just would say, 
to thank you, Senator and the chairman, for the remarkable way 
that we have worked together on some of these.
    Let me just give you one example. You talked about, are 
there smart things that we can do to save money, consolidate 
programs? Last year, you gave us the authority to begin our 
RAD, Rental Assistance Demonstration. We have already gotten 
either commitments or letters of interest to convert to the 
section 8 platform from two-thirds of all the units across the 
country in two of the legacy programs--we call them orphan 
programs, about 14,000 apartments across the country--that we 
should be looking to move to a platform.
    We have 13 different rental assistance programs. With what 
we are proposing in our budget, I think we could easily 
complete that conversion and end up with fewer programs with no 
additional appropriations, no other work.
    So I do think that there are lots of things that we can 
continue to do, as you say, not with the meat axe, not with 
these--as Senator Graham said the other day, he asked all of 
his witnesses, so you are saying this is stupid, sequestration? 
We sort of looked at each other, is this a trick question? But 
yes, it is.
    There are smart ways we can do this, and we have been able 
to do that in the past. We did it last year, and I am sure that 
we can continue going forward in making those smart decisions 
while not hurting the veterans, the families, the seniors, the 
people with disabilities that so often depend on our programs.
    Senator Collins. Thank you.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Thank you. And I do have additional 
questions I will submit for the record and remind my colleagues 
that we will leave the hearing record open for 1 week for 
additional questions.
    And, Mr. Secretary, thank you so much again for your 
incredible work on this. We look forward to working with you as 
we work through the numbers.
    Secretary Donovan. Thanks for your partnership.
    [The following questions were not asked at the hearing, but 
were submitted to the Department subsequent to the hearing:]
           Questions Submitted by Senator Barbara A. Mikulski
                           super storm sandy
    Question. Super-Storm Sandy's wrath had a measurable impact on 
residents of Maryland, and especially on the residents of Garrett 
County. Maryland suffered a double whammy. Our coastal areas along the 
beloved Chesapeake Bay and the Atlantic Ocean were hit by the 
hurricane. In Garrett County, called the Switzerland of Maryland, we 
were hit by a blizzard.
    Homes were destroyed or damaged, nearly all of the county lost 
power for a week. More than 100 people had to stay in shelters during 
the storm. Fallen trees, debris, and power lines blocked almost all of 
the county roadways.
    Fire companies were not able to respond to several structure fires 
because of the blocked roadways. The county lost their primary and 
backup 911 call center for 5 days. And the local hospital operated on 
Code Yellow Divert (critical patient intake only) for 4 days during the 
storm.
    30,000 people live in Garrett County, almost 10 percent below the 
poverty line, and almost 15 percent are seniors. Residents have 
experienced significant costs after electrical masts were ripped from 
homes during the storm. Electrical companies repairing the lines will 
not hook up homes to power until residents repair electrical masts at 
their own expense.
    My first legislation as Chairman of the Appropriations Committee 
was taking over the disaster spending bill to get it passed into law. 
And the Sandy Task Force has been hard at work. The TV cameras have 
left, but the compelling human need has not.
    Secretary Donovan, I'm grateful for the work that you and the Task 
Force have been doing, and I appreciated it when you assured me at the 
last hearing on Super-Storm Sandy that Community Development Block 
Grant Program Disaster Recovery (CDBG-DR) funds could help ``fill 
gaps'' for areas that didn't get Individual Assistance (IA) from the 
Federal Emergency Management Agency (FEMA).
    I'm concerned that IA qualification may act as a barrier to Garrett 
County getting the help it needs for its poor and elderly residents.
    Will you work with me and my staff to ensure that the county gets 
the help that it needs in the coming rounds of CDBG-DR funding 
releases?
    Answer. Madam Chairwoman, please be assured that the Department is 
evaluating the full range of recovery needs associated with Hurricane 
Sandy and will be making additional allocations of CDBG-DR funding in 
response to these needs. I would appreciate the opportunity to better 
understand the needs in Garrett County as a result of Hurricane Sandy 
and would be happy to have our CDBG disaster recovery staff meet with 
Garrett County officials and work with you and your staff to ensure 
that we fully understand the scope of the county's unaddressed recovery 
needs.
                                 ______
                                 
           Questions Submitted by Senator Frank R. Lautenberg
    community development block grant disaster recovery action plan
    Question. On March 28, I signed a letter urging the Department of 
Housing and Urban Development (HUD) to quickly review New Jersey's 
proposed Community Development Block Grant (CDBG) Disaster Recovery 
Action Plan. As you know, the $1.8 billion in Federal disaster recovery 
aid that is the subject of the plan cannot be distributed until HUD 
approves the plan. When will HUD complete its review?
    Answer. The Department completed its review of the State of New 
Jersey CDBG disaster recovery action plan in late April and approval of 
the plan was announced on April 29, 2013. Both State officials and HUD 
have signed the initial grant agreement and funds are currently 
available to the State.
                     cdbg disaster recovery funding
    Question. On March 5, HUD issued a notice regarding the criteria 
for the initial allocation of $5.4 billion in Community Development 
Block Grant (CDBG) disaster recovery funding. This notice prohibited 
the use of these funds to cover costs incurred by privately-owned, but 
publicly-regulated electric utilities in response to Superstorm Sandy. 
In previous disasters, these entities did qualify. This change in 
precedent will likely result in increased electricity bills for New 
Jersey residents and could hurt the ability to strengthen critical 
power infrastructure. Will HUD include privately-owned, but publicly-
regulated electric utilities as qualified CDBG recipients in the next 
allocation to protect New Jersey ratepayers from rate increases?
    Answer. In its December 7, 2012, request to Congress for assistance 
in response to Hurricane Sandy, the administration indicated its 
intention to limit Community Development Block Grant disaster recovery 
(CDBG-DR) assistance to for-profit entities solely to small businesses. 
This position is reflected in the Federal Register Notice that HUD 
issued on March 5, 2013, governing the use of CDBG-DR funds. The 
Federal Register Notice defines ``small business'' by applying Small 
Business Administration definitions as found in 13 CFR 121. The Notice 
also specifically prohibits the provision of CDBG-DR assistance to 
privately owned utilities for any purpose. The Department will consider 
the full range of recovery needs when establishing requirements 
applicable to future CDBG-DR allocations in response to Hurricane Sandy 
but will remain consistent with overall administration policy in the 
use of these funds.
                   cdbg disaster recovery action plan
    Question. New Jersey's proposed Community Development Block Grant 
Disaster Recovery Action Plan provides $825 million to assist 
homeowners, while providing only $254 million to rebuild rental 
housing. This allocation has raised concerns because 43 percent of New 
Jersey households registering for Federal Emergency Management Agency 
(FEMA) assistance as a result of Sandy are renters, and many are low-
income families. Will you commit to carefully reviewing New Jersey's 
plan to make sure that all families in New Jersey--both renters and 
homeowners--get the help they need?
    Answer. The New Jersey CDBG-DR action plan approved by HUD on April 
29, 2013, directs approximately 33 percent of housing program funds to 
multifamily/rental properties uses. This represented an increase of 5 
percent from the State's initial proposed allocation to multifamily/
rental purposes. The Department has conducted its own analysis of the 
owner/renter split in the FEMA data and believes the State's allocation 
of 33 percent for multifamily/rental purposes is consistent with the 
data.
    Question. Superstorm Sandy damaged more than 800 public housing 
units in my State, displacing 100 families. New Jersey's proposed 
Community Development Block Grant Disaster Recovery Action Plan sets 
aside only $5 million to support public housing unit repairs. I am 
concerned that--because of the pre-existing backlog of public housing 
capital repair needs--this amount may be inadequate. What share of the 
Sandy-damaged public housing units in New Jersey will it be possible to 
restore to a state of good repair with this and other anticipated 
Federal funding?
    Answer. As part of the Department`s review of New Jersey's CDBG-DR 
action plan, HUD discussed with State officials the proposed public 
housing allocation of $5 million. The Department is pleased to report 
that as part of the HUD-approved action plan, the State increased the 
public housing allocation from $5 million to $20 million. Further, the 
State is committed to reassessing public housing recovery needs as 
additional information becomes available and additional allocations are 
made by HUD.
                public housing drug elimination program
    Question. Prior to 2002, public housing authorities were able to 
fund safety, security, and drug- and gang-prevention activities through 
the Public Housing Drug Elimination Program, which I created. That 
program was eliminated by the Bush administration. In the absence of 
dedicated funding, how is your agency working with public housing to 
make their facilities safe and drug-free?
    Answer. Annually a portion of the Emergency/Disaster set aside 
within the Capital Fund is made available for funding safety and 
security grants. This funding provides assistance to public housing 
agencies for emergency capital needs including safety and security 
measures necessary to address crime and drug-related activity.
    Emergency safety and security grant funds may be used to install, 
repair, or replace capital needs items including, but not limited to 
the following:
  --security systems/cameras;
  --fencing;
  --lighting systems;
  --emergency alarm systems;
  --window bars;
  --deadbolt locks; and
  --doors.
    Outside of the Safety and Security set-aside competition, physical 
improvements to the property, such as fencing, security cameras, or 
additional lighting, are eligible Capital Fund modernization activities 
under current laws and regulations. Public housing agencies (PHAs) can 
also use their Operating Fund subsidy for ``anticrime and anti-drug 
activities, including the costs of providing adequate security for 
public housing residents, including above-baseline police service 
agreements.'' (U.S. Housing Act.)
          public housing authorities--emergency capital needs
    Question. In fiscal year 2013, Congress allocated up to $20 million 
for grants to public housing authorities to address emergency capital 
needs, including ``safety and security measures necessary to address 
crime and drug-related activity.'' Of the $20 million emergency capital 
needs allocation, what share has HUD set aside for safety and security 
measures?
    Answer. The Department plans to set aside $3 million initially for 
safety and security measures. At the end of the fiscal year, if funds 
remain that were not awarded for emergencies/disasters, the Department 
will make additional safety and security awards for applications that 
were received and determined to be eligible, which could not be funded 
due to the limited funds.
                                 ______
                                 
              Questions Submitted by Senator Daniel Coats
                  better stewards of taxpayer dollars
    Question. We are operating during a time where the game has 
changed. Instead of coming here every year in the Appropriations 
Committee and asking ``how much more are we going to spend this year?'' 
we are faced with a fiscal crisis which requires us to ask ``how can we 
take better care of the taxpayer dollars that are being sent here?'' We 
must all ask how we can better manage and oversee Federal departments. 
How we can separate the essential projects from the projects we'd like 
to do but can't afford it right now from the projects where we ask 
``why are we doing this in the first place?'' Please describe how you 
are working to save money in the Department of Housing and Urban 
Development (HUD). Furthermore, please explain how you are working to 
prioritize funding requests for essential programs instead of programs 
that don't seem to work very well.
    Answer. The Department strongly shares your belief of the 
importance of credible stewardship of taxpayer funds, particularly in 
the difficult fiscal environment for discretionary programs. The 
Department is proposing several significant cost savings proposals 
identified below as well as policy changes that will further strengthen 
our successful program efforts.
    As you would agree, HUD's mission--to create strong, sustainable, 
inclusive communities and quality, affordable homes for all--is crucial 
to our Nation's well-being, particularly at a time when nearly 8.5 
million households were found to have worst case housing needs in 2011, 
an increase of about 1.4 million in only 2 years, largely reflecting 
the lack of affordable housing. These very low-income renters do not 
receive government housing assistance and either paid more than half 
their monthly incomes in rent, lived in substandard housing, or both. 
Housing needs cut across all regions of the country and included all 
racial and ethnic groups, regardless of whether they lived in cities, 
suburbs, or rural areas, and were found across various household types, 
including families with children, senior citizens, and persons with 
disabilities. Without HUD assistance, a fiscal year 2011 HUD study 
projected that 68 percent of the tenants we assist would be added to 
the worst case housing needs rolls.
    To help address the affordable housing need, HUD dedicated a 
majority of its fiscal year 2014 funding request to serve families with 
the greatest financial needs and support those most vulnerable. More 
than three-quarters of HUD's fiscal year 2014 budget request will 
provide rental assistance to almost 5.4 million residents of HUD-
subsidized housing, including public housing and HUD grants to homeless 
assistance programs. Also, more than three-quarters of HUD-assistance 
households are extremely low-income--i.e., below 30 percent of area 
median income, and over 65 percent of HUD-assisted households are 
elderly and disabled.
    Key contributing programs that support affordable housing 
development, preservation of existing units and past investments, or 
rental assistance to low-income families and associated cost savings 
efforts:
  --Tenant-Based Rental Assistance (Fiscal Year 2014 Request--$19.9 
        Billion).--The section 8 Housing Choice Voucher program is the 
        Federal Government's major program for assisting very low-
        income families, the elderly, and persons with disabilities to 
        afford decent, safe, and sanitary housing in the private 
        market. The program currently serves almost 2.2 million 
        families. At the same time, the fiscal year 2014 request 
        supports approximately 700,000 landlords and property owners 
        who participate in the program by providing a fair market rent 
        so that they can meet mortgage payments, local tax obligations, 
        utility expenses, and maintain properties in good physical 
        condition.
    The overall requested amount reflects $235 million in anticipated 
        savings in 2014 from proposed changes to income targeting that 
        will increase the eligibility of more working poor families, 
        particularly in rural areas ($155 million), the increase in 
        tenant income contribution from raising the medical expense 
        exclusion threshold from 3 to 10 percent ($30 million), and a 
        change in how utility allowances are determined in the cases of 
        families who rent units that are larger than the bedroom size 
        of the voucher for which they qualify under the public housing 
        agency (PHA) subsidy standards ($50 million).
  --Project-Based Rental Assistance (Fiscal Year 2014 Request--$10.3 
        Billion)--The Project-Based Rental Assistance program provides 
        rental assistance for eligible tenants residing in specific 
        multifamily rental developments. This program serves 
        approximately 1.2 million low-income and very low-income 
        households that are primarily seniors, families with children, 
        and persons with disabilities.
    The overall request reflects $240 million in anticipated savings 
        from policy changes that apply residual receipts accounts to 
        offset assistance payments for new and old regulation contracts 
        ($105 million); require the appraiser for certain owner-
        commissioned rent comparability studies to provide additional 
        support to justify the conclusions of the study ($35 million); 
        limit rent levels for certain contracts renewed for projects 
        with current rents that exceed market rents ($8 million); 
        reduce the time period over which an owner may claim vacancy 
        payments from 60 days to 30 days ($7 million); and increase 
        tenant income contribution from raising the medical expense 
        exclusion threshold from 3 to 10 percent ($85 million).
  --Public Housing (Fiscal Year 2014 Request--$6.6 Billion).--The 
        Public Housing program provides affordable, publicly owned 
        housing units to approximately 1.1 million families who cannot 
        afford or will not be served by housing in the private market, 
        60 percent of whom are fixed-income seniors or families in 
        which the head-of-household is a disabled person. The Public 
        Housing Capital Fund serves as the primary source of funding 
        for public housing rehabilitation and development, and the 
        Public Housing Operating Fund provides the operating subsidy 
        payments to public housing authorities for the operation, 
        management, and maintenance of the rental housing.
    --Moving To Work--The fiscal year 2014 budget proposes to scale up 
            the Moving To Work demonstration in which high-performing 
            State and local public housing agencies are given various 
            flexibilities in operating their public housing programs. 
            In exchange for this flexibility, public housing agencies 
            help design and test innovative policies that use Federal 
            dollars more efficiently, help residents become self-
            sufficient, streamline and consolidate program delivery, 
            and reduce long-term costs.
    --Rental Assistance Demonstration.--The Rental Assistance 
            Demonstration, enacted in 2012, targets HUD-assisted 
            properties that are at risk of being lost from the Nation's 
            affordable housing stock inventory. It allows the 
            conversion of public housing and other HUD-assisted 
            properties to long-term, project-based section 8 rental 
            assistance as a tool for public housing agencies to 
            leverage private debt and equity to address their 
            properties' immediate and long-term capital needs, 
            estimated at approximately $26 billion (2010). The fiscal 
            year 2014 budget requests $10 million for targeted 
            expansion of the demonstration to public housing properties 
            in high-poverty neighborhoods, including designated Promise 
            Zones where the administration is also supporting 
            comprehensive revitalization efforts.
  --Homeless Assistance Grants (Fiscal Year 2014 Request--$2.4 
        Billion).--The administration is committed--through Opening 
        Doors: Federal Strategic Plan To Prevent and End Homelessness--
        to ending chronic homelessness by 2015; homelessness among 
        veterans by 2015; and homelessness for families, youth, and 
        children by 2020, and setting a path to ending all types of 
        homelessness. This commitment has already resulted in a 
        decrease in the number of chronically homeless persons by 19.3 
        percent since 2007. Chronic homeless are the most expensive 
        portion of the homeless population. Homelessness among veterans 
        has declined by 7.2 percent between January 2011 and January 
        2012. In addition, as of April 2012, almost 40,000 veterans 
        have been housed with a HUD-Veterans Affairs Supportive Housing 
        (VASH) voucher, funded through the Tenant-Based Rental 
        Assistance program. The fiscal year 2014 budget request 
        maintains the approximately 325,000 HUD-funded beds that assist 
        the homeless nationwide, expands rapid re-housing and permanent 
        supportive housing, and targets--through HUD-VASH vouchers--
        chronic homeless veterans.
  --Housing Opportunities for Persons With AIDS (Fiscal Year 2014 
        Request--$332 Million).--This program provides housing 
        assistance and supportive services for very low-income persons 
        living with Human Immunodeficiency Virus (HIV) infection who 
        are at risk of homelessness. The budget--through a forthcoming 
        legislative proposal--modernizes the program to improve 
        targeting of resources by basing the funding formula on Centers 
        for Disease Control and Prevention (CDC) data on persons living 
        with HIV/AIDS rather than cumulative AIDS cases, and by 
        incorporating local housing costs and poverty rates into the 
        formula.
    The remainder of HUD's fiscal year 2014 budget is dedicated to 
capital grants, which are used by communities to develop and repair 
affordable housing or support economic development activities and 
infrastructure, and other diverse initiatives, including service 
coordination, Fair Housing and Equal Opportunity, Healthy Homes and 
Lead Hazard Reduction, to name a few. In fact, the budget reflects some 
of the tough choices that needed to be made in the capital grant 
programs, for example. The budget provides $950 million for the HOME 
Investment Partnerships Program (HOME), 5 percent below the 2012 
enacted level, in addition to proposed amendments that would improve 
the targeting focus and effectiveness of the overall program at the 
constrained resource level. The budget provides $2.798 billion for the 
Community Development Block Grant formula allocation, which is a $150 
million reduction for formula allocation purposes in comparison to 
fiscal year 2012. Doing more with less, however, the budget proposes 
several reforms to improve targeting and the effectiveness of this 
program, including changes to the allocation process.
    Also, HUD's Transformation Initiative (TI) Fund remains the primary 
source of funding for HUD's multi-year effort to fundamentally 
transform the agency through the use of evidence and improved 
partnership with the Department's grantees and other partners. The TI 
Fund enables HUD to initiate projects that re-engineer fundamental 
business processes, streamline programs and operations, enhance 
accountability and respond to cross-cutting and urgent challenges more 
nimbly and effectively. Transformation Initiative priorities are: (1) 
research and evaluations to build a foundation of current data on 
program effectiveness and emerging policy issues; (2) program 
demonstrations to test new program approaches in a carefully structured 
and rigorously evaluated manner; and (3) technical assistance to 
diffuse evidence-based innovation and support State and local partners 
to improve their capacity to use public resources effectively. In 
addition, HUD will focus its information technology development efforts 
on modernizing the Department infrastructure, including the continual 
development of a modern financial management system that will improve 
HUD's ability to measure, track, and report on program costs and 
efficacy. These information technology investments will allow the 
Department to deliver services and manage its multi-billion dollar 
programs faster, more accurately, and using better information for 
analysis.
    Finally, the Department is taking steps to protect the Federal 
Housing Administration (FHA) fund, reduce risk, and modernize the FHA. 
The Administration projects that the FHA will insure $199.3 billion in 
mortgage loans in 2014, supporting new home purchases and refinanced 
mortgages that significantly reduce borrower payments. FHA's loss 
mitigation program minimizes the risk of financially struggling 
homeowners going into foreclosure. Recent increases in FHA premium 
levels will boast FHA's capital reserves and increase Federal revenues. 
In addition, legislative proposals would provide additional authority 
to ensure that FHA borrowers are receiving the level of delinquency 
assistance needed from servicers, and stronger and more flexible 
enforcement authorities so that FHA can better identify non-compliance 
and poor performance and take action to avoid losses.
                      housing assistance programs
    Question. In 2012, the Government Accountability Office (GAO) found 
the Federal Government is operating 160 housing assistance programs and 
tax expenditures within 20 Departments and agencies costing about $170 
billion.\1\ Despite these programs, homeownership rates fell to a 17-
year low in the third quarter of 2012. The effectiveness of the 
programs is also often inconclusive. What is HUD doing to address this 
puzzle of 160 overlapping and duplicative programs?
---------------------------------------------------------------------------
    \1\ http://www.gao.gov/assets/590/588818.pdf.
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    Answer. The Department has numerous examples of the effectiveness 
of its housing assistance programs. In the absence of these programs, 
for example, many of the Nation's most vulnerable families would be at 
imminent risk of homelessness, there would be far fewer affordable 
housing units, and many of the current first-time and minority 
homeowners might not own homes with affordable, sustainable, fair, and 
transparent mortgages. Below are key examples of the broad reach and 
success of HUD's major housing programs. In an accompanying question, 
we have also provided reforms and savings proposals included in the 
President's budget for various HUD programs. The Department recognizes 
that each spending and tax expenditure program is enacted into law by 
Congress and reflects commitments to broader housing by goals and 
involves specific mission and individual program designs. Finally, the 
Department does not target a specific individual homeownership rate but 
is committed to providing a strengthened mortgage and housing 
environment that supports and expands appropriate homeownership 
including targeting to low-income and other populations who with proper 
assistance can responsibly participate in the opportunities afforded 
through homeownership.
    HUD Programs Support and Sustain Homeownership.--Federal Housing 
Administration (FHA) financing was used for 27 percent of home purchase 
loans in 2011, including an estimated 41 percent of first-time 
homeowners. Fully 60 percent of all African American and Hispanic 
homebuyers using mortgages rely upon FHA financing and over 30 percent 
of all FHA-insured homebuyers are minorities. According to the latest 
Home Mortgage Disclosure Act data, half of all African Americans who 
purchased a home in 2011, and 49 percent of Hispanics, did so with FHA 
financing.
    Between April 2009 and February 2013, more than 6.4 million 
foreclosure prevention actions were taken--including nearly 1.7 million 
FHA loss mitigation and early delinquency interventions and 1.5 million 
homeowner assistance actions through the Making Home Affordable 
program, including more than 1.1 million permanent modifications 
through the Home Affordable Modification Program (HAMP)--saving these 
households an estimated $18.5 billion in monthly mortgage payments.
    HUD Programs Produce Desperately Needed Affordable Housing Units.--
HUD's HOME Investment Partnership Program completed 1,095,946 
affordable units in the past 20 years, of which 460,692 were for new 
homebuyers, 212,100 were for owner-occupied rehabilitation and 423,154 
were new and rehabilitated rental units. Thirty-seven percent of those 
assisted by HOME with affordable rental housing between 2008 and 2012 
were extremely low-income families (families with incomes below 30 
percent of area median income).
    HUD Programs House Vulnerable Families.--The Housing Choice Voucher 
(HCV) program helps 2.2 million low-income families afford decent 
housing in neighborhoods of their choice. This program serves the most 
economically vulnerable families in the country, including families 
with disabilities, elderly families, formerly homeless veterans, and 
families with children. Of the families currently receiving HCV 
assistance, 78 percent are extremely low-income, with incomes at or 
below 30 percent of the area median income, 40 percent have a disabled 
head of household, and 18 percent are elderly families.
    Many families assisted by the program formerly experienced worst-
case housing needs and without the benefit of this program would be at 
immediate risk of homelessness. The most recent Office of Policy 
Development and Research (PD&R) report estimated there were nearly 8.5 
million families with worst case housing needs in 2011--an increase of 
about 1.4 million in only 2 years. A family is defined as having a 
``worst-case'' housing need if it pays more than half of its income 
toward rent or lives in severely inadequate physical conditions, or 
both (Worst Case Housing Needs 2011: A Report to Congress--Summary 
(2013). Department of Housing and Urban Development, Office of Policy 
Development and Research).
                           hud grant criteria
    Question. HUD provided a Community Block Development Grant (CDBG) 
in the amount of $505,000 to Sergeant's Pet Care Products, Inc. which 
specializes in pet shampoo and toothpaste.\2\ This company was expected 
to bring in $140 million in revenue in 2012.\3\
---------------------------------------------------------------------------
    \2\ http://www.governor.nebraska.gov/news/2012/03/19_sarpy_co.html.
    \3\ http://www.morganlewis.com/pubs/Law360_PerrigoWin_13sept12.pdf.
---------------------------------------------------------------------------
    Secretary Donovan, how is HUD working to ensure that its grant 
awards are focused on worthwhile projects? Do you believe that we 
should provide awards of over half a million dollars to private 
companies with revenue over $100 million?
    Answer. Loans to for-profit entities are statutorily eligible 
activities under the Community Development Block Grant (CDBG) program. 
The State of Nebraska uses a portion of its annual State CDBG funding 
and CDBG program income to support its Economic Development Revolving 
Loan Fund to provide assistance to businesses and to create jobs. In 
this particular instance, Nebraska awarded funds to Sarpy County which, 
in turn, provided a loan to Sergeant's Pet Care Products to purchase 
machinery and equipment as part of a $7.5 million project. The project 
will help create 58 new full-time jobs, 40 of which will be targeted to 
low- and moderate-income persons, and will help retain 72 existing 
positions. According to State officials, the project is on track with 
all funds anticipated to be drawn and expended by the end of June 2013 
and projected jobs to be created by the end of January 2014. The 
project meets all CDBG eligible requirements, national objective 
requirements and public benefit requirements.
                        overall use of hud funds
    Question. According to HUD's Office of the Inspector General (OIG), 
in fiscal year 2012, HUD could have put over $3.2 billion to better use 
and paid over $1.3 billion in questionable costs.\4\ This represents 
over $4.5 billion in public funds that could have been better spent 
providing housing aid to people in need or not spent at all. Secretary 
Donovan, how do you explain this egregious use of funds that your own 
Inspector General identified?
---------------------------------------------------------------------------
    \4\ http://www.hudoig.gov/pdf/sar/sar-68.pdf (page II).
---------------------------------------------------------------------------
    Answer. The majority of funds that you are highlighting as funds 
that could be put to better use are constituted by four major items 
described below. The Department does not believe that the 
classification of funds that can be ``better used'' is useful or 
transparent in informing the public regarding the details of these 
significant financing issues. The Department would like to stress the 
many areas of agreement with the Office of the Inspector General (OIG) 
and the positive actions taken to meet specific circumstances including 
enactment of statutory authority by Congress for large portions of the 
total amounts--proposals that the Department actually initiated. In 
like manner, the Department emphasizes the need to examine the 
specifics of each case of financial action classified under the 
heading, ``questionable costs.'' For instance, the fact that a 
guaranteed loan program that was enacted by Congress for 1 year only 
did not have full subscription to the program does not seem to be well 
defined as funds that could be put to better use.
Four Items That Constitute the Vast Majority of Funds OIG Labeled as 
        Having Potential ``Better Use''
    Item 1 involves the FHA Preforeclosure Sale Program, which 
accounted for approximately $800 million of the $3.2 billion identified 
by the OIG. The OIG conclusions derive from an examination of 61 claims 
involved in the $25 billion national foreclosure settlement that was a 
great accomplishment involving the Department, the OIG and 49 State 
Attorneys General. This landmark settlement is resulting in recovery of 
funds for thousands of families impacted by improper foreclosure 
proceedings as well as having provided additional resources for the 
Federal Housing Administration (FHA) Single Family Mortgage Insurance 
program. In addition, in a larger context the Department is working 
diligently on both an operational, regulatory and statutory basis to 
further reduce risks involved in the FHA mortgage programs and thereby 
further strengthen the financial position of the FHA funds. While the 
FHA has agreed to implement the OIG's recommendations, we do not agree 
with the characterization that the funds in question could have been 
put to better use.
    Items 2 and 3 reflect an OIG review done covering fiscal year 2012 
that recommended that $1 billion in Public Housing Operating Subsidy be 
offset by limiting reserves held by public housing authorities to 6 
months. The audit also recommended an additional $890 million could be 
used as an offset from PHAs' Housing Choice Voucher (HCV) program net 
restricted assets (NRA), `` . . . if it is determined these funds are 
in excess.'' The Department worked closely with the Congress on this 
issue and the enacted fiscal year 2012 Appropriations bill did provide 
for a $750 million Operating Subsidy offset (initiated by the 
Department) and an additional $650 million reduction in HCV NRA as 
proposed in the audit, but at levels that were considered by Congress 
and the Department to be more appropriate.
    Item 4 reflects a recommendation by the OIG to return funds in the 
amount of $471.8 million to the U.S. Treasury from the Emergency 
Homeowners' Loan Program since all of the funds were not obligated. 
This loan program was authorized at $1 billion for 1 year only and the 
Department did follow the direction discussed by the OIG to return 
several hundred million dollars to the U.S. Treasury recognizing that 
the subscription to the program was less than originally projected by 
the Congress when they enacted the legislation.
Two Items That Constitute the Vast Majority of OIG Identified 
        ``Questionable Costs''
    Under the category of questionable costs the OIG report includes 
$322.2 million under the FHA Preforeclosure Sale Program discussed 
above and an additional $807.3 million, of which the majority share is 
associated with FHA-insured loans made by Countrywide Home Loans, 
Incorporated (later sold to Bank of America). As described on page 27 
of the OIG semiannual report covering through September 30, 2012, Bank 
of America has paid FHA nearly $471 million to settle the Countrywide 
portion of the consent judgment and has also agreed to a deferred 
settlement payment to FHA of $850 million.
                   fha's preforeclosure sales program
    Question. HUD's OIG also reviewed the Federal Housing 
Administration's (FHA's) Preforeclosure Sales Program in fiscal year 
2012. Of 80 claims statistically sampled, 61 did not meet the criteria 
for participation in the program. As a result, it is estimated that HUD 
paid $1.6 billion in claims.\5\ How do you intend to strengthen program 
controls and obtain reimbursement from those lenders that were not 
previously pardoned from repayment in the national mortgage settlement?
---------------------------------------------------------------------------
    \5\ http://www.hudoig.gov/pdf/sar/sar-68.pdf (page III).
---------------------------------------------------------------------------
    Answer. The Department provided an auditee response to the Office 
of Inspector General (OIG) audit of the Federal Housing 
Administration's (FHA's) Preforeclosure Sale Program (PFS); Audit 
Report No. 2012-KC-0004. The auditee response dated September 17, 2012, 
stipulated that the Office of Single Family Housing agrees that its PFS 
policies should align with market execution. To achieve this objective, 
FHA agreed: (1) to introduce a streamline PFS approval based on loan 
characteristics and borrower credit profile; and (2) specify income 
documentation requirements for the deficit income test that must be met 
for borrowers that do not meet the streamline requirements. OIG 
reviewed the corrective action stipulated above and a mortgagee letter 
that will achieve the two objectives referenced is scheduled to be 
issued in the 4th quarter of fiscal year 2013, pending OMB approval.
    [A copy of HUD's complete auditee response follows:]
HUD Memorandum--Auditee Response to OIG's Audit of FHA's Preforeclosure 
                              Sale Program
                                                September 17, 2012.
For: Ronald J. Hosking,
Regional Inspector General for Audit, 7AGA

From: Charles S. Coulter,
Deputy Assistant Secretary, Single Family Housing, HUD

Subject: Auditee Response, FHA Preforeclosure Sale Program, Audit No.: 
        2012-KC-000X
    The Office of Inspector General (OIG) reviewed the Federal Housing 
Administration's (FHA) Preforeclosure Sale Program. OIG performed this 
nationwide audit because of noted significant deficiencies in borrower 
qualifications during their audit of CitiMortgage's compliance with 
FHA's Preforeclosure Sale (PFS) claims (2011-KC-1005, September 30, 
2011). OIG's audit objective was to determine whether the U.S. 
Department of Housing and Urban Development (HUD) paid claims for only 
those preforeclosure transactions that met the criteria for 
participation in the program.
    The Office of Single Family Housing acknowledges that existing PFS 
policy and lender execution against that policy is inconsistent. To 
improve alignment and ensure that the long-term interest of the FHA 
Insurance Fund are met, FHA is working toward: (1) introducing a 
streamline PFS approval policy based on loan characteristics and 
borrower credit profile; and (2) specifying income documentation 
requirements for the deficit income test that must be met for borrowers 
that do not meet the streamline requirements.
    The Office of Single Family Housing would also note that the 80 
loans sampled by the OIG had an average credit score of 596 and an 
average delinquency of 8.7 months. Given this profile, it is likely 
that most of the 80 loans would have been conveyed to FHA as real 
estate owned (REO) if the PFS transactions had not been approved. Since 
the recovery rate of all PFS transactions is 53 percent and the 
recovery rate for single family REO sales in 36 percent, the claims 
paid by FHA on the PFS transactions were lower than they otherwise 
would have been and may have resulted in a net benefit to the FHA 
Insurance Fund of as much as $170 million.
    Regardless of the economic impact to the FHA Insurance Fund, the 
Office of Single Family Housing recognizes the need for strong, clear 
PFS policies and lender oversight. The Office of Single Family Housing 
will work closely with the OIG to ensure that these objectives are met 
and that the issues identified in the report are rectified.

                          SUBCOMMITTEE RECESS

    Senator Murray. This hearing is recessed until next 
Thursday, April 18 at 10 a.m., at which time we will hold a 
hearing on the Federal Aviation Administration's budget 
request.
    [Whereupon, at 11:06 a.m., Thursday, April 11, the 
subcommittee was recessed, to reconvene at 10 a.m., Thursday, 
April 18.]


TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2014

                              ----------                              


                        THURSDAY, APRIL 18, 2013

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:07 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Feinstein, Collins, and Moran.

                      DEPARTMENT OF TRANSPORTATION

STATEMENTS OF:
HON. MICHAEL P. HUERTA, ADMINISTRATOR, FEDERAL AVIATION ADMINISTRATION
HON. CALVIN L. SCOVEL III, INSPECTOR GENERAL, OFFICE OF INSPECTOR 
            GENERAL

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Good morning. The subcommittee will come to 
order.
    Today, we are going to hear testimony from the Federal 
Aviation Administration (FAA) Administrator Huerta and the 
Department of Transportation (DOT) Inspector General Scovel on 
the President's fiscal year 2014 budget request for the Federal 
Aviation Administration. I want to welcome both of our 
witnesses. Thank you both for being here this morning.
    This hearing marks the beginning of our process to build a 
budget for the FAA for fiscal year 2014. But as we take a close 
look at the agency's budget request for the coming year, we 
have to acknowledge where we stand today. For far too long, 
some Members of Congress have been unwilling to reach a fair 
and balanced compromise on deficit reduction, and as a result 
we are now facing drastic and arbitrary cuts to Federal 
spending that is required under sequestration.
    The process of sequestration has slashed the FAA's budget 
by more than $630 million, and it has hit just about every part 
of the agency, its operations and management of air traffic; 
its capital investments, including the Next Generation Air 
Transportation System (NextGen), the modernization of its air 
traffic control system; and its research activities. Some here 
in Washington, DC, claim the effect of such cuts will be 
minimal.
    But Secretary LaHood has spoken out about the real impact 
these cuts will have on the FAA and our aviation system. He 
talked about how sequestration means the FAA will furlough its 
air traffic controllers, close down contract towers, and delay 
NextGen.
    Secretary LaHood made it clear the FAA will not sacrifice 
the safety of our aviation system. Instead, the agency will 
reduce its services while ensuring air travel remains safe. 
However, reductions in air traffic control services will 
translate directly into an increase in travel delays.
    We still need to see the details on how FAA plans to 
implement the cuts required by sequestration. This is important 
information for the subcommittee to consider as it develops a 
funding bill for next year.
    Sequestration and a year-long continuing resolution enacted 
well into the fiscal year have made 2013 a challenging year for 
our agencies. But the fact remains that we have implemented 
large cuts to the funding for the Federal Government, and we 
still don't know exactly what Government services will look 
like after these cuts are implemented.
    For fiscal year 2014, we must take seriously our 
responsibility to pass a budget that not only determines the 
total level of Government spending, but that reflects our 
priorities and puts into place the services we want to see 
fulfilled next year. We also need to make sure any potential 
cuts to the air traffic control system are fair and that FAA's 
process is transparent with adequate consideration given to the 
benefits and costs of specific tower closures.
    Putting together this budget means we must take a hard look 
at the work the FAA has been doing. The FAA manages the most 
complex airspace in the world, and it is a world leader in 
protecting aviation safety.
    Mr. Huerta, I look forward to hearing about your budget 
request and what you want to accomplish in the coming year. But 
we also have to recognize some problems at the FAA. The 
agency's history is filled with capital programs that run over 
budget, pass deadlines, and do not deliver on all of the 
promised capabilities. These problems continue to burden the 
FAA.
    The agency recently awarded its System Engineering 2020 
contract, which has a maximum value of $7.3 billion. For a 
contract of this size, it is disturbing that a recent report 
issued from the Office of Inspector General (OIG) found that 
the FAA cannot track costs accurately.
    NextGen requires the FAA to coordinate the development of 
several complex capital programs. However, another recent 
report from the OIG points out that problems with the En Route 
Automation Modernization (ERAM) program have directly 
contributed to 2 years of delay in the FAA's effort to 
transition from voice to data communication, which is an 
essential part of NextGen.
    Problems continue to plague the FAA's operations as well. 
Just this past February, the OIG issued a report on the 
increase in operational errors by air traffic controllers. The 
FAA is unable to determine whether the increase in errors 
reflects better data collection or an increase in actual errors 
committed by controllers. In addition, the FAA does not have a 
base line that can be used to measure any improvement in 
operational errors.
    The OIG has also reported recently on the FAA's inability 
to develop an effective model for its aviation inspector 
staffing. After spending 7 years developing it, the FAA still 
does not have a model it can use to justify its budget request 
or to place its aviation inspectors efficiently across our 
globe.
    Mr. Scovel, your office has done excellent work on all 
these topics. I look forward to hearing your perspective on 
these issues as we discuss them this morning.
    We do need to hold the FAA accountable for how it spends 
taxpayer dollars. As we move forward in this tight budget 
environment, the FAA cannot afford to continue any kind of 
mismanagement.

                           PREPARED STATEMENT

    At the same time, we need to do our job here in Congress. 
We need the FAA doing its job on aviation, not trying to figure 
out how to move forward without a real budget in place. And 
that's why it's so important for this subcommittee and this 
Congress to return to regular order to pass a full 
appropriations act that reflects the priority of Congress and 
to pass it on time and through the regular process.
    With that, I will turn it over to my ranking member, 
Senator Collins.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
    The subcommittee will come to order.
    Today we will hear testimony from Federal Aviation Administration 
(FAA) Administrator Huerta and Department of Transportation (DOT) 
Inspector General Scovel on the President's fiscal year 2014 budget 
request for the Federal Aviation Administration. I want to welcome both 
of our witnesses, and thank you for being here this morning.
    This hearing marks the beginning of our process to build a budget 
for the FAA for fiscal year 2014, but as we take a close look at the 
agency's budget request for the coming year, we must acknowledge where 
we stand today.
    For too long, some members of Congress have been unwilling to reach 
a fair and balanced compromise on deficit reduction. And as a result, 
we are now the facing drastic and arbitrary cuts to Federal spending 
that is required under sequestration.
    The process of sequestration has slashed the FAA's budget by more 
than $630 million, and it has hit just about every part of the agency:
  --its operations and management of air traffic;
  --its capital investments, including the Next Generation Air 
        Transportation System (NextGen), the modernization of its air 
        traffic control system; and
  --its research activities.
    Some here in Washington, DC, claim that the effect of such cuts 
will be minimal, but Secretary LaHood has spoken out about the real 
impact these cuts will have on the FAA and our aviation system. He 
talked about how sequestration means that the FAA will furlough its air 
traffic controllers, close down contract towers, and delay NextGen.
    Secretary LaHood made it clear that the FAA will not sacrifice the 
safety of our aviation system. Instead, the agency will reduce its 
services while ensuring air travel remains safe. However, reductions in 
air traffic control services will translate directly into an increase 
in travel delays.
    We still need to see the details on how the FAA plans to implement 
the cuts required by sequestration. We need to know:
  --How the FAA will invest its funding for facilities and equipment;
  --How many furlough days will be imposed on FAA employees; and
  --After delays in the FAA's schedule for closing down contract 
        towers, the status of each and every tower in the coming 
        months.
    This is important information for the subcommittee to consider as 
it develops a funding bill for next year.
    Sequestration and a year-long continuing resolution enacted well 
into the fiscal year have made 2013 a challenging year for agencies. 
But the fact remains that we have implemented large cuts to the funding 
for the Federal Government, and we still don't know exactly what 
Government services will look like after those cuts are implemented.
    For fiscal year 2014, we must take seriously our responsibility to 
pass a budget that not only determines the total level of Government 
spending, but that reflects our priorities, and puts into place the 
services that we want to see fulfilled next year.
    We also need to make sure that any potential cuts to the air 
traffic control system are fair and that FAA's process is transparent, 
with adequate consideration given to the benefits and costs of specific 
tower closures.
    Putting together this budget means that we must take a hard look 
the work that the FAA has been doing.
    The FAA manages the most complex airspace in the world, and it is a 
world leader in protecting aviation safety. Mr. Huerta, I look forward 
to hearing about your budget request and what you want to accomplish in 
the coming year.
    But we must also recognize problems at the FAA. The agency's 
history is filled with capital programs that run over budget, past 
deadlines, and do not deliver on all of the promised capabilities. 
These problems continue to burden the FAA.
    The agency recently awarded its Systems Engineering 2020 contract, 
which has a maximum value of $7.3 billion. For a contract of this size, 
it is disturbing that a recent report issued from the Office of the 
Inspector General (OIG) found that the FAA cannot track costs 
accurately.
    NextGen requires the FAA to coordinate the development of several 
complex capital programs. However, another recent report from the OIG 
points out that problems with the En Route Automation Modernization 
(ERAM) program have directly contributed to 2 years of delay in the 
FAA's effort to transition from voice to data communication, an 
essential part of NextGen.
    Problems continue to plague the FAA's operations as well. Just this 
past February, the OIG issued a report on the increase in operational 
errors by air traffic controllers. The FAA is unable to determine 
whether the increase in errors reflects better data collection, or an 
increase in actual errors committed by controllers. In addition, the 
FAA does not have a baseline that can be used to measure any 
improvement in operational errors.
    The OIG has also reported recently on the FAA's inability to 
develop an effective model for its aviation inspector staffing. After 
spending 7 years developing it, the FAA still does not have a model 
that it can use to justify its budget request or to place its aviation 
inspectors efficiently across the globe.
    Mr. Scovel, your office has done excellent work on all of these 
topics, and I look forward to hearing your perspective on the issues we 
discuss this morning.
    We need to hold the FAA accountable for how it spends taxpayer 
dollars. As we move forward in this tight budget environment, the FAA 
cannot afford to continue this kind of mismanagement.
    At the same time, we need to do our job here in Congress. We need 
the FAA doing its job on aviation, not trying to figure out how to move 
forward without a real budget in place.
    And that is why it is so important for this committee and this 
Congress to return to regular order: To pass a full appropriations act 
that reflects the priorities of the Congress, and to pass it on time 
and through the regular process.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you very much, Madam Chairman.
    Welcome, Administrator and also Inspector General Scovel.
    Mr. Huerta, I understand that this is your first time 
testifying before our subcommittee, so I want to particularly 
welcome you.
    There is another group here today that I would like to 
welcome. You may have noticed, Madam Chairman, as our 
subcommittee convened that there was a group of students in 
bright green tee shirts----
    Senator Murray. Hard to miss.
    Senator Collins [continuing]. Who came into the room. They 
are from the Presque Isle, Maine, Middle School, and they have 
just arrived on a school visit. We were going to meet up 
earlier, but getting into the building is slow, as you know. So 
I invited them to observe a bit of the hearing, and I will 
sneak out into the hall to take a quick picture with them. But 
I am delighted to welcome the Presque Isle Middle School 
students and teachers and chaperones here today to Washington, 
DC.
    It's not the entire school, but I believe we have 58 
students coming. So I knew that that would help increase the 
attendance for our hearing today.
    Senator Murray. Welcome to all of you.
    Senator Collins. Just over 1 year ago, we passed the FAA 
reauthorization bill. I look forward to hearing the testimony 
regarding the status of ongoing initiatives within the agency. 
The challenges that the FAA faces throughout the remainder of 
this fiscal year and into the next fiscal year are truly 
daunting, not only because we are operating under a continuing 
resolution, which was certainly not the choice of the chairman 
or myself, but also coping with the impact of sequestration.
    It's important to remember that the $637 million reduction 
from sequestration must be implemented in a way that ensures 
safety while minimizing the impact to the traveling public. Not 
only do I travel home to Maine every weekend--so this affects 
all Members of Congress personally--but I represent a State 
where tourism is very important, and being able to have an 
efficient air traffic control system is very important to the 
success of the tourism industry, which is a pillar of the 
economy of the State of Maine.
    FAA recently announced its plans to achieve these savings, 
and I very much appreciated the call from the Administrator. 
But I am concerned that the result will be furloughs, the 
closure of contract towers, and the elimination of midnight 
services, among other controversial cuts.
    In my home State of Maine, Bangor International Airport is 
one of the airports that is affected by the elimination of 
midnight tower closures. If the FAA moves forward with this 
plan, it will be very detrimental to airport operations. And 
let me explain why.
    The Bangor Airport is a major port of entry and a diversion 
point for a wide mix of air traffic, including the return of 
our Nation's troops from overseas. Indeed, in the last decade, 
more than 1 million troops have landed at Bangor, Maine, and 
they've been met every single time by local troop greeters, 
even if they arrive in the middle of the night or the middle of 
a snow storm.
    In addition, Bangor is a diversion point for planes with 
troubled passengers. Whenever there is an issue, whether it's a 
medical issue or an unruly passenger, or it is determined that 
an individual is on the no-fly list and should not be admitted 
into the country, the plane inevitably is diverted to Bangor.
    The curtailment of air traffic control services will 
increase operational risk. Presence of a 24/7 FAA tower with 
full terminal radar services was a key determining factor in 
choosing Bangor as a Noble Eagle alert site post 9/11. The 
missions flown in and out of Bangor during these hours by the 
military are not always scheduled to air traffic, and the 
Bangor Air National Guard base, which shares the commercial 
airport space, has the infrastructure and maintenance support 
to handle these short notice transients.
    These diversions, as well as the civil diversions for 
homeland defense, are often circumstances where a pilot needs 
the support of a tower or radar control to help ensure safety. 
So I very much hope that these military and homeland defense 
factors are taken into consideration when the FAA finalizes its 
plans.
    As the chairman mentioned, I know that the FAA is 
undertaking a long-term effort to improve the efficiency, 
safety, and capacity of the aviation system through NextGen. 
This is a critical system, but it has been plagued with some 
delays and cost overruns. It's a multibillion dollar effort 
that is absolutely essential to modernizing our airspace, and 
it will have the benefits of reducing delays and fuel 
consumptions to the nearly 2 million passengers traveling on 
over 50,000 flights controlled each day here in the United 
States alone.
    This obviously has been a complex procurement, and we need 
to ensure that NextGen delivers the promised benefits while 
representing a sound investment of taxpayer dollars. I 
recognize that over the past several years, the aviation 
industry has faced some tough economic decisions. Aviation 
plays a critical role in economic growth, jobs, and investment, 
and the chairman and I share the goals of keeping our national 
aviation system the largest, safest, and most efficient in the 
world.
    There are several other issues that I am going to discuss 
when we get to the questions. For example, I'm concerned about 
the number of runway incursions that have dramatically 
increased in recent years. And that has happened at a time when 
air traffic operations have been declining.
    I am also concerned about the cutbacks in the Airports 
Improvement Program (AIP). I know the airports in my State rely 
heavily upon this program and are concerned with any reduction 
in AIP whether the reductions are made to small, medium, or 
large airports.
    I'll also be asking about the latest developments with 
Boeing's 787 aircraft. I have a feeling that may be of interest 
to the chairman as well.
    It is critical that we work together, and I look forward to 
doing just that. If the chairman will excuse me for just a few 
moments, I am going to go take a quick picture, and I will be 
right back.
    Senator Murray. I noticed your class went out in the hall, 
so they're waiting for you.

                           PREPARED STATEMENT

    Senator Collins. Thank you.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Thank you Chairman Murray. Welcome Administrator Huerta and 
Inspector General Scovel. Mr. Huerta, I understand this is your first 
time appearing before this subcommittee.
    Just over 1 year since the final passage of the Federal Aviation 
Administration (FAA) authorization bill, I look forward to hearing the 
testimony regarding the status of the ongoing initiatives within the 
agency.
    The challenges the FAA faces the remainder of this fiscal year and 
into fiscal year 2014 are daunting not only because of operating under 
a continuing resolution but compounded with sequestration. It is 
important that the $637 million reduction from the sequester be 
implemented in a way that ensures safety while minimizing the impacts 
to the traveling public. FAA recently announced its plans to achieve 
this savings, which resulted in furloughs, the closure of contract 
towers, the elimination of midnight services, among other controversial 
cuts.
    In my home State, Bangor International Airport is one of the 
airports affected by the elimination of midnight tower closures. If the 
FAA moves forward with this plan, it will be detrimental to airport 
operations. Bangor Airport is a major port-of-entry and diversion point 
for a wide mix of air traffic, including the return of our Nation's 
troops from overseas and the diversion point for planes with troubled 
passengers.
    The curtailment of air traffic control services will increase 
operational risk. Presence of a 24/7 FAA tower with full terminal radar 
services was a key determining factor in choosing Bangor as a Noble 
Eagle alert site post 9/11. The missions flown in and out of Bangor 
during these hours by the military are not always scheduled air 
traffic, and Bangor Air National Guard Base has the infrastructure and 
maintenance support to handle these short notice transients. These 
diversions, as well as civil diversions for homeland defense, are often 
circumstances where a pilot needs the support of tower/radar control to 
help ensure safety. These military factors must be taken into 
consideration when the FAA finalizes its plans.
    The FAA is undertaking a long-term effort to improve the 
efficiency, safety, and capacity of the aviation system through the 
Next Generation Air Transportation System (NextGen). FAA's recent 
estimate for NextGen's total cost through 2025 is expected to be 
between $15-22 billion, with the private sector contributing an 
additional $5-7 billion. This multi-billion dollar effort to modernize 
the national air space will provide many benefits, such as reducing 
delays and fuel consumption to the nearly 2 million passengers 
traveling on over 50,000 flights controlled each day here in the United 
States alone.
    FAA has been working hard to address the many challenges identified 
with these highly complex initiatives, but much work remains to ensure 
programs are implemented on time and within budget. With this 
undertaking, processes must be improved and updated while eliminating 
duplication and waste in order to make the agency more efficient and 
effective. It is our obligation to ensure NextGen delivers the promised 
benefits and represents the sound investments of taxpayer dollars.
    Over the past several years, the aviation industry, as with many 
other industries, has faced tough economic hardships. Aviation plays a 
critical role in driving economic growth, jobs, and investment across 
the country. Chairman Murray and I share the goals of keeping our 
national aviation system the largest, safest, and most efficient in the 
world.
    While the FAA is continuing efforts to improve safety on the 
Nation's airport runways, the number of runway incursions has 
dramatically increased in recent years. This is particularly alarming 
given that air traffic operations have declined at the same time.
    The fiscal year 2014 budget proposes $15.5 billion for the FAA, 
which is a $312 million increase over the current sequestered levels. 
This provides $9.7 billion for the Operations account, $2.8 billion for 
Facilities and Equipment, $166 million for Research, Engineering and 
Development, and $2.9 billion for the Airports Improvement Program 
(AIP). It is worth noting that the reduction to AIP is coupled with 
removing large airports from the program which will be offset with an 
increase to passenger facility charge fees. I am concerned with this 
proposal as this funding is essential to airports throughout the 
Nation. The airports in Maine rely heavily upon this program and are 
concerned with any reduction to AIP, whether the reductions are made to 
small, medium, or large airports.
    I am also interested in the latest developments with Boeing's 787 
aircraft. FAA has now approved Boeing's proposed certification plan 
that will, I hope, address factors that likely contributed to the 
battery incidents. I understand testing and design modifications have 
been completed and FAA is analyzing the results. I am eager to know 
when FAA anticipates its final approval allowing the 787s to continue 
its operations.
    The future of aviation is in our hands. It is critical that FAA 
remain vigilant in its oversight responsibilities, and I look forward 
to working with you both on these efforts.

    Senator Murray. Thank you very much. And I will turn to Mr. 
Huerta to begin his testimony.
    Again, welcome to our subcommittee.

              SUMMARY STATEMENT OF HON. MICHAEL P. HUERTA

    Mr. Huerta. Thank you very much, Chairman Murray, Ranking 
Member Collins, and members of the subcommittee. Thank you for 
the opportunity to be here today to discuss the FAA's 2014 
budget request. As you are aware, this is my first appearance 
before you as Administrator of the FAA.
    I appreciate the support of the Senate in moving my 
confirmation forward. We have a great number of challenges and 
a great number of opportunities ahead, and I sincerely hope to 
enjoy a long and effective relationship with this subcommittee.
    The FAA's fiscal year 2014 budget request is $15.6 billion. 
The budget upholds our critical safety programs while also 
deploying key NextGen benefits to our stakeholders and 
modernizing our aviation infrastructure. It does this at 
funding levels that are $351 million below fiscal year 2012. 
This is a 2.2-percent decrease, which is part of the 
President's overall effort to reduce our Nation's deficit.
    The FAA's proposed budget for 2014 assumes a long-term 
solution to our Nation's budget deficit and no sequester. The 
2014 proposed budget would allow us to maintain staffing for 
air traffic control and for aviation safety. It would allow us 
to maintain capital investment in both airport infrastructure 
and FAA facilities and equipment and fund research and 
development.
    The budget requests $1 billion for NextGen, which is an 
increase of about 7 percent above 2012, in order to continue to 
support near-term progress. This request would help us continue 
to mitigate congestion in busy airspace above metropolitan 
areas, and it would help us with the continued deployment of 
radio transceivers that allow us to use very precise satellite-
based information to control air traffic.
    The FAA is requesting $9.7 billion in our operations 
account. This represents an increase of just 0.6 percent above 
the fiscal year 2012 enacted level. This request will enable us 
to run the agency on a day-to-day basis and maintain and 
support our air traffic control and air navigation systems.
    It ensures the safe operation of the airlines and the 
certification of new aviation products. It would also enhance 
the safety of the commercial space transportation industry and 
provide overall policy oversight and management of our 
airspace.
    The operations budget includes an additional $30 million to 
maintain and operate the new En Route Automation Modernization 
System, or ERAM, that became operational in the last 2 years. 
ERAM is at the heart of NextGen. It helps us to advance our 
transition from a ground-based system of air traffic control to 
a satellite-based system of air traffic management.
    The 2014 budget allows the FAA to meet the challenge of 
both maintaining the capacity and the safety of the current 
system, while keeping our comprehensive modernization and 
transformation efforts moving forward. The majority of the $2.8 
billion requested for facilities and equipment is to sustain 
legacy areas. This includes aging infrastructure, power 
systems, information technology, navigational aids, and weather 
systems.
    This year's request for research, engineering, and 
development (RE&D) is $166 million, a decrease of 7 percent 
from 2012. Nonetheless, we intend to continue critical research 
in NextGen and other areas such as fire research and safety, 
propulsion and fuel systems, advanced materials research, 
alternative fuels, aging aircraft, and Unmanned Aircraft 
Systems.
    Our budget emphasizes cost efficiency and reflects the hard 
choices we must make to provide the most benefit to the flying 
public. As a result, we're proposing to modify the mix of 
funding available for airport development projects.
    The budget would allow commercial service airports to 
increase the passenger facility charge from the current maximum 
of $4.50 to $8.00. This gives airports greater flexibility to 
generate more of their own revenue, and it allows us to reduce 
our request for the ongoing Airport Grants Program by $450 
million. This change focuses Federal resources on smaller 
airports that don't have the passenger volume to generate their 
own revenue yet are still important to our Nation's air 
transportation network.
    The President's 2014 budget request represents a balanced 
approach to achieving a long-term solution to our Nation's 
budgetary challenges. And this is critical when we consider the 
impact of the sequester on our aviation system in the current 
fiscal year.
    As you noted, the cuts required by the sequester have 
forced us to slash contract expenses and furlough 47,000 of our 
employees. With employees working fewer hours, we will have a 
less efficient air traffic system and less time for safety 
inspectors to certify new aircraft for the market. It's my hope 
that we can work together to rally around our Nation's air 
transportation system and protect the great contribution that 
civil aviation makes to our national economy.

                           PREPARED STATEMENT

    Madam Chairman, this concludes my prepared remarks, and I 
would be pleased to answer any questions you might have.
    Senator Murray. Thank you very much.
    [The statement follows:]
              Prepared Statement of Hon. Michael P. Huerta
    Chairman Murray, Ranking Member Collins, members of the 
subcommittee: Thank you for the opportunity to speak to you today. This 
is the first time I am testifying before you as the confirmed 
Administrator of the Federal Aviation Administration (FAA). I sincerely 
hope to enjoy a long and effective relationship with you and this 
subcommittee.
    The FAA's fiscal year 2014 budget request of $15.6 billion strikes 
a balance between maintaining current infrastructure while deploying 
key Next Generation Air Transportation System (NextGen) benefits to our 
stakeholders, upholding our critical safety programs, and modernizing 
our aviation infrastructure at funding levels that are $351 million 
lower than fiscal year 2012. This is a 2.2-percent decrease, which is 
part of the President's effort to reduce the deficit.
    The FAA's Operations request of $9.7 billion represents an increase 
of just 0.6 percent above the fiscal year 2012 enacted budget. This 
funding level includes $30 million to provide maintenance for newly 
transitioned En Route Automation Modernization (ERAM) systems, as well 
as modest inflationary adjustments for FAA's workforce, rent and lease 
increases, and costs for a Service Center building project.
    This budget includes program adjustments of $62 million from the 
fiscal year 2012 level in the Air Traffic Organization (ATO). To 
achieve these savings, ATO will be evaluating cost-savings and 
efficiency gains in the following areas: Contract Weather Observations, 
Facility Realignments and Consolidations, and Very High Frequency 
Omnidirectional Range (VOR) Minimum Operational Network (MON).
    The budget allows FAA to meet the challenge of both maintaining the 
capacity and safety of the current National Airspace System (NAS) while 
keeping our comprehensive modernization and transformation efforts 
moving forward. The Facilities and Equipment (F&E) request of $2.8 
billion represents a 1.7-percent increase from the fiscal year 2012 
enacted level.
    The F&E NextGen portfolio is $928 million in fiscal year 2014, a 
7.5-percent increase above the fiscal year 2012 enacted level. This 
funding provides FAA with the resources needed to continue our ongoing 
NextGen modernization activities, including nationwide Automatic 
Dependent Surveillance-Broadcast (ADS-B) deployment. It also provides 
for follow-on ERAM development for future NextGen capabilities and 
publication and accelerated development of Precision Based Navigation 
(PBN) procedures that will provide greater flexibility in the NAS and 
to facilitate more dynamic management of air traffic. The remainder of 
our investment--representing over $1.8 billion--will be in legacy 
areas, including aging infrastructure, power systems, information 
technology, navigational aids, and weather systems.
    The fiscal year 2014 Research, Engineering, and Development (RE&D) 
request of $166 million is a $1.5 million (1 percent) decrease from the 
fiscal year 2012 enacted level. This supports FAA's continued work in 
both NextGen and other research areas such as fire safety, propulsion 
systems, advanced materials, aircraft icing, and continued 
airworthiness. The RE&D NextGen portfolio is $61.4 million, an increase 
of $1.6 million above the fiscal year 2012 enacted level, and supports 
NextGen-specific research into wake turbulence, human factors, and 
clean aircraft technologies. This includes $12 million for the Joint 
Planning and Development Office (JPDO) to continue their leadership in 
coordinating interagency initiatives.
    The FAA must meet our Nation's growing need for UAS. Our RE&D 
request provides $7.5 million to support this critical area through 
research on UAS technologies which directly impact the safety of the 
NAS. The program is focused on sense and avoid and command and control 
requirements that will support the safe integration of UAS in the NAS 
within the 14 Code of Federal Regulations regulatory framework.
    The NextGen Alternative Fuels for General Aviation program is 
requested at $5.6 million in order to support the recommendations of 
the Unleaded Avgas Transition Aviation Rulemaking Committee. Funding 
for the Environment and Energy program is requested at $33.5 million. 
This program supports a range of activities, including research to 
mature certifiable clean and quiet aircraft technologies, and develop 
sustainable fuels. The program also supports enhanced NextGen 
environmental research via the Continuous Low Energy, Emission and 
Noise (CLEEN) program and other vehicles.
    Airports remain a critical part of the aviation system 
infrastructure. Our fiscal year 2014 request provides the funding 
needed to ensure safety, capacity, and efficiency at our Nation's 
airports through a combination of grant funding and an increase in 
Passenger Facility Charges (PFCs). Our $2.9 billion request supports 
our continued focus on safety-related development projects, including 
runway safety area improvements, runway incursion reduction, aviation 
safety management, and improving infrastructure conditions.
    The fiscal year 2014 budget proposes to lower funding for Airport 
Grants to $2.9 billion by eliminating entitlement funding for large hub 
airports while maintaining discretionary eligibility. To assist the 
airports that need the most help, the budget focuses traditional 
Federal grants to support smaller commercial and general aviation 
airports that do not have access to additional revenue or other sources 
of capital. At the same time, our proposal allows airports to increase 
non-Federal Passenger Facility Charges (PFC) from the current maximum 
of $4.50 to $8 which provides them with greater flexibility to generate 
their own revenue. If all commercial service airports increase the PFC 
collection to $8 they could generate $2.39 billion in additional 
funding for airport projects.
    The fiscal year 2014 budget proposes that we work with the 
insurance companies and air carriers to build private capacity to 
insure against war risk occurrences. Our co-insurance proposal would 
build this private capacity through a transition period where risk is 
shared between the FAA and private insurers. In the first year of 
transition, the FAA would bear the majority of the risk, easing private 
insurers back into the market.
    Private parties would play a large role in setting terms, 
conditions, and pricing of coverage under the proposed arrangement. Air 
carriers and insurers would have flexibility to develop terms and 
conditions that meet the carriers' needs while enabling the insurers to 
offer coverage at affordable prices. The FAA is ready to work with 
insurers and carriers to find parameters that make for viable coverage 
under this proposal.
    Under the co-insurance proposal, FAA and commercial insurance 
providers would jointly underwrite a common policy. In the case of a 
claim, FAA would pay an established fraction of the losses (for example 
80 percent), and a commercial insurance company would pay the 
remainder. Air carriers would be free to negotiate the charge for the 
commercial fraction of the coverage with the insurance company. For 
FAA's share of the risk, FAA would charge the lesser of the current cap 
and a rate proportional to what the commercial insurance company is 
charging under the same policy.
    This budget supports continued progress on our NextGen efforts. The 
entire fiscal year 2014 NextGen portfolio totals $1.002 billion 
distributed among F&E programs ($928.1 million), Research, Engineering 
and Development programs ($61.4 million) and Operations activities 
($12.6 million). This investment portfolio reflects an increase of 
$67.2 million, or approximately 7 percent, above the fiscal year 2012 
enacted level. This level of program funding enables the FAA to 
continue to support near-term NextGen commitments in a budget-
constrained environment.
    While the thrust of our work focuses on U.S. airports, airspace and 
aircraft, the FAA actively engages with global aviation partners to 
ensure operators receive benefits anywhere in the world.
    One immediate benefit to the public is the NextGen Metroplex 
initiative. The FAA is working to improve the efficiency of airspace 
above congested metropolitan areas by designing precise GPS routes that 
will accelerate benefits while reducing bottlenecks and congestion. 
These routes will enhance safety and efficiency, and foster the flow of 
commerce. Satellite-based navigation is expected to cut a total of 7 
million nautical miles from flight plans around these cities each year. 
These routes, together with gradual descents that cut back on engine 
power, are projected to save at least 22 million gallons of fuel. For 
these cities, this represents total reduction in carbon emissions of 
220,000 metric tons. That is the equivalent of removing more than 
43,000 cars from the streets.
    Fiscal year 2014 will see the continuation of NAS-Wide deployment 
of the Automatic Dependent Surveillance-Broadcast (ADS-B), the 
cornerstone of our transformation to satellite enabled, GPS-based 
navigation. We expect the total complement of about 700 radio stations 
to be in place and operating by early 2014. Fiscal year 2014 funding is 
also included for the development of ADS-B software requirements for 
the Advanced Technologies and Oceanic Procedures (ATOP) automation 
platform.
    In December 2011, the FAA announced contract awards to analyze fuel 
quality control procedures, conduct jet engine durability tests with 
alternative fuels and perform key testing to support qualification and 
certification of jet biofuels from alcohols, organic matter, and other 
renewable materials. We expect these activities to support the next 
round of jet fuel approvals, scheduled to begin in 2014.
    NextGen's contribution to our Nation's economic recovery and future 
leadership is critical. We recognize the fiscal challenges our Nation 
faces. America's future demands that we continue to invest in modern 
technologies that pave the way for tomorrow's capabilities. We continue 
to work in full partnership with industry, other agencies and 
departments, and with our labor groups to achieve a shared vision, 
leveraging powerful technologies and setting new standards for the 
future of global aviation.
    Safety has always been FAA's number one mission, and our National 
Airspace System (NAS) has never been safer. There has not been a fatal 
commercial passenger accident in the United States since 2009. That 
represents approximately 39.7 million flights that were operated 
safely. I am proud of the hard work that has gone into providing a 
basis for achieving this level of safety. As we move forward into 2013 
and beyond, U.S. aviation is experiencing its safest period ever, and 
the dedicated men and women of the FAA will continue working diligently 
to maintain safe operations within the NAS.
    We are achieving this next level of safety by making our programs 
smarter and more data-driven. Our Nation's safety record is a direct 
result of an unwavering commitment by Government and industry to work 
together to monitor data and identify trends to prevent accidents. 
Instead of a reactive, forensic approach to safety management, we are 
identifying and mitigating conditions or trends that have potential to 
give rise to safety problems. The only way to prevent accidents before 
they happen is to accurately identify risk areas and work to mitigate 
them. This is possible due, in part, to voluntary reporting for both 
FAA and industry employees, safety management systems (for both FAA and 
industry) and the creation of the Aviation Safety Whistleblower 
Investigation Office. All of these efforts have been providing the 
agency with data and information to which we have never before had 
access. More information results in FAA being able to see trends that 
could lead to accidents, and mitigate the associated risks to prevent 
accidents from happening. Adjusting the safety culture to ensure 
employees that they can provide information without fear of reprisal is 
a cornerstone of our approach to safety.
    In 2012 we continued to expand the Aviation Safety Information 
Analysis and Sharing (ASIAS) system, which now covers 95 percent of all 
commercial flights in the United States. This system allows airlines to 
share operational data and voluntary safety reports with each other and 
the FAA. ASIAS and other data analysis tools are constantly making our 
aviation system even smarter. With these tools, we are able to conduct 
more comprehensive safety and performance analysis, and share this 
information with industry stakeholders.
    With regard to the Boeing 787, last month Boeing redesigned the 
battery system and the FAA approved the company's plan for showing that 
the redesign will work. Approving the certification plan was the first 
step in the process to evaluate the 787's return to flight. Boeing has 
redesigned the internal battery components and added better insulation 
for the battery cells. They have also added a robust battery 
containment and venting system. The company has done extensive testing, 
including limited test flights, without passengers, using the 
redesigned battery prototype. The FAA is reviewing these test reports 
and analysis to make sure that the new battery system ensures the 
safety of the aircraft and its passengers.
    We all know the importance of aviation to America and the global 
economy. Aviation creates jobs and trade, and it connects us to 
destinations near and far. The forecast we released March 6 shows that 
aviation will continue to expand both domestically and internationally 
over the coming decades. And traffic volume for U.S. carriers is 
expected to rise by more than 75 percent in the next two decades.
    Last year, 737 million people flew on U.S. carriers, and we 
anticipate that number to hold steady this year. Our future outlook 
shows continued positive growth. In fact, we can expect roughly 400 
million more people flying 20 years from now, an increase equal to more 
than today's U.S. population.
    It is essential to the effective management of FAA's programs to 
have stability and predictability that can be relied upon. The many 
authorization extensions over the last few years took a toll on FAA's 
work in certain areas until the Federal Aviation Reauthorization 
Modernization and Reform Act of 2012 offered the stability essential to 
our agency's ability to meet the current demands of both air traffic 
and aviation safety. For many years, FAA labored under the uncertainty 
of temporary reauthorizations. Now sequestration places us in an even 
more extreme uncertainty. FAA has worked hard to plan for sequestration 
cuts. Seventy percent of FAA's Operations budget is dedicated to 
employee salaries and benefits, so they must bear a significant portion 
of the cuts. I can assure you that safety is the FAA's top priority. If 
sequestration means fewer flights can be safely accommodated in the 
NAS, then there will be fewer flights.
    On March 5, FAA began issuing furlough notices to over 47,000 
employees. There will be 1 furlough day per biweekly pay period, for a 
maximum of 11 days through September 30. We issued final furlough 
determination notices to employees in early April. We are also planning 
to eliminate midnight shifts in over 70 towers across the country, 
close over 149 air traffic control towers at airports with fewer than 
150,000 flight operations or 10,000 commercial operations per year, and 
reduce preventative maintenance and equipment provisioning and support 
for all NAS equipment. All of these changes are being made in 
collaboration with our stakeholders and our unions.
    As a result of employee furloughs and prolonged equipment outages 
resulting from lower parts inventories and fewer technicians, travelers 
should expect delays. Flights to major cities like New York, Chicago, 
and San Francisco could experience delays of up to 90 minutes during 
peak hours because we will have fewer controllers on staff. We are 
aware that these service reductions will adversely affect commercial, 
corporate, and general aviation operators. We also expect that, as 
airlines estimate the potential impacts of these furloughs, they will 
change their schedules and cancel flights.
    Beyond the impacts to air traffic, aviation safety employees will 
also experience furloughs. This will impact airlines, aviation 
manufacturers, and individual pilots who need FAA safety approvals and 
certifications. While the agency will continue to address identified 
safety risks, a slowed certification and approval process due to 
furloughs could negatively affect passengers and all segments of the 
aviation industry.
    We all want the same things. We want to get better at what we do, 
think smarter, improve safety, streamline certification, and remain the 
agency that can work collaboratively with the world to develop safer 
and more efficient practices. Sequestration will not stop us from 
trying to attain these goals, but it will make it much, much harder.
    Despite these uncertain times, the demand for aviation and its 
services will continue to grow, and that is why it is critical that we 
invest smartly. Our world will continue to be even more interconnected, 
and aviation will continue to be a pillar of the global economy. 
NextGen will help us meet the challenges that lie ahead, as we 
transform from ground-based radar to satellite-based navigation, a work 
we are performing in collaboration with our industry partners. We are 
seeing its benefits already, and will continue to do so in the coming 
years as it becomes an even more integral component of our aviation 
system.
    In 2012 we made several noteworthy strides delivering NextGen 
benefits to operators and the traveling public. Laying the groundwork 
is our En Route Automation Modernization (ERAM) program, the platform 
upon which NextGen capabilities will be realized. This enabler of 
NextGen has been deployed at over half of our facilities controlling 
high-altitude air traffic, and eight En Route centers are now using 
ERAM as their primary means of controlling aircraft. Five NextGen 
transformational programs are now under contract, most recently Data 
Communications and NAS Voice System. We also deployed the Automatic 
Terminal Proximity Alert tool in several locations, which has helped 
air traffic controllers better manage aircraft spacing to safely 
achieve optimal efficiency on final approach. And our System Wide 
Information Management tools are providing National Airspace System 
users with more precise weather information and airport surface data.
    This past year, our deployment of satellite-based Performance Based 
Navigation (PBN) procedures increased both safety and capacity across 
the country as part of our Metroplex initiative. From northern 
California to southern Florida, we are implementing PBN to more 
efficiently use our Nation's airspace for direct routing. In addition, 
through data analysis, procedure improvements, and effective training 
for controllers as well as pilots, we safely modified the separation 
standards for approaches to parallel runways at a number of busy 
airports. Taken together, these initiatives are helping airlines 
improve on-time performance, reduce fuel consumption, and deliver 
travelers to their destinations more efficiently.
    We continue to engage through our work with Optimization of 
Airspace and Procedures (OAPM) initiatives, which are being done in 
close collaboration with industry and stakeholders. OAPM is actively 
working in 9 of the 13 metroplexes identified in Phase 1 of the 
program. Of these, one (Houston) is currently in the implementation 
phase with two additional sites planned to start implementation of the 
new procedures later this summer (DC and North Texas). The metroplex 
initiative optimizes procedures in a geographic area where there are a 
number of airports, rather than focusing on each airport separately. 
Through this initiative, we are untangling our busiest airspace and 
creating more direct routes, cutting fuel usage, and becoming more 
environmentally friendly. In the congested airspace in the skies above 
our busiest metropolitan areas, these new modifications are being put 
in place in 3 years, much more quickly than the 5 to 10 years it had 
taken previously. We are also actively engaged with our industry and 
Government partners in the development of NextGen through, for example, 
the NextGen Advisory Committee (NAC). This group is helping to guide 
many aspects of our air traffic modernization work. The NAC also works 
on developing and recommending NextGen performance metrics.
    Another key component of NextGen is reducing aviation's impact on 
the environment. Last year we advanced a number of critical initiatives 
toward this goal. We made great headway in developing a replacement for 
leaded aviation gasoline through our collaboration with industry and 
technical research. We partnered with industry through our Continuous 
Lower Energy, Emissions, and Noise (CLEEN) program to test aircraft 
with new wing and engine designs, as well as a blended sustainable 
biofuel. And we are collaborating with our Nation's airports to develop 
renewable energy sources and sustainability to reduce emissions. For 
example, this year we provided Airport Improvement Program (AIP) grants 
to Chattanooga Metropolitan Airport for construction of a 4,000 panel 
solar farm, and to Chicago O'Hare International Airport for low-
emission electrical power units used by aircraft parked at the gate.
    While NextGen is delivering benefits now, it also builds for the 
future. Similarly, the past year we made progress toward ensuring 
safety in industry segments where we anticipate significant growth in 
the coming years: Unmanned Aircraft Systems (UAS) and Commercial Space 
Transportation. FAA employees are working creatively with our industry 
partners to meet the challenges of these dynamic sectors.
    We are working to safely integrate Unmanned Aircraft Systems into 
our national airspace. In March 2012, the agency created a new UAS 
integration office. The office serves as the FAA's one-stop portal for 
all matters related to civil and public use of UAS in the NAS. The FAA 
is in the process of drafting the initial Notice of Proposed Rulemaking 
for small UAS. In addition, on February 14, 2013, the FAA released the 
Screening Information Request (SIR) to outline the process in which the 
FAA would collect, evaluate and select six test sites across the 
country to test Unmanned Aircraft Systems. We plan to select those UAS 
test sites by the end of this calendar year.
    Just as with unmanned aircraft, the FAA is working to safely 
integrate commercial space operations into the national airspace system 
as well. To date, the FAA has licensed 215 commercial space launches 
and reentries. They have gone off without a fatality, a serious injury, 
or significant property damage. Last year, we licensed the historic 
launches of the SpaceX Falcon 9 rocket--marking the first time a 
commercial company delivered cargo to the International Space Station. 
Missions like these continue to demonstrate the viability of the 
commercial space industry. The FAA has also licensed a total of eight 
commercial spaceports. In fiscal year 2014, our commercial space 
division is requesting to convert four contract resources to Federal 
employees so they can expand their workload to include responsibilities 
that are inherently governmental. These additional duties would include 
safety inspections, compliance assessments, regulatory activity 
support, and inter-agency coordination efforts to create common safety 
standards.
    Efficiencies are not just for the future. Given the economic 
challenges we are facing, FAA has worked very hard to find cost-savings 
and we have been quite successful. Even before sequestration, we have 
set a target of $91 million in cost-savings for fiscal year 2013. We 
recognize that the status quo is not an option and we will continue to 
strive to achieve additional efficiencies moving forward.
    Last year we made great strides in finding efficiencies, leveraging 
our resources, empowering our employees, and making greater use of 
technology to perform our core mission. Through a congressional 
reprogramming request under our Foundation for Success initiative, we 
streamlined finance, information technology, acquisition, and other 
essential functions within a shared services organization. The results 
included enhancing delivery of information technology services at a 
lower unit cost. Additionally, the FAA's Aeronautical Center, which 
supports the NAS as well as international partners, generated nearly 
$16 million in cost-savings or avoidance last year through streamlining 
processes and continuous improvement initiatives. Overall in 2012, we 
generated nearly $94 million in cost-savings or avoidance through 
control measures and innovative business solutions.
    One of our most significant accomplishments of the year came in the 
wake of one of the Nation's biggest challenges. Hurricane Sandy 
devastated homes and infrastructure throughout the Northeast. Though 
the region's airports experienced flooding and other significant 
damage, our technical staff worked around the clock to restore airfield 
and air navigation systems to operational status. Their hard work and 
dedication to the FAA's mission resulted in the restoration of normal 
air traffic operations just days after the storm. Seeing our 
workforce's efforts to prepare for and rebuild after this unprecedented 
storm is one of my proudest moments as head of the FAA. The agency is 
grateful for the $30 million in emergency relief funding entrusted to 
us by this committee. We are already putting these funds to good use to 
repair roofs and walls at FAA facilities, navigation and landing 
systems, power systems, and other structures and equipment. In total, 
the funds will support 59 repair projects at 21 different locations.
    In the current fiscal climate, we must find ways for FAA's 
employees to work smarter and enhance our productivity. FAA must not 
only meet our day to day responsibilities, we must also look to the 
future and figure out how to shape the agency to meet the demands and 
opportunities of the future. We are actively engaging our employees in 
the development of recommendations for facilities consolidation and 
realignment. As noted earlier, the U.S. aviation system is going 
through significant, even revolutionary changes. NextGen is a major 
transformation which will increase our efficiency and safety, reduce 
delays and reduce fuel consumption. UAS have the potential to change 
the face of aviation. In the midst of these changes, budget pressures 
are making us ask hard questions about what the FAA needs to deliver in 
the coming years to ensure the safety and efficiency of the NAS and how 
to do it most cost-effectively.
    Finally, it is essential that we chart innovative and collaborative 
ways to engage with all segments of the aviation sector, from airlines 
to association groups, to general aviation, to unions. We must embrace 
the opportunity to make long-lasting changes together that ensure a 
vital and vibrant aviation industry that serves the needs of this 
Nation.
    I am extremely proud of our achievements. While I recognize there 
is still much work to be done, I know we are up to the task. In the 
years ahead we will strive to build on these achievements. We will work 
toward making the safest aviation system even safer and smarter; 
accelerate the benefits of new technology; and empower employees to 
increase efficiencies and spur greater innovations. The decisions we 
make over the next few years are going to affect the air transportation 
system in the United States for decades to come, and I am eager to work 
with you and your colleagues to reach the next level of aviation safety 
and efficiency.

