[Senate Hearing 113-351]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 113-351


SUPERSTORM SANDY RECOVERY: ENSURING STRONG COORDINATION AMONG FEDERAL, 
                     STATE, AND LOCAL STAKEHOLDERS

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
           HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

     ASSESSING THE STATUS OF RECOVERY AND REBUILDING WORK FROM THE 
   DEVASTATION OF SUPERSTORM SANDY AND THE STATE OF THE COMMUNITIES 
                                AFFECTED

                               __________

                             MARCH 12, 2014

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                       Taylor Reed, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

   Subcommittee on Housing, Transportation, and Community Development

                 ROBERT MENENDEZ, New Jersey, Chairman

             JERRY MORAN, Kansas, Ranking Republican Member

JACK REED, Rhode Island              BOB CORKER, Tennessee
CHARLES E. SCHUMER, New York         PATRICK J. TOOMEY, Pennsylvania
SHERROD BROWN, Ohio                  MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 TOM COBURN, Oklahoma
JOE MANCHIN III, West Virginia       DEAN HELLER, Nevada
ELIZABETH WARREN, Massachusetts      RICHARD C. SHELBY, Alabama
HEIDI HEITKAMP, North Dakota

              Brian Chernoff, Subcommittee Staff Director

         William Ruder, Republican Subcommittee Staff Director

                                  (ii)






















                            C O N T E N T S

                              ----------                              

                       WEDNESDAY, MARCH 12, 2014

                                                                   Page

Opening statement of Chairman Menendez...........................     1

                               WITNESSES

Shaun Donovan, Secretary, Department of Housing and Urban 
  Development....................................................     2
    Prepared statement...........................................    36
Matthew J. Doherty, Mayor, Belmar, New Jersey....................    18
    Prepared statement...........................................    41
Adam Gordon, Staff Attorney, Fair Share Housing Center...........    20
    Prepared statement...........................................    44
Janice Fine, Ph.D., Associate Professor, Rutgers School of 
  Management and Labor Relations.................................    22
    Prepared statement...........................................    47

              Additional Material Supplied for the Record

Screenshots of the New Jersey Department of Community Affairs 
  RREM Website in English and Spanish submitted by Senator 
  Menendez.......................................................    55

                                 (iii)

 
SUPERSTORM SANDY RECOVERY: ENSURING STRONG COORDINATION AMONG FEDERAL, 
                     STATE, AND LOCAL STAKEHOLDERS

                              ----------                              


                       WEDNESDAY, MARCH 12, 2014

             U.S. Senate, Subcommittee on Housing, 
         Transportation, and Community Development,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 10:00 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Robert Menendez, Chairman of the 
Subcommittee, presiding.

          OPENING STATEMENT OF SENATOR ROBERT MENENDEZ

    Senator Menendez. This hearing of the Senate Banking, 
Housing, and Urban Affairs, Subcommittee on Housing, 
Transportation, and Community Development will come to order. I 
am pleased to welcome two panels this morning and to have the 
chance to hear from the Secretary of Housing and Urban 
Development, Shaun Donovan. Mr. Secretary, welcome and thank 
you for joining us.
    Today's hearing will focus on the ongoing and often unmet 
needs of the people devastated by Superstorm Sandy. It has now 
been almost a year and a half since the storm made landfall on 
the Jersey coast and wreaked havoc throughout the region. Since 
the storm, the people of New Jersey and other affected States 
have worked hard to rebuild. But for too many, that recovery is 
not as far along as it should be, and too many families are 
frustrated with the administration of some of the disaster 
funds meant to help them rebuild from this tragic storm.
    With grantees now preparing action plans for the second 
round of community development block grant disaster funding, we 
are at a critical moment. Clearly we need to consider lessons 
learned from the first round so States do not make the same 
mistakes in the second round. And it is my hope that we will 
avoid repeating the same problems that, frankly, never should 
have happened in the first place.
    When the storm struck and we began to secure the necessary 
funding and assistance, I confess that I thought it was a good 
idea to give States the flexibility and discretion that seemed 
reasonable, assuming we would all rise to the occasion. And 
now, frankly, I question the wisdom of that assumption.
    I say this because, for the last year and a half, I have 
heard story after story from family after family, business 
owners, homeowners, renters, local officials, I have heard from 
constituents at roundtables to emails and heart-wrenching 
telephone calls to my office about their shared experiences 
that have led us here today. I have heard of paperwork being 
lost time and time and time again; a lack of clear criteria for 
awarding assistance; people who have been left waiting and 
waiting and waiting for permission to start rebuilding.
    There has been confusion about how to apply for State-run 
programs. There has been a clear lack of transparency about the 
status of applications, incorrect denials of funding, and lack 
of transparency about the reasons for denial and how applicants 
can appeal those denials. There have been reported problems 
with the Spanish language Web site and allegations that 
minorities are being rejected at disproportionately higher 
rates.
    People simply feel the major State programs are not being 
run fairly or competently, and from what I have heard, I am 
inclined to say they have cause for concern.
    Bottom line, some have chosen to point the blame at the 
Federal Government. But I believe it is time to stop 
fingerpointing and get the job done. We need solutions, not 
more of the same blame game that has led to delay after delay 
in helping the people of my State and other States recover. We 
need greater transparency, clear standards, and responsibility 
and accountability. I do not think that is too much to ask.
    So let me be clear. This is now the third hearing this 
Subcommittee has held on Sandy recovery, and I will hold a 
hundred more if that is what it is going to take to get the 
answers we need and get it right for the people whose lives 
have been devastated by the storm.
    So, Mr. Secretary, we look forward to some of the insights 
that you can share with us so that the people of my State and 
every State that has suffered extraordinary damage can finally 
get their life underway.
    We want to be clear about what is working well and how we 
build on those successes as well as what is going wrong and 
where the delays are in order to fix the problems quickly and 
effectively. And in the interest of time, I will ask unanimous 
consent that the rest of my statement be included in the 
record.
    Senator Menendez. With that, we welcome the Secretary of 
HUD, Shaun Donovan. Mr. Secretary, your full statement will be 
included in the record. We would ask you to synthesize it in 5 
minutes or so, but if it is important, if you need a little 
more time, go ahead. And the floor is yours.