    Senator Murray. Mr. Scovel.

             SUMMARY STATEMENT OF HON. CALVIN L. SCOVEL III

    Mr. Scovel. Madam Chairman, Ranking Member Collins, members 
of the subcommittee, thank you for inviting me to testify on 
FAA's fiscal year 2014 budget. Like other agencies across the 
Government, FAA is having to rethink its funding priorities and 
make difficult tradeoffs in a most trying fiscal environment.
    My testimony today will focus on how FAA can achieve 
efficiencies through more effective management of its 
workforce, the agency's largest cost driver, and its 
modernization efforts while not losing sight of its safety 
mission. My office has identified multiple opportunities for 
FAA to reduce costs in managing its controller and inspector 
workforce.
    The agency has been challenged to ensure thousands of newly 
hired controllers have the skills needed to carry out their 
critical role. Cost overruns on FAA's controller training 
contract have reached almost $89 million. And training times 
for newly hired controllers have increased by 41 percent since 
2009. To meet its goals of reducing training costs and times, 
FAA needs to provide stronger contract controls, including how 
it awards incentive fees.
    FAA also needs to rethink its processes for scheduling 
controllers. While air traffic operations have declined by 23 
percent since 2000, FAA today employs slightly more controllers 
than it did then. Improved scheduling, particularly on 
overnight shifts at low activity towers, could enhance 
productivity as well as yield additional cost-savings.
    The agency similarly needs to improve how it allocates its 
4,000 flight standards safety inspectors. FAA has yet to find a 
reliable model for determining how many inspectors it needs and 
where they are needed most to address the greatest safety risks 
and get the best return on investment.
    FAA's second major challenge is effectively managing its 
implementation of modernization projects and protecting its 
airport investments. For example, FAA continues efforts to 
fully implement the En Route Automation Modernization program, 
a system for processing flight data initially priced at $2.1 
billion. While FAA has overcome some technical problems and 
fielded ERAM at 16 facilities, ERAM remains at risk of cost and 
schedule increases as FAA implements the system at the last 
four facilities, including some of the most complex in the 
National Airspace System.
    To set realistic budgets and expectations for its 
modernization and infrastructure efforts, FAA needs to take 
several actions. First, FAA needs to complete an integrated 
master schedule for NextGen's many interdependent programs to 
address operational and technical risks and make informed cost 
and schedule tradeoffs.
    Second, FAA must rein in excessive costs on major 
acquisition contracts. FAA awarded multibillion dollar 
contracts without resolving differences between the agency's 
cost estimates and those provided in contractor proposals. This 
lack of control creates unreal, unreliable budget estimates and 
unnecessary cost increases.
    Third, FAA needs to ensure airport revenues are 
appropriately spent. Over the past 10 years, we have identified 
millions of dollars in airport revenue that, contrary to 
Federal law, were diverted, used for non-airport purposes or 
simply lost. Had these revenues been used for airport 
operations, the airports could have relied less on Federal 
funding.
    As FAA works to control costs, it must not lose sight of 
its number one priority, ensuring the continued safety of the 
National Airspace System. One of FAA's key safety issues 
remains reducing controller errors. FAA statistics show that 
serious operational errors by controllers are on the rise, 
including those associated with runway incursions. Improved 
data collection and analysis would enable FAA to better 
identify the root causes of these safety risks and mitigate 
them.
    Another important safety issue relates to FAA's 
implementation of new pilot qualification requirements, a key 
provision of the Airline Safety Act. FAA is behind schedule in 
finalizing the highly contested rule for pilots, but still 
states it will make the final due date of this coming August.
    Ongoing aviation advancements such as unmanned aircraft 
systems have created new safety challenges for FAA. Safely 
integrating these new systems, which FAA predicts may number 
roughly 10,000 within the next 5 years, will require new 
approaches to managing the Nation's airspace.

                           PREPARED STATEMENT

    Madam Chairman, this concludes my prepared statement. I'd 
be happy to answer any questions you or other members of the 
subcommittee may have.
    Senator Murray. Thank you very much.
    [The statement follows:]
            Prepared Statement of Hon. Calvin L. Scovel III
    Madam Chairman and members of the subcommittee: Thank you for 
inviting me to testify on the Federal Aviation Administration's (FAA) 
fiscal year 2014 budget. As you know, FAA strives to maintain safe 
operation of the National Airspace System (NAS) while ensuring 
efficiency through modernization efforts such as the Next Generation 
Air Transportation System (NextGen). The sequestration's mandated 
budget cuts require agencies across the Federal Government to rethink 
their priorities and make difficult tradeoffs. FAA is no exception. The 
audits conducted by my office aim to improve safety--FAA's number one 
priority--and to control costs, create efficiencies, and assist in 
establishing priorities.
    My testimony today focuses on three significant challenges for FAA: 
(1) more effectively managing its workforce; (2) managing strategies 
for NextGen and modernization; and (3) continuing efforts to ensure the 
safety of the NAS.
                               in summary
    Our recent and ongoing work has identified opportunities for FAA to 
improve the management of its workforce, the agency's largest cost 
driver. Specifically, FAA can increase the efficiency of its air 
traffic controller and safety workforce by strengthening its controller 
training program, revising its controller staffing and scheduling 
practices, and developing an effective method for determining how many 
safety inspectors it needs and where they are most needed. At the same 
time, FAA must protect its investment in its multibillion dollar 
NextGen efforts and infrastructure improvements that are critical to 
ensuring the future viability of the NAS. This will require FAA to set 
priorities and establish sound management strategies to achieve near- 
and long-term benefits, enhance its contract oversight, and prevent 
misuse of airport revenue and Federal grant funds. Finally, FAA must 
not lose sight of its number one priority: ensuring the continued 
safety of the NAS. One of FAA's key safety issues remains effectively 
collecting and analyzing data on air traffic controller errors that 
create air and ground collision risks. FAA also faces new challenges 
with safely integrating unmanned aircraft systems into the NAS, 
implementing a safety data sharing system to proactively assess risks, 
and ensuring effective oversight of its voluntary safety disclosure 
program for air carriers.
                               background
    FAA's budget funds four accounts: Operations; Facilities and 
Equipment (F&E); the Airport Improvement Program (AIP); and Research, 
Engineering, and Development (RE&D).
  --Operations is FAA's largest cost driver and funds most of the 
        agency's day-to-day activities, including safety oversight and 
        air traffic control functions. Salaries and benefits for 
        controllers, safety inspectors, and other FAA personnel make up 
        71 percent of FAA's operations costs.
  --F&E funds the agency's NextGen initiatives and other modernization 
        activities such as improving aging infrastructure, power 
        systems, navigational aids, and weather systems.
  --AIP funds grants to airports to pay for runway construction and 
        other related projects.
  --RE&D provides funds for NextGen and other research areas such as 
        fire research and safety, and aging aircraft.
    FAA's total fiscal year 2014 budget request of $15.6 billion 
represents about a 2-percent decrease from the agency's 2012 budget. 
However, the 2014 request includes $3 billion in Immediate 
Transportation Investments spending for AIP and NextGen programs (see 
table 1). FAA proposes to shift the focus of its AIP account to smaller 
commercial and general aviation airports and eliminate guaranteed AIP 
funding for large hub airports. The proposal would also increase the 
passenger facility charge limit from $4.50 to $8 per enplanement for 
all eligible airports, giving large hub airports greater flexibility to 
generate their own revenue.

                         TABLE 1.--FAA BUDGET, FISCAL YEAR 2012 THROUGH FISCAL YEAR 2014
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                       2013                          Increase/
                                                                    continuing                     decrease from
                     Account                        2012 actual     resolution     2014 request    2012 to 2014
                                                                  annualized \1\                     (Percent)
----------------------------------------------------------------------------------------------------------------
Operations......................................          $9,653          $9,712          $9,707             0.6
F&E.............................................           2,731           2,777           2,778             1.7
AIP.............................................           3,350           3,350           2,900           -13.4
RE&D............................................             168             169             166            -1.2
                                                 ---------------------------------------------------------------
      Subtotal..................................          15,902          16,008          15,551            -2.2
                                                 ===============================================================
Immediate Transportation Investments............  ..............  ..............           3,000  ..............
                                                 ===============================================================
      Total.....................................          15,902          16,008          18,551            16.7
----------------------------------------------------------------------------------------------------------------
\1\ This amount excludes the $637 million reduction in funding due to the sequestration.

Source: FAA.

    Due to sequestration, FAA must reduce its remaining fiscal year 
2013 budget by $637 million. The majority of this reduction will be 
absorbed by the Operations account. FAA expects that cuts to the 
Operations account will result in the closure of 149 contract towers, 
and FAA plans to require controllers, technicians, and other employees 
to take up to 11 unpaid furlough days through the end of September. 
Most of the remaining reduction will be absorbed by the F&E account. 
This reduction will require FAA to adjust its cost and schedule 
baselines for individual NextGen and other modernization programs, 
which could delay completion of these projects.
  faa has opportunities to more effectively manage its controller and 
                          inspector workforce
    FAA plans to place thousands of new air traffic controllers at its 
more than 300 air traffic facilities nationwide--a significant 
challenge, as new controllers can require several years of training to 
become certified at their assigned locations,\1\ and each facility has 
unique operations and air traffic volume. Although the agency has had a 
major controller training support contract in place since 2008, the 
contract has experienced cost overruns and has not met its goal to 
reduce total training times. FAA must also continue in its efforts to 
address controller workload issues, particularly in terms of improving 
productivity, which could create cost-savings. Finally, to effectively 
oversee a dynamic aviation industry, it is critical that FAA place its 
approximately 4,000 flight standards safety inspectors where they are 
most needed.
---------------------------------------------------------------------------
    \1\ New controllers achieve certification on each position as they 
move through facility training. After they have certified on all 
positions within their assigned area, they are commissioned as a 
certified professional controller at that facility.
---------------------------------------------------------------------------
Challenges in FAA's Training Programs and Contract Oversight Jeopardize 
        FAA's Efforts To Ensure a Proficient Controller Workforce
    To replace retiring controllers who were hired immediately after 
the 1981 strike,\2\ FAA plans to hire and train more than 11,700 new 
controllers over the next 10 years.\3\ In 2004, we reported that FAA's 
controller training program was extremely decentralized for such a 
large national undertaking and that the efficiency and quality of 
training varied extensively by location. With the large numbers of new 
controllers entering the workforce and veteran controllers retiring or 
eligible to retire, FAA must have reliable information on how many 
certified controllers it needs to effectively manage the NAS. FAA 
executed a contract to train its new controllers; however, it has not 
been effectively managed.
---------------------------------------------------------------------------
    \2\ In 1981, following a period of labor unrest, an overwhelming 
majority of the air traffic control workforce went on strike on August 
3. President Reagan ordered those controllers to return to duty within 
48 hours. When those 10,438 striking controllers did not return to 
work, President Reagan fired them on August 5.
    \3\ Over the past 5 years, FAA has hired more than 6,600 new 
controllers.
---------------------------------------------------------------------------
    FAA's $859 million Air Traffic Controller Optimum Training 
Solutions (ATCOTS) contract continues to be a significant issue for the 
agency. FAA awarded the contract in 2008 to provide up to 10 years of 
controller training support and to assist in modernizing the agency's 
training program.\4\ Key ATCOTS goals include reducing total training 
costs, reducing training time, and developing training innovations that 
can be adapted to new technologies--particularly those related to 
NextGen. However, 4 years into the contract, the goals have not been 
achieved. For example, between 2009 and 2012, the average training time 
for newly hired controllers increased 41 percent from 1.9 years to 2.7 
years.
---------------------------------------------------------------------------
    \4\ The ATCOTS contract consists of a 5-year base period, worth 
$437 million, and two option periods (a 3-year period and a 2-year 
period) worth $422 million.
---------------------------------------------------------------------------
    In 2010, we reported that the ATCOTS contract faced significant 
cost overruns, poor procurement practices, and a lack of effective 
contract oversight.\5\ For example, in its first 2 years, the ATCOTS 
contract exceeded negotiated contract values by $46 million. Our 
current review continues to show that FAA has not implemented 
sufficient changes to improve its program and contract oversight. For 
example, in 2012, after 4 consecutive years of cost overruns (totaling 
approximately $89 million), FAA chose to extend the ATCOTS contract by 
3 years without clearly defining the contract's training requirements 
or ensuring that it can produce sufficient training innovations to meet 
its training goals.
---------------------------------------------------------------------------
    \5\ FAA's Air Traffic Controller Optimum Training Solution Program: 
Sound Contract Management Practices Are Needed To Achieve Program 
Outcomes (OIG Report No. AV-2010-126), September 30, 2010. OIG reports 
are available on our Web site at http://www.oig.dot.gov/.
---------------------------------------------------------------------------
    Additionally, since awarding the 10 year contract in September 
2008, FAA paid the contractor over $31 million in cost incentive fees 
and award fees that were ineffective at motivating contractor 
performance. For example, to reduce contract costs, FAA paid the 
contractor $19 million in cost incentive fees and award fees related to 
cost containment despite the $89 million in cost overruns. FAA also 
awarded the contractor over $12 million for meeting performance 
measures that do not link to important training goals, such as training 
innovations.
    In May 2011, FAA created an Independent Review Panel of industry 
and academic professionals to evaluate all aspects of how the agency 
hires, assigns, and trains new controllers. To date, the panel has 
identified 49 recommendations, many incorporating actions we previously 
recommended, that could significantly improve FAA's controller hiring 
and training processes. However, most are in the early stages of 
development, and timeframes for actual implementation are not yet 
known.
    We plan to issue reports on FAA's ATCOTS contract and air traffic 
controller facility training later this year and will continue to 
monitor the agency's cost-saving efforts in these areas.
FAA Could Realize Cost-Savings Through Improved Controller Productivity 
        and Scheduling
    Since 1998, FAA has introduced a series of initiatives intended to 
increase controller productivity and reduce operating costs. These 
initiatives include eliminating alternate work schedules, matching 
controller staffing to facility workload, reducing operational overtime 
costs, and developing an automated official time reporting system. 
However, it is unclear whether these initiatives are achieving the 
anticipated productivity gains and cost-savings. FAA data suggest that 
its overall staffing may not be optimal. Since 2000, total air traffic 
operations have declined by 23 percent, while the total number of 
controllers slightly increased. We are currently conducting a review of 
FAA's controller productivity initiatives.
    As directed by the FAA Modernization and Reform Act of 2012,\6\ we 
are also conducting a review of the cost impacts of new FAA controller 
schedules--developed in response to concerns about the impact of FAA 
scheduling practices, particularly during overnight shifts, on 
controller performance and air traffic safety. While most of FAA's new 
controller scheduling policies have not significantly affected costs, 
our ongoing work indicates the agency could realize some cost-savings 
through better scheduling. For example, 72 facilities that do not meet 
the agency's minimum traffic guidelines for continuous overnight 
operations continue to have a minimum of two controllers during the 
midnight shift. Reducing air traffic control services at these 
facilities during a portion of or the entire midnight shift could 
reduce operating costs. However, FAA has not yet calculated the 
potential savings. We expect to report on our reviews of FAA's 
controller productivity and scheduling later this year.
---------------------------------------------------------------------------
    \6\ Public Law 112-95.
---------------------------------------------------------------------------
FAA Has Not Developed a Reliable Method for Determining Its Safety 
        Inspector Workforce Needs
    FAA currently employs approximately 4,000 flight standards safety 
inspectors who oversee all facets of aviation safety, from general 
aviation to air carrier operations. However, the agency has not 
determined where these resources are most needed or the extent to which 
there may be a shortfall in its inspector workforce. A 2006 National 
Research Council (NRC) study,\7\ conducted at the direction of 
Congress, found that FAA's methodology for allocating aviation safety 
inspector resources was ineffective. NRC recommended that FAA develop a 
new approach, and, in response, FAA introduced a new staffing model in 
October 2009.
---------------------------------------------------------------------------
    \7\ ``Staffing Standards for Aviation Safety Inspectors,'' 
September 20, 2006.
---------------------------------------------------------------------------
    We have evaluated the model as part of an ongoing audit of 
inspector staffing, as requested by Congress.\8\ Thus far, FAA 
officials are not confident in the accuracy of the model's staffing 
projections and therefore have not fully relied on the number projected 
by the model when developing plans and annual budget requests. As of 
January 2013, FAA had reported the results of its staffing model six 
times, with each iteration showing very different nationwide employee 
shortages (see figure 1).\9\
---------------------------------------------------------------------------
    \8\ Congress directed our office to review inspector and analyst 
staffing issues in section 205 of the Airline Safety and FAA Extension 
Act of 2010, Public Law 111-216, enacted August 1, 2010.
    \9\ Based on our analysis of FAA data, these fluctuations appear to 
be caused by a number of underlying issues such as inaccurate and 
outdated data.




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




    FAA is working to further refine the model so that it more 
effectively identifies the number of inspectors needed and where they 
should be placed to address the greatest safety risks and get the best 
return on investment. We expect to issue our report on inspector 
staffing later this year.
       sound management strategies are key to the cost-effective 
    implementation of faa's modernization and infrastructure efforts
    FAA has numerous efforts underway to modernize the air 
transportation system and upgrade infrastructure--most notably its 
multibillion dollar NextGen transformational programs.\10\ The success 
of these efforts depends on the agency's ability to set priorities, 
control costs, deliver benefits, and maintain stakeholder support. 
However, FAA has been challenged to maximize near-term benefits through 
its metroplex initiative, while addressing cost and schedule risks 
related to implementing critical automation systems such as the En 
Route Automation Modernization (ERAM) program. In addition, FAA has not 
yet developed an integrated master schedule to help advance and 
prioritize key transformational programs. Other challenges include 
improving contract oversight and management, upgrading aging air 
traffic control facilities, and protecting airport investments.
---------------------------------------------------------------------------
    \10\ FAA's transformational programs, defined as programs directly 
related to the delivery of NextGen capabilities, will fundamentally 
change the NAS by enhancing communications, improving the tracking of 
aircraft, and revamping overall air traffic management.
---------------------------------------------------------------------------
Integrating New Performance-Based Navigation Routes Is Critical To 
        Maximizing Near-Term Benefits and Ensuring User Support
    In 2010, FAA launched its metroplex initiative--a 7-year effort to 
improve the flow of traffic and efficiency at congested airports in 13 
major metropolitan areas. A key part of this effort and a stepping 
stone for NextGen is the introduction of new performance-based 
navigation (PBN) procedures, such as Area Navigation (RNAV) and 
Required Navigation Performance (RNP),\11\ which can provide 
significant near-term benefits such as more direct flight paths, 
improved on-time aircraft arrival rates, greater fuel savings, and 
reduced aircraft noise. FAA has completed initial studies or begun 
design work at 8 of the 13 metroplex locations but continues to face 
challenges with shifting from planning to implementation. FAA has 
extended the expected completion date for all metroplex sites by 15 
months to September 2017 after determining that its initial schedule 
was too aggressive.
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    \11\ RNAV is a method of navigation in which aircraft use avionics, 
such as Global Positioning Systems, to fly any desired flight path 
without the limitations imposed by ground-based navigation systems. RNP 
is a form of RNAV that adds on-board monitoring and alerting 
capabilities for pilots, thereby allowing aircraft to fly more precise 
flight paths.
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    While the metroplex approach is a step in the right direction to 
achieving the near-term benefits of reduced congestion, we reported in 
August 2012 that industry representatives were concerned that FAA had 
not yet integrated efforts from other related initiatives, such as 
better managing surface operations.\12\ In addition, many airspace 
users that are equipped with advanced avionics would like more advanced 
PBN procedures than FAA's current efforts provide--specifically, those 
that regularly allow for more precise and curved approaches. We also 
identified a number of barriers to FAA's metroplex effort, including 
the need to work across diverse agency lines of business, update 
policies, streamline the process for implementing new flight 
procedures, apply environmental regulations, upgrade controller 
automation tools, and train controllers on new advanced procedures. FAA 
is currently working to address our recommendations, including 
developing milestones for a more integrated metroplex approach and 
addressing barriers in a timely manner.
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    \12\ Challenges With Implementing Near-Term NextGen Capabilities at 
Congested Airports Could Delay Benefits (OIG Report No. AV-2012-167), 
August 1, 2012.
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    FAA has several efforts underway to identify and resolve obstacles 
to PBN use. For example, FAA has tasked MITRE to obtain and analyze 
data to measure the use of PBN procedures and quantify their benefits. 
While our analysis of MITRE's preliminary data shows high RNP use at 
some small- to medium-sized airports, such as Oakland, overall RNP 
usage is low, particularly at busy metroplex airports, such as New 
York.\13\ According to MITRE, one of the obstacles to using the 
procedures in busy metroplex locations is the lack of controller tools 
to manage mixed operations--that is merging aircraft using straight-in 
approaches with those on curved paths.\14\ It is important for FAA to 
use MITRE's data to determine why procedures are not being used and 
what it will take to obtain benefits. FAA currently has a team 
developing an action plan to address obstacles, such as the need to 
update policies and procedures to allow PBN use, and expects to issue a 
report later this year. FAA is also working to streamline its process 
for implementing new procedures in response to recommendations from an 
internal FAA review--the NAV Lean project. However, FAA has only 
implemented 3 of the 21 recommendations thus far and does not expect to 
complete all recommendations until September 2015.
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    \13\ PBN usage data is as of January 2013. MITRE has ongoing 
efforts to update the data and improve the formulas. MITRE is only 
capturing data for RNP procedures with curved approaches because it 
cannot distinguish RNP procedures with straight-in approaches from 
conventional procedures.
    \14\ According to MITRE, other causal factors, such as weather or 
operational conditions that do not necessitate the use of PBN 
instrument approaches, can also affect RNP use.
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Despite Progress, FAA Faces Programmatic and Cost Risks With Automation 
        Systems in the Critical Path of NextGen
    FAA's goals for NextGen ultimately depend on the success of its 
ongoing efforts to deploy ERAM--a $2.1 billion system for processing 
flight data. Without ERAM, the key benefits of FAA's transformational 
programs, such as new satellite-based surveillance systems and data 
communications for controllers and pilots, will not be possible. FAA 
originally planned to complete ERAM by the end of 2010, but significant 
software problems impacted the system's ability to safely manage and 
separate aircraft and raised questions as to what capabilities ERAM 
will ultimately deliver. As a result, FAA rebaselined the program in 
June 2011, pushing its expected completion to 2014 and increasing cost 
estimates by $330 million.
    FAA is making considerable progress toward getting ERAM on track. 
The agency is now using ERAM at 16 of 20 sites either on a full- or 
part-time basis--a significant step forward given the extensive 
problems at the two initial sites. FAA plans for all 20 sites to 
achieve full operational capability and to decommission \15\ the legacy 
system by August 2014. However, as FAA deploys ERAM to the Nation's 
busiest facilities, such as New York and Washington, DC, it expects to 
identify new problems that could impact cost and schedule. FAA is 
currently spending about $12 million a month on the ERAM F&E portion of 
the contract, excluding NextGen efforts funded through the ERAM 
contract. If the current contract burn rate does not decline 
significantly, the agency will need additional funds to complete this 
stage of the program.\16\
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    \15\ Decommissioning involves the disconnection, removal, and 
disposal of the HOST computer system once ERAM has been declared 
operationally ready at a site.
    \16\ The Office of Management and Budget (OMB) approved shifting 
$44 million of ERAM O&M funding to F&E funding, increasing total ERAM 
F&E funding to $374 million. As of February 2013, FAA had spent a total 
of $241.86 million (F&E)--about 64.7 percent of the $374 million in F&E 
funding allocated since the June 2011 rebaseline.
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    Moreover, controllers and experts continue to raise concerns about 
ERAM's capabilities. While these issues are not expected to delay 
ERAM's 2014 implementation, they will need to be addressed for the 
system to support NextGen initiatives.
  --Flight Plan Trajectory Modeler.--This is an ERAM capability that 
        models aircraft flight paths and is used to predict conflicts 
        and ensure accurate handoffs between controllers and other 
        facilities. However, the modeler software has often required 
        adjustments to change the flight plan trajectory to ensure 
        accurate handoffs. According to controllers, improvements are 
        needed in order to support current operations and NextGen 
        capabilities that use trajectory-based operations.\17\
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    \17\ Trajectory-based operations focus on more precisely managing 
aircraft from departure to arrival with the benefits of reduced fuel 
consumption, lower operating costs, and reduced emissions.
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  --Aircraft Tracking and Sensor Fusion.--This capability allows ERAM 
        to integrate--or ``fuse''--multiple radars and satellite-based 
        information for controllers. However, thus far, controllers 
        have not been able to take advantage of this improved 
        capability because of tracking issues. A MITRE analysis found 
        that the ERAM tracker will require adjustments to use the 
        Automatic Dependent Surveillance-Broadcast system (ADS-B) \18\ 
        and radar together to manage air traffic. Until these issues 
        are addressed, it is unlikely FAA will be able to reduce 
        separation between aircraft at high altitudes.
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    \18\ ADS-B, one of NextGen's transformation programs, is a 
satellite-based surveillance technology that combines the use of 
aircraft avionics and ground-based systems.
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    Similar to ERAM, FAA's Terminal Automation Modernization/
Replacement (TAMR) effort is on the critical path to NextGen. FAA's 
TAMR program aims to modernize or replace all of the automation systems 
that controllers rely on to manage traffic at terminal facilities with 
a single automation platform--the Standard Terminal Automation 
Replacement System (STARS) system. If effectively implemented, TAMR is 
expected to reduce agency costs and facilitate the implementation of 
NextGen capabilities.
    TAMR currently involves modernizing automation systems at 11 
terminal facilities, 7 of which are the largest and busiest in the 
Nation. FAA estimates this effort will cost $438 million and be 
completed between 2015 and 2017. However, the agency faces significant 
cost, schedule, and technical risks in this effort. Specifically, FAA 
has yet to identify and finalize all ``gaps''--that is, the software 
and hardware requirements that are needed to successfully replace the 
existing automation system \19\ with STARS. Finalizing these gaps 
requires extensive software development and testing--a lengthy and 
potentially costly process should issues arise in testing. FAA is 
currently developing software to address 94 gaps but anticipates 
identifying more gaps once it begins transitioning to STARS at the 
busiest facilities. Moreover, because full STARS capability at the 11 
sites is still years away, FAA continues to add new capabilities to 
existing systems at select facilities to support air traffic 
operations. The longer FAA must maintain and update existing systems at 
these sites, the greater the implementation and cost risk because FAA 
will have to add the same new capabilities to STARS to maintain 
operations at the sites. To improve FAA's effectiveness in achieving 
terminal modernization, we made a number of recommendations to better 
and more cost efficiently manage this effort. We anticipate receiving 
FAA's response and issuing our final report soon.
---------------------------------------------------------------------------
    \19\ Common Automated Radar Terminal System (CARTS-IIIE) automation 
systems currently exist at the 11 large terminal facilities.
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FAA Lacks an Integrated Master Schedule To Manage and Prioritize Key 
        NextGen Programs
    Setting realistic plans, budgets, and expectations for key NextGen 
programs is critical to controlling NextGen costs. FAA now spends 
almost $1 billion annually on NextGen efforts and plans to spend $2.4 
billion between 2013 and 2017 on the six transformational programs that 
will provide NextGen's foundational technologies and 
infrastructure.\20\ These include ADS-B, with a current approved cost 
of $2.7 billion, and Data Communications, with a current approved cost 
of $741.5 million.
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    \20\ These six programs are ADS-B, System Wide Information 
Management, Data Communications, NextGen Network Enabled Weather, NAS 
Voice System, and Collaborative Air Traffic Management Technologies.
---------------------------------------------------------------------------
    However, FAA has yet to complete an integrated master schedule to 
manage implementation of these six programs--many of which are 
interdependent. Without a master schedule, FAA will be challenged to: 
(1) fully address operational, technical, and programmatic risks; (2) 
prioritize and make informed tradeoffs for programs' costs and 
schedules; and (3) determine what capabilities should be delivered 
first. In response to a recommendation we made in April 2012,\21\ FAA 
is working on the integrated master schedule and expects to have it 
completed by December 2013.
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    \21\ Status of Transformational Programs and Risks to Achieving 
NextGen Goals (OIG Report No. AV-2012-094), April 23, 2012.
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Ineffective Planning and Oversight Have Contributed to Cost Overruns 
        and Delays for Efforts Needed To Support NextGen
    Since 2005, FAA has experienced cost overruns, schedule delays, or 
both on half of its major air traffic control programs, including ERAM. 
Weaknesses in FAA's contract planning have hindered the agency's 
ability to efficiently and effectively advance programs and protect its 
investments. For example, when designing ERAM's contract structure, FAA 
did not fully adopt best practices for information technology (IT) 
acquisitions--such as modular contracting, which calls for dividing a 
large contract into manageable contract segments delivered in shorter 
increments. In addition, ERAM's cost incentive fee did not motivate the 
contractor to stay below cost targets because FAA simply increased the 
target costs as requirements grew. At the time of our review, FAA paid 
the contractor over $150 million in cost incentives fees even though 
ERAM costs exceeded the budget by at least $330 million. Further, FAA 
did not detect or mitigate significant risks until almost 2 years after 
software problems surfaced at a key test site. In response to our 
recommendations, FAA has modified the ERAM contract to implement a more 
modular structure, revised incentives for new software releases, and 
improved ERAM's risk management process.\22\
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    \22\ Weaknesses in Program and Contract Management Contribute to 
ERAM Delays and Put Other NextGen Initiatives at Risk (OIG Report No. 
AV-2012-179), September 13, 2012.
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    FAA has also awarded contracts without resolving differences 
between the agency's cost estimates and those provided in contractor 
proposals, resulting in unreliable budget estimates. For example, to 
accomplish NextGen and efforts related to maintaining the NAS, FAA 
awarded seven Systems Engineering 2020 (SE-2020) contracts for 
technical and professional support services, which have a cumulative 
maximum value of $7.3 billion--the largest award in FAA history. 
However, when FAA awarded these SE-2020 contracts in 2010, it included 
18 million more labor hours than needed, overstating potential contract 
costs by $2 billion. As a result, FAA cannot be sure that the 
contract's cost baseline is an accurate benchmark for monitoring costs. 
For FAA's ATCOTS contract, FAA did not resolve the 29 percent 
difference between the contractor's proposed costs and FAA's 
independent Government cost estimate. In addition, the contract 
experienced a 35-percent cost increase during the first contract year 
due to underestimating controller training requirements.
    FAA's problems in these areas are further exacerbated by weaknesses 
in its review and approval process for major acquisitions. OMB requires 
Federal agencies to monitor and evaluate performance of IT investments 
through a capital planning and investment control process. In response, 
FAA's Joint Resources Council (JRC) was established to ensure capital 
investments fulfill mission priorities and maximize resources. However, 
JRC sometimes lacks complete information when making investment 
decisions. Further, FAA does not consistently follow the JRC approval 
and oversight process. As a result, FAA risks making investment 
decisions with incomplete information, which could jeopardize the 
success of critical FAA programs. For example, since 2005, FAA has 
experienced cost overruns, schedule delays, or both on 7 of its 14 
major air traffic control IT programs, including the Wide Area 
Augmentation System program, which exceeded original cost estimates by 
$2 billion. FAA has established a new control group within its Program 
Management Office that, once appropriately staffed, will begin to 
assess program planning documentation.
FAA Must Address Key Issues To Achieve Potential Cost Savings Through 
        Facility Realignments and Consolidations
    A critical--and costly--step in FAA's NextGen effort is the extent 
to which it realigns and consolidates its aging infrastructure. To 
sustain its current facility infrastructure, in fiscal year 2014, FAA 
plans to spend $125 million to replace or improve its terminal radar 
approach control (TRACON) facilities and air traffic control towers, 
$53 million to maintain en route centers, and $85 million to sustain 
electrical power systems. The average age of an en route center is 51 
years, while the average age of a TRACON is 29 years. Moreover, many of 
these facilities are in poor or fair condition, and the infrastructure 
at some facilities cannot support NextGen and other modernization 
initiatives.
    FAA's current plans call for an integrated control facility in the 
New York metropolitan area--a significant step in achieving operational 
efficiencies. However, to successfully realign and consolidate 
facilities, FAA needs to make informed decisions regarding cost, 
schedule, technical capabilities, and the impact on the aviation 
workforce. In July 2012, we recommended that FAA develop and regularly 
update comprehensive cost estimates for construction, equipment, 
increased salaries, relocation expenses, and training for its 
consolidation effort.\23\ As FAA's plans evolve, addressing these 
issues early will better position the agency to achieve potential cost 
savings and NextGen benefits. FAA expects to provide a detailed cost 
estimate for the integrated New York facility by the end of 2014. To 
completely implement our recommendation, FAA will need to produce 
detailed financial information for consolidating facilities in other 
locations.
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    \23\ The Success of FAA's Long-Term Plan for Air Traffic Facility 
Realignments and Consolidations Depends on Addressing Key Technical, 
Financial, and Workforce Challenges (OIG Report No. AV-2012-151), July 
17, 2012.
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Further Actions Are Needed To Protect Federal Investment in Airport 
        Infrastructure
    FAA projects that U.S. passenger traffic will grow by 2.6 percent 
annually in the next 5 years, and that by 2033 there will be 1.15 
billion passengers. Ensuring enough capacity at the Nation's airports 
is essential to meeting this demand, reducing delays, and realizing the 
full benefits of NextGen. However, NextGen alone will not address 
capacity constraints at some airports. While FAA has made progress in 
overseeing airport infrastructure improvements at our Nation's 
airports,\24\ including new runways, the agency must ensure that 
current and planned runway projects and their corresponding capacity-
enhancing airspace changes remain on schedule. Moreover, FAA needs to 
improve its grant oversight to protect its significant investments in 
these projects.
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    \24\ According to FAA, since the start of fiscal year 2000, 24 
airfield projects have opened at 20 major airports. These include 16 
new runways, 3 taxiways, 3 runway extensions, 1 airfield 
reconfiguration completed (included relocating a runway and 
constructing a new center taxiway), and 1 airfield reconfiguration to 
be completed this year (includes a runway extension and a new runway 
that have been completed, and another runway due to open in October 
2013).
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    FAA is pursuing several airspace redesign projects nationwide--
including major efforts to revamp airspace in the Atlanta, Chicago, and 
New York-New Jersey-Philadelphia areas. To ensure runways at these 
sites have sufficient capacity to accommodate the additional air 
traffic, FAA must synchronize its airspace redesign and runway efforts, 
as it did at the Chicago O'Hare International Airport. Completing a new 
runway and extending an existing runway in 2008 \25\ allowed FAA's 
airspace redesign efforts in that area to move forward.
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    \25\ Infrastructure projects as part of Phase 1 of the O'Hare 
Modernization Program.
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    However, the remaining infrastructure and related airspace projects 
for O'Hare, as well as the planned infrastructure and related airspace 
projects for the Philadelphia International Airport, are at risk due to 
the uncertain future of these capacity enhancement programs (see table 
2). Although FAA has committed nearly $1.4 billion in AIP funds for the 
next 20 years--with annual outlays of more than $60 million--the agency 
faces multiple implementation challenges. To protect these investments 
and ensure sufficient capacity, FAA needs to work closely with 
airports, airlines, and other stakeholders to resolve differences and 
make decisions about these projects so they can move forward.

                                  TABLE 2.--STATUS OF MAJOR NEW RUNWAY PROJECTS
                                              [Dollars in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                         Total
                 Airport                               Phase               Estimated completion date      cost
                                                                                                        estimate
----------------------------------------------------------------------------------------------------------------
Chicago O'Hare:
    Runway 10C/28C.......................  Construction.................  September 2013.............     $1,290
    Runway 9R/27L \1\....................  Design \2\...................  2020.......................        520
    Runway 9C/27C........................  Design \2\...................  2020.......................      1,130
    Runway 10R/28L.......................  Construction.................  December 2015..............        516
Philadelphia: Runway 9R/27L, Runway 8/26   Some Site Prep \2\ \3\.......  TBD........................      5,200
 \1\, Runway 9R/27L \1\.
----------------------------------------------------------------------------------------------------------------
\1\ Extension of existing runway.
\2\ Funding for construction has not been secured and is subject to ongoing negotiations with the airlines.
\3\ Extension of runway 9R/27L (which will be renamed 9C/27C when the new runway is built) is in the design
  phase with a 2015 estimated completion date. Due to lack of funding, completion dates for the remaining
  projects have yet to be determined.

    Insufficient oversight of airport revenue and AIP grants further 
jeopardizes FAA's investments. Over the past 10 years, we have 
identified nearly $376 million in airport revenue that was illegally 
diverted, used for non-airport purposes, or was simply lost. Had these 
revenues been used for airport operations, the airports would have been 
more self-sufficient and less reliant on Federal funding. While FAA 
conducts airport revenue reviews, the reviews have been limited to a 
few airports a year. In general, FAA relies primarily on three 
oversight methods that have proven inadequate to prevent the diversion 
and loss of valuable airport revenue: (1) review of airport sponsors' 
annual revenue use reports; (2) single audit reports; and (3) third-
party complaints. At the request of several House members from 
California, we are currently conducting an audit on FAA's oversight of 
Los Angeles International Airport revenue use.
    Finally, reducing and recovering improper AIP grant payments has 
been a longstanding challenge for FAA. In 2010, we reported that FAA 
had made an estimated $31 million in recoverable improper payments \26\ 
during fiscal year 2008 and had not detected them. More recently, we 
reported that FAA's oversight was insufficient to prevent or detect 
more than $1.4 million in recoverable improper American Recovery and 
Reinvestment Act of 2009 (ARRA) grant payments. In particular, we found 
that San Francisco International Airport officials improperly billed 
ARRA for over $832,000 for unapproved taxiway and drainage work, as 
well as ineligible survey equipment. To address this challenge, FAA 
began implementing a new risk-based grant oversight process and an 
electronic grant payment system in 2012. However, it is too soon to 
know whether this additional step will significantly improve FAA's 
ability to prevent or detect future improper payments.
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    \26\ In 2002, Congress passed the Improper Payments Information Act 
(IPIA), providing a framework for agencies to use in testing for 
improper payments, identifying their causes, and implementing solutions 
to reduce them. In August 2006, OMB established detailed requirements 
for complying with IPIA. OMB further clarified that improper payments 
include the following payments to ineligible recipients: duplicate 
payments, payments in incorrect amounts, payments for ineligible 
services or services not received, or payments having insufficient 
documentation.
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   opportunities remain to better ensure the safety of the national 
                            airspace system
    While FAA works to achieve efficiencies in its operations, 
programs, and overall costs, it must continue to address ongoing safety 
concerns. FAA has several opportunities to enhance safety by improving 
its collection and analyses of safety data, including data on air 
traffic controller errors that create air and ground collision risks. 
FAA will need to enhance its oversight of aircraft repair stations and 
implement key provisions of the Airline Safety Act related to pilot 
safety. FAA also faces challenges with safely integrating unmanned 
aircraft into the NAS, developing a safety information sharing system 
to proactively assess risk, and improving its voluntary safety 
disclosure program for air carriers.
Data Collection and Analysis Enhancements Are Needed To Identify and 
        Mitigate the Root Causes of Separation Losses
    A top priority for FAA is to accurately count operational errors--
events where controllers do not maintain safe separation between 
aircraft--and identify trends that contribute to them. FAA statistics 
indicate that reported operational errors rose by 53 percent between 
fiscal years 2009 and 2010. While operational errors remained at these 
levels during fiscal years 2010 and 2011, FAA reports that the most 
serious reported errors continued to rise by 49 percent from fiscal 
year 2009 to fiscal year 2011 (from 37 to 55, respectively).
    In January 2012, FAA issued new policies and procedures for 
collecting, investigating, and reporting separation losses.\27\ 
However, their effectiveness is limited by incomplete data and 
implementation challenges. FAA lacks an accurate baseline on the number 
of separation losses due in part to its limited review of Traffic 
Analysis and Review Program (TARP) data \28\ and exclusion of some 
potential operational errors reported under the Air Traffic Safety 
Action Program (ATSAP) \29\ from its official count. At the time of our 
ATSAP review last year, approximately 50 percent of all ATSAP event 
reports \30\ were classified as ``unknown,'' and therefore some errors 
may have been excluded.\31\ Further, as we reported last month, FAA 
does not analyze and report all separation losses automatically flagged 
by TARP. Instead, FAA investigates losses of separation identified by 
TARP when aircraft come within less than 70 percent of the required 
separation distance.
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    \27\ Losses of separation occur when aircraft do not maintain the 
minimum required distance apart. Most losses of separation are 
classified as either an operational error (if the controller's actions 
caused the loss) or a pilot deviation (if the pilot's actions caused 
the loss).
    \28\ TARP is an automated system that detects losses of separation 
at air traffic terminal facilities.
    \29\ ATSAP is a voluntary, non-punitive program in which 
controllers can self-report safety incidents and concerns.
    \30\ Event reports identify actual or potential losses of 
separation, including operational errors, or other situations that may 
degrade air traffic safety.
    \31\ FAA changed how it categorizes event reports in January 2012. 
However, the committees that review ATSAP reports still do not contact 
facilities if they believe an event is unknown to management.
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    In July 2012, we reported a number of management issues with ATSAP 
that the agency must address to correct known deficiencies and realize 
the program's full potential. These include a lack of formal processes 
to review ATSAP committee decisions on errors and enforce key program 
guidelines and requirements. Failure to address these issues not only 
undermines efforts to improve NAS safety but also may lead to the 
perception that ATSAP is an amnesty program that automatically accepts 
reports of serious incidents, regardless of whether they properly 
qualify under the FAA directive establishing the program.
Runway Incursions Continue To Increase
    Runway incursions--potential ground collisions--are a key safety 
concern for FAA that requires heightened attention at all levels of the 
agency. As we noted in July 2010,\32\ the number of the most serious 
runway incursions--incidents in which a collision was barely avoided--
decreased after runway safety initiatives detailed in FAA's August 2007 
Call to Action plan were implemented.\33\ However, shortly after our 
2010 report, the trend reversed dramatically. Between fiscal years 2010 
and 2012, reported runway incursions increased about 19 percent, and 
serious runway incursions tripled (see figure 2)--despite the fact that 
total air traffic operations declined by 1 percent between fiscal years 
2011 and 2012. In addition, for the period of October through December 
2012, total incursions increased by approximately 20 percent compared 
to the same period in 2011. As a result of these concerns, we plan to 
initiate another review of FAA's Runway Safety Program later this year.
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    \32\ Review of FAA's Call to Action Plan for Runway Safety (OIG 
Report No. AV-2010-071), July 21, 2010.
    \33\ Specifically, these incidents declined from 25 reported in 
fiscal year 2008 to 6 reported in fiscal year 2010.




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




    To help reverse these trends, FAA deployed the Airport Surface 
Detection Equipment-Model X (ASDE-X) system at 35 major airports in 
fiscal year 2011, at a cost of approximately $550 million. ASDE-X 
enhances runway safety by providing detailed information to air traffic 
controllers regarding aircraft operations on runways and taxiways. 
However, ASDE-X does not directly alert pilots, as recommended by the 
National Transportation Safety Board (NTSB) in 2000. To address this 
shortcoming, FAA plans to integrate the use of ASDE-X with three other 
systems--Runway Status Lights (RWSL), ADS-B, and In-Cockpit Moving Map 
Displays. Integrating various systems to improve surface safety 
requires establishing requirements for technical upgrades, validating 
system performance and integrity, and determining whether ASDE-X 
capabilities can meet FAA's goals for increasing safety and capacity. 
We are currently assessing FAA's progress in integrating ASDE-X with 
other technologies such as RWSL and ADS-B to improve runway safety.
Oversight of Repair Stations Remains a Concern
    According to FAA, there are nearly 4,800 FAA-certificated repair 
stations worldwide that perform maintenance for U.S.-registered 
aircraft. Forecasts show that the maintenance, repair, and overhaul 
industry will grow annually by 4.4 percent over the next 10 years, 
yielding a market value of between $50 billion to $65 billion for this 
segment of the aviation industry. These upward trends are expected to 
continue as airlines look to cut maintenance costs and increase 
profitability. However, since 2003, we have recommended that FAA 
strengthen its oversight of air carriers' contracted maintenance 
providers by developing a comprehensive, standardized approach to 
repair station oversight and targeting inspector resources based on 
risk.
    In 2007, FAA implemented a new risk-based system to target its 
surveillance of repair stations. However, our ongoing review indicates 
that inspectors continue to complete mandatory inspections instead of 
targeting resources to where they are needed based on risk. 
Additionally, some inspectors do not use the risk assessment process at 
all; those that do are hindered in their ability to assess risk, due in 
part to limitations in data availability and quality. As a result, FAA 
has been ineffective at conducting risk-based oversight.
    FAA's surveillance at foreign and domestic repair stations also 
lacks the rigor needed to identify deficiencies and verify they have 
been addressed. Systemic problems we identified during our 2003 
review--such as inadequate mechanic training, outdated tool calibration 
checks, and inaccurate work order documentation--persist at the repair 
stations we recently visited. FAA guidance requires inspectors to 
review these specific areas during repair station inspections, but 
inspectors overlooked these types of deficiencies.
    Given U.S. air carriers' continued reliance on repair stations to 
perform their aircraft maintenance domestically and abroad, it is 
imperative that FAA improve its risk-based system to provide more 
rigorous oversight of this industry. We plan to issue our report on 
FAA's oversight of repair stations this month.
FAA Faces Challenges in Implementing Key Pilot-Related Provisions of 
        the Airline Safety Act
    The fatal Colgan Air crash in 2009 raised concerns about a number 
of pilot performance issues, which culminated in the Airline Safety and 
FAA Extension Act of 2010.\34\ Since the act's passage, FAA has made 
important progress in implementing many of the act's requirements, such 
as advancing voluntary safety programs and improving pilot rest 
requirements. However, FAA has not met the act's timelines for updating 
pilot training standards, implementing pilot mentoring and leadership 
programs, or establishing safety management systems.
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    \34\ Airline Safety and Federal Aviation Administration Extension 
Act of 2010, Public Law 111-216, (2010).
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    In addition, FAA missed the act's deadline to substantially raise 
airline pilot qualifications by August 2012. The act mandates that all 
part 121 pilots obtain an Airline Transport Pilot certificate,\35\ 
which requires 1,500 flight hours--six times the current minimum of 250 
hours needed for a commercial pilot's certificate. Although FAA's 
proposed rule would provide some flexibility in meeting these 
requirements for pilots with relevant degrees or military flight 
experience, air carrier representatives remain opposed to the new 
requirement, contending that the quality and type of flying experience 
should be weighted more heavily than the number of flight hours. 
However, if FAA does not issue its final rule, the act's requirements 
will automatically go into effect for air carriers in August 2013, and 
FAA must ensure that carriers make the necessary adjustments to their 
pilot training and qualification programs.
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    \35\ An Airline Transport Pilot (ATP) Certificate is the highest 
level of pilot certification. Pilots certified as ATP are authorized to 
act as pilot-in-command of an aircraft in commercial airline service. 
Additional eligibility requirements are contained in 14 CFR 61.153.
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    FAA has also been challenged to develop an act-required pilot 
records database to enhance the screening process for newly hired 
pilots. For example, FAA needs to determine how to incorporate data 
from FAA, air carriers, and the National Driver Registry in a way that 
is accessible for air carriers to review during the pilot hiring 
process. The act did not establish a milestone for when the database 
should be completed, and the agency has yet to make key long-term 
implementation decisions.
FAA's Safety Oversight Role Continues To Expand as New Technologies and 
        Programs Are Introduced Into the NAS
    Over the next several years, FAA will be challenged by the 
introduction of unmanned aircraft, new integrated data systems for 
proactively identifying risk, and further use of voluntary disclosure 
programs.
  --Unmanned Aircraft Systems (UAS).--FAA predicts there will be 
        roughly 10,000 active UAS in the United States in 5 years, with 
        more than $89 billion in worldwide UAS spending over the next 
        10 years. However, FAA has approved these operations on a 
        limited, case-by-case basis, due in part to the safety risks 
        associated with UAS integration into the NAS. While the 
        capabilities of unmanned aircraft have significantly improved, 
        they have a limited ability to detect, sense, and avoid other 
        air traffic. Given the growing interest and potential safety 
        issues associated with UAS flights, Congress recently directed 
        the Secretary of Transportation, through the FAA Modernization 
        and Reform Act of 2012, to develop a comprehensive plan for 
        integrating UAS into the NAS no later than September 30, 2015. 
        At the request of the Chairmen and Ranking Members of the 
        Senate Commerce Committee and the House Committee on 
        Transportation and Infrastructure, as well as their Aviation 
        subcommittees, we are currently assessing FAA's progress in 
        integrating UAS into the NAS. We expect to issue a report later 
        this year.
  --Aviation Safety Information Analysis and Sharing (ASIAS).--In 2007, 
        FAA implemented ASIAS to collect and analyze data from multiple 
        databases and proactively identify and address safety risks. 
        ASIAS enables authorized users to obtain data from confidential 
        databases--including voluntary safety programs such as the 
        Flight Operational Quality Assurance program and the Aviation 
        Safety Action Program--as well as from publicly available data 
        sources such as NTSB's Accident and Incident Reports database. 
        However, access to ASIAS data for FAA and industry 
        representatives has been limited due to airline proprietary 
        concerns.
      In the Airline Safety and FAA Extension Act of 2010, Congress 
        directed our office to assess FAA's ability to establish a 
        comprehensive information repository that can accommodate 
        multiple data sources and be accessible to FAA aviation safety 
        inspectors and analysts who oversee air carriers. Accordingly, 
        we are currently assessing FAA's progress in implementing 
        ASIAS, its process and plan for allowing system access at both 
        field and headquarters levels, and its use of ASIAS data to 
        assist in commercial air carrier safety oversight. We expect to 
        issue our report later this year.
  --Voluntary Disclosure Reporting Program (VDRP).--As mandated in the 
        FAA Modernization and Reform Act of 2012, we are conducting a 
        review of VDRP, a program that allows air carriers to 
        voluntarily report adverse safety issues to FAA without fear of 
        enforcement actions, provided that carriers develop 
        comprehensive solutions to identified safety issues. As part of 
        this review, we are examining whether FAA ensures reports meet 
        VDRP requirements, including the development and implementation 
        of corrective actions, and whether the agency uses VDRP data to 
        identify safety risks.
                               conclusion
    FAA faces many difficult decisions in the months ahead. To resolve 
the complex issues we identified, the agency must think strategically 
to prioritize those programs that can achieve the greatest benefits in 
the most cost efficient and effective manner possible. At the same 
time, FAA needs to protect its investments and assets that are 
vulnerable to misuse and abuse, while remaining focused on safety. 
Fully implementing our recommendations would better position FAA to 
control costs and create efficiencies as it works to enhance 
operations, successfully implement key programs, and address safety 
concerns. We will continue to work with FAA to ensure it meets its 
mission while protecting taxpayer dollars.
    Madam Chairman, this concludes my prepared statement. I would be 
happy to address any questions that you or other members of the 
subcommittee may have.

          BUDGET CONTROL ACT/CONTRACT TOWER PROGRAM/FURLOUGHS

    Senator Murray. Let me begin by asking a question about 
FAA's contract tower program. Under the FAA's original plan to 
comply with sequestration, the FAA said they expected to save 
between $40 million and $50 million by shutting down 173 
contract towers at soon as the first week in April. But under 
the FAA's most recent plans, 149 towers are expected to close, 
and my understanding is that that will start June 15.
    Can you explain to us, Mr. Huerta, what the latest estimate 
is of how much will be saved by closing down those towers, and 
whether those savings will significantly reduce the number of 
furloughs at the FAA?
    Mr. Huerta. Thank you, Madam Chairman. As we look at the 
need to achieve the savings of $637 million that you noted in 
your opening statement, we have to look both at our contract 
expenditures as well as our pay and benefit expenditures. Our 
current estimate of savings from contract towers that we're 
going to be able to achieve based on the June 15 closure date 
is approximately $25 million.
    The savings from furlough days--we have notified our 
employees that they should expect to be furloughed for up to 11 
days.
    Senator Murray. Between now and September 30?
    Mr. Huerta. Between now and September 30. That represents 1 
day per 2-week pay period between now and the end of our fiscal 
year. The total savings associated from those furloughs are 
slightly in excess of $200 million. We have had an extensive 
effort, and it continues, to evaluate and review our ongoing 
expenditures, our contract expenditures, and our information 
technology (IT) expenditures, to find additional areas of 
savings.
    We have significantly reduced travel by 30 percent, 
limiting it to operational travel, for example, when we have to 
send someone to fix a piece of equipment that might have become 
inoperative. Likewise, we have projected, and we expect to 
achieve, savings in our information technology infrastructure 
of approximately $35 million.
    We have focused on reducing our costs associated with 
training. We have canceled a new training program for new 
controllers at the FAA Academy for the summer in order to focus 
our resources on critical personnel needed to operate the 
National Airspace System.
    It's with great regret that we have to look at closing 
lower activity facilities while at the same time reducing hours 
available for our employees. But as we all know, the sequester 
represents a very dramatic and very blunt instrument in terms 
of how we find reductions in expenditures. But in order to 
achieve them, we have to take the actions that we've talked 
about.

                            CONTRACT TOWERS

    Senator Murray. Well, as you know, there's a lot of 
interest in protecting the contract towers in 2014. What will 
it take to get those contract towers back up and running in 
fiscal year 2014?
    Mr. Huerta. It depends on the nature of the specific 
contract tower. We've heard from approximately 50 of the 149 
airport operators that they are exploring opportunities for 
local funding of the expense of the contract towers for some 
period of time. If that were the case for those facilities, it 
would simply be a change in who is paying the cost.
    We have been negotiating with them an orderly handoff so 
that they can take over the facility and assume its cost when 
funding from the FAA would cease on June 15. Should the 
financial picture change in 2014, the handoff would simply work 
as smoothly going the other direction.
    Senator Murray. And what would be the cost of that?
    Mr. Huerta. Well, the cost is they will continue to 
operate, and so it essentially is just a question of who pays. 
As it relates to a facility that may elect to--or for whatever 
reason it might be necessary to close, then what we would need 
to engage in is a process to hire controllers, recertify 
controllers, and get them back up to speed in operating that 
airspace. That would represent an expenditure of both time and 
money in order to make that happen.

                               FURLOUGHS

    Senator Murray. So do you think it makes sense to close 
some down for the summer?
    Mr. Huerta. We have very few choices, and as we've talked 
about repeatedly, we're looking at a series of bad options to 
choose from. The sequester gives us few options but to achieve 
the required savings and to achieve them in this year.
    Senator Murray. So let's talk about the furloughs, because 
we're hearing a lot about that.
    Mr. Huerta. Sure.
    Senator Murray. You said up to 11 days. How many employees?
    Mr. Huerta. It affects 47,000 of our employees, which is 
most of them. The only employees that are exempt under the 
sequester legislation are those in our Airport Improvement 
Program.
    Senator Murray. Right. So that includes air traffic 
controllers, safety inspectors, and we are hearing it's going 
to lead to a lot of delays this summer. What other actions has 
the FAA taken to avoid furloughs, and how did you decide who 
would get furloughed at the agency?
    Mr. Huerta. Let me take first the question, what other 
actions did we take. We started first at our contract 
expenditures and looked across the board at what we could do to 
dramatically reduce contract expenditures. And we focused on 
those activities such as the ones I mentioned that represent 
out-of-pocket cost, travel, information technology, and so 
forth.
    We do have limits on our ability to reduce some contracts, 
though. For example, our single largest contract is the FAA's 
telecommunications infrastructure contract. That is a services 
contract with a private company that provides critical 
communication services between all air traffic facilities. That 
contract is worth about $225 million on an annual basis.
    So we had to focus in those areas that would not at the 
same time seriously cripple the mission. But our contract 
savings alone were not able to get us to our required savings.
    By the way, I'd also like to mention that our third largest 
contract expenditure is for Federal contract towers. These 
facilities are low activity facilities. They have fewer than 
150,000 operations on an annual basis and less than 10,000 
commercial operations.
    I would like to point out that we have thousands of 
airports in the United States that operate every single day in 
a non-towered capacity and operate safely. All but 1 of the 149 
towers that we have slated for closure, in fact, close for a 
significant number of hours during the day. So they have a 
regular process for operating in a non-towered capacity.
    But even looking at all of the contract expenditures, we 
were unable to achieve the full $637 million in savings. So 
that's what led us to the need to furlough our employees. In 
looking across the agency as a whole, we established a 
principle that we needed to find the appropriate balance of 
getting the cost savings that we needed to get, while at the 
same time having the ability to operate the system, maintain 
its safety, and recognizing that we were imposing a significant 
hardship on our employees.
    Eleven furlough days between now and the end of the year 
represents one per pay period. That is a reduction of 10 
percent of the pay of each employee, the 47,000 that are 
affected. From an operational standpoint, it represents a 
reduction of 10 percent of the available hours that employee is 
able to provide.
    Senator Murray. And I'm hearing from some people that some 
air traffic control towers will be hit more in terms of 
operational ability.
    Mr. Huerta. No. We have allocated them equally across the 
whole system. But each facility operates differently, and it 
may have differing impacts, depending on the specific traffic 
conditions at that airport.
    Let me give you a couple of examples, if I might. Chicago's 
O'Hare Airport is a major hub airport. It operates with two air 
traffic control towers, one on the north side of the airport 
and a central tower that operates for the entire airport. In 
order for us to be able to operate the north tower of the 
airport, we have to have a minimum complement of air traffic 
controllers available to staff a minimal number of positions.

                           RUNWAY INCURSIONS

    If we can't staff all of that minimal number of positions, 
then we must consolidate operations to the central tower. The 
airport can continue to operate, but what it means is we lose 
the ability to use one runway, because that north tower is 
essential to control the northernmost runway of the airport. So 
that is an example of how relatively small reductions of hours 
can significantly affect the operations of an airport.
    Senator Murray. And that's Chicago--does LAX----
    Mr. Huerta. The Los Angeles airport is a four-runway 
airport, but it is also a major hub airport for quite a number 
of operators. In the case of the Los Angeles airport, their 
traffic loads are such that they're relatively constant during 
the day. Already at Los Angeles, the north airfield operates 
under significant operational restrictions because of very 
closely spaced parallel runways that exist at that airport. And 
the airport does have a long-term plan to improve that.
    But, again, if I have fewer controller hours available to 
me, then what it affects is the efficiency of the airport. Our 
highest priority is to ensure that it operates safely, but 
where we take a penalty is inefficiency.
    Senator Murray. Okay. And I apologize to the subcommittee 
for running way over time, but this is what we're hearing from 
a lot of our airlines at this point: Some of our airports are 
going to be significantly impacted for reasons they don't 
understand, like vacations and those kinds of things. So I 
think it's really important that everybody understands how you 
got to these decisions and how we're going to move forward on 
that.
    Senator Collins.
    Senator Collins. Thank you, Madam Chairman. As I 
highlighted in my opening statement, the total number of runway 
incursions increased 21 percent between fiscal year 2011 and 
2012 from 954 to an all-time high of 1,150.
    Administrator, what is the FAA doing to reduce this 
alarming increase and ensure the safety of the traveling public 
on our Nation's runways? And to what do you attribute the large 
increase?
    Mr. Huerta. Thank you, Senator Collins. Let me take the 
second part of that first. Reported runway incursions reached 
an all-time high of 1,150 in fiscal year 2012. We believe this 
number is reflective of changes in our reporting culture 
through voluntary safety reporting systems, as well as enhanced 
use of electronic detection systems, expansion of reporting 
requirements and the deployment of new systems that were 
designed to streamline reporting.
    Nonetheless, this is something that we take very, very 
seriously. The fiscal year 2014 budget request supports our 
efforts to reduce runway incursions and to improve airport 
surface safety. Some of the initiatives that we're talking 
about include airport safety reviews. This involves conducting 
airport safety and certification inspections at each of our 
certificated airports to ensure that the signs, the markings, 
and the lighting all meet national standards.
    Also, airport driver training programs and records are 
reviewed as a significant part of this, because, as you know, 
there are a lot of regular vehicles that operate at the 
airport, and they have to understand how to move on the 
airfield.
    We've been conducting runway safety action team (SAT) 
meetings, and our fiscal year 2014 budget request would 
continue to support those. Our SAT meetings improve 
multidisciplinary teams conducting safety reviews at selected 
airports based on analysis of the data.
    The team is there to improve runway safety through 
coordinated actions with all components of the aviation 
community and the FAA lines of business to really understand if 
there's a design issue or if there's a training issue that we 
need to address at a particular airport, which takes me to 
training. There is a significant focus that we've placed on 
conducting training seminars to provide knowledge, guidance, 
outreach, and awareness at all levels, and really focusing on 
if we have the right kind of training in place.
    I'd also like to talk about industry involvement. The 
Runway Safety Council (RSC) consists of officials not only from 
the FAA and other partners in Government, but also industry and 
labor. What we want to do is meet regularly to determine root 
causes of runway incursions. This is part of a collaborative 
decisionmaking process that we're trying to adopt across the 
whole FAA to bring everyone together.
    Senator Collins. Mr. Scovel, do you agree with the analysis 
that the Administrator just gave that this may reflect better 
reporting rather than an increase in the problem?
    Mr. Scovel. Not entirely, Senator Collins. Here's what our 
examination has revealed. There is a better reporting culture 
within the FAA among the controllers, and we certainly 
acknowledge that. The voluntary reporting programs, such as 
ATSAP, the Air Traffic Safety Action Program, has encouraged 
controllers to come forward, knowing that there will be non-
punitive results from their self-disclosures, and that has 
certainly increased, we trust, the number of operational errors 
or reported runway incursions over time.
    However, we also note that better reporting tools, such as 
TARP and the TRACON environment and a longstanding reporting 
tool in the en route environment, have also been capturing more 
and more previously unreported operational errors. And that, 
too, has been driving the number up.
    You asked specifically about runway incursions. Before I 
address that, very quickly, let me note also that the data 
collection across the board and the analysis of that data--we 
have identified areas for improvement for FAA. With regard to 
runway incursions, as the subcommittee will well remember, that 
is the number one item on the National Transportation Safety 
Board (NTSB) most wanted list every single year, and it has 
been for more than a decade.
    Senator Collins. Which troubles me, because it's going up, 
not down.
    Mr. Scovel. It is going up. The subcommittee will remember 
that in 2007, the FAA issued a call to action for runway safety 
in light of a previous rise in runway incursions. And between 
2007 and 2009, 2010, that call to action achieved commendable 
results largely through the measures that Administrator Huerta 
cited just now as those that are returning to emphasis under 
his leadership.
    We believe that the agency's attention perhaps drifted off 
some of those safety measures after the initial successes of 
that 2007 call to action. I commend the Administrator for 
returning the agency's attention to those, because, certainly, 
in our view and the view of the NTSB, those will yield the 
greatest success in terms of reducing runway incursions.
    There are technological innovations as well, runway status 
lights, Automatic Dependent Surveillance-Broadcast (ADS-B), 
SDX, surface protection technology, all of which the agency is 
working to implement, encountering some difficulties on those. 
But we encourage the agency to persist, and we're certain that 
those will yield better results as well.
    Senator Collins. Thank you. I'm just going to ask one quick 
second question. I see we have a lot of members here.

               AIRPORT IMPROVEMENT PROGRAM GRANT FUNDING

    Administrator, I want to ask you about a part of the budget 
that just makes absolutely no sense to me. On the one hand, the 
administration is proposing a $450 million reduction in the 
Airport Improvement Program, while at the same time the 
President's budget proposes what he calls an immediate 
Transportation Investment Program that provides an additional 
$2 billion.
    Could you please explain to us in a brief statement, given 
our other members who are here, the rationale behind what 
appears to be taking away money from the same program with one 
hand and then giving it back with another program? Now, let me 
say I fully understand that you're restructuring AIP to drop 
the larger airports and allow an increase in the passenger 
facility limits. But this still seems to be an odd 
juxtaposition of reducing by $450 million on the one hand and 
then increasing by $2 billion.
    Mr. Huerta. Thank you, Senator Collins. As you point out, 
the two pieces that you referenced are designed to do two 
different things. The first is a restructuring of the AIP 
program. The budget requests a total AIP level of $2.9 billion, 
which is $450 million below our fiscal year 2012 enacted level, 
and it is paired up with an increase in the passenger facility 
charges (PFC).

                       PASSENGER FACILITY CHARGE

    Now, consistent with the recommendations from the 
President's Deficit Reduction Commission, all guaranteed 
funding for approximately 29 large hub airports would be 
eliminated under this proposal, because they would have the 
ability to raise significant funding through the passenger 
facility charges. Medium, small, and non-hub airport passenger 
entitlements as well as non-primary entitlements would then be 
calculated at levels that are consistent with the formulas in 
effect under current law when the total funding level is below 
$3.2 million.
    Now, in terms of the $2 billion proposal, what that 
reflects is an interest on the President's part to catch up on 
the backlog of infrastructure improvements in airports which 
are required. It is a one-time program that would enable us to 
accelerate the development of a large number of projects that 
have been in the pipeline and at the same time create needed 
jobs for the economy.
    Senator Collins. Well, thank you very much, Madam Chairman. 
I would just note that it certainly seems duplicative to me in 
terms of the purpose of the AIP program. Thank you.
    Senator Murray. Senator Feinstein.
    Senator Feinstein. Thank you very much, Madam Chairman.

                       UNMANNED AIRCRAFT SYSTEMS

    Mr. Huerta, I'd like to confine my question time to this 
new area of unmanned aerial vehicles known as drones. And as 
chairman of the Intelligence Committee, I've had an opportunity 
to understand how potentially dangerous these items are and how 
they vary in size and scope and ability.
    I understand that the 2012 reauthorization act orders you 
to develop a comprehensive plan to integrate unmanned aircraft 
into the national airspace no later than September 30, 2015. 
And it's my understanding that, to date, the FAA has permitted 
more than 300 unmanned public aircraft so far. For example, the 
Department of Homeland Security is using surveillance drones to 
monitor the border. These are not armed, we are told.
    Is what I have just said essentially correct?
    Mr. Huerta. That is correct, Senator Feinstein.
    Senator Feinstein. Well, I am very worried about two 
things. One is safety, and the other is privacy. There was a 
hearing in the Judiciary Committee not too long ago on drones, 
and we had one example of a drone that was very small and used 
by a Colorado sheriff's department. I am familiar with drones 
that are quite large, that are armed, and are used in various 
places in the world for various tasks.
    The fact that they're unmanned, the fact that you may 
license them for one use, doesn't mean they can't be converted 
to another use. Has the FAA looked at that and recognized the 
potential danger of the development of drones in commercial 
airspace?
    Mr. Huerta. Thank you, Senator Feinstein. Unmanned aircraft 
is a technological frontier area that we're trying to 
accommodate. The direction that we've received from Congress, 
as you point out, is how we can safely integrate them into the 
National Airspace System by 2015. You're also aware that the 
reauthorization act of last year requires us at the same time 
to designate six test sites to test and understand how this 
technology would be incorporated into the National Airspace 
System.
    The purpose of the test sites is to enable us to develop 
data and information along the lines of what you're talking 
about: How these things are used, what can we learn from them, 
and questions related to other factors as well. As we were 
developing the information request to solicit proposals for the 
test sites, we heard what you heard, which was a lot of public 
concern about privacy and how these particular vehicles could 
be used, and did it raise questions about invasion of privacy.
    Now, privacy is not something that Congress asked us to 
look at, nor is it something that the FAA has the authority to 
regulate. But we did determine that it was important for us to 
frame the question as we were looking at the test site request 
for proposals.
    What we did was at the same time we released the request 
for proposals for the test sites, we also published a notice 
that we would require whoever is designated as a test site 
operator to publish a privacy protection policy and make that 
available to the public so it is out there for everyone to see 
how the data that would be developed through the use of this 
unmanned aircraft would be used, and does it raise any privacy 
questions.
    I think this is a complicated issue. It's new for us. We 
relied on the expertise of people that had regulated this area 
in the past. As an evolving technology, it's one that we're 
going to have to watch very carefully. There is significant 
interest on the part of State and local law enforcement for the 
use of unmanned aircraft for the surveillance purposes that you 
talked about. There are differing laws at the State level about 
how these aircraft might be used.
    I think that as we develop the data and as we do additional 
testing, it's certainly something that we are going to be 
looking at very carefully. But it's not something we have the 
authority to regulate.
    Senator Feinstein. Here's my concern. I understand that. So 
you could have thousands of these things in the air. How do you 
control them? How do you keep them from getting into air 
traffic? And I understand they might have a height limit of 400 
or 500 feet. How do you keep them away from airports? You know, 
there's even a report that a pilot saw one. Was that true or 
false? I don't know whether it is true or false.
    Mr. Huerta. We had the report that a pilot saw what they 
determined to be either a model airplane or an unmanned 
aircraft, yes.
    Senator Feinstein. Is there any more information on that, 
or is that pretty much what it is?
    Mr. Huerta. That's pretty much what it is. But on your 
question of how can we regulate them safely, this is exactly 
what we're trying to determine. Through the use of certificates 
of authorization as well as the test sites, what we need to 
develop a better understanding of is how these aircraft operate 
in ways that are both similar and different from manned 
aircraft that operate in the system every day.
    The direction we've received from Congress is to safely 
integrate unmanned aircraft. And so the thing that we care the 
most about before we allow widespread use of unmanned aircraft 
is to ensure that they can operate safely, both on their own, 
but also in conjunction with other aircraft.
    Senator Feinstein. I've just learned that there's even an 
association promoting drones.
    Mr. Huerta. Yes, that's correct.
    Senator Feinstein. And there's so much that needs to be 
looked at very seriously, I think, before we do this. The 
privacy questions are enormous. Now, I understand that's not 
really your jurisdiction. But in these test sites, which I 
assume are not overpopulated areas, will the people that enter 
into the test have specific privacy policies to which they 
subscribe the use of their drone to?
    Mr. Huerta. The designation of the test sites would need to 
be accompanied by a privacy plan. We're not in a position to 
make a determination of the content of the plan, but what we 
would require is that they develop one, that they make it 
available to the public, and it is available for people to read 
and understand.
    Senator Feinstein. I know they wouldn't legally carry 
munitions. But there's nothing to stop someone from arming one 
with munitions, and that's my big concern.
    Mr. Huerta. Well, to a certain extent, that risk exists 
today with manned aircraft through the extensive use of general 
aviation that takes place----
    Senator Feinstein. Yes, but not in commercial aviation.
    Mr. Huerta. Not in commercial aviation. That is correct.
    Senator Feinstein. But there will be many more drones than 
there are private aircraft, most likely.
    Mr. Huerta. Well, this is something that we're going to 
have to try to understand. You are correct. There are industry 
proponents that really see this as the next frontier of 
aviation and are actively promoting the use of these aircraft. 
There are a lot of beneficial uses that the industry is 
promoting as well, for example, weather surveillance or 
environmental initiatives, where they're examining, for 
example, loss of ice in the Arctic areas or surveying of coast 
lines, mapping activities.
    Senator Feinstein. I think we would all agree with that. 
It's what's outside of that that's of deep concern.
    Mr. Huerta. But this is what we need to focus on, and this 
is what we will need to learn as we develop this information.
    Senator Feinstein. Good. I'm glad to hear that. My time is 
up, and I thank you.
    Senator Murray. Thank you very much.
    Senator Moran.
    Senator Moran. Thank you, Madam Chairman.

                        CONTRACT CONTROL TOWERS

    Administrator Huerta, I want to focus on the control 
towers. Has there been a safety analysis completed on each one 
of the 149 towers that you propose to close?
    Mr. Huerta. Senator Moran, yes. We did conduct an analysis 
and determined that it was feasible for each of these towers to 
operate safely. That was the first decision. The second 
decision----
    Senator Moran. It was capable for each of these towers to 
operate safely.
    Mr. Huerta. Correct.
    Senator Moran. The towers are operating safely?
    Mr. Huerta. No, for the airport to operate safely----
    Senator Moran. In the absence of a tower?
    Mr. Huerta [continuing]. In the absence of a tower. The 
second part of the question then becomes how we get there. It 
was for that reason in working through with our local sponsors 
and partners that we decided to introduce the delay to June 15 
to ensure that everyone fully understood how that transition 
would work.
    As I mentioned in my earlier remarks--this was before you 
arrived, sir--every one of these towers except one operates in 
a non-towered capacity for some portion of the day. So there 
are well-established rules of how the airport operates in a 
non-towered capacity. The tradeoff is in order to maintain a 
safe operation, what you might sacrifice is efficiency. So they 
may operate less efficiently in a non-towered capacity, but 
they will certainly operate safely.
    Senator Moran. So the 149 air traffic control towers that 
potentially will be closed were never necessary for safety 
reasons?
    Mr. Huerta. We have thousands of airports that operate in 
the country every day that----
    Senator Moran. That's not my question. Are the airports 
that we've had towers at--were those towers placed there 
because they were important for safety?
    Mr. Huerta. The towers were placed there for a variety of 
reasons. But my point is that we are not doing anything that is 
not safe. The airport can continue to operate in a non-towered 
capacity safely, just as they do for many hours of the day.
    Senator Moran. Do the airports then operate in a less safe 
manner? You're saying they're safe, but how can they be as safe 
without a tower as they are with a tower?
    Mr. Huerta. What we do is we transfer responsibility to the 
pilots, and we limit and separate traffic greater distances to 
ensure added margins of safety if there is not a tower right on 
the airport.
    Senator Moran. Can you provide the subcommittee with the 
separate analysis of each airport of the 149?
    Mr. Huerta. There is different analysis that we have done, 
and we can certainly provide that to the subcommittee.
    [The information follows:]

    Safety analyses were conducted for each airport subsequent to the 
development of a safety case that looked into airport standards, 
equipment, procedures, provision of critical information to 
stakeholders and pilots, and impact on neighboring facilities. This 
process identified 20 mitigations required for the withdrawal of funds. 
These requirements were then applied to each facility and a mitigation 
implementation plan developed for each airport. We have provided the 
subcommittee with the FAA safety risk management document that contains 
all of this information.

    Senator Moran. When did you do the analysis?
    Mr. Huerta. We did the analysis as part of our overall 
review where we looked at the activity levels associated with 
these towers, we consulted with our partners in the Defense 
Department and the Department of Homeland Security, and then 
once we made the decision, we've been consulting with local 
airports.
    Senator Moran. What was the timeframe in which the analysis 
was done, and how long did it take?
    Mr. Huerta. The analysis was done over the earlier part of 
this year. We spent several weeks looking at this question of 
how we would close these facilities.
    Senator Moran. Were there any airports that you determined 
needed a control tower to remain safe within that program?
    Mr. Huerta. Yes.
    Senator Moran. How many were they?
    Mr. Huerta. I will get you an exact number for the record.
    [The information follows:]

    As a result of the safety analyses we determined that 19 facilities 
needed to remain open for an additional period of time in order to 
evaluate the impact on neighboring air traffic control facilities in 
the event those towers did close and did not continue operating as non-
Federal contract towers.

    Mr. Huerta. But in general, if two characteristics were 
met, they were located in busy congested airspace adjacent to a 
major commercial airport and so the handling of those 
activities in conjunction with the major airport was a factor 
to consider; or, secondarily, based on discussions with the 
Defense Department, where it served a significant national 
security purpose.
    Senator Moran. Is that the analysis that was done by the 
airports that requested they not be closed because of national 
interest? Is that the ones that you were then----
    Mr. Huerta. That was part of it, yes, sir.
    Senator Moran. But there were airports that had air traffic 
control towers before the request for demonstrating a national 
importance, a national need, that were determined--that a 
control tower needed to be there for safety in this instance. 
But in other instances, the control tower was not necessary for 
safety.
    Mr. Huerta. It's a function of configuration and traffic 
and efficiency of the airport. We're not doing anything that is 
not safe, and each airport operates under different conditions.
    Senator Moran. Do you disagree with the testimony of the 
NTSB at the Commerce hearing that you were at earlier this week 
that talked about the importance of the redundancies that the 
air traffic control tower provides and the safety that's 
necessary, that follows that redundancy?
    Mr. Huerta. I think what the chairman said was that they 
had not done a specific analysis of towered versus non-towered 
airports. She did note that safety is a function of many layers 
of safety. As I've said, we are not doing anything that would 
make the airports operate unsafely. In the event there is any 
tension between safety and efficiency, what will suffer is 
efficiency. But the airports will operate safely.
    Senator Moran. I have a series of questions, but my time 
has expired on my first question.
    Mr. Huerta, let me make sure that I understand what you're 
saying is that none of the airports are any less safe when the 
tower is closed than they were when the tower was there. You 
say they're all operating safely. But my question is has safety 
been reduced?
    Mr. Huerta. It is not, because the nature of the operation 
changes in a non-towered capacity. They operate less 
efficiently. We put more separation--pilots are required to 
communicate with each other, and that compensates for the lack 
of a tower.
    Senator Murray. Thank you very much.

                       FURLOUGH IMPACT ON NEXTGEN

    I wanted to ask you about the furlough's effect on the 
FAA's ability to move forward on NextGen. Even if a capital 
program is fully funded, FAA still needs to have engineers 
there and traffic controllers on the job in order to get the 
work done.
    Mr. Huerta, talk with us about the impact the furloughs are 
going to have on NextGen and especially on ERAM, which provides 
a foundation for FAA's modernization.
    Mr. Huerta. The most significant problem with the furloughs 
and how it affects NextGen is how it affects what we call the 
collaborative workgroups. These are workgroups that are made up 
of stakeholders, controllers, management in facilities, and 
these workgroups are essential for us to work through 
deployment problems associated with new technologies and 
ensuring that we're able to address training and development 
issues associated with the deployment of new technologies.
    We have a large number of these workgroups. They tend to be 
very site specific. For example, as we're deploying ERAM in a 
given air traffic center, there will be a collaborative 
workgroup that supports that deployment. Likewise, in our 
Airspace Modernization Program, such as our Greener Skies Over 
Seattle initiative that you're familiar with, we would have a 
collaborative workgroup that would work on the design of those 
procedures.
    As a result of the reduction in controller hours, we have 
found it necessary to pull back people that would otherwise be 
working on collaborative workgroups to their home facilities so 
that they can deal with day-to-day operations to mitigate the 
impacts that we would otherwise have on day-to-day operations. 
And so that, of necessity, is going to introduce some delay in 
the continued rollout.
    The deployment of ERAM--I feel we are in a very good place, 
where we are right now, as a result of the use of these 
collaborative workgroups. But I can envision a situation until 
we can restart them that some of the later sites may be delayed 
for final deployment.
    Senator Murray. Mr. Scovel, you've done a lot of analysis 
on the ERAM program and its progress. And your most recent 
audit recognizes the FAA has improved its management of ERAM 
and turned it around but said there's still some risks. In 
particular, you said the program is spending its money quickly 
and some of the hardest work is still ahead.
    What does the FAA need to do to manage these risks? And, in 
particular, do you think sequestration cuts will add to the 
FAA's challenges?
    Mr. Scovel. To your last point, Madam Chairman, 
sequestration will certainly add to FAA's challenges in dealing 
effectively with ERAM. What we have learned over the last 
several weeks is that FAA will continue to support facilities 
that use ERAM on a full-time basis. Those are currently 10: 
Salt Lake City, Seattle, Minneapolis, Albuquerque, Denver, 
Chicago, Los Angeles, Oakland, Houston, and Kansas City.
    But the program will halt activities for five facilities 
that were working to transition from part-time use of ERAM to 
full time. And those facilities would be Memphis, Cleveland, 
Washington, New York, and Boston. In addition, the agency will 
stop plans for the last four sites that are currently using 
Host, the legacy system, full time to control air traffic, and 
they have not yet begun transitioning to ERAM. Those would be 
Atlanta, Miami, Jacksonville, and Fort Worth.
    The reason for all of this is precisely what Administrator 
Huerta outlined. The collaborative workgroups that involve a 
significant number of controllers have had to be reduced or, in 
some instances, eliminated from the group of four or the group 
of five in order to ensure that those controllers are available 
for their primary duties.

                   EN ROUTE AUTOMATION MODERNIZATION

    This will have an impact on ERAM, certainly, through the 
rest of this fiscal year, the year in which sequestration is 
fully upon us. But because of the ripple effect of suspending 
transition operations at these other nine centers, we can 
expect that into fiscal year 2014, ERAM will similarly be 
hobbled--perhaps that is the right word. It would not be, 
certainly couldn't be, as far along as it would had 
sequestration not impaired the agency's ability to use 
controllers in these workgroups.
    The agency through dint of main effort has set August 2014 
as the firm and fast deadline for implementation of this 
initial phase of ERAM. I caution the subcommittee, however--and 
the industry is certainly well aware--that whatever state ERAM 
is in in August 2014 will not be what was fully envisioned when 
ERAM was first contracted some years ago.
    It will also necessitate further software releases for 
several years thereafter. In fact, one is planned for fiscal 
year 2014 and thereafter to the tune of close to $1 billion. 
That will, again, position ERAM to most effectively support 
NextGen--impact on NextGen most certainly because of the impact 
of sequestration on ERAM.
    Senator Murray. I've gone over, but I want to ask you one 
additional question, Mr. Huerta. I may have to run to another 
hearing, and in a truly bipartisan fashion, Senator Collins has 
agreed to chair if I have to leave. But I did want to ask you 
one additional question.

                         ALTERNATIVE JET FUELS

    I'm really pleased that FAA has been working hard on making 
air traffic more sustainable, and there are a lot of ways to 
tackle that problem. I am particularly interested in the 
potential of alternative jet fuels. My home State of Washington 
is making some really great strides in research and development 
of some really promising technologies that will help us move 
toward some alternative jet fuels.
    We've got industry, nongovernmental organizations, 
universities. They've all joined together in a consortium--
Sustainable Aviation Fuels Northwest--to evaluate some of these 
opportunities and challenges around alternative jet fuels. As 
you know, the FAA has created a Center of Excellence on this.
    Can you tell us a little bit, real quickly, in a short 
amount of time--and maybe answer me offline as well--about your 
vision for these centers?
    Mr. Huerta. The vision for the new Center of Excellence is 
to help us tackle the energy and environmental challenges 
facing aviation and to ensure sustained aviation growth but in 
a sustainable manner. Aviation has always faced challenges with 
energy, noise, air quality, and climate, and what this really 
says is you need an integrated approach to look at how all of 
these things relate to one another.
    The idea is that the center would help us through research 
and development activities to develop a much better 
comprehensive understanding. The focus of the new center will 
help us achieve our aspirational goal of having 1 billion 
gallons of alternative jet fuel in use in aviation by 2018 and 
ensuring the widespread use of these fuels in the longer term.
    Now, we've received proposals and we're reviewing them in 
response to the competitive solicitation that we put forward, 
and this should be completed in the next few months, at which 
time we will provide a formal notification.
    Senator Murray. I very much appreciate that.
    I'm going to turn to Senator Collins, and, again, I may 
just leave in just a short minute. But, again, thank you, 
Senator Collins for taking over for me on the subcommittee and 
to our subcommittee members.
    Senator Collins [presiding]. I'm honored to do so and 
pleased that you trust me to do so, Madam Chairman.
    First, let me associate myself with Senator Murray's 
comments about alternative jet fuels. We have some really 
interesting research going on at the University of Maine in 
this area. And I, too, think that it holds great potential, and 
I hope this is something that we will see the administration 
continue to encourage and fund some of the basic R&D that is 
necessary.

                  AIRPORT IMPROVEMENT PROGRAM FUNDING

    I want to return to the Airport Improvement Program and ask 
some basic questions of you. First of all, what percentage in 
dollar amounts of the Airport Improvement Program grants 
currently go to small airports? And, second, under the budget 
proposal for AIP, will there be an increase or a decrease in 
funding to go to small airports? I understand what you're doing 
with the big airports, so I don't want you to take the time up 
on that.
    Mr. Huerta. In fiscal year 2013, we estimate that the small 
airports would receive about $2 billion or 63 percent of the 
$3.2 billion in total AIP grant funding. This includes 
entitlement and discretionary spending, but does not include 
entitlements that may have been carried over from previous 
years.
    Under the fiscal year 2014 budget proposal, small airports 
would be expected to receive about $1.9 billion or 69 percent 
of the $2.75 billion in total AIP grants. So that's an 
estimated decrease of about $121 million.
    Now, while small airports would receive less AIP funding 
overall, the programmatic changes that accompany this in the 
budget would increase the amount of discretionary dollars that 
are available to small airports because of the suspension of 
the large airports from the AIP program. So, therefore, that 
means that the small airports would have more access to the 
$801 million in fiscal year 2014 discretionary spending.
    Senator Collins. So for the small airports, overall, 
there's an estimated decrease of $121 million from fiscal year 
2013. You're pointing out that the small airports would have 
more access to the $801 million in discretionary funding. But 
isn't it accurate to say that they are not guaranteed the same 
level of funding that they had received from the entitlement 
part of the program, the formula part?
    Mr. Huerta. It is true that the formula would be reduced. 
But since we are excluding their large competitors for the 
discretionary program, I would feel confident that they would 
be able to get back to those levels through the discretionary 
program.

                             787 DREAMLINER

    Senator Collins. Thank you. I want to talk about the 787 
Dreamliner. Some experts have contended that the Dreamliner 
incidents have revealed that the FAA lacks the expertise to 
effectively test and evaluate new technologies such as the 
lithium batteries, and thus is relying too heavily on Boeing to 
vouch for the safety of the system. What's your response to 
that concern? Do you agree with that?
    Mr. Huerta. I don't. For 50 years, the FAA has relied on a 
system of shared technical expertise being brought together, 
where we assemble the best technical experts both from inside 
the Government as well as from industry to make determinations 
on how we set the highest levels of safety. But the FAA always 
retains the ultimate responsibility to make the call and to 
issue the certification.
    Aviation by its very nature is about pushing technological 
boundaries, and so when a new technology is presented as part 
of a new aircraft or a new piece of equipment, we bring 
together technical experts that understand that technology and 
its interactions in an operating context. Based on that 
process, we set certification standards, and that was the case 
for the 787. It's a process that has served us very well for 50 
years, and it will continue to serve us well in the future.
    Senator Collins. Mr. Scovel, do you agree with that? Does 
FAA have the expertise in-house that it needs, or is it too 
reliant on trusting the contractor? I'm just using Boeing as an 
example. There, undoubtedly, are others.
    Mr. Scovel. I understand. I need to start by issuing a 
caveat, and that is we don't have current work, any work, 
specifically, examining the 787 question and supposed over-
reliance by the agency on Boeing's own engineering expertise. I 
can say that we have examined certain facets of the FAA's 
certification program.
    One that we expressed concern about in a report a couple of 
years ago was FAA's reliance on organizational designation 
representatives. These are company airline manufacturers, 
representatives, employees, who are detailed, in effect, to the 
agency. They remain on the manufacturer's payroll, but they are 
performing the certification responsibilities that 
Administrator Huerta outlined.
    Over the development of that program in more recent years--
and it's been in effect for a long, long time, so it's not a 
new development--but as the program has been refined in more 
recent years, the ability of FAA to review the qualifications, 
performance, or even the conduct of those company employees who 
are performing FAA responsibilities has been diminished by 
mutual agreement between the agency and the manufacturers 
involved to include Boeing.
    We are concerned that that relinquishment of overall 
supervisory authority over such designees by the agency may, in 
effect, at some point raise the question of whether the agency 
is properly exercising its certification responsibilities.
    Senator Collins. Thank you.
    Senator Feinstein.
    Senator Feinstein. Thanks very much, Madam Chairman. I 
appreciate it.

                     HELICOPTER OPERATING PRACTICES

    I want to raise an old saw, and it's unregulated use of 
helicopters. As you know, this is a source of major concern to 
millions of Angelinos, and I understand the same thing is true 
in New York City. And these are helicopters flying low and 
spying on prominent people, particularly in the Los Angeles 
area.
    Our fiscal year 2013 bill directed the FAA to complete a 
report on the subject. It's my understanding that your regional 
administrator, Bill Withycombe, has held public hearings and is 
looking at the problem and has committed to releasing a report 
in May of this year. That report is meant to evaluate a full 
set of voluntary and regulatory options to reduce helicopter 
noise and address the safety issues, as well as, candidly, 
privacy issues.
    Is that report going to be released in May of this year, 
Mr. Huerta?
    Mr. Huerta. Yes. In response to the congressional request, 
we have, indeed, undertaken LA helicopter noise initiative, and 
we are intending to release it to Congress in May of this year.
    Senator Feinstein. Good. Do you have any indications of 
what might be forthcoming?
    Mr. Huerta. Well, these are always very complex issues. As 
a result of this noise initiative, community interests, 
helicopter operators, have been meeting regularly under the 
leadership of our regional administrator there in Los Angeles. 
The purpose of this is to identify very specific noise 
sensitive locations that exist there, helicopter operating 
practices, and other things which contribute to the residents' 
concern about noise pollution that exists in the neighborhoods.
    It's a group that we're finding to be very committed to 
finding solutions that provide noise relief while not degrading 
or eroding the business operations that exist there. I think 
it's fair to say that we would place a greater emphasis on 
working this out locally and reaching agreements. The reason 
for that is it gets you to solutions more quickly than a 
traditional rulemaking might.
    If the operators can develop a much better understanding 
and through the use of such things as notices to airmen or 
NOTAMs and outreach to the helicopter operators, engaging the 
local officials--for example, a lot of the concerns might come 
through the use of police helicopters or news organizations--
and you bring the parties together and work through how they 
actually operate, often that will get us to solutions. But this 
is all the stuff that we're looking at there in Los Angeles.
    Senator Feinstein. I think if you just kept them out of 
residential areas and maybe with a waiver for police, that 
might solve the problem. But as you know, Los Angeles has a 
large Hollywood community, and these helicopters regularly are 
a problem in these residential areas. The question is do they 
really belong there to kind of be spying on people, and that's 
not a legitimate business interest.
    Mr. Huerta. Well, I think that, clearly, there is 
significant concern about helicopters that are, in the views of 
the residents, just there to make mischief. But I think the 
distinction that I was drawing was regulatory versus non-
regulatory approaches. If we can solve the problem through non-
regulatory approaches, it happens much more quickly. If we 
still have a problem as a result of those efforts, then it is 
something that we have to take another look at.
    Senator Feinstein. Well, let me say that I appreciate that, 
and I appreciate the action. I know it's controversial, but I 
can tell you the complaints are large and the distress is 
large. So I'm very grateful for that.
    Mr. Huerta. Well, Senator Feinstein, as a Californian, I 
hear from your constituents.
    Senator Feinstein. Yes. One other thing. Is there any 
reason why a drone pilot should not be certified and licensed?
    Mr. Huerta. This is actually one of the questions that we 
are examining as part of our overall review of how we 
incorporate them into the National Airspace System: What should 
be the requirements of an operator of an unmanned aircraft?
    Senator Feinstein. Because they also ought to be 
identifiable. If I understand what's coming down the pipe, it's 
hundreds of thousands of these things flying everywhere. And I 
think it's a real hazard and that we really need to be able to 
identify abhorrent behavior, that the pilots who pilot them, 
whether they're crop dusting or doing anything else, should 
have a specific legal responsibility.
    Mr. Huerta. Well, that is one of the questions that we are 
examining as part of safe integration.
    Senator Feinstein. Well, I'm going to introduce legislation 
to require it. So I don't know where that will go, but I have 
real concerns, and I would hope that the FAA could understand 
this, because the first big accident we have is going to change 
the whole dynamic, and it will happen.
    Is there a limit on size that the FAA certifies?

                        UNMANNED AIRCRAFT SYSTEM

    Mr. Huerta. There are different operating characteristics 
for very small unmanned aircraft systems (UAS). Essentially, 
what we're trying to do is draw a distinction between what is a 
modeler, who might be flying a model airplane--as long as 
they're flying at very low altitudes and not interfering with 
any kind of commercial aircraft--that's a category where we 
have much less concern.
    But as you pointed out in your previous statements, 
unmanned aircraft that operate for a wide variety of purposes 
at higher altitudes can be of very different sizes, and our big 
concern is how do we safely integrate them with other aircraft.
    Senator Feinstein. Well, you know, one of the things I'm 
familiar with is the real-time video that can be taken off of 
these.
    Mr. Huerta. Sure.
    Senator Feinstein. Consequently, they are real spy 
machines. Now, is that something we want in commercial service 
in the United States of America? And I think that's a very real 
question with which the industry has to grapple.
    Mr. Huerta. That's a fair question, and I think that's one 
of the things that we will learn more about as a result of 
these test sites and data gathering that we're going to be 
doing.
    Senator Feinstein. Well, let me ask you this. Can this get 
ahead of you?
    Mr. Huerta. It's a very rapidly evolving technology.
    Senator Feinstein. Yes.
    Mr. Huerta. And I think it's fair to say that the public is 
only now coming to grips with what the full implications of 
that are. I have stressed to the industry associations the 
importance of them being very transparent about what the 
potential for these activities needs to be. But I think that we 
as a country need to look at this technology very carefully, 
and while we're very focused on how we safely integrate them, 
larger questions are raised that we and our Government partners 
will need to consider in the months and years ahead.
    Senator Feinstein. And exactly--you know, I can envision 
drone fights in the air, drones cracking into each other. So I 
think they have to be identifiable. I think the pilots have to 
be certified. We have to know who's doing this, because it 
doesn't take much to put a munition on it once you've got the 
know-how.
    So I know the company that makes most of these, I visited 
in California, and it's certainly a first-rate company, but 
that also troubles me because their ability to innovate is so 
great. So I would just like to urge you to give your attention 
to this subject, because what we do is going to make a huge 
difference down the stream, even before we know the full 
implications of this.
    Mr. Huerta. That's very good counsel, Senator.
    Senator Feinstein. Thank you. Thank you very much.
    Senator Collins. Senator Moran.
    Senator Moran. Senator Collins, thank you very much.
    Administrator, I want to go back to something I raised with 
you in my earlier round of questioning, and I want to make sure 
we have an understanding of what you're going to do in 
providing copies of the analysis. Those words, analysis, study, 
exam, review, have different meanings. We use those words many 
times, and I'm not sure they always mean the same to each 
person using those words.

                        CONTRACT CONTROL TOWERS

    So I'm really interested in seeing what kind of analysis, 
study, exam, review that the FAA did to demonstrate the safety 
of your decision. And as I understand it, you did an analysis 
of each one of the 149 control towers and reached a conclusion 
in each instance that it would be safe to eliminate the control 
tower. I want to confirm with you that you will provide that 
analysis on each one of those towers to the subcommittee and 
then ask you what kind of timeframe that will take.
    Mr. Huerta. I'll need to provide a response for the record 
in terms of what kind of a timeframe that will take.
    [The information requested by the subcommittee was 
submitted by the Federal Aviation Administration on CD media on 
June 10, 2013.]
    Mr. Huerta. The analysis that we conducted was a function 
of what is the level of activity of these facilities, and then 
its relationship to the surrounding environment and other 
airports that might exist in those facilities, national 
defense, and so forth. I think that it's fair to say that the 
analysis did, for example, consider questions. Does the tower 
close at night?
    Therefore, that tells us there are specific operating 
procedures for that airport to operate in a non-towered 
capacity. And we can provide you all of that information.
    Senator Moran. That's interesting to me, and I hadn't 
thought of that point. But it's interesting to me that there 
was no analysis that would say that perhaps it's safer if we 
had air traffic control towers operating 24 hours a day. You 
reached the conclusion that it was safe because they weren't 
operating certain hours of the day. But there's also an 
analysis that could show that they could be valuable in 
improving safety if they were operating more hours.
    Mr. Huerta. Senator Moran, as I said in response to your 
earlier question, what changes when an airport operates in a 
non-towered capacity is how it operates.
    Senator Moran. And, again, I don't mean to be redundant, 
but you will provide that information to the subcommittee and 
you will let us know how much time it takes to get it to us?
    Mr. Huerta. Yes, sir.
    Senator Moran. Thank you very much. You may be aware of my 
effort on the Senate floor with Senator Blumenthal and nearly 
30 of my colleagues, Republicans and Democrats, to try to 
alleviate this problem by shifting some funding within the 
debate of the continuing resolution from unobligated balances 
in research and facilities accounts. Did you oppose that effort 
to transfer or to change those monies from being spent in the 
unobligated accounts and facilities manner to providing money 
for control towers?
    Mr. Huerta. I think it was quite clear that the 
administration's position was that we were looking for a global 
resolution to the sequester issue. As it relates to our ability 
to deal with the impacts of the sequester, as you know, it's a 
blunt instrument, and we are implementing the law as it has 
been enacted. Should different laws be enacted, we will 
implement them.
    Senator Moran. You know, that standard was not applied 
uniformly during the continuing resolution debate, and I don't 
expect you to have an answer for why that would be the case. I 
visited, as you may know, with Secretary LaHood, who told me 
that he would like to be helpful in the cause, but indicated 
the administration opposed my amendment.
    His explanation was that the administration wanted to have 
a--different than what you just said, but what he indicated was 
the administration does not want to solve this problem on a 
short-term basis. I should tell you that I didn't vote for 
sequestration. I think across-the-board cuts are irresponsible. 
I'm not defending sequestration. I am criticizing the manner in 
which you're implementing sequestration, because I don't think 
it's required under the circumstances.

                             SEQUESTRATION

    But, again, I share the view, I suppose, of the 
administration that sequestration is not a manner by which we 
should find savings. Having said that, Secretary LaHood said 
the administration opposes my amendment because it is not a 
long-term solution to the problem. Everything, Administrator, 
within the continuing resolution was a short-term solution. 
It's a continuing resolution that gets us through until 
September 30.
    I couldn't find a single Senator, Republican or Democrat, 
who opposed the amendment. All of them spoke to me in favor of 
the amendment, could not understand why we couldn't transfer 
money that was unobligated and unused to a higher priority. And 
so it is still confusing to me, even with your answer.
    I can't solve in the continuing resolution the issue of 
sequestration. I'm interested in solving the issue of 
sequestration, but it looks to me like you would allow us to 
help you at the FAA solve a problem in a way that is less 
damaging to the traveling public. So I remain confused by the 
suggestion that we want to solve a longer-term problem with 
sequestration. So do I.
    But it does seem odd to me and it seems inappropriate to me 
that you're unwilling to solve a problem that you're presented 
with, one problem at a time as they come up. Unfortunately, 
that's the circumstance in which we find ourselves. You're not 
interested in solving this problem until we solve the larger 
problem?
    Mr. Huerta. Well, Senator Moran, these are all not optimal 
decisions. I've said repeatedly that these are all very 
difficult choices. Every dollar that I am unable to save 
through the Federal contract tower program is a dollar that I 
need to find in employee furloughs. And there's a tension and a 
tradeoff between lower activity facilities, higher activity 
facilities. This is an extremely difficult statute to 
implement, but it is the law and we're forced to implement it.
    Senator Moran. And let me make sure that I understand that 
answer, which is you do have the discretion to decide where the 
cuts would occur, because you're choosing to cut the control 
tower program and perhaps not furloughing air traffic 
controllers at more high volume airports. So the suggestion 
that has been made--I don't know if by you or not--that we have 
no choice--it is a choice, but it's a choice that you describe 
as difficult, but you made a choice. Is that true?
    Mr. Huerta. Well, the choice that we made is to minimize 
impact on the maximum number of travelers. I'd like to share 
with you a specific example. Many of these smaller facilities 
have very low activity of all flights. So if I'm looking at the 
tradeoff between closing a tower which can operate safely where 
the maximum number of commercial activity flights might be, 
say, two or three a day versus affecting the arrival rate at a 
large facility, I'm going to err on the side of ensuring that I 
protect the maximum number of travelers.
    Senator Moran. Administrator, that's exactly what I would 
want you to do. And what's disturbing to me is the continual 
suggestion that we don't have the discretion to do that. What 
you're saying to me is exactly what I've been saying on this 
issue, which is why can't we prioritize? You prioritized. You 
decided that this is more important for safety than this. Why 
isn't spending money on control towers more important than 
unobligated balances?
    Mr. Huerta. Because the unobligated balances are in a 
different funding source which I am not permitted to transfer 
money from.
    Senator Moran. But I was giving you the authority to do 
that.
    Mr. Huerta. But it's authority that I don't have.
    Senator Moran. But you opposed me giving you the authority 
to do that. It doesn't make sense to me. I'm still baffled by 
this. Mr. Administrator, it does seem to me that you have 
indicated there was discretion, or, at least, you have the 
opportunity to prioritize. You have the discretion because 
you've now decided to keep some towers open or keep towers open 
for another couple of months, and you added some towers back to 
the list that wouldn't be closed.
    So it does seem that there's some opportunity for you to 
utilize that discretion, and I wish you would support us giving 
you the opportunity to have more discretion. One of the things 
that caught my attention, and I assume that you said this. It 
comes from a newspaper in Frederick, Maryland. And you were 
quoted at the time when the stimulus dollars were made 
available, $5.3 million at Frederick, Maryland, for an air 
traffic control tower.
    This was just a few years ago, and I read the article that 
said that by the time the air traffic control tower was open 
for business, you made the decision to close the tower. But 
back during sequestration, this is what you reported as saying 
in the local newspaper.
    ``More than 300 aircraft are based at the airport. It has 
two runways and handles 130,000 aircraft operations annually, 
Huerta said. It is estimated that the number will increase to 
165,000 by 2025. Huerta had to almost shout above the noise to 
say he came to make the case that the airport is so busy that 
it needs a tower.'' Quoting you, ``I think the case has been 
made, Huerta said. This has become a very busy airport,'' and 
yet it's one that is being closed.
    Mr. Huerta. And its current rate of activity is less than 
150,000 operations. As I've said, these are difficult choices.
    Senator Moran. Madam Chairman, I was asked by Senator Blunt 
to ask a question in a different vein, although it's along the 
same topic. Our colleague, Senator Blunt, has introduced a bill 
earlier this week that would ensure that essential employees 
upon whom public safety depends can continue to work without 
furlough.
    During a Senate Commerce Committee hearing earlier this 
week, you asked for the opportunity to review the bill. And 
Senator Blunt asked me to ask you if you had reviewed the bill 
and now had an opinion.
    Mr. Huerta. We have reviewed the bill. The administration 
has not taken a position on it at this point.
    Senator Moran. I think, Madam Chairman, that's all I have.

                              COST-SAVINGS

    Senator Collins. Thank you very much, Senator Moran. I want 
to recognize your very strong leadership on the contract tower 
issue. This is an issue that is of great concern to many of our 
colleagues on both sides of the aisle. And I personally believe 
that had you been able to get a vote on the Senate floor that 
you would have won overwhelmingly.
    Mr. Attorney General--Inspector General--maybe you'd like 
to be Attorney General--maybe not.
    In your statement, you talked about that the FAA could 
realize cost savings through improved controller productivity 
and scheduling. And you talk about that since 2000, total air 
traffic operations have declined by 23 percent while the number 
of air traffic controllers has actually increased. I mention 
this because I think the furloughs are a very blunt and harmful 
instrument that does not set priorities.
    But it seems to me that in your excellent testimony and the 
audits and reports that you've done that you've suggested other 
ways that savings could be achieved and that the targets under 
sequestration could be met. So could you talk to us a little 
bit more about your comment that FAA could realize cost savings 
with better scheduling and higher productivity?
    Mr. Scovel. Yes. Thank you, Senator Collins. It is true 
that air traffic operations since 2000 have decreased about 23 
percent with slightly more controllers on duty today than there 
were then. We've been asked by the House to undertake a review 
of air traffic controller productivity, and that review is 
underway, and we don't have conclusions yet that I can share 
with you.
    However, what we have identified through a number of audits 
of FAA's air traffic controller scheduling practices as well as 
training is that there are a number of towers--and that's been 
the subject of discussion off and on between Senator Moran and 
the Administrator--but a number of towers that maintain at 
least two air traffic controllers on duty through the nighttime 
hours when, by virtue of FAA's own threshold requirements in 
terms of operations, those towers should be closed.

                     CONTROLLER TRAINING AND SAFETY

    There are opportunities for savings if FAA were to apply 
its own thresholds to those particular towers and leave those 
towers unmanned during the nighttime hours. We defer to the 
agency in terms of the safety question, and we are very 
cognizant of Senator Moran's concern with safety as well as the 
testimony of the NTSB chairman on Tuesday, in which she offered 
the view that redundant safety systems, safety layers, can only 
enhance safety rather than decrease it.
    Senator Collins. Well, I think part of that also was in 
response to the very unfortunate incidents where the air 
traffic controller had fallen asleep during the nighttime 
shift----
    Mr. Scovel. Exactly.
    Senator Collins [continuing]. Which is obviously 
unacceptable. I'm not sure the answer is to have a second 
person there to wake the person up. But I do think that that's 
probably why two are on duty.
    Mr. Scovel. It is in some instances as a result of the 
concern over fatigued controllers from several years ago. A 
decision was made by the agency and, in fact, the Department to 
put a second controller on duty at those locations, 
notwithstanding the fact that nighttime operations were below 
the threshold that had been specified by FAA for manning the 
tower in the first place.

                             SEQUESTRATION

    Senator Collins. The reason I mention this issue, 
Administrator, is that I would encourage you to go back and 
really scrutinize your budget--I'm not saying that you 
haven't--but to look at the contract towers issue, the post 
midnight issue, particularly when you're dealing, as we are in 
Bangor, with a dual use airport that has military operations as 
well as civilian, and to also take a look at the furlough 
issue. I'm worried about the impact on morale. I'm worried 
about the impact on operations.
    I've met just in the last couple of weeks with high-level 
Navy officials and National Guard officials, and they have both 
been able to work through this in a way that has either greatly 
lessened the number of furlough days that will be required by 
DOD's civilian employees within their departments or eliminated 
altogether. And the disturbing thing is I'm also hearing that 
the White House is putting pressure on the Navy, the Coast 
Guard, and the National Guard to do furloughs anyway. I don't 
think we ought to be trying to enhance the pain of 
sequestration.
    I agree that sequestration was a terrible policy. It 
doesn't set priorities. It treats programs as if they're of 
equal worth, and it is a very poor way to legislate. But here 
we are, and it seems to me that we've got to work together to 
try to figure out ways to minimize the impact on operations and 
on the workforce.
    I personally believe we're going to end up paying more 
later in a lot of these cases as we delay contracts and cause 
problems in the supply chain and take other actions as a result 
of sequestration. So I would encourage you to go back and take 
another really close look at your budget.

                               FURLOUGHS

    Mr. Huerta. Senator Collins, I can't speak to what's going 
on in other agencies, but I will give you my assurance that we 
are in a continuous evaluation of where we can achieve cost 
savings. I will say that when we first began our initial 
planning, we actually thought that we were going to have a much 
larger number of furlough days. And through our very aggressive 
efforts to reduce spending in other areas, we're able to get 
that down to the 11 that we're currently working with, and we 
will continue to work on that.
    I have with my staff weekly reports on how we're doing with 
contract expenditures, what we're seeing with respect to our 
actual performance. This is something that we will continue to 
manage throughout the fiscal year as long as the sequester is 
in place.
    As you know, and as I've said repeatedly, these are 
difficult choices, and we're forced to choose between very 
unattractive options. But nothing would be better news for me 
than a situation where we would be able to relax these 
draconian measures. But it all depends on how the financial 
performance plays out in the weeks ahead.

                      ELECTRONIC DEVICES ON PLANES

    Senator Collins. Let me just ask two final questions. One, 
Administrator, what progress has the FAA made in reviewing 
airline procedures governing the use of portable electronic 
devices such as smart phones and tablet computers in flight? 
It's not that I'm seeking being on a flight where everybody's 
on a phone having a conversation. But, obviously, there's a 
great deal of interest in being able to use devices on these 
flights and a great deal of skepticism, I would say, among the 
traveling public about whether this really is a safety issue.
    Mr. Huerta. Sure. Let me draw the distinction between the 
use of phones and the use of other electronic devices.
    Senator Collins. Yes, a valid distinction.
    Mr. Huerta. The use of phones is regulated by the Federal 
Communications Commission (FCC), and right now their current 
rules prohibit the use of phones on aircraft in flight. The 
FAA, for other electronic devices, recently committed at the 
start of this year an Aviation Rulemaking Committee (ARC) to 
advise us on whether we should revise the regulations that we 
currently have in place that restrict the use of these devices 
during critical phases of flight.
    This rulemaking committee is made up of representatives not 
only of the device manufacturers, but also representatives of 
crews, and of aircraft operators. These members will have the 
full scope of perspectives that would come into play as we 
consider how to look at these things, as well as the research 
and technology community so that we can really understand what 
the challenges are with respect to electronic performance.
    Current law provides that any airline could do an analysis 
of devices on their aircraft, and if they determine there is no 
interference, then they could be allowed. We recognize, though, 
that there has been an explosive growth in the type and variety 
of electronic devices. So it was for this reason that I made it 
a personal initiative to really try to convene this group to 
consider what a way forward would look like.
    We're expecting the work of the ARC to be concluded this 
summer, and at that time they will make recommendations to us 
on what a way forward might look like. The balance they have to 
achieve is what's technologically feasible, but also what can 
be enforced in an operational context by crews and operators of 
airlines.
    Senator Collins. Thank you.

               AUDIT OF LOS ANGELES INTERNATIONAL AIRPORT

    And, finally, Mr. Scovel, I know that the inspector 
general's office is conducting an audit of the Los Angeles 
International Airport's (LAX) revenue use as a result of a 
particular incident where revenue was diverted for purposes not 
allowed under the law. Two questions: What is the status of 
that audit? And, second, has your office uncovered revenue 
diversion incidents--that's a bureaucratic term for it--at 
other airports throughout the country, in other words, misuse 
of revenues?
    Mr. Scovel. Senator Collins, our review of supposed revenue 
diversion at Los Angeles International Airport is underway. We 
haven't completed it yet. So I'm not in a position to speak 
specifically to that, except to note that we are conducting 
that review in response to a request from three Members of the 
House.
    We have also received information independently through 
third party sources affiliated with LAX. Some of those 
allegations we referred to FAA for their review, and they have 
conducted that. And my staff together with FAA is in the 
process of reviewing those conclusions. But the larger piece 
has fallen to one of our audit groups, and that effort is still 
underway.

                      AUDITS OF REVENUE DIVERSIONS

    To your other question, the nature of revenue diversion at 
airports nationwide, unfortunately, it is--I can only call it 
pernicious and persistent. It is required by Federal law that 
revenues generated by airports be used for airport purposes. To 
use it for anything else, such as police or fire services off 
the airport, as we have found happened--the parking fees 
generated in lots and garages on the airport to be used for 
off-airport services--we have found numerous instances of that.
    Both my office and Administrator Huerta's agency have 
groups that have long experience in investigating and 
attempting to resolve instances of revenue diversion. His group 
as well as mine are tremendously under-resourced. We could 
probably dedicate double figure FDEs nationwide to try to track 
all of this down.
    I can give you a very short list--and I won't take too much 
of your time--but just some of the more recent projects that 
we've had underway. Dating back to 2003, we looked at incidents 
at Pittsburgh, Cleveland, San Antonio, Miami, Detroit; 2004, 
San Francisco; 2005, Bellingham, Charlotte, Cincinnati, 
Detroit, Las Vegas, Reno, Tucson; 2006, Orlando; 2011, Denver; 
2011, Venice, and most recently, Los Angeles.
    Over the course of the last 10 years, our office alone has 
identified well in excess of $400 million of revenue diversion 
or lost revenues. For instance, airport real estate sold for 
less than fair market value. That's money that, had the sale 
been conducted properly, should have been devoted to airport 
purposes under Federal law. But all of that happened.
    That's not to say that those revenues, in some instances, 
could ever be recovered either by the agency or by the airport. 
But, in some instances, they can, and we and FAA try to track 
those instances down.
    Senator Collins. Well, that's a very disturbing list of 
airports, because that suggests a widespread problem and with 
real money, hundreds of millions of dollars. That's the sort of 
thing we have to make sure we're providing enough resources for 
on the investigative front so that we can catch and deter that 
kind of activity.
    Senator Moran, do you have anything further?
    Senator Moran. No. Thank you for the indulgence.
    Senator Collins. Thank you.
    I want to thank both of our witnesses for testifying today.
    And, Administrator, I particularly want to recognize your 
first appearance before our subcommittee.

                     ADDITIONAL COMMITTEE QUESTIONS

    I would announce that we will leave the hearing record open 
for 1 week for any additional questions for the record and 
would ask our witnesses to respond to those as quickly as 
possible.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
              Questions Submitted by Senator Patty Murray
                        nextgen master schedule
    Question. I continue to be concerned by the Federal Aviation 
Administration's (FAA's) track record with capital programs. Too many 
FAA programs go over budget, exceed their schedule, and do not deliver 
on all of their promises. This past year, the FAA proposed changes with 
the goal of improving program management. I was happy to approve FAA's 
reorganization that created the Program Management Office (PMO), which 
is designed to focus the agency on good management practices. Mr. 
Scovel, in your testimony, you discuss the need for FAA to integrate 
all of its Next Generation Air Transportation System (NextGen) 
programs. One year ago, the FAA concurred with your recommendation that 
it produce an integrated master schedule. By what date will the FAA 
produce this master schedule?
    Answer. Consistent with Mr. Scovel's recommendation, the FAA is 
developing an Integrated Master Schedule (IMS). The NextGen IMS will 
track progress activities and milestones monthly for the pre-
implementation and implementation programs.
    By December 2013, the FAA IMS will include the linkages and 
dependencies among NextGen programs. This capability will strengthen 
program synchronization and alignments along with capturing the 
timeline for maturity of the NextGen programs. Further, we will 
continue to enhance the IMS as we revalidate the NextGen schedules and 
definitions of capabilities. In parallel, we will continue our effort 
to align the IMS with the NAS Enterprise Architecture (EA). This 
alignment will include all implementation activities through 2020.
                         acquisitions workforce
    Question. The Inspector General has issued many recommendations on 
the importance of having an FAA workforce with expertise in 
acquisitions. This kind of expertise means hiring the right people and 
giving them the training they need. How will sequestration affect your 
ability to support the PMO and develop a strong acquisitions workforce?
    Answer. The Federal Aviation Administration (FAA) continues to 
prioritize training and certification for the FAA's acquisition 
workforce. The agency views it as a necessary investment to ensure the 
FAA has a strong cadre of skilled acquisition professionals in order to 
effectively manage cost, schedule, and performance of agency 
acquisitions and contracts. The FAA has reduced training and travel 
budgets but is still supporting core training that is required for 
certification of contracting officers and specialists, contracting 
officer representatives, and program/project managers. The FAA is also 
continuing to offer core training to other acquisition specialists, 
such as system engineers, test and evaluation specialists, cost 
estimators, and integrated logistics specialists. However, reduced 
travel budgets are impacting the ability of some field personnel to 
attend training; local training is not available or there is an 
insufficient population to bring training onsite. Additionally, 
diminishing staffing levels and support contractor resources are 
impacting the availability of personnel to attend training due to 
increasing job demands.
    While the FAA remains committed to strengthening the skillsets of 
onboard acquisition staff, sequestration is impacting the FAA's ability 
to hire. The FAA has had to impose restrictions that broadly curtail 
hiring, including backfill hiring and career ladder promotions. While 
there are provisions for exceptions for critical needs, the expectation 
is that these will be very limited. Similarly, there is a general 
freeze on reassignment increases, performance awards, and retention 
incentives. A consequence of these restrictions is difficulty retaining 
staff. Experienced acquisition professionals are in high demand and FAA 
is beginning to see an increase in attrition. Losing highly skilled and 
experienced professionals, and staff managing increasingly complex 
acquisitions, erodes morale and puts the agency at risk for increased 
costs, disruptions, and delays. In addition to a shortage of senior, 
experienced professionals, a thinning pipeline of talent can have long 
term impacts.
    To manage under these circumstances, the FAA is focused on 
developing current, available staff to best meet highest priority needs 
and strategies to retain personnel and organizational knowledge/
expertise.
    The FAA's Acquisition Workforce Council oversees planning and 
development of the acquisition workforce. The Council is in the process 
of updating FAA's Acquisition Workforce Plan. Through this process the 
FAA will reassess current and projected workload and staffing 
(including retirement and attrition data) and strategies to address 
requirements based on assumptions and constraints. The Acquisition 
Workforce Plan update is expected to be published in September 2013.
                          runway status lights
    Question. Recently, the FAA has recognized cost increases with the 
Runway Status Lights program. And I understand that the FAA may 
consider installing these lights at fewer locations in order to keep 
within the programs budget. What is the FAA doing to ensure that it 
delivers on all of the promises of the Runway Status Lights program? 
Under what circumstances would the agency decide to cut back on this 
program instead of making other adjustments to its budget?
    Answer. Runway Status Lights (RWSL) is a costly system because it 
involves cutting into runways and taxiways in order to install the 
field lighting system. In addition, the FAA must rely on the airport to 
make the runways and taxiways available for suitable lengths of time so 
that construction costs don't become unwieldy.
    At the time of the RWSL Final Investment Decision (FID) in January 
2010, based on the economic analysis, only 13 airports provided a 
positive net present value; however, 23 airports were selected based on 
the cumulative program net present value. Moving forward, FAA is 
focusing on getting positive net present value for each airport 
installation both for this program and other capital investments.
    In the time since the FID, the program experienced cost growth due 
to:
  --changes in construction methods to costlier techniques;
  --requests for additional light arrays;
  --limited runway and taxiway availability; and
  --additional development for supportability enhancements.
    Cost containment measures were taken to address the cost growth and 
an affordability analysis was initiated. The affordability analysis 
included implementation progress to date, funds spent to date, life 
cycle costs, and the benefit cost ratio.
    Taking into account all the relevant factors, the agency is 
considering a two-step approach to complete the deployment of RWSL. 
First, execute a plan to achieve operational status at the appropriate 
number of airports based on the affordability constraints and approved 
by the FAA Joint Resources Council. Second, develop a business case to 
address the remaining airports.
    Employing good business practices, the approach forward for the 
remaining airports will take advantage of all methods of reducing 
runway incursions targeted at the specific airport environment. The 
agency is institutionalizing a new process that will be inclusive of 
airport partners to develop a comprehensive plan that will include a 
combination of innovative non-technology and technology solutions 
tailored for each airport environment. In order to achieve this 
tailored approach, the FAA has chartered a Surface Safety Team to, 
along with stakeholders:
  --Evaluate the current set of surface technologies and risk 
        assessment capabilities;
  --Conduct additional risk analysis based on additional information 
        available through voluntary reporting systems and Aviation 
        Safety Information Analysis and Sharing (ASIAS);
  --Develop portfolios of solutions to address identified causal 
        factors; and,
  --Identify funding solutions, including conditions for PFC and Grant 
        eligibility, and cost sharing opportunities.
    This Surface Safety Team began its work in February and is expected 
to complete its work by December 2013.
                       787/aircraft certification
    Question. Given the size of the aviation industry in the United 
States, it is not possible for FAA employees to personally oversee 
everything that happens in the industry every day. To make the best use 
of its resources, the FAA has been moving to a risk-based approach. The 
agency has also taken advantage of employees who work in the aviation 
industry, but perform oversight work on behalf of the FAA. As part of 
its investigation into recent events with lithium batteries on the 787, 
the FAA has reviewed its own oversight of aircraft certification. What 
lessons has FAA learned from this review?
    Answer. As part of our certification processes, the FAA determines 
its level of involvement in a given aspect of the design based on a 
number of risk-based factors, including the safety criticality of the 
design feature, the clarity of the requirements and guidance, and the 
experience/competency level of the applicant and their delegation 
system. Our level of involvement is not an ``all-or-nothing'' 
proposition. Rather, we fine tune our participation to match the 
specific situation. In the case of the 787 lithium batteries, our 
experienced electrical engineers maintained a high level of 
involvement, even in those cases where the formal test witnessing and 
documentation sign-off was delegated to the Boeing organization. 
Overall, we believe our certification processes are sound and effective 
in supporting our safety objectives.
    There are two on-going 787 related activities we are involved with: 
National Transportation Safety Board (NTSB) investigation of the in-
service battery events; and 787 Special Review Team which is conducting 
a comprehensive review of the Boeing 787 critical systems, including 
design, manufacture, assembly and coordination activities between 
Boeing and 787 suppliers.
    We will carefully evaluate any recommendations from these 
activities with regard to further improvements to our overall 
certification processes and oversight methods.
                         aircraft certification
    Question. The aviation industry continues to grow and innovate. The 
FAA's highest priority must always be safety, but its oversight still 
has to keep up with industry--making sure that new products meet the 
same standards for safety, but not at the expense of unreasonable 
delay.
    What is the average time today to review and approve new proposals? 
Has this time increased or decreased in recent years?
    Answer. Certification projects involve multiple milestones spanning 
the time period from initial proposal through FAA approval. The 
duration of each project is unique, with some being as short as one 
week and others spanning 6-8 years.
    One area that has been a challenge for FAA has been the ability to 
take on numerous new projects. Since 2005, the FAA Aircraft 
Certification Service has used a process to prioritize the initiation 
of projects based on a number of considerations including the safety 
significance of the project, scope of the project and degree of FAA 
involvement.
    Section 312 of the FAA Modernization and Reform Act of 2012 
identified six areas for assessment and improvement. The FAA developed 
an implementation plan consisting of 14 initiatives to address the six 
areas. One of the initiatives seeks to improve the process and 
timeliness to initiate certification projects. The FAA developed the 
new process based on industry comments that better balances industry 
needs with FAA priorities and resources. The new process has been 
posted on the FAA Web site and the public comment period is open 
through July 2, 2013. Several industry representatives and associations 
have expressed favorable comments regarding the new process based on 
their initial review.
    Question. Given what you have learned with the 787, how do you see 
the FAA continuing to improve aircraft certification?
    Answer. While we believe our certification processes are effective 
in supporting our safety mission, we are always looking for ways to 
improve them. For that purpose, we plan to use the recommendations and 
lessons learned that will come from NTSB's investigation of the 787 
battery and the 787 Special Review Team.
    We believe any recommendations that come from these activities will 
strengthen the work that has been underway for several years within the 
Aircraft Certification Service to build a stronger, system-based 
approach to our certification, continued operational safety, and 
oversight processes. These efforts fully support the FAA commitment to 
develop and implement an overall Safety Management System.
    Question. The FAA Modernization and Reform Act of 2012 required the 
FAA to assess its certification process and report on the FAA's 
recommendations. That report was due 180 days after enactment. What is 
the status of this effort?
    Answer. The Aircraft Certification Process Review and Reform 
(ACPRR) Aviation Rulemaking Committee (ARC) submitted the following 
recommendations to the Director of Aircraft Certification on May 22, 
2012:
  1. Development of Comprehensive Means To Implement and Measure the 
        Effectiveness of Implementation and Benefits of Certification 
        Process Improvements;
  2. Enhanced Use of Delegation;
  3. Integrated Roadmap and Vision for Certification Process Reforms;
  4. Update Part 21 To Reflect a Systems Approach for Safety;
  5. Culture and Change Management; and
  6. Process Reforms and Efficiencies Needed for Other Aircraft 
        Certification Service (AIR) Functions.
    Recommendations from the ARC were included in a report provided to 
Congress on August 13, 2012. The FAA fully supports these 
recommendations and developed a comprehensive implementation plan 
consisting of 14 initiatives addressing each item. Implementation 
actions began in 2012, in advance of the act requirement to begin 
implementation no later than February 14, 2013.
    Question. Will you be able to make these improvements in time to 
develop the fiscal year 2015 budget request? Or even the fiscal year 
2016 budget request?
    Answer. The fiscal year 2015 budget request will use existing model 
formulas to forecast resource requirements. As we improve and revise 
the model for these labor challenges, these will be incorporated in the 
fiscal year 2016 request.
    For fiscal year 2016, the Flight Standards portion of the model 
will incorporate improvements that will provide more accurate staffing 
forecasts. The Aircraft Certification Service portion of the model does 
not require algorithm revisions for staffing forecast. Aviation Safety 
(AVS) will use December 2012 and 2013 Flight Standards Service (AFS) 
Staffing Tool and Reporting System (ASTARS) model data results to 
formulate our fiscal year 2015 and 2016 budget requests respectively.
                      performance-based navigation
    For the past couple of years, the FAA has been working on its 
metroplex initiative. This initiative brings teams of FAA employees to 
major airports across the country to work with local stakeholders and 
develop better procedures. These procedures rely on performance-based 
navigation, which means that each and every aircraft must be equipped 
with the right technology. Some of these avionics are more advanced and 
can take advantage of more precise procedures. The FAA has been 
developing these procedures for a long time, but with the metroplex 
initiative, the FAA has finally shown that it is placing a priority on 
procedures that will be used after these teams leave the airport. A key 
element of NextGen has been the idea that the best equipped aircraft 
will be able to take advantage of the best procedures. But to ensure 
that procedures are being used, they need to accessible to the largest 
number of aircraft.
    Question. Can the FAA develop procedures that will be used on a 
regular basis and also follow a policy of ``best equipped-best 
served''?
    Answer. The Federal Aviation Administration (FAA) has developed, 
published, and maintained over 20,812 conventional and Area Navigation 
(RNAV) Standard Instrument Approach Procedures (i.e., ILS/VOR/RNAV/RNP 
AR/WAAS/GLS), Standard Instrument Departures and Standard Terminal 
Arrivals, and 1,193 low and high altitude routes (i.e., Victor Airways, 
Jet Routes, Q, T, and TK) for use by users (i.e., airlines, business, 
general aviation, Department of Defense (DOD)) of the National Airspace 
System (NAS).
    These public procedures are available for use by all entities 
identified above, provided that aircraft are properly equipped and 
maintained, the aircrew is properly trained and certified, and the 
flight operations to be performed are authorized and conducted in 
accordance with various FAA directives and other documents, as 
appropriate.
    While these procedures are not segregated or developed in a manner 
that follows a policy of ``best equipped-best served'' per se, aircraft 
and aircrews that meet the aforementioned criteria can certainly take 
advantage of operational and economic benefits provided by more 
advanced Performance Based Navigation routes and procedures. This 
promotes the drive for greater investment in upgrades to flight 
planning capability, equipage and training on the user side, as the FAA 
continues to modernize the NAS through its efforts under NextGen.
    Question. Two years ago, FAA data showed a dramatic increase in 
operational errors made by its air traffic controllers. That year, the 
FAA had also been making changes in how such errors were reported, so 
FAA has never been able to determine how many of those errors were due 
to better data collection and how many were due to an actual increase 
in controller errors. But even today, the FAA has not been able to 
establish a new baseline that it can use to measure any improvement in 
its performance. When will the FAA be able to establish a baseline for 
operational errors?
    Answer. As a result of FAA improvements in reporting and monitoring 
systems during the last 2-plus years, the agency has indeed experienced 
a significant increase in the number of reported operational incidents. 
While the FAA cannot prove with 100 percent certainty that the entire 
increase in reporting is related to improvements in policy, procedures, 
and tools, those increases occurred concurrent to the deployment of 
those improvements and the likelihood of the associated increases is 
statistically high.
    Those new capabilities were implemented methodically throughout the 
National Airspace System beginning on January 30, 2012, and we are 
nearly finished with the implementation of all planned improvements. 
For example, the implementation of electronic radar monitoring in the 
terminal environment via the Traffic Analysis and Reporting Program 
(TARP) was rolled out from January to September 2012. The last program 
to be implemented is TARP for en route facilities which we began 
deploying in May 2013, and expect to be fully implemented by September 
2013.
    Best practices for performance measurement typically use 2 full 
years of good data to establish a new baseline; meaning that the FAA 
will have a new official baseline for Operational Incidents in October 
2015. However, by October 2014, the FAA expects to have 1 full year of 
full reporting and will establish new goals for the current System Risk 
Event Rate (SRER) metric.
    As part of its strategy to move beyond traditional reporting of one 
dimensional safety metrics, in 2011, the FAA introduced a new metric: 
the System Risk Event Rate (SRER). The SRER represents a move away from 
legacy safety indicators consisting of merely counting losses of 
separation and a move toward a metric that illuminates, with far 
greater precision, the frequency and rate of high-risk events across 
the NAS. The SRER is a 12-month rolling rate that compares the number 
of high-risk Risk Analysis Events (RAEs) with the total number of 
validated losses of standard separation that have occurred. As 
expected, the vast increase in reported safety data in 2012 has 
resulted in an increase in the overall number of events and RAEs 
reported. However, it is notable that even with a significantly greater 
number of recorded events and a higher number of reported RAEs, the 
total number of high-risk events has remained low.
                           retention bonuses
    Question. Please provide a table for fiscal year 2012, and another 
for fiscal year 2013, listing the title, office, and salary of each FAA 
employee that received a retention bonus during that year, as well as 
the amount of the retention bonus itself.
    Answer.

                                   FISCAL YEAR 2012 RETENTION INCENTIVES--FAA
----------------------------------------------------------------------------------------------------------------
                                                                                         Retention    Retention
               Organization                         Position title            Salary      percent       amount
----------------------------------------------------------------------------------------------------------------
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....      $85,356           10   \1\ $8,536
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       84,006           10    \1\ 8,401
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       86,037           10    \1\ 8,604
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....      106,684           10   \1\ 10,668
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       67,780           10    \1\ 6,778
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       85,356           10    \1\ 8,536
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       85,788           10    \1\ 8,579
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       42,319           10    \1\ 4,232
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC \2\.       43,589           10    \1\ 4,359
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AVIATION ASSISTANT...........       43,102           10    \1\ 4,310
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       84,006           10    \1\ 8,401
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  SUPV AIR TRAFFIC CONTROL SPEC      119,972           10   \1\ 11,997
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       89,879           10    \1\ 8,988
ATCT PORTLAND, ME.........................  AIR TRAFFIC CONTROL SPEC \2\.       89,879           20       17,976
HQ-AIR TRAFFIC ORG WASHINGTON, DC.........  DEPUTY CHIEF OPERATING             179,700        24.38       42,500
                                             OFFICER \3\.
HQ-HUMAN RESOURCE MGT WASHINGTON, DC......  SUPV HUMAN RESOURCES SPEC....      161,736           25       40,434
SSC NANTUCKET, MA.........................  AIRWAY TRANSP SYS SPEC.......      103,830           20   \1\ 20,766
SSC NANTUCKET, MA.........................  AIRWAY TRANSP SYS SPEC.......       79,026           20   \1\ 15,805
HQ-HUMAN RESOURCE MGT WASHINGTON, DC......  MGT & PROG ANALYST...........      141,735  ...........          \4\
----------------------------------------------------------------------------------------------------------------
\1\ Denotes continuation of a group incentive authorized to supplement the pay of employees at an
  extraordinarily high cost location (Nantucket Island) that is included in the ``Rest of U.S.'' locality pay
  area.
\2\ Denotes the same employee as row directly above this one--location changed or modified agreement.
\3\ Retired 9/30/12.
\4\ Denotes an incentive that was stopped upon expiration or review showing incentive no longer needed.


                                   FISCAL YEAR 2013 RETENTION INCENTIVES--FAA
----------------------------------------------------------------------------------------------------------------
                                                                                         Retention    Retention
               Organization                         Position title            Salary      percent       amount
----------------------------------------------------------------------------------------------------------------
ATCT NANTUCKET, MA........................  SUPV AIR TRAFFIC CONTROL SPEC      $90,478           10   \1\ $9,048
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       84,006           10    \1\ 8,401
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC \2\.       76,267  ...........      \1\ \3\
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       86,037           10    \1\ 8,604
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....      106,684           10   \1\ 10,668
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       20,324           10    \1\ 2,032
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       85,356           10    \1\ 8,536
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       85,788           10    \1\ 8,579
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       67,780           10    \1\ 6,778
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  MGT & PROGRAM ASSISTANT......       46,550           10    \1\ 4,655
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       84,006           10    \1\ 8,401
ATCT NANTUCKET, MA........................  AIR TRAFFIC CONTROL SPEC.....       76,267           10    \1\ 7,627
ATCT NANTUCKET, MA........................  SUPV AIR TRAFFIC CONTROL SPEC      119,972           10   \1\ 11,997
SSC NANTUCKET, MA.........................  AIRWAY TRANSP SYS SPEC.......      103,830           20   \1\ 20,766
SSC NANTUCKET, MA.........................  AIRWAY TRANSP SYS SPEC.......       79,026           20   \1\ 15,805
ATCT PROVIDENCE, RI.......................  AIR TRAFFIC CONTROL SPEC.....       83,375  ...........          \3\
TRACON CAPE, OTIS AFB, MA.................  AIR TRAFFIC CONTROL SPEC.....       87,753  ...........          \3\
HQ-HUMAN RESOURCE MGT WASHINGTON, DC......  SUPV HUMAN RESOURCES SPEC....      166,265           25   \4\ 41,566
----------------------------------------------------------------------------------------------------------------
\1\ Denotes continuation of a group incentive authorized to supplement the pay of employees at an
  extraordinarily high cost location (Nantucket Island) that is included in the ``Rest of U.S.'' locality pay
  area.
\2\ Denotes the same employee as row directly above this one--location changed or modified agreement.
\3\ Denotes an incentive that was stopped upon expiration or review showing incentive no longer needed.
\4\ Retention payments terminated 6/3/13.

    Question. Please describe the FAA's process for approving retention 
bonuses.
    Answer. An employee's manager may request a Retention Incentive 
when the employee has unique qualifications or there is a special need 
for the employee's services which makes it essential to retain the 
employee. The employee must be likely to leave the Federal service in 
the absence of a retention incentive and have a performance rating of 
acceptable. The employee must have completed a minimum of 1 year of 
continuous service with FAA, immediately prior to receiving the 
incentive, or have been employed by FAA for a period established under 
a service agreement resulting from the payment of a recruitment or 
relocation incentive, whichever is longer.
    The requesting office must complete an Authorization Request form. 
The form has the employee's position information, salary, requested 
amount, and other information required to process the incentive 
request. It also includes sections for narrative justification that are 
designed to present the business reasons for the incentive and to 
address the various factors prescribed by the Department of 
Transportation policy, Departmental Personnel Manual (DPM), chapter 
575, Recruitment, Relocation, and Retention Incentives. Finally, the 
form has a concurrence/approval section with signature blocks to 
facilitate the review and approval process.
    Along with the form, any supporting documentation that may be 
necessary to support the request is added to the package. This may 
include the employee's latest performance assessment, documentation of 
an outside job offer, or documentation of any other expression of the 
employee's intention to leave Federal service absent an incentive. The 
package will also usually include an FAA Retention Incentive Service 
Agreement that outlines the conditions that the employee must agree to 
while receiving the incentive, such as the payment method, agreement 
termination and repayment liability rules, and specific performance 
objectives that the Line of Business or Staff Office (LOB/SO) has 
identified to be achieved or maintained in exchange for the retention 
incentive.
    Requests are initiated by the employee's manager and forwarded 
through channels to the head of the employee's LOB/SO within the FAA. 
If the Head of the LOB/SO concurs, the request is forwarded for review 
by the servicing Human Resource Management Office to validate any 
staffing information outlined in the request and to ensure compliance 
with FAA policy. The request is then presented to the Assistant 
Administrator for Human Resource Management for concurrence.
    The FAA administrator considers the request as the Reviewing 
Official. Only requests approved by the FAA administrator are forwarded 
to the Department of Transportation, Office of the Secretary for 
consideration. At the Department, the request first goes to the 
Departmental Office of Human Resource Management (DOHRM) for technical 
review to ensure it meets the requirements outlined in DPM-575 and FAA 
policy. The DOHRM office forwards each request to the Assistant 
Secretary for Administration for consideration. When the requested 
incentive amount is 25 percent or less of the employee's basic salary 
rate times the number of years required by the service agreement, the 
Assistant Secretary for Administration makes the final decision and 
serves as the Approving Official. If the amount requested exceeds that 
25 percent amount, the request must be forwarded to the Deputy 
Secretary of Transportation for decision as the Final Approving 
Official.
    The DOHRM notifies the FAA's Assistant Administrator for Human 
Resource Management of the final decision.
                                 ______
                                 
            Questions Submitted by Senator Dianne Feinstein
                       unmanned aircraft systems
    Question. Under the 2012 Federal Aviation Administration (FAA) 
Modernization and Reform Act, the FAA is directed to develop a 
``comprehensive plan'' to integrate unmanned aircraft into the national 
airspace. The law sets a deadline for the integration of ``civil'' 
drones--those in private hands--by ``no later than September 30, 
2015.'' It also instructs the FAA to integrate ``public'' drones--those 
in Government hands--on an expedited basis.
    I believe the integration of drone technology poses serious privacy 
risks--especially the danger of unwanted surveillance of the 
individual.
    Will you assure this subcommittee that the FAA will work with other 
appropriate agencies and Congress to establish rules protecting 
Americans' privacy before drones are integrated into the national 
airspace?
    Answer. The FAA engaged our interagency partners (including the 
National Aeronautics and Space Administration (NASA), the Department of 
Defense (DOD), and the Department of Homeland Security (DHS)) and 
sought input in the development of the FAA proposed privacy approach 
for the Unmanned Aircraft Systems (UAS) test sites.
    The FAA is analyzing the public input received regarding its 
proposed approach to include terms and conditions in the ``other 
transaction agreement'' (OTA) that would, among other things, require 
operators to develop privacy policies and make them publicly available. 
By the end of July 2013, the FAA plans to finalize the terms to include 
in the OTAs with the test site operators. The FAA will continue to work 
with appropriate agencies on the issue of privacy protection.
                 unmanned aircraft systems test ranges
    Question. Under the 2012 FAA Modernization and Reform Act, the FAA 
is directed to select six ``test ranges'' for the integration of drones 
into the national airspace. These test ranges are supposed to help 
develop certification standards, air traffic requirements, and to 
provide for verification of the safety of unmanned aircraft before 
their integration into the national airspace.
    What specifically does the FAA plan to test at these test ranges?
    Answer. We will consider how well an applicant's research goals 
align with the overarching goal of safely integrating UAS into the 
National Airspace System. In order to be selected as a site operator, 
the applicant must have a sound research plan consistent with the 
minimum areas identified in the FAA Modernization and Reform Act of 
2012.
    Question. Where will these drones fly when they are being tested? 
Will they be flown over populated areas?
    Answer. The exact location of the test ranges will not be known 
until the six test sites are selected. However, the selection process 
takes into consideration the test site operator's ability to assure the 
safety of people and property on the ground. The Screening Information 
Request contains nine specific safeguards to protect persons and 
property that must be addressed by the applicants. The FAA plans to 
complete the test site selection process by the end of 2013.
    Question. How can we be sure that these drones will not interfere 
with manned aircraft traffic?
    Answer. The evaluation will assess the applicant's ability to 
protect the safety of manned aircraft operations in or near the test 
range. Only sites with sound methods for protecting the safety of 
manned aircraft and people and property on the ground will be selected. 
The sites will not be authorized to operate until the FAA evaluates and 
approves the safety system.
    Question. I assume these test ranges will not be placed in highly 
populated areas--where the issues of safety and privacy would be most 
acute. Is that correct?
    Answer. The exact location of the test ranges will not be known 
until the six test sites are selected. However the selection process 
takes into consideration the test site operator's ability to assure the 
safety of people and property on the ground. The Screening Information 
Request contains nine specific safeguards to protect persons and 
property that must be addressed by the applicants.
    Question. Sites all across the country, including two in 
California, are competing to be these ``test ranges.'' Press reports 
say there are as many as 50 applicants in 37 States. The solicitation 
document (``Screening Information Request'') includes a number of 
factors for the FAA to consider in deciding where to put these test 
sites. I am deeply concerned that it accords no weight to whether an 
applicant has a better approach to privacy. Instead, the FAA put out 
its own privacy document for notice and comment. This simply says that 
applicants will be required to have a ``privacy policy,'' without 
specifying what (if anything) that policy must contain.
    Why has privacy been omitted as a factor in choosing these test 
ranges?
    Answer. The selection criteria incorporate factors that Congress 
directed the FAA to consider in the FAA Modernization and Reform Act: 
geographic and climatic diversity, location of ground infrastructure, 
and research needs. In March 2012, the FAA published a request for 
comments in the Federal Register, and in April 2012, FAA hosted two 
public webinars to obtain public input on the FAA proposed selection 
criteria. Although there was substantial public participation, the FAA 
did not receive comments advocating that privacy should be used as a 
factor in choosing the test sites.
    Subsequently, the FAA determined that it should address privacy 
considerations at the six test sites. The FAA elected to do so by 
proposing that the test sites comply with all applicable privacy laws 
and policy that they establish privacy policies that are informed by 
Fair Information Practice Principles--an approach that has been 
successfully applied by Government agencies in other contexts.
    Question. The FAA has already amended its solicitation document--
most recently on March 20. Will FAA amend the solicitation again to 
make sure privacy is included as a factor in choosing the test sites? 
If not, why not?
    Answer. The FAA engaged our interagency partners (including NASA, 
DOD, and DHS) and sought public input in the development of the FAA 
proposed privacy approach for the UAS test sites.
    Rather than address privacy issues in the solicitation, each 
selected operator will be required to enter into an Other Transaction 
Agreement (OTA) with the FAA, which will set out the terms and 
conditions under which the entity will operate the UAS Test Site. The 
agreement will include a requirement for each operator to publish and 
comply with its privacy policy as it relates to the test sites.
    Question. You testified at the hearing: ``we're not in a position 
to make a determination of the content of the [privacy] plan, but what 
we would require is that [a test range] develop one, that they make it 
available to the public, and it is available for people to read and 
understand.'' Thus, according to your testimony, a privacy policy could 
essentially be devoid of content and still qualify. Why not--perhaps in 
consultation with the Federal Trade Commission or privacy advocates--
make sure that the privacy policies adopted by the test ranges are 
strong, not weak?
    Answer. FAA will require the site operator to develop a privacy 
policy that is informed by Fair Information Practice Principles.
    The FAA has required each test site operator to be a public 
(governmental) entity and to publicly post its privacy policy. This 
promotes transparency and allows local stakeholders to ensure that the 
public entity operating the site develops privacy policies that address 
local concerns. The FAA believes that a public entity will be 
responsive to local stakeholder concerns.
    Question. You testified at the hearing: ``privacy is not something 
Congress asked us to look at, nor is it something that the FAA has the 
authority to regulate.'' But the portion of the 2012 FAA Modernization 
and Reform Act directed at unmanned aircraft clearly recognizes that 
unmanned aircraft have unique attributes that demand separate 
attention. One of those attributes is the unique privacy risks they 
pose. The law directs FAA to develop a ``comprehensive plan to safely 
accelerate the integration of civil unmanned aircraft systems into the 
national airspace system,'' which will then form the basis for final 
regulations. A plan that is ``comprehensive'' would include the 
paramount issue of privacy. In addition, the law lists a variety of 
broadly-phrased issues (mostly related to safety) that must be 
accounted for in the plan--but it also clearly says that these are the 
absolute ``minimum'' of what the plan must contain. It does not prevent 
FAA from considering the issue of privacy. Finally, the FAA's approach 
to date seems inconsistent with your statement. So far, FAA has put out 
a privacy document for notice and comment with respect to the six test 
ranges. This is supposed to result in a privacy strategy incorporated 
into FAA's agreement with the test ranges that are selected. Is it 
truly FAA's view that it has no authority over the issue of privacy and 
unmanned aircraft?
    Answer. The FAA has authority in 49 U.S.C. 106(l)(6) to issue the 
site operators an ``other transaction agreement'' (OTA) that will 
contain the legally binding terms and conditions under which the entity 
will operate the UAS site. That statute provides, in pertinent part:

    ``The Administrator is authorized to enter into and perform such . 
. . other transactions as may be necessary to carry out the functions 
of the Administrator and the Administration. The Administrator may 
enter into such . . . other transactions with . . . any State, 
territory, or possession, or political subdivision thereof . . . on 
such terms and conditions as the Administrator may consider 
appropriate.''

    Due to the concerns relating to privacy at the test sites, the FAA 
has proposed including terms in each OTA that will require site 
operators to establish a privacy policy.
    Although the authority in 49 U.S.C. 106(l)(6) allows the FAA to set 
the terms under which the test sites will operate, it does not 
authorize the FAA to establish privacy policy for manned or unmanned 
aircraft operations generally.
          unmanned aircraft systems airworthiness certificates
    Question. There are many FAA regulations that apply to private 
aircraft, which are called ``civil aircraft'' under FAA regulations. 
These regulations include the requirement that a civil aircraft be 
certified as airworthy, as well as the requirement that a civil 
aircraft be operated by a licensed airman. However, a great many of 
these regulations do not apply to ``public aircraft''--meaning those 
operated by government agencies like a local police or fire department. 
Thus, FAA regulation of police and other public aircraft generally is 
quite limited. For example, as I understand it, public aircraft are not 
required to have FAA airworthiness certificates, and those who fly them 
are not required to have FAA airman certificates. This regulatory 
approach is especially problematic with respect to drones, which raise 
a whole host of safety and privacy issues that are not raised by 
ordinary manned aircraft. Section 334 of the 2012 FAA Modernization and 
Reform Act can be read to address this issue. It specifically provides 
the FAA with authority over ``public unmanned aircraft systems,'' 
meaning those operated by governmental agencies. It specifically 
directs the FAA to ``develop and implement operational and 
certification requirements for the operation of public unmanned 
aircraft systems.''
    Can you confirm that FAA intends to require (1) airworthiness 
certificates and (2) airman certificates with respect to the operation 
of civil unmanned aircraft?
    Answer. Acceptable standards for civil unmanned aircraft systems 
are under development in concert with the Radio Technical Commission 
for Aeronautics (RTCA) under the new special committee (SC) 228. 
Requirements for certificate of authorization/experimental category 
have already been published.
    Question. Will these requirements--in particular the airman 
certificate--be different for the operation of an unmanned aircraft, 
which in many respects is unlike an ordinary manned aircraft?
    Answer. The FAA will work with industry to develop standards for 
licensing civil pilots of unmanned aircraft. FAA is in the process of 
determining whether or not any regulatory changes are possibly needed.
    Question. Does FAA believe it possesses the authority to require an 
airworthiness certificate or an airman certificate with respect to 
public unmanned aircraft operations under section 334 of the 2012 act? 
If so, does FAA intend to use that authority?
    Answer. The FAA intends to comply with the provisions of the FAA 
Modernization and Reform Act's section 334 on Public Unmanned Aircraft 
Systems. The current regulatory structure requires public operators to 
make their own finding of compliance using their processes. FAA will 
issue guidance regarding a public entity's responsibility when 
operating an unmanned aircraft without a civil airworthiness 
certificate issued by the FAA. FAA is in the process of determining 
whether or not any regulatory changes are possibly needed.
  government accountability office report on unmanned aircraft systems
    Question. There remain serious concerns about whether drones can be 
safely integrated into the national airspace. I direct your attention 
to a September 2012 Government Accountability Office (GAO) report, 
which noted the following:

    ``GAO Reported in 2008 that UAS could not meet the aviation safety 
requirements developed for manned aircraft and that this posed several 
obstacles to safe and routine operation in the national airspace 
system. These obstacles still exist. . . .''