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

    Mr. Donovan. Thank you, Mr. Chairman, and thank you for 
inviting me to testify here today and for your focus on this 
critical issue.
    As you know, in addition to my concern as a citizen and a 
member of the Administration, Hurricane Sandy was personal to 
me. As you often remind me, I married up, a Jersey girl, and 
because of my deep roots in the region as a New Yorker as well, 
I remain concerned with the devastation that Sandy has caused, 
and I am especially honored to have the opportunity to help 
with recovery efforts across the region.
    We both remember the devastation this storm caused: $65 
billion in damage and economic loss, 9 million lost power, 
650,000 homes that were damaged or completely destroyed. And it 
was clear to all of us that the road to recovery would be long 
and difficult.
    So we began immediately helping communities put their lives 
back together, and President Obama quickly pledge his support 
of these local efforts in order to ensure a full recovery. He 
created the Hurricane Sandy Rebuilding Task Force to maximize 
Cabinet-level coordination in support of the work to rebuild 
this region. I have been proud to chair this effort as we work 
to achieve two basic goals: one, to get assistance to 
communities as quickly as possible to meet the immediate needs 
of the region; and, two to ensure that the region builds 
stronger and smarter than before so that it is better equipped 
to deal with future storms.
    Let me start with the work of getting assistance to 
communities quickly and efficiently. As you well know, in 
January 2013, President Obama, working with you and other 
Members of Congress, fought tirelessly to get $50 billion in 
Sandy supplemental funding in order to aid victims of the 
storm. And ever since, it has been a priority to get these 
dollars into communities. That is why we thought it was 
critical to include several measures in the supplemental that 
facilitated more efficient spending of the dollars, for 
example, giving HUD the authority to reduce duplicative 
environmental reviews.
    As a result of these and other measures, we have made great 
progress. More than 265,000 people and small businesses have 
received direct assistance; more than 99 percent of Sandy-
related flood insurance claims have been paid; 97 percent of 
public beaches were open by Memorial Day of last year; and as 
of the end of January, HUD has announced more than $11 billion 
and paid out nearly $1 billion through our CDBG-DR program.
    I would note that this pace of spending is 48 percent 
faster than after Hurricane Katrina and more than 2 \1/2\ times 
faster than after Hurricane Ike. When you include flood 
insurance payments, we have allocated nearly $41 billion in 
total, with roughly $15.5 billion of this already paid out.
    So relief is getting to communities, but as you well said, 
Senator, we know it can never be fast enough, and that is why 
we have been looking at creative ways to expedite the 
rebuilding process--faster approvals from SBA during this 
process; the alignment of FHA and FHFA foreclosure prevention 
policies to keep homeowners in their homes; streamlined 
permitting that has cut times for approval of large 
infrastructure projects; and at your urging, work to make sure 
that we would not hurt homeowners who may have applied or been 
awarded SBA funds; and for the very first time, allowing 
homeowners to receive reimbursements through CDBG funds.
    We will continue to look for ways--and I am sure we will 
discuss that here at the hearing--to remove unnecessary 
barriers and headaches, ensuring that the billions that flow 
into the region are put to use as quickly and efficiently as 
possible.
    This, of course, complements our other goal of rebuilding 
stronger and smarter so that the region is better prepared to 
withstand future storms. On August 19, the task force released 
our rebuilding strategy for the region which included 69 
recommendations to help do just that.
    For example, one of the most critical concerns we heard 
from our local partners was that they needed clear, accessible 
information about current and future flood risk. We have 
provided exactly that with our new sea level tool. And we have 
established for the first time a uniform minimum Flood Risk 
Reduction Standard across the Federal Government to have a 
single, simplified standard.
    We have also worked to connect communities with the most 
innovative engineering, planning, and design ideas from around 
the world through an international competition called ``Rebuild 
By Design.''
    Investing in projects that will make our communities more 
resilient is vital to their safety, but it is also good for our 
economy because we know that for every dollar we spend in 
mitigation, we save $4 in avoided costs in the future.
    Finally, Mr. Chairman, I want to be clear that I and my 
Department will be accountable to the region and to you to see 
this process through. Every recommendation in the task force 
rebuilding strategy has a detailed implementation plan, and we 
are on track.
    While we continue working with Federal partners, we are 
also committed to overseeing CDBG-DR funds that are being 
distributed by grantees, and I take our role as a steward of 
Federal dollars very seriously. HUD is working closely with 
these grantees through weekly conference calls to answer any 
questions or concerns they may have. We also have twice-a-year 
onsite monitoring and twice-a-year onsite technical assistance 
for New York State, New York City, and New Jersey. We completed 
our first round of onsite monitoring last August. We completed 
our first round of onsite technical assistance in December. And 
right now we are going through our second cycle of onsite 
monitoring. We have completed our second onsite review of New 
York State. We are literally this week completing our second 
review of New Jersey. And we will be conducting our second 
review of New York City by the end of March. And we will stay 
on it for as long as it takes, knowing that eventually we will 
emerge stronger and more vibrant than before.
    The reality of these storms is that the recovery can never 
happen fast enough for the Americans that have been affected, 
but we are making significant progress. Communities are turning 
the page and looking toward the future with new hope. But we 
all know, as you have eloquently said, that more work needs to 
be done. All of us in the Obama administration are committed to 
working with local partners, Members of Congress, and other 
stakeholders to get assistance to those in the process of 
rebuilding, ensure the region is better prepared to withstand 
future extreme weather events, and work to improve our recovery 
efforts across the Nation.
    I look forward to working with the Committee on those 
goals. Thank you.
    Senator Menendez. Well, thank you, Mr. Secretary.
    Let me get into some specifics here. As you know, CDBG 
funds are meant to help States and communities fill needs that 
are unmet by other sources of funding. In my State of New 
Jersey, the State allocated about half of its funding under the 
first CDBG tranche to homeowner assurance, with the largest 
share going to what is called the ``Reconstruction, 
Rehabilitation, Elevation, and Mitigation program,'' or RREM.
    Now, some of the State's programs using CDBG funding may be 
working well, but as I hope you will become aware, the RREM 
program has not been one of them. Some initial disorganization 
may be expected in standing up a completely new program of the 
scale on a short time line in the aftermath of a major natural 
disaster. But the problems here have been much larger, lasted 
much longer than the people of New Jersey should have to 
accept.
    Major issues have been reported with the outreach, 
application, intake process, as well as customer service, 
application review, and appeals. In this century where we are 
at the cutting edge of innovation, I heard story after story of 
people having their applications handwritten and then lost 
multiple times. You would think there would be a central data 
base that is computerized so that any entity across the 
spectrum who is engaged in providing relief would be able to do 
so.
    And one of the biggest obstacles still facing many people 
whose homes were damaged in the storm is the inability to start 
construction almost 15 months later--15 months later. Because 
they have not been able to start repairs, many of these 
families are still displaced.
    As I understand it, about 12,000 applicants received 
preliminary clearance into the RREM program. Of these, about 
7,000 are now on a waiting list while about 5,000 have been 
told they are in line to receive funding pending further 
reviews.
    Of the 5,000, only about 2,700 have been told they can 
start construction. The rest, almost 10,000 people, have been 
told they cannot start construction without losing their 
eligibility for reimbursement.
    Now, the storm hit in October of 2012. The RREM program 
started accepting applications in May of 2013, closed in 
August, and now it is March of 2014. And almost 10,000 people 
have been told not to start rebuilding their homes or else they 
will lose eligibility for reimbursement. And to me that is 
simply unacceptable.
    Now, there has been a lot of misinformation, 
misunderstanding, and fingerpointing over the causes of this 
delay, so I hope you will be able to help us set the record 
straight here.
    State officials have recently been saying that the main 
cause of the delay is what they call burdensome red tape of 
federally required environmental and historical preservation 
reviews. It is my understanding, though, that HUD and the 
State's Department of Environmental Protection have worked hard 
to streamline and expedite these reviews to the point where 
they take on average about 2 to 4 weeks. The longest I have 
been told is that they take at most 6 to 8 weeks.
    So question number one, is that your understanding as well 
as to how long these reviews are taking to complete on average?
    Mr. Donovan. You are exactly right, Senator. In fact, our 
most recent information is that the typical review is now down 
to about 2 weeks and that the most complex ones are now down to 
about 6 weeks.
    Senator Menendez. OK. So 2 weeks on the typical and 6 weeks 
on the max. Now, this accounts for only a few weeks out of the 
many months that people have been waiting since the RREM 
program was supposed to start processing applications. Is it 
correct that once a homeowner gets these environmental and 
historical preservation reviews completed, they can start or 
continue to rebuild their home without jeopardizing their 
eligibility for Federal reimbursement?
    Mr. Donovan. You are correct, Senator, and I would add that 
you raised this concern with us early on. We have never before 
allowed that sort of reimbursement to happen. But because of 
your advocacy, we did make that available in this case after 
Sandy.
    Senator Menendez. So if the State is requiring homeowners 
to submit other documentation such as ``substantial damage 
letter'' that may be taking a long time to obtain or is taking 
a long time to process their applications to decide how much 
funding they will receive, the homeowner can start rebuilding 
while all of this is going on as long as they have completed 
the environmental and historical preservation reviews, which 
take, as you say, normally 2 weeks, a maximum of 6 weeks. Is 
that a fair statement?
    Mr. Donovan. That is correct.
    Senator Menendez. So right now I understand the State is 
not even starting environmental reviews for people until it 
has--my time is not up yet.
    [Laughter.]
    Senator Menendez. That is one of the benefits of being the 
Chairman. I understand the State is not even starting 
environmental reviews for people until it has completed and 
signed off on all other documentation, a process that for many 
people has been taking months. I am told that some parts of 
this process, such as determining the scope of work, may be 
necessary for some environmental reviews. But these steps do 
not seem to be the biggest sources of delay.
    Wouldn't it be a better idea to have the environmental and 
historic preservation reviews happening as early as possible in 
the process so that people can start rebuilding rather than 
making them complete the most time-consuming steps first when 
these steps are not even necessary for environmental reviews?
    Mr. Donovan. That is certainly an option that is available. 
There is no restriction at the Federal level from them doing 
that. The only risk from that perspective is that you might end 
up paying for an environmental for a family that is later 
determined to be eligible--to be ineligible, excuse me.
    Senator Menendez. All right. So let us go to that. So, in 
other words, it is not the environmental or historical 
preservation requirements that are slowing things down, because 
if it was just those, people's wait time would be 2 to 6 weeks, 
not 7 to 10 months and counting. The bigger problem seems to be 
making people complete other time-consuming steps first.
    So in this regard, my office has been in contact with State 
officials about this issue, and the State has told us that they 
are afraid to go ahead with environmental and historical 
preservation reviews until they have completed all other steps, 
including making a final determination that a homeowner is both 
eligible for funding and that the State has funding available 
for the homeowner. They said they are afraid that if they pay 
for environmental and historical preservation reviews for 
homeowners that ultimately do not receive funding for other 
reasons, they are afraid that HUD might penalize them or make 
them repay the money.
    Are the State's concerns legitimate? Would you penalize the 
State for front-loading the environmental and historical 
reviews for preliminarily approved applicants so they could 
start rebuilding again?
    Mr. Donovan. There is no restriction on making that choice 
by the State. That is a program design issue. The risk for them 
is that they may end up performing environmental reviews for 
families that are determined later to be ineligible. We would 
allow them to cover those costs, but instead of being taken out 
of the project delivery costs, they would be required to pay 
them out of the program administration costs, which are capped 
at 5 percent of the total award. So that is the risk to----
    Senator Menendez. And even those 5 percent are Federal 
dollars, are they not?
    Mr. Donovan. That is correct.
    Senator Menendez. So the bottom line is I am being told--
and I listen to family after family--that, you know, the State 
will not do the environmental and historical review, which your 
testimony says is 2 weeks, average, 6 weeks, you know, in the 
more extensive context, and that they will not do it because 
they are afraid of being penalized--although I think the 
universe of how many people they would find in that is 
relatively small. And your testimony is they would not be 
penalized, they would just have to take it from an 
administrative pot versus a program pot. Is that a fair 
statement?
    Mr. Donovan. If there were funding available there. There 
is a cap of 5 percent on that pot.
    Senator Menendez. OK. So the bottom line is, well, you 
know, I guess--well, I guess maybe we should not do any more 
advertising and look toward the next round of tranche and say 
that we need to ultimately buildup the overall amount so that 
the 5 percent is bigger.
    You know, the bottom line is there are people who have been 
out of their house for a year and a half--a year and a half--
and many who have applied for this program 10 months ago and 
had to start rebuilding when they submitted their application 
and who have since been penalized only because they applied as 
early as possible. So I hope that we can--and I know that your 
rebuilding strategy task force report, which you testified 
about in this Subcommittee last September, included as one of 
its most important recommendations finding ways to improve 
Federal, State, and interagency cooperation, and to streamline 
and harmonize review processes like this to cut red tape and 
unnecessary delays. I think this is a prime example of an 
opportunity to cut red tape that can have a tangible impact of 
making people's lives better, because there is no reason to 
take the one item that is essential to be eligible, which is 
the environmental and historical review, and back-end it 
instead of front-end it and be able ultimately to have the 
wherewithal to know that you can move forward. So I hope that 
this record makes it very clear to the State that it is their 
choice in their program design.
    One other issue before--I see Senator Schumer has arrived, 
so I have a whole bunch of issues, but let me just go to this 
one. How are we going to review as we look at this next 
tranche--you know, as one of the Members here who fought in the 
midst of a fiscal cliff, the end of a congressional session, in 
the midst of the worst natural disaster at least my State ever 
had, to get the money, I look at this issue of how the State 
spends it as an important one, and I look at what the State did 
with a vendor called HGI. When people whose homes were 
destroyed do not understand how to apply or what documentation 
to provide and had a very hard time getting helpful answers 
when they had questions, they went to intake centers that the 
State created. They faced a disorganized process where even 
after they submitted the correct documents and had verification 
that they submitted the documents, the contractors hired to 
process them often entered their information incorrectly or 
misplaced their documents multiple times--multiple times.
    When homeowners reached the application review stage, they 
were unable to get information as to the status of their 
application. For example, waiting weeks or months in limbo, 
only to find the review of their applications had not even 
started because it was missing documents the homeowner did not 
know they needed to provide.
    An independent assessment of the State's data revealed in 
January that far too many homeowners were being incorrectly 
rejected. Of the thousands or so who were denied and appealed, 
80 percent had their denials overturned--80 percent. More than 
2,000 people did not appeal and may have been incorrectly left 
out.
    It is my understanding that the State contracted out almost 
the entirety of the problematic RREM program to a company 
called Hammerman & Gainer, Incorporated, or HGI. And after 
months of what I will term as ``gross mismanagement,'' during 
which time the State denied the existence of many of these 
problems, the State finally terminated HGI's contract without 
public notice in December of last year. For less than 8 months 
of work, HGI has reportedly billed the State for $51 million of 
$68 million it was supposed to be paid over 3 years. Twelve 
percent of the way through the contract, the contractor had 
burned 75 percent of its funding, with an abysmal performance.
    Now, my question is: Are you aware of the State's contract 
with HGI and the scope of the contract? Combined, the two 
programs run by HGI were responsible for distributing almost 
half of the State's first tranche of CDBG funding?
    Mr. Donovan. Yes, I am.
    Senator Menendez. And did the State make clear to HUD the 
full scope of how much responsibility they had intended to 
outsource to HGI?
    Mr. Donovan. We were not notified in the action plan or in 
other discussions of the precise scope of the contract. We were 
aware that they planned to contract out portions of the work, 
but we did not have advance knowledge of the specific work that 
HGI would be performing.
    Senator Menendez. Do you think the State acted quickly 
enough to identify the problems in HGI's work and appropriately 
remedy them?
    Mr. Donovan. Given that we are literally as we speak 
performing a review that includes looking at that issue, I am 
not prepared to say, to give a definitive answer on that. I 
will say, Senator, that the State did set up integrity 
monitoring. They did find a number of problems relatively early 
on that I believe led to the concerns and changes that were 
made in the program. But I do not at this point have a clear 
answer that I can give you on whether that was sufficient----
    Senator Menendez. Well, as HUD is reviewing now--and then I 
will turn to Senator Schumer--its second tranche, you know, the 
law that appropriated the Sandy CDBG funding requires HUD to 
``require grantees in contracting or procuring these funds to 
incorporate performance requirements and penalties into any 
such contracts or agreements.'' So my question, which we asked 
you to review, is: Did the State officially comply with this 
requirement? Do you think the State has sufficiently monitored 
and enforced the applicable performance requirements and 
penalties with respect to HGI? And, finally, the Sandy recovery 
appropriation legislation requires the Secretary of Housing and 
Urban Development to certify in advance that a Sandy CDBG 
grantee, such as the State of New Jersey, has in place 
proficient financial controls and procurement processes. A 
report co-authored last week by Dr. Janice Fine of Rutgers 
University, who is testifying on our second panel today, 
identifies serious flaws in the State's processes for 
contractor hiring and oversight that may have contributed to 
the problems with HGI.
    So I look at this, and, yes, it is a mess that affected 
people in a way that they should not have been affected. But 
before we let that second tranche go out--and I certainly want 
it to go, but I want it to go not to end up with the same 
results--I hope that HUD is going to review whether the State 
if going to again hire a contractor. What is the nature of that 
contractor? What is the quality of that contractor? I am told 
that this HGI contractor had a checkered past in other disaster 
recovery situations. And if the State is not going to hire a 
contractor, are they going to hire up to do what is necessary 
for this? Because, otherwise, this tranche of money that we 
fought so hard for is not getting to the people who need 
relief.
    So can I elicit from you a commitment to review both what 
happened here, because it involves Federal money, and also 
moving forward, before this tranche moves forward, at least in 
a New Jersey context, that we are going to have a process that 
ultimately is going to give greater streamlining and 
responsiveness to people who are suffering?
    Mr. Donovan. Senator, you have my assurance that, as we 
complete this review, we will come back to you with our full 
determinations about that process. But I would go one step 
further. Even though those reviews are not complete, we 
identified enough concerns with the work of the contractor and 
the oversight of the State that we have worked with them and 
they have given us assurance that, as part of the second 
tranche, they will take additional steps to reach families that 
may have been left out of eligibility of being able to get 
funding using that second tranche. We will be following up with 
you in the next few weeks to give you details of exactly what 
steps those will be, depending on the specifics of the report, 
but I have that assurance from the State, and you can rely on 
my oversight to make sure that we follow through on that.
    Senator Menendez. Well, I would like to follow up on that, 
but let me turn to Senator Schumer.
    Senator Schumer. Well, thank you, Senator Menendez. Thank 
you for calling this hearing, which is so important that we 
continue to do oversight of Sandy. It was a huge amount of 
money. It was well thought out. But obviously when that 
happens, there are things that you have to do oversight with 
because there are glitches all over the place.
    Let me start with Bay Park. As you know, FEMA and Nassau 
County agreed to an $810 million package for the reconstruction 