    The report, beginning at page 14, goes into detail about the 
serious issues that remain to be considered and addressed. As it notes: 
``To date, no suitable technology has been deployed that would provide 
UAS with the capability to sense and avoid other aircraft and airborne 
objects.''
    The report also cites other issues, including vulnerabilities in 
command and control, unreliable UAS performance, the issues created by 
the separation of pilot and aircraft, and the transition to Next 
Generation Air Transportation System (NextGen).
    Is there currently technology that would allow a drone to detect, 
sense, and avoid other aircraft?
    Answer. Air Force Research Labs and NASA have demonstrated new 
technologies that are capable of detecting proximate aircraft and 
avoiding them. A standard to allow the certification of these 
technologies is under development by RTCA. The schedule for completion 
of the standard is mid-2016.
    Question. How are the other issues discussed in the GAO report 
being addressed?
    Answer. The FAA has tasked RTCA to develop standards for radios 
used in command and control functions in the portion of the spectrum 
allocated to safety of life uses. These standards will address many of 
the issues identified in the GAO report and allow for civil aircraft 
certification. The radio standards are scheduled for mid-2016.
    Question. If sense-and-avoid technology is not in place and other 
safety issues highlighted by GAO are not addressed, would FAA 
nevertheless proceed with full integration of UAS into the national 
airspace system?
    Answer. The primary mission of the FAA is safety. The FAA will only 
proceed with integration of UAS once safety issues have been 
appropriately addressed.
                              armed drones
    Question. The question of armed drones has, as you may know, gotten 
a great deal of attention in Congress lately. One issue that appears 
unsettled is whether current FAA regulations prohibit the arming of a 
civilian aircraft, including a drone. Under FAA regulations, 14 CFR 
section 91.15: ``No pilot in command of a civil aircraft may allow any 
object to be dropped from that aircraft in flight that creates a hazard 
to persons or property. However, this section does not prohibit the 
dropping of any object if reasonable precautions are taken to avoid 
injury or damage to persons or property.''
    This regulation has been cited as authority for the point that FAA 
would not allow a civil unmanned aircraft to have a weapon affixed to 
it. Is this correct?
    Answer. FAA Regulation 14 CFR section 91.15 is used to determine 
the safety of installed equipment. This regulation currently prohibits 
the use of weapons on an aircraft.
    Question. Will FAA be more explicit in regulations that civil 
unmanned aircraft may not have weapons affixed to them?
    Answer. FAA Regulation 14 CFR section 91.15 is used to determine 
the safety of installed equipment. This regulation prohibits the use of 
weapons on an aircraft. However, FAA continues to evaluate whether or 
not regulatory changes are needed.
                       grants-in-aid for airports
    Question. The FAA's Grants-in-Aid for Airports, or the Airport 
Improvement Program (AIP), is the primary FAA program investing in 
runways, taxiways, and airport infrastructure. In fiscal year 2012, 
Congress appropriated $3.35 billion. The President's budget proposes to 
cut this to $2.9 billion.
    The needs of our commercial airports substantially outpace these 
resources. But a disproportionate amount of this program's funding (25-
35 percent) is spent at airports without any commercial service on 
which almost all Americans travelers depend.
    25 to 35 percent is spent at noncommercial airports even though 
noncommercial aviation fuel taxes account for about 1 percent of the 
total Airport and Airway trust fund revenues each year.
    Unfortunately, the FAA's fiscal year 2014 budget proposes to 
prioritize airports without commercial service for Airport Improvement 
Program funds. The budget proposes that large hub airports cover their 
infrastructure costs by raising passenger facilities charges.
    Is it fair that only 65-75 percent of AIP funding is spent at 
airports with commercial service when commercial aircraft account for 
99 percent of revenue to the Airport and Airway Trust Fund?
    Answer. This is fundamental to the safety, efficiency and 
sustainability of the air transportation system. The perceived 
disparity between the source of Trust Fund revenues and the types of 
facilities it supports reflects the fundamental structure of the 
overall U.S. system of airports. Since the early 1900s, Federal policy 
has determined it is in the public interest to support a nationally 
integrated aviation system citing the benefits derived from maintaining 
a diverse geographic network of airports. Such a system facilitates 
rural and remote access, supports military and law enforcement needs, 
expedites emergency and disaster response, and ensures the timely 
transport and delivery of commercial goods. Moreover, many of the 
smaller, non-commercial facilities provide alternatives to airports 
handling commercial passengers, thereby reducing congestion and delay 
at commercial service airports. The functions supported by these 
smaller airports are critical. In 2012, the FAA published a study 
outlining a broad range of critical roles and functions the smaller 
airports serve, from basic access to flight training, emergency 
response, agricultural support, aerial firefighting, and many others.
    The larger commercial airports, especially large hub airports, have 
access to other means of capital, including, airport bonds and 
passenger facility charges (PFCs), not available to the smaller 
airports.
    For more than 30 years, the Airport Improvement Program (AIP) has 
helped State and local governments plan, develop, improve, and maintain 
a broad-based system of integrated airport facilities. The AIP provides 
capital funding to support 3,330 public use airports, heliports, 
seaplane bases, and landing areas included in the federally-mandated 
National Plan of Integrated Airport Systems (NPIAS).
    Question. Would the FAA support a provision requiring that at least 
75 percent of Airport Improvement Program Funding be spent at 
commercial airports?
    Answer. The FAA does not support either limiting the number of 
airports funded or the reducing the minimum level of funding provided 
to airports that are classified as non-commercial service airports.
    Question. Which investment is likely to benefit the greatest number 
of Americans: improving airports with commercial service or improving 
airports without any commercial service?
    Answer. The national integrated system needs to be maintained as a 
whole, with both categories of airports (commercial and non-commercial) 
able to meet the needs of the users that rely upon them, both directly 
and indirectly. While people are most familiar with the commercial air 
travel benefits offered at the 511 commercial service airports in the 
United States, nearly 3,000 smaller general aviation airports form an 
extensive airport network and make important social and economic 
contributions to society. In 2009, non-airline operators at general 
aviation airports flew an estimated 27 million flights for emergency 
medical services, aerial fire-fighting, law enforcement and border 
control, agricultural functions, flight training, time-sensitive air 
cargo services, search and rescue, and business travel. Many of these 
functions cannot be safely, efficiently, or economically supported at 
larger commercial service airports.
    In addition to providing unique general aviation benefits, non-
commercial service airports provide a critical safety and efficiency 
complement to commercial service airports. Because of their sheer 
number and geographic distribution, general aviation airports provide a 
safety net to support commercial operators in the event of emergency 
aircraft diversions, medical emergencies, deteriorating weather 
conditions, or mechanical failures. In high-density metropolitan areas, 
general aviation airports act as ``relievers'' for congested commercial 
service airports by supporting high-volume activity by smaller and 
slower aircraft.
    In summary, it is crucial to our national life and economy that we 
continue to support both commercial-service and general aviation 
airports. The Airport Improvement Program has evolved over more than 30 
years to achieve precisely that goal.
                            helicopter noise
    Question. The fiscal year 2013 Senate Transportation, Housing and 
Urban Development, and Related Agencies (THUD) report stated: ``The 
Committee recognizes that the use of helicopters in Los Angeles County 
produces quality of life and safety impacts, prompting requests for FAA 
action. The Committee directs the FAA to solicit the views of 
interested parties, including representatives of local communities, 
regarding helicopter noise and safety issues in Los Angeles County no 
later than 90 days after the enactment of this act. The committee 
further directs the FAA to lead a collaborative effort with community 
representatives, elected officials, helicopter operators, and other 
affected interests to: (1) identify specific concerns with helicopter 
operations, including noise; (2) evaluate options that would respond to 
identified concerns including, but not limited to routes, operating 
altitudes, and hovering practices; and (3) develop solutions to the 
identified issues consistent with the FAA's statutory responsibilities. 
Potential solutions should not restrict helicopter operations needed 
for emergency, law enforcement, or military purposes. The committee 
directs the FAA to submit a report to the House and Senate 
Appropriations Committee within 12 months of enactment of this act 
regarding the helicopter concerns in Los Angeles County that have been 
identified, the progress in addressing these concerns including reasons 
why some measures were not retained for further study, and the 
mechanisms for implementing measures and monitoring their continuing 
effectiveness.'' In response, FAA Regional Administrator Bill 
Withycombe has held public hearings and is studying the problem. He has 
committed to releasing a report in May 2013 evaluating a full set of 
voluntary and regulatory options to reduce helicopter noise and address 
safety issues. The report is a necessary first step. But it must be 
followed by effective regulations.
    During the hearing, we were able to discuss this. You indicated 
that ``non-regulatory'' approaches to this problem were preferable 
because they could be implemented more quickly. However, I am very 
concerned that voluntary efforts are less effective than regulatory 
approaches. For instance, on Long Island, New York, FAA established 
voluntary routes for helicopters in 2008 without success. The FAA 
finally completed regulations imposing mandatory routes in 2012.
    If past voluntary efforts to curb helicopter noise above both Los 
Angeles and Long Island failed, why does the FAA believe that ``non-
regulatory'' options will succeed above Los Angeles as a result of this 
latest effort?
    Answer. The FAA has had decades of success with fixed-wing 
aircraft, voluntary noise abatement measures that can be applied to 
noise abatement measures for helicopters. The FAA does not regard the 
voluntary efforts in New York or Los Angeles as a failure. In fact, the 
voluntary route along the north shore of Long Island, which was 
developed with input from local helicopter operators and airports, 
reportedly had a high rate of compliance and formed the basis for the 
regulation adopted last year.
    In contrast with the north shore of Long Island, the density of 
land use and the diversity of helicopter activity in Los Angeles make 
it difficult to identify noise abatement routes that would avoid 
residential areas. Some efforts to revise Visual Flight Rules (VFR) 
helicopter approach and departure tracks for Los Angeles-area airports 
to minimize noise have not yet produced feasible noise abatement 
routes. This reflects the challenges of safely routing aircraft in an 
urbanized environment rather than a failure of the collaborative 
process used to develop routes. These challenges make it more important 
to fully engage both the residents and helicopter operators in 
addressing noise issues in Los Angeles.
    A significant positive development of the current Los Angeles 
Helicopter Noise Initiative is that it has brought together community 
representatives and helicopter operators to consider, in conjunction 
with the FAA, specific noise-sensitive locations and helicopter 
operating practices that contribute to noise concerns on a regional 
scale. The group is committed to identifying measures that will provide 
noise relief without degrading safety or eroding business 
opportunities. This initiative has already identified targeted measures 
that can provide noise relief to residents. The FAA recommends the 
continued engagement of a robust local process and is prepared to 
support such a process to pursue remedies that will reduce helicopter 
noise, are responsive to community quality-of-life and economic 
interests, and are consistent with National Airspace System safety and 
efficiency.
    Question. Which approach to helicopter noise is most likely to 
reduce noise disturbance on the ground: regulatory or non-regulatory 
options?
    Answer. Success in reducing noise on the ground is directly related 
to the availability of effective noise abatement procedures, rather 
than the implementation mechanism. If a procedure can be designed to 
minimize noise impacts on residential or other noise-sensitive areas, a 
non-regulatory approach can provide just as much noise relief as a 
regulatory approach.
    The most effective and widely-accepted noise abatement measures are 
those that are developed in collaboration with stakeholders and are 
supported by local consensus. The FAA's experience is that voluntary 
noise abatement procedures have a high degree of compliance when 
operators can use them safely and efficiently. The current Los Angeles 
Helicopter Noise Initiative identifies actions and flexible approaches 
that offer the best opportunity to address helicopter noise issues 
within the Los Angeles County.
                                 ______
                                 
           Questions Submitted by Senator Frank R. Lautenberg
                    furloughs' impacts on facilities
    Question. The airspace over New Jersey is among the most congested 
in the country, with Newark Liberty Airport serving more than 33 
million passengers each year. The Federal Aviation Administration (FAA) 
has said it intends to apply sequestration in a way that prioritizes 
safety and impacts the fewest air travelers. I have long been concerned 
with the understaffing of air traffic controllers at Newark Liberty and 
I am concerned the sequestration-imposed air traffic controller 
furloughs will disproportionately impact this airport.
    In applying furloughs for air traffic controllers, did you account 
for the additional impact on facilities that are already understaffed 
prior to sequestration, such as the Newark Liberty tower?
    Answer. Yes. Individual facilities were able to determine how best 
to implement the furloughs to minimize disruption based on their shift 
scheduling and staffing requirements.
    Question. Newark Liberty has the highest washout rate of any air 
traffic tower in the country, so it recently had a simulator installed 
to help trainee performance. Will furloughs impact training time on the 
simulator?
    Answer. The funding relief provided by the Reducing Flight Delays 
Act of 2013 will enable the restoration of key support activities, 
including training simulation at Newark Liberty.
                      operations in newark airport
    Question. The fiscal year 2014 budget request proposes to transfer 
the responsibility for staffing the exit lanes adjacent to passenger 
screening checkpoints from the Transportation Security Administration 
(TSA) to commercial airport authorities. This issue is of particular 
concern to me because Newark Airport has seen numerous security 
breaches over the past few years. In 2010, a man breached an exit lane 
at Newark Airport without being screened and shut down the airport for 
more than 6 hours, affecting 16,000 passengers around the world.
    What impact could this transfer have on airport budgets and other 
operations funded by airports?
    Answer. The Transportation Security Administration determines the 
staffing levels, qualifications, and operational requirements necessary 
to meet Federal standards for airport exit lane staffing. TSA would be 
in the best position to quantify the operational and other related 
costs airports would assume in order to comply with TSA requirements. 
The FAA would not be in a position to determine the impacts of such 
decisions on a specific airport's operating budget.
    Question. What challenges would this transfer in responsibility 
present to Newark Airport and Atlantic City Airport?
    Answer. The TSA and operators of Newark Airport and Atlantic City 
are in the best position to provide specific details on the costs, 
personnel, and related operating expenses that would result from the 
transfer of specific TSA operations to the airport operator.
                     remote highjacking of aircraft
    Question. A German security consultant recently claimed to have 
developed technology that could be used to remotely hijack an airplane, 
alleging that current security systems do not have adequate 
authentication methods to ensure commands are from a legitimate source. 
The FAA released a statement saying it is aware of this claim and has 
said it does not pose a threat on actual commercial flights.
    What steps has the FAA taken to determine and ensure this is not a 
problem on commercial flights?
    Answer. The FAA along with Honeywell, the U.S. manufacturer of the 
system that was allegedly threatened, worked together to investigate 
the technical threat immediately after learning about the allegation. 
Honeywell quickly discerned and verified the methods and tools the 
hacker used to create the experiment. The theoretical threat was based 
entirely within a training system that runs on a desktop personal 
computer (PC) whose hardware and software differed significantly from 
actual aircraft equipment. A later version of the consultant's 
experiment, which appeared in media coverage, used a mobile phone 
application to communicate with his desktop PC. None of the experiments 
involved communication with an actual airplane.
    The FAA determined that the hacking technique described during the 
recent computer security conference does not pose a flight safety 
concern because it does not work on any actual, certified aircraft 
hardware or software.
    Question. When did the FAA become aware of this application?
    Answer. The FAA first learned of the alleged threat on March 22, 
2013, when the security consultant was preparing a briefing for a 
computing conference in Amsterdam, the Netherlands. Our investigation 
was completed before the conference began. Honeywell, the European 
Aviation Safety Authority, and the German Police made the consultant 
aware of the deficiencies in his allegations before the conference. The 
consultant chose nevertheless to deliver his presentation on April 8, 
2013.
    Question. Will you commit to reviewing the potential threat and 
updating me on steps being taken to address any deficiencies in our 
security systems that could leave an aircraft open to an attack of this 
nature?
    Answer. We have reviewed the threat, determined it to be false, 
and, as a result, plan no further action at this time. The FAA provided 
this information to foreign civil aviation authorities and to the 
public in press releases. Our investigation, using all information 
available to us from the consultant and from Honeywell, has been 
completed to our satisfaction, with no credible threat found. The 
German consultant promised to provide more information to the FAA and 
Honeywell in support of his claim, but none has been received.
    Question. Are current laws, specifically on cyber security, 
sufficient to address the nature of this threat?
    Answer. The FAA believes current laws are sufficient to address the 
nature of this threat. Aircraft certification regulations under title 
14 Code of Federal Regulations, including special conditions we levy on 
new aircraft programs which use networked or accessible computing 
systems, require aircraft manufacturers to design security features 
into their on-board systems. Numerous other Federal laws, outside the 
scope of our certification mandate, would forbid and impose punishments 
for the act by a hacker of attempting an attack against an aircraft.
                       contract weather observers
    Question. Major airports, such as Newark Liberty, are required to 
employ certified contract weather observers to ensure the accuracy of 
weather reports provided to the airlines and the public. Due to 
sequestration, we have heard concerns that the FAA may consider closing 
down the contract weather observation program and transferring the 
observation responsibilities to air traffic controllers.
    Is the FAA proposing to eliminate the contract weather observation 
program?
    Answer. The fiscal year 2014 President's budget request includes 
sufficient funding to continue the contract weather observation 
program.
    Question. If so, what would be the impact of transferring weather 
observing responsibilities to air traffic controllers? Specifically, 
what would the implications be at Newark Airport, given that the Newark 
air traffic control tower is already understaffed?
    Answer. The fiscal year 2014 President's budget request includes 
sufficient funding to continue the contract weather observation 
program.
               next generation air transportation system
    Question. To upgrade the air traffic control system, the FAA is 
implementing the Next Generation Air Transportation System (NextGen) to 
reduce gridlock, delays, and safety concerns through a satellite-based 
system. The William J. Hughes Technical Center in New Jersey--the 
Nation's premier facility for aviation research, development, and 
testing--currently conducts NextGen research.
    How will NextGen research and implementation be impacted by the 
fiscal year 2014 budget?
    Answer. The fiscal year 2014 NextGen investment portfolio totals 
$1.002 billion, of which $928.1 million is allocated to Facilities and 
Equipment (F&E), $61.4 million to Research, Engineering and Development 
(RE&D), and $12.6 million to Operations activities.
    The fiscal year 2014 NextGen F&E budget request is $928.1 million, 
an increase of $65.3 million above the fiscal year 2012 enacted level. 
This level of F&E program funding enables the agency to continue 
support of near-term NextGen commitments. The funding allows the 
migration of pre-implementation activities from NextGen-Reduced Weather 
Impact solution set into an implementation program beginning in fiscal 
year 2014.
    The fiscal year 2014 NextGen RE&D budget request is $61.4 million, 
an increase of $1.7 million above the fiscal year 2012 enacted level. 
This allows us to continue the progress we've made in NextGen-specific 
research into wake turbulence, human factors, and clean aircraft 
technologies.
    The fiscal year 2014 NextGen Operations budget request is $12.6 
million; an increase of $0.2 million above the fiscal year 2012 enacted 
level. This level of Operations activities continue to support the 
dedicated full-time equivalents (FTEs) required to implement NextGen.
    The NextGen investment portfolio enables the implementation of 
Performance Based Navigation (PBN) procedures. The PBN is an aircraft 
navigation capability which allow for greater operational flexibility. 
An example is reducing the environmental footprint of greenhouse gas 
emissions and noise created by the aviation industry.
    Finally, the FAA NextGen capabilities continue to provide 
significant improvement to the aviation industry; such as:
  --System Wide Information Management (SWIM).--Allows operators to 
        make better-informed decisions that improve their efficiency. 
        This capability has been demonstrated by receiving surface 
        movement data through this single portal at 19 external 
        consumers.
  --Automatic Dependent Surveillance-Broadcast (ADS-B).--Transform the 
        Nation's air traffic system by utilizing global satellites to 
        provide more precise location data. This capability has been 
        demonstrated by supporting surface advisory services at 24 
        airports.
                                 ______
                                 
                Questions Submitted by Senator Mark Kirk
                            contract towers
    Question. The Federal Aviation Administration (FAA or 
Administration) issued an appeals process for contract towers slated 
for closure and established four criteria for national security 
concerns that the FAA would evaluate.
    Did the Administration rank all the appeals in order of national 
security importance? If not, how were decisions made regarding what met 
the FAA's criteria? If they were ranked, please provide the list of 
airports and towers in order of national security interest priority for 
all airports that appealed the closure decision.
    Answer. The FAA did not rank the airports by order of national 
security. The FAA considered all of the input provided by the 
Department of Defense (DOD) and other agencies during the review 
process. FAA coordinated with the DOD, and the DOD provided FAA with 
feedback on their top priorities. In addition, the FAA coordinated with 
the Transportation Security Administration (TSA), the United States 
Coast Guard (USCG), the United States Secret Service (USSS), the 
Federal Bureau of Investigation (FBI) and the U.S. Marshal Service.
    Question. Did FAA conduct a separate and distinct safety management 
assessment for each impacted contract tower prior to the closure 
announcements?
    Answer. The FAA conducted a safety assessment for each tower prior 
to implementation of any proposed change as required by FAA 
regulations. In accordance with Air Traffic Organization (ATO) Order JO 
1000.37, the Air Traffic Organization Safety Management System, and the 
Air Traffic Organization Safety Management System Manual (SMS Manual): 
all proposed changes to the National Airspace System (NAS) require 
Safety Risk Management (SRM) evaluation. SRM is broadly applied to 
changes that may affect the NAS to ``ensure that hazards are identified 
and unacceptable risk is mitigated and accepted prior to the change.''
    This includes ``any change to or modification of airspace; 
airports; aircraft; pilots; air navigation facilities; air traffic 
control (ATC) facilities; communication, surveillance, navigation and 
supporting technologies and systems; operating rules, regulations, 
policies, and procedures; and the people who implement, sustain, or 
operate the system components.''
    The level at which an SRM is conducted varies by organization, 
change proponent and/or type of change. In some cases, SRM Panels will 
perform SRM at the national level, and in other cases, SRM Panels will 
perform SRM at the service area or local level. There are five phases 
of a SRM safety analysis, which culminates in a Safety Risk Management 
Document (SRMD). A SRMD describes the safety analysis for a proposed 
change and documents the evidence to support whether the proposed 
change is acceptable from a safety risk perspective. The SRMD is 
intended to enable the relevant management officials to understand the 
proposed change, its associated risks, and corrective steps taken (or 
proposed) to reduce the initial and subsequent residual risks to an 
acceptable level.
    Prior to the decision or announcement to withdraw funds from 
Federal contract towers, subject matter experts (SME) from the Air 
Traffic Organization (ATO) and other FAA offices, namely Flight 
Standards and Airports, conducted a thorough review of the safety 
implications and determined that the FAA had adequate and long-standing 
controls to address the risk associated with the potential closure of 
towers and the transfer of airspace among facilities. In fact, all but 
one of the identified towers close for several hours each day; so, the 
FAA was assured that any potential closure or airspace transfer 
procedures and processes are exercised daily; although a permanent 
closure might require additional planning requirements. Additionally, 
there are approximately 5,000 non-towered public use airports in the 
United States with daily operations; which validates the safety of 
those environments.
    Following the determination that sufficient and long-standing 
safety standards and processes exist to operate at both towered and 
non-towered environments, ATO convened an SRM Panel from April 2-4, to 
ensure that stakeholders had an opportunity to address hazards and/or 
potential mitigations assuming a worst case scenario where all 149 
towers would close and transition to non-towered operations; and, to 
develop additional risk controls and, if needed, implement them before 
any tower closures.
    Question. Why did the FAA choose to cut specific towers completely 
from the program instead of reducing contract support for the entire 
program?
    Answer. The FAA guiding principle, as we planned for sequester, was 
to minimize the impact to the greatest numbers of passengers. 
Therefore, initial plans impact smaller, lower activity locations more 
significantly than locations serving larger blocks of passengers. The 
criteria used identified towers that had less than 150,000 total 
operations and 10,000 commercial operations annually.
                         sequester coordination
    Question. You have obviously been working on a sequestration plan 
for some time and have known the potential impacts have a cascading 
effect. Air travel is a joint effort between several agencies including 
FAA, TSA and Customs.
    Given your travel prognosis, what type of coordination have you 
done with TSA and Customs?
    Answer. As part of sequestration planning efforts, numerous 
operational components of the FAA, TSA, and Customs and Border 
Protection (CBP) participated in several interagency telecons to 
discuss possible trans-agency impacts and mitigation strategies. 
Additionally, there was frequent contact between the FAA, TSA, and CBP 
at the managerial and executive levels to exchange information and 
discuss ways to synchronize mitigation efforts.
    Question. If no coordination occurred, why didn't the 
Administration work out a strategy in advance? There have been several 
weeks of lead-up to this situation; why would you wait until the last 
minute to release your plan to the industry and Congress?
    Answer. As we have planned for and implemented measures to achieve 
the mandatory sequester reductions, we have consistently shared the 
potential impact that sequester could have on the National Airspace 
System with Congress, the aviation sector, our employees, and the 
traveling public. As early as February, we advised that we expected the 
automatic cuts to have a significant adverse impact on the aviation 
system and air travelers. We urged our stakeholders to work with us to 
minimize these impacts to the extent possible. Our outreach included 
written communications, congressional briefings, meetings, and 
testimony on Capitol Hill.
                                 ______
                                 
              Questions Submitted by Senator John Boozman
                   general aviation alternative fuels
    Question. The administration included funding in the fiscal year 
2014 budget for an Alternative Fuels for General Aviation program that 
seeks to move the work of the Federal Aviation Administration (FAA) and 
industry from research to a phase focused on coordinating and 
facilitating the fleet-wide evaluation, certification and deployment of 
an unleaded fuel in piston engine aircraft. Why is this program 
important?
    Answer. The intent of this initiative is to implement an unleaded 
fuel for piston-powered aircraft engines to replace the current leaded 
aviation gasoline (avgas) 100 low lead (100LL). The continuation of FAA 
research is necessary to test, identify, and approve a replacement fuel 
that can be safely used by as much of the existing fleet of aircraft as 
possible. This program is important for human health impacts, fuel 
security, and the continued viability of the general aviation 
community.
    Aviation gasoline (avgas) is a vital element of the piston engine 
aircraft safety system. Approximately 167,000 aircraft in the United 
States and 230,000 worldwide rely on 100LL avgas for safe operation. 
100LL is the only remaining transportation fuel that contains the 
additive tetraethyl lead (TEL). TEL has been used as an avgas additive 
for decades to create the high octane levels required to prevent 
detonation (engine knock) in high power aircraft engines. Operation 
with inadequate fuel octane can result in engine failure in flight and 
aircraft accidents.
    The U.S. Environmental Protection Agency (EPA) is currently 
evaluating the health and environmental impacts of lead emissions from 
aircraft, and has identified that general aviation contributes to 
possible violations of ambient air quality lead standards. Petitions 
and litigation from environmental organizations have called for the EPA 
to consider regulatory actions to eliminate or reduce lead emissions 
from aircraft. These activities raise concerns about the continued 
availability and use of leaded avgas.
    Equipment manufacturers, owners and aircraft operators fear that 
the uncertainty about the future availability of a safe fuel for their 
airplanes is affecting the value of existing aircraft, impacting new 
aircraft development, and affecting the growth of the general aviation 
market. In response to the rapidly increasing concerns expressed by the 
general aviation community regarding the continued availability of 
100LL, the Unleaded AVGAS Transition Aviation Rulemaking Committee (UAT 
ARC) was chartered on January 31, 2011, by the Federal Aviation 
Administration (FAA) Administrator. The final report of the UAT ARC can 
be found on the FAA Avgas Web site at the following URL: http://
www.faa.gov/about/initiatives/avgas/ in the Archived Articles section.
    The UAT ARC recommended that the FAA collaborate with industry to 
establish an unleaded avgas testing and evaluation program that would 
facilitate the development, approval and deployment of a replacement 
fuel for 100LL that would have the least possible impact on the 
existing fleet of aircraft. It was recommended that this program rely 
on the vast experience of the FAA William J. Hughes Technical Center to 
perform this testing. The research to be conducted at this facility 
will shift from developing a drop-in unleaded fuel to testing and 
identifying the best possible replacement unleaded fuel.
    In addition, section 910 of the 2012 FAA Modernization and Reform 
Act specifies Research, Engineering and Development (RE&D) requirements 
to facilitate the transition to unleaded avgas. The FAA has developed a 
plan to implement the recommendations of the UAT ARC and will integrate 
the fuel evaluation and testing program with the requirements of 
section 910.
    Finding a safe, high octane unleaded replacement for leaded avgas 
is an ongoing technical challenge that can benefit greatly from 
continued FAA research. Piston engine aircraft are used for many 
purposes including business and personal travel, aerial surveys, 
agriculture, firefighting, law enforcement, medical emergencies, 
express freight, and instructional flying. The collective, continued 
service of piston engine aircraft in an operationally safe manner is 
essential. This program, to develop and promote an unleaded replacement 
avgas, will address environmental concerns associated with leaded fuels 
and provide a safe option for the general aviation industry.
                         certification process
    Question. In the last FAA reauthorization, Congress included 
language to identify some needed reforms in the certification process. 
These reforms would focus FAA resources more effectively on safety 
critical activities and also begin to address the certification backlog 
that threatens the competitiveness of the U.S. aviation industry.
    Are you moving forward with implementation of these reforms?
    Answer. Yes. The Aircraft Certification Service (AIR) developed an 
implementation plan, issued on August 13, 2012, to address the reforms 
identified in section 312 of the FAA Modernization and Reform Act of 
2012. The implementation plan addresses each of the six recommendations 
developed from an industry and FAA assessment of the existing 
certification and approval processes. As individual projects or 
improvements from the implementation plan are completed, we will 
measure how effective the change was in addressing specific goals. This 
will allow us to iterate the process to continue the improvement until 
the goal has been fully met.
    Question. What is the most challenging aspect of these 
improvements?
    Answer. The Aircraft Certification Process Review and Reform 
(ACPRR) Aviation Rulemaking Committee (ARC) submitted the following 
recommendations to the Director of Aircraft Certification on May 22, 
2012:
  1. Development of Comprehensive Means To Implement and Measure the 
        Effectiveness of Implementation and Benefits of Certification 
        Process Improvements;
  2. Enhanced Use of Delegation;
  3. Integrated Roadmap and Vision for Certification Process Reforms;
  4. Update Part 21 To Reflect a Systems Approach for Safety;
  5. Culture and Change Management; and
  6. Process Reforms and Efficiencies Needed for Other Aircraft 
        Certification Service (AIR) Functions.
    Recommendations from the ARC were included in a report provided to 
Congress on August 13, 2012. The FAA fully supports these 
recommendations and developed a comprehensive implementation plan 
consisting of 14 initiatives addressing each item. Implementation 
actions began in 2012, in advance of the act requirement to begin 
implementation no later than February 14, 2013.
    There are two large and comprehensive rulemaking projects to update 
part 21 and reorganize part 23. These are multi-year projects that 
require extensive coordination within the Government and with industry. 
Another challenge is to streamline the adoption of airworthiness 
directives issued by other civil airworthiness authorities. This 
initiative includes an evaluation of statutory impediments.
    Question. Do you have the resources to manage these changes?
    Answer. In fiscal year 2013 we have allocated sufficient resources 
to initiate certification process reforms. The 2014 budget request also 
fully supports this work. However, this is a difficult budgetary 
environment. In fiscal year 2013 under sequestration, we instituted a 
hiring freeze for FAA beginning March 1. Staffing levels can impact 
progress on our implementation plan, and as a result we are closely 
monitoring attrition and overall staffing levels.
                            contract towers
    Question. Congress recently enacted legislation giving the FAA 
flexibility to: (1) end furloughs that threaten to disrupt our economy 
and destroy jobs that depend on air travel; and (2) prevent the planned 
closure of 149 contract towers.
    When will you announce your plan to carry out the clear, 
unambiguous intent of Congress and forestall the planned closure of 149 
towers that had been schedule to start on June 15, 2013?
    Answer. Secretary LaHood announced on Friday, May 10, 2013, that 
the Department of Transportation (DOT) has determined that the recently 
enacted Reducing Flight Delays Act of 2013 will allow the FAA to 
transfer sufficient funds to end employee furloughs and keep the 149 
low-activity contract towers, originally slated for closure in June, 
open for the remainder of fiscal year 2013.
      business aviation and general aviation--economic impact and 
                             opportunities
    Question. Aviation manufacturing and businesses that utilize 
general aviation (GA) are critical to economic opportunity in Arkansas 
and across our country. General aviation pumps more than $1 billion 
into the Arkansas economy every year, and our State is a proud home to 
large and small manufacturers that serve the general aviation sector, 
as well as other businesses that service and/or rely on GA aircraft. 
Our country is a leader in aviation manufacturing and technology, and 
this sector provides tremendous opportunities for growth and export. GA 
is a diverse sector that includes medical transport, business aviation, 
agricultural aviation, search and rescue, recreational flying, aerial 
firefighting, air charter, bush flying, and a variety of other 
activities.
    I remain concerned about political rhetoric that castigates 
business aviation and general aviation to score cheap political points. 
Do you believe that business aviation is essential to economic strength 
and job opportunities in our country, and do you believe that it should 
not be unfairly targeted as an activity deserving disparate treatment 
under Federal law?
    Answer. The FAA recognizes the critical role general aviation (GA) 
plays in supporting jobs and generating significant economic activity 
for the country. FAA's latest aviation forecast sees growth in business 
aviation demand over the long term driven by a growing U.S. and world 
economy especially in the turbo jet, turboprop and turbine rotorcraft 
markets. As the fleet grows, the number of general aviation hours flown 
is projected to increase an average of 1.5 percent a year through 2033.
    Support for GA is part of the administration's goal to invest in 
the Nation's transportation infrastructure. The U.S. Department of 
Transportation and the Federal Aviation Administration (FAA) continue 
to invest in and improve GA and airports that serve GA through ongoing 
initiatives including direct support to airports, Next Generation Air 
Transportation System (NextGen) safety enhancements, and improving 
access to data.
    Question. Will you address the importance of general aviation to 
our economy?
    Answer. According to a study done by the FAA in 2011, general 
aviation operations added nearly $39 billion and approximately 496,000 
jobs to the United States economy. To support the Nation's GA airports, 
FAA awards an average of $1 billion in Airport Improvement Program 
(AIP) grants annually. These grants help GA airports fund safety, 
capacity, standards and environmental improvements. Moreover, under the 
State Block Grant Program, participating States are allowed to 
administer AIP funds at non-primary airports. In addition, FAA has been 
working with the GA community on an ongoing study to develop a 
strategic plan for GA airports in the United States.
    Through NextGen, the FAA has demonstrated its commitment to 
ensuring improved access and level of service for GA operators. For 
example, with the implementation of new technologies and procedures for 
the Wide Area Augmentation System (WAAS), and Localizer Performance 
with Vertical Guidance (LPV), GA operators have unprecedented access to 
airports where no ground-based instrument landing systems exist. Using 
these technologies and procedures, GA aircraft can land at airports 
even when visibility is limited. As of February 2012, there were nearly 
2,800 WAAS LPV approach procedures to more than 1,400 airports 
throughout the United States.
    Enhancing safety in GA operations is an FAA priority and is 
critical to supporting the growth of GA. Reducing the fatal accident 
rate for GA is one of the agency's strategic goals. We are also 
improving tracking of aircraft position and providing GA operators with 
tools that provide increased awareness of weather, terrain, aircraft 
and other conditions in the national airspace. Through another NextGen 
technology, Automatic Dependent Surveillance-Broadcast (ADS-B), GA 
pilots will have greater situational awareness.
    To further enhance access and capabilities of GA aircraft and 
pilots, the FAA is currently developing technologies and policies that 
make FAA data more accessible to GA pilots through Internet-based 
portals. These portals support open government initiatives and will 
enable individual pilots to access new sources of information. The FAA 
is also making data and services more accessible through the use of new 
tools like the Apple iPad, which, when used as an Electronic Flight 
Bag, can be used for viewing navigational charts and approaches to 
airports.
    Through these initiatives, FAA continues its active support of the 
GA industry.
                               user fees
    Question. The administration's use-fee proposal could potentially 
levy a fee on aircraft used to conduct aerial application activities by 
thousands of dollars per day, since they take off and land frequently 
to treat farmers' crops. This would cause great harm to farmers, aerial 
applicators, and food consumers.
    Are you concerned about the impact this proposal would have on 
agricultural aviation and other users that require frequent take offs 
and landings?
    Answer. This proposal would create a per flight fee by aviation 
operators who fly in controlled airspace. Military aircraft, public 
aircraft, recreational piston aircraft, air ambulances, aircraft 
operating outside of controlled airspace, and Canada-to-Canada flights 
would be exempted. Aircraft conducting aerial application activities 
and that fly outside of controlled airspace, like those used in 
agricultural aviation, would not pay the flight surcharge fee.
       agricultural aviation and low-level airspace safety issues
    Question. Agricultural aviation is extremely important to many 
Arkansas farmers. Do you recognize the importance of this niche sector 
in the aviation community, and will you commit to work with 
stakeholders and with my office to address the unique needs and 
concerns of this sector?
    Answer. The Federal Aviation Administration recognizes the vital 
link between the agricultural aviation industry and American farmers, 
including those in the State of Arkansas. In order to communicate with 
this specific industry segment, we have participated in meetings hosted 
by the Arkansas Agricultural Aviation Association. In addition, we have 
a long-standing partnership with the director for the Arkansas 
Department of Aeronautics, including meetings on at least a quarterly 
basis to exchange updates on aviation topics of interest at the State 
and/or Federal levels.
    At the regional level, our staff performs regularly scheduled 
outreach efforts with congressional staff to address any identified 
State-level issues of interest and share updates on agency efforts 
related to local areas of interest including NextGen, Unmanned Aircraft 
Systems, and obstacle evaluation, marking and lighting efforts.
    Question. The FAA is rightly working to integrate Remotely Piloted 
Aircraft (RPAs) into the airspace. As this work continues, what is the 
Administration doing to ensure other, long-standing users of low-level 
airspace, such as aerial applicators, are protected from mid-air 
collisions and other operations that may prevent them from safely and 
effectively treating crops, protecting the public health, and combating 
forest fires at low levels?
    Answer. The integration of Unmanned Aircraft Systems (UAS) into the 
National Airspace System (NAS) will require the FAA to carefully 
evaluate safety impacts on current NAS users, regardless of their 
altitude, size, or mission. Once the FAA has evaluated the safety 
impacts for a specific type of UAS operation, we will develop the 
appropriate regulatory requirements and risk mitigation strategies. We 
will ensure that UAS operations do not diminish safety or increase risk 
to persons or property in the air or on the ground.
    Question. What is the status of the feasibility study FAA is 
conducting on the development of a database that would show the 
location of free-standing and guy-wired towers below 200 feet?
    Answer. The FAA has completed the analysis as directed in section 
219 of the FAA Modernization and Reform Act (Public Law 112-95). Our 
report is in final executive review and will be delivered to Congress 
in the near future.
    Question. Does FAA believe it possesses the authority to require an 
airworthiness certificate or an airman certificate with respect to 
public unmanned aircraft operations under section 334 of the 2012 act? 
If so, does FAA intend to use that authority?
    Answer. The FAA intends to comply with the provisions of the FAA 
Modernization and Reform Act's section 334 on Public Unmanned Aircraft 
Systems. The current regulatory structure requires public operators to 
make their own finding of compliance using their processes. FAA will 
issue guidance regarding a public entity's responsibility when 
operating an unmanned aircraft without a civil airworthiness 
certificate issued by the FAA. FAA is in the process of determining 
whether or not any regulatory changes are possibly needed.
    Question. I am told that agricultural aviation interests have 
requested that the FAA expand Advisory Circular (AC) No. 70/7460-1 to 
include marking guidance not just for meteorological evaluation towers 
under 200 feet but for all towers--freestanding and guy-wired. Is the 
FAA considering this expansion of the AC?
    Answer. Requirements to file notice under 14 CFR part 77 generally 
do not apply to structures at heights lower than 200 feet unless they 
are close to an airport environment. Meteorological evaluation towers 
(METs) under 200 feet do not meet the provisions of part 77 and the FAA 
does not conduct aeronautical studies to determine whether these 
structures are obstructions or whether they adversely impact air 
navigation. However, the FAA acknowledges that METs in remote, rural 
agricultural areas may be difficult to see by low-level agricultural 
flights operating under visual flight rules. It was the combined 
factors of these structures being in rural, remote areas, the speed of 
their construction, and skeletal composition that led to additional, 
limited marking guidance. Guidance was not applicable to METs that are 
erected in urban areas and far removed from rural agricultural spraying 
operations.
    The request to expand marking guidance for structures other than 
METs is not based on safety of flight issues. The guidance used for 
METs is not feasible or warranted for other structures under 200 feet. 
Other structures do not carry the same visibility concerns of skeletal 
METs, and additional marking guidance may cause an undue burden on the 
public.

                          SUBCOMMITTEE RECESS

    Senator Collins. This hearing is recessed.
    On next Thursday, April 25, at 10 a.m., we will hold a 
hearing on the Federal Housing Administration. Thank you all.
    [Whereupon, at 11:56 a.m., Thursday, April 18, the 
subcommittee was recessed, to reconvene at 10 a.m., Thursday, 
April 25.]


TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2014

                              ----------                              


                         TUESDAY, JUNE 4, 2013

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:30 p.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Collins, and Boozman.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

STATEMENTS OF:
HON. CAROL GALANTE, COMMISSIONER AND ASSISTANT SECRETARY FOR HOUSING, 
            FEDERAL HOUSING ADMINISTRATION
HON. DAVID A. MONTOYA, INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL

               OPENING STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. The subcommittee will come to order. 
Senator Collins will be here in just a few minutes, but we'll 
go ahead and get started.
    But before we do begin, I do want to just take a moment to 
remember Senator Frank Lautenberg. He was a passionate public 
servant who wasn't afraid to fight for what he believed in. It 
goes without saying he was a wonderful member of this 
subcommittee, and he was actually former chairman of this 
subcommittee and added a really important voice to many of our 
housing and transportation issues. He was a tireless advocate 
for his State and for policies that protected Americans.
    He fought hard to make sure we funded Amtrak and banned 
smoking on airlines and raised the drunk driving standard. We 
owe him a tremendous debt. So I just wanted to start today by 
remembering him and letting his family know how much all of us 
have them in our thoughts and prayers.
    During this hearing this afternoon, we will hear from 
Federal Housing Administration (FHA) Commissioner Carol Galante 
and Housing and Urban Development (HUD) Inspector General David 
Montoya.
    I want to thank both of you for your patience with 
scheduling this hearing. Both Senator Collins and I had 
conflicts and had to move this around, and I really appreciate 
your coming and being here today. FHA is an important issue and 
your input is really valuable to this subcommittee. So thank 
you for accommodating our changes and welcome to both of you.
    It has been almost 6 years since the housing market 
collapsed. In the lead-up to that crisis, home prices were on a 
seemingly unstoppable upward climb while home ownership became 
a new reality for millions of Americans. But the promises made 
to homeowners and investors alike were too good to be true, and 
when the risks associated with these mortgages began to 
materialize, it was too late to stop the damage.
    When defaults and foreclosures skyrocketed, the impact was 
felt not only by the defaulting homeowners but by entire 
communities that watched their home values plummet, by 
investors who bet on these products and lost, and, of course, 
by older Americans who saw the value of their retirement 
savings tumble. During this crisis, FHA quickly stepped in to 
ensure a functioning mortgage market, and there's no question 
that intervening in the faltering housing market exposed FHA to 
greater risk.

                           FHA INSURANCE FUND

    But FHA took on this risk in order to support the broader 
housing market, and without its support, the cost to the market 
and to taxpayers today would likely have been far higher. 
Today, we are finally starting to see signs of recovery. New 
homes are being built. Home sales are up. Foreclosures are 
down, and home prices are now beginning to rise.
    But we are still dealing with the fallout from the housing 
market's boom and bust. While some homeowners are feeling 
relief from increased home prices, this is not true for 
everyone. I still hear from families that are underwater in 
their homes and unable to refinance. They feel trapped, unable 
to move to a new job or to a neighborhood with a better school. 
Unable to refinance at today's historically low rates, they 
remain saddled with excessive mortgage payments, money that 
could be better spent on family and at local businesses or 
saved for their kids' college education.
    We are acutely aware of the consequences for FHA and 
possibly the taxpayer, as the Mutual Mortgage Insurance (MMI) 
Fund has sustained significant losses in recent years. The 
President's fiscal year 2014 budget indicates that FHA may 
require taxpayer funding to cover the losses to its mutual 
mortgage insurance fund this year. This would represent the 
first time the fund would need taxpayer funding in its history.
    In the past 3 years, HUD has taken numerous steps to 
strengthen the fund. It has raised insurance premiums five 
times, it tightened its standards, and it placed new 
requirements on program participants. Yet the biggest drain on 
the fund continues to be those older loans originated at the 
height of the housing market when lending standards and program 
rules were too lax.
    So we must ensure that HUD has the authority it needs and 
is taking all the steps necessary to mitigate losses from those 
loans. This includes recovering money from servicers and 
lenders that did not follow HUD rules and regulations. The $25 
billion settlement that 49 States, the District of Columbia, 
and the Federal Government reached last year with the five 
largest servicers resulted in $684 million being returned to 
Federal housing programs.
    But the work determining responsibility for losses didn't 
stop with that settlement. FHA's Office of Inspector General 
(OIG) and the Department of Justice continue to investigate 
lenders to ensure that FHA is not paying for losses on loans 
that should never have been made.
    As a result, there have already been five further 
settlements, bringing the total amount returned to the MMI Fund 
to over $1.1 billion. I want to thank both the Commissioner and 
the Inspector General for the important work they're doing on 
that issue. The taxpayer should not have to pay for losses of 
lenders who did not follow the rules.
    We also need to ensure that the terms of settlement 
agreements are being honored. And I am concerned by recent 
reports that some of the banks may not be providing the relief 
to borrowers that they committed to under the terms of the 
settlement. So the work to hold the lenders accountable 
continues.

                    HOME EQUITY CONVERSION MORTGAGE

    While we must hold lenders accountable for not following 
the rules, we must also make sure that we have the right rules 
in place. As we discussed with the Secretary when he testified 
before us several weeks ago, the Home Equity Conversion 
Mortgage, or HECM, requires careful examination. This product 
can be a good option for seniors who want to stay in their 
homes as they get older. But the recent crisis has exposed 
serious flaws in this program, and it is clear that as 
currently designed, the program is not working for taxpayers 
or, in many cases, for borrowers.
    Some seniors and their families did not fully understand 
the product and are now facing foreclosure. These loans have 
resulted in significant losses to the MMI Fund. In fact, 
without the HECM mortgages, FHA's insurance fund would have a 
positive balance. HUD has suggested steps Congress can take to 
strengthen the program. I know the Inspector General's Office 
has studied this subject and suggested improvements as well.
    So I look forward today to a discussion on how we can work 
together to preserve a responsible product for people who need 
it while ending the practices and policies that add unnecessary 
risks to borrowers and to the FHA's insurance fund.
    In addition to HECM changes, HUD, its Inspector General, 
and the Government Accountability Office (GAO) have identified 
other steps that can be taken to strengthen FHA. For example, 
HUD has sought additional enforcement authority to ensure that 
unscrupulous lenders can't continue to originate FHA-insured 
loans. And the Inspector General has recommended changes to how 
HUD manages loans that experience early default.
    But it's also important to recognize many of these changes 
can't be made quickly or at all without the help of Congress. 
So we need to hear from both of you about what happens if 
Congress doesn't provide the necessary legislative authority to 
make additional program changes.
    We must also continue to ensure effective management of 
FHA's programs and operations. For many years, staffing 
challenges and outdated information systems have compromised 
effective management of FHA programs. HUD must have staff with 
the necessary skills to monitor its programs and understand the 
risks in both the market and its portfolio.
    In recent years, this subcommittee has provided HUD with 
resources to address its staffing needs, including funding for 
the recently established risk office. Since 2010, Congress has 
also invested millions of dollars in upgrading FHA's 
information technology (IT) systems to increase its efficiency 
and to better detect risk.
    The success of the FHA Transformation IT Project is 
critical to FHA's short- and long-term health. This 
subcommittee is closely following the management of this 
project, so I want to discuss its current status as well as its 
future.
    While HUD has made progress in improving its information 
systems and filling important positions, sequestration creates 
new challenges for FHA. HUD will be forced to make difficult 
decisions about which of its IT projects will continue to go 
forward and which ones will be slowed down or even canceled. 
Staff will be furloughed, and some positions lost through 
attrition may not be filled.

                             SEQUESTRATION

    The broad consequence of sequestration cuts across the 
Government could also impact FHA. Sequestration threatens our 
fragile economy and housing market. The financial position of 
the MMI Fund benefits as the housing market and economy 
improve, but it will also suffer if our economy slows. So we 
have to continue to work for a fair and balanced solution that 
provides certainty to our Federal agencies and to the American 
people.
    The budget we recently passed in the Senate provides a path 
forward that balances responsible spending cuts with necessary 
investments. I look forward to working with my colleagues in 
both the House and Senate soon, I hope, to enact a responsible 
budget compromise.

                           PREPARED STATEMENT

    Ms. Galante and Mr. Montoya, both of you serve in important 
roles as we continue to deal with the consequences of the 
housing crash and think through the future of FHA and America's 
housing finance system, and I look forward to our discussion 
today.
    [The statement follows:]
               Prepared Statement of Senator Patty Murray
                         lautenberg remembrance
    Before we begin, I'd like to take a moment to join my colleagues in 
remembering Senator Frank Lautenberg. Frank was a passionate public 
servant who was not afraid to fight and vote for what he believed in.
    As a member of this subcommittee and former Chairman, Frank added 
an important voice on the many housing and transportation issues we 
consider.
    He was a tireless advocate for his State and for policies that 
protected the safety of Americans, whether it was ensuring funding for 
Amtrak, banning smoking on airlines or strengthening the drunk driving 
standard. Frank gave everything he had to public service and those who 
served with him know that it gave him all the satisfaction in the 
world.
    He will be missed by all those who served with him on this 
committee and here in the Senate.
                          hearing introduction
    This afternoon we will hear testimony from Federal Housing 
Administration (FHA) Commissioner Carol Galante and Department of 
Housing and Urban Development (HUD) Inspector General David Montoya.
    I want to thank Commissioner Galante and Inspector General Montoya 
for their patience with the scheduling of this hearing. Both Senator 
Collins and I had scheduling conflicts that made it necessary to 
reschedule. But the FHA is an important issue and your input is 
valuable to this subcommittee, so thank you for accommodating the 
changes and welcome.
    It has been almost 6 years since the housing market collapsed. In 
the lead up to the crisis, home prices were on a seemingly unstoppable 
upward climb while homeownership became a new reality for millions of 
Americans.
    But the promises made--to homeowners and investors alike--were too 
good to be true. And when the risks associated with these mortgages 
began to materialize, it was too late to stop the damage. When defaults 
and foreclosures skyrocketed, the impact was felt not only by 
defaulting homeowners, but also by entire communities that watched 
their home values plummet, investors who bet on these products and 
lost, and older Americans who saw the value of retirement savings 
tumble.
    During this crisis, FHA quickly stepped in to ensure a functioning 
mortgage market. And there is no question that intervening in the 
faltering housing market exposed FHA to greater risk. But FHA took on 
this risk in order to support the broader housing market, and without 
its support, the cost to the market and to taxpayers today would likely 
be far higher.
    Today, we are finally starting to see signs of recovery:
  --new homes are being built;
  --home sales are up;
  --foreclosures are down; and
  --home prices are rising.
    But we are also still dealing with the fallout from the housing 
market's boom and bust. While some homeowners are feeling relief from 
increased home prices, this isn't true for everyone. I still hear from 
families that are underwater in their homes and unable to refinance. 
They feel trapped, unable to move for a job or to a neighborhood with a 
better school. Unable to refinance at today's historically low rates, 
they remain saddled with excessive mortgage payments--money that could 
be better spent on family and at local businesses, or saved for the 
kids' college education.
    We are acutely aware of the consequences for FHA--and possibly the 
taxpayer as the Mutual Mortgage Insurance (MMI) Fund has sustained 
significant losses in recent years.
              losses to the mutual mortgage insurance fund
    The President's fiscal year 2014 budget indicates that FHA may 
require taxpayer funding to cover the losses to its Mutual Mortgage 
Insurance Fund this year. This would represent the first time that the 
fund would need taxpayer funding in its history. In the past 3 years, 
HUD has taken numerous steps to strengthen the fund. It has:
  --raised insurance premiums five times;
  --tightened its standards; and
  --placed new requirements on program participants.
    Yet the biggest drain on the fund continues to be those older loans 
originated at the height of the housing market when lending standards 
and program rules were too lax. So we must ensure that HUD has the 
authority it needs and is taking all of the steps necessary to mitigate 
losses from these loans. This includes recovering money from servicers 
and lenders that did not follow HUD rules and regulations. The $25 
billion settlement that 49 States, the District of Columbia, and the 
Federal Government reached last year with the five largest servicers 
resulted in $684 million being returned to Federal housing programs. 
But the work determining responsibility for losses did not stop with 
that settlement.
    FHA, HUD's Office of Inspector General, and the Department of 
Justice continue to investigate lenders to ensure that FHA isn't paying 
for losses on loans that should never have been made. As a result, 
there have already been five further settlements bringing the total 
amount returned to the MMI Fund to over $1.1 billion.
    I want to thank both the Commissioner and the Inspector General for 
the important work they are doing on this issue. The taxpayer should 
not have to pay for losses of lenders who didn't follow the rules. We 
also need to ensure that the terms of settlement agreements are being 
honored. I am concerned by recent reports that some of the banks may 
not be providing the relief to borrowers they committed to under the 
terms of the settlement. So the work to hold lenders accountable 
continues.
                 home equity conversion mortgage loans
    While we must hold lenders accountable for not following the rules, 
we must also make sure that we have the right rules in place. As we 
discussed with the Secretary when he testified before us several weeks 
ago, the Home Equity Conversion Mortgage, or HECM, requires careful 
examination. This product can be a good option for seniors who want to 
stay in their homes as they get older. But the recent crisis has 
exposed serious flaws in the program.
    And it is clear that, as currently designed, the program is not 
working for taxpayers, or in many cases, for borrowers. Some seniors 
and their families didn't fully understand the product and are now 
facing foreclosure. These loans have resulted in significant losses to 
the MMI Fund. In fact, without HECM mortgages, FHA's insurance fund 
would have a positive balance.
    HUD has suggested steps Congress can take to strengthen the 
program. I know the Inspector General's Office has studied this subject 
and suggested improvements as well. So I look forward to a discussion 
on how we can work together to preserve a responsible product for 
people who need it, while ending the practices and policies that add 
unnecessary risk to borrowers and FHA's insurance fund.
                          other areas of risk
    In addition to HECM changes, HUD, its Inspector General, and the 
Government Accountability Office (GAO) have identified other steps that 
can be taken to strengthen FHA. For example, HUD has sought additional 
enforcement authorities to ensure that unscrupulous lenders can't 
continue to originate FHA insured loans. And the Inspector General has 
recommended changes to how HUD manages loans that experience early 
default.
    But it is also important to recognize that many of these changes 
can't be made quickly, or at all, without the help of Congress. So we 
need to hear from both of you about what happens if Congress does not 
provide the necessary legislative authority to make additional program 
changes.
                             fha operations
    We must also continue to ensure effective management of FHA's 
programs and operations. For many years, staffing challenges and 
outdated information systems have compromised effective management of 
FHA programs. HUD must have staff with the necessary skills to monitor 
its programs and understand the risks in both the market and its 
portfolio. In recent years, this subcommittee has provided HUD with 
resources to address its staffing needs, including funding for the 
recently established Risk Office.
    Since 2010, Congress has also invested millions of dollars in 
upgrading FHA's information technology (IT) systems to increase its 
efficiency and better detect risk. The success of the FHA 
Transformation IT project is critical to FHA's short and long-term 
health. This subcommittee is closely following the management of this 
project, so I want to discuss its current status, as well as its 
future.
                             sequestration
    While HUD has made progress in improving its information systems 
and filling important positions, sequestration creates new challenges 
for FHA. HUD will be forced to make difficult decisions about which of 
its IT projects will continue to go forward and which ones will be 
slowed down, or even canceled. Staff will be furloughed and some 
positions lost through attrition may not be filled.
    The broad consequences of sequestration cuts across the Government 
could also impact FHA. Sequestration threatens our fragile economy and 
housing market. The financial position of the MMI Fund benefits as the 
housing market and economy improve, but it will also suffer if our 
economy slows.
    So we must continue to work for a fair and balanced solution that 
provides certainty to our Federal agencies and to the American people. 
The budget we recently passed in the Senate provides a path forward 
that balances responsible spending cuts with necessary investments. I 
look forward to working with my colleagues in both the House and Senate 
to enact a responsible budget compromise.
                                closing
    Ms. Galante, Mr. Montoya, both of you serve in important roles as 
we continue to deal with the consequences of the housing crash and 
think through the future of FHA and America's housing finance system. I 
look forward to our discussion today.

    With that, I am delighted to be joined by my colleague, 
Senator Collins, and will turn to her for an opening statement.

                 STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you very much, Madam Chairman. Thank 
you for holding this important hearing on the Federal Housing 
Administration and the future of the housing finance market. I 
join you in welcoming Commissioner Galante and Inspector 
General Montoya before the subcommittee this afternoon.
    The administration has made several announcements regarding 
our housing policies and programs. Yet there is much more that 
must be done to stabilize the housing market and to 
reinvigorate private sector participation. HUD faces many 
challenges in balancing the goal of strengthening responsible 
home ownership while minimizing the financial risk to the FHA 
and to the taxpayer.
    Eventually, FHA should play a more limited role, in my 
judgment, in the mortgage market and help encourage the private 
sector to reassert its primacy. Nevertheless, I believe there 
will always be some role for the FHA to play. Since its 
inception, FHA has provided mortgage insurance for more than 41 
million single family home mortgages and 53,000 multifamily 
mortgages.
    FHA continues to partner with current and prospective 
homeowners during these difficult economic times. In addition 
to helping FHA program participants refinance at lower interest 
rates, FHA also assists non-FHA homeowners in refinancing 
untenable mortgages. A financially sound FHA is an essential 
component in the recovery of the housing market. The weakening 
of our housing sector over the past several years has had a 
tremendous impact on families and communities throughout the 
Nation. The housing market is slowly coming back, but a 
sustained recovery is still uncertain.
    The agency's role has dramatically expanded since the 
beginning of this crisis. Prior to the housing collapse, FHA 
accounted for approximately 3 percent of the single family 
housing market, reaching upwards of 21 percent in the year 
2010. I am pleased to hear that HUD's FHA market share 
continues to decline as the housing market recovers and that 
we're now at about 14 percent of market share.
    It is, however, troubling to me that year after year, FHA 
is unable to meet its statutory requirement of maintaining a 2-
percent capital reserve ratio. The President's fiscal year 2014 
request shows that FHA anticipates drawing on its permanent 
indefinite budget authority with Treasury for $943 million 
starting this fiscal year to hold in reserve against expected 
future losses. If FHA does draw funds from Treasury, it will 
mark the first time that it has ever needed to take this 
action.
    While HUD has taken a number of steps since January of this 
year to improve the program, I am concerned about the need to 
draw this level of funding at the end of the fiscal year. This 
is attributed to the poor performance of the HECM loans due to 
borrowers' longevity, house prices declining over recent years, 
as well as a failure to pay taxes and insurance. We need to 
ensure that borrowers, especially seniors, are not taken 
advantage of and are able to make informed decisions regarding 
their mortgages, both because of the impact on them, but also 
the impact on the fund.

                           PREPARED STATEMENT

    These are not easy issues to resolve, but they are 
critically important to our Nation's long-term economic health. 
I remain concerned that we must reform our present housing 
finance programs, and in doing so, we must remain mindful of 
the need to limit the exposure of taxpayers to additional 
financial losses.
    I look forward to working with the chairman, the other 
subcommittee members, and both of you on these important 
issues.
    Thank you.
    [The statement follows:]
             Prepared Statement of Senator Susan M. Collins
    Chairman Murray, thank you for holding this important hearing on 
the Federal Housing Administration (FHA) and the future of the housing 
finance market. I join you in welcoming Commissioner Galante and 
Inspector General Montoya before our subcommittee this morning.
    The Administration has made several announcements regarding 
existing housing programs, yet there is much more that must be done to 
stabilize the housing market and reinvigorate private sector 
participation.
    The Department of Housing and Urban Development (HUD) faces many 
challenges in balancing the goal of strengthening responsible 
homeownership while minimizing the financial risk to FHA and the 
taxpayer. Eventually, FHA should play a more limited role in the 
mortgage market and help encourage the private sector to reassert its 
primacy.
    Since its inception, FHA has provided mortgage insurance for more 
than 41 million single-family home mortgages and 53,000 multifamily 
mortgages.
    FHA continues to partner with current and prospective homeowners 
during these difficult economic times. In addition to helping FHA 
program participants refinance at lower interest rates, FHA also 
assists non-FHA homeowners in refinancing untenable mortgages. A 
financially sound FHA is an essential component in the recovery of the 
housing market.
    The weakening of our housing sector over the past several years has 
had a tremendous impact on families and communities throughout the 
Nation. The housing market is slowly coming back, but a sustained 
recovery is still uncertain.
    The agency's role dramatically expanded since the beginning of the 
housing crisis. Prior to the crisis, FHA accounted for approximately 3 
percent of the single family housing market; reaching upward of 21 
percent in 2010. I am glad to hear that HUD's FHA market share 
continues to decline as the housing market recovers, with just below 14 
percent of the market share.
    It is troubling that year after year, the FHA is unable to meet its 
statutory requirement of maintaining a 2 percent capital reserve ratio. 
The President's fiscal year 2014 request shows that FHA anticipates 
drawing on its permanent indefinite budget authority with the 
Department of the Treasury for $943 million during fiscal year 2013 to 
hold in reserve against expected future losses. If FHA does draw funds 
from Treasury, it will be the first time that it has ever needed to 
take this action. While HUD has taken a number of steps since January 
of this year to improve the program, I am concerned about the need to 
draw this level of funding at the end of the fiscal year. This is 
attributed to the poor performance of the home equity conversion 
mortgage (HECM) loans due to borrowers' longevity, home prices 
declining over recent years, as well as failure to pay taxes and 
insurance.
    We need to ensure that borrowers, especially seniors, are not taken 
advantage of and are able to make informed decisions regarding their 
mortgages.
    These are not easy issues to resolve, but they are critically 
important to our Nation's long-term economic health. I remain concerned 
that we must reform our present housing finance programs. In doing so, 
we must remain mindful to limit taxpayers' exposure to additional 
financial losses.
    I look forward to working with you on these important issues.

    Senator Murray. Thank you very much.
    With that, Ms. Galante, we'll begin with you.

                    STATEMENT OF HON. CAROL GALANTE

    Ms. Galante. Thank you, Chairman Murray and Ranking Member 
Collins. I appreciate the opportunity to testify today on the 
fiscal year 2014 budget proposal.
    Before I begin, I did want to take a moment to echo your 
comments and Secretary Donovan's statement in offering my 
condolences on the passing of Senator Lautenberg. As a Member 
of this body, he was a champion of preserving access to 
affordable housing for all Americans. I join you in mourning 
his passing.
    I also want to thank HUD's Inspector General, David 
Montoya, and his entire staff for their dedication and 
partnership as we work to protect FHA and taxpayers.
    FHA has played a significant role in lessening the severity 
of the financial crisis and contributing to our Nation's 
economic recovery, temporarily increasing its market share to 
ensure stability and preserve access to credit. However, 
playing this role during the crisis was not without an impact 
to our portfolio, requiring decisive action to strengthen FHA.
    The Mutual Mortgage Insurance Fund is already seeing strong 
results from our efforts to improve lender oversight, 
strengthen credit policies, increase premiums, improve loss 
mitigation and asset management, and establish a risk 
management office and portfolio surveillance capability. FHA's 
new books of business are the strongest in agency history.

                             FHA SHORTFALL

    However, due to loans insured during the crisis as well as 
stress caused by the HECM reverse mortgage program, the 2014 
budget projects that FHA capital reserve will need support from 
the Treasury. The shortfall is estimated at $943 million. But, 
as you know, the level of support from Treasury will not be 
known until the end of the fiscal year. Second, this amount 
would be added to over $30 billion FHA already has in reserves.
    The fund's performance has continued to improve, and if 
losses from the HECM program are excluded, our actions and the 
ongoing recovery would leave the capital reserve at positive $4 
billion. We look forward to working with Congress on several 
legislative requests that will further strengthen the fund, 
increasing our ability to hold lenders accountable, improving 
recoveries on defaulted loans, and allowing FHA greater ability 
to respond quickly to risks as they emerge.
    One of these requests, granting FHA the explicit authority 
to make changes to the HECM program via mortgagee letters, is 
crucial. Given the challenges HECM currently faces, we must 
make further changes immediately, both to preserve the program 
and to minimize risk to the fund.
    FHA has also proven to be a critical source of financing 
quality affordable rental homes and healthcare facilities. In 
fiscal year 2012, FHA supported the construction, improvement, 
substantial rehabilitation, or refinance of nearly 234,000 
apartments and more than 91,000 beds in healthcare facilities. 
And while our multifamily and healthcare programs were not 
stressed as severely as the single family portfolio, we have 
nonetheless made substantial changes in our risk management and 
loan review processes, including increasing premiums for the 
first time in 10 years, protecting these programs for the 
future.
    For fiscal year 2014, we have requested $30 billion in 
commitment authority for multifamily and healthcare programs. 
Furthermore, we now estimate that the $25 billion approved for 
fiscal year 2013 will be insufficient to support the current 
level of program activity, including refinancing and 
strengthening our existing portfolio and providing financing 
for important initiatives such as the Rental Assistance 
Demonstration Program.
    Therefore, we are requesting an additional $5 billion in 
commitment authority for the remainder of the fiscal year. 
Without legislative action, we project that we will exhaust our 
current authority by mid August. In fact, this morning, I 
notified this subcommittee and others that as of today, we have 
exhausted 75 percent of our authority for the year.
    Finally, our 2014 budget request continues to support 
transforming the way HUD does business. This means addressing 
both the infrastructure and processes that support our 
operations, ensuring that they are compatible with the 21st 
century financial system. Given the dynamic nature of the 
mortgage market, it is vital that FHA has the ability to assess 
and analyze current market trends, borrowers, and lender data 
for risks.
    Through the FHA Transformation Initiative, we have made 
significant progress in developing and implementing a modern 
information technology environment. However, without dedicated 
and sustained funding, we will not be able to implement or 
maintain these improvements.
    Last, another part of our continued efforts is the 
reorganization and consolidation of the Office of Multifamily 
Housing at headquarters and in our field offices. These 
organizational improvements are being undertaken to ensure that 
even in a constrained budget environment we have an effective 
delivery model for the future.

                           PREPARED STATEMENT

    While the fiscal year 2014 budget is the result of many 
tough choices, it is also an opportunity for FHA to continue to 
support HUD's mission and our Nation's continuing economic 
recovery while effectively managing risk.
    Madam Chairman, thank you for the opportunity to testify 
today. I look forward to your questions.
    Senator Murray. Thank you very much.
    [The statement follows:]
                Prepared Statement of Hon. Carol Galante
    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 2014 budget proposal will grow our 
economy from the middle class out--not from the top down--while 
supporting the recovery in our housing market and economy.
    As the President has said, housing is an important part of our 
economic recovery. In 2012, rising home values lifted 1.7 million 
families back above water and created $1.6 trillion in equity. New home 
construction levels are at their highest since before the financial 
crisis and new home purchases are up 12 percent over last year. The 
number of new foreclosure actions has been cut in half since the height 
of the crisis. And the Federal Housing Administration (FHA) has played 
a critical role in ensuring that we remain on the path to a complete 
recovery.
    This budget provides FHA with the ability to assist HUD in meeting 
three goals that are critical to the Agency's mission. Using a variety 
of strategies, it allows us to focus on strengthening the Nation's 
housing market to support the economy while also protecting consumers. 
And, despite the challenging fiscal climate, this budget allows us to 
meet the need for quality, affordable rental homes across the Nation. 
Finally, this budget continues our efforts to transform the way HUD 
does business--creating a more modern, efficient, and responsive 
agency.
 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--with mortgages sold to people who 
couldn't afford or understand them, while banks packaged them into 
complex securities on which they placed huge bets. And while this 
crisis was largely 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 the 
unprecedented challenges facing the housing market.
Responding to the Market Disruptions and Serving Underserved 
        Populations
    The Federal Housing Administration (FHA), along with the Government 
National Mortgage Association (GNMA), continues 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.
    For fiscal year 2014, HUD is requesting $400 billion in loan 
commitment authority for the Mutual Mortgage Insurance Fund, which will 
provide an estimated 1.2 million single-family mortgages--at a 
projected $199.3 billion in loan volume for forward and reverse 
mortgage loans as well as loans insured under the FHA Short Refinance 
program for borrowers in negative equity positions. HUD is also 
requesting $30 billion in loan guarantee authority for the General and 
Special Risk Insurance Fund, which will provide an estimated 273,000 
units in multifamily housing properties and an estimated 75,700 beds in 
healthcare facilities. The need for this investment is clear as FHA 
continues to play 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, by assuring ongoing access 
to credit for qualified first-time, low-wealth or otherwise underserved 
borrowers. However, FHA's expanded role is and should be temporary.
    FHA's share of the single family mortgage market (purchase and 
refinance transactions) has gone from a low of 3.1 percent of loan 
originations in 2005, up to a peak of 21.1 percent in 2010, and more 
recently down to 13.9 percent in the 3rd quarter of 2012 (U.S. Housing 
Market Conditions Report, 3rd Quarter 2012). In fact, the number of FHA 
single family loan endorsements by loan count, has declined to levels 
comparable to those seen in fiscal years 2002 and 2003, when FHA's 
market share was lower than it is today, indicating that FHA's current 
market share is primarily due to a substantial decrease in the size of 
the total mortgage market rather than exceptionally high FHA loan 
volumes. As the market continues to recover and private capital returns 
at more normal levels, FHA's role will naturally recede and FHA has 
demonstrated that it is committed to policies that facilitate this 
return. However, during this crisis, access to FHA insured financing 
has been critical to bolstering the housing market and providing access 
to credit to creditworthy, low-wealth borrowers.