of the largest sewage treatment plant project on Long Island. 
It is also the largest reimbursement for a sewer project in 
FEMA's entire history. But there are two missing pieces that 
are really vital that have not been part of the agreement as of 
yet. This includes the funding for necessary nitrogen removal 
and, of great importance, an ocean outfall pipe. Because if the 
raw sewage, when things overflow through storms, goes into the 
ocean, it is a lot better than going into the Great South Bay. 
It hurts recreation, it hurts pollution, it hurts fishing, and 
everything else. And my constituents strongly believe that 
reconstruction of this plant must include these two areas, and 
obviously there are CDBG and EPA loans that could help Nassau 
pay for these costs. But at the moment we have not gotten a 
commitment from the State or localities about how the costs are 
being paid for, even though it is Federal money, obviously. My 
view is this has to be funded federally. The locality cannot 
afford it, and it is a large amount. I do not think the State 
can afford it either.
    So could you please tell me what you are doing to 
coordinate the Federal, State, and local agencies to use all 
Federal Sandy relief resources so that we can get full Federal 
funding from the Sandy money of both nitrogen removal and 
particularly the ocean outfall pipe?
    Mr. Donovan. So, Senator, first of all, thank you for your 
advocacy----
    Senator Schumer. And I neglected to thank you. I think you 
are doing a great job. I am glad you are there. You are on top 
of it. You care, you know the areas. We could not have a better 
person doing it, so thank you. I neglected to say that in my 
excitement about the outfall pipe.
    [Laughter.]
    Mr. Donovan. I appreciate that, Senator. What I will tell 
you is with your urging, we have been working very closely with 
FEMA and EPA. We have brought them all together to work closely 
with the State to try to investigate what exactly can and 
should be done. We have made very clear that our CDBG notice 
and requirements, based on the work of the Sandy Task Force, 
will ensure that work gets done with greater resilience and a 
focus on environmental quality.
    And as I think you also know, we expect to get within the 
next couple weeks the final request for our plan for the second 
tranche, and we are certainly hopeful that we will see 
reflected in that potential funding for those issues.
    Senator Schumer. I hope you will let the State and 
localities know how important it is. I can tell you, as the 
author of the bill here in the Senate, along with Senators 
Menendez, Gillibrand, and--is there another Senator?
    Senator Menendez. Lautenberg.
    Senator Schumer. Lautenberg--Frank at the time. We miss 
him--that this is just the type of project we envisioned, a 
large essential public works project, susceptible to major 
flooding where the localities could never afford to step in on 
their own because it is so vital. So I hope you will push all 
of them to make this request, and I hope you would grant that 
request. I hope they fully fund it. Do you agree with that?
    Mr. Donovan. We certainly are working with them closely and 
are hopeful that these will be--these issues will be included.
    Senator Schumer. OK, great.
    Second question: Rebuild By Design, one of the things--I 
think we have done really good at creating a plan for Suffolk 
County, God forbid the next Sandy occurs, the $700 million of 
FIMP money, long awaited. I met with the Army Corps of 
Engineers yesterday, in fact, on this, Colonel Owens; talked, 
in fact, to Congressman Bishop yesterday; and we are making 
good progress on getting that money available.
    But, of course, Nassau County is also susceptible. We have 
good plans for Long Beach, which is one of the barrier islands, 
you know, going from Point Lookout to East Atlantic Beach. But 
we do not yet have a plan in place for the rest of Nassau 
County. The Rebuild By Design, which I think was excellent and, 
as you know, I urged that one of the plans at least be chosen 
that included a plan for Nassau County, Great South Bay, all 
the problems that occurred throughout the area, you know, all 
you have to do is go to places like Freeport or Massapequa and 
see the damage that occurred.
    Can you tell me the status of the selection project for the 
10 projects? Are you weighing in to make sure a protect Nassau 
County piece is done? If each little locality does their own 
piece, we will still have Nassau County susceptible to another, 
God forbid, big storm like Sandy. So we need a Nassau County 
plan. You were good enough to help us at least see that one of 
the Rebuild By Design plans included that. What is the status? 
How are we going to make sure that some of this Rebuild By 
Design money goes to protecting the Nassau County southern 
front the way we have done it in Suffolk County?
    Mr. Donovan. So briefly, Senator, on the overall Rebuild By 
Design process, final proposals will be completed by the end of 
this month. We are going to convene a jury that I will lead in 
the first week of April, and we are hopeful to make not just 
decisions about the competition but funding allocations for 
those by the end of April.
    Specifically on Nassau, again, at your urging we have 
brought together not just the State but also Long Beach and 
other localities to make sure that this is a comprehensive plan 
and that we are getting very specific input from the local----
    Senator Schumer. Good. Are you optimistic we will get 
some--I mean, we do have a plan, as I said, for Long Beach. We 
have a plan for Jones Beach, in that area. But we do not for 
the Great South Bay, and that is where all the people are. So 
are you optimistic that we can get something to protect that 
area, a comprehensive plan to cover that?
    Mr. Donovan. I am optimistic that the team is working 
closely to get a good plan. I honestly cannot tell you without 
seeing the final plan what their chances are in the 
competition.
    Senator Schumer. All I can tell you is I will be deeply 
disappointed if we do not have a Nassau County plan. That is, 
again, what the Sandy money was entitled for. We do want to 
help each little area do their own thing, but without a major 
plan protecting Nassau County, it will be vulnerable and all 
the little stuff could get washed away. OK?
    Mr. Donovan. Understood.
    Senator Schumer. So do whatever you can to make sure--I 
mean, maybe even look at that Nassau County plan now, have your 
people look, and see, if it is not quite up to snuff, what can 
be done to bring it up to snuff so we do not hear on April 
30th, well, not a good enough plan. OK?
    Mr. Donovan. Absolutely.
    Senator Schumer. Very important. OK, next, another question 
for you. Small business. Now, this is really disappointing, one 
of the areas where Sandy money has not worked very well, and 
that is in the loans to our businesses. In HUD's latest 
quarterly grant report, the reimbursements for small business 
repair program were $1.5 million out of a projected $37.5 
million. Despite these funds being categorized as urgent need, 
the progress narrative states that the majority of funds were 
used for marketing and program delivery costs.
    It has been over 18 months since Sandy. I have heard from 
small business owners who want these loans and are not getting 
them, and you are not the SBA, but you are the czar, so you 
have got the clout. In places like Freeport, Mastic Beach, 
Lindenhurst, Long Beach, Baldwin, Bay Park, Brooklyn, Queens, 
they are not getting much help here and they need it. What can 
be done to prevent more delays and to see that the money goes 
maybe in tranche two or elsewhere so that these small 
businesses have access to programs to build back their small 
businesses? I visited Island Park awhile back. Sixty percent of 
the businesses were wiped out on Main Street because of the 
flooding, and they need help for all the reasons--my dad was a 
small business man. He was an exterminator. I know how they 
struggle. And they do not have resources. They cannot build it 
back on their own most of the time, unless they have got a rich 
uncle or something.
    So could you comment on that, please?
    Mr. Donovan. Absolutely. First of all, with your advocacy 
and also Senator Menendez's, we did obviously allow businesses 
to be eligible even if they had not applied for SBA loans or if 
they had gotten an award from SBA and their circumstances had 
changed. And I will be honest, I have been surprised at the 
limited number of businesses that have come in and applied for 
the programs, not only in New York but also in New Jersey.
    We are looking at that. Specifically Mayor de Blasio is 
reviewing the programs now to look at whether there are 
additional things that can be done on economic development, and 
I think this is also a question of making sure, as we do the 
monitoring reviews that I spoke about earlier, that we are 
making sure that there is adequate outreach done on that front. 
So those are the areas that we are looking at.
    Senator Schumer. OK. One final--is that all right, Mr. 
Chairman?
    Senator Menendez. Yes.
    Senator Schumer. Thank you. This is speeding up the flow of 
money to homeowners. OK? I am concerned about the speed of 
money flowing to New York City. New York State has done a 
better job here, and about $330 million for housing rehab and 
construction has been disbursed. That is not close to all the 
money, but homeowners on Long Island, Nassau, Suffolk, are 
beginning to tell us that they are getting the money both for 
reimbursement and others, and I want to make sure they all get 
it, you know, even if their incomes are, you know, middle 
class. Nice middle-class incomes, we promised them that they 
would get money, and that was the intention of the bill.
    Unfortunately, while $330 million from New York State has 
been disbursed, the non-New York City parts, zero dollars has 
been disbursed in New York City. And to be honest, I am a great 
fan of Mayor Bloomberg, and he is a good friend, but in this 
area, in my view, their attitude about the housing money was 
not robust enough.
    I have talked to Mayor de Blasio, and he does not have his 
people in place yet. We intend to meet to discuss this to 
improve the money that flows to homeowners.
    But, in your view, why is there such a great disparity in 
getting the money out the door to the city homeowners? What 
kind of technical support and specific recommendations can HUD 
exercise to streamline the city process? And is there any 
specific instruction HUD can offer to grantees to adjust their 
program to minimize further delays?
    Mr. Donovan. So, Senator, I share your concern in this 
area----
    Senator Schumer. Zero dollars for New York City makes you 
scratch your head and wonder if something is wrong with the way 
they set it up.
    Mr. Donovan. And as you stated, correctly, this is a 
concern that I have shared for some time now. In fact, I have 
spoken directly to the mayor a couple times about this, 
including this week. He has assured me that his team is looking 
comprehensively at this process, that they will have 
recommendations for changes to speed up the process within the 
next few weeks.
    Obviously, a transition to a new mayor has meant that, as 
you said, he needs to get his team in place, but I have 
expressed my concern that we need to move this as quickly as 
possible because the money is not getting out fast enough.
    Senator Schumer. Good. And will you work with him? I think 
we are going to----
    Mr. Donovan. Absolutely.
    Senator Schumer.----need some modifications in the actual 
New York City program. You obviously want to see the money only 
go to people who need it and deserve it. You do not want to see 
duplication of dollars. If people had $80,000 of damage and got 
$70,000 from their insurance company, the only amount we want 
them to get is $10,000.
    So these are all concerns, but if you make the program so 
onerous and you have got to dot the ``I'' and cross the ``t'' 
48 times before you get a nickel, something is wrong. And I 
suspect something is wrong not just in the execution but in the 
way the city set up the program. Would you be willing to work 
with us to try to modify it so we get a careful balance here, 
not wasting any money but getting the money out to the 
homeowners?
    Mr. Donovan. We are doing weekly calls with the grantees to 
provide technical assistance. I will say on this, we do not 
have any pending requests for waivers or other changes.
    Senator Schumer. I know.
    Mr. Donovan. I believe this really is about program design 
and getting--just getting it done on execution. I do not think 
the problems here are red tape or regulations standing in the 
way. It is about execution.
    Senator Schumer. OK. Well, that is a little encouraging to 
hear. I talked to Mayor de Blasio within the last hour about 
this. He called me, which shows his concern, which I 
appreciate. And we are going to get together to figure this 
out. And as always, I know we will have your cooperation.
    Mr. Donovan. He has assured me his focus is on this as 
well, as I am sure he----
    Senator Schumer. One more quick question, with my 
Chairman's indulgence, and please give a short answer, because 
he has more to say. No, very serious. When is tranche three 
coming? What can we expect for New York State and New York 
City? And are you contemplating any local sub-allocations? You 
can answer that quickly.
    Mr. Donovan. Long story short, we are finalizing data from 
other places around the country. We want to see remaining unmet 
needs that we will get in the next few weeks from the grantees 
in their second action plans. And my hope is that we can make 
final allocations by the end of April.
    Senator Schumer. Thank you.
    Thank you, Mr. Chairman, for your indulgence.
    Senator Menendez. Thank you.
    Mr. Secretary, there are votes going on, but I would like 
to get in a couple of questions before so that we can hopefully 
excuse you and then move to the next panel after the votes.
    Going back, just to finish on HGI, you know, I hope that 
HUD is going to require or encourage the State to seek recovery 
for HGI from the problems and delays that it caused. Canceling 
the contract is not enough here. The programs HGI was hired to 
manage are at the heart of the State's efforts to help 
homeowners in New Jersey. And administering close to $1 billion 
worth of recovery money is too significant to be treated like 
some small boilerplate contract.
    So it would be mind-boggling that the company could walk 
away, get $51 million, you know, 75 percent of its contract, 
which is supposed to last over 3 years, mess it up so badly 
that it hurt people, and then at the end of the day, you know, 
we just cancel the contract and that goes good-bye. That cannot 
be the case. I assure you that will not be the case. So I hope 
that HUD in its review here is going to urge the State, because 
I just do not know how we can do that. So when you have your 
review, I will look forward to seeing whether or not there is 
going to be any urging of the State to go after the contract 
here based upon a horrendous condition.
    Three final questions. I heard from everybody, you know, 
that I have listened to, homeowners who are still trying to get 
in, they do not know where they are on the list. If I am number 
5,000 on the list, no matter how much money there is, I might 
say, ``You know what? I am never going to get it, so I am going 
to have to make a determination of what I do with my life.''
    But why the secrecy of not knowing where you are on the 
list unless you want to play with the list? So can we get the 
State to just tell somebody they are number 2,000 on the list? 
There should be transparency.
    Mr. Donovan. The State has assured us that they are now 
providing information to homeowners about their place on the 
list, so what I would suggest, if you have specific----
    Senator Menendez. Not the case. Not the case. I do not care 
what the State is telling you, because when I listen to 
something so many times, I know it just cannot be one person 
just happens to be misinformed. They tell them in tranches, 
``You are between 2,000 and 3,000.'' I want to know if I am 
2,500. I want to know if I am 2,000. I would love to know who 
the first hundred are on the list. I would like to see where 
the list was supposedly randomized. What is random? Is it 
mostly from certain parts of the State? Is it truly randomized 
in a place in which the universe is spread all over those who 
were affected by Sandy? I do not know what is the big deal. Let 
us publish the list. No personal information other than a name 
and address. This way we can determine the geographics of this, 
and everybody knows what their standing is.
    Mr. Donovan. Senator, I share your interest in making sure 
homeowners have the information that they need to move on with 
their lives, and----
    Senator Menendez. Isn't that something you can require?
    Mr. Donovan. We do not require exactly how they design 
their programs in that way, but we can work with you to 
encourage them to make this information in a way that is useful 
to homeowners.
    Senator Menendez. The list needs transparency. It is basic 
fundamental fairness to give people, first of all--and a sense 
of how the list came about, right? If it is randomized, how did 
you randomize it? Because if everything is, for example, one 
county or two counties, to the exclusion of all the counties 
that were affected, something is wrong with that.
    Speaking about challenges, I mean, you know, as you know, 
HUD is required by Executive order to work to ensure that 
recipients of Federal financial assistance provide meaningful 
access to applicants and beneficiaries with limited English 
proficiency.
    Now, New Jersey's CDBG action plan says the State will make 
key documents available in both English and Spanish, but we 
have seen specific evidence to the contrary. Of particular 
concern is the State's Spanish language Web site which failed 
to provide the same information--the same information--about 
accessing assistance to Spanish speakers as to English 
speakers.
    For example, you will see from the screen shots that we 
have here--which I am submitting for the record, without 
objection.
    The New Jersey Department of Community Affairs' Spanish Web 
site was never updated to advise people about the extended 
August 1st deadline by which applications could be filed for 
the RREM program. And the Spanish Web site is entirely missing 
information about how to appeal a rejection.
    Unfortunately, it is not just the Web site that has 
prevented people with limited English proficiency from 
accessing recovery programs. Earlier this week I met with Angel 
Mejia who lives in Ironbound in Newark with his wife and 
children. He went to the Recovery Assistance Center in Newark. 
There was not one Spanish-speaker who could help him. The only 
available person who could communicate was a secretary who was 
not trained in the details of the program. A year and a half 
later, he is still awaiting an award for his property. And that 
is just one of many stories.
    So it is my understanding that a complaint has been filed 
with HUD's Office of Fair Housing and Equal Opportunity 
alleging unequal access for victims with limited English 
proficiency. Is HUD investigating this complaint?
    Mr. Donovan. We are. We do have a formal complaint, and we 
are investigating, and I expect that investigation to be 
completed in the next few weeks.
    Senator Menendez. And can I have your commitment to keep 
the Committee informed as to the results of that?
    Mr. Donovan. Absolutely, and, Senator, I would go farther 
than that. As I said earlier, between our monitoring review and 
the review we have been doing on the fair housing complaint, we 
do have concerns, and the State has assured us through the 
second action plan that they will take steps to reach 
homeowners and businesses that may have been left out because 
of language access issues or steps of the contractor.
    Senator Menendez. All right. Then, finally, I hope in HUD's 
review there are--the second panel will have studies that 
suggest that people from minority communities, citizens from 
minority communities--African Americans, Latinos, and others--
have a disproportionate rejection rate and a whole host of 
challenges, even though they already started a challenge with 
what Sandy did to them. I hope that there will be a review of 
that as well. We need to make this program efficient, 
transparent, fair, and equitable for everyone. And I know that 
is your intention. It certainly is the Chair's intention, and 
we are not going to be happy until we get there. So I hope you 
will instruct your Department to have a review of that as well.
    Mr. Donovan. I can assure we are looking at that in great 
detail, and I want to thank you for your leadership on this 
issue, not just around Sandy but more broadly.
    Senator Menendez. Mr. Secretary, thank you for your 
testimony here today. We look forward to following up with you 
on a host of these issues. And with that, I appreciate your 
time. The Secretary is excused.
    Mr. Donovan. Thank you.
    Senator Menendez. The next panel is going to be held right 
after these votes, which, unfortunately, unless they are 
mitigated, there are about 45 minutes' worth of votes. So the 
Committee will stand in recess subject to the call of the 
Chair, at which time we will convene the second panel, which is 
testimony that we desperately want to hear.
    The Committee stands in recess.
    [Recess.]
    Senator Menendez. This hearing will come back to order.
    First of all, let me give my apologies to this panel. I do 
not control when votes take place here in the Senate--at least 
not yet.
    [Laughter.]
    Senator Menendez. And we had a series of votes on nominees 
that went on until right now, so I appreciate your willingness 
to hang in there with us because I think your testimony, based 
upon reading your written testimony, is very important, and I 
would like to get some of that on the record orally as well as 
have some conversation with you.
    Second, I failed at the opening remarks to say that I did 
invite the State of New Jersey and the Department of Community 
Affairs commissioner to join us at this hearing, and that offer 
was rejected by the State. So I do not want anybody to think 
that I did not give the State an opportunity to make its own 
presentation here, which I did.
    We now have three very important witnesses: Mayor Matt 
Doherty, the Mayor of Belmar, New Jersey, who had significant 
damage done to his community, and who has worked to rebuild it 
with a fair degree of success, but still faces challenges on 
behalf of some of his citizens. And so we look forward to 
hearing from him as the perspective of one of our mayors.
    Adam Gordon, who is the Staff Attorney at the Fair Share 
Housing Center, which has done some very significant work in an 
analysis of some of these programs and what it meant to 
citizens or where they have fallen short and raised some 
serious questions about its effect. And so we appreciate your 
willingness to be here.
    And Dr. Janice Fine, who is an Associate Professor of labor 
studies and employment relations at the Rutgers School of 
Management and Labor Relations, who I referred to earlier when 
the Secretary was here about a study that she did about some of 
the contracting and procurement processes here and the 
importance of having a greater transparency as well as 
standards.
    So as I said to the Secretary, all of your testimony will 
be fully included in the record, without objection. I would ask 
you to summarize in about 5 minutes or so, so that we can enter 
into some dialog on these issues.
    We will start in the order that I introduced you. Mayor 
Doherty, you will be first. And if you would put your 
microphone on, press the red button.
    Mr. Doherty. My first time doing this.
    Senator Menendez. That is OK.

   STATEMENT OF MATTHEW J. DOHERTY, MAYOR, BELMAR, NEW JERSEY

    Mr. Doherty. I want to thank you for the opportunity to 
share with you some of the experiences we have had in Belmar, 
New Jersey. Based on conversations with other Jersey Shore 
mayors, it seems that our experiences are similar to what other 
communities are going through as well.
    I want to first thank you and the Members of the Committee 
and the rest of the Senate and the House of Representatives for 
appropriating financial resources to both Belmar and the rest 
of the Jersey Shore since Sandy ravaged our communities on 
October 29, 2012. I know that while there were some Members who 
opposed helping us, as a collective body you supported us and 
for that we are grateful. I would also like to take an 
opportunity to thank New Jersey's congressional delegation for 
all of their hard work in securing much needed aid, 
particularly Senator Bob Menendez, Congressman Frank Pallone, 
Congressman Bill Pascrell, and Congressman Chris Smith. Having 
gone through this experience, I can tell you that without 
Federal assistance both my community, and the rest of the 
Jersey Shore, would be at risk of becoming a relic of the past. 
No State, county, or municipality could come back from a 
terrible hit like the one our communities absorbed without 
Federal assistance.
    I also think it is worth noting that there is no private 
sector solution to recovery and rebuilding from a storm like 
Sandy. It is Government, and Government alone, that makes 
recovery from a storm like Sandy possible.
    Sandy destroyed town infrastructure, businesses, and 
residential properties. I would like to take this opportunity 
to share with you our experience of working with families that 
have been hardest impacted. In addition, I would like to humbly 
offer suggestions for the future allocation for Federal 
resources for Sandy recovery based on my experiences as the 
mayor of a town that was hit particularly hard.
    We found through this process that businesses seemed to 
recover rather quickly, far more quickly than residential 
properties. We are finding that residents affected by Sandy are 
the ones having the most difficult time recovering. While FEMA 
and SBA were both on the ground after the storm for 4 months, 
it is the long-term process of recovery for many families that 
has proved to be problematic. In many communities along the 
Jersey Shore, there are still families that have been 
displaced. As of today, they have been displaced for 500 days--
500 days of stress on families; 500 days of living in multiple 
places; 500 days of living on someone's couch; 500 days of 
driving children to school 17 miles a day just so they have 
some semblance of normalcy in their young lives; 500 days of 
struggling through bureaucratic rules and regulations; 500 days 
of not knowing when, or even if, they will ever get back home 
again.
    In our small town alone, we have 90 families that have 
applied for the Reconstruction, Rehabilitation, Elevation, and 
Mitigation, also known as the RREM grant. Only one in five were 
approved and funded. The rest are either wait-listed or 
ineligible. I cannot stress how difficult this is on these 
families when all they want to do is get back home.
    I would like to share a couple examples. The first one is 
Frank Murphy and his wife who had twin babies a couple of 
months before Sandy destroyed their home. They applied for the 
RREM program and were told that once they applied, they must 
stop all construction or they will receive nothing. They were 
denied the grant and began rebuilding their house as they 
appealed their denial. Over time, their denial was reversed, 
and they were told that their grant for $30,000 would be 
funded. But now, since they started to rebuild to get back 
home, even though their grant was funded and they are eligible, 
they will receive nothing. No one from the State ever told them 
that during the appeal process they could not work on their 
house. How long should they be forced to wait to work on their 
home, particularly after being denied and subsequently given no 
timeframe for when they would hear on their appeal? The fact of 
the matter is that the Murphys are not looking to blame someone 
for the wrongful denial of their grant application; they just 
need the resources so they can get back home.
    Another example is Krista Sperra. She is a graphic designer 
who both lives in Belmar and has her business in Belmar. She is 
married with two children in grammar school. She and her 
husband paid premiums on their flood insurance every year, for 
over 10 years, before Sandy hit. Sandy brought water that 
engulfed Krista's home and surrounded her neighborhood and 
those of her neighbors for several days. After the water 
resided, she had a structural engineer look at her foundation. 
Like many in Belmar, Krista owns an old house with a foundation 
made of brick and mortar. The engineer told her that she needed 
a new foundation and that she could not do any work above the 
foundation until it was completed. She brought this information 
to her insurance company. They sent someone out to look at it, 
and they told her that all she needed to do was replace some of 
the mortar in between the bricks and she would be fine. They 
gave her $600 and told her that would be sufficient for the 
mortar. She consulted another engineer, and he told her the 
same as the first engineer: The entire foundation needed to be 
replaced.
    Krista is now suing her insurance company, displaced from 
her home and living in the third house since Sandy hit and now 
needs to find another place to live as her family will be 
moving out by the end of May. Five hundred days she and her 
family have been displaced, and she is now suing her insurance 
company as she looks for a new place to stay. All she wants to 
do is get herself and her family back home.
    These are just two of the countless stories at the Jersey 
Shore today. But I think they are both indicative of the fact 
that people are generally not interested in moving anywhere 
else. They do not want to give up on their communities; rather, 
they want to stay and rebuild. Again, they simply want to get 
back home.
    From these experiences and many others, I would like to 
offer a few suggestions on how additional Federal resources 
could be allocated for the maximum benefit to communities and 
families still recovering from Sandy.
    First, while communities are waiting for Federal funding, 
allow them to begin projects they need to recover from the 
storm and reimburse them later. This follows the current FEMA 
model.
    Second, relax rules that would make it difficult for 
families that did work on their homes right away to receive 
funding simply because they wanted to get their families back 
home. This will eliminate the disincentive for being aggressive 
about getting back home. People should still receive their 
funding, even if they did the work after the application date.
    Third, compel the National Flood Insurance Program to 
settle with clients through arbitration as opposed to forcing 
these residents to sue their insurance company. Many of these 
people have been paying premiums on their insurance for years 
in order to have help during such an emergency, and they should 
not have to sue for that coverage.
    Fourth, increase the appropriation for housing and 
infrastructure for Sandy-impacted communities. As we come to 
the end of the community development block grant allocation, I 
believe there will be a need for additional financial resources 
to assist families to fully recover.
    Fifth, and last, let us not get caught up in the blame 
game. Let all of the elected officials from the Federal, State, 
county, and municipal level work together to help middle-class 
families during this time of ongoing trouble. We have all done 
a lot these past 500 days, and now is the time to rededicate 
ourselves to ensuring that everyone gets back home.
    Thank you again for this opportunity to come speak before 
this Committee and share my experiences and suggestions.
    Senator Menendez. Thank you, Mayor.
    Mr. Gordon.

 STATEMENT OF ADAM GORDON, STAFF ATTORNEY, FAIR SHARE HOUSING 
                             CENTER

    Mr. Gordon. Thank you, Chairman Menendez. My name is Adam 
Gordon. I am a Staff Attorney with Fair Share Housing Center, 
and since Sandy hit, we have worked with impacted 
organizations, communities, and individuals to make sure that 
Federal funds for rebuilding are distributed fairly and 
effectively.
    It has been nearly a year and half--as the mayor said, 500 
days--since Sandy. But for too many people, it is as if Sandy 
just happened yesterday. According to a recent poll by Monmouth 
University, three-quarters of people impacted by Sandy in New 
Jersey say that the State's recovery process does not care 
about people like them.
    At a recent meeting on the next set of Federal funds, a 
veteran whose home was devastated by Sandy said that dealing 
with the State has been harder for him than fighting was in 
Afghanistan.
    It is an absolutely critical time for this hearing. As we 
heard earlier this morning, New Jersey is about to receive 
another $1.4 billion in Federal funds, and that allocation 
provides a singular opportunity--and for many people impacted 
perhaps the last opportunity--to get this recovery on track and 
help people rebuild.
    We appreciate the Secretary this morning announcing that 
there are going to be some important changes, which I will talk 
about in more detail later, to make sure that people who did 
not have an opportunity will be able to apply, and we really 
want to make sure that--with your help, Senator Menendez, you 
know, make sure that the details on that get nailed down and 
that this becomes effective and HUD completes its investigation 
and changes as soon as possible, because people cannot wait any 
longer and we do not want all the money to be allocated or 
spent without a fair process being put in place.
    I am going to touch on three main areas:
    First, we have talked a lot about the RREM and resettlement 
programs, and I am going to talk about both the problems with 
those programs and the disparities in those programs that we 
have already heard a little bit about this morning;
    I am going to talk about renters impacted by Sandy and how 
they have been largely left out of rebuilding;
    And, finally, making sure that the money really does focus 
on the hardest-hit communities, places like Belmar.
    First, on RREM and resettlement, as we have already heard a 
lot about, these programs are just not working the way they 
should be. We had to sue the State of New Jersey for access to 
basic documents under our freedom of information law, and only 
after that lawsuit did we find out that the State and HGI 
unfairly rejected thousands of applicants for both of these 
programs. In fact, as we already discussed and, Senator 
Menendez, as you brought up this morning, 80 percent of people 
who appealed their denials won.
    These problems hit people of every racial and ethnic group 
and all incomes. But they hit African Americans and Latinos 
especially hard. African Americans were rejected from these 
programs at two and a half times as often as white applicants, 
and Latinos at one and a half times the rate of white, non-
Latino applicants, even when you look within the same 
community.
    As we have already talked about, the whole program was 
shoddily run. Walk-in centers were located far from damaged 
communities to save on rent. In Monmouth County, the center was 
in Freehold which is nowhere near the areas of the shore that 
were impacted. Call centers were told to get people off the 
phone as quickly as possible instead of helping them solve 
their problems.
    Here is what needs to change. First----
    Senator Menendez. Sorry, what did you say? Call centers 
were told----
    Mr. Gordon. Call centers were told, actually given 
instructions to get people off the phone as quickly as possible 
and say that they were helping their neighbors, even though in 
many cases there was not actually anyone on hold. That is in a 
document that we received through our litigation.
    So here is what needs to change to fix this mess.
    First, we know that 80 percent of the people who appealed 
actually were eligible, but we also know that most people, and 
especially most African Americans and Latinos, did not appeal. 
What the State needs to do is go back and review every single 
person who was rejected and find out if they were eligible. 
People should not have to go through further paperwork and 
further bureaucracy. When you are wrong four out of the five 
times, it should be on the State and not on people who have 
already suffered so much to go through that process.
    Second--and we already heard positive news on this from HUD 
this morning--the people who were given the wrong information, 
told that they did not qualify, people given the wrong 
information on the Web site who spoke Spanish and were told 
about the wrong deadlines or that they could not appeal, we 
need a resolution to this. And we are glad to hear that HUD is 
saying this process is going to be reopened. We need those 
details to happen, and we need that to happen soon, because a 
lot of people are giving up hope because they were given the 
wrong information, were basically told the wrong information, 
especially if they spoke Spanish.
    And, finally, on this, the State promised a grant, 60 
percent of Resettlement funds and 70 percent of RREM funds, to 
low- and moderate-income homeowners. Those targets have not 
been met, and they need to be because they are the people with 
the greatest need.
    While programs for homeowners are not working well or 
fairly, in many cases renters have not gotten any money at all. 
Forty percent of all families impacted by Sandy in New Jersey 
are renters. Roughly two-thirds of African Americans, Latinos, 
and low-income people impacted are renters. But so far only a 
quarter of the money from the housing programs have gone to 
renters. We hear from people living in isolated areas in 
campers, doubled up with relatives, sleeping on couches, and 
they have no idea where they are going to be a few months from 
now. And we need to make sure everyone is treated fairly, 
renters and homeowners, based just on damage.
    And, finally, related to that, we are very concerned 
particularly for the rental programs that the two hardest-hit 
counties, Ocean and Monmouth, had between them most of the 
damage from the storm, but in the main rental rebuilding 
program, those two counties have only received about a fifth of 
the money to date. Much of that scarce money has gone to 
communities with little or no damage from the storm, places 
like Belleville instead of Belmar, which makes people actually 
impacted by the storm very angry.
    We know when we talk to landlords and developers they are 
quite willing to invest in those areas, but they need to be 
told by the State if those areas will be prioritized, and that 
is just not happening, and we need to make sure for the next 
$1.4 billion we are focusing on the areas that were hit the 
hardest first.
    The time to act is now. As I noted before, the next $1.4 
billion for many people may be the last chance. And absent that 
critical action to make sure the State actually changes things 
now, too many New Jerseyans will just never have a chance to 
rebuild and move back to their communities.
    Thank you very much for your time and inviting me today.
    Senator Menendez. Thank you.
    Dr. Fine.