    Figure 1. FHA Market Share as a Percent of Total Market



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    

    As has been true throughout its history, FHA is particularly 
important to borrowers that the conventional market does not adequately 
serve, including qualified borrowers who would otherwise be shut out of 
the mortgage market. According to the latest Home Mortgage Disclosure 
Act (HMDA) data, half of all African Americans who purchased a home in 
2011, and 49 percent of Hispanics, did so with FHA insured financing. 
Seventy-eight percent of the loans insured by FHA go to first time 
homebuyers.
FHA Single Family Programs
            Redoubling Efforts To Keep Homeowners in Their Homes
    While there is work still to be done, HUD is proud of the progress 
this administration has made in tackling ongoing foreclosure 
challenges. Between April 2009 and February 2013, more than 6.4 million 
foreclosure prevention actions were taken--including nearly 1.7 million 
FHA loss mitigation and early delinquency interventions.
    As part of the Administration's commitment to help responsible 
homeowners stay in their homes, we have actively sought to use our 
current programs and authorities to make homeownership sustainable for 
millions of American families. Examples of our efforts include:
  --FHA Streamline Refinance.--An option that allows borrowers with 
        FHA-insured loans who are current on their mortgage to 
        refinance into a new FHA-insured loan at today's low interest 
        rates without requiring additional underwriting, permitting 
        these borrowers to reduce their mortgage payments. This program 
        benefits current FHA borrowers--particularly those whose loan 
        value may exceed the current value of their home--and, by 
        lowering a borrower's payment, also reduces risk to FHA. And, 
        because we see potential for more widespread use of this 
        product, FHA made changes to the way in which streamline 
        refinance loans are displayed in the Neighborhood Watch Early 
        Warning System (Neighborhood Watch) to encourage lenders to 
        offer this product more widely to homeowners with FHA-insured 
        mortgages, and offered reduced premiums for borrowers who could 
        benefit most from a Streamline Refinance.
  --Changes to FHA's Loss Mitigation Waterfall.--A mortgagee letter 
        published on November 16, 2012, outlined changes to FHA's loss 
        mitigation home retention options. One of the key elements of 
        this update was moving FHA's Home Affordable Modification 
        Program (HAMP) product up in FHA's loss mitigation waterfall so 
        servicers could more quickly offer deeper payment relief to 
        struggling FHA borrowers, resulting in an increase in the 
        number of borrowers being able to retain their homes.
  --Housing Counseling.--In fiscal year 2014, HUD is requesting $55 
        million in Housing Counseling Assistance to improve access to 
        quality affordable housing, expand homeownership opportunities, 
        and preserve homeownership, all of which are especially 
        critical in today's economic climate. With this funding, HUD 
        estimates that 2,650 HUD-approved counseling agencies, 
        employing an estimated 8,000 housing counselors, will assist a 
        total of 2.5 million renters and owners. In 2012, 2,410 HUD-
        approved housing counseling agencies, with grant funds from HUD 
        and other funding sources, assisted over 1.9 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.
    HUD's new Office of Housing Counseling has several initiatives to 
ensure borrowers know their rights and have access to the remedies that 
will allow them to stay in their homes. While HUD approved housing 
counselors serve all homeowners, regardless of the type of loan, 
effective loss mitigation for FHA borrowers also protects the Mutual 
Mortgage Insurance (MMI) Fund. Therefore, HUD has worked closely with 
interested States to determine effective ways in which funds from the 
National Mortgage Servicing Settlement can be used to expand housing 
counseling resources, resulting in more than $300 million in settlement 
funds committed to housing counseling or legal services for affected 
borrowers. HUD-approved housing counseling agencies provided 
foreclosure prevention services to 774,000 families in fiscal year 
2012.
    In addition, FHA and the Office of Housing Counseling are exploring 
ways to further integrate housing counseling into the home purchase 
process, as well as continuing efforts around loss mitigation, offering 
distressed FHA borrowers additional resources with which to assess 
their options and make decisions appropriate to their situation.
  --Short Refinance Option.--In 2010, FHA made available an option that 
        offers underwater non-FHA borrowers, who are current on their 
        existing mortgage and whose lenders agree to write off at least 
        10 percent of the unpaid principal balance of the first 
        mortgage, the opportunity to refinance into a new FHA-insured 
        mortgage. FHA made enhancements to the program in March of last 
        year and announced an extension to the expiration date of the 
        program in order to increase the number of borrowers who will 
        benefit from this initiative.
            Strengthening FHA and Paving the Way for Private Capital To 
                    Return
    The President's budget shows that FHA, while still under stress 
from legacy loans, has made significant progress and is on a sound 
fiscal path moving forward. Like nearly all mortgage market 
institutions, FHA sustained significant losses due to the precipitous 
fall in the housing market and home prices and is putting additional 
funds aside this year to cover those legacy losses. Moreover, like most 
other market participants, recent and future books of mortgage business 
are expected to bring healthy gains and perform well.
    Throughout the economic crisis, as FHA faced fiscal challenges, 
this administration took swift and effective action to protect the FHA 
and the American taxpayer alike, as FHA continued to fulfill its dual 
mission of supporting the housing market during tough times and 
providing access to homeownership for underserved populations. Of the 
changes made since 2009, FHA's lender oversight and credit policies 
have yielded substantial improvements in the quality of new loans 
endorsed by FHA, and premium increases have priced appropriately for 
risk. But significant opportunity remains to reduce the impact on the 
fund of poorly performing legacy loans severely impacted by the 
recession, and to provide greater assistance for distressed borrowers 
as they seek to recover and find meaningful assistance in dealing with 
their delinquent loans. With a majority of FHA's projected losses 
attributable to loans insured from 2007-2009, FHA will take several 
additional steps to maximize recovery in the areas of loss mitigation 
and asset management.
              Counterparty Risk Management and Lender Enforcement
    One of the first things this administration did upon taking office 
was to take strong actions to improve FHA's monitoring and oversight of 
lenders. This has included substantial improvements to risk analysis 
systems and procedures, and policy changes to focus resources on the 
areas of FHA's business which pose the greatest potential risk to the 
MMI Fund. These efforts have resulted in lenders being withdrawn from 
FHA programs, improvements in lender compliance with FHA requirements, 
and a number of settlements with lenders and servicers for violations 
of FHA origination or servicing requirements.
    Yet, it remains important that we continue to clarify and refine 
the rules of the road for FHA lenders. That is why last month FHA 
issued a mortgagee letter implementing a Lender Insurance (LI) Lender 
Indemnification Final Rule which was published in January 2012. This 
guidance establishes better and more consistent monitoring of LI 
lenders and establishes clearer parameters upon which HUD will require 
indemnification for loans originated by these institutions.
    Additionally, we have been concerned of late with a number of Web-
based and print advertisements that proclaim the supposed ease of 
obtaining an FHA-insured loan following a foreclosure. While FHA has 
taken a number of proactive steps in the past few years to clarify its 
requirements regarding lender advertising and to enforce those 
requirements aggressively, we determined in last year that it was 
necessary to address the issue of post-foreclosure advertising 
specifically. Therefore, on January 25, 2013 FHA issued a reminder to 
its industry partners that advertisements that imply that little or no 
qualification criteria are necessary to obtain an FHA loan are 
unacceptable and that FHA will not hesitate to take action within its 
authority to enforce its requirements related to lender advertising, 
including sanctions by HUD's Mortgagee Review Board and/or referral to 
the HUD Inspector General or the Consumer Financial Protection Bureau 
(CFPB).
              Credit Policy
    We have also worked to strengthen our credit policies for FHA 
borrowers. First and foremost, FHA implemented Congress's elimination 
of seller-funded down payment assistance programs which cost the MMI 
Fund more than $15 billion in economic value. Further, we enacted 
increased down payment requirements for borrowers with credit scores 
below 580. The long-term positive impact of these two credit policy 
changes cannot be overstated. The 2005-2008 vintages, accounting for 
less than 15 percent of total originations over the last 30 years, are 
projected by the Actuary to contribute more than one-third of total 
credit losses of the fund. Loans with credit scores below 580 and/or 
seller-funded down payment assistance will have accounted for 44 
percent of those losses. Additionally, we will continue work on 
finalizing regulations to reduce the amount of allowable seller 
concessions that increase risks to FHA arising from inflated 
appraisals.
    In late 2012, FHA announced several additional policy changes which 
continue its work to strengthen credit policy, support the ongoing 
recovery and maintain access to mortgage financing for credit worthy 
borrowers while also taking steps to recede FHA's total market share. 
These steps include requiring manual underwriting for borrowers with 
credit scores below 620 and debt-to-income (DTI) ratios over 43 
percent, enhancements to FHA's TOTAL Scorecard, and a proposed increase 
in the required down payment for borrowers seeking loans in excess of 
$625,500. Taken together with all the other measures outlined above as 
well as those detailed in Appendix A of FHA's Annual Report to 
Congress, these steps will ensure that home buyers using FHA-insured 
financing are capable of meeting their mortgage obligations and will 
not put undue stress on the fund.
              Increased Revenue
    In addition to the improvements made to the quality of new 
endorsements, we have also made the difficult choice to increase 
mortgage insurance premiums for FHA-insured loans multiple times in the 
past 4 years. Since 2009, FHA has increased premiums five times--the 
most recent increase effective April 1, 2013. Combined, the premium 
increases made since 2009 have yielded more than $10 billion in 
additional economic value for the fund to date. These increases have 
not been undertaken lightly, and FHA has been careful to balance 
changes to pricing to improve the outlook of the fund with its 
countercyclical role of providing liquidity and access to credit in the 
midst of the recent crisis and ongoing recovery.
    Additionally, effective beginning with case numbers assigned on 
June 3, 2013, FHA will cease a policy of canceling required mortgage 
insurance premiums (MIPs) on loans for which the outstanding principal 
balance reaches less than 78 percent of the original principal balance. 
Under that policy, FHA remained responsible for insuring 100 percent of 
the unpaid principal balance of a loan for the entire life of the loan, 
a period often extending far beyond the cessation of MIP payments. As 
written, the timing of MIP cancellation was directly tied to the 
contract mortgage rate, not to the actual loan loan-to-value ratio 
(LTV). That policy, which was reversed in a mortgagee letter published 
on January 31, 2013, was put in place at a time when it was assumed 
that home price values would not decline, but today we know that LTV 
measured by appraised value in a declining market can mean that actual 
LTVs are far higher than amortized mortgage LTV, resulting in higher 
losses for FHA on defaulted loans. Analyses conducted by FHA's Office 
of Risk Management projects lost revenue of approximately $10 billion 
in the 2010-2012 vintages as a result of the current cancellation 
policy. The same analyses also suggest that 10-12 percent of all claims 
losses will occur after MIP cancellation. Therefore, beginning in June, 
FHA plans to once again collect premiums based upon the unpaid 
principal balance of FHA loans for the entire period during which they 
are insured, permitting FHA to retain significant revenue that is 
currently being forfeited prematurely.
              Loss Mitigation and Asset Management
    The Actuary projects nearly $60 billion in claims costs for FHA 
from seriously delinquent loans that will go to claim by the end of 
fiscal year 2014, largely arising from loans insured between 2007 and 
2009. As a result, reducing the severity of losses derived from these 
loans will exert a demonstrable positive impact to Fund performance 
over the next few years. Throughout the past fiscal year, FHA has been 
executing on an overall asset management strategy aimed at ramping up 
real estate owned (REO) alternatives. REO alternatives (primarily short 
sales) comprised about 15-20 percent of total dispositions since 2010, 
yielding average loss severities about 20 percent lower than REO. In 
recent months, as noted, FHA also unveiled its Distressed Asset 
Stabilization Program (DASP), another REO alternative that improves 
Fund performance. These and other actions have had a measurable effect, 
as loss severities have already fallen by 9 percent in the last year. A 
reduction in loss severities will further improve fund performance. 
And, compared to March 2012, serious delinquencies are down in March 
2013, with non-seasonally adjusted serious delinquencies dropping below 
9 percent for the first time in over a year, showing that FHA and the 
market have made some progress in clearing the backlog of seriously 
delinquent loans previously withheld from a final disposition.
    FHA expects further gains on this front through a number of 
initiatives:
  --Streamlining of the FHA Short-Sale Policy.--Although FHA is deeply 
        committed to providing loss mitigation alternatives to 
        borrowers which permit them to retain their homes, home 
        retention is simply not an option for some borrowers. For these 
        borrowers, pre-foreclosure sales (short-sales) offer an 
        opportunity to transition out of their homes. This enables both 
        FHA and the borrowers to avoid the costs and damages of the 
        foreclosure process. This month, FHA will introduce a 
        streamlined pre-foreclosure sale policy which removes certain 
        barriers for borrowers in obtaining a short sale on an FHA-
        insured mortgage. This change is expected to increase the 
        number of defaulted loans that end in short sales rather than 
        in foreclosures. Because losses from short-sales are 
        substantially lower than from the traditional FHA REO process, 
        the shift of greater numbers of distressed homeowners to short-
        sale dispositions rather than foreclosures is anticipated to 
        yield better results for the MMI Fund while allowing distressed 
        borrowers to start anew without having to go through the 
        difficult and costly foreclosure process.
  --Claim Without Conveyance Pilot Program.--FHA is expanding a pilot 
        in which properties secured by non-performing FHA-insured loans 
        are offered for sale by the lender who has completed the 
        foreclosure process. At a reserve price slightly below the 
        outstanding unpaid principal balance of the loan, the 
        properties are sold to third party purchasers without ever 
        being conveyed to FHA. This method of disposing of these 
        properties is expected to yield lower losses for the MMI Fund 
        than selling them through FHA's normal REO disposition process, 
        as carrying costs associated with preserving, managing, and 
        marketing an REO property are eliminated.
  --Proactive Strategies To Further Improve Recoveries.-- In addition 
        to the policy and programmatic changes outlined above, FHA will 
        also take several innovative and proactive steps to increase 
        utilization of loss mitigation options and reduce unnecessary 
        asset disposition losses. First, beginning in 2013, FHA will 
        launch a large-scale proactive marketing campaign to promote 
        modification and short-sale strategies for delinquent 
        borrowers. This effort is expected to increase utilization of 
        these programs, which will permit more borrowers to become 
        aware of and take advantage of these opportunities, while 
        reducing foreclosures and decreasing associated losses for FHA. 
        In addition, FHA will also pursue more creative strategies to 
        dispose of REO properties in geographies where traditional 
        asset disposition methods yield net negative recoveries for 
        FHA. This approach is anticipated to both save money for FHA on 
        unnecessary losses as well as contribute to community 
        stabilization initiatives in cities hit hard by the recession.
    Due to these changes, resulting in higher quality of loans and 
reduced loss severities, and combined with the large volume of current 
loans, we project FHA will generate approximately $18 billion in 
receipts during fiscal year 2013. This includes $3 billion generated 
from the new premium increase that went into effect April 1, 2013, and 
reversal of a policy that caused FHA to forfeit collection of MIP after 
a loan reached 78 percent of its original principal balance. Further, 
as a result of these same changes, the fiscal year 2014 budget projects 
FHA receipts of almost $13 billion, even as FHA market share and loan 
volume continue to be reduced.
            Fiscal Year 2013 MMI Fund Budget Re-Estimate
    The President's budget forecasts that the FHA MMI Fund, which 
provides the fiscal capital to support FHA's single family and reverse 
mortgage guarantees, will use $943 million of its mandatory 
appropriation authority to supplement its reserves at the end of fiscal 
year 2013. The MMI Fund currently has approximately $32 billion in cash 
available to pay claims, so this is not a cash on hand problem; it is 
one of setting aside the right size of loan loss reserves. The $943 
million figure is based on an annual re-estimate of the reserves FHA 
will need to hold as of September 30, 2013, for the payment of expected 
losses over the next 30 years on its portfolio of guaranteed loans as 
of last September, based upon Federal Credit Reform Act (FCRA) scoring. 
This re-estimate is done as part of the development of the President's 
budget.
    The potential for a mandatory appropriation to the MMI Fund is 
largely due to the existing reverse mortgage (Home Equity Conversion 
Mortgage or HECM) portfolio. This product, particularly as it has been 
structured to date, is sensitive to borrower longevity, home prices, 
and economic conditions. Lower than anticipated home price appreciation 
substantially affected the expected performance of the portfolio. 
Further, changes to the ways in which borrowers utilize the HECM 
product have shifted the risk profile of the program.
    Originally designed to be used like an annuity, in recent years 
market circumstances and lender preferences have shifted greater 
numbers of borrowers to take full draws via the Fixed Rate Standard 
product. Thus, borrowers are taking all of the funds available to them 
up front and often do not have the resources necessary in later years 
to pay property taxes and insurance, thereby triggering a default on 
the loan. Due to these changes in usage and performance, the budget 
estimates that the use of the HECM program results in a negative value 
of $5.248 billion and a disproportionately negative impact to the fund.
    FHA will take immediate action under its limited authorities to 
better align the HECM program with its objective of enabling seniors to 
age-in-place. These changes, which will significantly impact consumer 
use of the program, will protect FHA from losses and reduce the 
likelihood of borrower defaults.
    In administrative guidance dated January 30, 2013, FHA consolidated 
the Fixed Rate Standard program with the Fixed Rate HECM Saver product, 
which will result in a reduction of the maximum amount of funds 
available to a HECM borrower.
    Additionally, in an effort to reduce losses associated with the 
conveyance and disposition of properties mortgaged with an HECM, FHA 
will issue new incentives for estate executors of HECM borrowers to 
dispose of properties themselves rather than conveying them to HUD. 
Executors are permitted to either sell such properties or convey them 
to HUD. Reversing the historical trend, over the past few years, larger 
numbers of executors have been choosing to convey these properties to 
FHA rather than sell them, adding costs and reducing recoveries for 
FHA. By incentivizing the sale of properties by executors, FHA is able 
to avoid property management, maintenance, and marketing costs 
associated with the REO disposition process, thereby reducing losses to 
the fund on these properties.
    Whether there will be an actual need for a mandatory appropriation 
from the Treasury General Fund to the MMI fund will not be determined 
until September 2013, and will be based on FHA's realized revenues and 
any other developments through the end of the fiscal year. Notably, any 
mandatory appropriation to FHA would not involve approval from 
Congress, as all Federal loan programs have this standing authority. As 
we consider this potential mandatory appropriation, we must also 
acknowledge that FHA played a crucial, countercyclical role in bringing 
the housing market from the brink of collapse to a place where it is 
positive and growing again. This task did not come without its stresses 
which we are experiencing today. Nevertheless, FHA will remain vigilant 
in implementing the policies and practices discussed here to protect 
the fund.
Legislative Requests To Support FHA Single Family Programs
    Since 2010, Congress has moved in important ways to strengthen and 
protect FHA. Indeed, were it not for the flexibility granted by 
Congress to FHA in setting mortgage insurance premiums, the current 
economic value of the MMI Fund would be more than $10 billion lower 
than it is today. And the work Congress has done to establish FHA's 
first ever Office of Risk Management has been instrumental to our 
improved ability to identify risks in FHA programs and take action to 
mitigate them. We appreciate the commitment to making FHA stronger and 
more secure over the long term.
    We have several legislative requests that, when coupled with 
actions taken previously and the support provided by this budget, will 
allow us to further strengthen the FHA fund and the larger housing 
market. The proposals outlined below will enhance FHA's ability to hold 
lenders accountable for non-compliance with FHA policy, allow FHA to 
increase recoveries on defaulted loans, and provide greater flexibility 
for FHA to make changes to policies and procedures as emerging needs 
and trends are identified. As a result, FHA will better be able to 
avoid unnecessary losses before they occur.
  --Indemnification Authority for Direct Endorsement Lenders.--This 
        provision, which FHA has been seeking since 2010, would allow 
        FHA to seek indemnification from Direct Endorsement lenders, 
        which represent 70 percent of all FHA approved lenders. 
        Currently FHA only has authority to require indemnification for 
        lenders with Lender Insurance (LI) approval. In granting this 
        authority, FHA will be able to obtain indemnification from all 
        of its approved lenders for loans that do not comply with its 
        guidelines.
  --Authority To Terminate Origination and Underwriting Approval.--This 
        legislation would give FHA enhanced ability to review lender 
        performance and, if a lender is found to have an excessive rate 
        of early defaults or claims, would provide greater flexibility 
        in terminating the approval of the lender to originate or 
        underwrite single family mortgages for FHA insurance. FHA has 
        been seeking this authority since 2010.
  --Revised Compare Ratio Requirement.--This provision would revise the 
        statute governing the Credit Watch Termination Initiative to 
        provide greater flexibility in establishing the metric by which 
        FHA compares lender performance so that it more effectively 
        captures the true performance of a lender during all market 
        conditions, minimizing further poor performance by FHA lenders 
        while reducing uncertainty for them. Specifically, this 
        legislation would allow the Secretary to compare the rate of 
        early defaults and claims for insured single family mortgage 
        loans originated or underwritten by a lender with those same 
        rates for other lenders on any basis the Secretary determines 
        appropriate, such as geographic area, varying underwriting 
        standards, or populations served. Further, the provision would 
        permit the Secretary to implement such comparisons via 
        regulations, notice, or mortgagee letter. This will allow FHA 
        to tailor the compare ratio so it provides meaningful 
        comparisons of lenders in varying market conditions, providing 
        greater clarity for lenders and a more refined understanding of 
        their performance for FHA.
  --Authority To Transfer Servicing.--In order to facilitate more 
        effective loss mitigation, this change would give FHA the 
        authority to require any of the following actions when a 
        servicer is at or below a servicer tier ranking score (TRS) of 
        III, or when the Secretary deems the action necessary to 
        protect the interests of the MMI Fund: (1) transfer servicing 
        from the current servicer to a specialty servicer designated by 
        FHA; (2) require a servicer to enter into a sub-servicing 
        arrangement with an entity identified by FHA; and/or (3) 
        require a servicer to engage a third-party contractor to assist 
        in some aspect of loss mitigation (e.g. borrower outreach). 
        Such authority would permit FHA to better avoid losses arising 
        from poor servicing of FHA-insured loans, yielding better 
        results for both borrowers and FHA.
  --Authority To Structurally Change the HECM Program Through Mortgagee 
        Letter.--While the HECM product is an important tool to permit 
        seniors to age in place, the challenges outlined previously 
        necessitate immediate changes to the program. To make such 
        changes in a timely fashion and preserve the program for 
        seniors, FHA is seeking statutory authority to temporarily make 
        changes to the HECM program via mortgagee letter while formal 
        rule making is simultaneously in progress. Specifically, FHA 
        would make the following changes via mortgagee letter:
    --Limit the amount of the allowable draw;
    --Mandate the use of escrow accounts to ensure continued and timely 
            payment of property charges including taxes and insurance, 
            and;
    --Require the use of a financial assessment as part of the loan 
            origination process to ensure the appropriateness of HECM 
            products for potential borrowers.
    These changes will enable FHA to ensure that new HECM originations 
meet the needs of the target population and reduce risks to the MMI 
Fund. Absent ability to make these structural changes, later this 
fiscal year, FHA will have to take more dramatic action to ensure that 
new HECM originations are actuarially sound.
    HECM Non-Borrowing Spouse.--The intent of the HECM program is to 
provide an age-in-place option for senior citizen homeowners. However, 
from an operational standpoint, those homeowners must be party to the 
reverse mortgage for HUD to manage an actuarially sound program. 
Currently, if a mortgagor dies and no other HECM mortgagor continues to 
reside in the home, the loan becomes due and payable. The Department 
believes that in order to benefit from the HECM loan, a party must be 
eligible under the terms of the HECM, including the requirement that 
one be aged 62 or older and also have legal claim to the property. In 
order to clarify the responsibilities of non-borrowing spouses under 
the HECM program, HUD is proposing a general provision in the fiscal 
year 2014 budget that amends the National Housing Act to clarify that 
the HECM becomes due and payable upon the death of the mortgagor spouse 
in order to avoid future misunderstanding. The proposed amendment would 
make clear that HUD's longstanding regulations--in effect since the 
beginning of the program--comport with Congress' original intent.
    goal 2: meet the need for quality, affordable rental homes and 
                         healthcare facilities
    At a time 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 severely inadequate conditions, it is more important than ever to 
provide a sufficient supply of affordable rental homes for families of 
modest means--particularly since, in many communities, affordable 
rental housing does not exist without public support. Compounded by an 
aging population and increasing healthcare costs, strong support for 
quality, accessible healthcare is also an essential component in 
achieving the Department's mission of strong, sustainable, inclusive 
communities and quality, affordable housing and services for all 
Americans.
Office of Multifamily Housing Programs
            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. The Office of Multifamily Housing is beginning to 
realize savings in salaries and expenses as a result of several major 
initiatives.
  --Breaking Ground.--Completed in mid-fiscal year 2012, Breaking 
        Ground was an initiative in Multifamily Housing Development to 
        reduce backlogs, improve timeframes, and create an early 
        warning system that allows for more effective risk management 
        by creating extensive tools to monitor and access credit for 
        multifamily insured loans. These tools include a stronger 
        credit review of borrowers; an early warning system that 
        targets loans early in the process that do not meet FHA 
        underwriting criteria; and a dashboard monitoring tool to track 
        accountability of field offices; and establishment of a queue 
        in order to more efficiently manage workload and provide 
        greater transparency to lenders.
    Adopting this approach has produced positive results. Offices that 
had large application backlogs prior to Breaking Ground have reported 
processing efficiency improvements, methodically clearing out older 
applications--the number of applications in process for over 90 days 
dropped from 191 to 50 in just 7 months. In addition, offices that 
began Breaking Ground without a large backlog have begun to meet 
aggressive application processing time cycles. The Department will 
continue to track these metrics and looks forward to reporting on these 
results.
  --Sustaining Our Investments.--The Sustaining Our Investments 
        initiative, which was fully implemented last month, has 
        resulted in an overhaul of the processes used to manage the 
        portfolio of the Office of Multifamily Asset Management. The 
        initiative focuses on Risk Based Management--allowing project 
        managers at both the headquarters and field level to focus day-
        to-day operations on managing at-risk loans in the portfolio. 
        Risk-based reports keyed on financial and physical risk 
        triggers direct project managers to act early on potential 
        problems with particular assets. The first step in this 
        initiative was to complete a full ranking of FHA's entire 
        multifamily market rate portfolio to better assess and address 
        potential risk factors. The ranking of the non-insured 
        portfolio is now underway.
  --Loan Committee.--FHA Multifamily has also implemented a new loan 
        committee approval process, aligning Hub and Program Center 
        commitment authority and practice to ensure consistency in 
        underwriting throughout the regional offices, as well as to 
        provide a platform to share best practices. Loan committees at 
        the hub and national levels provide oversight for high-risk 
        transactions in the multifamily insurance program, based on 
        loan size and a project's number of units. Loan committee 
        approval processes are standard practice in the lending 
        community and are an important tool to prudently manage credit 
        risks and ensure the integrity and stability of the General and 
        Special Risk Insurance (GI/SRI) insurance fund. The Loan 
        Committee has also proven to be an effective tool for 
        increasing communication and a more consistent FHA platform.
            Adjusting Premiums To Properly Price for Risk
    Given the unprecedented increase in the number and dollar volume of 
loans insured under the GI/SRI, particularly with respect to ``market 
rate\1\'' loans, in the President's fiscal year 2013 budget proposal, 
the Department announced proposed premium increases for programs in the 
GI/SRI. Implemented on October 1, 2012, this was the first premium 
increase in 10 years for these programs.
---------------------------------------------------------------------------
    \1\ Generally, market rate housing covers a range of rental housing 
opportunities. In the FHA portfolio, market rate housing is generally 
affordable to those at approximately 80 percent of area median income.
---------------------------------------------------------------------------
    GI/SRI funds provide financing for the FHA multifamily and 
healthcare loan guarantee programs and several very small specialized 
loan products. This account also continues to hold a sizable portfolio 
of single family loan guarantees (HECM, condominium, and rehabilitation 
loans) insured prior to fiscal year 2009 when responsibility for new 
lending under these programs was transferred to the Mutual Mortgage 
Insurance Fund.
    In contrast, premiums for single family programs situated in FHA 
Mutual Mortgage Insurance (MMI Fund) have been increased four times 
since 2010. As with the premium increases for MMI programs, higher 
premiums for market rate loans originated under the GI/SRI funds ensure 
that FHA products are priced appropriately to compensate for FHA's 
risk, consistent with current market conditions. This premium change 
should also have the indirect benefit of encouraging the return of 
private capital to the Nation's mortgage markets.
    Going forward, FHA will continue to examine its business models and 
practices, with an eye toward continuing to improve its risk management 
capabilities and operational efficiencies while expediting processing 
and approval timelines.
            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. Through its mortgage insurance 
programs, over just the past 18 months, FHA facilitated lending of $4 
billion for new construction and substantial rehabilitation of over 
40,000 apartment units. FHA insured over $11 billion of mortgages that 
supported improvements and moderate rehabilitation of more than 150,000 
units of multifamily housing over the same period.
    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. Available funding is vastly insufficient to meet 
accruing needs of approximately $3 billion per year. Under the strain 
of this backlog, and without financing tools commonly available to 
other forms of affordable housing, the public housing inventory loses 
an average of 10,000 units annually through demolitions or 
dispositions. Through FHA and other programs, HUD is taking steps to 
address this shrinking inventory.
              Rental Assistance Demonstration
    In addition to the public housing stock, the Rental Assistance 
Demonstration (RAD) program targets certain ``at-risk'' HUD legacy 
programs. The 24,000 units assisted under section 8 Moderate 
Rehabilitation (MR) are limited to short-term renewals and constrained 
rent levels that inhibit the recapitalization of the properties. The 
approximately 21,000 units assisted under Rent Supplement (RS) and 
Rental Assistance Program (RAP) have no ability to retain long-term 
project-based assistance beyond the current contract term. As a result, 
as their contracts expire, we can no longer depend on these projects to 
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 fiscal year 2014 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: (1) not feasible to convert at current 
funding levels; and (2) 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 3,300 public housing 
units that would not otherwise be feasible to convert and sufficiently 
stabilize over the long-term, while helping to increase private 
investment in the targeted projects and surrounding neighborhoods.
    In addition to the funding request, each of the legislative 
requests in the 2014 budget for RAD are designed to allow for maximum 
participation by those public housing agencies (PHAs) and owners whose 
current funding levels are sufficient for conversion. In the first 
component of RAD, an increase in the 60,000 unit cap to 150,000 units, 
and the exclusion of section 8 MR properties from the cap will both 
allow for a greater portion of both the public housing and MR stock 
that can convert at no cost to the Federal Government to participate in 
the demonstration. It is expected that approximately 40 percent of the 
transactions conducted through the RAD program will leverage FHA 
insured financing, actually contributing to the generation of 
offsetting negative subsidy receipts for the Government.
            Legislative Requests To Support Multifamily Housing
    Nearly a third of the Nation's renters, more than 20 million 
households, live in small, unsubsidized apartment buildings. These 5- 
to 49-unit properties tend to be owned by small businesses and are 
typically more affordable to low and moderate income families. These 
properties are at risk of continued disinvestment as small building 
owners are less likely than other multifamily property owners to be 
able to secure financing for repairs and improvements. Small properties 
are less likely to have mortgage financing and just 14 percent of all 
fiscal year 2010 FHA-insured properties were for projects with fewer 
than 50 units.
    The fiscal year 2014 budget includes a legislative provision to 
support small building finance, and to strengthen the Risk Share 
program as a rental finance tool, seeks congressional authority for 
Ginnie Mae to guarantee securities containing FHA multifamily Risk 
Share loans, thereby increasing liquidity and decreasing cost of 
capital. This proposal would apply to both State and local Housing 
Finance Agency Risk Share lenders under section 542(c) and new Risk 
Share lenders under section 542(b). The proposal would also amend 
section 542(b) of the statute to allow for flexibility in how 
affordability is determined in order to make it a more effective tool 
to recapitalize existing naturally affordable 5-49 unit rental 
properties.
    Section 542(c) HFA Risk Share.--The extension of Ginnie Mae 
securitization to the 542(c) Risk Share program would improve HFAs' 
ability to finance affordable rental housing that serves some of the 
poorest and most vulnerable Americans, without requiring any Federal 
budgetary appropriation.
    Section 542(b) Risk Share and Small Building Finance.--The 542(b) 
Risk Share authorizing statute provides HUD with significant 
flexibility to take on risk-share partners. HUD plans to partner with 
mission-driven lenders to make loans on small multifamily rental 
buildings on a 50/50 risk share basis with HUD. In order for this 
program to work for small multifamily lending, two legislative changes 
are required. Access to Ginnie Mae guarantees for small building risk-
share lenders combined with flexibility on the statutorily imposed risk 
share affordability standard which otherwise requires ongoing rent and 
income restrictions will allow us to use this tool to meet the needs of 
these smaller properties and prevent disinvestment in a valuable 
portion of our Nation's housing stock.
Office of Healthcare Programs
    FHA's healthcare programs for hospitals and residential care 
facilities (nursing homes, assisted living facilities, and board and 
care homes) have helped private lenders fill the gap left by shrinking 
conventional finance resources. Since 1934, over 4,000 residential care 
facility mortgage insurance commitments were issued in all 50 States 
under the section 232 program. In 1968, enabling legislation amending 
the National Housing Act was signed into law, creating the section 242 
program for hospital facilities. Since the section 242 program's 
inception, over 400 mortgage insurance commitments have been issued for 
hospitals in 42 States and Puerto Rico. And while the economy seems to 
be rebounding and with it, sources of private capital, we continue to 
expect high levels of mortgage insurance activity for fiscal year 2014 
due in large part to refinancing activity as healthcare facilities take 
advantage of current low interest rates. Furthermore, following 
implementation of a final rule in 2013, hospitals can now obtain FHA-
insured refinancing loans. As of December 31, 2012, the FHA's portfolio 
of healthcare loan guarantees had an unpaid principal balance of $28.3 
billion on 2,900 loans.
            Evolution of FHA Healthcare Programs--Balancing Risk and 
                    Improving Processes
    This Administration, in continuing to improve the program has 
brought in positive risk management changes to both balance risk and 
improve processes. Given the unprecedented increase in the number and 
dollar volume of loans insured under GI-SRI, in fiscal year 2013, 
premium increases for FHA's General Insurance and Special Risk 
Insurance healthcare programs were instituted to increase the stability 
of the insurance fund. With the premium increases, FHA healthcare loans 
are priced more appropriately to encourage the return of private 
capital while, at the same time, continuing to ensure sufficient levels 
of available capital in these sectors.
    Proactive Asset Management.--In FHA's Office of Healthcare 
Programs, weekly loan committees are held to review and approve loan 
submissions and to monitor healthcare industry trends and risks. By 
implementing proactive asset management using early intervention 
monitoring tools, the Office of Healthcare Programs succeeded in 
maintaining claim rates of less than 1 percent in both healthcare 
facility mortgage insurance programs in fiscal year 2012.
    LEAN Business Process Reengineering.--LEAN Business Process 
Reengineering has also played an integral part in streamlining business 
operations within FHA's healthcare programs. Despite volume increases, 
LEAN processing improvements reduced loan processing times while 
increasing risk management efforts. Revised program requirements and 
documents were established to enhance accountability for borrowers, 
operators, and lenders. To further manage risk in the healthcare 
portfolio, in areas of large risk concentrations, such as insuring 
portfolios of multiple healthcare facilities, reviews are conducted at 
both the corporate and individual loan levels. In the residential care 
facility mortgage insurance program, implementation of a Master Lease 
Structure to cross-collateralize properties not only works to improve 
the overall risk profile of FHA's healthcare portfolio, but ultimately 
reduces claims.
    The Office of Healthcare Programs is in ongoing collaboration with 
the Department of Health and Human Services (HHS), Centers for Medicare 
and Medicaid Services (CMS), and State public health departments to 
support efforts to ensure quality of care for the most vulnerable 
populations. Also, by incorporating State survey inspection results, 
cost reports, and data from other Federal and State agencies into FHA's 
underwriting and asset management procedures, the shared utilization of 
data and cross-collaboration has been instrumental in keeping 
healthcare claim rates low within FHA.
            Legislative Request To Support Healthcare Programs
    As part of the efforts of FHA's healthcare programs to strengthen 
communities by addressing specialized financing needs, HUD is seeking 
passage of the language in the Transportation, Housing and Urban 
Development, and Related Agencies (THUD) appropriations bill to permit 
rural Critical Access Hospitals to be eligible for FHA insurance. 
Before their eligibility expired in 2011, 29 Critical Access Hospitals 
received FHA-insured loans, with results that were positive, both in 
terms of loan performance and the jobs created by hospital construction 
projects. Also, quality of life improved in their communities; these 
hospitals by definition are geographically remote from other hospitals, 
and they provide not only emergency, outpatient, and acute inpatient 
services but also nursing and rehabilitation services that avoid the 
need for the elderly and recuperating patients to leave the community 
for care.
    We appreciate the Congress' longstanding support for Critical 
Access Hospitals by amending section 242 to permit these important 
facilities to be eligible for FHA insurance, and hope that this 
language will be approved to allow Critical Access Hospitals to 
continue to be eligible for FHA insurance.
              goal 3: transform the way hud does business
    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 a HUD and an FHA that can meet those challenges. As such, we 
remain committed to improving the way HUD does business. 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 2014 budget reflects these critical roles, by investing in 
transformation, research, and development that will be implemented 
persistently over time.
Strategically Investing in Our Staff While Improving Efficiencies and 
        Processes
    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. This is why HUD is 
providing its employees training and leadership development 
opportunities. HUD is also in the process of simplifying and 
streamlining programs and reforming its information technology, human 
resources, procurement, and other internal support functions to provide 
flexibility to managers and better service to HUD customers.
            Multifamily Office Reorganization and Consolidation
    Beginning in fiscal year 2013, the Office of Multifamily Housing 
will begin reorganizing its headquarters structure and consolidating 
field office operations. Phased in over 2\1/2\ years, this plan will 
increase efficiency and consistency, modernize our services, and once 
fully implemented has the potential to save an estimated $40 million to 
$45 million in annual costs.
    By taking proactive steps, the Office of Multifamily Housing 
Programs will better serve customers and stakeholders, by operating 
more efficiently and consistently and improving risk management, all in 
an era where HUD and agencies across the Government are working 
diligently to determine how best to do more with less. This 
transformation builds upon the success of Breaking Ground and 
Sustaining Our Investments through four initiatives:
  --Launching More Routine and Effective Workload Sharing Across the 
        Country.--By more equitably distributing workloads in the areas 
        of Production and Asset Management, Multifamily Housing will be 
        able to reduce unevenly distributed pressure on staff and 
        reduce customer wait times and the application backlog. A 
        workload sharing pilot is already in process throughout the 
        country, receiving positive feedback from customers and staff.
  --Introducing Risk-Based Processing and Underwriters in the Office of 
        Multifamily Production.--In order to increase processing 
        efficiencies, improving customer service and more effectively 
        manage risk, FHA Multifamily will segment and process 
        applications according to their risk profile and complexity, 
        assigning an underwriter to oversee the review of the 
        application from start to finish, drawing in technical experts 
        as needed.
  --Creating Specialist Support in the Office of Multifamily Asset 
        Management.--The newly created positions of Troubled Asset 
        Specialist and Account Executives will allow Multifamily to 
        assign the most experienced staff to focus on risky, complex or 
        troubled assets, ensuring that the most skilled staff is 
        engaged to manage risk to the portfolio. Other Account 
        Executives with less expertise will focus on non-troubled 
        portfolio while building the expertise and skill sets to manage 
        more complex transactions.
  --Streamlining Organizational Structures.--In headquarters, FHA 
        Multifamily will reduce the number of offices by merging the 
        Office of Housing Assistance and Grants Administration and the 
        Office of Housing Assistance Contract Administration Oversight 
        into other existing headquarters offices. A dedicated Associate 
        Deputy Assistant Secretary role will be created to support the 
        field while leadership also examines other offices for ways to 
        streamline and reduce duplication of efforts. In the field, 17 
        hubs will be consolidated into 5--and the total number of field 
        offices with Multifamily presence will decline from 50 to 10. 
        Affected employees will have the ability to relocate, accept a 
        buy-out, or take early retirement.
Upgrading the Department's Information Technology Infrastructure
    In fiscal year 2014, HUD is requesting $285 million to support and 
modernize its information technology (IT) infrastructure. This request 
includes $45 million for the development, modernization, and 
enhancement of key outdated systems; $116 million for the operations 
and maintenance of our current systems; and $124 million to complete 
the transition to our new IT infrastructure system, HUDNET. Department-
wide efforts will focus on transitioning the department to a modern, 
sustainable IT infrastructure, and to continue the development of a 
modern financial management system that will improve HUD's ability to 
measure, track, and report on program costs and efficacy, and 
transitioning the current FHA systems to a modern platform. These steps 
are integral to the build the FHA systems and tools needed to manage 
risk.
    FHA in particular expects to expand its portfolio evaluation tool 
capacity to get an ``early look'' at where the value of the MMI fund is 
trending, and to incorporate new business policies or products when/
where needed. HUD has begun to decommission legacy FHA applications and 
will continue this through the fiscal year 2014 request, freeing up 
those IT dollars for reinvestment. These changes will allow HUD to 
deliver services and manage its 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
    Madam Chairman, the HUD 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. Equally important, it expresses the confidence of the 
President in the capacity of HUD to meet a high standard of 
performance.
    By targeting resources where they are most needed, making tough 
choices in order to do more with less, and ensuring the protection of 
taxpayer interests, FHA's Single Family, Multifamily, and Healthcare 
Programs, are ensuring more Americans have the opportunity to realize 
or maintain the economic security of the middle class. Our focus on 
transforming the way we do business will ensure that we can continue to 
remain a relevant and effective support to the housing market--one that 
helps build the economy from the middle class out and ensures that we 
create opportunity for everyone, everywhere. Thank you.

    Senator Murray. Mr. Montoya.

               SUMMARY STATEMENT OF HON. DAVID A. MONTOYA

    Mr. Montoya. Thank you, Senator. Chairman Murray, Ranking 
Member Collins, I am David Montoya, the Inspector General for 
the Department of Housing and Urban Development. We join you in 
remembering Senator Lautenberg's contributions to the United 
States.
    I want to take the opportunity to thank you for inviting us 
to discuss issues on FHA and also to thank the Commissioner for 
her collaborative efforts with my office over the last 1\1/2\ 
years that I've been there and some of the changes that we've 
been looking to make with them.
    FHA is an important spoke in the Nation's housing industry, 
as FHA-insured mortgages finance approximately one-fourth of 
all home purchases in the United States. For this reason, my 
office has been aggressive in its oversight of the FHA program. 
In fact, over the years, my office has consistently expressed 
concerns about the level of oversight and risk taken on by FHA 
and the effect this has had on its financial health.

                    PROPOSED RULEMAKING REQUIREMENTS

    Unfortunately, and for a number of reasons, FHA has been 
slow to respond to many of our recommendations. One reason is 
FHA's requirement for proposed rulemaking. This process can 
take years to finish and delays FHA's ability to make 
regulatory changes or respond quickly to market conditions and 
financial forces. Another reason for the slowness is a 
reluctance, at times, to adopt our recommendations because of 
FHA's concern over the impact changes would have on its market 
share and how such changes would affect the industry.
    One notable example dates back to 1999 regarding 
recommendations my office made back then to discontinue the use 
of seller-funded downpayment assistance. It took almost 9 years 
for FHA to change this practice, and that inaction reverberates 
today as these loans are expected to cost the Mutual Mortgage 
Insurance Fund over $15 billion.
    In another example, the Office of Inspector General 
testified in 2009 about FHA taking on new risks, such as the 
expansion of FHA's HECM program that you just mentioned. This 
product has disproportionately and negatively impacted the MMI 
Fund, and the President's budget has assigned a negative value 
of approximately $5.2 billion to the HECM portfolio for 2013. 
Overall, FHA estimates that it will need to use just under $1 
billion of its appropriation authority to supplement its 
reserves, largely due to the poor performance of the HECM 
portfolio.
    It remains that the fund has failed to maintain a capital 
ratio of 2 percent for the past 4 years and each year has seen 
a further decline in the fund's economic value, which has now 
fallen to a negative $16.3 billion. Based on current actuarial 
projections, the capital ratio will now not reach the 2 percent 
level until 2017, which would represent 8 years continually 
below the 2 percent threshold mandated by Congress.

                      REAL ESTATE-OWNED PROPERTIES

    In addition to unprecedented levels of claims, 
approximately $67 billion in just the last 4 years, FHA can 
expect to see a continuing influx of claims for the foreseeable 
future. FHA's reported default rate on seriously delinquent 
loans as of January 2013 stood at approximately 9.5 percent. 
Based on our analysis of FHA data, the total unpaid balance on 
FHA's single family loans in default now exceeds $100 billion.
    HUD also continues to face challenges in managing its 
inventory of real estate-owned (REO) properties. HUD's 
oversight will be critical to ensure that returns on property 
sales are maximized, thereby reducing further losses to the 
fund. FHA's losses on REO property sales exceeded $9 billion in 
2012.
    Another significant concern we continue to express is FHA's 
ability to perform required financial management functions on 
legacy systems that are at least 15 to 30 years old. FHA needs 
to enhance its integrated insurance and financial systems. 
Unfortunately, FHA's ability to replace the antiquated 
infrastructure on which many FHA single family applications 
reside has been delayed.
    While FHA has taken various measures to restore the 
financial health of the fund, we think more can be done with 
adjustments to their actuarial modeling and in the area of risk 
management and lender oversight. With regard to lender 
oversight, my office continues to conduct reviews that have 
shown high percentages of loans containing not only significant 
deficiencies, but material incurable violations of HUD 
underwriting requirements and standards that expose the fund to 
an unacceptable level of risk and claims that FHA never agreed 
to take on under the insurance program.
    In conclusion, we remain concerned over the lack of 
flexibility that would allow FHA to respond to market changes 
and to our recommendations in a more timely way. FHA's 
competing mandate to continue its role in restoring the housing 
market, ensuring the availability of mortgage credit, and 
continued lender participation in the FHA program should 
heighten these concerns for policy makers.
    My office is strongly committed to working with the 
Department and the Congress to ensure that FHA remains the 
viable and strong program it was intended to be.

                           PREPARED STATEMENT

    This concludes my testimony. Again, thank you for allowing 
me to speak to you today. I look forward to answering 
questions.
    [The statement follows:]
              Prepared Statement of Hon. David A. Montoya
    Chairman Murray, Ranking Member Collins, and members of the 
subcommittee, I am David A. Montoya, Inspector General of the U.S. 
Department of Housing and Urban Development (HUD). Thank you for the 
opportunity to discuss the oversight of the Department that my office 
conducts and current issues relating to the Federal Housing 
Administration (FHA).
    As part of the Department's primary mission to create strong, 
sustainable, inclusive communities and quality, affordable homes for 
all, HUD also assists families in obtaining housing by providing FHA 
mortgage insurance. HUD is an important spoke in the Nation's housing 
industry in that FHA-insured mortgages finance approximately one-fourth 
of all home purchases in the United States.
    Since becoming the Inspector General, I have had an ongoing 
dialogue with FHA Commissioner Carol Galante on the challenges that the 
Department and FHA face and the work my office has done in its 
oversight capacity.
    In a very coordinated effort, the Department and Office of 
Inspector General (OIG) worked collaboratively to achieve a historic 
result with last year's national mortgage settlement of more than $25 
billion--the largest consumer financial protection settlement in U.S. 
history. We are building on that success and have undertaken an 
initiative to review fraudulent loan originations made by some of the 
Nation's largest mortgage companies in the FHA program. These endeavors 
showcase the accomplishments that we are engaged in, not only with the 
Department, but also working closely with the U.S. Department of 
Justice (DOJ).
    While I continue to support our activities relating to these 
reviews, I also endeavor to manage my limited resources to provide 
proper oversight of the many other programs and operations within the 
Department and its role in responding to Hurricane Sandy and other 
disasters. The following testimony highlights some of the more pressing 
issues facing the Department's administration of the FHA program, 
particularly in light of its increased role in the marketplace.
           a history of oig concerns and fha's slow response
    HUD OIG has consistently expressed its concerns over the years 
about the level of oversight and risk taken on by FHA and the effect on 
its financial health. Unfortunately and for a number of reasons, FHA 
has been slow to respond to many of our recommendations and has only 
recently finally implemented some of them. For example, it has been 
noted that while seller-funded downpayment-assisted loans have been 
prohibited since the end of 2008, OIG has expressed its concern to FHA 
over the negative impact of seller-funded downpayments on FHA as far 
back as 1999. Loans using seller-funded downpayment assistance have 
proven to place a substantial stress on FHA's Mutual Mortgage Insurance 
(MMI) Fund.
    OIG completed its first comprehensive analysis of seller-funded 
downpayments in March 2000, looking in depth at this and the associated 
program risks, as these loans increasingly began to consume a larger 
share of FHA loan originations. We concluded that HUD allowed nonprofit 
organizations to operate downpayment assistance programs that 
circumvented FHA requirements. The downpayment loan transactions did 
not meet the intent of FHA requirements in that the downpayment 
assistance was not a true gift from the nonprofit; sellers raised the 
sales price of properties to cover the cost of the seller-funded 
downpayment assistance, causing buyers to finance higher loan amounts; 
and default rates for buyers receiving downpayment assistance from 
nonprofit organizations were significantly higher than for other FHA 
loans. We recommended back then that HUD implement a proposed rule to 
eliminate seller-funded nonprofit downpayment programs.
    Our long-term concerns and findings were later validated by several 
FHA-commissioned studies and by a U.S. Government Accounting Office 
(GAO) study in 2005, 6 years after we first raised concerns. However, 
FHA still resisted implementing our recommendation, in part because the 
change would have required the Department to go through the rulemaking 
process and there were concerns about whether FHA would prevail. More 
significantly, however, was FHA's concern at the time about the impact 
such a change would have on its market share. By 2006, the 
concentration of nonprofit downpayment assistance had approached 25 
percent of FHA's new business portfolio, including purchase and 
refinance loans. FHA did not act to end the practice until 2007, and 
then legal challenges caused further delay. Ultimately, legislation to 
disallow the practice was enacted in 2008, too late to prevent the 
looming losses we are now seeing.
    The legacy of this delayed inaction reverberates today as seller-
funded downpayment-assisted loans continue to place significant stress 
on the MMI Fund. According to HUD's fiscal year 2012 report on the 
financial status of the fund, these loans account for only 4 percent of 
the outstanding portfolio but are 13 percent of all seriously 
delinquent loans. Over the life of the loans, seller-funded downpayment 
loans are expected to cost the MMI Fund more than $15 billion.
    Similarly, in 2007, FHA was pressing for ``reform'' legislation 
that, among other things, would have raised loan limits and allowed FHA 
to insure loans with no borrower downpayment requirement. At the time, 
FHA's share of the mortgage market had fallen to less than 4 percent of 
the total market and less than 2 percent of the total dollars for 
mortgages originated in the United States. Indeed, with the ready 
availability of conventional subprime financing, FHA was perceived as 
becoming increasingly irrelevant, and the primary concern at FHA was to 
find ways to increase its market share. It focused more on marketing 
FHA loans than on instituting sound risk management and lender 
oversight.
    HUD OIG testified in March 2007 and expressed its concern as to 
whether FHA was headed in the same direction as the subprime market 
with its seemingly continued deregulation and introduction of 
``riskier'' products as part of its proposed reform. FHA seemed to have 
lost sight of the fact that since its inception, it has played a 
cyclical role in the housing market, sometimes gaining market share in 
times when it was needed to bolster the market and sometimes losing 
share when the conventional marketplace was addressing the constituency 
that FHA has always focused on: low- to moderate-income and first-time 
potential home buyers. However, this always remained true; whether in 
the conventional or Government mortgage programs, no loans should have 
been given if the purchaser was unable to pay back the loan.
    Finally, in April 2009, when the effects of the economic crisis and 
collapse of the housing market were becoming more and more ominous, OIG 
testified before this subcommittee and expressed its concern about the 
impact of FHA's precedence-setting increased market share and HUD's 
ability to manage the increased workload with its limited and stagnant 
resources. FHA was also taking on new risk that needed to be managed. 
As an example, the Housing and Economic Recovery Act of 2008 authorized 
changes to FHA's Home Equity Conversion Mortgage (HECM) program that 
enabled more seniors to tap into their home's equity and obtain higher 
payouts. This office, at the time, raised concerns about HUD's ability 
to provide proper oversight as there was a critical need for more 
resources for FHA. Those resources were needed to:
  --enhance its information technology (IT) systems;
  --increase its personnel to meet escalating processing requirements;
  --increase its training of personnel to maintain a workforce with the 
        necessary skills to deal with the responsibility of this new 
        portfolio;
  --oversee the many contractors it maintained; and
  --increase its oversight of all critical front-end issues, including 
        such important areas as the appraisal, lender approval, and 
        underwriting processes.
    The HECM program was originally projected to be profitable for FHA 
but has turned out to be a substantial drain on the insurance fund. I 
will discuss the HECM program in more detail later in my testimony. 
While Secretary Donovan and FHA Commissioner Galante are proactive and 
supportive of OIG and its recommendations, I have to note, as described 
above, that FHA's reluctance over the years to more quickly deal with 
its looming issues has taken a toll, a toll we are only now beginning 
to understand. FHA has been trying to improve its financial position in 
recent years with legislative and regulatory proposals. But as we said 
years ago at the beginning of the subprime crisis, movement in the 
Department is more like turning an ocean liner than driving a fast boat 
through the tempests and currents of an ever-changing mortgage market.
    A recent example of FHA's apparent inability to quickly react to 
changing conditions can be seen in its efforts to require lenders to 
indemnify HUD for serious and material violations of FHA origination 
requirements and for fraud and misrepresentation in connection with the 
origination of FHA loans. Historically, HUD has sought such 
indemnifications through agreement with the lenders. HUD already 
possesses the statutory authority to require such indemnifications for 
lenders participating it its Lender Insurance program and issued a 
proposed rule in October 2010 to, among other things, provide 
additional guidance on HUD's regulations implementing this authority. 
The rule was not finalized until January 2012, and the mortgagee letter 
to implement the change in policy was not issued until a month ago on 
April 10. According to the mortgagee letter, the revised 
indemnification policy is effective for all loans insured by Lender 
Insurance program lenders on or after that date. Thus, 2\1/2\ years 
have passed since the rule was proposed, and it remains to be seen 
whether this will be an effective tool in recovering losses since FHA's 
homeownership centers have yet to implement the change. To further 
exacerbate this situation, since 2010, HUD has been seeking statutory 
authority to require indemnifications from the remaining 70 percent of 
its direct endorsement lenders that do not participate in the Lender 
Insurance program.
    Based on OIG's experience in dealing with FHA over the years, we 
remain concerned about HUD's resolve in taking the necessary actions 
going forward to protect the fund. HUD is often hesitant to take strong 
but needed actions against lenders because of its competing mandate to 
continue FHA's role in restoring the housing market and ensure the 
availability of mortgage credit and continued lender participation in 
the FHA program. Nevertheless, OIG has generally been supportive of 
FHA's initiatives to raise premiums and better manage its risk, 
including the establishment of its Office of Risk Management. 
Similarly, we strongly agree with HUD's position that FHA needs 
legislative changes to afford it greater flexibility to make changes to 
its policies and procedures as history has shown that it needs to be 
able to react more quickly to market changes and avoid losses that can 
accrue during a lengthy rulemaking process. In this light, my office is 
developing its own set of recommended legislative initiatives that we 
believe can further strengthen FHA's ability to mitigate risk and 
recover losses to the insurance fund and enhance OIG's ability to 
address fraud, waste, and abuse in the program. We will be vetting 
these proposals with FHA and the appropriate committees.
       financial health of the fha mutual mortgage insurance fund
    FHA's MMI Fund is the largest of its four mortgage insurance funds. 
The fund consists of a system of accounts used to manage FHA's single-
family mortgage insurance programs. The Cranston-Gonzalez National 
Affordable Housing Act of 1990 mandated that the MMI Fund maintain a 
capital ratio of 2 percent from October 1, 2000, forward. The capital 
ratio is defined as the ratio of the fund's economic value to its 
insurance in force. The economic value essentially represents capital 
that exceeds the amount needed to cover anticipated losses. Clearly, 
when establishing this mandate, Congress voiced its concerns that some 
sort of cushion was important to maintain. The capital ratio has been 
below this required 2 percent level for the past 4 years, and each year 
has seen a further decline in the ratio to the point at which, based on 
the latest actuarial study in November of last year, the ratio has 
fallen below zero to negative 1.44 percent, which represents a negative 
economic value of $16.3 billion. The economic value of the forward 
portfolio was estimated at negative $13.5 billion and the HECM 
portfolio at negative $2.8 billion. These economic values represent 
capital reserve ratios of negative 1.28 percent and negative 3.58 
percent, respectively.
    Over the last several years, FHA has increased premiums and taken 
other steps to restore the financial health of the MMI Fund. 
Nevertheless, based upon FHA's deteriorating financial condition, in 
February 2013, GAO included FHA concerns in its ``high risk'' section 
relating to ``Modernizing the U.S. Financial Regulatory System and 
Federal Role in Housing Finance.'' It was not FHA itself that was 
deemed a high risk but, rather, FHA as part of the larger high-risk 
concern over the Federal role in housing finance.
    While we acknowledge the Department's actions to address the MMI 
Fund's finances, my office remains concerned about whether the actions 
are enough to make up for the losses FHA has sustained and to reach the 
required 2 percent level anytime in the near future. For example, FHA 
is now using credit scores as part of the eligibility requirements for 
FHA loans. As of October 2010, borrowers with credit scores below 500 
are no longer eligible for FHA insurance, and the maximum loan-to-value 
ratio for borrowers with credit scores between 500 and 579 is 90 
percent. At the time these changes were being proposed, we expressed 
our overall support but also took the position that the changes did not 
go far enough and would likely have minimal impact on the MMI Fund in 
terms of bringing in additional premiums. While FHA enacted increased 
downpayment requirements for borrowers with credit scores below 580, we 
noted that loans for borrowers with credit scores below 580 were less 
than 1 percent of new activity. Moreover, the 580 credit score 
threshold is well into what is traditionally considered subprime 
territory in the conventional marketplace. A higher downpayment 
requirement at the appropriate credit score level would force borrowers 
to have more personal stake and financial exposure, which we believe 
would have a more meaningful impact in protecting the fund due to the 
larger volume of loans at higher credit score levels. The more a 
borrower is personally financially invested in a loan, the more 
unlikely he or she will be willing to give up on the investment.
    As shown in the chart below from data we obtained from HUD's 
systems as of April 12, 2013, FHA has experienced high levels of claims 
in recent years compared with levels seen before the financial crisis. 
For purposes of illustration, the following chart reflects total FHA 
insurance claims from calendar years 2005 through 2008, the year that 
the current financial crisis began.

                                                                  FHA INSURANCE CLAIMS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Forward mortgage claims       Home equity conversion        Loss mitigation claims                 Total
                                 ------------------------------        mortgage claims       -----------------------------------------------------------
              Year                                             ------------------------------
                                    Claims      Amount paid       Claims      Amount paid       Claims      Amount paid       Claims      Amount paid
--------------------------------------------------------------------------------------------------------------------------------------------------------
2005............................     68,455     $6,562,000,000      1,187        $87,000,000     75,407       $119,000,000    145,049     $6,768,000,000
2006............................     57,243      5,595,000,000      1,514        143,000,000     82,365        170,000,000    141,122      5,908,000,000
2007............................     54,556      5,629,000,000      2,257        256,000,000     84,758        150,000,000    141,571      6,035,000,000
2008............................     62,440      6,981,000,000      3,149        381,000,000    104,092        204,000,000    169,681      7,566,000,000
                                 -----------------------------------------------------------------------------------------------------------------------
      Total 2005 to 2008........    242,694     24,767,000,000      8,107        867,000,000    346,622        643,000,000    597,423     26,277,000,000
                                 -----------------------------------------------------------------------------------------------------------------------
2009............................     83,881     10,163,000,000      4,652        567,000,000    131,115        268,000,000    219,648     10,998,000,000
2010............................    119,830     15,654,000,000      5,681        559,000,000    208,876        411,000,000    334,387     16,624,000,000
2011............................    118,475     15,144,000,000      8,684        928,000,000    173,163        563,000,000    300,322     16,635,000,000
2012............................    155,266     20,245,000,000     14,207      1,432,000,000    142,551        660,000,000    312,024     22,337,000,000
                                 -----------------------------------------------------------------------------------------------------------------------
      Total 2009 to 2012........    477,452     61,206,000,000     33,224      3,486,000,000    655,705      1,902,000,000  1,166,381     66,594,000,000
                                 =======================================================================================================================
      Grand total 2005 to 2012..    720,146     85,973,000,000     41,331      4,353,000,000  1,002,327      2,545,000,000  1,763,804     92,871,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As reflected in the charts above, the amount FHA paid in claims 
during the last 4 years was about 2\1/2\ times the amount paid during 
the preceding 4 years ($66.6 billion vs. $26.3 billion). The total 
amount of claim payments rose substantially in 2009 and has continued 
to increase.
    Apart from the obvious financial implications, this situation 
creates a challenge for FHA, since the Prompt Payment Act requires HUD 
to pay the claim on a defaulted FHA-insured mortgage within 30 days and 
only then can it go back to the lender that underwrote the loan to 
recover losses incurred if it finds that the loan was ineligible for 
insurance. Thirty days is an insufficient amount of time for HUD to 
determine whether a loan was ineligible for insurance due to fraud or 
misrepresentation in the loan origination process. The result of this 
requirement places HUD in a ``pay and chase'' situation as our past 
audits have expressed concern over HUD's exposure when paying claims on 
loans that were not qualified for insurance. In addition, FHA has been 
resistant and slow in implementing a rigorous claim review process and 
to recover losses from lenders instead relying primarily on a strategy 
to focus efforts on loans that had not reached claim status. FHA only 
recently agreed with recommendations we made as far back as 2006 and 
again in 2011 to review all loans for which a claim was paid within the 
first 24 months, claims we define as high-risk claims. This matter 
takes on even greater importance in light of the significant amount of 
claims projected to be filed by lenders in the coming months and HUD's 
current limited capacity for reviewing submitted claims.
    In addition to the unprecedented levels of claims noted above, FHA 
can expect to see a continuing influx of claims in the foreseeable 
future. The latest FHA-reported default rate (seriously delinquent 
loans) as of January 2013 stood at 9.49 percent. By comparison, the 
default rate in September 2008 was 6.91 percent. Based on our analysis 
of FHA data, the total unpaid balance of FHA single-family loans in 
default now exceeds $100 billion.

 FHA LOANS IN DEFAULT (3 MONTHS OR MORE DELINQUENT) AS OF MARCH 31, 2013
------------------------------------------------------------------------
                     Loans                            Unpaid balance
------------------------------------------------------------------------
724,173........................................         $103,324,000,000
------------------------------------------------------------------------

    While FHA has taken a position that its current losses are 
primarily from loans made from 2007 to 2009, it continues to project 
that the current and future years' books of business will be profitable 
and make up for these past years' losses. However, what we have seen in 
the past 4 years is a troubling trend, whereby the point at which the 
MMI Fund is expected to reach its mandated capital level is pushed 
farther into the future. In the fiscal year 2009 independent actuarial 
study, it was predicted that by the end of fiscal year 2011, the MMI 
Fund's capital ratio would be 1.74 percent and that the MMI Fund would 
meet the 2 percent mandate sometime during fiscal year 2012. In the 
following 3 years, that forecast has changed dramatically as the 
capital ratio has continued to move in the wrong direction and is now 
negative. In addition, we now have concerns about the fiscal year 2010 
and 2011 books of business as their profitability appears to be lower 
than projected and budgeted, as indicated and supported in the fiscal 
year 2014 Federal Credit Supplement to the Budget, although not as 
substantially different as the reestimates from the earlier years of 
2007 to 2009.
    Based on current projections, the capital ratio will not reach the 
2 percent level until 2017, marking 8 years below the 2 percent 
threshold. Moreover, these estimates are heavily influenced by the pace 
at which housing prices will recover. Any additional slowdown in the 
housing market will increase FHA losses and further delay FHA's ability 
to meet its statutorily mandated 2 percent requirement. We continue to 
work with FHA to ensure that it is instituting sound risk management 
and lender oversight practices to avoid further exposure of the MMI 
Fund to losses.
    My office also continues to stress that the FHA actuarial model is 
complicated and difficult to audit, use, and employ for risk management 
and strategic planning purposes. The model inhibits frequent updates as 
well as the ability to understand changes in specific programs or risk 
categories. Ultimately, its current design and objective are to be in 
statutory compliance and do not promote FHA's timely use of policy 
corrections based on products, cohorts, or risk classifications for 
current or interim benchmarking decisions. While we have recommended 
modeling at the midterm or quarterly, which we believe would provide 
FHA a better basis for timely policy corrections and assessing the 
actuarial value of the MMI Fund, the model cannot be easily changed 
because it is proprietary and owned by the actuarial firm. I continue 
to have discussions with the FHA Commissioner regarding these issues.
    With regard to one recent change in the modeling, the 2012 
actuarial study applied a stochastic method to estimate the net present 
value of future cash flows. This was done to a large extent because of 
recommendations by OIG and GAO, recommendations that had been made for 
some years before 2012.
                home equity conversion mortgage program
    The FHA HECM program is the only Government-insured reverse 
mortgage program. The HECM program guarantees that the lender will meet 
its payment obligations to the homeowner, limits the borrower's loan 
origination costs, and insures full repayment of the loan balance to 
the lender up to the maximum claim amount; that is, the lesser of the 
appraised value at origination or the national HECM loan limit of 
$625,500. HECM insurance endorsements in fiscal year 2012 were down by 
25 percent from fiscal year 2011 levels to 54,591. Fiscal year 2012 
marks the third consecutive year in which HECM volume has declined. 
Yet, with a declining HECM demand, FHA asserts that the fiscal year 
2014 budget request for $943 million is largely due to the existing 
HECM portfolio. This product, particularly as it has been structured to 
date, is sensitive to home prices and economic conditions. This 
condition has resulted in a negative value of $5.248 billion and a 
disproportionately negative impact to the MMI Fund from the HECM 
program.
    FHA is proposing, either through the granting of the legislative 
authority described below or via the much longer rule-making process, 
the following measures:
  --Limiting the draw at origination to mandatory obligations;
  --Addressing the issue of non-borrowing spouse language in the fiscal 
        year 2015 budget;
  --Performing a financial assessment of borrowers as a basis for loan 
        approval and determining the suitability of various HECM 
        products to protect consumers from acquiring loans not fit for 
        their situation; and
  --Establishing a tax and insurance set-aside to ensure that 
        sufficient equity or an annuity is available to pay taxes and 
        insurance on the mortgaged property so that defaults resulting 
        from nonpayment of taxes and insurance can be avoided.
    While OIG supports these proposed changes, it continues to raise 
concerns about FHA's belated actions. Since 2008, OIG has been 
proposing similar changes to the HECM program based on results of its 
audit and investigative work. The four OIG reports discussed below 
identified problems with reporting borrowers' deaths, payment of 
required property taxes and insurance, reliability of financial data, 
and compliance with the HECM residency requirement.
    A 2008 audit found that HUD did not ensure that FHA lenders 
reported HECM borrowers' deaths in accordance with Federal 
requirements. HUD could not be assured that FHA lenders appropriately 
met HUD's time requirement for initiating the foreclosure process or 
recording the deeds-in-lieu to take possession of the property, which 
impacted the amount of the lender's insurance claims.
    In an internal audit issued in August 2010, we determined that HUD 
had not tracked almost 13,000 defaulted HECM loans with maximum claim 
amounts of potentially more than $2.5 billion. The audit found that an 
increasing number of borrowers had not paid required taxes or 
homeowner's insurance premiums, thus placing the loan in default. We 
noted that HUD granted foreclosure deferrals routinely on these 
defaulted loans but it had no formal procedures to do so. HUD's 
informal foreclosure deferral policy had a negative effect on the 
universe of HECM loans and loan servicers. After canceling its informal 
policy, HUD did not issue guidance to servicers advising them of what 
action to take regarding defaulted loans. Thus, servicers continued to 
service the loan and paid the taxes and insurance for the borrowers 
without notifying HUD. As a result, four servicers contacted were 
holding almost 13,000 defaulted loans with a maximum claim amount of 
more than $2.5 billion, and two of the four servicers said they were 
awaiting HUD guidance on how to handle them.
    The servicers had also paid approximately $35 million in taxes and 
insurance on these loans. HUD was unable to identify the deferred or 
defaulted loans in its system and did not track the number of borrowers 
who were unable to pay their taxes or insurance premiums. Since 
unreported defaulted loans were only obtained from 4 of a total of 16 
HECM servicers nationwide, more defaulted loans may have existed. Since 
HUD could not track these loans, it did not know the potential claim 
amount in the event of foreclosure of about 7,700 loans of which HUD 
was aware and about 13,000 loans of which it was not aware and could 
lose an additional estimated $1.4 billion upon the sale of the 
properties.
    In June 2011, we issued a report on HECM loan payments made after 
the death of the borrower. Our results indicated a few instances in 
which unscheduled advance payments were made after the death of the 
borrower, which resulted in claims paid by HUD, although we did not 
believe this was a systemic problem. In most cases, we found that 
scheduled payments were not actually made after the death of the 
borrower but were incorrectly recorded in HUD's Insurance Accounting 
Collection System by the lenders. More noteworthy was the fact that 
loan proceeds from the sale of property and claims paid by HUD were not 
credited to the HECM loan balances in a timely manner, resulting in 
inaccurate information being reported to HUD, causing unreliable 
financial data to be used by HUD. This evaluation also noted instances 
in which HECM loan servicing files contained indications of suspicious 
or potentially fraudulent transactions; however, there was no evidence 
that such matters were referred to HUD for further action. Lender 
officials stated that HUD's guidance in this area was too broad and 
that specific fraud indicators should be included in any future 
guidance.
    Finally, in an internal audit issued in December 2012, we found 
that HUD policies did not always ensure that borrowers complied with 
program residency requirements under the HECM program. A review of 174 
borrowers indicated that 37, or 21 percent, were not living in the 
property associated with the loan as required by the residency 
requirement to participate in the HECM program. These 37 loans were 
ineligible and should have been declared in default and due and payable 
to reduce the potential risk of loss of about $525,000 to HUD's 
insurance fund. These 37 loans had already been advanced $5.8 million, 
with the $525,000 remaining to be disbursed, although the borrowers 
were not living in the home.
    In addition to the above-mentioned audits and reviews, the OIG 
Office of Investigation completed a number of criminal cases in which 
the criminals used elderly straw buyers to obtain HECM loans.
    Due to the negative value of the MMI Fund, OIG plans to work 
closely with FHA in obtaining its proposed changes to the HECM program 
and in furthering other OIG-recommended changes to the program.
  oig efforts to recover losses and address fraud against the mmi fund
    As noted earlier, FHA has taken various measures to restore the 
financial health of the MMI Fund. OIG has also played an active role in 
this regard by aggressively pursuing and recovering losses from lenders 
that were engaged in questionable and often fraudulent underwriting of 
FHA loans. In the early part of 2011, OIG, in partnership with HUD and 
DOJ, initiated a number of mortgage lender reviews, whereby statistical 
samples of claims, defaults, and all other loans were drawn to 
determine the accuracy and due diligence of the underwriters of FHA 
loans by a number of the Nation's largest lenders. The reviews 
completed to date have resulted in a total of $1.24 billion in civil 
settlements for alleged violations of the False Claims Act and for 
failure to fully comply with FHA requirements. Some of these 
settlements involved some of America's largest lending institutions.
    The loan-level reviews OIG has been conducting and which have 
resulted in large civil fraud settlements with major lenders are on the 
order of what we would expect HUD to be doing for itself as an inherent 
program responsibility. Examples of these activities include (1) 
reviews of seriously delinquent loans before claim submission and 
terminated loans upon claim submission for origination and 
misrepresentations and (2) claim mitigation in which claims are 
reviewed for documentation issues, violations of servicing 
requirements, and potential collateral-related defects. These examples 
are normal and expected practices in the private mortgage insurance 
sector. This issue relates to earlier comments about FHA's resistance 
to and slowness in implementing a rigorous claims review process and 
going back to the lenders to recover losses instead relying primarily 
on a strategy to focus efforts on loans that had not reached claim 
status.
    OIG continues to aggressively review lender origination and 
underwriting practices as part of its ongoing oversight efforts in a 
housing market that for years was reckless about lending money. 
Imprudent business practices became a pervasive problem, and now those 
loans underwritten during that time are having a significant negative 
impact on the MMI Fund. The result has been a dramatic increase in 
mortgage delinquencies, defaults, and foreclosures. Too often lenders 
ignored FHA requirements to get a loan approved. Borrowers were sold 
unsustainable mortgages, sometimes unsuspectingly and sometimes with 
their full knowledge, which encouraged widespread indifference to the 
ability of many consumers to repay their loans. Some lenders thought 
they could make money on a loan even if the consumer could not pay back 
that loan, by either banking on rising housing prices or passing along 
the mortgage into the secondary market.
    Adding to this problem was a 100 percent insurance guarantee by 
FHA, which created no real financial exposure to these losses on the 
part of the lender and in some cases, no real incentive to comply with 
the requirements of participation. The practices of many lenders were 
not just the result of poor procedures but involved real infractions of 
good business stewardship and proper behavior when participating in the 
FHA program. A failure by FHA to create a strong and meaningful 
oversight atmosphere creates an environment that virtually invites the 
abuses we have seen in our lender reviews. Quite simply, lenders are 
responsible for complying with all applicable HUD regulations and in 
turn are protected against default by FHA's insurance program for doing 
so. To provide some context, mortgage fraud is second only to 
healthcare fraud on DOJ's list of investigative and prosecution 
priorities.
    Indeed, our reviews have shown high percentages of loans containing 
significant deficiencies, loans that clearly should not have been 
underwritten. Our reviews look for major noncompliance and a failure to 
follow the rules that have long been established. We are not looking at 
close-call interpretations of underwriting but wholesale abandonment of 
the core requirements that leads to huge default and claim rates for 
FHA-insured mortgages.
    By way of example, my office is currently reviewing one lender's 
claims to FHA using a statistically representative sample of all claims 
it made in a given period. The statistical sample pool was 85 loans. 
While these results are preliminary, 91 percent of those loans had 
significant deficiencies, 77 of 85 loans. Of those loans with 
significant deficiencies, 87 percent, or 67 loans, had material, 
incurable violations of HUD underwriting requirements and standards. 
These violations were essentially incurable by the lender and exposed 
the FHA insurance fund to an unacceptable level of risk and claims that 
it did not agree to take on under the insurance program.
    In another ongoing example, we conducted a review of a 
statistically representative sample of claims at another lender. Again, 
the statistical sample pool was 85 loans. Again citing preliminary 
results, the percentage of those loans that had significant 
deficiencies was 100 percent. Of those 85 loans, 78 loans (92 percent) 
had material, incurable violations of HUD underwriting requirements and 
standards. We expanded our review to defaults for this lender using a 
statistically representative sample, which resulted in a sample pool of 
110 loans. Our preliminary review found that every one of those loans--
110 of 110 (100 percent)--had significant deficiencies. Of those 110 
loans, 95 (86 percent) had material, incurable violations of HUD 
underwriting requirements and standards that also exposed the FHA 
insurance fund to an unacceptable level of risk and claims that it did 
not agree to take on under the insurance program.
    To be clear, we are not talking about minor deficiencies. These 
reviews are exposing violations of HUD's underwriting requirements and 
standards, which constitute substantive material violations. Therefore, 
the underwriter's certifications to HUD are false, and those loans can 
form the basis of a False Claims Act case. The types of substantive 
material violations that we are uncovering amount to violating 
fundamental requirements of insuring a loan, which include failing to 
document a borrower's income and employment, failing to evaluate all 
recurring debt obligations that FHA requires an underwriter to 
consider, and failing to verify that the borrowers possess the 
necessary funds to close the loan.
    It is OIG's contention that if lenders follow a well-established 
quality control plan, exercise due diligence and good industry 
practices, follow required procedures, and submit documented conforming 
loans based on a reasonable good faith determination of a consumer's 
ability to repay the loan, their lending behavior does not have to be 
unduly constrained nor should they overly restrict making responsible 
loans.
         inventory of foreclosed-upon single-family properties
    In prior years, we have reported on various concerns relating to 
HUD's procurement and contract management, including HUD's IT 
infrastructure contracts and HUD's transition to the third generation 
of its management and marketing contracts that are used to manage and 
dispose of its extensive inventory of foreclosed-upon single-family 
properties, known as real estate-owned (REO) properties. HUD continues 
to be challenged by its overreliance on contractors in general and its 
ability to allocate sufficient resources to adequately oversee its 
contractor workforce. Since taking this position, I have made it a 
priority to take a closer look at the Department's procurement and 
contract management processes to ensure that waste, fraud, or 
mismanagement can be identified at its earliest occasion.
    HUD's inventory of REO properties had increased dramatically from 
about 45,700 properties in March 2010 to nearly 69,000 at the end of 
March 2011. The inventory declined after HUD restructured its 
management and marketing contracts and as of January 2013, stood at 
about 39,000. While the decline from the historically high levels of 2 
years ago is a positive trend, the percentage loss on the sale of these 
properties remains high but has begun to decline. Still, during fiscal 
year 2012, losses averaged about 62 percent of HUD's acquisition cost. 
In contrast, HUD's average loss during 2007 was about 40 percent. HUD's 
oversight of these management and marketing contractors will be 
critical to ensure that returns on property sales are maximized, 
thereby reducing further losses to the FHA insurance fund. During 
fiscal year 2012 alone, FHA's losses on REO property sales exceeded 
$9.2 billion.
    We recently completed an audit of HUD's oversight of its REO 
Management and Marketing program to determine whether HUD's policies 
and procedures provided for efficient and effective oversight of asset 
managers and field service managers under the program. We determined 
that HUD did not have adequate procedures in place to ensure consistent 
and adequate enforcement of asset and field service manager contracts. 
Specifically, (1) list prices were not always reduced according to the 
marketing plans, (2) bids were approved that did not meet HUD's 
flexible threshold, (3) bids were rejected that met the marketing plan 
thresholds, (4) bids that met applicable thresholds were not always 
counteroffered or forwarded to the government technical representative 
for approval, and (5) properties were not assigned to field service 
managers based on performance even when HUD identified performance 
issues.
                      financial management systems
    Since fiscal year 1991, OIG has annually reported on the 
Department's lack of an integrated financial management system, 
including the need to enhance FHA's management controls over its 
portfolio of integrated insurance and financial systems. We continue to 
report that HUD's financial management systems have not substantially 
complied with the requirements of the Federal Financial Management 
Improvement Act of 1996, which encourages agencies to have systems that 
generate timely, accurate, and useful information with which to make 
informed decisions and to ensure accountability on an ongoing basis. 
This situation could negatively impact HUD's ability to perform 
required financial management functions and efficiently manage 
financial operations of the agency, notably FHA, which could translate 
to lost opportunities for achieving mission goals and improving mission 
performance.
    In August 2009, FHA completed the Information Technology Strategy 
and Improvement Plan, which identified FHA's priorities for IT 
transformation. The plan identified 25 initiatives to address specific 
FHA lines of business needs. Initiatives were prioritized, with the top 
five being single-family related.
    To date, FHA has completed a few of the goals but not all due to a 
lack of funding. FHA is working on acquiring risk management tools but 
has only made substantive progress with its initial objective. During 
our upcoming audit of FHA's fiscal year 2013 financial statements, we 
will be reviewing FHA's progress in implementing this plan.
    The plan also called for FHA to create a program management office 
to facilitate coordination and communication, track and report 
progress, provide support to managers, and support organizational 
change management activities. This office was put into place almost 
immediately after the funding became available and is being led by a 
long-term IT staffer.
    Since fiscal year 2009, the FHA Transformation Initiative's focus 
has been on improving its counterparty management by automating the 
certification processes and acquiring risk management tools to monitor 
lender activity. In conjunction with these development activities, FHA 
has procured the IT infrastructure needed for its planned improvements 
to multifamily underwriting and single-family insurance program 
support.
    Our biggest remaining IT concern is FHA's ability to replace the 
antiquated infrastructure on which many FHA single-family applications 
reside in a timely manner. For example, FHA's general ledger is an 
Oracle system, which has to interface with multiple older COBOL 
systems. None of the older legacy COBOL systems have received 
sufficient funding to be replaced, yet they are expensive to maintain. 
Due to a lack of funding, interfaces and the related systems are still 
in place. While there may have been some programming changes, we 
understand that these were basically patches or temporary fixes to 
implement specific policy changes.
    Overall, it appears that funding constraints have reduced the FHA 
Information System Transformation project to a continuation of high-
level planning without a defined timetable to complete the new 
application systems and to phase out and deactivate the current 
outdated systems. These delays bring about another concern: the ability 
to maintain the antiquated infrastructure on which some of the HUD and 
FHA applications reside while the Transformation Initiative is 
underway. Workloads have dramatically increased and are processing on 
systems that are 15 to 30 years old. These legacy systems must be 
maintained to effectively support the current market conditions and 
volume of activity. However, the use of aging hardware and software can 
result in poor performance and high maintenance costs. If the IT 
infrastructure is not modernized in a timely manner, it will become 
increasingly difficult and expensive to maintain operations, make 
legislatively required system modifications, and maintain interfaces to 
other IT systems.
               recent oig investigative and audit results
    As mentioned earlier, HUD OIG conducts criminal investigations 
involving allegations of fraud against HUD's programs, including theft, 
embezzlement, and false statements by program participants and 
recipients. The investigations may be generated from leads provided by 
HUD program staff, the mortgage industry, and other sources and may be 
conducted jointly with Federal, State, and local law enforcement 
agencies. Our long-term investigative experience in the area of 
mortgage fraud schemes has given us proficiency and extensive knowledge 
to address these issues. Many ``traditional'' fraud schemes continue to 
affect FHA, such as appraisal fraud, identity theft, loan origination 
fraud, rescue and foreclosure fraud, and fraud in the HECM program.
    The following represent some examples of recent investigations:
  --A former mortgage company loan officer was sentenced to 54 months 
        incarceration and 3 years supervised release and was ordered to 
        pay more than $9.2 million in restitution to FHA. He conspired 
        with others to create and submit false and fraudulent FHA 
        mortgage loan applications and accompanying documents to a 
        lender on behalf of unqualified borrowers. He created false pay 
        stubs, Federal tax forms, verification of employment forms, 
        explanation letters, and other documents to ensure that 
        otherwise unqualified borrowers could obtain FHA-insured loans. 
        He enticed borrowers to obtain an FHA mortgage by paying them 
        an incentive of up to $20,000 per loan. More than 75 FHA loans 
        were approved using this false information with more than 31 
        claims identified. The loss to FHA was estimated at $6.5 
        million. The mortgage company was terminated as an FHA-approved 
        lender, and the loan officer and others were suspended pending 
        debarment action. Our investigation is continuing.
  --A former senior vice president and loan officer, a former senior 
        vice president of residential lending, a former underwriter, 
        and a former loan processor pled guilty to conspiracy to submit 
        false statements in loan applications and submitting false 
        statements in loan applications to FHA. The defendants were 
        involved in originating and approving FHA-insured loans and 
        conventional loans that contained fraudulent information. The 
        case involved approximately 1,900 FHA loans. To date, FHA has 
        incurred losses in excess of $36 million after paying claims on 
        and disposing of 234 foreclosed-upon properties. An additional 
        393 loans, with an unpaid balance in excess of $92 million, 
        have been identified as delinquent or in various stages of the 
        foreclosure process. The bank was closed by the Federal Deposit 
        Insurance Corporation and is no longer in business. The above-
        noted defendants have been recommended for suspension and 
        debarment action, and our investigation continues.
  --Two former principals of a HUD-approved mortgage company pled 
        guilty to one count of racketeering following their indictment 
        in June 2011. The defendants were involved in a complex scheme 
        to defraud FHA through a series of false statements on at least 
        65 FHA loans totaling in excess of $10 million. The fraudulent 
        acts included the use of straw purchasers, phony employers, 
        bogus bank statements and pay stubs, forged college 
        transcripts, counterfeit court documents, and phony downpayment 
        gifts. Additionally, the defendants profited from the scheme by 
        recording junior mortgages that were payable to business 
        entities or associates from the loan proceeds. The mortgage 
        company's FHA approval was terminated, and the company's 
        principals were suspended pending their debarment.
    OIG's Joint Civil Fraud Division conducts reviews of FHA-approved 
lenders. The reviews continue to disclose serious deficiencies in the 
originating and underwriting of FHA mortgages. As noted earlier, many 
of these reviews were conducted in support of our efforts to recover 
losses. These reviews and our audit work focus on areas in which HUD 
can improve its oversight and management of its single-family mortgage 
insurance programs. For example, as noted earlier, OIG reviewed the 
foreclosure practices for five of the largest FHA mortgage servicers 
(Ally Financial, Incorporated; Bank of America; CitiMortgage; JPMorgan 
Chase; and Wells Fargo Bank) due to reported allegations made in the 
fall of 2010 that national mortgage servicing lenders were engaged in 
widespread questionable foreclosure practices involving the use of 
foreclosure ``mills'' and a practice known as ``robosigning.''
    In September 2012, we summarized the results of the five reviews, 
which were used by DOJ and 49 State attorneys general to negotiate a 
settlement with the five lenders totaling $25 billion. The Federal 
settlement payment amount of more than $684 million would be used for 
(1) losses incurred to FHA's capital reserve account and the Veterans 
Housing Benefit Program Fund or as otherwise directed by the U.S. 
Department of Veterans Affairs and the U.S. Department of Agriculture's 
Rural Housing Service and (2) the resolution of qui tam actions.
    As result of this work, OIG recommended that HUD:
  --determine the changes needed to FHA's servicing and foreclosure 
        policies based on the consent judgments and ensure that the 
        servicers incorporate the necessary changes into their 
        procedures for servicing FHA-insured loans;
  --ensure that the servicers establish or implement adequate 
        procedures and controls to address the control deficiencies 
        cited in the five issued memorandums, including but not limited 
        to the withholding of claims for insurance benefits and the 
        retention of appropriate legal documentation supporting the 
        appropriateness of the foreclosure for all FHA-insured 
        properties for the life of the loans; and
  --pursue appropriate administrative sanctions against attorneys who 
        may have violated professional obligations related to the 
        foreclosure of FHA-insured properties.
    Finally, the Department continues to face challenges in ensuring 
that its single-family programs benefit eligible participants and do 
not pay improper claims. In a recent audit of FHA's Preforeclosure Sale 
Program, OIG identified that, based on a statistical projection FHA 
paid an estimated $1.06 billion in claims for 11,693 preforeclosure 
(short) sales that did not meet the criteria for participation in the 
program. This condition occurred because HUD did not have adequate 
controls to enforce the program requirements and requirements were not 
well written. Specifically, FHA relied entirely on the lenders in 
approving borrowers for the program and did not provide lenders with 
detailed instructions for reviewing borrower assets. As a result, the 
FHA insurance fund may have taken unnecessary losses while borrowers, 
who may otherwise have been able to sustain their obligations, were 
inappropriately relieved of their debt using FHA insurance fund 
reserves. FHA has agreed that existing program policy and lender 
execution against that policy are inconsistent. In response to our 
recommendations to improve alignment and ensure that the long-term 
interest of the FHA insurance fund are met, FHA is working toward (1) 
introducing a streamlined program approval policy based on loan 
characteristics and a borrower credit profile and (2) specifying income 
documentation requirements for the income deficit test that must be met 
for borrowers who do not meet the streamlined requirements.
                               conclusion
    The Department's role has greatly increased, while staffing has 
decreased, over the last decade as it has had to deal with 
unanticipated disasters and economic crises in addition to its other 
missions, which have increased its visibility and reaffirmed its vital 
role in providing services that impact the lives of our citizens. The 
Department can do more to address the internal control and program 
weaknesses in FHA. My office is strongly committed to working with the 
Department and Congress to ensure that these important programs operate 
efficiently and effectively and as intended for the benefit of the 
American taxpayers now and into the future. I look forward to working 
with the Department and this subcommittee to accomplish some of these 
goals.

    Senator Murray. Thank you very much, both of you.