 STATEMENT OF JANICE FINE, Ph.D., ASSOCIATE PROFESSOR, RUTGERS 
            SCHOOL OF MANAGEMENT AND LABOR RELATIONS

    Ms. Fine. Hello, Senator Menendez. Thank you for inviting 
us.
    I would like to first introduce Patrice Mareschal, who is 
my co-investigator from Camden, Rutgers. Thanks for all your 
help at Rutgers.
    So one thing we know, after studying the State's oversight 
policies and practices for close to 3 years, is that this is 
not an isolated problem due to emergency circumstances but, 
rather, a consequence of a deep, systemic problem many years in 
the making. If the system is already broken, it is only going 
to be worse in a State of emergency than it already is. So with 
my brief time, what I want to do is summarize some of the best 
practices in contracting, what we found to be some of the major 
issues, then describe the problems with how the State of New 
Jersey conducted contracting in the aftermath of Sandy.
    I will not use this time to make recommendations, but I 
want to say I have some to offer and would like to have that 
opportunity.
    So in a nutshell, the key to contract oversight is, first, 
well-written contracts that adequately define the 
responsibilities of the contractors and the protections of the 
State; and, second, strong, experienced, well-trained managers 
with a deep knowledge of the activities they are monitoring and 
time to do the job well; and, third, data systems that make the 
process more efficient and more transparent.
    Unfortunately, between 2004 and 2011, the size of the State 
workforce in New Jersey shrank by about 36,319, while the total 
value of contracts held steady, and in some years, especially 
in 2013, increased quite significantly.
    In all circumstances, good oversight requires strong, 
overarching institutions. The laws, regulations, and policies 
governing the process provide the foundation for oversight. The 
need for strong institutions is especially acute in emergencies 
because they exacerbate the already significant challenges of 
contract administration. So creating strong institutions 
involves: laws ensuring that contracts are managed by qualified 
individuals with sufficient capacity to engage intimately and 
over and in real time with the time with the contractor; meta 
oversight of the contracting process by the State, not just at 
the agency level but at the top of the State; appropriations 
for integrated and standardized data systems; and transparency, 
including the publication of all key documents and details.
    Prior to Sandy, we had concluded that lack of oversight had 
already had significant consequences for vulnerable people and 
for New Jersey taxpayers and was placing precious Garden State 
assets at risk. So it is not surprising to us that the State 
struggled to handle the massive relief program.
    On the surface, the State's Action Plan and Executive Order 
125 signed by Governor Christie appeared to enhance oversight 
under special circumstances. However, our findings and the 
stories that are now coming to light suggest that these paper 
requirements were insufficient, not followed well, or both.
    Executive Order 125 offered three potential enhancements to 
the existing requirements:
    First, it mandated that the comptroller preclear all RFPs 
prior to bidding. We do not know if any additional capacity, 
however, was created in the comptroller's office.
    The second enhancement was the appointment of 
accountability officers in each unit responsible for Sandy 
relief contracts. The qualifications and specific duties of 
these officers, however, are not specified. Likewise, there is 
no indication that these would be new staff positions rather 
than just titles added to already swamped staff members, which 
was what we found very often in our study.
    Finally, Executive Order 125 had a transparency provision 
that required the creation of a Web site to post contract 
information on all Sandy contracts. This Web site does, in 
fact, exist and it provides both contract documents and some 
nominal aggregate data, although I must say I learned a great 
deal more from Fair Share Center's Web site.
    The HGI contract is available on the Sandy Web site; 
however, when searching the site for the contract manager, 
clicking on the HGI contract link leads to an error page.
    New Jersey's Action Plan promised further enhancements. Two 
keys were the creation of a special division to manage the 
grant and the use of a special audit plan by the DCA's internal 
auditor. The special division was created, and some documents 
suggest it may have as many as 95 employees. What is not clear, 
however, is what roles they are tasked with. Moreover, even if 
they were all newly hired contract managers, given the sheet 
complexity and the size of many of the contracts, HGI's 
contract being a prime example, it would seem that no one 
contract manager could have adequately handled the process 
alone.
    There is little readily available information on the 
internal auditor. We do not know how many audits were 
conducted. We do not know how diligently they were done. We do 
not know what was found. We do not know the consequences. These 
are key questions.
    The State's response to Hurricane Sandy required the 
coordinated actions of various organizations who needed to be 
properly vetted to ensure they had the expertise, capacity, and 
legitimacy to support the State and recovery efforts. Certainly 
best practices suggest that contracting units must perform 
their due diligence and gather information on a contractor's 
previous record to serve as a basis for contracting decisions 
and to ensure that they do not have a prior history of poor 
performance.
    Again, on the face of it, New Jersey appeared to have made 
this part of the RFQ process, but media reports show that the 
State of New Jersey did not thoroughly vet HGI's performance 
during Hurricane Katrina. Nine years later, after Hurricane 
Katrina devastated New Orleans, claims and issues from HGI's 
services remain unresolved.
    Successful contract monitoring, the bottom line is the 
oversight requires significant managerial aptitude, including 
the ability to assess costs, identify needs, and critically 
analyze vendor strengths. No organizational chart is available 
on the Sandy Recovery Division's Web site. Therefore, we cannot 
determine whether the 95 staff were actually hired, whether 
they are contract managers, and what their qualifications and 
experiences are.
    We can surmise that the division is still without the 
required oversight capacity given the numerous employment 
vacancies at the department. From what we see, all of the 
current vacancies in the Sandy Recovery Division are for 
compliance and monitoring positions--for example, chief 
financial officer and assistant director of compliance and 
monitoring.
    Our review of the RFQ for the management and other related 
services program indicates that the State is developing an MIS 
system. It remains unclear if the MIS system has been 
adequately developed and if personnel have been trained on the 
system. This is particularly important to aid in monitoring and 
compliance since contractors were required to have data 
collection and storage systems that were compatible with the 
States.
    To bolster State capacity to oversee contracts, the State 
enacted the Oversight Monitor Act in order to prevent, detect, 
and remediate waste, fraud, and abuse. However, the State says 
that it spent 10 months training the monitors, and to date, no 
reports on the work of these integrity monitors are publicly 
available.
    Additionally, although the State required Sandy contractors 
in its RFQ to submit weekly reports on their progress, and HGI 
promised it would generate and submit a weekly report and also 
provide a monthly program status report, it did not do so for 8 
months. When copies of the reports promised in the bid were 
requested, Fair Share attorneys were advised by the State that 
they did not exist. These were essential tools necessary for 
the State to engage in oversight, and they were ignored. We 
still do not know how or why this happened.
    Despite the deeply flawed service being provided in less 
than 8 months, we now know that HGI billed the State over $51 
million, although it had proposed a 3-year contract for a total 
of $67 million. There is an ongoing dispute over at least $18 
million that HGI claims it owed but the State has not paid. 
This number may, in fact, grow significantly. HGI claims that 
the State demanded far more work than the contract originally 
anticipated, but the lack of reporting makes all of this 
extremely difficult to assess.
    Overall, our analysis suggests that New Jersey lacked the 
capacity to oversee the contracts involved in such a large and 
complex natural disaster recovery program. This lack of 
capacity was compounded by a lack of transparency.
    Thank you. I will be glad to answer questions.
    Senator Menendez. Thank you. Thank you all for your 
testimony. It raises many questions.
    I would throw this out to any one of the panel who feels 
that they can answer it. I see that as we were conducting this 
hearing, the State of New Jersey announced some change, which 
from my perspective is welcome but nowhere near resolution of 
the core issue I was raising with the Secretary about 
environmental and historical reviews as a precedent to get 
people cleared and moving on to reconstruction.
    So as I understand this change--I do not know if any of you 
have had the opportunity to see the announcement--RREM grant 
awardees--these are already people, obviously, who have been 
decided that they have qualified and they are awarded--who are 
using their own contractor can request an advance payment for 
50 percent of their RREM grant. And it goes on to talk about 
what else they can do. But that is already for someone who, as 
I understand it, has worked through the process, gotten their 
clearances, and have been an awardee. That does not deal with 
the 10,000 people I was referring to who have not been clear.
    Is that a fair statement? Has anybody been able to look at 
it?
    Mr. Doherty. I looked at the same statement, yes, Senator, 
and it is a step in the right direction. However, it still does 
not address those families that started work prior to that, you 
know, to the award. So they applied for the award. Some of them 
may have been rejected. While they appealed, they started 
working on their house because they did not know when the 
appeal period would be over. They were granted their appeal and 
said, you know, their rejection at first was wrong. But since 
they started their work after that application date, they are 
no longer eligible.
    So they are funded, but as the example I use, they will 
never receive their money because they violated that principle 
of doing work after the application date.
    Senator Menendez. That is one universe which is clearly a 
problem.
    Mr. Gordon, do you have any sense of t his?
    Mr. Gordon. Yes, Senator, I would agree that while it is 
certainly a positive step, it does not address thousands of 
people who are not in that narrow situation. I mean, you have 
to be already approved and you have to be using your own 
contractor, which is just a fraction of the people that you and 
the Secretary were discussing this morning. And we would agree 
that we really should--it is a much better use of a lot of 
these administrative funds to do those environmental 
assessments and get the ball rolling. And I think it is part of 
a troubling pattern overall. There is kind of a hiding of 
information by the State. Then when it comes to light, there is 
sort of a begrudging acknowledgment and addressing a very small 
piece of the problem, but not really addressing the full scope 
of the problem and coming up with a comprehensive solution that 
actually addresses the needs of everybody as opposed to a tiny 
fraction. I think that is true of the 80 percent rejections as 
well, that they have announced kind of after that came to 
light, 6 months after they knew about it, and instead of them 
saying, ``We knew that we were rejecting people wrongly,'' they 
hid it until we had to sue to get the information. And then 
afterwards, what they said is, ``Well, people can, you know, 
submit another appeal if they want.'' Well, again, if you are 
wrong 80 percent of the time, or in this case--I agree with the 
mayor--if you are wrongly advised--did not advise people of the 
program requirements, it should be on the State to fix that and 
to figure out a way to comprehensively fix it for everyone 
instead of just, you know, carving up tiny slices of the people 
who are eligible.
    Senator Menendez. It would seem to me that those who were 
foreclosed as a result of lack of knowledge from an appeal 
should be allowed to appeal at this point or have their files 
reviewed prospectively.
    Mr. Gordon. Senator----
    Senator Menendez. Or not prospectively. Should have the 
file reviewed by the State retrospectively as it relates to 
what they had filed in making a determination under the 
guidelines that obviously produced an 80-percent default rate.
    Mr. Gordon. Senator, I would agree with that. I think that 
the State should start by reviewing every one of those files 
and basically rerunning those applications. If at that point 
people then get a denial and want to appeal it, then they 
should have that right as well. But it should not be in the 
first instance on people to file an appeal, which, you know, 
for many people, especially lower-income people, especially 
people with limited English proficiency, can be a daunting 
process. It should really be on the State to re-review those 
applications.
    Senator Menendez. Now, Mayor, you mentioned in your 
testimony that business recovered more quickly than residential 
properties. Give us an insight as to why you feel that 
happened.
    Mr. Doherty. You know, in our case, after the storm, we 
worked very closely with FEMA. We had a real partnership with 
FEMA. And one of the things we were able to do was rebuild----
    Senator Menendez. I do not know. Are you going to give me a 
good-news story about FEMA?
    [Laughter.]
    Senator Menendez. It is not the new ``F'' word?
    Mr. Doherty. Well, I would tell you this: If it was not for 
FEMA, towns like ours and the rest of the Jersey Shore would 
have a virtually impossible time cleaning up and rebuilding 
what was there before. So in our case, the important thing for 
our town was to rebuild our boardwalk and, you know, you were 
able to be there for our grand opening just before Memorial 
Day. By being able to rebuild our infrastructure, we knew that 
tourists were going to come for the summer season. So it 
incentivized business owners who worked with the SBA and also 
had insurance money through business interruption insurance to 
get back on their feet.
    So we had the same amount of businesses in our community 
for Memorial Day as we did the day before Sandy struck. So all 
the ones that were devastated were able to get back. They were 
incentivized through the work we were able to do because of 
FEMA and also because, you know, as you know, Senator, at the 
Jersey Shore virtually all the businesses are small business 
owners. This is how they make their livelihood. There are no 
large corporations outside of Atlantic City. So if they were 
not up and running for a summer season, it would have been 
devastating to their financial situation, which ultimately 
would have led to, you know, a deterioration in the community 
as businesses would fail and you would have more vacant stores 
down the road.
    Senator Menendez. One other question for you. Do you 
believe that the way the CDBG funding has been prioritized 
meets the needs of your constituents? Or are there some needs 
that you are afraid may not be met or you have a different idea 
beyond obviously you have made a very clear point about those 
who started and got denied and should be eligible? Is there any 
other universe of CDBG as we look at the second tranche of 
money that should be considered.
    Mr. Doherty. There are two. And to separate them, one is 
for infrastructure, municipal infrastructure, government 
buildings, and the other one is for housing, for individual 
residential properties.
    For the first one, our concern is because of the LMI 
requirement that some of that money will not actually go to 
towns like Belmar or Sea Bright or Seaside that are not LMI 
areas, up on the beachfront. So where the waves actually came 
ashore, where they destroyed pavilions and other 
infrastructure, that those dollars will actually go westward, 
off the short, to LMI census tract communities. So that is on 
the community side.
    On the residential side, our fear is that the money is 
going to run out before the residents who were directly 
impacted are able to get back home. You know, that is not as 
much of an LMI concern. It is just the fact that the 
appropriation that came out, as large as it was, was spread 
over multiple storms. It was not just spread over the impact of 
Sandy, particularly in New Jersey. So one of our suggestions, 
which I know it is very difficult to do in today's political 
environment, would be an additional appropriation through CDBG 
for residential properties, particularly those folks that are 
on the wait list, that may be on a wait list a year from now. 
And, again, remember, the way the guidelines work is if you are 
on the wait list and you start work on your home, you are no 
longer eligible for that. And, again, we are on Day 500 of this 
storm, and some people have not started working on their home 
at all.
    Senator Menendez. Well, that will be a challenge, although 
maybe one we will consider undertaking, but we are going to 
have to get it right for the money that exists before we can 
make the case for the next tranche of money beyond the $1.4 
billion.
    Mr. Gordon, as you stated in your testimony, your 
organization had to sue the State for access to data on 
recovery programs, and you made that determination that almost 
80 percent of the people who appealed had their rejections 
overturned. The State contends that for the 80 percent that won 
their appeals, this problem has been corrected and people were 
not substantially harmed. What are your thoughts on that 
assessment?
    Mr. Gordon. Two responses, Senator. I think the first is 
that, you know, as you actually mentioned before in the 
colloquy with the Secretary, we are concerned about people are 
prioritized in RREM. We are concerned about why people are 1st 
or 1,000th or 7,000th on the wait list. And one of the things 
that we are looking into now is whether people who appealed 
were put back in the same place that they would have been if 
not for the State's error or whether they are going to the 
bottom of the pile.
    It is very hard to determine that when people do not even 
know where they are on the list, so it is kind of a chicken-
and-the-egg-type analysis. But it is a concern that they may 
have been disadvantaged in some way because the State unfairly 
rejected them.
    But the broader point is that only about a third of the 
people who were rejected appealed. Two-thirds of the people did 
not appeal, and that number is even higher for African 
Americans and Latinos who appealed, and lower-income people, 
all of whom appealed at lower rates. Not surprising for Latinos 
given that there is no information on the Spanish language Web 
site about appealing at all.
    And so we really are particularly concerned, and, again, I 
think the solution is for the State to affirmatively re-examine 
every rejected application, that that did not actually help 
most of the people who were denied.
    Senator Menendez. Do you believe that the appeal process 
was clear and easy for people to understand?
    Mr. Gordon. No. There were a number of problems with the 
appeal process. Again, if you were looking at a Spanish 
language Web site, you did not even know that there was an 
appeal process. But people were bewildered by the appeal 
process because, again, with the lack of transparency, people 
did not even know why they were denied. And so they were asked 
to submit information about why the decision was wrong when 
they did not even know what the decision was. And so people 
were very much perplexed by this process.
    Another real problem that we saw was that there actually 
are a number of things that you can appeal. It is not just 
whether you are accepted or denied. It is also the amount of 
the award. We hear a lot of complaints from people who say the 
RREM award--``We really need $100,000 to rebuild,'' and they 
are saying, ``We can only give you $20,000.'' The State, until 
last month, after we publicized it, never put on their Web site 
that there is an appeals process for other issues like that. 
And so they only put an appeals process there for whether you 
were rejected. And so there is a lot of information--a lot of 
other things about appeals that the State did not even tell 
people were possible.
    Senator Menendez. And one more line on this line of 
questioning. Can you talk a little bit about your efforts to 
gather information on this effort about how we minimize the gap 
in appeal rates between homeowners? Particularly you mentioned 
the disproportionate reality among Latinos and African 
Americans. Can you talk a little bit about your efforts to 
gather information on the program and whether or not this was 
an open and transparent process? And what--well, let us start 
there.
    Mr. Gordon. Well, Senator, as you have already referred to, 
we did have to sue in order to get this information, and that 
is particularly disturbing in light of how quickly this process 
is moving and how urgent people's needs are.
    You know, we initially asked for this basic information on 
July 31st. The State asked for a 30-day extension. We had not 
gotten it at the end of that process, and they asked for even 
more time. And so at that point we sued, and we filed our 
lawsuit in early September, and we did not get the information 
until late in November. So that was 4 months from asking for 
the information to getting it.
    And then based on what we saw there, there was subsequent 
information that we then had to additionally request and 
required additional extensions and threats of lawsuit.
    So it has been a very untransparent process, and, you know, 
if you think about how hard it is for a legal organization to 
get this information with being able to sue and so on, how much 
harder it is for individual people who have been displaced, who 
cannot find out even basic information like where they are on 
the wait list, why it is that they are that sort of number, why 
haven't they gotten any money. So I think it is----
    Senator Menendez. Am I missing something? Maybe to you and 
Dr. Fine, am I missing something here? Why is it such a big 
deal to have the transparency of having the list published or 
available or online and you go and you find out, I am Joe Schmo 
and here is my number on the list? Is there some harm that is 
created by that process?
    Mr. Gordon. Absolutely not. And I think more generally it 
is incredible how there is nothing online or easily available 
through a phone.
    Another thing, with those call center records, people were 
actively told who worked at the call centers not to tell people 
their application status when they called in.
    Senator Menendez. How do you know that?
    Mr. Gordon. We got it through the litigation, the 
instructions that were given to people working in the call 
centers.
    Senator Menendez. This is HGI?
    Mr. Gordon. From HGI, yes. And one of the things they said 
is that, ``You have something in front of you on the screen 
that says the application status. Do not give that to the 
person who is calling in.''
    And so not only you could not call, you could not go online 
and find out where your application stood, it still is the case 
that you cannot really get that information. And I see--what 
you suggested before, I mean, even if there were privacy issues 
with listing people's names, there is a unique application 
identification number that is private for everybody. You could 
just post a list from 1 to 7,000 or whatever of those people, 
of people's application numbers. I do not know why that is so 
hard.
    Senator Menendez. It is pretty amazing to me.
    I want to turn to Dr. Fine, but I have one final question 
for you. I understand your organization's analysis of the State 
data found that, as we have talked about, African Americans and 
Latinos being rejected from the largest program at 
disproportionate rates. I also understand while you controlled 
the data for geography, your analysis does not necessarily 
control for every factor that would explain some other 
disparity, such as an individual's level of damage suffered by 
each applicant. And these initial findings certainly, at least 
to me, suggest a need for further investigation. Even if there 
was no intent to discriminate, a disparate impact could still 
be cause for concern.
    Has the State provided to you additional data needed to 
complete a deeper analysis?
    Mr. Gordon. We have recently, Senator, gotten some 
additional data from the State, and we have used, as you 
mentioned, that data to look at geographic concerns. And even 
when you are in the same municipality--we looked at Atlantic 
City, for example, a very hard hit, very diverse municipality. 
And even within Atlantic City, there is a very large disparity. 
You see these disparities persist in the same place.
    I also think that there is a problem--if you match up the 
State saying things like, well, you cannot control for the 
damage data, and this came from disparities in damage data; but 
then they have also admitted that the data they were relying 
upon was incorrect. And so I think there is a link between 
those two things, between the 80-percent appeal success rate 
and the differences in rejections. I think for some reason that 
damage data was particularly faulty in Latino and African 
American communities. Why that is I think we still have not 
quite gotten to the bottom of, and we are still going to be 
requesting even more information from the State and hopefully 
HUD through its review that it discussed this morning.
    Senator Menendez. Have you shared your initial findings 
with HUD for their review?
    Mr. Gordon. We have shared our initial findings in the data 
that we reviewed with HUD, and we hope that they will review 
those and require significant changes to address those 
problems.
    Senator Menendez. OK. And one last--I keep saying ``one 
last question,'' but I just want to make this record as replete 
as possible so I can have action items to follow up on.
    Is the State aware of your overarching list of 
recommendations? And have they indicated any willingness to 
address those concerns?
    Mr. Gordon. The State should be aware because we released 
them publicly in a report on January 15th. We also submitted 
extensive comments with over 70 other groups, such as the 
Latino Action Network, NAACP, Housing and Community Development 
Network, a number of faith-based organizations and communities 
that are impacted, a wide range of groups. We submitted those 
comments to the State earlier this month, and so we have been 
very public about what our recommendations are. Unfortunately, 
we have not gotten a response to that from the State, and 
generally we have found it to be very difficult to get any kind 
of response for the State.
    Senator Menendez. Have you had any sit-downs with any of 
the State officials?
    Mr. Gordon. We have, but it has been quite a while since 
that has happened.
    Senator Menendez. OK. Dr. Fine, let us start with a series 
of things I want to ask you about. Number one, based upon the 
standards you described should exist in your testimony, 
evidently those standards were not--HGI was not held to those 
standards. Is that a fair assessment?
    Ms. Fine. Yes, I think so.
    Senator Menendez. And do you believe that it was a lack of 
enforcement of standards or a lack of personnel, which you also 
described as a challenge to pursue the enforcement of those 
standards? What would you say--I know you are not privy to all 
the information on HGI, but from what we know publicly, what 
would you ascribe to some of the challenges of having a 
contractor that was administering nearly $1 billion of program 
money, the overwhelming majority, gets $50-some-odd million up 
front for 7 months worth of work when the whole contract was 
going to be a little over $60 million for 3 years, and then 
gets fired? Evidently something in the process here went wrong.
    Ms. Fine. That is true. So I guess what we would say is, 
the first problem we would say is the State did not perform 
adequate due diligence. The RFQ called for contractors to have 
a history of successful professional engagements in disaster 
recovery. This was not the case with HGI whose handling of 
Katrina in New Orleans drew significant negative press and 
public discontent.
    Problem two, the State did not have a process to ensure 
weekly and monthly reports were submitted. We do not know why 
that is, but HGI should not have been allowed to operate for 8 
months without submitting weekly or monthly reports. The State 
continued to allow HGI to operate unmonitored during what has 
been described as a critical period. This is particularly 
problematic because the State essentially could not correct 
early implementation and execution flaws, which eventually led 
to widespread systemic failure in the recovery programs.
    Problem three, either the RFQ did not adequately specify 
the scope of work to be performed, or HGI did not fully 
comprehend the contracting unit's requirement. Either way, 
there seems to have been a total and complete breakdown in 
communication between the contracting unit and HGI. This could 
have been prevented with a more relational contracting 
approach, which basically means that you have got to be in 
real-time, regular relationship and communication with your 
contractor. Someone has got to be--you know, just when the 
State contracts--when the State lets a contract, it does not 
absolve itself of responsibility to manage the contract.
    Senator Menendez. That is a point I wanted to get to. So 
while we can have a debate about privatizing any service, even 
if you choose to privatize that service----
    Ms. Fine. That is right.
    Senator Menendez.----as you did with HGI, it does not 
absolve the State of oversight responsibility since the entity 
receiving the money from the Federal Government is the State of 
New Jersey, not HGI.
    Ms. Fine. Exactly. Exactly right.
    Senator Menendez. So you said you had a list of 
recommendations to make that you did not get to in your oral 
testimony.
    Ms. Fine. Yes.
    Senator Menendez. I would be happy to entertain some of 
those now.
    Ms. Fine. OK. So the overarching lessons is that these 
grants represent enormous increases in the expenditures of 
relevant State agencies, because so much of the services are 
carried out by contractors, they will dramatically increase the 
burden on States' existing oversight capacity. So I just want 
to make this clear, that when we let a contract, we build in 
the cost of the contract itself, but we do not think about the 
cost to the existing State agency that is going to have to 
oversee the contract. This is an endemic problem. This is what 
we found across the board in New Jersey, and it was absolutely 
critical here, right, that if you are going to all of a sudden 
get this huge raft of money at a really incredible difficult 
moment, you have got to make sure that you shore up the 
agencies that are going to be responsible. In this case, that 
was DCA.
    So because so much of the services are carried out by 
contractors, you have got to make sure that the State's 
existing oversight capacity is increased. So if you want to 
make sure Federal resources are not wasted and citizens are not 
harmed, you have got to make sure the State ramps up oversight.
    So here is just five quick things that we would suggest to 
HUD in terms of requiring of New Jersey's kind of next phase.
    One is they have to have a showing of sufficient resources, 
which would mean three things: the existence of enough contract 
managers to properly manage all the contracts. There is a 
really good OMB standard for how many contractors--how many 
personnel you need to manage contract personnel. So we know 
some of that, and it is actually in my testimony. I would be 
happy to talk to you more about it. So the existence of enough 
contract managers to properly manage them; detailed 
qualifications about those managers, demonstrating their 
substantive expertise; and, the existence of systems that will 
be used to allocate managers and facilitate contract 
management.
    All contract managers should be civil servants and cannot 
be subordinate to the contractors. New Jersey's Action Plan is 
not clear on all these points. The mention of 50 employees in 
DCA's new division would not be sufficient as it does not 
demonstrate what they will be doing or what their 
qualifications are. So that is the first thing.
    And we would add, we should have whistleblower protections 
for--we are recommending at the State level that anybody who is 
managing these contracts, anybody who works for the contractor, 
more importantly, anybody who works for a State agency who is 
managing a contract should be covered by whistleblower 
requirements, also for quality of service. Right now in the 
State of New Jersey, only nurses, if they complain about the 
quality of service, are protected by our SEPA. It should be all 
employees. And, again, we say this in our study, and I would be 
happy to talk to you more about it.
    So the second is transparency, that States should be 
required to show in detail how they make critical information 
beyond just the contract documents and broad, aggregate metrics 
publicly available. Let me just say again, some of the Web 
sites, both on Sandy and in general in the State of New Jersey, 
they look good, but when you dig deeper, they are all aggregate 
statistics. You cannot really use them unless you can do what 
Fair Share did, right? Unless you can just keep coming back 
over and over again, suing over and over again. A lot of the 
data is not there. So it needs to show how grant funds will be 
allocated for data colleague management and publication. The 
transparency needs to be improved.
    The third is voice. Information will be more meaningful if 
it is actionable. It will also be more available if parties 
with knowledge feel comfortable disclosing what they know. So 
the first piece is whistleblower protection, as I mentioned.
    And the other thing I wanted to say is I do not believe 
hotlines are sufficient because that is for individuals. I also 
think that we need to have strong voice provision through the 
establishment of community-based oversight committees, right? 
So that you bring stakeholders together and give them a voice 
and make them feel like they could ask questions. I mean, we 
know that people are more likely to step forward with problems 
if they feel they have an option to do that in a group, not as 
an individual. So some kind of community oversight committee.
    Next is meta oversight. The State should be required to 
identify clearly how it will handle the complexity of the 
process. It cannot be enough to say that there will be a new 
office within the executive branch or that watchdogs will look 
at all contracts. The plan must be clear, specific, and 
comprehensive, and take into account the increased burden 
imposed by emergency grant distribution.
    And, finally, you spoke earlier in this process about how 
do we recover what we have already lost. Right? So what do we 
do about the $51 million? How do we recover? So one of the 
things that we looked at was that in the contract with HGI, 
``The agency shall retain 10 percent of each invoice 
submitted'' is weak language. We need strong language about how 
the State can claw back funds from contractors when those funds 
are not--you know, when they are mismanaged. So in our overall 
review, in our review of Sandy, the State's inability, 
incapacity, or unwillingness to recover lost or wasted funds 
was a key problem. States should be required to demonstrate:
    One, that they have given themselves maximal legal 
authority to recover funds from underperforming or fraudulent 
contractors;
    Two, that they have people and systems in place to do it. 
An example would be the specific language that will be included 
in an RFP or an RFQ: to allow the State to withhold payment or 
require a performance bond rather than having to litigate to 
recover money after the fact. Provisions are not sufficient, 
however, which is why the people and systems have to be in 
place.
    Senator Menendez. Well, I appreciate those recommendations. 
We will be looking at them and seeing how we can implement some 
of this as we look at the next tranche of money.
    One final question for you. There is an indication now--I 
do not know if this is fact yet, but there is an indication 
that the State may now move not to a contractor but to do it 
themselves. If that is the case, then I assume that your 
statements about personnel will be even more significant if 
they are looking to do it themselves.
    Ms. Fine. You know, I will just say that in the 3 years 
that we did this study, one of the things that was so striking 
and so inspiring is that when you--at one point I did a whole 
bunch of interviews with New Jersey Turnpike workers, and this 
was at a time when, you know, the toll collectors were being 
beaten up and, you know, the turnpike, there was all this 
discussion about privatization. And one of the things that was 
so striking was these people woke up every morning worrying 
about the turnpike. On a snowstorm day, they knew every exit, 
they knew every toll, they knew every booth. You know, that is 
what we want, right? We have had enormous attrition of people 
who are deeply committed to the Garden State and to excellence 
and who know their area really well--ecologists who got turned 
on in the 1970s and then went into DEP and care about, you 
know, preserving native species, right?
    What we had was a State full of people like that, and what 
we have got now is a State that has been--you know, where the 
attrition has just decimated these civil servants, and we need 
to rebuild a core of State contract managers. We need to lift 
them up. We need to be proud of them. We need to ensure they 
get the training they need. And this is an opportunity to start 
to rebuild that core. This is an opportunity to take some of 
the best and brightest that are coming out of Rutgers and other 
schools, to hire some of the people, to move some of the people 
up who are already there, who know their area. Right? It is not 
enough to say, ``Oh, well, let us get people who know contract 
management.'' We need people who know contract management and 
know these substantive areas. We once had them. We need to have 
them again.
    So the idea of doing this directly through the State--you 
know, it never made sense to me. We could not understand when 
we were studying this, we could not understand why the State 
had not considered managing some of these programs themselves, 
right? Or contracting out less and doing more inside. And, you 
know, we believe there are perfectly appropriate moments for 
contracting, right? And certainly all of this work could not 
have been done internally. But there was never a serious 
consideration and a serious cost accounting done of what it 
would cost to expand the State's in-house capacity to do it 
versus to do it outside, right?
    And what studies show frequently is that the reason why so 
much insourcing is happening at the municipal level is because 
the quality of service went down, right? That one of the major 
reasons mayors bring work back in-house that they had 
contracted out was because of quality of service, among other 
reasons.
    So we know this from the municipal experience, and yet it 
seems that at the State level we have to learn it all over 
again, which should not be the case.
    Senator Menendez. Well, I guess it does not take a rocket 
scientist to figure out that if you are going to now perform 
the same functions that you gave a contracting company $50-
some-odd million to do and you are going to do it in-house, 
that you are going to have to have the human capital in order 
to do that that can execute well.
    I appreciate all of your testimony and answers to 
questions. It has been incredibly helpful as we devise what I 
expect will be both follow-up and an action plan.
    This record will remain open until the close of business 
tomorrow, and with the gratitude of the Committee, this hearing 
is adjourned.
    [Whereupon, at 1:10 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
                  PREPARED STATEMENT OF SHAUN DONOVAN
         Secretary, Department of Housing and Urban Development
                             March 12, 2014
    Chairman Menendez, Ranking Member Moran, and Members of the 
Subcommittee, thank you for the opportunity to testify today regarding 
the ongoing effort to recover and rebuild in the region impacted by 
Hurricane Sandy in October 2012, including efforts to ensure strong 
coordination among Federal, State, and Local stakeholders.
    Because Sandy was one of the most devastating and costly natural 
disasters in our history, the President recognized that the response 
required an additional focus on rebuilding efforts coordinated across 
Federal agencies and State, local, and Tribal governments to 
effectively address the enormous range of regional issues.
    On November 15, 2012, President Obama announced that I would lead 
the coordination of Federal support to the long-term rebuilding effort. 
The President issued Executive Order 13632 on December 7, 2012, 
establishing the Hurricane Sandy Rebuilding Task Force, and appointed 
me to serve as its chair. Executive Order 13632 charged the Task Force 
to ``work to ensure that the Federal Government continues to provide 
appropriate resources to support affected State, local, and Tribal 
communities to improve the region's resilience, health, and prosperity 
by building for the future.''
    My responsibilities in this role occurred in concert with the 
National Disaster Recovery Framework (NDRF) and involved coordinating 
closely with the Federal Emergency Management Agency (FEMA) and the 
other agencies involved in recovery efforts.
    Sandy and the Nor'easter that followed had immense impacts across 
much of the eastern United States, with damage most severe in New York, 
New Jersey, Connecticut, Rhode Island, and Maryland. Within the United 
States, the storm caused over 150 fatalities, major flooding, 
structural damage, and power loss to over 8.5 million homes and 
businesses, directly affecting more than 17 million people as far south 
as Puerto Rico, and as far north as Maine.
    Sandy caused tens of billions of dollars in damage and is estimated 
to be the second most costly storm in American history. Thousands of 
businesses and more than 650,000 homes were damaged or destroyed. 
State, local, and Tribal governments are addressing damage to roads, 
bridges, mass transit, and other essential infrastructure, including 
electrical and water treatment facilities, public hospitals, and 
shorelines.
    As I have previously explained to this Committee, in addition to my 
concern as a citizen and as a member of this Administration, this is 
personal to me. I grew up in the region. I was born and raised in New 
York and worked on housing issues there, including serving as Mayor 
Bloomberg's Commissioner of the New York City Department of Housing 
Preservation and Development. I also worked on housing issues for 
Prudential Mortgage Capital in New Jersey, and my wife is originally 
from New Jersey. Many of my friends have been directly affected by the 
storm's devastation. In light of my deep roots in the region, I am 
particularly concerned with the devastation that Sandy has caused, and 
I am especially honored to have the opportunity to help with recovery 
and rebuilding efforts.
    I have seen much of the damage first-hand, talked with State and 
local officials and citizens living with the aftermath of the storm, 
had discussions with Senators and Representatives from the area, and 
have met with other Federal officials working on the recovery effort. 
Everyone involved in the recovery and rebuilding has demonstrated 
extraordinary dedication and courage.
    Just as remarkable are the actions by average people I have spoken 
with--individuals who have demonstrated a different brand of heroism by 
simply reaching out to help their neighbors, even as they were facing 
their own losses. I have seen bravery and determination that inspires 
me and my colleagues to work even harder, respond quicker, and develop 
more creative solutions.
    With that mission in mind my testimony today will cover: 1) Ongoing 
response and recovery efforts; 2) A brief background on the formation 
and role of the Hurricane Sandy Rebuilding Task Force; 3) The role of 
the supplemental Community Development Block Grant Disaster Recovery 
(CDBG-DR) funding provided by Congress; and 4) HUD's continuing role 
with respect to that funding and an assessment of the ongoing recovery 
efforts.
Ongoing Response and Recovery Efforts
    It is important to note the unprecedented cooperation that has been 
taking place since Sandy struck among Federal, State, local, and Tribal 
authorities. HUD, FEMA and other parts of the Department of Homeland 
Security (DHS), as well as the Departments of Transportation, Health 
and Human Services, Interior, Commerce, and Agriculture, plus the Small 
Business Administration (SBA) and the U.S. Army Corps of Engineers 
(USACE) and other agencies are all working together. For example, as a 
result of coordination under the National Response Framework (NRF), 
within a week after Sandy hit there were almost 11,000 National Guard 
and 17,000 Federal responders on the ground from FEMA, the Department 
of Defense, USACE, HUD, Department of Transportation, Department of 
Energy, and HHS, as well as tens of thousands of utility workers from 
across the Nation. The Federal Housing Administration and Federal 
Housing Finance Agency worked to protect thousands of families who, 
through no fault of their own, were at risk of home foreclosure as a 
result of Sandy--first by putting in place a foreclosure moratorium, 