                     MUTUAL MORTGAGE INSURANCE FUND

    Commissioner Galante, let me start with you. The budget 
states that $943 million may be needed to cover losses in FHA's 
MMI Fund in fiscal year 2013. This follows on the most recent 
actuarial report showing that the capital reserve account is 
expected to go negative.
    Can you explain the process HUD goes through to come up 
with these estimates, including any changes to this year's 
model?
    Ms. Galante. Certainly. Thank you, Chairman, for the 
question. To be clear, FHA goes through two different 
processes. The independent actuarial that is done and was 
released in November 2012 looks at the 30-year projections of 
what is necessary for projected losses under the fund under 
economic conditions that they are projecting through 
independent indices.
    The President's budget takes a look at the same kinds of 
conditions, but uses their own analysis of interest rates, 
house prices, and what-not in terms of how the projection of 
the budget re-estimate is made. So they're similar processes, 
but they're two different processes.
    With respect to the actuarial, I would just say we made a 
number of changes, or the actuarial made a number of changes 
this year, including going to what's called stochastic 
modeling, which models a variety of economic paths more 
clearly, more distinctly than it had done in the past, as well 
as how it looked at the defaulted loans and how they would 
transition from performing to non-performing and how that 
works--so a number of important changes in the model.
    Senator Murray. Mr. Montoya, you raised concerns about the 
2010 and 2011 books of business. Can you tell us what your 
specific concerns are?
    Mr. Montoya. Our concerns are that they aren't appearing to 
be as profitable as we think FHA has sort of rested their 
future estimates on. While they're not far off from some of the 
estimates FHA has, it's our feeling they may be weighing too 
much on how successful they will be.
    Senator Murray. Weighing too much?
    Mr. Montoya. Yes, ma'am, that they would be less successful 
than they anticipate to be.
    Senator Murray. Commissioner Galante, do you want to 
respond to that?
    Ms. Galante. Certainly. The budget re-estimate process, as 
part of the President's budget, every year re-estimates every 
cohort of business that FHA does and determines whether the 
estimates that had been done the year before, based on current 
economic conditions, would still hold. So the Inspector General 
is correct that for 2010 and 2011, the re-estimate this year 
was that those books of business were not as profitable as they 
had been anticipated to be. But they certainly still were very 
profitable and successful books of business.
    On the flip side, the 2012 cohort was demonstrated as 
actually adding value to the fund that had been unanticipated. 
So this is really the result of the budget estimation process 
requiring long-term projections in terms of looking at the 
economic success of each of the cohort years of business.
    Senator Murray. We already talked about HECM loans, that 
they continue to represent a disproportionate share of losses 
to the fund. HECM loans can be a great resource for seniors who 
want to stay in their homes, but there are a lot of problems 
with the current product.

                         HECM HIGH DEFAULT RATE

    Commissioner Galante, I wanted you to explain to us why the 
HECM loans are experiencing such high default rates and what 
reforms you are proposing to reduce the risk on that.
    Ms. Galante. Yes, thank you. There are a couple of reasons 
for the challenge with the HECM program. First, I would say 
that like the forward book of business, the HECM loans are 
suffering from projections of a decrease in home prices. And 
that affects--particularly for the HECM loans, long-term house 
price projections definitely affect the reverse mortgage 
program projections more severely than they would in a forward 
mortgage because they are for a longer period of time. So that 
is one reason.
    The other reason is that, frankly, the way they have been 
underwritten is based on the longevity of the life of the 
individual borrower, and there is improvement in longevity. So 
some folks are outliving, so to speak, the original actuarial 
projections there.
    Those things are magnified by other challenges that I would 
say are in the program design today that we really want to get 
to the heart of fixing. One is that the way the program is 
designed today encourages people to take a large amount of the 
mortgage proceeds up front, and then sometimes what happens is 
they don't have enough over the life of the mortgage to 
continue to pay, say, their property taxes and insurance 
liability and other challenges of that nature.
    So what we are really asking for, I would put in three 
buckets. One is to be able to immediately, through mortgagee 
letters, as opposed to going through 1\1/2\ years plus 
rulemaking process, make some immediate changes on the 
principal amount that borrowers are allowed to take out up 
front.
    Senator Murray. And you can do that without legislation?
    Ms. Galante. We can do that without legislation, but we 
would have to go through rulemaking. Without you giving us 
authority to do it by mortgagee letter, we would have to go 
through a longer process to get there. But, statutorily, we 
could do it.
    Second--and I know I'm taking a bit of time here. But, 
second, I would say that demanding that we do a financial 
assessment of the borrowers and their ability to pay the taxes 
and insurance on an ongoing basis--right now, we are 
encouraging lenders to look at that, but it is not a 
requirement of the program. So that's an important measure that 
we would want to do, and, also, requiring set-asides for taxes 
and insurance, for example, for those owners who really need 
that, to be sure that they can pay their ongoing charges.
    Lastly, I would say there is a challenge in the current 
environment where non-borrower spouses are not being--if 
they're not on the mortgage loan, they're not getting the 
protection of being on the mortgage loan and being able to----
    Senator Murray. In my understanding, sometimes that's done 
because of the age of the spouse.

               HOME EQUITY CONVERSION MORTGAGE COUNSELING

    Ms. Galante. Yes, sometimes--you know, what we believe is 
happening is by the age of the spouse, they are not eligible to 
be part of the HECM mortgage. But what we want to make sure of 
is that we have rules going forward where they're part of the 
mortgage and, therefore, get the protection. But their age is 
also taken into consideration in the underwriting so that we 
are actuarially pricing this according to the life of the 
borrowers.
    And so there's some confusion perhaps in the market or 
disagreement about whether that provision--whether we can do 
that correctly today based on statute. We have taken the 
position for the past 25 years that we can. But there's been 
some challenge to that, and we would like legislation to 
clarify the intent that we can continue to do that.
    Senator Murray. Mr. Montoya, what do you think about those 
proposed reforms?
    Mr. Montoya. We certainly support FHA's proposals. One of 
the concerns that we have seen through a lot of the failings 
with these loans and, quite frankly, from a lot of the fraud 
aspects that we see is that we don't believe that counselors 
are doing as good a job as they should be in really identifying 
for these seniors the loan they're getting into and really what 
they're getting into.
    They're not really instructed on how much and how expensive 
it would be, sometimes not instructed on the taxes and 
insurance and homeowner's fees that will need to be paid, 
sometimes two or three times more than what they make in a 
monthly income. Many times, they don't even see these homes 
before they get into them, if they're buying a new home under 
the HECM program, to make sure they fit their needs as they 
begin to age.
    So there's a lot of other things that we think we can work 
with FHA to do to tighten up just sort of the knowledge that 
these seniors need before they take this product.
    Senator Murray. My time--I've gone way over.
    So, Senator Collins, I'll turn to you.
    Senator Collins. Thank you, Madam Chairman. Let me follow 
up on the question on reverse mortgages.
    Commissioner, you referred very briefly to an issue that I 
want to ask you a little more about. And that is some seniors 
with reverse mortgages insured through the HECM program have 
failed to pay their property taxes and/or their homeowner's 
insurance premiums, which technically, at least, puts them in 
default on their mortgages.
    In order to avoid this problem, could HUD require lenders 
to set up an escrow account where, as with forward mortgages, 
property taxes, and insurance are paid out of that account and 
then added to the mortgage balance? Many of us have escrow 
accounts built into our mortgages to make sure we do have the 
funds available for property taxes and insurance when they come 
due.
    And second and related to that--because you did refer to 
doing something in that area, but I'm unclear exactly what--are 
you in need of legislative authority in order to avoid this 
very lengthy rulemaking that the Inspector General has referred 
to in order to implement such a change? So, first of all, are 
you considering an escrow account type requirement, and, 
second, if so, can you do it administratively quickly?
    Ms. Galante. Yes. In order to do it administratively 
quickly through a mortgagee letter, we need authority from you 
to do it by a mortgagee letter, as opposed to going through the 
full rulemaking process, because the current regulations for 
the HECM program do not permit us to do this.
    Having said that, I do want to be clear. We would really 
like that authority, but I do want to be clear, though, that we 
have been working on this with whatever tools we can in the 
interim. We actually issued a mortgagee letter asking lenders 
to go out and notify borrowers, for example, who were in 
default on their taxes and insurance, and work with them for 
repayment plans. We did that about 1 year ago, and it is being 
successful.

            HOME EQUITY CONVERSION MORTGAGE ESCROW ACCOUNTS

    That isn't going to turn the tide for the future of really 
ensuring that up front. We are setting aside the funds so that 
we know that there is an escrow there for those homeowners to 
pay those property taxes and insurance charges--and also to 
evaluate the borrower on their ability once they take out this 
mortgage to continue to be able to pay those taxes and 
insurance. In order to do that, we need to change the 
regulation, and that means either going through a 1\1/2\ years 
long process, or, if you give us the authority to do it, by 
mortgagee letter, we could do it more quickly.
    Senator Collins. Do you think it's a good idea in concept?
    Ms. Galante. Absolutely. If I didn't make that clear, we 
think it's a very necessary component to the program.
    Senator Collins. Why is your rulemaking so slow? I assume 
you follow the APA the way any other agency would.
    Ms. Galante. Yes. Let me just be clear: We are working on 
guidance today so that if we need to go through the rulemaking 
process, we will try to do it as quickly as we possibly can. 
The proposing of the notice, getting comments back, evaluating 
those comments, putting back out--you know, hopefully, you 
don't get any major controversy; if you get major controversy, 
then you may have to re-propose--it just takes a significant 
amount of time to do that analysis and back and forth.
    Senator Collins. I guess what I don't understand--if I were 
in your shoes--and you've identified this problem, and you've 
identified something you could do about it--I'd be in the midst 
of rulemaking right now. I wouldn't wait. I would still ask us 
for authority for you to do it in a more expeditious manner. 
But I wouldn't be waiting to do rulemaking. And it seems to me 
that a point that the Inspector General has made in his reports 
is this slowness of response by FHA.
    Ms. Galante. Yes. To be clear, we did spend the time to 
immediately--so 1 year ago, we put out the guidance----
    Senator Collins. But guidance isn't rulemaking, and I'm not 
a fan of agencies putting out guidance, because it means that 
it doesn't go through a public comment process.
    Ms. Galante. Right. We did that in January of last year, 
though, just to ensure that we could deal with the current 
situation that we have with people who are already in current 
defaults.
    Senator Collins. Excuse me for interrupting. But if in 
January of last year you had started the rulemaking on this, 
you would be probably done now or close to it.
    Ms. Galante. Yes. So, as I said, we are in that process of 
getting ready to put out a rulemaking. We're in the rulemaking 
process. We just haven't actually put out the proposed rule 
yet.
    Senator Collins. Well, I've got two other issues I want to 
turn to. But I guess what I would say to you is it seems to me 
you should have begun that rulemaking last January. It's now 
June. That's 1\1/2\ years. You'd be done. And I just think, 
even though it's faster if you get the mortgagee letter 
approach approved by us, you know what the legislative 
processes can be like. It's not pretty these days.
    I just would encourage you that if you think you have the 
answer to something, don't wait. Start the rulemaking. You 
don't have to necessarily go--you may be able to short circuit 
it through legislation, but don't wait. That was 1\1/2\ years 
ago.
    Ms. Galante. We are working on that.
    Senator Collins. Let me turn to another question. You 
informed us today that FHA has now used 75 percent of the 
commitment authority for the general insurance and special risk 
insurance fund, and current projections indicate that without 
additional commitment authority this year, FHA will be required 
to suspend insurance activity in mid August. This is very 
troubling to me.
    As you know, the chairman and I have been supportive of 
increasing the commitment authority for this important program. 
We would have liked to have gotten it in along with our bill, 
into the continuing resolution that was passed. It's important 
because it provides mortgage insurance for the construction of 
multifamily housing, hospitals, healthcare facilities.
    How will FHA manage the remaining commitment authority, and 
what will the effect be if the fund is forced to suspend 
activity because you've run out of commitment authority?

                          COMMITMENT AUTHORITY

    Ms. Galante. Yes, thank you, and thank you for your support 
for the additional authority. I would say a couple of things. 
First and foremost, now that we have hit the 75 percent, any 
commitments that are issued need to come into headquarters 
before they're issued so that we can literally--the first and 
foremost concern we have is to be sure that we're monitoring 
daily each commitment that's issued and now allowing a 
commitment to be issued if we don't have the authority. So, 
particularly, as we get closer and closer to the end of the 
fiscal year or to exhausting 100 percent of the authority, we 
need to pay attention to that.
    We have also had a number of conversations with industry 
about how to prioritize if we don't get additional commitment 
authority, you know, the best ways to prioritize the 
remaining----
    Senator Murray. If I could just--how many projects do you 
have in the pipeline right now?
    Ms. Galante. I don't know the exact number of projects, but 
we have in the pipeline more than the amount of authority we 
have left for the balance of the year. So if we need to stop 
issuing commitments in mid August, really, what we're talking 
about is new construction projects that were ready to close or 
soon to be ready to close and get under construction. We'd lose 
those jobs. We'd lose that economic activity.
    For properties that are being refinanced, you know, and are 
rehabilitating properties, they won't get their rehab done. 
They might be refinancing to take advantage of lower interest 
rates and, therefore, really be in a position to be as 
financially sound as possible going forward and protect the 
property. So those activities would need to be delayed. This 
really is a problem of delay if we run out of authority between 
now and the end of the year.
    Senator Collins. Thank you, Madam Chairman. That is of 
great concern.
    Senator Murray. Senator Boozman.
    Senator Boozman. Thank you, Madam Chair.
    Ms. Galante, I have the same problems as the Senator from 
Maine with the guidance issues, as far as not going forward and 
going through the process, where you have guidance which 
essentially has the same force of a rule, but the process isn't 
done. You said that you hadn't done it yet. I guess my question 
is when is yet? When do you expect a rule to be forthcoming?
    Ms. Galante. We're in a position that we are driving as 
hard as we can to get a proposed rule out by July or August of 
this year, because, again, we really need to get it in place as 
soon as possible so that we can continue to operate the 
program.
    Senator Boozman. So July or August is a reasonable 
expectation of the----
    Ms. Galante. That's the proposed rule, and then there's the 
back and forth process, yes.
    Senator Boozman. Let me ask you this. Last summer, the FHFA 
released a public request for comment on proposals to use a 
municipality's power of eminent domain to seize mortgage loans. 
At that time, the FHFA expressed concerns with such proposals 
and said that action may be necessary on its part to avoid a 
risk to safe and sound operations at its regulated entities and 
to avoid taxpayers' expense.
    What is your view on the proposed use of eminent domain in 
that regard?

                             EMINENT DOMAIN

    Ms. Galante. Yes, thank you for the question. We certainly 
think it's premature for FHA to issue any guidance on this. 
There are a few places that have adopted the policy, but not 
actually implemented it. We believe the eminent domain process 
at its core is a local issue, and how localities use their 
eminent domain is something that is subject to a lot of local 
review.
    We also believe that the idea of it being used on mortgages 
is trying to get at an important issue of people's inability to 
refinance their mortgages that are in private label securities, 
and I think that's the primary driver behind that concept. And 
we do think that there are other ways of working to get more 
people refinanced who are under water, and we certainly look 
forward to continuing to work with Congress on some of those 
solutions.
    Senator Boozman. So if they are refinanced under that 
system, they are done into FHA-backed loans, potentially?
    Ms. Galante. Again, you know, if a community gets to a 
point where they are through all of the significant issues that 
are still to go to work out whether this is a viable concept, 
if all of that happens, then FHA will obviously need to be in a 
position to look at its approach to those loans. We just think 
it's premature in terms of how those proposals are being 
implemented.
    Senator Boozman. It seems like, though, that you would 
weigh in, in the sense that if it is such, that you're going to 
be in a position that they are FHA-backed, and that could 
potentially affect the solvency of the insurance fund, it seems 
like you would take a position.
    Ms. Galante. Again, Senator, we think it's premature in 
terms of even beginning to understand how they would operate in 
an individual localized context at this point.
    Senator Boozman. Do you have any comments about this?
    Mr. Montoya. No, sir. We have not actually looked into the 
matter. Certainly, it's an area that we're going to monitor and 
have some concerns over, but I would echo what the Commissioner 
said. I think these are very localized issues, and how those 
would be addressed in the local areas is probably the biggest 
question we would have.
    Senator Boozman. Personally, I think it's a huge problem if 
you're taking mortgages that are current in their payments from 
individuals. I mean, that, to me, is a huge departure from 
what's been done in the past. So are you starting to weigh in? 
Are you looking into this?
    Ms. Galante. Again, I would just say we think it's 
premature at this point. Some of the concerns that you have 
about how one values these mortgages is a big----
    Senator Boozman. But you wouldn't do that through guidance. 
You'd go forward somehow where somebody could weigh in in 
regard to----
    Ms. Galante. I'm sorry?
    Senator Boozman. I said if that were to happen, we wouldn't 
just have guidance in how to deal with that. You'd do some sort 
of rulemaking process or something.
    Ms. Galante. I think it's hard to say what kind of guidance 
would be necessary until we understand the details of how these 
programs might work in an individualized way.
    Senator Boozman. Thank you.
    Mr. Montoya, you acknowledge that FHA has been slow to 
respond to many of the recommendations and has only recently 
implemented some of them. Can you comment on what you see as 
the primary cause for the delay?
    Mr. Montoya. Well, going back to the earlier discussion on 
the HECM program with regard to the taxes and insurance, a lot 
of those changes or recommendations came out of an audit that 
happened 3 years ago, and we're only now getting to the point 
where something is being done. It's our feeling that FHA may be 
resting too much on the reliance, if you will, on the granting 
of legislative authority as opposed to beginning the proposed 
rulemaking process early.
    That kind of goes in line with what we've been saying. It's 
just very slow to address a lot of these forces that in the 
financial world, if you will, you've got to be able to address 
pretty quickly. You know, 2 or 3 years down the road, you've 
not only surpassed it, but you're into another problem. So, 
again, to echo back to the taxes and insurance issue, that's 
sort of a more recent example.
    Senator Boozman. Can you comment on where you feel the 
glitches are in not responding quicker to the Inspector 
General's suggestions?

                        CHALLENGES TO FHA REFORM

    Ms. Galante. Let me just say on a more global level, as 
opposed to just the HECM program, there are several challenges 
here. The first and foremost, I would say, is to think about 
the crisis that we've been in for the past number of years. We 
have had massive amounts of policy changes and rulemaking to 
do, and we have needed to prioritize at some level our own 
resources, our analytical resources, our process resources.
    All of this goes through our risk management office of 
evaluation, the Office of Management and Budget (OMB), and so 
this, you know--we've had a lot on our plates. And when you 
look at the forward mortgage, which is most of the trillion 
dollars of portfolio, we certainly have been spending a lot of 
effort there.
    The second point I would make here goes to the resource 
question of both staffing and also to the FHA transformation 
project, the information technology. So one of the Inspector 
General's recommendations to us about how we look at defaulted 
loans or non-performing loans--they made some recommendations 
that also took us a while to implement.
    But through use of the FHA transformation project, we were 
able to put in a very robust claims review process that is 
meeting all of the Inspector General's recommendations and 
more. But it took the time and the resources to get the 
information technology in place in order to perform the 
reviewing of all loans that went to claim in 2 years, all early 
payment defaults, plus an algorithm to pick out other high risk 
loans to review.
    So, you know, I think it's very successful that we're doing 
it. But it took that time to get the systems in place to be 
able to do it.
    Senator Boozman. Thank you.
    Thank you, Madam Chair.
    Senator Murray. Thank you. As everyone is so aware, many 
families experience a sudden crisis--it could be a health 
issue, a job loss, or some kind of unforeseeable situation--
that leaves them unable to make their mortgage payments, and 
many of them are today desperately seeking a way to stay in 
their homes. I've had a lot of constituents come to my office 
to get help with some kind of loan modification.
    We all know appropriate modifications can benefit everyone. 
It can benefit the homeowner, who can stay in their home; the 
lender, if they want to avoid some kind of lengthy, costly 
foreclosure process; and for FHA, loan modifications can help 
avoid or reduce claims, which is why FHA requires its lenders 
to provide loss mitigation services to borrowers that fall 
behind on their payments.
    But it seems that lenders may not be adequately fulfilling 
this requirement. One of the new reforms that FHA is proposing 
to us would allow HUD to transfer the servicing of loans to a 
different servicer who could better assist the borrower with 
some kind of modification.
    Ms. Galante, what problems have you seen or can you 
describe for us in FHA's loss mitigation programs that led you 
to request that new authority?

                            LOSS MITIGATION

    Ms. Galante. Yes, thank you for the question. One of the 
things we see is that while you may be able to see any 
individual servicer looking at their overall record, they are--
I don't want to say checking the box--but they are meeting the 
individual steps. But when you look at certain servicers and 
you see that their particular portfolio has a much smaller rate 
of successful loan modifications, you say to yourself, 
``There's something deeper going on in that servicer's shop 
that somehow our reviews just aren't able to pick up.''
    So we really want to be able, particularly for those 
servicers that we see that are not having good outcomes or not 
having outcomes as good as some of the other servicers--we want 
to be able, if we can't get them there through other means, to 
ultimately say, ``Look, we've got to take this part of your 
portfolio and require it to be transferred or require you to 
subservice and really, you know, just require that you show 
that you can perform at a different level or have someone else 
perform for you.''
    Senator Murray. Mr. Montoya, do you think this would 
improve loss mitigation efforts, this proposal?
    Mr. Montoya. Well, I think, on its face, we would certainly 
be supportive of that. Anything that would keep any more losses 
from the fund occurring would be certainly beneficial.
    It's not something we've audited, although we are 
contemplating doing that later this year because, like 
anything, there will be risks, I'm sure, and we'll want to find 
out what that might be to work with the Commissioner early on 
in addressing them. But I would certainly support anything that 
would keep any more losses from occurring as beneficial, not 
only for the fund, but for the communities that they serve and 
the individuals that are being impacted by these issues.
    Senator Murray. Mr. Montoya, the work you're doing in 
partnership with HUD, Department of Justice, and some State 
attorneys is helping HUD recover money from claims that are 
paid on mortgages that weren't properly underwritten. In your 
testimony, you highlighted some of the egregious errors that 
you uncovered in your review of loans from 2007 to 2009.
    I understand that, to date, your office has helped recover 
hundreds of millions of dollars from these settlements in 
addition to the funding FHA received from the servicing 
settlement. Can you explain the investigations you and your 
partners are undertaking and what exactly you're finding?

               OFFICE OF INSPECTOR GENERAL INVESTIGATIONS

    Mr. Montoya. Sure. Yes, ma'am, absolutely. Thank you for 
the question. I think all total, to date, my office has 
recovered over $1 billion. It would probably pay for ourselves 
a number of times over. But the types of reviews that we're 
doing are not minor technical reviews. We are looking at 
wholesale disregard for the FHA insurance program.
    We're looking at material type violations that we call 
incurable, things you can't fix, things like borrowers who 
never had the income in the first place to afford the home 
they're buying; no debt to income ratio analysis that would 
tell us what other bills they have to pay that would impact 
being able to make the mortgage; and, quite frankly, something 
as basic as whether they have the funds to come to closing to 
close on the loan. So these are the types of things that we're 
seeing and that seem to be rampant in some lenders.
    So, again, what I'd want to stress--because we've heard 
from a lot of stakeholders, mortgage bankers and others, that 
we're sort of nit-picking, that we're looking at technical 
violations, and that couldn't be further from the truth. We've 
got a number of other lenders we're currently looking at, and 
we've got more in the pipeline. Quite frankly, I'd have to say 
we have more than we can deal with, and we've actually had to 
turn some United States attorneys' offices away that would like 
to pursue some of these, because much like the Commissioner, we 
have limited resources, and there's only so much I can do. So 
we're trying to pick the worst of the worst, if you will.
    But, again, just to reiterate, we're talking about 
wholesale disregard of the program, something as fundamental as 
whether they can afford the home in the first place, and 
whether they have the resources to afford it.
    Senator Murray. You've also recommended that HUD take some 
steps to avoid paying unnecessary claims, including delaying 
payments to lenders and reviewing early default loans. What are 
the specific actions that you would like HUD to take to address 
some of those recommendations?
    Mr. Montoya. Well, to reiterate something the Commissioner 
said, we certainly recognize that staffing is always an issue, 
and limited resources. But some of the things that we've been 
recommending are reviews of what we call high risk defaults. 
These are defaults that have defaulted in the first 24 months 
of the loan. Those are always red flags for us of how we got 
there in the first place that early.
    You know, reviewing these while they're in the foreclosure 
process before they become claims, so that--because the 
foreclosure process can take months and months, that's a very 
good time to sort of look at these things to see if there was 
fraud or some sort of mismanagement, if you will, of how they 
underwrite these loans in the first place, so that HUD could 
avoid paying these loans if at all possible.
    These are the kinds of things that take staff resources, 
but they're also the kinds of things that the private mortgage 
insurance companies do. So in a perfect world, we'd like to see 
more of that happen. Recognizing, too, that HUD has an 
obligation to pay on these loans within a very short amount of 
time--you know, the Prompt Payment Act requires them to pay 
these claims within 30 days. That is insufficient time for them 
to do really any kind of review of the loan to see if there was 
any fraud or mismanagement in the underwriting of the loan.
    One of the recommendations that we have shared with the 
Commissioner and would like to talk to Congress and work with 
this subcommittee on is certifications, an idea concerning 
certifications by these lenders, where they're certifying that 
the loan that they're providing to FHA for a claim has been 
reviewed by them and it meets all the qualifications of a 
properly underwritten loan. It puts the onus back on the 
lender, if you will, and kind of keeps the exposure to FHA 
down.
    While there's a lot of discussion yet to be had on the 
issue, these are the kinds of things that we are recommending.
    Senator Murray. Commissioner Galante, do you want to 
comment on whether that's doable and what you think of it?
    Ms. Galante. Sure. I would say two things. First of all, we 
really appreciate the partnerships we have with the Inspector 
General on improving our quality assurance, our loan review 
process. I think their recommendations on looking at early 
payments defaults, for example, and looking at loans on an 
ongoing basis, we are now doing in a robust way with the help 
of our technology, which is from your help. Thank you.
    We think we're on the right path now going forward for some 
of those processes. We recently have talked about additional 
legislative items we might need or administrative actions that 
we could take, including looking at how good the certifications 
we have are. We're certainly willing to work with the IG on 
looking at that.
    Senator Murray. My time has expired, so I'll turn to 
Senator Collins.
    Senator Collins. Thank you.
    Commissioner, you have mentioned that the FHA's market 
share is decreasing and beginning to return to more traditional 
levels. Is a reduction in market share a goal of this 
administration?

                           FHA'S MARKET SHARE

    Ms. Galante. It is a goal of this administration that FHA 
return to a more normalized, traditional role in the 
marketplace. How one measures market share is an interesting 
challenge, in that one of the things that we've seen through 
this whole crisis is that the whole market has shrunk. So even 
though FHA's absolute dollar amount could stay the same, you 
need to have private capital come back in so that you're 
growing the whole market in order for our market share to begin 
to drop.
    We are beginning to see that, and I think there's a couple 
of reasons for that. One is that the premium increases that 
we've made and some of our other policy changes are encouraging 
private capital to come back. But I also think private capital 
is starting to come back because they're seeing the--you know, 
we've played a countercyclical role, the market is getting 
better, and we're seeing that private capital is now willing to 
put more financing available in the marketplace.
    Senator Collins. Let me talk about the premium increases 
that you mentioned and what strikes me as a possible unintended 
consequence of some of the policy changes. FHA, as you 
mentioned, has announced several premium increases in an effort 
to improve the financial health of the fund.
    I was surprised to read that one of the changes that was 
also included was to not allow borrowers to cancel their annual 
mortgage insurance premium when they reach the level where they 
have sufficient equity in their homes. This strikes me as not 
fair, but it also strikes me as leading to a perverse outcome 
where that borrower who has clearly been paying on time and has 
reached a certain level of equity is going to refinance out of 
FHA and leave you with a pool of more risky borrowers.
    So why would you want to implement that change?
    Ms. Galante. Thank you, Senator Collins. This may be a bit 
counterintuitive, but I think this is a hugely important policy 
that FHA is doing, and let me explain why. First of all, the 
policy of allowing cancellation of the premium did not come 
into effect at FHA until about 2000, 2001. So for most of FHA's 
history, the policy we're talking about reversing now was not 
in place.
    There's a bit of history that I don't really know, but I've 
heard, about why FHA back in 2001 did this. It was because the 
private mortgage insurers were going in this direction. But the 
challenge here is--and this is why it's important to have a 
good risk management office--the risk for the private mortgage 
insurers is entirely different than the risk for FHA. They're 
only insuring the top part of the loan. FHA is insuring the 
entire part of the loan.
    Even if you buy on an amortizing basis, have more equity, 
theoretically, in your home, we still have risk that if home 
prices go down, as they did during this crisis, we're still on 
the hook for the risk for that loan. In fact, one of the things 
we saw is that we were continuing to see claims, have defaulted 
loans on loans after they had stopped paying on their MIP, 
because it was an automatic cancellation.
    So we lost during the crisis by having that old policy in 
place. We lost, our risk manager believes, probably $10 billion 
of revenue that we would have otherwise had, and as prices 
declined, we would have had more revenue to deal with the 
losses. So we think this is an important reversal of policy for 
the future. As long as home prices are going up, up, up, maybe 
you'll have some people refinance out of these loans. But in 
the long term, ensuring that your premium matches the risk that 
you're taking on was the most important thing here.
    Senator Collins. Have you seen homeowners refinancing out 
of FHA-insured loans in order to avoid that mortgage premium 
insurance payment?

                      MORTGAGE INSURANCE PREMIUMS

    Ms. Galante. This policy just went into effect, so we 
haven't----
    Senator Collins. It's too soon.
    Ms. Galante. It's too soon to tell. But I would also just 
say that, primarily, what's going to drive people to refinance 
is our interest rates.
    Senator Collins. Right.
    Ms. Galante. So that's really going to be what drives 
people to decide to refinance or not.
    Senator Collins. Let me talk to you about the financial 
health of the FHA single family mortgage mutual fund. We've all 
mentioned the fact that the budget request shows that you 
anticipate drawing on your authority with the Treasury during 
this year to hold in reserve against expected future losses. 
Obviously, $943 million is a lot of money and is of great 
concern to us, or to me, because it would be the first time 
that you have taken this step. We thought it was going to 
happen last year, and then it didn't because of the settlement.
    Have conditions changed since that budget request, or do 
you still anticipate drawing that amount of money from the 
Treasury? What's your current prediction?
    Ms. Galante. Two things I do want to say. While we 
projected that we might draw last year and we didn't, and we 
certainly did get a number of settlements, we also made a 
number of policy changes that impacted, and we had volume that 
went up. So we would have ended up not drawing--even without 
the settlement dollars, we ended up with $3 billion positive as 
opposed to the draw of--I think it was $688 million that we 
thought we might take.
    And I say that because this year, the main thing that will 
drive whether we draw or not draw is whether our--this year, we 
have done all the premium increases and the policy changes 
before this budget came out, so those are kind of baked in. 
Those expectations of revenue are already baked into the 
budget. So the one thing that will change is whether we have a 
significant increase in volume. Then we would be less likely to 
draw or to draw that amount of money.
    And the other thing that I just would want to get out on 
the table here is if we, through the policy changes that we've 
been making, see significant improvements as a result of those 
policy changes in our recoveries, you know, on defaulted loans, 
on our real estate owned, that could, in consultation with OMB, 
change the trajectory.
    Senator Collins. What's your current estimate? You said 
that your premium increases are already baked into the budget. 
So, presumably, that's baked into the $943 million.
    Ms. Galante. Yes. The premium increases are already baked 
in. So, again, it will depend primarily on volume and whether 
there is a significant credit given to the recovery efforts 
that we've been taking on in terms of getting better on our 
recovery of our loans.
    Senator Collins. So do you have an estimate for us, a new 
estimate?
    Ms. Galante. We do not.
    Senator Collins. Thank you, Madam Chair.
    Senator Murray. Senator Boozman?
    Senator Boozman. Thank you, Madam Chair.
    Mr. Montoya, you mentioned that we have situations where 
you have just wholesale disregard for the rules, the high risk 
defaults, where you just know there's something going on based 
on that. Is there adequate legislation in place to deal with 
that right now? Do we have the safeguards to deal with the 
individuals who everybody in the room would agree are blatantly 
playing the system to their advantage?

                      FRAUDULENT LENDER SAFEGUARDS

    Mr. Montoya. Well, I appreciate the question, sir. Thank 
you. I think in one regard, the answer would be no. I think we 
could strengthen some of that. Right now, the way the laws are 
set up, a lender, i.e., being the company, that's found to be 
in violation of FHA's underwriting standards and that we're, in 
essence, going after, can simply shut their doors today. The 
very individuals who were running that lending company could go 
start up a new lending company tomorrow and be back in the 
business.
    So, unfortunately, we're not set up so that we can go after 
an individual. Shy of proving that they, specifically, they, 
themselves, have committed a fraud, which is very difficult to 
do, there's no way to sort of tack onto them the effects of the 
fact that they were running a poor company that poorly 
underwrote loans. So, in other words, there's no way for us to 
suspend them, specifically, individually, from being involved 
in the FHA program.
    So that's an area that we will be recommending some 
legislative language on. That would probably be the biggest 
thing. And I think until you can tag individual responsibility 
onto individuals for this kind of stuff, I'm not sure that 
we'll do much to change the culture of somebody who wants to 
defraud us.
    There's risk in any insurance program, as you well know, 
and we're never going to be 100 percent risk free. To the 
extent we can mitigate that, that would, to me, be one big 
mitigating factor to consider.
    Senator Boozman. Very good.
    Ms. Galante, do you agree, or can you add to that?
    Ms. Galante. Yes. I would just say I think this is an 
important issue and a very tricky one, and we share the concern 
with the Inspector General. What you're struggling with here is 
basic corporate law, in terms of if you're a corporate officer 
and you're doing things in the name of the corporate officer. I 
think there are some ways that we could explore to address this 
particular issue, but it is tricky.
    The other thing I would say is there are other items, in 
terms of help with enforcement, that we certainly legislatively 
would like and some of which we have asked for and were passed 
twice by the House. And we would very much like to work with 
the Senate to get those particular authorities to be able to 
terminate lenders based on their national work. Right now, if 
they operate in different geographies, we have to go after them 
in each of the geographies in which they're operating, which is 
obviously a challenge.
    And we don't have what's called indemnification authority 
for every class of lenders that we have. We have it for most of 
them, but not all of them. Those are two additional legislative 
asks that we would have in terms of enforcement authority.
    Senator Boozman. Very good.
    Mr. Montoya, I guess the only other thing I'd ask is what 
are the top couple--I read your testimony. What are the top 
couple of things that you feel that we as a Congress--you know, 
we're talking about this, and you said that you were prepared 
to perhaps come forward with some suggested legislation that we 
could look at and be more helpful. What other things are out 
there? What are your top couple of things that you'd like to 
see us maybe step forward on?
    This is a huge issue, and it affects those in the housing 
market, in the sense of trying to get in a home. All this stuff 
does is increase costs, and then also the cost to the 
taxpayers. Do you have any other things that you could dwell on 
for a second?
    Mr. Montoya. Yes, sir. Thank you for the question. 
Certainly, FHA faces a difficult challenge in striking that 
balance between protecting the fund, making the program 
attractive to prospective homeowners, lenders, that sort of 
thing.
    I think one of the things we're concerned with is that FHA 
is sort of too concerned, really, with regards to market share. 
While I understand they're coming down from that market share, 
I think, historically, we've seen too much of a concern on 
market share. By that, you end up taking risks, you know, for 
the simple reason of do you want to keep these lenders in the 
program. So that's one concern.

                 INFORMATION TECHNOLOGY INFRASTRUCTURE

    I think sort of the biggest concern for really what is a 
financial institution is their aging IT infrastructure and 
their ability to manage this high finance world, if you will, 
on systems that are 15 and 30 years old. I think in the budget 
request, if I remember correctly, that FHA submitted, they're 
asking for over $100 million in one budget cycle just for 
maintenance of these aging systems, and they're just going to 
get older every year.
    My major concern from an IT perspective when we come and do 
the financial information security type reviews is could we end 
up having a major, major issue with the IT portion of it, i.e., 
losing data, is it vulnerable to manipulation, these sorts of 
things. So that would probably be my biggest concern, and as 
appropriations go, that takes money. I recognize that.
    But when you're spending $100-plus million a year on just 
maintenance of old systems, at some point you've got to pull 
the bandage and say, ``Okay, we've got to upgrade these 
things.''
    So those are probably my two biggest issues, you know, too 
much emphasis on the lenders in the program and trying to keep 
that market share, as opposed to just letting FHA do the 
cyclical rule that it's always done; and the IT infrastructure.

                           STAFFING CONCERNS

    I think the other thing I would add is the staffing 
concerns that FHA and, quite frankly, their sister counterpart 
in the Department, Government National Mortgage Association 
(GNMA), has, and that's staffing. I think some of the critical 
roles that both of these organizations have--I don't believe 
the pay structure allows them to recruit and retain the best 
that we could probably get because we're competing with the 
private sector market.
    And much like FHFA, as you mentioned earlier, the 
Securities and Exchange Commission, these organizations have 
additional budgetary salary authority to allow for that 
increased salary for key positions. I would certainly support 
something like that on behalf of FHA and GNMA to get the right 
qualifications you need to deal with some of these issues. So 
probably those three things.
    Senator Boozman. Thank you.
    Madam Chair, with your permission, could I ask if she 
agrees?
    Senator Murray. Absolutely.
    Senator Boozman. I think he's trying to help you. Do you 
agree with the aging infrastructure and the things like that 
that Congress perhaps needs to help out with to help you do a 
better job?
    Ms. Galante. Absolutely, I do, and it's very difficult. You 
can't retire the old systems until you build the new systems. 
You still have to continue to function in an ongoing 
environment--so the aging infrastructure. I agree with the 
staffing issue, and I would disagree a little bit on market 
share, but I think I would say it a little differently. We are 
concerned about the balance between access to credit for folks 
and the variety of controls we need to put on enforcement. So I 
think we're in the same basic place.
    Senator Boozman. Thank you, Madam Chair.
    Senator Murray. For the record, would you give us what your 
priorities are on the IT? We have invested quite a bit, and I'm 
worried about that as well.
    [The information follows:]
    For the last 80 years, the Federal Housing Administration (FHA) has 
played a critical role in support of the housing market. FHA has 
provided sustainable affordable housing for millions of Americans while 
also playing a critical countercyclical role during times of economic 
stress.
    FHA's capacity to deliver on this mission is increasingly at risk 
due to operational constraints and technology challenges. FHA's 
budgetary constraints, its uncompetitive compensation structure, and 
outdated technology put its core mission at significant risk and expose 
taxpayers to potential financial losses that can be avoided.
    The outdated technology challenges start with the two, core FHA 
information technology (IT) systems known as CHUMS and FHAC. These 
systems, which manage hundreds of billions of dollars of transactions, 
are between 30-40 years old. These core systems are surrounded by more 
than 20 other fragmented systems, which handle ancillary, but critical 
functions.
    While the technology already at FHA's disposal is challenged, there 
are also technology tools that FHA does not have, but desperately 
needs. These include effectively risk-monitoring tools, portfolio 
evaluation systems, and risk modeling technologies. These are all 
standard systems in the mortgage markets, which FHA lacks.
    These technology issues lead to a number of significant management 
challenges, including:
  --Lack of access to timely and useful data to inform risk management 
        and mitigation decisions;
  --Reliance on volumes of paper and manual processes that lead to 
        significant errors and suboptimal allocation of resources;
  --Persistent data integrity issue--different systems say different 
        things; and
  --Challenging operational constraints which make it difficult for FHA 
        to implement new quality assurance and risk mitigation actions.
    FHA generates more than $10 billion in receipts and pays out 
billions in claims each year.
    And while FHA Transformation--an initiative launched to address 
these challenges--has clear and significant payback (e.g., estimated at 
more than a billion dollars over the next several years), lack of 
funding has put the program at risk.
                           fha transformation
    FHA Transformation was launched several years ago to remedy the 
exhaustive list of IT challenges. Specifically, the initiative aims to 
address three main management challenges through better technology 
infrastructure:
  --Detect and prevent fraud, waste, and abuse:
    --Automate the aggregation of lender, borrower, and asset 
            information of inbound data;
    --Automate the aggregation of lender and appraiser past behavior 
            and violation history; and
    --Synthesize high-risk profile information and past, actual fraud 
            data.
  --Prudently manage credit risk at both the portfolio and loan level:
    --Develop comprehensive portfolio, borrower, and collateral risk 
            analytics;
    --Implement a portfolio evaluation tool to enable default, 
            prepayment, home price, and cash flow modeling and loan-to-
            value (LTV) analysis;
    --Support the Office of Risk Management by enhancing forecasting 
            capabilities and analytical;
    --Run situation-specific ad hoc reports and scenarios on the Single 
            Family Housing (SFH) portfolio; and
    --Provide monthly refreshed credit data at the loan level for 
            borrowers.
  --Respond rapidly to changing market conditions:
    --Provide a common, modern platform that supports rapid deployment 
            and continued modification of current and new FHA business 
            systems and processes;
    --Deliver a single source of authoritative data from which to 
            perform risk analytics and other operational reporting;
    --Following migration of functionality, decommission legacy systems 
            within SFH, Multi-Family Housing (MFH), and Healthcare; and
    --Simplify process of making changes to underlying system business 
            rules.
    At the time this initiative was launched, the estimated cost was 
set at approximately $115 million. Given FHA generates more than $10 
billion in receipts and billions in losses, this investment has clear 
and immediate payback.
                     progress on fha transformation
    Significant progress has been made on FHA Transformation to date. 
This includes:
  --Investment in basic infrastructure that will replace the core 
        systems;
  --Launch of front-end system that accepts lender certification;
  --Portfolio analytics that has identified billions of dollars of 
        improvement potential in how FHA disposes of assets; and
  --Piloting and testing electronic application processing tools.
    About half the investment FHA needs has been made to date to 
achieve this progress.
                                appendix
    IT challenges in the Single Family portfolio:
  --Unclear picture of full credit risk on a loan and inconsistent 
        referral of higher-risk loans for manual underwriting;
  --TOTAL system allows lenders an unlimited number of pre-
        qualification submissions with only a limited audit trail;
  --Reliance on multiple automated underwriting systems not owned by 
        FHA;
  --Heavy reliance on manual processing and paper case binders sent in 
        by lenders;
  --Manual application verification processes;
  --Inability to automatically validate appraised value prior to loan 
        closing and endorsement and unable to receive appraisal 
        information through direct interface with lenders;
  --Lack the capability to accept eSignatures;
  --Post endorsement and appraisal reviews based on outdated algorithms 
        and thus unable to effectively target most risky loans;
  --Lack ability to track lender activity and interactions with lenders 
        over time, increasing risk of fraud; and
  --Data integrity and data reporting issues leading to manual data 
        entry, processing delays and limited accuracy.
    IT challenges in the Multifamily and Healthcare portfolios:
  --Inability to proactively identify and mitigate risk due to lack of 
        capability to share and analyze data (no central data, paper 
        based application processing);
  --Processes are entirely manual, relying mostly on MS Word and Excel, 
        for credit analysis and write-ups;
  --Difficult, and in many cases, impossible to implement new programs 
        in existing systems; and
  --Limited management reporting.

    Senator Murray. But I just had one final question, and that 
is that you recently announced a significant reorganization of 
the Office of Multifamily Housing. It's going to affect about 
900 HUD employees over the next several years. The 
administration has rightfully said this move will reduce costs, 
create efficiencies, and improve program delivery.
    But those changes are going to mean fewer staff available 
to oversee and manage HUD's programs, and it means that HUD 
staff will not be located in many areas of our country, a 
concern that some multifamily housing providers in my State 
have raised with me personally. Can you just tell us how you 
can ensure that oversight will not be compromised under this 
new structure and that customers will continue to see the same 
level of service, particularly in places where HUD is no longer 
going to have an office?

                     OFFICE OF MULTIFAMILY HOUSING

    Ms. Galante. Yes, thank you. Clearly, it is challenging to 
operate on a national platform with the demand on the 
multifamily office. I just want to say that in terms of long 
term, this is critical to get our workload balanced across the 
country.
    So just to give you a quick example of why I believe that 
we will be able, long term, to operate in a more consolidated 
fashion across the country is that we have severe imbalances in 
all these 50 offices in the number of assets. We have some 
offices where project managers are responsible for over 200 
assets, and in other parts of the country, they're responsible 
for 30 assets per project manager. So what you see is just a 
vast imbalance of workload.
    We're trying in a whole variety of ways to balance that 
out. But one long-term way of doing it is consolidating the 
personnel into larger geographic areas so that they can share 
that work more evenly and stay within our very severe budget 
constraints. At the same time, given how we are in an 
electronic world, we believe that through technology and 
through other means, including travel, we will ensure that 
customers are served in all locations.
    Senator Murray. And they know the areas that----
    Ms. Galante. In local areas. And we'll have specialized 
teams within these larger consolidated teams with local 
knowledge and connections to the local community.
    Senator Murray. I appreciate that very much.

                     ADDITIONAL COMMITTEE QUESTIONS

    I do want to remind my colleagues that we're going to leave 
the hearing record open for 1 week for additional questions.
    I thank both of you for appearing before this subcommittee 
today.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
               Questions Submitted to Hon. Carol Galante
           Questions Submitted by Senator Barbara A. Mikulski
           consolidation of the office of multifamily housing
    Question. Federal agencies must always be frugal. And they must use 
taxpayer dollars responsibly. But in the current budget environment, 
it's even more important for agencies to think of reforms to make sure 
that every dollar of the taxpayers' money is being used as wisely as 
possible. This consolidation will have an impact on the employees at 
field offices across the country, and the Americans who rely on the 
work that they do. How did you determine that consolidating down to 
five hubs and five satellite offices was the best way to achieve your 
efficiency goals?
    Answer. Please see the end of this response for several exhibits 
that illustrate this explanation of the decision to consolidate to five 
hubs and five satellite offices. The current field structure has 17 
hubs and employees in over 50 field offices. This structure leads to 
five key areas of concern:
  --Unmanageable spans of control at the top of the organization. 
        Currently, the Multifamily deputy assistant secretary (DAS) has 
        nearly 25 direct reports, with 17 hubs and 6 headquarter (HQ) 
        functions (see Exhibit 1);
  --Inconsistent operations across 50+ locations, leading to 
        inconsistent customer service across geographies (particularly 
        for our largest customers), and inhibiting effective risk 
        management (see Exhibit 2);
  --Misalignment between Multifamily's structure and the established 
        Federal regions, leading to inconsistent coordination between 
        Multifamily and the rest of the Department of Housing and Urban 
        Development (HUD);
  --Over 4x workload imbalance across hubs in Production, and 3x in 
        Asset Management (worse within individual offices), leading to 
        long queues in some markets and underused staff in others (see 
        Exhibit 3); and
  --Low spans of control in many field offices (e.g., one manager over 
        two staff), creating unnecessary layers and stifling employee 
        engagement.
    The proposed structure will directly address each of these failures 
in the following ways:
  --The new five-hub model significantly reduces the number of direct 
        reports to headquarters, making management of the field 
        organization simpler and more streamlined (see Exhibit 4):
  --Consolidating to 10 locations enables greater consistency in 
        Multifamily's operations, enabling us to deliver more 
        consistent service to our customers while more consistently 
        managing the risk of the entire Multifamily portfolio;
  --The new five-hub model is more in line with the established Federal 
        regions, which will allow for better coordination between 
        Multifamily and the rest of HUD (see Exhibit 5);
  --Workload across each of the five regions will be more evenly 
        distributed; each region will handle a similar volume in both 
        Production and Asset Management (see Exhibit 6); and
  --The reorganization will produce greater spans of control--in line 
        with HUD policies and Federal standards--ensuring all locations 
        operate at scale, allowing us to make the most of scarce 
        financial resources.




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Question. How was the decision made to close the HUD Maryland 
Office of Multifamily Housing and all the offices in Region 3?
    Answer. Within this response are two exhibits that illustrate this 
explanation, including a detailed breakdown of the comparison of 
Boston, New York, Philadelphia, and Baltimore. First, it is worth 
noting the Multifamily is not closing any HUD field offices; other HUD 
staff will remain in the Baltimore field office. However, we do 
understand the concern about consolidating Multifamily's field 
structure, which means that Multifamily staff will relocate from the 
Baltimore office. To determine which 10 offices would serve as the 
future Multifamily hub and satellite offices, we first began by only 
considering locations that were already hubs (see Exhibit 7).




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




    In order to then streamline the Multifamily leadership structure, 
balance workload, and align with Field Policy and Management (FPM) 
regions, we then organized the hub offices into five geographic 
regions: the first covers Federal regions I, II, and III (the Boston, 
New York, Philadelphia and Baltimore offices); the second covers 
Federal region IV (the Atlanta, Jacksonville, and Greensboro offices); 
the third covers Federal region V (the Chicago, Detroit, Columbus, and 
Minneapolis offices); the fourth covers Federal regions VI and VII (the 
Fort Worth and Kansas City offices); and the fifth covers Federal 
regions VII, IX, and X (the San Francisco, Denver, Los Angeles, and 
Seattle offices) (see again Exhibit 7).
    Finally, we compared offices from within the proposed five regions 
based on several factors: the full-time equivalent (FTE) count in each; 
the Production workload (average annual firm commitments); the Asset 
Management workload (total assets); and whether an FPM Regional 
Administrator sat in that office (see again Exhibit 7).
    In determining which two offices to select from Federal regions I, 
II, and III, we ranked Boston, New York, Philadelphia, and Baltimore 
against each other based on these criteria. Based on these criteria, 
Baltimore and Philadelphia were ranked lower than other offices in the 
new Multifamily region (see Exhibit 8).




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




    Question. What will be the effect on HUD's processing of 
multifamily loans and the review of projects during consolidation and 
after it?
    Answer. We believe that this transformation will improve the way we 
do business by enhancing our efficiency, risk management, and 
consistency--which will in turn improve our ability to deliver on our 
mission of providing affordable housing.
    Prior to the consolidation of field offices, we will roll out 
workload sharing nationally across Multifamily offices. Once 
consolidation begins, workload sharing will allow us to take work 
``offline'' from impacted offices and move it to other areas of the 
country in order to ensure continuity of operations and excellent 
customer service.
    As we complete the implementation of each wave, all Multifamily 
loans will be reviewed through a formalized ``risk-based processing'' 
approach that segments incoming applications based on risk and 
complexity. Staff will be assigned to applications based on the 
particular expertise and experience that assessing those loans will 
require. More experienced underwriters will process riskier, more 
complex applications. These underwriters will oversee an end-to-end 
review of each application, continuing to draw in technical experts 
such as construction analysts and appraisers as needed. While our staff 
already considers risk and complexity in their work, we believe that 
formalizing this process will improve the consistency of our risk 
management and service delivery. This process complements tools 
introduced in the Breaking Ground initiative like the ``Early Warning 
System,'' which allowed Production staff to rapidly identify 
applications that required further review by the submitter before being 
processed.
    In addition to clarifying roles, we will also be identifying 
opportunities to streamline the underwriting process to ensure that 
simple applications are not being over-processed. We believe that this 
approach to Production will improve risk management by focusing expert 
attention on the most challenging applications, improve customer 
service by providing a clearer point of contact and more streamlined 
processing, and improve the overall efficiency of Multifamily's 
Production operations. This model has already proven successful in the 
Rental Assistance Demonstration and Low-Income Housing Tax Credit 
pilot. Many field offices are already experimenting with variants of 
this model, and through the Transformation we will formalize it and 
make it more consistent.
    A similar approach will also be adopted in Asset Management, 
whereby complex and troubled assets will be assigned to Multifamily's 
most expert staff. This approach is again consistent with the risk-
based approach introduced to Asset Management by Sustaining Our 
Investments. We will continue conducting on-site inspections and 
reviews as required by our policies and procedures. Today, we already 
manage assets and review applications from around the country, even 
when we have no nearby field office. We plan to continue this approach 
in the future.
    Question. How will this consolidation affect smaller banks and 
lenders?
    Answer. Like all Multifamily stakeholders, smaller banks and 
lenders will continue to have the same level of access to dedicated 
Multifamily staff that they have today. Due to shorter processing times 
and improved consistency across sites, banks and lenders should expect 
improved customer service from Multifamily.
    Question. I understand that you have promised the employees 
transparency and that you will keep them informed of changes; what 
steps have you taken, and what will you do as the process continues, to 
make sure that employees are kept up-to-date on the consolidation?
    Answer. In order to maintain an open dialogue between leadership 
and staff, the leadership at HUD and within Multifamily has conducted 
an extensive series of in-person, on the phone, and Web casts with 
staff. So far, this has included over two dozen different interactions, 
including 10 visits to field offices across the country. Multifamily 
leadership plans to continue these conversations into the foreseeable 
future. After the initial announcement, FHA Commissioner Carol Galante 
and Deputy Assistant Secretary Marie Head conducted a series of 
conference calls with each hub, during which they answered questions 
and collected feedback. Secretary Donovan, Deputy Secretary Jones, 
Commissioner Galante, and Deputy Assistant Secretary Head are all 
conducting site visits to field offices to meet with and take questions 
from Multifamily staff in person. During several biweekly conversations 
with the Deputy Secretary, which are broadcast every other Friday, the 
Deputy Secretary has provided answers to frequently asked questions and 
has hosted subject matter experts to describe employee options for 
relocating, buyouts and early retirement.
    Multifamily is committed to providing ``on demand'' resources to 
staff. We have created dedicated Web sites on HUD.gov and on the 
internal HUD@work site. We also continue to track incoming questions 
from individual employees, and regularly update the Questions and 
Answers found online\1\. Finally, we have set up a call center in the 
Office of Housing that directs employees to the appropriate subject 
matter experts.
---------------------------------------------------------------------------
    \1\ http://portal.hud.gov/hudportal/documents/
huddoc?id=052813TrnsfrmMF_FAQs.pdf.
---------------------------------------------------------------------------
    We are preparing local supervisors to hold conversations with 
individual staff members regarding their relocation destination, so 
that employees know, to the maximum extent possible, where we are 
proposing to relocate them. Once union negotiations are complete, we 
will launch a new series of communications with employees in order to 
inform them of the outcomes of negotiations and to provide individuals 
with the location of their directed reassignments and the timing of 
buyout offers.
    We expect that this regular cadence of communications will continue 
throughout the multi-year implementation of the transformation, as we 
remain committed to informing staff of the latest developments.

                         CONCLUSION OF HEARINGS

    Senator Murray. This hearing is recessed until Thursday, 
June 13, at 10 a.m. We'll have a hearing on our need to invest 
in our Nation's transportation infrastructure.
    So thank you again to both of you.
    [Whereupon, at 3:55 p.m., Tuesday, June 4, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
at 10 a.m., Thursday, June 13.]


TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2014

                              ----------                              

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

                       NONDEPARTMENTAL WITNESSES

    [Clerk's Note.--The following testimonies were received by 
the Subcommittee on Transportation and Housing and Urban 
Development, and Related Agencies for inclusion in the record. 
The submitted materials relate to the fiscal year 2014 budget 
request for programs within the subcommittee's jurisdiction.]

                         Congressional Witness

 Prepared Statement of Representative Rick Larsen, U.S. Representative 
                     From Washington, 2nd District
    Thank you for the opportunity to submit testimony to the Senate 
transportation appropriations subcommittee on the need for investment 
in our country's infrastructure. Chairman Murray has been a leader on 
this issue for many years, and I appreciate her continuing focus on 
this issue.
    The recent collapse of the I-5 bridge across the Skagit River 
offers an example of the worst case scenario when we fail to adequately 
invest in infrastructure. I am hopeful that Congress will learn from 
this near-tragic incident.
    A couple weeks ago, Dan and Sally Sligh packed up their camper and 
headed out on Interstate 5 on the way to their favorite campsite in 
northwest Washington State. While crossing a bridge over the Skagit 
River they had safely crossed many times before, a large truck ahead of 
them clipped the frame of the bridge above.
    Without warning, and without time to react, the pavement under 
Dan's pickup fell from under them. Next, Dan said, ``It was just a 
white flash and cold water.'' Like thousands of constituents, I myself 
have driven across that bridge hundreds of times. But today no cars are 
crossing it.
    Recovery workers have been working hard pulling pieces of that 
bridge, along with Dan's pickup, from the flowing waters of the Skagit 
River, and quickly building a replacement span. The fact that no one 
died in this collapse is a blessing. But not all have been so lucky. 
I'm sure the subcommittee will recall the 2007 bridge collapse in 
Minneapolis that killed 13 people and injured another 145.
    I would ask the subcommittee to consider a simple question: Should 
Americans be able to drive across a highway bridge with the reasonable 
expectation that it will not crumble away from underneath them?
    While the National Transportation Safety Board is continuing its 
investigation into all the facts of the bridge collapse, what we 
already know about our aging infrastructure should be enough to make 
this Congress act.
    Sixty-seven thousand bridges in our country are rated structurally 
deficient. When those bridges fall, it isn't just the unlucky few on 
those bridges who suffer. Whole economies that rely on safe and 
efficient transportation suffer.
    The I-5 bridge over the Skagit River doesn't just connect 
Burlington and Mount Vernon. It connects the entire West Coast and 
carries millions of dollars' worth of trade between Canada and the 
United States. Today that trade is in stop-and-go traffic on local 
roads.
    The good news is that we know how to build safe bridges. Thousands 
of civil engineers devote their lives to building good structures that 
don't fall down. But we need to pay for them. We need to maintain our 
bridges until they are old, and then we need to replace them. We can't 
keep waiting until they crumble into the water below.
    But if we're really going to do something about our long-term 
transportation needs, Congress needs to get to work on a long-term 
transportation bill that doesn't just patch our aging roads, but 
invests in an infrastructure that meets the needs of America's 21st 
century economy.
    It's time to put our money where our safety is. I look forward to 
working with you to make sure that we do so.

                       Nondepartmental Witnesses

     Letter From the Advocates for Highway and Auto Safety, et al.
                                                     June 17, 2013.
Hon. Patty Murray,
Chair, Subcommittee on Transportation, Housing and Urban Development, 
        and Related Agencies,
Washington, DC.
Hon. Susan Collins,
Ranking Member, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
    Dear Madam Chairman: As families who have lost loved ones in large 
truck crashes, victims who have survived large truck crashes, leading 
national safety organizations and truck drivers, we want to express our 
gratitude for your leadership in holding the Appropriations 
Subcommittee on Transportation, Housing and Urban Development and 
Related Agencies hearing, ``Crumbling Infrastructure: Examining the 
Challenges of Our Outdated and Overburdened Highways and Bridges.'' We 
respectfully request that this letter be submitted to the hearing 
record.
    The recent collapse of the Interstate 5 bridge in your home State 
of Washington brought the need to address the declining condition of 
our Nation's infrastructure to the forefront of the debate over 
adequate care and investment in our roads and bridges. Initial reports 
from the National Transportation Safety Board (NTSB) indicate the 
collapse resulted from an oversized tractor-trailer striking an 
overhead truss structure. This catastrophe highlights a growing safety 
risk to the public and demonstrates the critical need for Congress to 
strongly resist constant efforts to allow bigger, heavier and longer 
trucks on our highways.
    Truck crash fatalities are on the rise. In 2011, over 3,700 people 
were killed and 88,000 were injured on U.S. highways in large truck 
crashes. Additionally, in 2010, large truck crash fatalities increased 
by 9 percent to 3,675 deaths, despite an overall decline in motor 
vehicle deaths during the same year. Allowing larger, heavier trucks 
will further burden our bridges and roads, endanger the motoring public 
including truck drivers, as well as strain our wallets. The annual cost 
to society from crashes involving large trucks is estimated to be 
nearly $42 billion. This is an unnecessary and preventable loss of 
lives and dollars.
    By overwhelming margins in public opinion polls, the American 
public has consistently opposed any increases in the size and weight of 
large trucks. A May 2013 Lake Research Partners public opinion poll 
reiterated this, showing that 68 percent oppose heavier trucks and 88 
percent of Americans do not want to pay higher taxes for the damage 
caused by heavier trucks. The consistent and broad opposition to 
bigger, heavier trucks is based on the public's clear understanding 
about the safety consequences that tragically are demonstrated in 
preventable truck crash fatalities and injuries occurring every day on 
our Nation's roadways. Sharing the road with overweight and oversized 
trucks is dangerous to motorists involved in a crash as well as when 
bridges fail. In 2007 the devastating collapse of the Interstate 35 
bridge in Minneapolis tragically killed 13 people and injured 145 more 
innocent motorists.
    The well-financed lobbying efforts by special industry interests to 
push for bigger and heavier trucks, regardless of the human and 
economic consequences, are relentless as well as disingenuous. Claims 
that allowing increases in truck size and weight limits will lead to 
fewer trucks is wrong and has never occurred when Congress or States 
have given in to industry pressure. The catastrophic annual toll of 
deaths and injuries in large truck crashes and the threat to bridge and 
roadway safety highlighted by the recent bridge collapse in Washington 
State as well as the 2007 I-35 bridge collapse serve to validate 
concerns that the public and truck crash victims have regarding truck 
safety. History has demonstrated that every time truck weights 
increase, more trucks occupy our roads. For example, after the 1982 
Surface Transportation Assistance Act (STAA) pre-empted State size and 
weight limits on federally funded interstate highways, and in 2010 when 
the Federal weight limit on Maine and Vermont interstates was 
increased, truck traffic grew significantly. Despite this reality, 
Congress will again be asked to look the other way and legislate 
increases in truck size and weight limits as the discussions begin on 
the next surface transportation reauthorization bill.
    The American Society of Civil Engineers (ASCE) currently rates the 
Nation's bridges at a C+. Other studies have documented billions of 
dollars needed to address the backlog of road and bridge repairs facing 
our Nation. We cannot continue to wait for events like the bridge 
collapses in Washington and Minnesota to bring attention and action to 
the dire state of the Nation's infrastructure. Overweight trucks create 
a disproportionate level of this damage, and as axle weight rises even 
in small increments, the resulting damage increases disproportionately 
at a rapid rate. In the case of the I-35 bridge in Minnesota, a leading 
factor in that bridge's collapse was found to be loading. The loading 
which contributed to that bridge collapse resulted from a combination 
of construction materials and traffic, and can also result from 
increases in truck weights.
    If truck weights are increased from 80,000 to 97,000 pounds, the 
overall weight on a bridge would be magnified substantially when 
multiple trucks are on the bridge each carrying 17,000 more pounds. 
Five trucks simultaneously traveling over a bridge would result in 
85,000 additional pounds on the bridge. On one of our Nation's more 
than 70,000 structurally deficient bridges, this may potentially exceed 
the bridge's loading capacity. Our Nation's leaders must heed the 
Washington and Minnesota bridge collapses as a wakeup call and act 
swiftly to take the necessary legislative action to prevent further 
tragedies of this nature from occurring.
    In the interests of public safety, the protection of our 
infrastructure, and the preservation of our dwindling tax revenues and 
our environment, it is crucial for Congress to resist attempts to 
ratchet up truck sizes and weights. According to the Federal Highway 
Administration, there are 66,749 structurally deficient bridges and 
84,748 functionally obsolete bridges throughout the United States. With 
so many bridges requiring critical maintenance and repair, there are 
simply not enough resources to address even a fraction of the problem, 
let alone to shoulder the additional costs that bigger, heavier trucks 
will impose.
    Thank you for your continuing leadership in addressing highway 
deaths and injuries. We look forward to continuing to work with you in 
advancing safety.
            Sincerely,
                                   Jacqueline Gillan,
                                           President, Advocates for 
                                               Highway and Auto Safety.
                                   Fred McLuckie,
                                           Legislative Director, 
                                               International 
                                               Brotherhood of 
                                               Teamsters.
                                   Daphne Izer,
                                           Founder, Parents Against 
                                               Tired Truckers, mother 
                                               of Jeff Izer who was 
                                               killed in a truck crash 
                                               10/10/93.
                                   Joan Claybrook,
                                           Co-Chair, Citizens for 
                                               Reliable and Safe 
                                               Highways.
                                   John Lannen,
                                           Executive Director, Truck 
                                               Safety Coalition.
                                   Lawrence Liberatore,
                                           Board Member, Parents 
                                               Against Tired Truckers, 
                                               father of Nick 
                                               Liberatore who was 
                                               killed in a truck crash 
                                               6/9/97.
                                   Jennifer Tierney,
                                           Board Member, Citizens for 
                                               Reliable and Safe 
                                               Highways, Member, 
                                               Federal Motor Carrier 
                                               Safety Administration's 
                                               (FMCSA's) Motor Carrier 
                                               Safety Advisory 
                                               Committee, daughter of 
                                               James Mooney who was 
                                               killed in a truck crash 
                                               9/20/83.
                                   Jane Mathis,
                                           Board Member, Parents 
                                               Against Tired Truckers, 
                                               Member, FMCSA's Motor 
                                               Carrier Safety Advisory 
                                               Committee, mother to 
                                               David Mathis and mother-
                                               in-law to Mary Kathryn 
                                               who were killed in a 
                                               truck crash 3/25/04.
                                   Wanda Lindsay,
                                           Founder, The John Lindsay 
                                               Foundation, seriously 
                                               injured in a truck crash 
                                               5/7/10, wife of John 
                                               Lindsay who died on 5/9/
                                               10 following a truck 
                                               crash.
                                   Linda Wilburn,
                                           Board Member, Parents 
                                               Against Tired Truckers, 
                                               mother of Orbie Wilburn 
                                               who was killed in a 
                                               truck crash 9/2/02.
                                   Roy Crawford,
                                           Underride Network, father of 
                                               Guy ``Champ'' Crawford 
                                               who was killed in a 
                                               truck crash 1/12/94.
                                   Tami Friedrich Trakh,
                                           Board Member, Citizens for 
                                               Reliable and Safe 
                                               Highways, Member, 
                                               FMCSA's Motor Carrier 
                                               Safety Advisory 
                                               Committee, sister to 
                                               Kris Mercurio, sister-
                                               in-law to Alan Mercurio, 
                                               aunt to Brandie Rooker 
                                               and Anthony Mercurio who 
                                               were killed in a truck 
                                               crash 12/27/89.
                                   Dawn King,
                                           Board Member, Citizens for 
                                               Reliable and Safe 
                                               Highways, daughter of 
                                               Bill Badger who was 
                                               killed in a truck crash 
                                               12/23/04.
                                 ______
                                 
 Prepared Statement of the American Indian Higher Education Consortium
    This statement focuses on the Department of Housing and Urban 
Development (HUD).
    On behalf of the Nation's 37 Tribal Colleges and Universities 
(TCUs), which collectively are the American Indian Higher Education 
Consortium (AIHEC), thank you for the opportunity to express our views 
and recommendations regarding the Department of Housing and Urban 
Development Tribal Colleges and Universities' Program (TCUP) for fiscal 
year 2014.
                          summary of requests
    Department of Housing and Urban Development (HUD).--Beginning in 
fiscal year 2001, a TCU initiative had been administered by the HUD--
Office of University Partnerships as part of the University Community 
Fund. This competitive grants program enabled TCUs to build, expand, 
renovate, and equip their facilities that are available to, and used 
by, their respective reservation communities. We strongly urge the 
subcommittee to reject the recommendation included in the President's 
fiscal year 2014 budget request and to support the goal of Executive 
Order 13592 to strengthen TCUs by funding the competitive HUD-TCU 
Program at the fiscal year 2010 level of $5.435 million. Additionally, 
we request that language be included to permit that a small portion of 
the funds appropriated may be used to provide technical assistance to 
institutions eligible to participate in this competitive grants 
program.
        tcu shoestring budgets: ``doing so much with so little''
    Tribal Colleges and Universities are accredited by independent, 
regional accreditation agencies and like all U.S. institutions of 
higher education, must periodically undergo stringent performance 
reviews to retain their accreditation status. TCUs fulfill additional 
roles within their respective reservation communities functioning as 
community centers, libraries, tribal archives, career and business 
centers, economic development centers, public meeting places, and child 
and elder care centers. Each TCU is committed to improving the lives of 
its students through higher education and to moving American Indians 
toward self-sufficiency.
    TCUs have advanced American Indian and Alaska Native (AI/AN) higher 
education significantly since we first began four decades ago, but many 
challenges remain. Tribal Colleges and Universities are perennially 
underfunded, and remain some of the most poorly funded institutions of 
higher education in the country.
    The tribal governments that have chartered TCUs are not among the 
handful of wealthy gaming tribes located near major urban areas and 
regularly highlighted in the mainstream media. Rather, they are some of 
the poorest governments in the country and Tribal Colleges and 
Universities are home to some of the most disadvantaged counties in 
America. In fact, 7 of the Nation's 10 poorest counties are home to a 
TCU. The U.S. Census Bureau, American Community Survey specifies the 
annual per capita income of the U.S. population as $27,100. However, 
the annual per capita income of AI/ANs is just $13,300, about half that 
of the general population.
    The Federal Government, despite its direct trust responsibility and 
treaty obligations, has never fully funded the TCUs institutional 
operating budgets, authorized under the Tribally Controlled Colleges 
and Universities Assistance Act of 1978. Currently, the administration 
requests and Congress appropriates over $200 million annually toward 
the institutional operations of Howard University (exclusive of its 
medical school), the only other Minority Serving Institution (MSI) that 
receives institutional operations funding from the Federal Government. 
Howard University's current Federal operating support exceeds $19,000 
per student. In contrast, most TCUs are receiving $5,665 per Indian 
Student (ISC) under the Tribal College Act, about 70 percent of the 
authorized level. TCUs have proven that they need and deserve an 
investment equal to--at the very least--the congressionally authorized 
level of $8,000 per Indian student, which is only 42 percent of the 
Federal amount now appropriated for operating Howard University. It is 
important to note that although about 17 percent of the TCUs' 
collective enrollments are non-Indian students living in the local 
community, TCUs only receive Federal funding for operations based on 
Indian students, which are defined as members of a federally recognized 
tribe or a biological child of a tribal member. Please understand that 
we are by no means suggesting that Howard University does not need or 
deserve the funding it receives, only that the TCUs also need and 
deserve adequate institutional operations funding; however, their 
operating budgets remain grossly underfunded.
    While TCUs do seek funding from their respective State legislatures 
for their students that are non-Indian State residents (sometimes 
referred to as ``non-beneficiary'' students) successes have been at 
best inconsistent. TCUs are accredited by the same regional agencies 
that accredit mainstream institutions, yet they have to continually 
advocate for basic operating support for their non-Indian State 
students within their respective State legislatures. If these non-
beneficiary students attended any other public institution in the 
State, the State would provide that institution with ongoing funding 
toward its day-to-day operations. Given their locations, often hundreds 
of miles from another postsecondary institution, TCUs remain open to 
all students, Indian and non-Indian, believing that education in 
general, and postsecondary education in particular is the silver bullet 
to a better economic future for their regions.
    TCUs effectively blend traditional teachings with conventional 
postsecondary curricula. They have developed innovative ways to address 
the needs of tribal populations and are overcoming long-standing 
barriers to success in higher education for American Indians. Since the 
first TCU was established on the Navajo Nation in 1968, these vital 
institutions have come to represent the most significant development in 
the history of American Indian higher education, providing access to, 
and promoting achievement among, students who might otherwise never 
have known postsecondary education success.
    Inadequate funding has left many TCUs with no choice but to 
continue to operate under severely distressed conditions. The need for 
HUD-TCUP funding remains urgent for construction, renovation, 
improvement, and maintenance of key TCU facilities, such as basic and 
advanced science laboratories, computer labs, and increasingly 
important student housing, day care centers, and community services 
facilities. Although the situation has greatly improved at many TCUs in 
the past several years, some TCUs still operate--at least partially--in 
donated and temporary buildings. Few have dormitories and even fewer 
have student health centers. At Sitting Bull College in Fort Yates, 
North Dakota, competitively awarded HUD grant funds have been leveraged 
to expand the college's usable space from 12,000 square feet (sf) to 
100,000 sf over 10 years. Additionally, HUD grant dollars have been 
used to address three leaking roofs that created a mold problem in the 
area referred to at the college as the ``Hall of Buckets.'' HUD grant 
funds were also used to complete a renovation on its learning center, 
correcting major deficiencies, including recurring sewer and water 
problems, handicap accessibility issues, lack of effective safety/
security measures (surveillance and alarm systems), and outdated 
washroom facilities.
                             justifications
    Department of Housing and Urban Development.--Executive Order 13592 
addressing American Indian education and strengthening of Tribal 
Colleges and Universities holds Federal agencies accountable to develop 
plans for integrating TCUs into their various programs. TCUs work with 
tribes and tribal communities to address all aspects of reservation 
life, including the continuum of education, housing, economic 
development, health promotion, law enforcement training, and crime 
prevention. Likewise, Federal agencies need to work with TCUs. To 
achieve results, Congress needs to hold the administration accountable 
for the strengthening of the TCUs, including their physical plants and 
ensuring that they are routinely included as full partners in all 
existing and potential Federal higher education programs. The HUD-TCU 
competitive grants program, administered by the Office of University 
Partnerships, is an excellent place to start. This competitive grants 
program has enabled TCUs to expand their roles and efficacy in 
addressing development and revitalization needs within their respective 
communities. No academic or student support projects have been funded 
through this program; rather, funding was available only for community-
based outreach and service programs and community facilities at TCUs. 
Through this program, some TCUs have been able to build or enhance 
child care centers, including Head Start facilities, and social 
services offices; help revitalize tribal housing; establish and expand 
small business development; and enhance vitally needed community 
library services. Unfortunately, not all of the TCUs were able to 
benefit from this small but very important program. The program staff 
at the Department has no budget to provide technical assistance with 
regard to this program. If a small portion of the appropriated funds 
were to be available for program staff to conduct workshops and site 
visits, more of the TCUs and their respective communities could benefit 
from this vital opportunity. We strongly urge the subcommittee to 
support the HUD-TCU competitive grants program at $5,435,000, and to 
include language that will allow a small portion of these funds to be 
used to provide technical assistance to TCUs, to help ensure that much-
needed community services and programs are expanded and continued in 
the communities served by the Nation's TCUs.
                  president's fiscal year 2014 budget
    The President's fiscal year 2014 budget request does not provide 
funding for the University Community Fund, which housed the TCU program 
and other Minority-Serving Institutions programs. We respectfully 
request that the subcommittee reject the administration's 
recommendation and continue to recognize the abundant need for 
facilities construction and improvement funds for TCUs and appropriate 
funding for the Tribal Colleges and Universities Program, and the other 
MSI-HUD programs, namely: Historically Black Colleges and Universities; 
Hispanic Serving Institutions Assisting Communities; and Alaska Native 
and Native Hawaiian Serving Institutions Assisting Communities, to be 
allocated competitively within their individual programs.
                               conclusion
    We respectfully request that beginning in fiscal year 2014, 
Congress illustrate its support for the goals of the new executive 
order aimed at strengthening TCUs by restoring the HUD-TCU competitive 
grants program and provide for technical assistance to help these 
dynamic institutions improve and expand their facilities to better 
serve their students and communities. Thank you for your continued 
support of the Nation's TCUs and for your consideration of our fiscal 
year 2014 HUD appropriations requests.
                                 ______
                                 
  Prepared Statement of the American Public Transportation Association
    Madam Chairman and members of the subcommittee, on behalf of the 
American Public Transportation Association (APTA), I thank you for this 
opportunity to submit written testimony on the fiscal year 2014 
Transportation, Housing and Urban Development, and Related Agencies 
appropriations bill, as it relates to Federal investment in public 
transportation and high-speed and intercity passenger rail.
    With the passage of a new, 2-year surface transportation 
authorization bill--Moving Ahead for Progress in the 21st Century Act 
(MAP-21)--APTA's focus shifted from reauthorization legislation to 
ensuring the authorized programs are adequately funded. Federal 
investment in infrastructure is necessary for a variety of reasons, all 
of which lead back to supporting the economy and domestic job creation. 
Funding from the Federal Government leverages State and local resources 
and allows local governments and transit agencies to access capital 
markets, providing the resources necessary to build, replace, and 
repair infrastructure.
    Americans took 10.5 billion trips in 2012, the second highest 
ridership since 1957, and 154 million more trips than the prior year. 
This was the seventh year in a row that more than 10 billion trips were 
taken on public transportation systems nationwide. And these ridership 
levels were achieved despite the impact that Superstorm Sandy had on 
transit service in the Northeast. With demand for transit only growing, 
investments will continue to be required to get people to school, work 
and play, and in turn, provide jobs in construction, maintenance, and 
all the related industries required to support public transportation.
                               about apta
    APTA is a nonprofit international association of 1,500 public and 
private member organizations, including transit systems and high-speed, 
intercity and commuter rail operators; planning, design, construction, 
and finance firms; product and service providers; academic 
institutions; transit associations and State departments of 
transportation.
             overview of fiscal year 2014 funding requests
    The Moving Ahead for Progress in the 21st Century Act (MAP-21) 
authorizes $10.695 billion for the Federal Transit Administration's 
(FTA's) programs and expenses, with $8.595 billion of that provided 
from the Mass Transit Account of the Highway Trust Fund--which is 
financed with public transportation's share of Federal motor fuel tax 
revenues. The remaining $2.1 billion, used to fund New Starts, 
Research, the Transit Cooperative Research Program (TCRP), Technical 
Assistance, FTA Administration, and a handful of additional programs, 
must be appropriated from General Fund revenues. Given the current 
state of infrastructure and the upward trend in demand for public 
transportation services, APTA urges Congress to appropriate full 
funding to each program as authorized under MAP-21.
    Beyond FTA appropriations, we again urge Congress to appropriate 
funding for the Rail Safety Technology Grants program (section 105) of 
the Rail Safety Improvement Act (RSIA), to assist with the 
implementation of congressionally mandated positive train control 
systems. The Federal deadline for implementation of positive train 
control systems is rapidly approaching, and to date, Congress has not 
provided the necessary funding to support implementation of this 
important safety program for commuter railroads.
     map-21 and the continuing need for federal transit investment
    The new surface transportation law, MAP-21, provided a needed 
respite from years of authorization extensions, combined with 
appropriations continuing resolutions that resulted in significant 
funding uncertainty among transit agencies. Public transportation 
systems and projects require long-term funding certainty in order to 
plan major capital projects and procure assets such as rail cars, buses 
and facilities. While the 27 months of authority have helped to 
stabilize the situation, MAP-21 provided for only modest growth after 
years of essentially flat funding. The investment levels included in 
the bill were far from what is required to bring our systems into a 
state of good repair, much less to expand service to meet growing 
demands. In previous testimony to this subcommittee, APTA has cited 
U.S. Department of Transportation estimates that a one-time investment 
of $78 billion is needed to bring currently operating transit 
infrastructure up to a state of good repair, and this does not include 
annual costs to maintain, expand or operate the existing system. 
Research on transit needs shows that capital investment from all 
sources--Federal, State, and local--should be doubled if we are to 
prepare for future ridership demands. The administration's $50 billion 
proposal would go a long way toward accomplishing our state of good 
repair objectives.
    In their 2013 Report Card for America's Infrastructure released 
recently, the American Society of Civil Engineers (ASCE) gave the U.S. 
public transportation infrastructure a ``D'' grade for the Nation's 
lack of investment. This grade drives home a sense of urgency for our 
Nation to focus on increased investment in public transportation. The 
rating is virtually unchanged from 4 years ago, which was the last time 
ASCE examined the state of America's infrastructure. The ``Failure to 
Act'' report also emphasizes that the American economy lost $90 billion 
in 2010 due to the lack of investment in public transportation. The 
report also shows that, despite ridership gains and a clear and 
increasing demand for public transportation service, 45 percent of 
Americans still lack access to public transit in their communities.
    It is important to stress that the demand for public transportation 
and the need for Federal leadership will not diminish in the months and 
years ahead. Public transportation is a vital component of the Nation's 
total transportation infrastructure picture, and with ridership 
projected to grow, dependable public transportation systems will be 
vital to the transportation needs of millions of Americans. We must 
make significant, long-term investments in public transportation or we 
will leave Americans with limited transportation options, and in many 
cases, stranded without travel options. While Congress continues to 
consider how to proceed on a well-funded, multi-modal surface 
transportation bill, it remains critically important that annual 
appropriations bills address both current and growing needs.
                federal transit administration programs
    Capital Investment Grants (New Starts).--The New Starts program is 
the primary source of Federal investment in the construction or 
expansion of heavy rail, light rail, commuter rail, bus rapid transit 
and ferryboat projects. Across the country, demand for Federal 
assistance continues to outweigh currently authorized funding and 
resources, and New Starts funding is more important than ever with the 
expanded eligibility for Core Capacity projects. Unlike the core FTA 
formula programs, the New Starts program is funded from the General 
Fund, not the Mass Transit Account of the Federal Highway Trust Fund. 
The program as reformed by MAP-21 includes a streamlined approval 
process, but even with the reforms, projects will continue to face the 
most robust Federal review process of any Federal infrastructure 
investment program and authorized funding remains short of demand. APTA 
asks Congress to appropriate funding for the New Starts program at or 
above the MAP-21 authorized levels.
    Transit Research/Transit Cooperative Research Program (TCRP)/
Technical Assistance and Standards Development.--APTA strongly urges 
the committee to fully fund the Research, Development, Demonstration, 
and Deployment Program, the Transit Cooperative Research Program 
(TCRP), Technical Assistance and Standards Development, and Workforce 
Development at the authorized levels, or at a minimum at the requested 
levels in the administration's fiscal year 2014 budget.
    In particular, APTA urges Congress to recognize the great value and 
benefits represented in the TCRP. The TCRP is an applied research 
program that provides solutions to practical problems faced by transit 
operators. Over the TCRP's 20 years of existence, it has produced more 
than 500 publications/products on a wide variety of issues of 
importance to the transit community. TCRP research has produced a 
variety of transit vehicle and infrastructure standards and 
specifications, as well as a variety of handbooks addressing many 
relevant subject areas of interest to the transit community. TCRP 
generates significant benefits and large economic returns on 
investment, and it does this with a budget that is 1/10,000 of the $57 
billion governments spend annually on public transit services, and even 
an even smaller ratio when compared with the total benefits that 
transit service improvements provide to users, communities and the 
economy. TCRP costs will be repaid many times over if the program 
produces even small cost savings, service quality improvements, 
ridership gains, increases in transport system efficiency, or 
additional economic development.
                federal railroad administration programs
    As Congress begins to consider reauthorizations of the Rail Safety 
Improvement Act (RSIA) and the Passenger Rail Investment and 
Improvement Act (PRIIA), there are two important programs APTA wishes 
to emphasize as priorities for the industry.
    Positive Train Control.--A high priority for APTA within the 
programs of the Federal Railroad Administration (FRA) is the adequate 
funding for implementation of Positive Train Control (PTC) through the 
Railroad Safety Technology Grants Program, section 105 of RSIA. The 
RSIA requires that all passenger rail operators, as well as certain 
freight railroads, implement positive train control PTC systems by 
December 31, 2015. The cost of implementing PTC on public commuter 
railroads alone is estimated to exceed well over $2 billion, not 
including costs associated with acquiring the necessary radio spectrum 
or the subsequent software and operating expenses. APTA urges Congress 
to appropriate a minimum of $50 million, the annual authorization 
included under RSIA. APTA urges the subcommittee to direct these funds 
to commuter rail implementation of PTC, and to fund those systems that 
plan to implement before the deadline.
    As the installation of PTC on nearly 4,000 locomotives and 
passenger cars with control cabs, and 8,000 track miles progresses, 
costs are beginning to mount. The total cost of implementation on 
commuter railroads is expected to far exceed initial estimates, with 
estimates doubled in some cases. Meanwhile, Congress has appropriated 
only $50 million of the $250 million that was authorized. A federally 
mandated deadline, coupled with virtually no Federal funding is forcing 
agencies to commit extremely limited capital budgets to implement PTC. 
Commuter railroads that have begun to install PTC are facing difficult 
choices as some will have to defer critical safety sensitive 
infrastructure maintenance projects to pay for PTC. As a group, these 
railroads have worked in good faith to comply with the act's 
requirements. Additional funding provided by Congress for the Railroad 
Safety Technology grants is fundamental to the industry's ability to 
implement PTC.
    High-Speed and Intercity Passenger Rail Investment.--APTA strongly 
supports continued investment in high-speed and intercity rail projects 
and services. The U.S. Census Bureau estimates that the U.S. population 
of our Nation will grow by more than 100 million over the next 40 
years. Such increases will overwhelm America's aviation, road and 
existing rail transportation infrastructure. To accommodate the needs 
of an ever-growing and highly mobile population, the United States must 
develop and continually expand a fully integrated multimodal high-speed 
and intercity passenger rail (HSIPR) system. Investing in 
infrastructure ensures the efficient movement of people and goods that 
is essential to continued economic growth and other national policy 
goals. High-speed intercity passenger rail would ultimately serve both 
densely populated mega-regions as well as rural and small urban 
communities which will benefit from the increased transfer points and 
feeder services connecting with new high-speed rail corridors.
    Passenger rail projects are advancing in 32 States and the District 
of Columbia, with each project supporting economic growth by creating 
construction and manufacturing jobs for American workers and attracting 
small businesses and new development that will generate domestic 
business growth. High-speed rail will create a revitalized domestic 
transportation industry supplying more products and services, with more 
dollars retained in our economy.
                               conclusion
    We thank the subcommittee for allowing us to share APTA's views on 
fiscal year 2014 public transportation and high-speed and intercity 
rail appropriations issues. APTA looks forward to working with the 
subcommittee as it makes investment decisions about the public 
transportation programs.
                                 ______
                                 
      Prepared Statement of the American Public Works Association
    Madam Chairman and members of the Senate transportation 
appropriations subcommittee, thank you for the opportunity to submit 
testimony for the hearing, Crumbling Infrastructure: Examining the 
Challenges of Our Outdated and Overburdened Highways and Bridges.
    My name is Elizabeth Treadway, president of the American Public 
Works Association (APWA). I submit this statement today on behalf of 
our members.
    The American Public Works Association is an organization whose 
members are dedicated to providing public works infrastructure and 
services to millions of people in rural and urban communities, both 
small and large. Working in the public interest, our 28,500 members and 
nearly 2,000 public agencies plan, design, build, operate and maintain 
our transportation, water supply, stormwater, wastewater treatment, 
waste and refuse disposal systems, public buildings and grounds and 
other structures and facilities essential to our economy and quality of 
life.
    Local governments own about 75 percent of the nearly 4-million-mile 
roadway network and more than half of the Nation's bridges and manage 
about 90 percent of the transit systems. With nearly every trip 
beginning and ending on a local road, street or sidewalk, a strong 
local-State-Federal partnership is key to ensuring a safe, seamless and 
efficient multimodal transportation network.
    We join others in expressing our deepest sympathy to everyone 
affected by the collapse of the Skagit River Bridge on May 23. We were 
saddened by this and offer our support to everyone working to recover 
and rebuild.
    Like other bridges throughout the Nation, the Skagit River Bridge 
is a vital link in the transportation system. In the northwest, it is 
part of the main travel route between Seattle, Washington and 
Vancouver, British Columbia and averages 71,000 vehicles daily. The 
tragic collapse of this functionally obsolete span is a stark reminder 
of the aging and deteriorating condition of our Nation's public 
infrastructure, increasingly over-burdened by growing system demands 
and outdated infrastructure. It is suffering the effects of chronic 
underinvestment and is in critical need of funding for maintenance, 
repair and modernization.
    The needs are clear and documented. The U.S. Department of 
Transportation (USDOT) reports that the Nation (all levels of 
government) invests roughly half of what is needed to improve the 
current state of our roads and bridges. Nearly one in four bridges 
nationwide is rated deficient and in need of repair, improvement or 
replacement. Of the more than 607,300 publicly owned bridges on which 
we depend for personal mobility and movement of freight, nearly 151,500 
are rated deficient, with more than 66,740 classified as structurally 
deficient and more than 84,740 as functionally obsolete.\1\ Neither 
designation indicates a bridge is unsafe, but they do indicate a need 
for repair, improvement or replacement. The age of the average bridge 
is more than 40 years.
---------------------------------------------------------------------------
    \1\ The Federal Highway Administration defines structurally 
deficient bridges as those characterized by deteriorated conditions of 
significant bridge elements and reduced load-carrying capacity and 
typically require significant maintenance and repair to remain in 
service. A bridge is functionally obsolete when it does not meet 
current design standards either because the volume of traffic carried 
by the bridge exceeds the level anticipated when the bridge was 
constructed and/or the relevant design standards have changed. 
Addressing functional deficiencies may require the widening or 
replacement of the structure.
---------------------------------------------------------------------------
    The importance of bridges cannot be ignored. Within the State of 
Washington there are over 65 million bridge crossings a day with 
approximately 10 million of these crossings occurring on locally owned 
bridges. While bridges are a small part of the total road miles, they 
provide vital links in the transportation system, not only spanning 
rivers but also separating traffic at rail crossings and highway to 
highway crossings. However, replacement and rehabilitation of these 
links are of significantly higher cost on a per mile basis than other 
aspects of the transportation system.
    We can no longer afford to ignore the underinvestment in bridge 
maintenance, rehabilitation and replacement. Additional traffic volumes 
and heavier loads are placing ever greater stress on bridges often 
designed for lighter loads. Underinvestment is a major contributing 
factor undermining efforts to adequately address the deficiencies.
    At the local level in particular, local governments' ability to 
fund necessary bridge improvements has eroded significantly over the 
years. Local governments have limited financial means to adequately 
address bridge deficiencies and typically do not have the capacity to 
do major repairs or capital work on the scale of bridge replacement 
without funding support. Immediate action to increase investment at the 
national level is crucial if we are to accelerate local bridge repair 
and replacement programs.
    The needs at the local level are especially significant. Twenty-
seven percent of local bridges are structurally deficient or 
functionally obsolete. Of that, 15 percent are structurally deficient 
as compared to 7 percent of State-owned bridges. Of the almost 67,000 
structurally deficient bridges in our Nation, more than half of them 
are the responsibility of local government.
    Bridges on local roads typically were built to accommodate lower 
traffic volumes and smaller, lighter vehicles or are so old and 
deteriorated they are in urgent need of repair or replacement. In many 
cases, they were not designed to take the pounding current traffic 
volumes and loads demand. As congestion increases on the interstate 
system and State highways, local roads become diversion routes, 
supporting ever increasing levels of usage. Freight volumes, too, are 
increasing, adding demands on all parts of the system.
    Deficient local bridges are rated, prioritized and repaired or 
replaced as funding is available. When funding is insufficient, 
deferred maintenance, increased inspections, weight limits and closures 
are often the only options. It is not uncommon for bridges to go years, 
even decades, without the appropriate action to repair or replace them, 
due to lack of funds. This is particularly true in more rural areas.
    APWA has been and will continue to be an advocate for the 
development of public policies which ensure the safe and efficient 
management and operation of our public infrastructure. We support a 
determined, comprehensive national effort to increase investment to 
eliminate the bridge funding backlog needed to repair, rehabilitate and 
replace all publicly owned bridges as part of a zero bridge 
deficiencies goal.
    Such an effort, however, should not stop there. It needs sustained 
and sustainable funding to ensure ongoing system preservation and 
maintenance at a level necessary to prevent future deficiencies of all 
publicly owned bridges.
    MAP-21, Moving Ahead for Progress in the 21st Century, provides a 
short-term, 2-year investment in our transportation system. With the 
Highway Trust Fund on the brink of insolvency, we urge the Congress to 
begin work immediately on a long-term authorization that provides a 
sustainable revenue source to avert a looming funding shortfall that 
threatens not only the ability to adequately address bridge 
deficiencies but also the many other pressing transportation needs. The 
Congressional Budget Office reports that the Trust Fund will be unable 
to meet all of its obligations beginning in fiscal year 2015. Inaction 
to address this shortfall could result in Federal transportation 
programs being cut by about 90 percent to bring the Trust Fund into 
balance.
    We support a well-funded, multi-year surface transportation 
authorization that provides an increased and sustainable funding source 
for road and bridge needs, strengthens local decisionmaking authority, 
directs more resources to local priorities and does more to streamline 
and accelerate the project delivery process.
    In addition, we support a mix of revenue options to ensure 
necessary funding sustainability, including: raising and indexing the 
Federal motor fuel tax; exploring the transition to vehicle-mileage 
fees; and expanding access to innovative financing tools.
    MAP-21 eliminated the Highway Bridge Program. MAP-21's National 
Highway Performance Program provides funding for bridges on the 
National Highway System (NHS). Although the Surface Transportation 
Program retains the 15 percent set-aside for off-system bridges 
(bridges not on the Federal system), we need to ensure adequate funding 
for local bridges on the Federal system but not on the NHS.
    In conclusion, our transportation system is aging, deteriorating 
and suffering the effects of decades of underinvestment. The result is 
the unacceptably high levels of deficiencies we see today. We believe 
that, working together in partnership with local, State, Federal, and 
private sector partners, we must take immediate action to address our 
crumbling infrastructure. But it will take funding and leadership. 
Increased investment to repair or replace deficient bridges is vital to 
achieve a safer and more efficient transportation network.
    Madam Chairman, we thank you for holding this hearing and are 
especially grateful to you and subcommittee members for the opportunity 
to submit this statement. We stand ready to assist you and the 
subcommittee as we move forward to address our Nation's infrastructure 
needs.
                                 ______
                                 
     Prepared Statement of the American Society of Civil Engineers
    The American Society of Civil Engineers (ASCE) \1\ is pleased to 
present to the subcommittee our views on the state of the Nation's 
infrastructure, as well as the challenges ahead and investments needed.
---------------------------------------------------------------------------
    \1\ ASCE was founded in 1852 and is the country's oldest national 
civil engineering organization. It represents more than 146,000 civil 
engineers individually in private practice, government, industry, and 
academia who are dedicated to the advancement of the science and 
profession of civil engineering. ASCE is a nonprofit educational and 
professional society organized under part 1.50(c)(3) of the Internal 
Revenue Code.
---------------------------------------------------------------------------
    ASCE was relieved that there were no fatalities or serious injuries 
due to the I-5 bridge collapse. While we await to hear from the 
National Surface Transportation Safety Board as to the cause of the 
collapse, there are reports that an oversized vehicle may have played a 
significant role in the incident. What we do know is that the bridge is 
one of 84,748 functionally obsolete bridges in this country and served 
as a critical link to our economy and trade. Therefore, the ripple 
effect of the bridge collapse will have significant economic 
repercussions. In fact, the Director of the Washington State Department 
of Commerce said that the I-5 bridge collapse could cost the State of 
Washington at least $47 million in lost economic output, as well as 
lost jobs and tax revenues.
             2013 report card for america's infrastructure
    ASCE's 2013 Report Card for America's Infrastructure graded the 
Nation's infrastructure a ``D+'' based on 16 categories and found that 
the Nation needs to invest approximately $3.6 trillion by 2020 to 
maintain the national infrastructure in good condition. The following 
are the grades and the investment needs by 2020 for the surface 
transportation area:
  --Bridges received a grade of C+;
  --Transit received a D;
  --Roads received a grade of D, and combined with bridges, and 
        transit, have an estimated investment need of $1.7 trillion; 
        and
  --Rail received a grade of C+ and has an estimated investment need of 
        $100 billion.
    While taken for granted by most Americans, our infrastructure is 
the foundation on which the national economy depends. As the economy 
grows, these infrastructure assets must be maintained and improved 
accordingly. While the interstate highway system is a shining example 
of a focused national vision for the Nation's infrastructure, an ever 
expanding population and a growing economy requires these aging 
infrastructure systems to keep pace. Deteriorating and aging 
infrastructure is not only an inconvenience, it financially impacts our 
families, local communities, and our entire country.
    In an effort to see how significant investments are to the Nation's 
infrastructure, ASCE released a series of economic studies that answer 
a critical question--what does a ``D+'' mean for America's economy and 
what is the return on investment we can expect to see. The Failure to 
Act studies compare current and projected needs for infrastructure 
investment against the current funding trends in surface transportation 
(highways, bridges, rail, transit); water and wastewater; electricity; 
and airport and waterborne transportation. The series concluded with a 
final report, Failure to Act: The Impact of Current Infrastructure 
Investment on America's Economic Future, which found improving the 
condition of our Nation's aging roads, bridges, power lines, sewer 
systems, ports and waterways is critical to protecting 3.5 million 
jobs.
    The final summary report found that between now and 2020, 
investment needs across key infrastructure sectors total $2.75 
trillion, while projected expenditures are about $1.66 trillion, 
leaving a total investment gap of $1.1 trillion. This gap leads to 
consequences like congestion, water main breaks, and blackouts and 
brownouts that cost households and businesses money, creating a drag on 
our economy. However, with an additional investment of $157 billion a 
year between now and 2020, the U.S. can eliminate this drag on economic 
growth and protect:
  --$3.1 trillion in GDP;
  --$1.1 trillion in U.S. trade value;
  --3.5 million jobs;
  --$2.4 trillion in consumer spending; and
  --$3,100 in annual household income.
    In order to avoid the severe economic impacts that would be caused 
by failing to invest in our infrastructure at home, the Federal 
Government is allowing other countries to make up where the United 
States is failing. It is long established that money invested in 
essential public works can create jobs, provide for economic growth, 
and ensure public safety through a modern, well-engineered national 
infrastructure. By improving the Nation's deteriorating infrastructure 
system both economic and job creation opportunities will be provided, 
while creating a multi-modal transportation system for the 21st 
century.
                     highway and bridge conditions
    The health of our Nation's highways and bridges serves as a 
critical link moving people and goods throughout the country, therefore 
they are directly tied to the Nation's ability to compete in a global 
marketplace. For this reason, it is of growing concern that the bridges 
in our Nation's metropolitan areas, which are an indispensable link for 
both millions of commuters and freight on a daily basis, are decaying. 
Meanwhile, 42 percent of America's major urban highways remain 
congested, costing the economy an estimated $101 billion in wasted time 
and fuel annually.
    Over 200 million trips are taken daily across deficient bridges in 
the Nation's 102 largest metropolitan regions. In total, one in nine of 
the Nation's bridges are rated as structurally deficient, while the 
average age of the Nation's 607,380 bridges is currently 42 years. 
Overall, we are seeing a decline in the number of deficient bridges; 
however, current funding levels are still not enough to fulfill all of 
the repair and replacement needs.
    The I-5 bridge over the Skagit River in Washington was not 
structurally deficient; however, the bridge was 58 years old and 
classified as functionally obsolete. A functionally obsolete bridge no 
longer meets the current engineering and design standards that are used 
today, with examples being narrow lanes or low load-carrying capacity. 
While functionally obsolete bridges might not pose the same risks as 
structurally deficient bridges, which require significant 
rehabilitation or replacement due to deterioration, they still demand 
consideration, maintenance, and proper postings. Therefore, even though 
we are seeing a slow, but steady decline in the overall number of 
deficient bridges, nationally we still have significant work to do. 
Nationally, we must focus not just the number of structurally deficient 
bridges, but functionally obsolete bridges as well.
    Turning to our Nation's roads, 32 percent of America's major roads 
are in poor or mediocre condition. While the Nation has seen some 
improvements in pavement conditions due to a short surge of investment 
from the American Recovery and Reinvestment Act, these were not 
sustained, long-term investments. Of added concern are the vehicular 
restrictions for some roadways due to poor pavement, which can create 
longer routings for trucks in cases where detours are required. 
Deficient pavements are more common in urban versus rural areas, with 
47 percent of urban interstate vehicle miles traveled (VMT) over 
deficient pavements compared to 15 percent of rural interstates. The 
ultimate cost of poor road conditions is significantly more over time 
than the cost to maintain those same roads in good condition. For 
example, after 25 years the cost per lane mile for reconstruction can 
be more than three times the cost of preservation treatments over the 
same time period, which can lead to a longer overall life span for the 
infrastructure.
                  highway and bridge investment needs
    Federal, State, and local highway and bridge investments are not 
keeping pace with the growing costs of the aging infrastructure.
    Estimates state that to maintain all of the Nation's highways at 
their current condition would cost $101 billion in annual capital 
investment between 2008 and 2028. In order to improve the Nation's 
highways, investment would need to rise to $170 billion annually, or an 
additional $79 billion annually from current investments, during that 
same time period. This investment would bring the number of Federal-aid 
highway vehicle miles traveled on pavements with a good ride quality up 
from 46 percent in 2008 to 74 percent by 2028. Unfortunately, Federal, 
State, and local governments are only spending $91 billion annually on 
capital investments, meaning that each year our roads deteriorate 
further. If present trends continue, the unfunded gap in highway 
funding, which is 48 percent of the total need in 2010, is expected to 
increase to 54 percent by 2040.
    When zeroing in on just the Nation's bridges, the Federal Highway 
Administration (FHWA) estimates that the current cost to repair or 
replace only the deficient bridges eligible under the Federal Highway 
Bridge Program is almost $76 billion. This total is up from 2009, when 
FHWA estimated that the total cost was $71 billion. If bridge 
maintenance continues to be deferred over the next 25 years, these 
backlog costs will rise. To put these numbers in perspective, over the 
last 30 years Congress has provided approximately $77 billion to the 
States through the Federal-aid bridge program. The Federal Highway 
Administration estimates that to eliminate the bridge backlog by 2028, 
the Nation would need to invest $20.5 billion annually; however, at 
this time only $12.8 billion is being spent annually on the Nation's 
bridges.
                           highway trust fund
    With the current surface transportation authorization (MAP-21) 
expiring next September, Congress will soon need to begin discussions 
on how to fund a new multi-year surface transportation authorization 
and more importantly how to make the Highway Trust Fund sustainable as 
a long-term revenue source. Therefore, due to the Nation's growing 
surface transportation needs, Congress must first appropriate the 
funding levels that were authorized under MAP-21, while also tackling a 
way to provide a long-term, reliable, and sustainable approach toward 
fixing the Highway Trust Fund.
    A key reason for the current decline in transportation spending is 
the fact that Federal revenues supporting the Highway Trust Fund have 
not been adjusted since 1993; however demands on the system have grown. 
As a result, current levels of highway and public transportation 
investment cannot be maintained solely with trust fund resources and 
Congress has had to rely on the General Fund to shore up resources.
    Currently, the Highway Trust Fund is allocating more than the 
revenues it receives, with the trust fund allocating $15 billion more 
in 2012 alone. The Congressional Budget Office (CBO) recently projected 
that to prevent a massive shortfall for highway and transit spending in 
2015, Congress will need to severely cut highway spending, transfer $14 
billion to the Highway Trust Fund from the General Fund, raise the 
Federal gas tax by about 10 cents per gallon, or implement some 
combination of the three. The current solution provided by the Obama 
administration is to once again transfer funds from the General Fund, 
which is not a long-term solution for funding highway and transit 
programs.
                          asce recommendations
    While additional funding is critical to improving the Nation's 
highways and bridges, it is not the only solution. ASCE recommends the 
following solutions in order to begin bring the Nation's roads and 
bridges into a state of good repair:
  --Ensure the sustained sufficiency and reliability of the Highway 
        Trust Fund by identifying and incorporating necessary 
        additional revenue streams.
  --Encourage the use of asset management programs to provide for the 
        most efficient use of maintenance and repair investment.
  --Make the repair of structurally deficient urban bridges a top 
        national priority through the implementation of a risk-based 
        prioritization model.
  --Increase annual investment levels for bridge repair, 
        reconstruction, and renovation by approximately $8 billion 
        annually from all levels of government, to a total annual 
        funding level of $20.5 billion.
  --Develop a national strategic plan for addressing the Nation's 
        structurally deficient and functionally obsolete bridges in the 
        upcoming decades, including long-term transportation research 
        in order to develop more resilient bridges.
  --Set a national goal to decrease the number of just structurally 
        deficient bridges to 8 percent by 2020 and decrease the 
        percentage of the population driving over all deficient bridges 
        by 75 percent by 2020.
                               conclusion
    Continuing to maintain baseline levels of investment for the 
Nation's roads and bridges only allows us to maintain the inadequate 
conditions that our current surface transportation systems are under. 
Without developing a long-term, reliable user fee approach for the 
Highway Trust Fund, surface transportation programs will continue to 
live under a cloud of uncertainty for the years to come and necessary 
improvements cannot be full addressed. A transportation system cannot 
run properly when it must rely on transfers from the General Fund in 
order to remain solvent. Congress must take the lead in addressing this 
problem to ensure continuity in the Nation's surface transportation 
program. In the short term, ASCE is pleased to see that Congress is 
fully appropriating the funding levels that have been authorized by 
MAP-21 and that Senators continue to push the need to upgrade the 
Nation's aging infrastructure. However, making a strong commitment to 
the Nation's surface transportation system without the proper funding 
does not solve our long term infrastructure needs.
    The longer Congress waits to properly fund surface transportation 
programs, the greater the problem will become. Inaction will lead to a 
further deterioration of the Nation's surface transportation assets, a 
continuation of high levels of traffic fatalities and more wasted time 
and fuel due to increased congestion creating a further drag on the 
economy. Therefore, ASCE stands ready to work with Congress as it works 
to fund our Nation's vital transportation assets.
                                 ______
                                 
Prepared Statement of the California Association of Housing Authorities
    Thank you for the opportunity to present written testimony 
regarding the fiscal year 2014 Department of Housing and Urban 
Development (HUD) budget. The California Association of Housing 
Authorities (CAHA) represents the 113 housing authorities in the State 
of California. Together, we administer approximately 320,000 section 8 
housing choice vouchers for the elderly, disabled, and families with 
children; partner with the Veterans Administration to provide housing 
vouchers for 8,100 homeless veterans; and own approximately 39,100 
public housing units. In addition, we provide housing and supportive 
services to thousands of very low income households under an array of 
other HUD and non-HUD programs, including the Low Income Housing Tax 
Credit. Our testimony pertains to the Housing Choice Voucher (HCV) 
Program and the Public Housing Program.
    Housing Choice Voucher Program.--The fiscal year 2013 budget funded 
us at a 92.5 percent proration for the HCV Program. This is the lowest 
level in the 38-year life of the HCV Program. As a result, housing 
authorities are drafting procedures to terminate existing tenants from 
the HCV Program and HUD has estimated that 125,000 families nationwide 
could lose their housing assistance, some 15,700 in California. These 
are families who have already signed leases with their landlords--
landlords who, likewise, are dependent on the HCV Program subsidy 
payments to make their mortgage payments. The mission of housing 
authorities is to house people, not terminate their assistance 
resulting in homelessness. We understand that increasing funding for 
the HCV Program to serve all potentially eligible families is not 
possible in these economic times. However, we ask that you provide 
sufficient funding in the fiscal year 2014 budget to renew assistance 
to all current participants so that no family loses its housing.
    HCV Program Administrative Fees.--Housing authorities are paid 
according to a formula to administer the HCV Program. The fiscal year 
2013 budget funded us at a 69 percent proration which, like the HCV 
rental subsidy, is the lowest in the 38-year history of the Program's 
operation. While some may say that 100 percent of the formula is too 
rich CAHA believes that no one can argue that 69 percent is sufficient.
    The HCV Program Administrative Fee proration has been steadily 
decreasing over the last 5 years as follows: 2009--88 percent; 2010--93 
percent; 2011--85 percent; 2012--80 percent and 2013--69 percent. To 
manage, housing authorities are doing lay-offs, mandating furloughs, 
cutting salaries and benefits and reducing office hours. According to 
the National Association of Housing and Redevelopment Officials 
(NAHRO), since fiscal year 2003, the last time housing authorities 
received 100 percent of their Administrative Fee, 213 housing 
authorities have ``handed back'' their HCV Program to HUD or 
transferred it to another housing authority.
    CAHA believes that it takes people to help people. Housing 
authority staff determine family eligibility and rent annually, 
maintain the waiting list, inspect every unit every year per HUD's 
Housing Quality Standards, outreach to landlords, conduct criminal 
background checks, maintain program integrity and prevent fraud, and 
counsel families to find appropriate housing. These activities are 
labor intensive, particularly as the regulatory requirements are overly 
burdensome and far in excess of what would be required to administer a 
sound, integrity-based HCV Program. In addition to restoration of the 
Administrative Fee funding to a 90 percent proration, CAHA respectfully 
asks that you include five regulatory relief measures in your 
deliberations:
    1. Biennial Inspections.--The HCV Program requires annual 
inspections of all subsidized units. Moving to a biennial schedule 
would reduce inspection work by 50 percent. Most Moving to Work (MTW) 
agencies have already successfully adopted initiatives that reduce unit 
inspections to a biennial schedule with special monitoring/sanctions 
for units that fail to meet standards.
    2. Biennial or Triennial Income Recertifications for Fixed Income 
Households.--The HCV Program requires annual recertification of all 
participating households. However, approximately 50 percent of section 
8 households are elderly and/or disabled and typically have fixed 
incomes. Most MTW agencies have already successfully adopted 
initiatives that permit biennial or triennial recertifications for 
fixed income households.
    3. Adoption of a National Waiver for Reduction of Payment 
Standards.--The HCV Program requires subsidy levels, called ``payment 
standards,'' pegged to 90-110 percent of local fair market rents 
(FMRs). When funding is insufficient, regulations permit housing 
authorities to apply to HUD for a waiver to reduce the payment standard 
below 90 percent. Each request is handled individually by HUD and takes 
a remarkable amount of time and resources to process. During this 
section 8 funding crisis, CAHA requests that HUD process a nationwide 
waiver for payment standards as low as 80 percent for housing 
authorities with insufficient section 8 funding from HUD to meet the 
subsidy requirements of their outstanding vouchers.
    4. Reduced Payment Standard Waiver Implementable Immediately.--Per 
HUD regulations, the waiver permitting a reduction in payment standards 
cited in No. 3 above may only be implemented over the course of 1-2 
years. CAHA requests that the proposed nationwide waiver be 
implementable on an immediate basis.
    5. Treasury Offset Program.--The Treasury Offset Program is a 
centralized offset program, administered by the Financial Management 
Service's Debt Management Services, to collect delinquent debts owed to 
Federal agencies and States, typically through Internal Revenue Service 
(IRS) refunds offset of another U.S. Government-issued payment. 
Authorization for housing authorities to participate in the program 
would assist in the collection of debts owed by current or former HCV 
Program and Public Housing Program participants. Amounts recovered 
would become available for current program expenses. The State of 
California Employment Development Department (EDD) already permits this 
activity at the State level.
    Public Housing.--The Public Housing Operating Fund is supposed to 
cover the difference between the rent paid by public housing residents 
and the housing authorities' cost to manage the housing. The Operating 
Fund was structured based on a cost study of well-managed multifamily 
housing done by Harvard University. Despite the study, however, over 
the last 10 years (except for American Recovery and Reinvestment Act of 
2009 (ARRA) funds provided in 2010) the Operating Fund has not been 
funded at 100 percent of the formula and in fiscal year 2013 was at 
only 82 percent.
    The President's fiscal year 2014 budget requests $4.6 billion for 
the Operating Fund. According to HUD, this figure represents 90 percent 
of estimated eligibility under the Operating Fund formula. CAHA 
respectfully asks that the subcommittee appropriate operating funds at 
the 90 percent proration level at a minimum; full funding would be at 
$5.17 billion.
    The President's fiscal year 2014 budget also requests $2 billion 
for the Public Housing Capital Fund, which housing authorities use to 
make major capital improvements to their public housing. For fiscal 
year 2013, the Capital Fund received only $1.789 billion after 
accounting for the impact of sequestration, the lowest level in the 
history of the Public Housing Program. The President's budget 
anticipates that, after set-asides, approximately $1.95 billion would 
be applied toward formula Capital Fund grants for fiscal year 2014. 
This request continues to fall far short of the $3.4 billion in 
annually accruing capital needs estimated by the 2010 Abt Associates' 
Capital Needs Assessment study commissioned by HUD. No funding to build 
additional, new public housing has been provided in years, so it is 
critical to preserve and sustain the public housing that exists. CAHA 
respectfully asks that the subcommittee appropriate $3 billion for the 
Capital Fund.
    CAHA understands well our Nation's budget issues and is poised to 
do its part. Other than full funding to protect all tenants currently 
receiving HCV Program assistance, all of our funding requests are for 
less than the formula amounts. The 5 percent cut imposed by 
sequestration does not necessarily sound unreasonable--but it is not 
just a 5 percent cut. It is 5 percent cut from the lowest amount 
historically appropriated for our housing programs and will have 
significant impacts on some of our country's poorest citizens.
    Thank you for considering our requests.
                                 ______
                                 
     Prepared Statement of the Coalition of Northeastern Governors
    The Coalition of Northeastern Governors (CONEG) is pleased to share 
with the subcommittee on Transportation, Housing and Urban Development, 
and Related Agencies this testimony for the record on fiscal year 2014 
appropriations for surface transportation, rail, and community 
development programs. The CONEG Governors deeply appreciate the 
subcommittee's longstanding support of funding for these programs. 
Federal support is vital to maintaining the national transportation 
system, enhancing its capacity to meet enormous and diverse needs, and 
contributing to a balanced, integrated national transportation system 
that supports the Nation's current and future economic growth. As the 
Nation's population grows and the economy recovers, these needs 
confront all of us--Federal, State and local governments and the 
private sector.
    The Governors recognize that the subcommittee, in crafting the 
fiscal year 2014 appropriations measure, faces a very difficult set of 
choices in an environment of severe fiscal constraints. Funding the 
Nation's surface transportation programs in fiscal year 2013 at the 
funding levels authorized in the Moving Ahead for Progress in the 21st 
Century Act (MAP-21) (Public Law 112-141) was a significant 
accomplishment. They thank the subcommittee for its support and urge 
you to continue this strong Federal/State partnership so vital for a 
national, integrated, multi-modal transportation system. This system 
underpins the competitiveness of the Nation's economy; broadens 
employment opportunities; and contributes to the efficient, safe, 
environmentally sound, and energy efficient movement of people and 
goods.
                         surface transportation
    The CONEG Governors urge the subcommittee to fund the highway 
obligation ceiling at the authorized levels, adequately fund safety and 
innovative financing programs, and maintain at least the fiscal year 
2013 levels for public transit programs. These levels of Federal 
investment are the minimum needed to slow the decline in infrastructure 
conditions and maintain the safety of the Nation's highways, bridges, 
and transit systems.
    Continued and substantial Federal investment in these 
infrastructure improvements--in urban, suburban, exurban, and rural 
areas--is necessary to safely and efficiently move people and products 
and to support the substantial growth in freight movement projected in 
the coming decades. The Federal Government has invested significant 
resources in the Nation's transportation systems, and it has a 
continuing responsibility to maintain and enhance the capacity of the 
Nation's transportation infrastructure to keep America competitive in a 
global economy.
    Specifically, the CONEG Governors urge the subcommittee to:
  --Fund the highway obligation ceiling at the authorized levels;
  --Fund public transit programs at no less than the authorized levels, 
        with full funding for the current transit formula grants and 
        capital investment grants, preserving the historic funding 
        balance between these programs;
  --Ensure that Federal transit funds are released to States and 
        designated recipients in a timely manner; and
  --Expand the use of innovative financing and public-private 
        partnerships to supplement direct Federal funding, including 
        Federal loan guarantees and credit assistance, such as the 
        Transportation Infrastructure Finance and Innovation Act 
        program (TIFIA).
                                  rail
    The Governors deeply appreciate the subcommittee's continued 
support for Amtrak and the funding in prior years for intercity 
passenger rail capital assistance. Recognizing that Congress will 
undertake a new authorization of the rail program to follow the 
Passenger Rail Investment and Improvement Act of 2008 (PRIIA) (Public 
Law 110-432), they urge the subcommittee to provide fiscal year 2014 
funding for intercity passenger rail capital assistance. Significant 
funding for intercity passenger rail, in addition to the Amtrak 
funding, will allow efficient intercity passenger rail corridors to be 
developed as part of a national, multi-modal transportation system. In 
the Northeast, continued, adequate Federal investment is critical to 
bring the current system to a state of good repair; help expand its 
capacity to meet the growing ridership; provide improved service to 
communities; attract State, local and private sector investments in the 
intercity passenger rail system; and develop a coordinated, 
comprehensive vision and plan for future services. These investments 
are essential for the accessible, reliable, frequent and on-time 
service that attracts and retains ridership and grows revenues.
    The Northeast has one of the oldest and most extensive multi-modal 
transportation systems in the world. This system faces major congestion 
and capacity constraints which, if not addressed, have the potential to 
curtail future commerce and mobility in a region that is densely 
populated and serves as an economic engine for the Nation. To begin to 
address these capacity constraints, the Northeast States have already 
invested significantly in the passenger rail corridors of the region--
the Northeast Corridor (NEC), the Empire Corridor, the Northern New 
England Corridor, and the Keystone Corridor. They have leveraged 
Federal funds appropriated for intercity passenger rail projects 
eligible under the framework created by PRIIA. The intense efforts of 
the States, Amtrak and freight railroads in recent years are now 
showing positive results in the Nation's busiest rail corridor. 
However, continued significant investments in this corridor network are 
needed to meet the growing intercity passenger travel market. The joint 
planning and funding initiatives over the past years are part of an on-
going coordinated effort to improve service by reducing travel times, 
increasing speed, increasing service reliability and on-time 
performance, and eliminating choke points; while improving 
infrastructure through station upgrades, replacing aging bridges and 
electrical systems, installing track and ties, replacing catenary 
wires, and purchasing new locomotives. Among the active collaborative 
projects that are employing thousands of workers using American-made 
supplies are the following:
  --Maine's Northern New England Passenger Rail Authority (NNEPRA) is 
        managing a project to add double track and replace rail in 
        Massachusetts on the portion of the Downeaster line owned by 
        the Massachusetts Bay Transportation Authority (MBTA). These 
        improvements will enhance Downeaster reliability/on-time 
        performance and set the stage for more Downeaster frequencies. 
        NNEPRA received a Federal Railroad Administration (FRA) grant 
        and the MBTA provided a match.
  --The Delaware Department of Transportation, the University of 
        Delaware, and the City of Newark are designing and building a 
        regional transportation center, on former industrial property 
        acquired by the University of Delaware, to serve Amtrak, 
        Southeastern Pennsylvania Transportation Authority, and 
        Delaware public transit. Preliminary engineering is anticipated 
        for the summer of 2013.
  --In Massachusetts, work currently is underway to re-route Amtrak's 
        Vermonter will expand service to new communities, connecting 
        Vermont, western Massachusetts and central Connecticut to the 
        Northeast Corridor and Washington, DC. Upgrades to this 
        ``Massachusetts Knowledge Corridor'' include installing 50 
        miles of new rail (made in Steelton, Pennsylvania) and 
        replacing approximately 75,000 ties. This project builds upon 
        work completed in Vermont that has reduced travel time by 
        almost 1 half-hour.
    Amtrak.--The Amtrak fiscal year 2014 budget request contains 
specific funding levels provided for operations, capital and debt 
service. These funding levels will enable Amtrak to continue a balanced 
program of adequate, sustained capital investment in infrastructure and 
fleet modernization programs that are vital for an efficient intercity 
passenger rail system that can meet the rising demand for reliable, 
safe, quality services.
    The Amtrak capital request encompasses investments urgently needed 
to maintain the Northeast Corridor and other Amtrak-owned or maintained 
infrastructure and equipment; advance the Gateway Program to expand 
track, tunnel and station capacity between Newark, New Jersey, and New 
York Penn Station; acquire new equipment; and improve accessibility for 
passengers with disabilities.
    The Governors also strongly urge the subcommittee to provide Amtrak 
the requested levels of funding that will allow improved intercity 
service on the NEC--the backbone of a passenger rail network that 
connects the entire Northeast and extends rail service to communities 
in the South, West, and Canada. These projects are initial steps 
required to address the backlog of deferred investments, and to make 
investments in near-term improvements in track, bridges, tunnels, and 
equipment that will increase the capacity of the NEC to offer more 
reliable and frequent intercity service that can deliver more riders to 
their destination in less travel time. Improvements on the NEC can also 
help address the congested highway corridors and crowded Northeast 
airports that are a major source of travel delays nationwide.
    Intercity Passenger Rail Corridors.--To advance the initial 
investments made by the Federal Government and the States, the 
Governors urge the subcommittee in fiscal year 2014 to fund a 
competitive Intercity Passenger Rail Corridor Capital Assistance 
Program, and to provide provisions that fund the planning activities 
for the development of passenger rail corridors, including multi-state 
corridors. The multi-state planning funds are the source of the monies 
that support the continuation of the work being led by the FRA, working 
cooperatively with the Northeast States, to develop an updated service 
development plan and environmental analysis that reflect the current 
and projected demand for passenger rail service on the NEC. A funding 
level of $25 million is needed in fiscal year 2014 for the completion 
of these analyses which are required for any future major improvements 
for higher-speed intercity passenger rail service on the NEC.
    Since these corridors serve diverse travel markets, the Governors 
urge that these grant funds be available to States to advance plans for 
reliable, travel-time competitive service, regardless of maximum speed 
requirements. In light of the stringent FRA requirements for intercity 
passenger rail grants, they request the subcommittee waive the current 
statutory requirement that projects be part of an approved State rail 
plan, since this requirement might curtail thoughtful and well-advanced 
efforts already underway by the States.
    Northeast Corridor Infrastructure and Operations Advisory 
Commission.--The Governors thank the subcommittee for providing funding 
for the Northeast Corridor Infrastructure and Operations Advisory 
Commission (Commission). Consistent with its responsibilities defined 
under PRIIA, the Commission is working actively to facilitate mutual 
cooperation and planning among the States, Amtrak, freight railroads, 
and the FRA for intercity, commuter and freight use of the Corridor--
and to also maximize the economic growth and the energy and 
environmental benefits of the larger regional NEC network.
    The Commission has extensive responsibilities to set corridor-wide 
policy goals and recommendations that encompass passenger rail 
mobility, intermodal connections to highways and airports, reduced 
energy consumption, air quality improvements, and local and regional 
economic development of the entire Northeast region. It is also tasked 
with developing a standardized formula to determine and allocate the 
costs, revenues and contributions among NEC commuter railroads and 
Amtrak which use each other's facilities and services. The Commission's 
work will also guide the vision and service development plans that are 
a pre-requisite to fund projects that can improve the capacity of the 
NEC. To conduct the assessments required by Congress in a timely 
manner, the Commission needs resources, data and expert analysis that 
exceed that which is currently available through the staff of the 
States, Amtrak and FRA. Continued funding in fiscal year 2014 will 
ensure the Commission's ability to secure all essential resources for 
conducting these assessments.
    Other Programs.--A number of other national rail and intermodal 
programs are important components of the evolving Federal-State-private 
sector partnerships to enhance passenger and freight rail across the 
country.
    The Railroad Rehabilitation and Improvement Financing Program 
(RRIF) can be an important tool for railroads (particularly regional 
and short-line railroads) and public agencies to access the financing 
needed for critical infrastructure and intermodal projects. The 
Governors also encourage the subcommittee to provide funding for the 
Rail Line Relocation program, the Next Generation Corridor Train 
Equipment Pool, and critical rail safety programs.
    The Governors support the continuation of the Transportation 
Investment Generating Economic Recovery, or TIGER Discretionary Grant 
program, at $500 million to encourage investment in multi-modal, multi-
jurisdictional or other road, rail, transit and port projects that help 
achieve critical national objectives.
    Adequate funding is needed for the Surface Transportation Board to 
carry out its expanded responsibilities for intercity passenger rail 
corridor service, including its specific responsibilities under PRIIA 
regarding equitable cost-sharing formulas among States, Amtrak and 
commuter railroads.
                   community development block grant
    The CONEG Governors urge the subcommittee to provide $3.3 billion 
in formula funding for the Community Development Block Grant (CDBG) 
program. This program, which enables States to invest in improved local 
infrastructure, rehabilitated affordable housing, and local economic 
development and jobs, has a proven track record of contributing to 
neighborhood and community redevelopment and improvement nationwide. 
Every $1 invested in CDBG leverages an additional $3.55 in non-CDBG 
funding.
                               conclusion
    In conclusion, the CONEG Governors urge the subcommittee to:
  --Fund the highway obligation ceiling at the authorized levels;
  --Expand the TIFIA program;
  --Fund Federal public transit programs at the authorized levels, with 
        full funding for the transit formula grants and capital 
        investment grant programs, and preserving the historic funding 
        balance between these programs;
  --Fund Amtrak at levels that will support sound operations and a 
        balanced capital investment program, including the NEC capacity 
        improvements;
  --Maintain provisions to fund the Northeast Corridor Infrastructure 
        and Operations Advisory Commission;
  --Provide funding for the Intercity Passenger Rail Service Corridor 
        Assistance Program for corridor planning and capital 
        investment, including provisions for multi-state corridor 
        planning;
  --Provide funding for such national rail programs as the Next 
        Generation Corridor Train Equipment Pool, the Rail Line 
        Relocation program and the RRIF program;
  --Provide $500 million for the TIGER program;
  --Provide adequate funding for the Surface Transportation Board; and
  --Provide formula funding for the Community Development Block Grant 
        at the $3.3 billion level.
    The CONEG Governors thank the entire subcommittee for the 
opportunity to share these priorities and appreciate your consideration 
of these requests.
                                 ______
                                 
                   Prepared Statement of Easter Seals
    Thank you for this opportunity to submit testimony on behalf of 
Easter Seals about two collaborative partnerships we administer with 
the Federal Transit Administration. We appreciate the strong support of 
the subcommittee over the years and look forward to continuing to work 
to increase the mobility of people with disabilities and older adults.
    Easter Seals respectfully requests that the subcommittee include 
report language in the fiscal year 2014 transportation appropriations 
bill providing no less than $3 million for Project ACTION and no less 
than $1 million for the National Center on Senior Transportation within 
the Standards Setting and Technical Assistance account at the Federal 
Transit Administration.
                          about project action
    People with disabilities rely on public transportation to travel to 
work and to access services, supports and entertainment in their 
communities. Recognizing the need to improve access to public 
transportation for people with disabilities, Congress in 1988 
established a national technical assistance center called Project 
ACTION to partner with transportation providers, the disability 
community and others to promote universal access to transportation for 
people with disabilities. Congress recently reauthorized Project ACTION 
through the Moving Ahead for Progress in the 21st Century Act (MAP-21). 
Project ACTION is funded by the U.S. Department of Transportation's 
Federal Transit Administration (FTA) out of the standards development 
and technical assistance account. Easter Seals, Inc. won the 
competitive bid to manage Project ACTION for FTA.
 collaborating with public transit operators to increase accessibility 
                          and improve services
    Project ACTION is the preeminent resource in the country for 
helping increase the mobility of people with disabilities. The project 
does an exemplary job of gathering and sharing best practices; 
providing technical assistance and training; facilitating strategic 
partnerships and community engagement to support the development and 
coordination of transportation options; developing and disseminating 
information, including the use of web-based and social media vehicles; 
and administering demonstration grants.
    Project ACTION's accomplishments include:
  --Creating a strong collaborative environment between the disability 
        and transit community;
  --Creating hundreds of useful guides, resources, tools and other 
        resources on critical issues affecting mobility for people with 
        disabilities and older adults that are available to transit 
        providers, disabilities and the general public for free;
  --Providing direct technical assistance to transit providers, people 
        with disabilities and others through in-person, phone, online 
        and other consultation;
  --Creating and delivering direct training on critical mobility issues 
        affecting people with disabilities, transit providers and 
        community planners; and
  --Working with communities to help them plan and implement strategies 
        to increase mobility.
         easter seals project action appropriations priorities
    Easter Seals urges Congress to support the mobility needs of people 
with disabilities and older adults (through the National Center on 
Senior Transportation) to address significant unmet needs, such as 
addressing the coming increase in the need for accessible 
transportation options as baby boomers age and integrating 
transportation technology advances to increase transportation mobility 
and access.
           about the national center on senior transportation
    Older adults rely on public transportation to travel to work and to 
access services, supports and entertainment in their communities. 
Recognizing the need to improve access to public transportation for 
older adults, Congress authorized the National Center on Senior 
Transportation (NCST) in 2005 as part of the Safe, Accountable, 
Flexible, Efficient Transportation Equity Act: A Legacy for Users 
(SAFETEA-LU). Congress reauthorized the program in 2012 as part of the 
Moving Ahead for Progress in the 21st Century Act (MAP-21) in the 
standards development and technical assistance account.
    With funding from the U.S. Department of Transportation, Federal 
Transit Administration, NCST was launched in 2006 and has been 
administered by Easter Seals, Inc. in partnership with the National 
Association of Area Agencies on Aging (n4a) ever since. In April 2012, 
the Federal Transit Administration once again selected Easter Seals, 
Inc. and n4a to administer. From the Center's inception, a national 
steering committee of experts in senior transportation issues has 
advised NCST on issues in aging and transportation and ways to achieve 
NCST's goals.
  collaborating with communities to increase independence and improve 
                                services
    The National Center on Senior Transportation's mission is to 
increase transportation options for older adults and enhance their 
ability to live more independently within their communities throughout 
the United States. NCST achieves this mission by gathering and sharing 
best practices; providing technical assistance and training; 
facilitating strategic partnerships and community engagement to support 
the development and coordination of senior transportation options; 
developing and disseminating information; and administering 
demonstration grants.
    The Center has a strong commitment to promoting innovations at the 
community level and has provided funding and technical assistance to 
support a number of specific projects across the United States. Working 
with individual communities, the NCST identifies effective and creative 
approaches for addressing the challenges that impact transportation 
services for older Americans. The NCST strives to bring together the 
aging, human service, and transportation providers to create solutions. 
Our work supports the full ``family'' of older adult transportation 
services, including programs using volunteers both to driver and to 
accompany older adults to their destinations, travel training and 
orientation promoting increased use of public transit, older driver 
safety, education for caregivers, coordinated planning efforts and much 
more.
   national center on senior transportation appropriations priorities
    Easter Seals urges Congress to support the mobility needs of older 
adults and people with disabilities (through Easter Seals Project 
ACTION) to address significant unmet needs, such as addressing the 
coming increase in need for accessible transportation options as baby 
boomers age and integrating transportation technology advances to 
increase transportation mobility and access.
                                 ______
                                 
        Prepared Statement of Habitat for Humanity International
    Thank you for the opportunity to provide testimony in support of 
the Self-Help and Assisted Homeownership Opportunity Program (SHAHOP) 
account, which funds the Self-Help Homeownership Opportunity Program 
(SHOP), the Section 4 Capacity Building for Community Development and 
Affordable Housing Program (Section 4), and the Department of Housing 
and Urban Development's (HUD's) rural capacity building program. 
Habitat for Humanity International (Habitat) urges the subcommittee to 
appropriate $60 million for the SHAHOP account for fiscal year 2014, 
funding SHOP at $20 million, Section 4 at $35 million, and rural 
capacity building at $5 million.
              self-help homeownership opportunity program
    HUD's SHOP program has been a uniquely effective tool for enabling 
successful low-income homeownership by providing resources to Habitat 
affiliates and other nonprofits implementing self-help housing models 
to acquire property, including foreclosed or abandoned homes, and to 
develop infrastructure for future Habitat homes, activities that are 
among the most difficult to underwrite through private fundraising. 
With many communities around the country still struggling to overcome 
the effects of the Great Recession and the foreclosure crisis, enabling 
families to become successful homeowners has never been more important 
to local economies. With the support of SHOP funds, Habitat affiliates 
have completed more than 15,000 homes and housed nearly 54,000 people 
and counting, while leveraging over $1 billion in private investment in 
neighborhoods and communities throughout the Nation.
    Since fiscal year 2011, SHOP funding has been cut by 50 percent to 
the current funding level of $13.5 million, drastically reducing the 
impact of one of the most effective Federal tools for enabling low-
income families to become homeowners. In spite of the program's proven 
effectiveness, the administration's fiscal year 2014 budget request 
proposes eliminating SHOP as a stand-alone program, guaranteeing $0 in 
future funding through a so-called HOME Investment Partnerships Program 
(HOME) ``set-aside'' of ``up to'' $10 million.
    Even if funding were ultimately provided through a HOME set-aside, 
it is unlikely that Habitat affiliates could access or administer such 
a program, as Habitat for Humanity International (HFHI) currently 
applies for and administers SHOP funding and supports critical 
monitoring and evaluation requirements on behalf of its affiliates. 
HFHI would be unable to continue serving in this role if it were 
required to apply separately to every participating jurisdiction for 
funding, and the vast majority of Habitat affiliates would be unable to 
add the necessary staff capacity to do so on their own behalf.
    Additionally, current administrative processes would become even 
more burdensome under the administration's legislative proposal, which 
would expand HUD's regulation of SHOP. This is in stark opposition to 
the clearly expressed statutory intent of Congress to constrain SHOP 
regulatory burdens, maximizing the local impact of the program. In 
light of the Office of Management and Budget's (OMB's) having rated 
SHOP as of the most effective programs at HUD, it makes little sense to 
reform or reauthorize it as a HOME set-aside. Under the program's 
current structure, SHOP grantees have completed more homes at a lower 
cost than HUD requires and have generated levels of private investment 
in local communities rarely achieved through HUD programs.
    In addition to maximizing the impact of scarce appropriations, 
SHOP's traditional structure also ensures quality by enabling grantees 
to select the best local nonprofit developers to implement funding. 
Ultimately the President's proposal would eviscerate SHOP, shifting 
limited funding from serving families to meeting regulations and 
undermining Habitat and other proven grantees' ability to ensure 
program quality. In light of current budgetary constraints, ongoing 
weakness in the housing market, and SHOP's long history of 
effectiveness and efficiency, Habitat urges the subcommittee to 
maintain SHOP's current structure and to restore funding to $20 million 
for fiscal year 2014.
                  section 4 capacity building program
    Complementing SHOP is the Section 4 Capacity Building Program 
(Section 4), the sole HUD program designed specifically to enhance the 
capacity of local nonprofit community developers. Like SHOP, Section 4 
has endured significant cuts since fiscal year 2011, and the 
President's fiscal year 2014 budget request proposes reducing the 
funding level to $20 million, an additional 43 percent cut from the 
current level of $35 million. Such a reduction would inevitably result 
in the diminished ability of community development organizations to 
meet the critical needs of local communities still struggling to 
achieve economic recovery.
    Habitat uses Section 4 funding to provide training, technical 
assistance, and organizational development grants to local Habitat 
affiliates to assist them with building staff capacity and expertise, 
organizational skills, and technical systems required to maximize 
impact on local communities. Affiliates receiving Section 4 funds have 
increased their housing production levels by 48 percent during their 3 
year grant periods and have sustained or increased these gains in 
subsequent years. Habitat urges the subcommittee to maintain Section 4 
at $35 million for fiscal year 2014.
    Together, SHOP and Section 4 serve as impact multipliers for 
Habitat affiliates nationwide in both rural and urban communities. With 
local economies still suffering effects from the Great Recession, 
Congress should maintain proven programs like SHOP and Section 4 that 
leverage tens of millions of dollars of private investment into 
communities, enabling hundreds of additional qualified families to 
become Habitat homeowners each year.
    Please support Habitat's mission and work by funding SHAHOP at $60 
million in the fiscal year 2014 Transportation, Housing and Urban 
Development, and Related Agencies appropriations bill. Thank you for 
your consideration and for your support of Habitat for Humanity.
                                 ______
                                 
     Prepared Statement of HUD Council 222, American Federation of 
                     Government Employees, AFL-CIO
    Madam Chairman Murray, Ranking Member Collins, and members of the 
subcommittee, my name is Carolyn Federoff. I am the executive vice 
president of HUD Council 222, American Federation of Government 
Employees, AFL-CIO. On behalf of the 1,547 Federal employees who work 
in the Office of Multifamily Housing (MFH) of the U.S. Department of 
Housing and Urban Development, I want to thank you for the opportunity 
to submit our written statement for the hearing record on the important 
issue of the HUD proposal to reorganize the HUD Office of Multifamily 
Housing.
                                summary
    HUD's proposed reorganization of the Office of Multifamily Housing 
is irresponsible. It would be very costly to implement, would generate 
little or no savings, would not resolve the problems identified by HUD 
in its Federal Register notice (78 FR 25293), and would generate 
additional problems--many of which could increase risk to the Federal 
Housing Administration (FHA) Insurance Fund.
    The Office of Multifamily Housing employees have been remarkably 
successful. Between 2009 and 2012, Multifamily Housing increased its 
customer base from 48 lenders to 89 lenders, more than doubled the 
value of initial endorsements--from $5.1 billion to $13.1 billion, and 
nearly doubled the numbers of loans processed, from 661 to 1,286. The 
Office of Multifamily Housing can be made more effective and efficient. 
But we believe alternative, more responsible, proposals are faster, 
cheaper, and smarter.
                               discussion
Proposed Multifamily Housing Reorganization Would Be Very Costly To 
        Implement
    HUD is proposing to physically consolidate into 10 locations; 
employees and work currently located in 61 offices nationwide. The 
Agency projects a minimum cost of $57.3 million based on various one-
time costs, including:
  --Buyout cost--approximately $13.9 million-$20.8 million;
  --Personnel relocation cost--approximately $16.8 million-$33.6 
        million;
  --Net office closure costs--$6.1 million;
  --Space alteration costs in the 10 remaining offices--$20 million; 
        and
  --Training costs--$500,000.
    However, the Agency has failed to present other costs, including:
  --Minimum loss of 25 percent of skilled and experienced employees;
  --Unknown costs for recruiting and rehiring employees with necessary 
        skills to replace employees choosing not to relocate;
  --Unknown costs for training new employees;
  --Unassessed cost of severance pay for employees choosing not to 
        relocate or take a buyout;
  --Unknown cost to national and local economies due to lost 
        productively during relocation chaos;
  --Unknown cost to FHA insurance funds due to increased risk resulting 
        from relocation chaos; and
  --Unknown long-term cost to FHA insurance funds due to reduced 
        staffing and oversight.
    In addition, the Agency has presented no reoccurring costs. This is 
not supportable, however. Unless the Agency intends to eliminate all 
site visits or use contractors, the cost of travel will increase as 
Multifamily Housing field staff will be required to travel further 
distances. Further, there will be increased annual office costs in the 
10 remaining offices. Moreover, the per square foot cost for office 
space in the 10 remaining offices will be generally more expensive than 
the cost of current office space.
Proposed Multifamily Housing Reorganization Would Generate Little to No 
        Savings
    HUD projects long term savings of approximately $47 million 
annually: ``The savings is directly related to a reduction in salary 
and benefit costs due to reducing overall MFH staffing from 1,547 in 
fiscal year 2012 to 1,173 by the end of fiscal year 2016.'' These 
savings were calculated based upon an average cost per full-time 
employee (FTE), or approximately $125,000 per FTE.
    However, not all FTEs are the same. The cost of an FTE in New York 
City is more than the cost of an FTE in Des Moines, Iowa. Through 
collective bargaining, the Agency has provided us with a ``from-to'' 
list identifying the current duty stations of bargaining unit employees 
and the offices to which they will be reassigned. There are 617 
employees on this list. (The remaining approximately 173 employees to 
be reassigned are not in the AFGE Council 222 bargaining unit.) The 
employees are predominantly GS-12 and GS-13. For ease of calculation, 
we conservatively assumed that all affected employees are GS-12 Step 5. 
We then calculated the cost of their salaries in their current location 
versus in the location to which they will be reassigned. The result is 
an increase in salary costs of more than $2.1 million annually.
    Recognizing that the Agency intends to reduce costs by reducing 
FTEs, we recalculated. The Agency intends to relocate or buyout 790 
employees, with a net loss of 374 FTEs. Our calculations are based on 
617 FTEs, therefore accommodating 191 of the projected loss. The 
remaining 185 of the projected loss represents an additional 30 percent 
reduction in staff. Reducing our salary estimates by 30 percent results 
in a final estimate of almost $1.5 million in additional salary costs 
annually.
    We will be spending more to get less.
Proposed Multifamily Housing Reorganization Would Not Resolve the 
        Problems Identified by HUD but Alternative, More Responsible, 
        Methods Would and They Would Be Faster, Cheaper and Smarter
            ``Fragmented and Unwieldy Organizational Structure''/Need 
                    for ``Better Spans of Control''
    Many of the problems identified by HUD as the reasons for the 
reorganization are real. But the proposed consolidation into 10 offices 
does not resolve the problems identified. For example, the Federal 
Register Notice presents as a problem a ``fragmented and unwieldy 
organizational structure'' and states that Multifamily Housing needs 
``better spans of control and [to] establish clear reporting lines in 
the field.'' An organizational structure, however, is not the same as 
an office structure. Organization charts are not written in bricks and 
mortar. Similarly, spans of control and lines of authority are not 
resolved by the configuration of office space. Physically consolidating 
staff will not instantly eliminate fragmentation or an unwieldy 
organizational structure. Physically consolidating Multifamily Housing 
employees will not eliminate multiple layers of review or bottlenecks 
through which all decisions must flow.
    A cheaper, faster and smarter solution is to change the 
organizational reporting relationships and lines of authority. This can 
help resolve fragmentation and create a more ``wieldy'' or controllable 
organizational structure. It can be used to create better spans of 
control. If articulated well, it can establish clear reporting lines in 
the field and headquarters.
    We recommend that the Agency use HUD's established regional 
structure to consolidate hubs and tame unwieldy spans of control, 
assuring access to HUD's core programs (Multifamily Housing, public 
housing, community planning and development (CPD), and fair housing and 
equal opportunity (FHEO)) in offices across the country. To maintain 
customer service at reasonable cost, we recommend that remaining field 
offices be established as satellites. If workload does not support the 
designation of a field office as a satellite, existing Multifamily 
Housing employees can be ``out stationed'' from and report remotely to 
the hub.
            ``Antiquated Systems and Processes''/Need To ``Increase the 
                    Consistency of MFH Processing Across the Country''
    The Agency has identified as problems ``antiquated systems and 
processes'' and the need to ``increase the consistency of MFH 
processing across the country.'' Again, however, these are not problems 
that are necessarily resolved through relocation. Antiquated systems 
and processes are location neutral. ``Reducing the field footprint'' 
does not automatically result in more consistent customer service. It 
takes better systems and processes, and trained employees and managers 
to achieve consistent customer service.
    Cheaper, faster and smarter solutions are available. The Breaking 
Ground and Sustaining Our Investments initiatives directly address the 
processes our Development and Asset Management divisions use daily. The 
cost of their initial implementation has already been expended. In 2009 
and 2010, the Administration introduced Loan Committees that review 
applications for FHA mortgage insurance before the issuance of a firm 
commitment. This has increased the consistency of Multifamily Housing 
development processing.
            Need for ``More Active Workload Balancing''
    The Agency has identified a need for ``more active workload 
balancing.'' FHA Commissioner Carol Galante testified before this 
subcommittee about wide disparities in the workload of employees from 
office to office. As union representatives, we are acutely aware of 
these inequities. We are also aware, however, that the Agency lacks a 
willingness to actively manage the workload. Physically consolidating 
Multifamily Housing employees in and of itself does not actively 
balance workloads. This takes active management.
    A cheaper, faster and smarter solution is available. The 
administration has recently started a workload sharing pilot program 
that is location neutral. If, as contemplated by this reorganization, 
work from Seattle, Washington, can be done in San Francisco, then the 
work from an overburdened asset manager in Portland, Oregon, can be 
done by an employee with a lighter portfolio in another office. The 
workload sharing pilot should be fully implemented.
Proposed Multifamily Housing Reorganization Would Generate Additional 
        Problems, Many of Which Could Increase Risk to the FHA 
        Insurance Fund
    Aside from failing to solve the problems identified, the proposed 
reorganization would create additional problems. Some of the problems 
created will be irreversible. Many will increase risk to the FHA 
Insurance Fund.
    For example, the Agency anticipates losing 395-592 Multifamily 
Housing employees in the field, currently estimated at 1,247. This 
would be a loss of 32 percent to 47 percent of Multifamily Housing 
employees engaged in direct customer service. The overwhelming majority 
of these losses will likely be employees with 20 or more years of 
experience and training. The Agency is unlikely to be able to replace 
lost skills in a timely fashion, except at great cost: in almost every 
instance, the location of the proposed hub or satellite is an area with 
below-average unemployment rates and financial centers competing for 
the same talent pool.
    We are particularly concerned that the proposed reorganization 
would permanently reduce by 30 percent Multifamily Housing employees in 
the field, despite the fact that reductions in staff are made before 
any process improvements are implemented or assessed for efficiency or 
effectiveness, and Government Accountability Office (GAO) reported in 
March that HUD lacks a credible method of determining its staffing 
needs. (``HUD--Strategic Human Capital and Workforce Planning Should be 
an Ongoing Priority,'' GAO March 2013)
Request for Government Accountability Office (GAO) Report
    We request that the Transportation, Housing and Urban Development, 
and Related Agencies appropriations subcommittee seek a GAO review of 
the process utilized by the Office of Multifamily Housing for 
determining its staffing needs after reorganization, and report on 
whether and how Multifamily Housing overcame the problems identified in 
the March 2013 GAO report.
    We further suggest that the subcommittee prohibit any expenditure 
of funds to implement the proposed reorganization until after Congress 
has an opportunity to review the new GAO report.
    This concludes my written statement. I thank you for including it 
in the hearing record.
                                 ______
                                 
      Prepared Statement of the Institute of Makers of Explosives
  fiscal year 2014 federal motor carrier safety administration budget 
                                request
           interest of the institute of makers of explosives
    The Institute of Makers of Explosives (IME) is the safety and 
security association of the commercial explosives industry. Commercial 
explosives underpin the economy. They are essential to energy 
production, construction, demolition, and the manufacture of any metal/
mineral product. Explosives are transported and used in every State. 
The ability to transport and distribute these products safely and 
securely is critical to this industry. At some point, virtually all 
explosives are transported by truck. Among these explosives are 
products classed as Division 1.1, 1.2, 1.3, and 1.5 materials, which 
with other select hazardous materials, may only be transported by motor 
carriers holding a ``hazardous materials safety permit'' (HMSP) issued 
by the Federal Motor Carrier Safety Administration (FMCSA). According 
to program data, carriers of explosives make up the largest segment, 
roughly half, of the universe of HMSP holders.
    Our industry has maintained an exceptional safety record for 
decades. According to the Hazardous Materials Information System 
(HMIS), no deaths have been attributed to commercial explosives since 
the Department of Transportation began collecting data in the 1970s. 
Despite the safety record of our industry, we have members who struggle 
when it comes to maintaining their HMSP qualification.
                         implementation issues
    HMSP holders failed to appreciate the full impact of the 
disqualifying out-of-service (OOS) thresholds when FMCSA finalized the 
HMSP rule in 2004. First, the preamble and the regulatory text set 
forth in the 2003 proposal, as well as the preamble to the HMSP final 
rule, describes the agency's intent to issue HMSPs to motor carriers 
with a ``satisfactory'' safety rating.\1\ Those without a satisfactory 
safety rating would be eligible for a temporary HMSP if they have ``a 
crash rate in the top 30 percent of the national average, or a driver, 
vehicle, hazardous materials, or total [OOS] rate in the top 30 percent 
of the national average.'' (Emphasis added.) Second, the ``or total'' 
OOS rate suggested that the 30 percent national average 
disqualification would, in the aggregate, disqualify only 30 percent of 
carriers. As FMCSA has implemented this program, however, these were 
not the standards that a carrier could rely on to obtain a permit. 
Instead, all carriers must perform to the OOS standard, irrespective of 
their safety rating.
---------------------------------------------------------------------------
    \1\ 68 Federal Register (FR) 49737, 49752 and 49753 (August 19, 
2003); 69 FR 39367, 39352 (June 30, 2004).
---------------------------------------------------------------------------
    Since the HMSP program's inception in 2005, we have urged FMCSA, in 
meetings, letters, and petitions, to relook at this program and make 
needed reforms. Over these 8 years, the HMSP program has been plagued 
by administrative missteps including double counting OOS inspections 
and thousands of erroneous denials of applications. Last year, FMCSA 
provided ``interim'' relief by ``fixing'' the OOS disqualification 
rates. Prior to the ``fix,'' disqualification rates were recalculated 
every 2 years, thereby exposing carriers to the risk of losing their 
permits simply because they were being judged against a different 
universe of carriers at a particular point in time. Still, questions 
remain unanswered about the statistical basis used by FMCSA to 
calculate the program's most critical criterion, the hazardous material 
(hazmat) OOS rate. We have documented the inherent unfairness of a 
system that relies on OOS rates. Selection criteria for roadside 
inspections is not random (nor should it be given limited resources), 
which is to say that carriers do not have equal opportunity to amass 
``clean'' inspections. Not all OOS violations are crash-causal, and 
some are inherently biased by personal judgment. Further, the 
methodology used to determine ``significance'' of the inspection data 
lacks statistical confidence. We do not object to a public policy 
requiring that motor carriers transporting hazmats be held to higher 
safety standards. However, we do object to the bias and uncertainty 
that the current HMSP program breeds, especially when the program has 
shown no nexus to safety enhancement.
                  safety benefits of the hmsp unproven
    FMCSA estimated that implementing the HMSP program would prevent 
seven hazmat truck-related crashes per year. The agency stated that the 
safety benefits derived from the projected crash reductions would be 
``large because of the number of conventional crashes that may be 
prevented.'' This has not proved to be the case. The data generated 
after the 8 years of the HMSP and during the 8 years immediately 
preceding the implementation of the HMSP shows that HMSP holders are 
historically among the safest carriers on the road and that the program 
has had little impact on safety:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          1997-2004                 2005-2012                    All hazmat highway incidents
                                                 -------------------------------------------------------------------------------------------------------
                  HMSP material                                                                               1998-2004                 2005-2011
                                                    Crashes     Fatalities    Crashes     Fatalities ---------------------------------------------------
                                                                                                        Crashes     Fatalities    Crashes     Fatalities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Explosives (25 kg. 1.1, 1.2, 1.3, and placarded            36  ...........           29  ...........  ...........  ...........  ...........  ...........
 1.5)...........................................
RAM (HRCQ\1\)...................................           16  ...........           19  ...........  ...........  ...........  ...........  ...........
TIH.............................................           55  ...........           61        \2\ 1  ...........  ...........  ...........  ...........
Methane.........................................            4  ...........            3  ...........  ...........  ...........  ...........  ...........
      Total.....................................          111  ...........          112            1        2,461           85        2,448           81
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data from the Hazardous Materials Information System (HMIS), 3/11/2013.
\1\ It may be that none of these crashes are highway route controlled quantities (HRCQ). From the data in HMIS, it was possible to eliminate some
  incidents that were clearly not HRCQ. Where there was doubt the incident was counted.
\2\Anhydrous ammonia (AA) intended for agricultural use.