and then by cutting red tape to offer families streamlined home loan 
modification.
    Another example is HUD and FEMA coordination to address past 
environmental permitting and review inefficiencies in disaster 
recovery. In developing our response to Sandy, HUD and FEMA recognized 
that a single Federal review, sufficient for both agencies, could 
expedite the review of housing recovery projects. To that end, HUD, 
FEMA, and their local counterparts in New Jersey and New York State 
worked together to find efficiencies in environmental review 
requirements associated with housing recovery projects that leveraged 
both HUD and FEMA funds. These efforts resulted in a process available 
to expedite recovery reviews across the Sandy-affected region that 
could otherwise be delayed by sequential and redundant review of 
housing projects.
    As of January 2014, FEMA and the SBA have served over 250,000 
households and individuals and more than 13,000 businesses. 
Additionally, 99.5 percent of Sandy-related National Flood Insurance 
Policy claims totaling over $7.9 billion have been paid out to the more 
than 143,000 policyholders who filed claims. Based on grantee reports 
as of January 31, we know that more than 19,000 households have already 
been assisted through CDBG housing programs across the region, with an 
estimated pay out of more than $478 million to beneficiaries.
    While substantial recovery efforts have been implemented across the 
spectrum of needs, recovery can never be fast enough for affected 
families, homeowners, and other victims of this terrible storm. And 
because so much of the recovery from Sandy involves long-term 
construction and infrastructure projects, work will continue for years 
to come. More needs to be done at every level. But important progress 
has clearly been made.
The Role of the Hurricane Sandy Rebuilding Task Force
    The Administration recognized that the Federal Government's 
performance during Hurricane Katrina and other disasters highlighted 
the need for additional guidance, structure, and support to improve how 
we as a Nation address disaster-related recovery and rebuilding 
challenges. In September 2009, the Homeland Security Secretary and I 
were charged with establishing a Long Term Disaster Recovery Working 
Group, composed of more than 20 Federal agencies.
    HUD, DHS, and the Working Group consulted closely with State, local 
and Tribal governments as well as experts and stakeholders, and they 
worked to improve the Nation's approach to disaster recovery and to 
develop operational guidance for recovery efforts.
    As a result, in September 2011, FEMA published the NDRF. The NDRF 
addresses the short, intermediate, and long-term challenges of managing 
disaster-related recovery and rebuilding. It sets forth flexible 
guidelines that enable Federal disaster recovery managers to operate in 
a unified and collaborative manner with State, local, Tribal, and 
territorial governments. The Sandy Task Force has operated within that 
framework.
    On August 19, 2013, the Task Force released its Hurricane Sandy 
Rebuilding Strategy. The strategy was designed to help communities 
rebuild for the future and to ensure that we evaluate future 
vulnerabilities and risk. This means building to address expected sea 
levels, storm surges and extreme heat and precipitation, which pose 
risks to the Nation. Many elements of that strategy are being 
incorporated in HUD's ongoing work with CDBG-DR grantees to expedite 
and ensure a more resilient recovery.
    The work of the Task Force ended on September 30, 2013, on time and 
significantly under budget. Going forward, HUD, FEMA and other agencies 
that perform Recovery Support Functions will continue the Federal 
rebuilding coordination efforts. There are three primary lessons that 
are guiding our efforts to support local community rebuilding efforts.
    First, it is important that both near and long-term recovery and 
rebuilding efforts start immediately following a disaster and that the 
Federal Government takes a coordinated regional approach to the 
delivery of assistance to its State and local partners. To ensure that 
this happens, HUD and FEMA are leading regional coordination efforts in 
coordination with the Federal Disaster Recovery Coordinators under the 
NDRF.
    Second, this must be an ``All-of-Nation'' approach to rebuilding. 
While the Federal Government has a key role to play in recovery, State, 
local, and Tribal governments must be the leaders in this effort. To 
ensure the Task Force's efforts maintained a local focus, we quickly 
established an Advisory Group composed of 37 elected officials from the 
Sandy affected region. We were also in constant contact with other 
State and local officials--which gave us real-time information about 
the rebuilding challenges communities faced. Now that the Task Force 
has ended, FEMA and HUD are co-leading the Sandy Regional 
Infrastructure Resilience Coordination group (SRIRC), supported by 
dedicated staff at the Sandy Recovery Office (SRO) in Queens, 
representing a range of Federal agencies. Since January, the SRIRC has 
commenced monthly meetings with the States of New York, New Jersey and 
Connecticut and the city of New York to coordinate on issues, and has 
established 10 interagency Technical Coordination Teams that will focus 
on implementing projects within 10 areas the group has identified as 
the most critical infrastructure priorities, from waste water treatment 
facilities to transportation to coastal protection. In addition, the 
Sandy teams at the SRO and at HUD are in daily contact with the State 
and City grantees.
    Third, the recovery effort must include rebuilding in a more 
resilient fashion rather than simply recreating what was already there 
so that we are prepared for future disasters. One of the most critical 
concerns we heard from our local partners was that communities needed 
clear, accessible information about current and future flood risk. In 
order to gather the best information on the risks the region faces, 
FEMA, the National Oceanic and Atmospheric Administration and the Army 
Corps of Engineers developed a tool which allows local planners and 
decisionmakers to click on a map and see projections of the impacts of 
rising sea levels as much as a century into the future. To ensure this 
science would be put into practice, the Administration established a 
single Flood Risk Reduction Standard that applied to all rebuilding 
projects funded by Sandy-Supplemental dollars.
    But we have not just armed communities with the best available 
data--we have also worked to connect communities with the most 
innovative engineering, planning and design ideas from around the 
world. That's why HUD launched Rebuild By Design, a multi-stage 
regional design competition, specifically to develop innovative 
projects to protect and enhance Sandy-affected communities. I expect 
the RBD process to come to fruition this spring and the resulting 
projects will encourage new ideas for resilient recovery.
    We have solid evidence that the risk of large scale disasters and 
catastrophic losses is increasing due to increasing development along 
our coasts and changes in demographics and climate. Investing in 
mitigation is critical not only for the future of our communities--it 
is also cost effective. The National Institute for Building Safety's 
Multi-hazard Mitigation Council has estimated that for every dollar 
invested in hazard mitigation, a savings of four dollars is achieved. 
Homeowners, businesses and other entities recovering from a disaster 
currently have access to FEMA's Hazard Mitigation Grant Funds in 
coordination with their State and local hazard mitigation plans, to 
assist in taking protective mitigation actions against future events. 
Such investments are critical in a time of constrained resources. In 
addition, it is critical to maximize the impact of every dollar of 
supplemental funding.
    To that end, the Sandy Rebuilding Strategy has outlined a process 
for coordinating infrastructure projects across the entire region by 
bringing all of the relevant Federal, State and local players to the 
table to discuss those projects and map connections and 
interdependencies between them. This process will help us save money, 
improve the effectiveness of these projects and accelerate the pace at 
which they're built. As noted previously, all major CDBG-DR funded 
infrastructure projects will be included in this process. The Strategy 
also highlights how the alignment of Federal funding and increased 
leverage of non-Federal funds for infrastructure projects are important 
to the success of disaster recovery in the Sandy-affected region.
The Role of CDBG-DR Funding
    On January 29, 2013, President Obama signed the Disaster Relief 
Appropriations Act (DRAA) of 2013. The supplemental funding bill 
included funds for FEMA and USACE projects and activities, needs of the 
Department of Transportation including the Federal Transit 
Administration, support for the Small Business Administration and its 
disaster loan program, Community Development Block Grant-Disaster 
Recovery (CDBG-DR), and funding for a range of other critical 
priorities.
    The DRAA provided $16 billion in CDBG-DR funding, reduced to $15.2 
billion due to FY 2013 sequestration, to address Sandy and other 
qualifying disaster events in 2011, 2012, and 2013. The Department has 
aggressively implemented the law and is ensuring that its requirements 
are met. Of the amount appropriated, more than $10.5 billion has been 
allocated to Sandy grantees through December 2013, and more than $2.8 
billion has been obligated, and more than $1 billion has been disbursed 
to those grantees as of March 6, 2014. HUD also has allocated an 
additional $642 million to other State and local governments to assist 
in their recovery from other major disasters in 2011, 2012, and 2013.
    Specifically, on February 6, 2013--eight days following the 
President's signature--I announced the first allocation of $5.4 billion 
of CDBG-DR funds under the Act, to five States and the city of New York 
to support their efforts to recover from the damage caused by Sandy. 
This represented the fastest ever allocation of CDBG-DR funds following 
the signing of a disaster appropriations bill.
    With this first allocation, the Department and our grantees took 
important first steps toward ensuring a more resilient and sustainable 
recovery. Grantees, for example, are now incorporating green building 
features in the replacement and construction of new housing. In the 
construction or substantial improvement of structures, grantees must 
also meet the elevation requirements of the Flood Risk Reduction 
Standard to reduce risk in the face of future sea level rise and other 
factors. This requirement addresses projected sea level rise, which is 
not considered in current FEMA maps and National Flood Insurance 
Program premiums, while acknowledging that those premiums may increase 
once FEMA issues Flood Insurance Rate maps that account for Hurricane 
Sandy.
    On October 28, 2013, I announced an additional $5.1 billion in 
CDBG-DR grants for the Sandy-affected region, bringing the total CDBG-
DR funding available there to $10.5 billion. Again, the Department 
published a Federal Register Notice that builds upon the Notice for the 
initial allocation but which also addresses grantee infrastructure 
investments critical to recovery. Consistent with the recommendations 
of the Hurricane Sandy Rebuilding Strategy, the Department's guidance 
gives emphasis to making resilient investments, by requiring grantees 
to identify and implement resilience standards in their infrastructure 
projects, including factors such as rising sea levels and future 
extreme events. We are also working closely with Sandy grantees to 
ensure that resulting projects are the product of coordinated regional 
planning efforts, meet needs identified by the grantees through 
comprehensive risk assessments, and recognize the importance of both 
natural and built infrastructure.
    The Department is well aware of the frustration voiced by many 
communities and residents over the pace at which CDBG-DR funds have 
been distributed by our grantees. However, we are seeing the pace of 
expenditures increase and it is important to understand both the 
timeline as well as what it takes to implement programs of this scale.
    With respect to the timeline, 3 months elapsed between the 
onslaught of Sandy and enactment of the supplemental appropriation on 
January 29, 2013. HUD allocated funds to Sandy grantees within days 
following enactment of the appropriation and issued guidelines 
governing the use of those funds on March 5, 2013. Grantees, however, 
had to develop plans for using the funds and submit them to HUD for 
approval. The three major grantees submitted their plans to HUD by May 
2 and HUD approved them not later than June 6. Grant agreements were 
immediately offered by HUD upon approval of the plans to enable 
grantees to access their funds. To date, some grantees have been more 
aggressive in accessing their CDBG funds than others.
    With respect to implementation it is important to note that while 
preparing recovery plans, grantees had to simultaneously build the 
``back of the house'' infrastructure to implement programs on a scale 
and at a pace they had not previously experienced. For example, in 
developing a single family housing rehabilitation program, the grantee 
must develop policies and procedures to implement the program, advise 
the public of how to apply for the assistance, open the application 
window for an adequate period of time, and then move to evaluating 
those applications and making funding decisions. Only after these 
processes occur can the grantee proceed to closing and begin to 
distribute funds to homeowners. Similar issues arise in implementing 
housing buyout programs, business assistance programs, public service 
programs and other innovative initiatives undertaken by grantees.
HUD's Continuing Role and Ongoing Efforts
    HUD continues to play a significant role in the recovery effort 
across the Administration. Since the sunset of the Task Force on 
September 30, my staff has worked closely with the Task Force agencies 
to ensure implementation of the 69 recommendations in the Rebuilding 
Strategy. We are coordinating on a daily basis with our partner 
agencies in Washington as well as with their teams on the ground in the 
region, and we have reporting and accountability mechanisms in place to 
track both implementation of the recommendations and the pace of 
spending. Further, on a quarterly basis, we convene the Sandy 
Principals to review and assess progress, ensuring that the highest 
level of leadership remains focused on the region's recovery and on 
better preparing us for the next storm.
    Collectively, and as a result of these efforts, we've accomplished 
a great deal, and implementation of the Rebuilding Strategy is on 
track, with nearly a third of the work we set out to achieve already 
complete, and much more in progress. To be clear, much of the work of 
implementing the Sandy Rebuilding Strategy is long term in nature, but 
we're making significant strides: laying the groundwork for more 
resilient infrastructure and establishing new mechanisms for 
coordination both across Federal agencies and with State and local 
governments.
    To improve transparency about the pace of spending, we recently 
announced that, in partnership with the Recovery Accountability and 
Transparency Board, HUD is now publishing State-level data on the 
status of Sandy funds across the Federal Government. This data will be 
updated monthly and is available in the form of a map and downloadable 
data files on the Sandy section of Recovery.gov.\1\ The map is shaded 
to reflect the aggregate value of awards to primary recipients in each 
State, and users will be able to click on each State to see the total 
awards and payments from each agency to recipients within that State.
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    \1\ Link here: http://www.recovery.gov/Sandy/whereisthemoneygoing/
maps/Pages/HudPmo
.aspx.
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    CDBG-DR funds are currently being invested in communities working 
toward long-term recovery. As noted above, more than 19,000 households 
have already been assisted through CDBG housing programs across the 
region, with an estimated pay out of more than $478 million to 
beneficiaries. In January, for example, the State of New York provided 
more than 2,400 homeowners on Long Island with nearly $83 million in 
assistance for house rehabilitation and repair, while New Jersey 
reported an expenditure of more than $166 million for residents 
assisted through the State's Homeowner Resettlement program. With 
grantee long-term recovery programs now in place, the pace of recovery 
dollar expenditures can be expected to increase dramatically in the 
coming months.
    Grantees are obligating funds once they've made the determination 
that they will be able to expend those funds within 2 years for 
specific activities and programs. While the Act provides a means for 
obtaining a waiver of the 2-year expenditure deadline, to date the 
Department has received no such requests from grantees, but stands 
ready to work with grantees to overcome any obstacles they may 
encounter to achieving their recovery goals. As I stated, recovery will 
never be fast enough for affected families, homeowners, and other 
victims of this terrible storm. And because so much of the recovery 
from Sandy involves long-term construction and infrastructure projects, 
funds will continue to be spent for years to come. But receiving the 
supplemental appropriation from the Congress has been critical for 
planning and commitment of funds for significant recovery projects to 
move forward.
    The Department takes very seriously its role as a steward of 
Federal dollars provided for long-term recovery efforts. HUD has 
scheduled routine onsite monitoring and onsite technical assistance at 
least twice every calendar year for New York, New York City and New 
Jersey, the three largest recipients of CDBG-DR recovery funds for 
Hurricane Sandy. The Department always has the right to supplement this 
schedule to address emerging issues as appropriate. In addition to 
these visits, HUD works closely with grantees on the implementation and 
expenditures of funds and convenes weekly teleconferences with grantees 
to discuss any issues or concerns that may arise. HUD is using well 
established practices in monitoring these funds, including using a risk 
analysis process to identify areas of concern that may warrant more 
attention.
    The DRAA also provided critical administrative funds to the 
Department to implement the law, positioning the Department to 
strengthen its monitoring of grantees' use of CDBG-DR funds and to 
provide enhanced levels of technical assistance to each Sandy grantee. 
To date, the Department has hired an additional nine term employees to 
support the administration of Sandy CDGB-DR funds. This funding has 
also allowed the Department to commit to an aggressive schedule of 
monitoring and technical assistance for each of our largest grantees on 
a quarterly basis.
    It is common that concerns are expressed as initiatives of the 
scale and scope of New Jersey's Reconstruction, Rehabilitation, 
Elevation and Mitigation (RREM) program, the State's largest CDBG-DR 
funded housing program, are developed and implemented. The Department 
uses its established monitoring and review processes to examine the 
facts and sort out the reality of claims. The Department initially 
monitored New Jersey's CDBG-DR program in July 2013 and issued one 
actionable finding related to the use of CDBG-DR funds as matching 
funds to certain FEMA programs. This finding has been resolved. HUD is 
undertaking a regularly scheduled monitoring review this week. This 
review will focus on the State's RREM program, economic development 
programs, use of CDBG-DR for tourism support and financial management. 
As a preface to the regularly scheduled review, HUD recently conducted 
a supplemental review of the RREM and Homeowner Resettlement programs. 
The Department is in the process of finalizing conclusions from that 
supplemental review and expects to provide feedback to the State 
shortly.
    The above mentioned reviews are carried out by HUD's Office of 
Community Planning and Development which has management 
responsibilities for the CDBG program and, hence, CDBG-DR funding. 
There are also other parts of the Department that have distinct roles 
as well. The Office of Fair Housing and Equal Opportunity (FHEO) has 
separate review and enforcement responsibilities related to fair 
housing, civil rights and related statutes and FHEO staff have been 
actively reviewing and analyzing the performance of Sandy grantees, 
including New Jersey. The Department's Office of Inspector General 
(OIG) was provided $10 million in additional funding under the Disaster 
Relief Appropriations Act, 2013 (Public Law 113-2) to review Sandy 
grantees and they have a multi-faceted review plan that includes both 
audits and investigations, and the Department has sought input from OIG 
in our efforts to develop policies on the front end to avoid fraud, 
waste, and abuse.
    With regard to technical assistance, CPD has provided grantees with 
a wide range of resources to assist in the design and implementation of 
their recovery programs. For example, in March 2013, HUD convened a 3-
day training session for grantees receiving funds under the Act. 
Through HUD's OneCPD Technical Assistance Initiative, HUD has deployed 
technical assistance providers, who are subject matter experts, to work 
with grantees on such tasks as developing appropriate safeguards to 
help ensure that HUD funds are being used to address unmet needs that 
have not been addressed by other sources of funding. HUD also convenes 
hour-long weekly calls with each of our largest grantees to address 
ongoing challenges and questions that arise in program implementation.
    With regard to New Jersey's proposed action plan for the second 
tranche of $1.463 billion in CDBG-DR funds, the State issued the draft 
action plan for public comments on February 3, 2014, and is expected to 
formally submit that plan to HUD for consideration within the next 2 
weeks. Given that the Department must approve the plan, we will 
carefully review the State's submission against the requirements of the 
applicable Federal Register Notices and in light of information 
gathered during monitoring reviews and technical assistance visits. A 
key aspect of this review will be an interagency review process focused 
on major infrastructure projects. To ensure a thorough and complete 
analysis, HUD is permitted to take up to 60 days to review the plans. 
To the extent that HUD identifies deficiencies in any action plan for 
these CDBG-DR funds, we have a range of options for addressing those 
concerns--ranging from informal consultations with grantees to clarify 
and resolve issues to not approving the plan and requiring revisions 
consistent with statutory and regulatory guidelines.
    Thank you again for the opportunity to testify today. I am happy to 
answer any questions you may have.
                                 ______
                                 