    For HMSP holders, this safety record highlights the need for an 
immediate reconsideration of the disqualifying standards that are 
threatening their livelihoods. Keep in mind that the vast majority of 
carriers subject to the HMSP are not long-haul, freight-all-kinds 
carriers. They serve niche markets that rely on local, often rural 
delivery, and require specialized equipment. As such, these carriers do 
not frequent routes with inspection stations. Once these carriers get 
into trouble based on the non-random, often subjective OOS calls by 
inspectors, it is virtually impossible for these carriers to accrue 
sufficient ``good'' inspections to overcome the ``bad.'' For example, 
it is not uncommon for an HMSP holder to average 15 or fewer 
inspections in a year, but only inspection data from the 12 months 
prior to the expiration of the holder's permit is counted, and only 
holders with at least three inspections are considered ``statistically 
significant'' for purposes of the OOS disqualifications. If two of the 
inspections in this timeframe result in an OOS \2\, the carrier would 
need 28 ``clean'' inspections to requalify. The later into the 12-month 
qualification period that the second OOS occurs, the more unlikely it 
is that a carrier could recover. Consider that two similarly situated 
carriers each receive two OOS inspections, then one of the two obtains 
a third ``clean'' inspection. The carrier that received the clean 
inspection would lose its permit, the other would continue operating. 
Or consider that on any given day two similarly situated carriers could 
be ``underwater'' \3\ because of their current mix of OOS and clean 
inspections. However, because one carrier's HMSP expires that day, that 
carrier loses its permit, while the other continues to operate.
---------------------------------------------------------------------------
    \2\ This assumes that the OOS citation was correctly issued. CSA 
experience shows that FMCSA's ``Data Q'' process is overwhelmed and 
State ability and/or willingness to expend resources on these 
challenges is a growing concern.
    \3\ Below the OOS disqualification threshold.
---------------------------------------------------------------------------
    These specialized carriers do not have the option to carry non-HMSP 
freight while working to requalify for a permit. The irony is that, 
when these carriers get into jeopardy, FMCSA does not routinely suspend 
or revoke the HMSP; rather carriers are allowed to operate until it is 
time to apply for renewal. The regulations allow for appeals when 
permits are suspended or revoked, but not if the carrier is applying 
for renewal. Under no circumstance may holders apply for a waiver of 
the OOS disqualification irrespective of their overall operational 
safety records.
                      request for expedited relief
    FMCSA accepted a petition for rulemaking from IME and other 
affected industry associations to reform the HMSP disqualification 
standards. While we are pleased that FMCSA has accepted our petition, 
we are disappointed that ``the agency has determined that this 
rulemaking should not be initiated until the CSA Safety Fitness 
Determination (SFD) final rule is published, as it will be used as the 
basis for initiating this rule.'' \4\ We would like to strongly suggest 
that the HMSP reform should take precedence over finalization of the 
SFD rulemaking, a rulemaking that has yet to be proposed. First, the 
HMSP program is being used now as the SFD standard for covered 
materials. Covered carriers that do not meet the contested HMSP 
standards may be shutdown. Non-HMSP carriers do not yet face this 
outcome. Second, the problematic HMSP disqualification standards are 
based on inspections and OOS determinations. These same metrics are 
expected to be the basis of the standards to be proposed in the SFD 
rulemaking. Third, the HMSP regulated community is very small relative 
to the universe of carriers that will be subject to the SFD. For these 
reasons, we believe FMCSA should immediately act to fix the HMSP 
disqualification standards and export that refined SDF model to the 
larger commercial trucking universe under CSA.
---------------------------------------------------------------------------
    \4\ Letter to IME from FMCSA, November 14, 2011, page 1. (Emphasis 
added.)
---------------------------------------------------------------------------
    The agency's reluctance to immediately address the shortcomings of 
the HMSP is particularly troubling because implicit in FMCSA's plan to 
address by rulemaking many of the issues raised by industry is an 
acknowledgment of deficiencies with the current program. These 
deficiencies will persist over the intervening years between now and 
the time that they are resolved through the promised HMSP rulemaking. 
Meanwhile, the controversy over the evolving SFD standards adds to the 
uncertainty and almost certainly means that it will be years until this 
``precursor'' rule is finalized. The continuing adverse impacts to the 
HMSP community are undeserved.
    While Congress tried to spur agency action by requiring that the 
agency consult with stakeholders and initiate rulemaking,\5\ we are 
concerned that the agency will not move fast enough to prevent 
relatively good carriers from losing their HMSP and, as explained, 
being put out of business based on limited data anomalies. Safety is 
not enhanced when new and inexperienced carriers with no OOS history 
fill the void. We have asked FMCSA to immediately address these 
pressing concerns by issuing an interim final rule (IFR) to at least 
provide for an additional level of fitness review (ALFR) prior to the 
denial, revocation, or suspension of a safety permit until such time 
that the agency proceeds with the full rulemaking based on our 
petition. The ALFR would consider the safety management controls of the 
applicant or holder not just OOS violations rates, and it would provide 
the applicant or holder an opportunity to file a corrective action plan 
to address identified concerns.\6\ An ALFR would not overly burden the 
agency, as it would involve an examination of less than 100 HMSP 
holders annually. Further, this approach is consistent with the 
direction the agency is pursuing under the CSA initiative to focus 
compliance oversight on carriers needing the most improvement compared 
to their peers.
---------------------------------------------------------------------------
    \5\ ``MAP-21'' (Public Law 112-141), section 33014.
    \6\ This opportunity should not be available to applicants or 
holders that present an imminent hazard or evidence of a pattern 
willful and knowing non-compliance with safety regulations.
---------------------------------------------------------------------------
    FMCSA told us in January that the agency was not willing to pursue 
a regulatory option as we have described because of resource 
limitations. Justice will not be served by inattention to these 
pressing concerns. The uncertainty of when FMCSA will be able to carry 
out the HMSP rulemaking coupled with the urgency for some action based 
on acknowledged program deficiencies compel us to ask the subcommittee 
to deny funds to administer this program until FMCSA provides interim 
measures to ensure that HMSP holders are not denied permits based 
solely on the flawed disqualification standards in place now.
                               conclusion
    Congress envisioned a risk-based safety program for hazmat 
carriers. It gave FMCSA wide latitude to name the types and quantities 
of hazardous materials that should be covered by a HMSP. But, the 
agency has chosen to apply this authority only to the narrow list of 
statutorily mandated materials. History shows that carriers of these 
materials are not presenting the crash risk that the agency claims the 
HMSP will address. Neither IME nor its members object to public policy 
that holds hazmat carriers to a higher safety standard, which is the 
premise for the HMSP. We do object, however, to the current standards 
for disqualification. They are not risk-based and deny holders 
meaningful due process protection. Inspection frequency and outcome do 
not seem to correlate to crashes or fatalities. Thank you for your 
attention to these concerns.
                                 ______
                                 
      Prepared Statement of the Institute of Makers of Explosives
fiscal year 2014 pipeline and hazardous materials safety administration 
      budget request for the office of hazardous materials safety
           interest of the institute of makers of explosives
    The IME is the safety and security association of the commercial 
explosives industry. Commercial explosives underpin the economy. They 
are essential to energy production, construction, demolition, and the 
manufacture of any metal/mineral product. Explosives are transported 
and used in every State. Additionally, our products are distributed 
worldwide, while some explosives must be imported because they are not 
manufactured in the United States. The ability to transport and 
distribute these products and to receive precursor chemicals safely and 
securely is critical to this industry.
                               background
    The production and distribution of hazardous materials is a 
trillion-dollar industry that employs millions of Americans. These 
materials contribute to America's quality of life, but if handled 
improperly, adverse consequences can result. The threat of intentional 
misuse of these materials also factors into public concern. To protect 
against these outcomes, the Secretary of Transportation (Secretary) is 
charged under the Hazardous Materials Transportation Act (HMTA) to 
``provide adequate protection'' against these risks through regulation 
and enforcement.\1\ The Secretary has delegated the HMTA authorities to 
various modal administrations, with primary regulatory authority 
resting in the Pipeline and Hazardous Materials Safety Administration 
(PHMSA).
---------------------------------------------------------------------------
    \1\ 49 U.S.C. Chapter 51.
---------------------------------------------------------------------------
    PHMSA regulates hazmat transportation so closely that such 
materials may not be moved any distance, via any mode of transportation 
unless a DOT regulation, permit or approval authorizes the movement. 
Such close regulation makes efficient consideration of such 
authorizations critical to the industries and workers involved, as well 
as to the national defense, the security of our homeland, and the 
economy at large.
                           budget uncertainty
    In the absence of the Administration's fiscal year 2014 budget 
request, we are in uncharted territory in terms of our analysis of the 
President's budgetary priorities.\2\ As of the date of this comment, 
Congress has provided a fiscal year 2013 appropriation to PHMSA equal 
to its fiscal year 2012 rate for operations, less the 0.612 percent 
increase provided by Public Law 112-175. Under this scenario, PHMSA is 
looking at $42.3 million for its hazmat program in fiscal year 2013. 
This funding rate is consistent with the amount authorized for fiscal 
year 2013 by MAP-21.\3\ As we look forward to fiscal year 2014, MAP-21 
provides a $42.8 million authorization for PHMSA's hazmat programs. 
However, the Government's budget situation does not improve. The 
agency's fiscal year 2013 appropriations is still subject to a 5-
percent decrease under a sequestration order if the President fails to 
reach agreement with Congress on an alternative, and we understand that 
the cap on non-emergency appropriations for fiscal year 2014 will drop 
to $966 billion, down from the cap of $984 billion in fiscal year 2013.
---------------------------------------------------------------------------
    \2\ The Budget Act requires that submission of the President's 
budget request by the first Monday in February. The current expectation 
is that the President's fiscal year 2014 request will be released in 
April.
    \3\ Public Law 112-141.
---------------------------------------------------------------------------
    While there is uncertainty about the specifics of the 
administration's hazmat priorities for fiscal year 2014, it should be a 
given that additional program growth is unlikely in the near future, 
and certainly for the coming fiscal year.\4\ Rather, we should be 
focusing the realignment of program priorities to ensure that the 
agency's core mission is sustained. With this perspective, we offer the 
following comments.
---------------------------------------------------------------------------
    \4\ PHMSA's hazmat budget has increased by about $10 million, a 30-
percent rate of growth, in the last 3 fiscal years.
---------------------------------------------------------------------------
          phmsa's fiscal year 2013 ``user fee'' budget request
    In these tight budgetary times, PHMSA may be tempted to repropose a 
``user fee'' on certain agency activities as it did last fiscal year. 
We commend both the authorizing and appropriating committees of 
Congress for rejecting this request last year, and urge similar 
restraint, if user fees are again proposed.
  phmsa's hazmat program is a success: rulemaking and data collection 
                               priorities
    As noted above, the HMTA requires that PHMSA's regulations be risk-
based. The agency, in turn, measures the success of its hazmat safety 
program by the number of transportation-related deaths and ``serious 
injuries'' (i.e., hospitalizations) attributed to the hazardous 
materials. The agency acknowledges that these numbers ``have declined 
an average of 4 percent every 3 years over the long term.'' \5\ This 
decline continued last year. Only 10 deaths, all due to human error, 
not a failure of a regulatory standard, were attributed to hazardous 
materials. None, since the early 1970s, have been attributed to 
commercial explosives. This contrasts with thousands of deaths annually 
that result from crashes involving large trucks, for example.
---------------------------------------------------------------------------
    \5\ Fiscal year 2013 PHMSA Budget Justification, page 3.
---------------------------------------------------------------------------
    This safety outcome suggests that PHMSA needs to focus on two core 
missions: rulemaking, including the timely issuance of approvals and 
permits, to keep commerce moving, and data collection and public access 
to the data. For example, we were very concerned that no new resources 
above baseline were requested last year to support rulemaking activity. 
MAP-21 makes clear that rulemaking, including accelerating the 
incorporation of special permits into the HMR, is a priority. PHMSA 
needs to maintain resources to remain active in international standard-
setting forums to ensure that U.S. rules are consistent to keep 
American goods moving in the global marketplace. PHMSA's ability to 
collect incident data is critical to stakeholder's ability to 
understand and learn from incidents. Additionally, the agency's efforts 
to enhance the online availability of incident data, rulemakings, and 
the timeliness of processing applications for special permits and 
approvals should be commended and encouraged. Finally, we welcome the 
agency's efforts to improve communication and outreach with the 
regulated community.
                      budgetary issues to consider
    Staffing and Workload.--The biggest expense in PHMSA's budget is 
manpower. The agency's output is the work product of its employees. 
Yet, PHMSA's budget requests have not provided baseline empirical 
workload metrics to judge agency performance or the merit of staffing 
requests. When information about program output is provided, it is 
prospective, not retrospective. Of additional concern, retirements and 
departures of seasoned staff have led to a loss of institutional 
knowledge. While there is a need for qualified chemists, engineers, and 
economists to fill this void, it appears that the agency is using scare 
resources to build a ``senior advisor'' cadre for agency 
administrators.\6\ According to the Office of Personnel Management's 
2012 Federal Employee Viewpoint Survey Results Hazmat, PHMSA ranked 
near the bottom of all government agencies, and the lowest of all DOT's 
safety administrations. Such results to not bode well for attracting 
and retaining the kind of expert staff that are needed to keep up with 
the agency's rulemaking and analytical needs.
---------------------------------------------------------------------------
    \6\ https://www.usajobs.gov/GetJob/ViewDetails/339410400 and 
https://www.usajobs.gov/GetJob/ViewDetails/339410600 (March 15, 2013). 
These positions are in addition to other front office staffing added 
during the agency's 2010 reorganization. Approximately 25 percent of 
staff are now senior level grades (GS-14, GS-15, and SES); yet, few are 
for professional series positions. Despite the new positions, hazmat 
safety has not seen statistically significant improvement.
---------------------------------------------------------------------------
    Research and Development.--Congress provides 3-year monies to 
support a hazmat research and development (R&D) function within PHMSA, 
with a mission to study and evaluate emerging hazardous materials 
safety issues and technologies. So far, no fiscal year 2011, 2012, or 
2013 funds have been obligated. It does appear that PHMSA may be using 
some of these funds to create a Risk Management Framework (RMF).\7\ The 
RMF is supposed to establish incident probabilities through a set of 
fault and event trees of various hazmat shipping scenarios. The need to 
use scarce funds for such a framework is questionable given that four 
times as many deaths in the United States are caused by lightning 
strikes than hazmat incidents. There is concern that the RMF may lead 
to unnecessary over-regulation of hazmat that would threaten U.S. jobs 
while attaining no measurable safety benefit. At the same time, there 
is a pressing need to develop uniform performance standards for 
training hazardous materials inspectors. Congress agrees and directed 
PHMSA to produce these standards by April 2014. This initiative is 
deserving of support.
---------------------------------------------------------------------------
    \7\ In fiscal year 2010, $447, 000 was awarded to BayFirst, LLC for 
this purpose, about 30 percent of the year's R&D budget, and there is a 
placeholder for BayFirst to receive additional fiscal year 2011 funds.
---------------------------------------------------------------------------
    Grants Programs (GP).--PHMSA operates three GPs--HMEP, HMIT, and 
SPST--funded by fees assessed on the hazardous materials community. We 
have long looked for evidence of program accomplishment and question 
the agency's claims about achievements ascribed to these programs. In 
2005, Congress directed the agency to annually provide a detailed 
accounting of all grant expenditures.\8\ In the intervening 7 years, 
the agency has released only one such report, and that report did not 
provide the retrospective accounting necessary to determine if grant 
recipients were using funds appropriately.\9\ This year, PHMSA proposed 
that Congress eliminate this report saying that staff time used to 
prepare this report outweighs its benefit.\10\ The lack of GP 
transparency and accountability prompted an audit by the Office of 
Inspector General last year. The audit found systemic mismanagement and 
misuse of grant funds.\11\ PHMSA has still not made its fiscal year 
2012 grant awards to applicants under the HMIT and SPST programs. We 
believe the funds for the SPST program are forfeit because this program 
is not protected by the HMTA provision that funds remain available 
``without further appropriation.'' \12\ Whether or not PHMSA can 
release these fiscal year 2012 funds, grantees now have 6 months or 
less, rather than a year, to spend the funds, which does not bode well 
for effective use of these monies. These programs warrant increased 
oversight by the subcommittee.
---------------------------------------------------------------------------
    \8\ 49 U.S.C. 5116(k).
    \9\ http://phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/Files/
Report_to_Congress_
HMEP_Grants_Program_2005_2006.pdf
    \10\ The Government Performance and Results Act (GPRA) 
Modernization Act of 2010 invites Federal agencies to identify for 
elimination or consolidation. http://www.performance.gov/sites/default/
files/tmp/_List_of_Reports_Required_by_P_L%20_111-352.xls.
    \11\ OIG, DOT, AV-2012-040, January 12, 2012.
    \12\ 49 U.S.C. 5116(i).
---------------------------------------------------------------------------
                               conclusion
    The subcommittee needs to make difficult decisions about where to 
save scarce Federal resources. We recommend that the subcommittee 
review new front office staff allocations, and ensure that the agency 
has a plan to replace lost expertise in its rank and file. Additional 
oversight of PHMSA's hazmat R&D and grants programs also is warranted. 
PHMSA should redirect resources to enhance its information technology 
and rulemaking capacities. These services are needed by the hazmat 
community, given PHMSA's close regulatory scheme, to enable the safe, 
secure, and efficient movement of hazardous materials critical to the 
economy.
                                 ______
                                 
 Letter From Interested Parties for Hazardous Materials Transportation
                                                    April 26, 2013.
Hon. Patty Murray,
Chairman, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
Hon. Susan Collins,
Ranking Member, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.

RE: Fiscal Year 2014 PHMSA Budget Request
    Dear Chairman Murray and Ranking Member Collins: The undersigned 
industry associations represent all sectors of the economy engaged in 
the transportation of hazardous materials which are essential to 
Americans' quality of life. We are writing to alert you to our concerns 
with the administration's proposed $12 million user fees to be paid by 
applicants for special permits and approvals (SP/A) issued by the 
Pipeline and Hazardous Materials Safety Administration (PHMSA). This 
fee proposal, with charges ranging from $700 to $3,000 per application, 
is identical to the user fee the administration proposed in fiscal year 
2013. Congress wisely rejected this proposal last year, and we urge you 
to once again reject this initiative in order to protect American jobs 
and promote innovation.
    PHMSA states that it needs the user fees to support its oversight 
of the new conditions it has imposed on SP/A applicants. However, the 
user fee proposal is without merit:
  --Currently, about 35 full-time equivalents (FTEs) are dedicated to 
        the SP/A program. $12 million would support a staff of 66 FTEs. 
        PHMSA has inflated the costs of this program by about 50 
        percent.
  --The SP/A workload is decreasing. For example, applicants for 
        classification approvals are no longer scrutinized for 
        ``fitness'' and special permits in effect over 10 years are 
        being incorporated into the Hazardous Materials Regulations 
        (HMR).
  --The excess user fee revenue would be used to underwrite the 
        agency's general fund, although only a fraction of the 
        regulated community are holders of special permits and 
        approvals.
  --No death has been attributed to special permits or approvals since 
        1971 when agency records began to be kept.\1\
---------------------------------------------------------------------------
    \1\ PHMSA claims that a maritime incident in 2008 which resulted in 
three deaths was caused by the violation of a special permit. However, 
the deaths were not the proximate result of a special permit violation. 
Testimony in the resultant litigation showed the deaths were due to 
negligence of a number of parties involved in the shipment.
---------------------------------------------------------------------------
  --The Government, not private companies, is the largest holder of 
        approvals and special permits. The Government will pay no fees.
  --Historically, fees have not been imposed on foreign entities for 
        fear of retaliatory fees on U.S. exports giving foreign 
        shippers a competitive advantage in the United States.
  --Part of the revenue will have to be used to hire additional Federal 
        workers to administer and collect the fees.
  --It is the business activity, not the size, of a company that 
        determines how many applications may be filed. Many payers will 
        be small businesses.
  --Despite statements that PHMSA is accelerating incorporation of 
        special permits into the HMR, no new resources are requested to 
        support this rulemaking activity.
  --The fees would be payable per application, meaning that any 
        application returned for corrections and re-filing would result 
        in unfair redundant fee payments.
  --Other Department of Transportation (DOT) modal administrations 
        issue approvals or what amount to special permits; none assess 
        fees.
    This program, which provides safety benefits to the public and 
facilitates technical innovations important to our economy, has been 
successfully run for decades without user fees. PHMSA's proposal could 
be the start of a trend for user fees for other regulatory actions 
including letters of interpretation or petitions for rulemaking 
necessary for compliance and good government.
    PHMSA'S user fees are not fair or equitable but are a hidden tax on 
companies that innovate and produce goods needed to strengthen and 
rebuild the U.S. economy. Congress should again reject this initiative.
            Respectfully,

Agricultural Retailers Association
American Chemistry Council
American Coatings Association
American Petroleum Institute
American Pyrotechnics Association
American Trucking Associations
Association of Hazmat Shippers, Inc.
The Chlorine Institute, Inc.
Compressed Gas Association
Council on Safe Transportation of Hazardous Articles
Dangerous Goods Advisory Council
The Fertilizer Institute
Gases and Welding Distributors Association
Industrial Packaging Alliance of North America
Institute of Makers of Explosives
International Vessel Operators Dangerous Goods Association, Inc.
National Association of Chemical Distributors
National Association of Shell Marketers
The National Industrial Transportation League
National Private Truck Council
National Propane Gas Association
National Tank Truck Carriers, Inc.
New England Fuel Institute
Petroleum Marketers Association of America
Radiopharmaceutical Shippers & Carriers Conference
Railway Supply Institute, Inc.
PRBA--The Rechargeable Battery Association
Reusable Industrial Packaging Association
Sporting Arms & Ammunition Manufacturers' Institute
Steel Shipping Container Institute
Transportation Intermediaries Association
Truckload Carriers Association
Utility Solid Waste Activities Group
                                 ______
                                 
   Prepared Statement of the National Affordable Housing Management 
                              Association
    Thank you, Chairman Murray and Ranking Member Collins for the 
opportunity to submit this testimony on behalf of the National 
Affordable Housing Management Association (NAHMA). My testimony will 
focus on the importance of providing full funding for the 12-month 
contract terms under project-based section 8 and other key Department 
of Housing and Urban Development (HUD) rental assistance programs.
                              about nahma
    NAHMA members manage and provide quality affordable housing to more 
than 2 million Americans with very low to moderate incomes. Presidents 
and executives of property management companies, owners of affordable 
rental housing, public agencies and national organizations involved in 
affordable housing, and providers of supplies and services to the 
affordable housing industry make up the membership of NAHMA. In 
addition, NAHMA serves as the national voice in Washington for 19 
regional, State, and local affordable housing management associations 
(AHMAs) nationwide.
                        project-based section 8
    In the project-based section 8 program (PBS8), HUD contracts with 
private apartment owners to pay the difference between the rent for the 
unit and 30 percent of a qualified tenant's income. The rental subsidy 
in the PBS8 program is tied to the property.
    This program provides housing to 1.2 million low-income households, 
over half of which are elderly or disabled. According to HUD, the 
program supports 100,000 jobs, and PBS8 properties generate $460 
million in tax receipts to local and State governments.
    It is essential for Congress to provide HUD with the necessary 
appropriations to make full and timely contract payments to property 
owners. When HUD does not have sufficient appropriations to obligate 
funding for the entire 12-month contract terms at the time of the 
renewals, it ``short-funds'' the contracts. Prior to 2009, HUD ``short-
funded'' its PBS8 contracts with owners so that payments would only be 
promised from the date of renewal through September 30 (the end of the 
Federal fiscal year). In other words, on a 12-month contract with a 
January 1 renewal date, HUD would only obligate funding through 
September 30. Funding for the remaining 3 months on the contract would 
have to be re-processed in the new fiscal year. This practice was 
disruptive to properties' operations, wasted HUD's staff time, and 
undermined public confidence in the project-based section 8 program. 
Unfortunately, HUD will resume this practice, at least temporarily, to 
manage the cuts required under sequestration.
    The President's budget proposal for fiscal year 2014 requests 
approximately $10.3 billion for the project-based section 8 program. 
Unfortunately, the fiscal year 2014 request is impacted by the $1.2 
billion shortfall in the program due to sequester funding levels in the 
fiscal year 2013 continuing resolution. As a result, HUD will not be 
able to fund contracts for the full 12-month terms during the remainder 
of fiscal year 2013 and into fiscal year 2014. If sequestration were 
repealed, the budget request would be sufficient to fully fund contract 
renewals; however, a repeal of sequestration seems increasingly 
unlikely. Therefore, an estimated $11.5 billion will be necessary to 
fully fund the fiscal year 2014 contract renewals and to close the 
shortfall caused in the fiscal year 2013 appropriations.
    In fiscal year 2014, NAHMA strongly urges the subcommittee to 
provide $11.5 billion for full funding of the 12-month contract terms 
of project-based section 8 contracts. This level of funding is 
necessary because:
  --The Federal Government must honor its contracts with property 
        owners.
  --Short-funding jeopardizes the efficient management, financial 
        solvency, and physical health of PBS8 properties.
  --Federal Housing Administration (FHA)-insured properties could 
        default without the contract funds to pay their mortgages.
  --Properties accumulate numerous late fees to lenders and service 
        providers as a result of having insufficient funds to make 
        mortgage and utility bill payments.
  --Property staff suffer lay-offs as a result of insufficient contract 
        funding.
  --Rehabilitation and renovation plans are put on hold when funding is 
        erratic.
  --Short-funding is a budget gimmick that does not save the Government 
        money.
  --Appropriations for 11,000 contracts that will be underfunded in 
        fiscal year 2013 due to sequestration will have to be provided 
        in fiscal year 2014--in addition to the funds necessary for 
        fiscal year 2014 contract renewals.
  --Short-funding wastes administrative time at HUD because staff must 
        process funding multiple times for the same property over the 
        course of the year.
  --Short-funding jeopardizes investor and owner confidence in the PBS8 
        program.
            other critical hud multifamily housing programs
    NAHMA strongly urges the subcommittee to prevent draconian cuts to 
affordable multifamily housing programs administered by the Department 
of Housing and Urban Development (HUD). In fiscal year 2014, NAHMA 
strongly urges that the subcommittee provide the necessary 
appropriations to ensure that all of HUD's rental assistance programs 
receive full funding for their 12-month contract terms in fiscal year 
2014, and that no shortfalls result from the sequester funding levels 
in the fiscal year 2013 continuing resolution.
    In addition to project-based section 8, NAHMA is concerned about 
funding levels for the following programs:
  --NAHMA urges the subcommittee to provide the $20 billion requested 
        by HUD for the Housing Choice Voucher (HCV, or tenant-based 
        section 8) program plus any additional funding necessary to 
        ensure there are no program or contract shortfalls due to the 
        fiscal year 2013 sequestration.
  --For Section 202 Housing for the Elderly, NAHMA requests at least 
        $400 million plus any additional funding necessary to ensure 
        there are no contract shortfalls due to the fiscal year 2013 
        sequestration. HUD's request for this program also includes 
        $310 million for the renewal and amendments of Project Rental 
        Assistance Contracts (PRACs) and $70 million for the service 
        coordinator program. NAHMA also requests at least $20 million 
        for new construction of apartments to serve the elderly.
  --For Section 811 Housing for the Disabled, NAHMA requests at least 
        $126 million plus any additional funding necessary to ensure 
        there are no contract shortfalls due to the fiscal year 2013 
        sequestration. HUD's request includes $106 million for section 
        811 PRACs. NAHMA also requests at least $20 million for new 
        construction of apartments to serve disabled persons.
  --The General and Special Risk Insurance Fund programs provide 
        mortgage insurance for financing the development or 
        rehabilitation of multifamily housing, nursing homes and 
        hospitals. NAHMA supports HUD's request of $30 billion in 
        commitment authority.
  --The HOME Investment Partnerships (HOME) program is the largest 
        Federal block grant to State and local governments designed 
        exclusively to produce affordable housing for low-income 
        families. NAHMA requests funding at a level as close to $1.6 
        billion as possible.
  --The Community Development Block Grant (CDBG) offers block grants to 
        local communities for community development purposes, including 
        the development of affordable housing. NAHMA urges the 
        subcommittee to provide $3.3 billion for the CDBG.
    --Both HOME and CDBG provide essential gap financing for 
            development of Low Income Housing Tax Credit (LIHTC) 
            properties.
 passing comprehensive, pragmatic rental assistance reform legislation
    NAHMA joins a broad coalition of private housing providers, public 
housing agencies, low-income housing advocates and other stakeholders 
in urging Congress to pass comprehensive rental assistance and section 
8 Housing Choice Voucher (HCV) reform legislation in 2013. The most 
recent proposal was the Affordable Housing and Self-Sufficiency 
Improvement Act (AHSSIA) developed by the House Financial Services 
Committee in 2012. Savings and efficiencies achieved through these 
reforms would help stretch limited funds and minimize the risk of harsh 
cuts in assistance to needy families. If these reforms are enacted, it 
is essential to ensure the savings achieved are used to continue 
funding affordable multifamily housing programs. NAHMA strongly 
supports measures which would:
  --Streamline inspections of HCV housing units by permitting owners to 
        make minor repairs within 30 days and permitting public housing 
        authorities to allow occupancy prior to the inspection in 
        buildings which passed an alternative inspection (HOME, LIHTC 
        or other inspections with equally stringent standards) within 
        the last 12 months. These changes will help voucher-holders in 
        tight rental markets with low vacancy.
  --Expand income targeting for the public housing, HCV and project-
        based section 8 programs. These changes will help house more 
        working poor families, particularly in rural areas.
  --Simplify the rules for determining a family's rent and income, for 
        example, by allowing families on fixed incomes to recertify 
        their incomes once every 3 years instead of annually. This will 
        reduce the administrative burdens on tenants, property owners, 
        and management agents.
  --Stabilize HCV funding by basing it on the previous year's leasing 
        and cost data.
  --Encourage self-sufficiency for residents.
  --Streamline the use of HCVs with other Federal housing programs, 
        like the LIHTC, by extending the permitted contract period for 
        project-based vouchers from 15 to 20 years.
  --Authorize HUD's Rental Assistance Demonstration (RAD) program. RAD 
        is intended to test strategies to leverage private funds for 
        public housing capital needs, preserve units assisted through 
        the section 8 Moderate Rehabilitation program and allow 
        properties assisted under the Rental Assistance Payment (RAP) 
        and Rent Supplement (Rent Supp) programs to convert to project-
        based section 8 contracts.
  --Authorize HUD to provide Limited English Proficiency (LEP) 
        technical assistance to recipients of Federal funds. This 
        program would create a stakeholder working group to identify 
        vital documents for translations, require HUD to translate 
        identified documents within 6 months and create a HUD-
        administered 1-800 hotline to assist with oral interpretation 
        needs. This program is necessary because it will offer a 
        higher-level of quality control over the services provided to 
        LEP persons and ensure meaningful access to HUD's housing 
        programs for persons with LEP. It will also relieve housing 
        operators of an unfunded obligation to provide language 
        services that could divert funds from repairs and maintenance 
        of the properties.
                               conclusion
    Thank you again for the opportunity to submit this testimony. I 
look forward to working with the subcommittee to ensure essential HUD 
rental assistance programs are fully funded and properly administered.
                                 ______
                                 
       Prepared Statement of the National AIDS Housing Coalition
    The National AIDS Housing Coalition (NAHC) is a national housing 
policy and advocacy organization working to end the HIV/AIDS epidemic 
by ensuring that persons living with HIV/AIDS have quality, affordable 
and appropriate housing. NAHC's network of members includes hundreds of 
low-income people living with HIV/AIDS, relying on Federal housing 
assistance to improve their ability to access and remain in care. On 
their behalf, we ask that you fund the highly successful and cost 
effective Housing Opportunities for Persons With AIDS Program (HOPWA) 
at a level of $365.2 million for fiscal year 2014. While this amount 
would provide assistance to far fewer than the actual number of people 
with HIV/AIDS that are eligible for and in need of housing assistance, 
it would permit housing help for an additional 4,250 households beyond 
the 61,614 unduplicated households currently served. HUD's own data 
indicates 146,986 households are currently eligible for HOPWA but 
unserved. In fact, HIV/AIDS housing providers project that half of the 
1.2 million people with HIV/AIDS require some form of housing 
assistance during the course of their illness. This request represents 
the HIV/AIDS housing community's recognition of the considerable 
challenges of the current economic climate yet still provides for some 
of the most vulnerable whose access to care and health outcomes are 
inextricably linked to housing status.
    NAHC is the only national housing organization that focuses 
specifically on the housing and housing-related service needs of low-
income people with HIV/AIDS. A core tenet of our mission is to see 
housing acknowledged and funded as a component of HIV prevention and 
healthcare. As more people are living longer with the virus and require 
housing assistance, unmet need is significant across the country. We 
understand that as many as three new jurisdictions may become eligible 
for funding during 2014, requiring that providers stretch already 
scarce existing resources to serve more people.
    Anecdotal reports from the NAHC membership and supporters reveal 
more than 45,000 people waiting for housing assistance in just 14 
reporting jurisdictions. In the southern part of United States, where 
the epidemic is growing the fastest, resources continue to be 
unavailable. In Dallas, Texas, for example, more than 4,375 people are 
awaiting housing assistance, not counting those who have given up, 
resigned to life doubled and tripled up in unsuitable dwellings, moving 
from shelter to shelter, or simply are navigating the streets. In 
places where the epidemic is most mature, the numbers waiting are even 
larger. In Los Angeles, for example, more than 11,000 are waiting for 
housing.
    Research shows that homelessness increases HIV risk. In a New York 
City (NYC) study, for example, new diagnoses among NYC shelter users 
were 16 times higher than among general population. Conversely, HIV 
increases risk of homelessness. Research demonstrates that up to 70 
percent of people with HIV/AIDS report a lifetime experience of 
homelessness or housing instability. In some communities as many as 70 
percent of people with HIV/AIDS are literally homeless, living in 
shelters on the streets or in places not intended for human habitation.
    For vulnerable populations the risk is even greater. For example, 
among a study involving HIV-positive women, research demonstrated if 
homeless or unstably housed at time of diagnosis, that women were at an 
increased risk for delayed entry into care and receipt of housing 
assistance was associated with access to care and reentry into care 
after dropping out. Unmet subsistence needs, including housing, had the 
strongest overall effect on physical and mental health of homeless 
women, with a greater effect on overall health as antiretroviral 
therapy.
    Research, much of which has been presented through NAHC's Housing 
and HIV/AIDS Research Summit Series, confirms housing as a strategic 
healthcare intervention to reduce health disparities by addressing both 
HIV/AIDS and those contexts that most expose people to HIV risk, 
including gender, extreme poverty, mental illness, chronic drug use, 
incarceration, and histories of exposure to trauma and violence, as 
well as homelessness. In addition, housing coupled with related 
services reduces overall public expense and more wisely deploys limited 
public resources. Research presented through NAHC's Housing and HIV/
AIDS Research Summit Series, including a searchable data base of more 
than 300 articles on housing and HIV/AIDS, can be found at the Summit 
Series permanent Web site, www.hivhousingsummit.org.
    HOPWA's track record for helping people with HIV/AIDS achieve 
housing stability is sterling. During program year 2011-2012, more than 
95 percent of people receiving tenant-based rental assistance through 
HOPWA achieved housing stability. Among those receiving any form of 
HOPWA housing assistance, over 93 percent developed a housing plan for 
continued on-going housing and nearly 89 percent had on-going contact 
with a primary care provider as specified in their service plans.
    Moreover, housing is a proven cost-saving and cost-effective 
healthcare and housing intervention. Housing sharply reduces avoidable 
emergency and inpatient health services, criminal justice involvement 
and other crises that are costly for both individuals and communities. 
One of the two seminal studies in this area, the Chicago Housing for 
Health Partnership (CHHP) found that homeless people with AIDS who 
received housing consumed $6,620 less in publicly funded housing, 
medical and crisis care than a comparison group that continued in 
``usual care,'' not receiving a housing voucher.
    The public cost ``savings'' generated by providing housing supports 
can fully offset the cost of the housing for people with AIDS, even 
before taking into account that each new HIV infection prevented 
through housing stability saves $400,000 in lifetime medical costs.
    There has been some national progress on evidence-based action on 
housing and HIV/AIDS. The July 2010 National HIV/AIDS Housing Strategy 
recognizes that housing is healthcare for people with HIV/AIDS and 
calls for increased resources and calls on Federal agencies to consider 
additional efforts to support housing assistance and other services to 
enhance adherence. In addition, in July 2012, the Department of Health 
and Human Services (HHS) included housing as one of seven common core 
indicators to monitor HHS-funded prevention, treatment and care 
services. Despite these advances, no additional resources have been 
made available for housing.
    NAHC's geographically diverse board fully supports and anxiously 
awaits the revision of the HOPWA formula as directed in the National 
HIV/AIDS Strategy to yield a fairer allocation of resources more 
directly tied to the current geographic distribution of the epidemic. 
Rural settings, the southeast and other regions . . .  Until the 
formula is modernized, we ask that the subcommittee continue to support 
levels of funding for the program in its current formulation that will 
permit some of those waiting to be served.
    In addition, HIV/AIDS providers urge adequate funding for Homeless 
Assistance Grants, Section 8 Housing Choice Vouchers, public housing, 
the 811 program for people with disabilities, and the range of housing 
programs relied upon by people coping with HIV/AIDS.
    We respectfully request the subcommittee to consider protecting and 
expanding resources in the Housing Opportunities for Persons with AIDS 
Program, a proven, effective HIV prevention and healthcare 
intervention.
                                 ______
                                 
        Letter From the National Association of Counties, et al.
                                                    April 19, 2013.
Hon. Patty Murray,
Chairman, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
Hon. Susan Collins,
Ranking Member, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
    Dear Chairman Murray and Ranking Member Collins: As you near 
consideration of the fiscal year 2014 Transportation, Housing and Urban 
Development, and Related Agencies Appropriations bill, the undersigned 
organizations representing local elected officials, State and local 
community development practitioners, planners, development 
organizations, and nonprofit organizations, urge you to support $3.3 
billion in formula funding for the Community Development Block Grant 
(CDBG) Program.
    CDBG provides vital funding and flexibility to address local needs 
in the areas of community and economic development, housing, 
infrastructure and vital public services. Over 1,200 communities rely 
on CDBG as a direct source of annual funding. Moreover, each year, an 
estimated 7,250 local governments nationally have access to CDBG funds; 
reaching rural, urban, and suburban areas. CDBG helps create jobs 
through the expansion and retention of businesses.
    Since fiscal year 2010, funding for CDBG has been cut by over $1 
billion, yet the need for these important resources at the local level 
has continued to grow. While we understand the need to address the 
Federal budget, we also understand the value of the local investments 
made by CDBG. We are deeply concerned that these investments are in 
jeopardy due to the Obama administration's fiscal year 2014 proposed 
budget cuts to CDBG, funding the formula program at $2.8 billion.
    The CDBG program generates additional resources, and adds to the 
local economy. For example, for every $1 of CDBG funding invested in a 
project another $3.55 is leveraged from other sources. Since its 
inception in 1974, CDBG has leveraged nearly $400 billion in other 
resources for community development and affordable housing.
    What has CDBG accomplished?
                         economic opportunities
    Between fiscal year 2005 and fiscal year 2012 CDBG created or 
retained 302,622 local jobs.
                             decent housing
    Between fiscal year 2005 and fiscal year 2012 CDBG has assisted 
over 1 million low- and moderate-income homeowners to rehabilitate 
their homes, provided down payment and closing cost assistance to 
qualified home buyers, and assisted homeowners through lead-based paint 
abatement.
                      suitable living environment
    Between fiscal year 2005 and fiscal year 2012 CDBG-funded 
infrastructure projects have benefited over 30 million Americans 
nationwide, by providing a suitable living environment that includes 
sanitary water and sewer systems, safe streets and transit-ways, 
improved drainage systems, and other improvements that support our 
communities and help grow local economies.
    Between fiscal year 2005 and fiscal year 2012, CDBG has provided 
public services to over 95 million low- and moderate-income households 
nationwide. These services included employment training, meals and 
other services to the elderly, services to help abused and neglected 
children, assistance to local food banks, among others.
    We urge you to support our recommendation of $3.3 billion for CDBG 
formula grants in fiscal year 2014 to help communities nationwide 
continue to provide vital programs and services to low-income persons.
            Respectfully,

American Planning Association
Council of State Community Development Agencies
Habitat for Humanity International
Housing Assistance Council
International Economic Development Council
Local Initiatives Support Corporation
National Alliance of Community and Economic Development Associations
National Association of Counties
National Association for County Community and Economic Development
National Association of Development Organizations
National Association of Local Housing Finance Agencies
National Association of Housing and Redevelopment Officials
National Community Development Association
National Housing Conference
National League of Cities
National Rural Housing Coalition
Rebuilding Together
U.S. Conference of Mayors
U.S. Soccer Foundation
                                 ______
                                 
     Prepared Statement of the National Association of Housing and 
                        Redevelopment Officials
    Chairman Murray, Ranking Member Collins, members of the 
Transportation, Housing and Urban Development, and Related Agencies 
Subcommittee, thank you for providing an opportunity for outside 
witnesses to testify with respect to the fiscal year 2014 Department of 
Housing and Urban Development (HUD) budget. The National Association of 
Housing and Redevelopment Officials (NAHRO) is one of the Nation's 
oldest housing advocacy organizations. It represents over 3,100 housing 
and redevelopment authorities nationwide who provide decent, safe and 
affordable housing in neighborhoods of quality for well over 2 million 
families--including senior citizens, the disabled and our Nation's 
veterans. Our members are on the front lines every day to assist 
vulnerable families and the homeless in both urban and rural America. 
They know what works, what does not and why; they are mission-driven 
and they remain, following decades of service to the community, an 
essential component of the Nation's housing delivery system.
    Our national network of housing and community development (HCD) 
professionals stands ready to use taxpayers' dollars wisely and with 
integrity to move us closer to a Nation in which all people have 
decent, safe, affordable housing and economic opportunity in viable, 
sustainable communities. NAHRO calls upon the administration and the 
Congress to provide responsible funding levels for the core Federal HCD 
programs that serve low- and moderate-income families at the local 
level. Recognizing the fiscal realities you face, NAHRO also 
aggressively seeks a more rational, less administratively burdensome 
regulatory environment. NAHRO supports reforms, including essential 
statutory reforms under the purview of the Banking, Housing and Urban 
Affairs Committee, which will allow local agencies to stretch Federal 
investments further, house more families, and pursue targeted community 
and economic development activities with the potential to transform 
neighborhoods and communities.
                             tipping point
    Our efforts as a Nation to reduce the current Federal deficit are 
important and well-intended. Unfortunately, their serious (though 
unintended) consequences are now affecting vulnerable families who 
would be homeless without the assistance they now receive through 
programs managed by NAHRO members. Limited 302B allocations to this 
subcommittee over many years, coupled with spending caps implemented as 
a result of the Budget Control Act of 2011, disproportionate reductions 
in domestic discretionary dollars and the March 1 sequester, have 
resulted in historically low funding prorations for such things as 
voucher program administration and the public housing operating fund. 
Underfunding, coupled with a lack of regulatory relief, has finally 
brought us to a tipping point. Increasing numbers of housing 
authorities have advised or must soon advise vulnerable families 
currently receiving housing assistance payments that they can no longer 
assist them. More and more housing authorities are returning vouchers--
including Veterans Affairs Supportive Housing (VASH) vouchers--to HUD 
because they can no longer afford to administer the program (see the 
following chart).




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




    In addition, structural decisions impacting housing programs, such 
as the ill-timed reduction in public housing authority reserves in 
fiscal year 2012, have put many housing authorities in a vulnerable 
position. Under current funding scenarios, some housing and 
redevelopment agencies--notably smaller entities in rural areas--will 
in time be forced to close their doors. They will no longer be able to 
assist those who currently rely on them, much less families who have 
been on public housing and section 8 waiting lists for many years.
    Building on the valiant efforts of this subcommittee to provide 
necessary dollars within the context of reduced allocations coupled 
with larger budget pressures, housing and redevelopment authorities 
have done more with less for years. The 2014 Transportation, Housing 
and Urban Development, and Related Agencies (THUD) appropriation 
provides us with an opportunity and a real challenge to deal with the 
current set of facts on the ground in far too many communities across 
the Nation. A return to ``regular order'' in the Congress must be 
coupled with a return to fiscal policies that recognize our Nation's 
core values--notably our decades-long commitment to a decent home and 
suitable living environment for all Americans. In this spirit we 
respectfully urge your consideration and ultimate adoption of following 
principles:
  --Preserve and revitalize the public housing inventory;
  --Reform, strengthen and adequately fund the section 8 program;
  --Fully fund community and economic development programs;
  --Enact small housing authority reforms;
  --Expand the supply of affordable housing;
  --Fully fund homeless assistance grant programs; and
  --Improve the regulatory environment for HCD agencies.
                    program-specific recommendations
    We hope this subcommittee, in conjunction with your colleagues on 
the Banking Committee, will let these recommendations guide your work 
in the formulation of funding decisions and necessary reforms for core 
HUD programs managed by our members. Our own fiscal year 2014 funding 
recommendations can be found in our testimony. For more detail, NAHRO's 
2013 Legislative and Regulatory Agenda is available online at: 
www.nahro.org/sites/default/files/searchable/2013Agenda.pdf.
                             public housing
    Provide full funding for the operating costs and annual capital 
accrual needs of public housing through direct appropriations.
    Enable greater flexibility to direct available resources toward 
their highest priority needs, regardless of funding source.
    Seek dedicated resources for the revitalization of severely 
distressed public housing properties.
    Unlock the value of public housing assets by providing public 
housing authorities (PHAs) with a variety of tools to leverage and 
invest in the preservation of their properties.
    Provide in statute for the establishment of protected capital 
reserve accounts to allow PHAs to plan responsibly for future needs.
    Improve tools designed to allow PHAs to steward their portfolios as 
true asset managers, including HUD's demolition and disposition 
regulations.
    Provide enhanced incentives for energy efficiency upgrades.
                               section 8
    Provide appropriations sufficient to renew vouchers at actual 
rental assistance costs for all participating households and full 
funding for ongoing and special administrative fees as provided in 
section 8(q) of the U.S. Housing Act as amended by the Quality Housing 
and Work Responsibility Act of 1998.
    Provide for a voucher funding formula that is based on the number 
of families served and voucher costs for the most recent calendar year 
for which data are available.
    Restore a responsible level of administrative fee funding under 
voucher programs.
    Provide for new authority to allow PHAs to utilize a portion of 
their Housing Assistance Payment Reserves to cover unmet administrative 
expenses related to leasing and retaining leased households.
    Enact meaningful voucher program reform legislation.
    Enable the immediate implementation of long-overdue regulatory and 
administrative reforms that will allow for the more efficient use of 
resources in voucher programs.
    Provide for a responsible level of funding for the renewal of 
section 8 multi-family project-based rental assistance (PBRA) 
contracts.
    Maintain a level playing field in the competition for contracts 
under the Section 8 Performance-Based Contract Administrators 
initiative.
                   community and economic development
    Restore funding for CDBG to ensure the success of State and local 
efforts to spur job creation and retention, provide vital public 
services, and expand affordable housing opportunities for low- and 
moderate-income families and individuals.
    Provide funding for the Sustainable Housing and Communities 
Initiative separate from and not as a set-aside under the CDBG program.
    Cover the credit subsidy for HUD's section 108 loan guarantee 
program, and increase the loan guarantee limit to $500 million as 
previously proposed by the administration.
    Restore dedicated funding for HUD's Brownfields Economic 
Development Initiative.
    Restore a responsible level of funding for the HOME Investment 
Partnerships Program (HOME).
    Enact a budget neutral mandatory funding source for the Housing 
Trust Fund.
    Thank you again for the opportunity to testify. We look forward to 
discussing our funding recommendations with this subcommittee in 
greater detail.

                  NAHRO--RECOMMENDED FISCAL YEAR 2014 FUNDING LEVELS FOR SELECTED HUD PROGRAMS
                [Brackets in text indicate set-asides, and indented text indicates sub-accounts.]
----------------------------------------------------------------------------------------------------------------
                                                 Fiscal year 2013 ($ millions)     Fiscal year 2014 ($ millions)
                   Program                    ------------------------------------------------------------------
                                                 Enacted \1\   Sequestration \2\   Proposed \3\      NAHRO \4\
----------------------------------------------------------------------------------------------------------------
Public Housing Operating Fund................          $4,253            $4,054       \5\ $4,600      \6\ $5,168
Public Housing Capital Fund..................           1,871             1,777            2,000           3,750
    ROSS Program.............................            [50]              [47]   ..............              50
    Emergency Capital Needs..................            [20]              [19]         \7\ [20]              20
Choice Neighborhoods Initiative..............             120               114              400          \8\400
Rental Assistance Demonstration..............  ..............  .................              10  ..............
Tenant-Based Rental Assistance...............          18,901            17,964           19,989  ..............
    Section 8 HAP Renewals...................    \9\ [17,207]          [16,349]    \11\ [17,968]     \11\ 18,540
    Ongoing Administrative Fees..............         [1,322]           [1,258]          [1,635]           1,994
    Additional Administrative Fees...........            [50]              [48]             [50]              50
    Tenant Protection Vouchers...............            [75]              [71]            [150]             150
    Incremental HUD-VASH Vouchers............            [75]              [75]             [75]              75
    Family Self-Sufficiency (FSS)                        [60]              [57]          \11\ 75              87
     Coordinators............................
Sec. 8 Project-Based Rental Assistance.......      \12\ 9,321             8,852           10,272      Fully Fund
                                                                                                            \13\
Community Development Fund...................           3,301             3,135            3,143  ..............
    Community Development Block Grant Program         [3,242]           [3,078]          [2,798]           3,300
    Neighborhood Stabilization Initiative....  ..............  .................           [200]  ..............
    Integrated Planning and Investment Grants  ..............  .................            [75]  ..............
Section 108 Loan Guarantees..................            5.94              5.64             \14\              12
HOME Investment Partnerships Program.........             998               948              950           1,600
Housing Opportunities for Persons with AIDS..             331               315              332             365
Homeless Assistance Grants...................           2,029             1,933            2,381           2,381
----------------------------------------------------------------------------------------------------------------
\1\ Enacted levels from Consolidated and Further Continuing Appropriations Act, 2013, as signed by the President
  on March 22, 2013. Figures reflect application of 0.2 percent across-the-board cut as required by the
  legislation.
\2\ Figures reflect 5 percent across-the-board sequestration reductions as calculated by the Office of
  Management and Budget on March 1, 2013.
\3\ Obama administration's proposed budget for FY 2014. Figures do not reflect proposed Transformation
  Initiative set-asides.
\4\ NAHRO recommendations are for standalone/line-item funding. Blank indicates no position.
\5\ The budget proposes to reduce eligibility by a total of $63 million through changes to flat rent and the
  medical expense deduction threshold.
\6\ NAHRO's recommendation assumes that eligibility is determined according to current statutes and regulations
  governing such calculations.
\7\ Proposes the elimination of safety and security measures as an eligible use of funding.
\8\ NAHRO's support for this funding level is contingent upon responsible funding levels for the Operating and
  Capital Funds and the enactment of authorizing legislation requiring that two-thirds of each year's funding be
  awarded to projects where PHAs are the lead or co-applicants.
\9\ The act authorizes the use of the housing assistance payments (HAP) adjustment fund ``for PHAs, that despite
  taking reasonable cost savings measures, as determined by the Secretary, would otherwise be required to
  terminate participating families from the program due to insufficient funds.''
\10\ Assumes $235 million in savings from proposed changes to income targeting, minimum rents, the medical
  expense deduction threshold, and the determination of utility allowances. Also assumes an unspecified amount
  of indirect funding through offsets of ``excess'' HAP Reserves from non-Moving to Work (MtW) PHAs and MtW
  PHAs.
\11\ The Administration proposes eliminating the section 8 family self-sufficiency (FSS) set-aside in favor of a
  standalone consolidated program to serve Public Housing and section 8 housing choice voucher (HCV) residents.
\12\ The act authorizes the use of ``unobligated balances, including recaptures and carryover, remaining from
  funds appropriated'' for fiscal year 2013 and prior years under the headings of ``Housing Certificate Fund,''
  ``Annual Contributions for Assisted Housing,'' and ``Project-Based Rental Assistance'' for ``renewal of or
  amendments to section 8 project-based contracts and for performance-based contract administrators.''
\13\ NAHRO supports a stable, reliable subsidy stream in the form of full 12-month contract renewal funding.
\14\ In lieu of appropriations, the Administration proposes collecting a fee from borrowers to cover the
  program's credit subsidy costs.

                                 ______
                                 
Letter From the National Association of Local Housing Finance Agencies, 
 the U.S. Conference of Mayors, and the National Community Development 
                              Association
                                                    April 19, 2013.
Hon. Patty Murray,
Chairman, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
Hon. Susan Collins,
Ranking Member, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
    Dear Chairman Murray and Ranking Member Collins: The undersigned 
organizations of local elected officials and local and State housing 
and community development practitioners write to you concerning fiscal 
year 2014 appropriations for the Community Development Block and HOME 
Investment Partnerships (HOME) programs. Specifically, we wish to urge 
the Transportation and Housing and Urban Development Appropriations 
subcommittee to reject recommendations contained within the 
administration's fiscal year 2014 budget recommending set-asides and 
other ``reforms'' of these programs.
    Like other national organizations we urge you to support $3.3 
billion in formula funding for the Community Development Block Grant 
(CDBG) Program.
    However, we do not support the administration's proposal to reduce 
overall CDBG formula funds by $275 million, for a $200 million 
Neighborhood Stabilization Program Initiative and $75 million for 
Integrated Planning Grants (formerly known as the Sustainable 
Communities Initiative). This has the effect of transferring formula 
funds which benefit the many into two categorical grant programs that 
would benefit the few. Similarly, the HOME budget request contains an 
up to $10 million set-aside for the Self-Help Homeownership Opportunity 
Program (SHOP). These set-asides are for activities that could be 
funded under the CDBG or HOME programs respectively.
    We also want to advise that we do not support the establishment of 
a minimum funding threshold for CDBG entitlement grants. This would 
adversely affect an estimated 340 smaller communities who are currently 
implementing programs that are responsive to their needs. This would 
force them to compete for limited State funds without any positive 
benefit to either them or the State. We also oppose the 
administration's proposal to repeal the grandfathering provisions in 
CDBG for metropolitan cities and urban counties. Again, this would 
seriously disrupt on-going programs.
    Based on fiscal year 2012 allocations (the Department of Housing 
and Urban Development (HUD) has not released the fiscal year 2013 
allocations) in Washington State the following communities would lose 
direct funding because they fall below the $350,000 threshold: 
Anacortes, East Wenatchee City, Longview, Marysville, Mount Vernon, 
Olympia, Redmond, Richland, Shoreline, and Wenatchee.
    CDBG provides vital funding and flexibility to address local needs 
in the areas of community and economic development, housing, 
infrastructure and vital public services. Over 1,200 communities rely 
on CDBG as a direct source of annual funding. Moreover, each year, an 
estimated 7,250 local governments nationally have access to CDBG funds 
reaching rural, urban, and suburban areas. CDBG helps create jobs 
through the expansion and retention of businesses.
    Since fiscal year 2010, funding for CDBG has been cut by over $1 
billion, yet the need for these important resources has continued to 
grow. While we understand the need to address the Federal budget 
deficit, we also understand the value of the local investments made by 
CDBG. We are deeply concerned that these investments are in jeopardy 
due to the Obama administration's fiscal year 2014 proposed budget cuts 
to CDBG, funding the program at $2.8 billion.
    The CDBG program generates additional resources, and adds to the 
local economy. For example, for every $1 of CDBG funding invested in a 
project another $3.55 is leveraged from other sources. Since its 
inception in 1974, CDBG has leveraged nearly $400 billion in other 
resources for community development and affordable housing.
    As a companion to CDBG, the HOME Investment Partnerships program 
has suffered severe cuts since fiscal year 2010, from $1.8 billion then 
to $950 million in fiscal year 2013, following sequestration. We urge 
that its funding level be restored to $1.6 billion in fiscal year 2014.
    HOME serves as a critical source of funding for the expansion of 
affordable ownership and rental housing for low- and moderate-income 
households. The types of activities HOME assists are the construction 
and preservation of affordable rental housing usually as gap 
assistance, the construction and rehabilitation or affordable ownership 
housing as well as for homeownership assistance and tenant-based rental 
assistance. Since HOME was enacted in 1990 it has produced over 1 
million affordable homes, including 612,792 homeownership new 
construction and rehabilitation units and 423,154 new construction or 
preservation of rental units. Every $1 of HOME funds leverages an 
additional $4 in non-HOME funds.
    The administration's fiscal year 2014 budget proposes funding for 
HOME at the $950 million finally approved for fiscal year 2013. It is 
estimated that this will decrease production of HOME units by 34,000 
units and result in the loss of an estimated 8,935 jobs.
    Thus, we urge you to support our recommendation of $3.3 billion for 
CDBG formula grants and $1.6 billion for HOME in fiscal year 2014 to 
help communities nationwide continue to provide vital affordable 
housing and neighborhood revitalization programs and services to low-
income persons.
            Respectfully,
                    U.S. Conference of Mayors, National Association of 
                            Local Housing Finance Agencies, and the 
                            National Community Development Association.
                                 ______
                                 
       Letter From the National Council of State Housing Agencies
                                                    April 19, 2013.
Hon. Patty Murray,
Chairman, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.
Hon. Susan Collins,
Ranking Member, Subcommittee on Transportation, Housing and Urban 
        Development, and Related Agencies,
Washington, DC.

    Dear Chairman Murray and Ranking Member Collins: We appreciate this 
opportunity to provide testimony in support of the HOME Investment 
Partnerships (HOME) program. HOME program funding is vital to the 
production and provision of housing affordable to low-income families. 
Yet HOME has received devastating cuts--cut almost in half in just the 
past few years. Just since fiscal year 2011, HOME has been cut by 41 
percent from $1.6 billion to an estimated post-sequester level of $948 
million in fiscal year 2013. Cuts to the HOME program are being felt 
deeply across the country. For example, the HOME funding allocation to 
the State of Washington has decreased by 43 percent, from $34.5 million 
in fiscal year 2010 to $19.8 million in fiscal year 2012, and the 
allocation to the State of Maine has fallen 44 percent, from $8.5 
million in fiscal year 2010 to $4.7 million in fiscal year 2012.
    To begin restoring funds for HOME, we implore you to fund HOME in 
fiscal year 2014 at $1.6 billion, equal to its fiscal year 2011 funding 
level. We ask that you resist additional, disproportionate cuts to HOME 
and recognize both the successful track record of the program and the 
need for its continued funding at a time when our housing market, and 
broader economy, continues to struggle and the need for affordable 
housing continues to grow.
    Authorized in 1990, the HOME program provides grants to State and 
local governments to produce affordable housing for low-income 
families. HOME funds are a vital and unique source of financing for 
numerous affordable housing developments--many of which would not be 
possible without HOME assistance. States and localities use HOME for 
affordable housing production and rehabilitation, preservation, and 
rental and homeownership assistance.
    By flexibly working with and supporting many critical Federal 
housing programs, including the Low Income Housing Tax Credit and rural 
housing programs, HOME uniquely empowers States and localities to 
respond to the housing needs they judge most pressing. States and 
localities use HOME to serve the whole spectrum of housing need, from 
homeless to ownership to disaster recovery, from urban to rural areas, 
and all low-income populations, including families with children, the 
elderly, veterans, and persons with special needs. HOME also enables 
for-profit and nonprofit developers to provide affordable housing in 
their communities.
    In its 20 years of existence, the HOME program has successfully 
produced more than 1 million affordable homes, in addition to making 
homes affordable for hundreds of thousands of families with rental 
assistance. From 1992 to 2012, States and localities have used HOME 
funds to produce 460,692 home buyer homes, 423,154 rental homes, and 
212,100 rehabilitated home buyer homes. Another 264,715 families have 
received rental assistance through the HOME program. States and 
localities leverage HOME funding by generating more than $4 in other 
private and public resources for every $1 of HOME. Over the program's 
lifetime, HOME funds have been used to leverage $100.2 billion in funds 
for affordable housing.
    HOME funding is used exclusively to create affordable housing for 
low-income households, those earning incomes of 80 percent or less of 
area median income (AMI). While the statute requires that at least 90 
percent of families receiving rental assistance through HOME have 
incomes at 60 percent of AMI or less, almost 100 percent of those 
receiving tenant-based rental assistance and 97 percent of families 
living in HOME-assisted rental units have incomes of 60 percent of AMI 
or less. One out of four families helped with HOME are extremely low-
income, with incomes of 30 percent of AMI or less.
    In addition to providing needed affordable housing, HOME funds 
contribute to job creation, especially in the hard-hit construction 
sector. Every $1 billion in HOME creates or protects approximately 
18,000 jobs. Restoring funding to $1.6 billion in fiscal year 2014 
would create 11,736 more jobs than created by HOME's fiscal year 2013 
funding level.
    Based on projected production levels included in HUD's fiscal year 
2014 budget request, if HOME is funded in fiscal year 2014 at the 
administration's proposed level of $950 million, we expect almost 
34,000 fewer affordable homes will be produced in fiscal year 2014 than 
were produced in fiscal year 2011. This means fewer home buyer and 
rental units, fewer homeowner rehabilitation projects, and fewer 
tenants assisted.
    As we face decreased investment in the production of affordable 
housing, we face a continued growing need for it. According to HUD's 
latest Worst Case Housing Needs report, in 2011 nearly 8.5 million very 
low-income families--who received no government housing assistance--
paid more than half their monthly income for rent, lived in severely 
substandard housing, or both. This number is up 2.6 million, or 43.5 
percent, since 2007.
    Today, there are only 57 affordable rental homes available for 
every 100 very low-income renter households, those earning 50 percent 
of AMI or less. For the 10.1 million households with extremely low 
incomes, there are only 30 affordable homes available for every 100 
households. Only one in four households eligible for Federal rental 
housing assistance receives it.
    As a capital program, HOME is a vital resource for addressing this 
growing housing need. HOME funds produce new units of affordable 
housing and thus are necessary to increasing the overall supply of 
affordable housing. The Bipartisan Policy Center's Housing Commission 
in its recent report entitled Housing America's Future: New Directions 
for National Policy, called for an increase in HOME appropriations to 
serve as the gap financing needed to support new developments that 
would expand the supply of affordable rental housing.
    A HOME program appropriation of $1.6 billion in fiscal year 2014 
would only go partway towards restoring HOME program funding, but it 
would provide States and local communities with the critical resources 
needed to help address the spectrum of affordable housing needs they 
face. Therefore, we urge you to support the proven outcomes of the HOME 
program by providing a fiscal year 2014 appropriation of $1.6 billion. 
Thank you for this opportunity to testify on the need for HOME funding. 
Please do not hesitate to contact us with any questions.
            Sincerely,

Council for Affordable and Rural Housing
Council of State Community Development Agencies
CSH
Enterprise Community Partners
Habitat for Humanity International
Housing Assistance Council
Housing Partnership Network
Mercy Housing
National Alliance of Community Economic Development Associations
National Association for County Community and Economic Development
National Association of Home Builders
National Association of Housing and Redevelopment Officials
National Association of Local Housing Finance Agencies
National Community Development Association
National Council of State Housing Agencies
National Housing Conference
National Leased Housing Association
National Low Income Housing Coalition
National Rural Housing Coalition
Stewards of Affordable Housing for the Future
The Community Builders, Inc.
                                 ______
                                 
  Prepared Statement of the National Council of State Housing Agencies
    Thank you for the opportunity to provide testimony on behalf of our 
Housing Finance Agency (HFA) members regarding fiscal year 2014 
appropriations for housing programs. As you consider your fiscal year 
2014 Department of Housing and Urban Development (HUD) appropriations 
bill, we urge you to restore HOME Investment Partnerships Program 
(HOME) formula grant funding to $1.6 billion, equal to its fiscal year 
2011 funding level, and provide section 8 funding adequate to renew all 
expiring project-based contracts for a full year, fully fund all 
authorized Housing Choice Vouchers (vouchers), provide new incremental 
vouchers in fiscal year 2014, allocate new flexible rental assistance 
to State HFAs, and ensure that successful HFA voucher and project-based 
contract administrators continue in and are adequately compensated for 
these roles. We also ask you to provide authority for Ginnie Mae to 
securitize Federal Housing Administration (FHA)-HFA Multifamily Risk-
Sharing program loans.
    The National Council of State Housing Agencies' (NCSHA's) members 
are the HFAs of the 50 States, the District of Columbia, New York City, 
Puerto Rico, and the U.S. Virgin Islands. HFAs administer a wide range 
of affordable housing and community development programs, including 
HOME, section 8, homelessness assistance, down payment assistance, 
State housing trust funds, tax-exempt Housing Bonds, and the Low Income 
Housing Tax Credit (Housing Credit). HFAs effectively employ these 
resources to advance their common public-purpose mission of providing 
affordable housing to the people of their jurisdictions who need it.
                  home investment partnerships program
    HOME program funding is vital to the production and provision of 
housing affordable to low-income families and has a long record of 
tremendous success in doing so. Yet HOME has received devastating cuts 
in recent years. HOME has been cut almost in half since fiscal year 
2010. Just since fiscal year 2011, HOME funding has been cut by 41 
percent--from $1.6 billion to an estimated post-sequester level of $948 
million in fiscal year 2013. This is the lowest funding level in the 
program's 20-year history. We appeal to you to spare the HOME program 
from further cuts and to fund HOME at an amount as close to its fiscal 
year 2011 funding level of $1.6 billion as possible. The need for HOME 
funding vastly exceeds the amount available.
    We also request that the subcommittee resist further reducing the 
amount of this flexible funding source going directly to States and 
localities by not including any set-asides within the HOME program 
account.
    In these tight budgetary times, the HOME formula grant is one of 
the best housing investments Congress can make. HOME's flexibility 
allows States and localities to determine how to put limited HOME funds 
to their best use. HFAs use HOME to serve the whole spectrum of housing 
need, from homeless to ownership to disaster recovery, from urban to 
rural areas, and all low-income populations, including families with 
children, the elderly, veterans, and persons with special needs. HOME 
funding is necessary to help States and localities respond to urgent 
housing needs.
    HOME funds must be used to assist families with low incomes, those 
earning 80 percent of area median income (AMI) or less. State HFAs 
report using more than half of their HOME funds in 2011 to assist very 
low-income families, those earning 50 percent of AMI or less, and more 
than a quarter of the funds to assist extremely low-income families, 
those earning 30 percent of AMI or less.
    HOME has an outstanding track record of success. States and 
localities have used HOME funding to produce more than 1 million 
affordable homes, in addition to making homes affordable for hundreds 
of thousands of families with direct rental assistance.
    Further, every Federal HOME $1 generates more than $4 in additional 
public and private investment. HOME funds have leveraged more than $100 
billion in additional funds for affordable housing. HOME funding is a 
vital piece in financing numerous affordable housing developments--many 
of which would not be able to move forward without its assistance. HOME 
complements and supports many critical Federal housing programs, such 
as the Low Income Housing Tax Credit, making developments financially 
feasible and achieving deeper income targeting than would otherwise be 
possible.
    NCSHA also supports the State-administered Housing Trust Fund and 
seeks a dedicated and sustainable funding source for it. However, the 
Housing Trust Fund is needed as a new resource for developing housing 
affordable to those with very low and extremely low incomes. It is not 
a replacement for appropriations to HOME and other HUD programs and 
should not be funded at their expense.
                           rental assistance
    We recommend Congress provide adequate funding for vouchers and 
project-based section 8 contracts. These two programs serve some of our 
lowest income, most vulnerable people. We urge the subcommittee to 
ensure the section 8 accounts are funded such that all vouchers already 
in use are renewed and all contract renewals are funded for a full 12 
months in order to maintain owner confidence in the program.
    We also ask that you provide the funding necessary for public 
housing agencies (PHAs) to effectively administer the voucher program. 
PHAs have experienced year-over-year proration of administrative fees, 
which has negatively impacted PHAs' ability to administer the voucher 
program. HFA voucher and project-based contract administrators play 
critical roles in providing rental assistance and we ask that you 
ensure that they are adequately compensated for them.
    Thank you for funding new incremental Veterans Affairs Supportive 
Housing (VASH) vouchers in fiscal year 2013. However, additional new 
unrestricted incremental vouchers are needed so we can help some of the 
millions of families who qualify for rental assistance but do not 
receive it. According to HUD's most recent report on Worst Case Housing 
Needs, there was a 43.5 percent increase from 2007 to 2011 in 
households with worst case housing needs--defined as very low-income 
renters not receiving government housing assistance who either pay more 
than half of their monthly income for rent, live in severely inadequate 
conditions, or both.
    We urge you also to provide flexible rental assistance to State 
HFAs that they can use for either project-based or tenant-based rental 
assistance. Such funding would allow States to address their production 
and affordability needs most effectively and to serve more extremely 
low-income families by combining it with State-administered Housing 
Credit, Housing Bond, HOME, and other production resources.
    States consistently target their Housing Credit, Housing Bond, and 
HOME resources to households with incomes below the programs' statutory 
income limits. Yet it is difficult--and sometimes impossible--to reach 
these households at a rent level they can afford without rental 
assistance.
      ginnie mae securitization of multifamily risk-sharing loans
    We request that you provide authority for Ginnie Mae to securitize 
FHA-HFA Multifamily Risk-Sharing loans. Providing this authority will 
allow HFAs to reduce the cost of financing rental housing developments, 
making it possible to achieve lower rents and reach even lower income 
tenants.
    Under the FHA-HFA Risk-Sharing program, HFAs meeting rigorous 
financial standards are able to underwrite FHA multifamily loans in 
return for sharing the risk of any losses on those loans. This program 
has been very successful, with 26 HFAs financing nearly 1,000 loans, 
totaling more than $5 billion in principal and supporting more than 
101,000 affordable rental homes.
    If Ginnie Mae were to securitize FHA-HFA Risk-Sharing loans, HFAs 
predict the interest rate on the underlying mortgages could be reduced 
by as much as 200 basis points, or 2 percent. This rate reduction would 
lower rents and potentially reduce the need for and cost of other 
Federal housing subsidies. This authority would not increase Government 
spending. In fact, it would generate revenue for the Federal Government 
according to the Congressional Budget Office (CBO), which estimates 
that allowing Ginnie Mae to securitize FHA-HFA Risk-Sharing loans would 
result in $20 million in mandatory savings over 10 years, or $2 million 
annually.
    We recognize the continued constrained fiscal environment in which 
you must craft your fiscal year 2014 appropriations legislation. We 
urge you to consider the proven effectiveness of HOME and section 8 
rental assistance and the great unmet need for them, which has been 
further exacerbated in these difficult economic times, as you make your 
funding decisions. NCSHA appreciates this opportunity to offer a 
statement on behalf of these programs and we are ready to assist you in 
any way we can as you move forward with the fiscal year 2014 
appropriations process.


       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page

Advocates for Highway and Auto Safety, et al., Letter From the...   187
American:
    Indian Higher Education Consortium, Prepared Statement of the   189
    Public Transportation Association, Prepared Statement of the.   191
    Public Works Association, Prepared Statement of the..........   194
    Society of Civil Engineers, Prepared Statement of the........   196

Blunt, Senator Roy, U.S. Senator From Missouri, Statement of.....    10
Boozman, Senator John, U.S. Senator From Arkansas, Questions 
  Submitted by...................................................   119

California Association of Housing Authorities, Prepared Statement 
  of the.........................................................   199
Coalition of Northeastern Governors, Prepared Statement of the...   201
Coats, Senator Daniel, U.S. Senator From Indiana:
    Questions Submitted by.......................................    44
    Statement of.................................................     9
Collins, Senator Susan M., U.S. Senator From Maine:
    Prepared Statements of...................................8, 56, 132
    Statements of............................................6, 54, 131

Donovan, Hon. Shaun, Secretary, Office of the Secretary, 
  Department of Housing and Urban Development....................     1
    Prepared Statement of........................................    13
    Questions Submitted to...................................41, 42, 44
    Summary Statement of.........................................    10

Easter Seals, Prepared Statement of..............................   204

Feinstein, Senator Dianne, U.S. Senator From California, 
  Questions Submitted by.........................................   109

Galante, Hon. Carol, Commissioner and Assistant Secretary for 
  Housing, Federal Housing Administration, Department of Housing 
  and Urban Development..........................................   125
    Prepared Statement of........................................   134
    Questions Submitted to.......................................   178
    Statement of.................................................   133

Habitat for Humanity International, Prepared Statement of........   206
HUD Council 222, American Federation of Government Employees, 
  AFL-CIO, Prepared Statement of.................................   207
Huerta, Hon. Michael P., Administrator, Federal Aviation 
  Administration, Department of Transportation...................    51
    Prepared Statement of........................................    59
    Questions Submitted to......................103, 109, 115, 117, 119
    Summary Statement of.........................................    58

Institute of Makers of Explosives, Prepared Statements of the..210, 214
Interested Parties for Hazardous Materials Transportation, Letter 
  From...........................................................   217

Kirk, Senator Mark, U.S. Senator From Illinois, Questions 
  Submitted by...................................................   117

Larsen, Representative Rick, U.S. Representative From Washington, 
  2nd District, Prepared Statement of............................   185
Lautenberg, Senator Frank R., U.S. Senator From New Jersey, 
  Questions Submitted by........................................42, 115

Mikulski, Senator Barbara A., U.S. Senator From Maryland, 
  Questions Submitted by........................................41, 178
Montoya, Hon. David A., Inspector General, Office of Inspector 
  General, Department of Housing and Urban Development...........   125
    Prepared Statement of........................................   149
    Summary Statement of.........................................   147
Murray, Senator Patty, U.S. Senator From Washington:
    Opening Statements of....................................1, 51, 125
    Prepared Statements of...................................4, 53, 128
    Questions Submitted by.......................................   103

National:
    Affordable Housing Management Association, Prepared Statement 
      of 
      the........................................................   218
    AIDS Housing Coalition, Prepared Statement of the............   221
    Association of:
        Counties, et al., Letter From the........................   222
        Housing and Redevelopment Officials, Prepared Statement 
          of the.................................................   223
        Local Housing Finance Agencies, the U.S. Conference of 
          Mayors, and the National Community Development 
          Association, Letter From the...........................   227
    Council of State Housing Agencies:
        Letter From the..........................................   228
        Prepared Statement of the................................   230

Scovel, Hon. Calvin L., III, Inspector General, Office of 
  Inspector General, Department of Transportation................    51
    Prepared Statement of........................................    66
    Summary Statement of.........................................    65


                             SUBJECT INDEX

                              ----------                              

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                     Federal Housing Administration

                                                                   Page

Additional Committee Questions...................................   178
Appendix.........................................................   177
Commitment Authority.............................................   165
Eminent Domain...................................................   166
Federal Housing Administration (FHA):
    Insurance Fund...............................................   126
    Market Share.................................................   171
    Operations...................................................   130
    Reform, Challenges to........................................   168
    Shortfall....................................................   133
    Transformation...............................................   176
        Progress on..............................................   177
Fraudulent Lender Safeguards.....................................   173
Goal:
    1: Strengthen the Nation's Housing Market To Bolster the 
      Economy and Protect Consumers..............................   135
    2: Meet the Need for Quality, Affordable Rental Homes and 
      Healthcare Facilities......................................   142
    3: Transform the Way HUD Does Business.......................   145
Home Equity Conversion Mortgage (HECM)...........................   127
    Counseling...................................................   162
    Escrow Accounts..............................................   164
    High Default Rate............................................   161
    Loans........................................................   130
Information Technology (IT) Infrastructure.......................   175
Lautenberg Remembrance...........................................   128
Loss Mitigation..................................................   169
Mortgage Insurance Premiums......................................   172
Mutual Mortgage Insurance (MMI) Fund.............................   160
    Losses to the................................................   129
    OIG Efforts To Recover Losses and Address Fraud Against the..   156
Office of Multifamily Housing....................................   178
    Consolidation of the.........................................   178
Other Areas of Risk..............................................   130
Sequestration..................................................128, 130
Staffing Concerns................................................   175

                      Office of Inspector General

Financial:
    Health of the FHA Mutual Mortgage Insurance Fund.............   151
    Management Systems...........................................   158
Home Equity Conversion Mortgage (HECM) Program...................   155
Inventory of Foreclosed-Upon Single-Family Properties............   157
Office of Inspector General (OIG):
    Concerns and FHA's Slow Response, a History of...............   149
    Efforts To Recover Losses and Address Fraud Against the MMI 
      Fund.......................................................   156
    Investigations...............................................   169
    Investigative and Audit Results, Recent......................   159
Proposed Rulemaking Requirements.................................   147
Real Estate-Owned (REO) Properties...............................   148

                        Office of the Secretary

Additional Committee Questions...................................    41
Assisted Housing.................................................    11
Better Stewards of Taxpayer Dollars..............................    44
Choice Neighborhoods.............................................12, 38
Community Development Block Grant (CDBG) Disaster Recovery Action 
  Plan...........................................................    42
    Funding......................................................    42
Department of Housing and Urban Development (HUD):
    Grant Criteria...............................................    47
    Memorandum--Auditee Response to OIG's Audit of FHA's 
      Preforeclosure Sale Program................................    49
Existing Partnership.............................................    11
Federal Housing Administration (FHA).............................    11
    Preforeclosure Sales Program.................................    48
General and Special Risk Insurance Commitment Authority..........    33
Goal:
    1: Strengthen the Nation's Housing Market To Bolster the 
      Economy and Protect Consumers..............................    16
    2: Meet the Need for Quality, Affordable Rental Homes........    18
    3: Utilize Housing as a Platform for Improving Quality of 
      Life.......................................................    22
    4: Build Inclusive Sustainable Communities Free from 
      Discrimination.............................................    23
    5: Transform the Way HUD Does Business.......................    27
Home Equity Conversion Mortgage (HECM) Reform....................    32
Housing:
    And Communities..............................................    10
    Assistance Programs..........................................    46
Improving Performance and Accountability.........................     5
Moratorium on Full Draw Program..................................    33
Mutual Mortgage Insurance (MMI) Fund.............................    29
Overall Use of HUD Funds.........................................    47
Oversight of Troubled Public Housing Authorities.................    37
Public Housing:
    Authorities (PHAs)--Emergency Capital Needs..................    43
    Drug Elimination Program.....................................    43
Regulatory Burdens...............................................    12
Rental Assistance Demonstration (RAD)............................    41
Reverse Mortgage Loans...........................................    30
Section 8 Reforms................................................    12
Sequestration:
    Budget Numbers...............................................    34
    Impact on:
        Most Vulnerable, the.....................................     4
        Public Housing Authorities...............................    30
Shortfalls Under Sequestration...................................    36
Super Storm Sandy................................................    41
Transformation Initiatives.......................................    12
Veterans Affairs Supportive Housing (VASH) Vouchers..............    12

                      DEPARTMENT OF TRANSPORTATION

                    Federal Aviation Administration

787 Dreamliner...................................................    92
    Aircraft Certification.......................................   105
Acquisitions Workforce...........................................   103
Additional Committee Questions...................................   103
Agricultural Aviation and Low-Level Airspace Safety Issues.......   122
Aircraft Certification...........................................   105
    Process......................................................   120
Airport Improvement Program (AIP) Grant Funding..................83, 91
Alternative Jet Fuels............................................    90
Armed Drones.....................................................   112
Audit(s) of:
    Los Angeles International Airport............................   102
    Revenue Diversions...........................................   102
Budget Control Act (BCA)/Contract Tower Program/Furloughs........    78
Business Aviation and General Aviation--Economic Impact and 
  Opportunities..................................................   121
Contract:
    Control Towers...............................................86, 96
    Towers.................................................79, 117, 120
        Program..................................................    78
    Weather Observers............................................   116
Controller Training and Safety...................................    99
Cost-Savings.....................................................    99
Electronic Devices on Planes.....................................   101
En Route Automation Modernization (ERAM).........................    90
Furlough(s).................................................78, 80, 100
    Impact(s) on:
        Facilities...............................................   115
        NextGen..................................................    89
General Aviation Alternative Fuels...............................   119
Government Accountability Office (GAO) Report on Unmanned 
  Aircraft Systems...............................................   112
Grants-in-Aid for Airports.......................................   113
Helicopter:
    Noise........................................................   114
    Operating Practices..........................................    93
Next Generation Air Transportation System (NextGen)..............   117
    Master Schedule..............................................   103
Operations in Newark Airport.....................................   115
Passenger Facility Charge (PFC)..................................    84
Performance-Based Navigation (PBN)...............................   106
Remote Highjacking of Aircraft...................................   116
Retention Bonuses................................................   107
Runway:
    Incursions...................................................    81
    Status Lights................................................   104
Sequester Coordination...........................................   118
Sequestration...................................................97, 100
Unmanned Aircraft System (UAS)..............................84, 94, 109
    Airworthiness Certificates...................................   111
    Test Ranges..................................................   110
User Fees........................................................   121

                      Office of Inspector General

Federal Aviation Administration (FAA) Has Opportunities To More 
  Effectively Manage Its Controller and Inspector Workforce......    68
Opportunities Remain To Better Ensure the Safety of the National 
  Airspace System................................................    75
Sound Management Strategies Are Key to the Cost-Effective 
  Implementation of FAA's Modernization and Infrastructure 
  Efforts........................................................    70


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