                PREPARED STATEMENT OF MATTHEW J. DOHERTY
                       Mayor, Belmar, New Jersey
                             March 12, 2014
    Thank you for this opportunity to share with you some of the things 
we experienced in Belmar, NJ as a result of Sandy. Based on 
conversations with other Jersey Shore Mayors, it seems that our 
experiences are similar to what other communities are going through as 
well.
    I want to first thank you, all of the Members of this Committee, 
and the rest of the Senate and House of Representatives for 
appropriating financial resources to both Belmar and the rest of the 
Jersey Shore since Sandy ravaged our communities on October 29, 2012. I 
know that, while there were some Members who opposed helping us, as a 
collective body you supported us and for that we are grateful. I would 
also like to take an opportunity to thank New Jersey's Congressional 
delegation for all of their hard work in helping to secure much-needed 
aid, particularly Senator Bob Menendez, Congressman Frank Pallone, 
Congressman Bill Pascrell and Congressman Chris Smith. Having gone 
through this experience I can tell you that without Federal assistance 
both my community, and the rest of the Jersey Shore, would be at risk 
of becoming a relic of the past. No State, county, or municipality 
could come back from a terrible hit like the one our communities 
absorbed without Federal assistance.
    I also think that it is worth noting that there is no private 
sector solution to recovery and rebuilding from a storm like Sandy. It 
is government, and government alone, that makes recovery from a storm 
like Sandy possible.
    Sandy destroyed town infrastructure, businesses and residential 
properties. I would like to take this opportunity to share with you our 
experience of working with the Federal Government and the State 
government in these three areas. In addition, I would like to humbly 
offer suggestions for the future allocation for Federal resources for 
Sandy recovery based on my experiences as the mayor of a town that was 
hit particularly hard.
    The day after Sandy stuck our community, we immediately began 
cleaning up. We started pumping water out of our town at a top rate of 
60,000 gallons of water a minute and it took 6 days to complete. In 
addition, we brought in outside contractors to begin to remove the 
debris from town, including 1.2 miles of boardwalk and 5 pavilions on 
the beach front. There was also a tremendous amount of debris that came 
out of people's homes and businesses. We made a concerted effort to 
remove the household debris as soon as possible for both health reasons 
and psychological reasons. We found that beginning the process of 
recovery as quickly as possible had the positive impact of bringing our 
residents closer together and the thousands of people who came to help 
volunteer only served to further expand the larger sense of community.
    Through all of this, we worked with the Federal Emergency 
Management Agency (FEMA) on a daily basis. They developed project work 
sheets so that we would be eligible for reimbursement of 90 percent of 
all the debris removal expenses and they helped guide us through what 
could have been a very difficult and convoluted process.
    Even while we were in the process of cleaning up the devastating 
effects of the storm we began to aggressively plan to rebuild our 
boardwalk with a goal of being completed in time for the summer in 
order to try and salvage our tourist season and pump needed tourism 
dollars into our community. We began to rebuild the boardwalk on 
January 9, 2013 and completed the project by the end of April, with a 
Grand Opening just days before Memorial Day Weekend.
    Both Senator Bob Menendez and Governor Chris Christie joined us for 
our Grand Opening. Not completing this project in a timely fashion 
would have risked the future of our 140 small businesses in town. Like 
most towns along the Jersey Shore, all of Belmar's businesses are small 
businesses owned by middle class families. By completing the boardwalk 
on time we were able to set the tone that our town would be open for 
business for the summer which, in turn, helped encourage local business 
owners to be open as well. Because of their hard work and 
determination, we had the same number of businesses open for Memorial 
Day as we did the day before Sandy. Similar to the efforts on debris 
removal, we worked with FEMA on a weekly basis and looked at them as a 
partner. They produced the project work sheets that made the rebuilding 
of the boardwalk eligible for 90 percent reimbursement and, again, 
offered us necessary guidance.
    Again, without FEMA, our town, and the rest of the Jersey Shore 
would have a very difficult time advancing toward recovery. In fact, 
without their help it is possible that vast middle class areas may have 
remained permanently stagnant, so I want to reiterate how important 
FEMA has been to our recovery.
    We found through this process that businesses seem to recover 
rather quickly, far more quickly than residential properties. This 
seems to owe to a few different factors. As I mentioned before, most of 
the businesses at the Jersey Shore are small businesses owned by middle 
class families. In most instances, these businesses are the sole means 
of income for these families. If they were unable to be open for the 
summer months, it would be devastating to their financial situation and 
would begin to negatively impact the rest of the community. Failed 
businesses and vacant store fronts lead to the deterioration of a 
community. Another factor in the timely recovery for small businesses 
in our community was the Small Business Administration (SBA). The SBA 
was quick to establish itself in the shore area (just like FEMA) and 
assisted small business owners and several business owners were 
eligible for grants to help them restock their inventory for the 
summer. An additional factor was the insurance that many businesses 
had, particularly business interruption insurance. Last, in order to 
save their businesses, many small businesses owners emptied out their 
savings, borrowed money from friends and family, and did whatever it 
took to get open for the summer.
    Unfortunately, we are finding that residents affected by Sandy are 
the ones having the most difficult time with recovery. While FEMA and 
SBA were both on the ground after the storm for 4 months, it is the 
long-term process of recovery for many families that has proved to be 
problematic. In many communities along the Jersey Shore there are still 
families that have been displaced, as of today, for 500 days. 500 days 
of stress on families. 500 days of living in multiple places. 500 days 
of living on someone's couch. 500 days of driving children to school 17 
miles a day just so they have some semblance of normalcy in their young 
lives. 500 days of struggling through bureaucratic rules and 
regulations. 500 days of not knowing when, or even if, they will ever 
get back home again.
    In our small town alone we have 90 families that have applied for 
the Reconstruction, Rehabilitation, Elevation, and Mitigation (RREM) 
grant and only 1 in 5 were approved and funded. The rest are either 
waitlisted or ineligible. I cannot stress how difficult this is on 
these families when all they want to do is go back home.
    I would like to share a couple examples, Frank Murphy and his wife 
had twin babies a couple of months before Sandy destroyed their home. 
They applied for the RREM program and where told that once they apply, 
they must stop all construction, or they will receive nothing. They 
were denied the grant and began building their house as they appealed 
their denial. Over time, their denial was reversed and they were told 
that their grant for $30,000 would be funded. But now, since they 
started to rebuild to get back home, even though their grant was 
funded, and they are eligible, they will receive nothing. No one from 
the State told them that during the appeal process they could not work 
on their house. How long should they be forced to wait to work on their 
home, particularly after being denied and subsequently given no 
timeframe for when they would hear on their appeal? The fact of the 
matter is that the Murphy's aren't looking to blame someone for the 
wrongful denial of their grant application, they just need the 
resources so they can get back home.
    Another example is Krista Sperra. She is a graphic designer who 
both lives in Belmar and has her business in Belmar. She is married 
with two children in grammar school. She and her husband paid premiums 
on their flood insurance every year, for over 10 years, before Sandy 
hit. Sandy brought water that engulfed Krista's home and surrounded her 
home, and those of her neighbors, for several days. After the water 
resided, she had a structural engineer look at her foundation. Like 
many in Belmar, Krista owns an old house with a foundation made of 
brick and mortar. The engineer told her that she needed a new 
foundation and that she could not do any work above the foundation 
until it was completed. She brought this information to her insurance 
company, they sent someone out to look at it, and they told her that 
all she needed to do was replace some of the mortar in between the 
bricks and she would be fine. They gave her $600 and told her that 
would be sufficient for the mortar. She consulted another engineer and 
he told her the same as the first engineer, the entire foundation 
needed to be replaced.
    Krista is now suing her insurance company, displaced from her home 
and living in the third house since Sandy hit and needs to find another 
place for her family by the end of May (her fourth place since Sandy). 
500 days she and her family have been displaced and she is now suing 
her insurance company as she looks for a new place to stay. All she 
wants to do is get herself and her family back home.
    These are just two of countless stories at the Jersey Shore today. 
But I think they are both indicative of the fact that people are 
generally not interested in moving somewhere else, they do not want to 
give up on their community. Rather, they want to stay and rebuild. They 
want to get back home.
    From these experiences, and many others, I would like to offer a 
few suggestions on how additional Federal resources could be allocated 
for the maximum benefit to communities still recovering from Sandy.
    First, while communities wait for Federal funding, allow them to 
begin projects they need to recover from the storm, and reimburse them 
later. This follows the current FEMA model.
    Second, relax rules that make it difficult for families that did 
work on their homes right away to receive funding simply because they 
wanted to get their families back home. This will eliminate the 
disincentive for being aggressive about getting back home. People 
should still receive their funding, even if they did work after the 
application date.
    Third, compel the National Flood Insurance Program (NFIP) to settle 
with clients through arbitration, as opposed to forcing these residents 
to sue their insurance company. Many of these people have been paying 
premiums on their insurance for years in order to have help during just 
such an emergency and they should not have to sue for that coverage.
    Fourth, increase the appropriation for housing and infrastructure 
for Sandy impacted communities. As we come to the end of the Community 
Development Block Grant (CDBG) allocation, I believe there will be a 
need for additional financial resources to assist families and 
communities to fully recover.
    Fifth, and last, let us not get caught up in the blame game. Let 
all of the elected officials from the Federal, State, county and 
municipal level work together to help middle class families during this 
time of ongoing trouble. We have all done a lot these past 500 days, 
and now is the time to rededicate ourselves to ensuring that everyone 
gets back home.
    Thank you again for the opportunity to come speak before this 
Committee and share my experiences and suggestions.
                                 ______
                                 
                   PREPARED STATEMENT OF ADAM GORDON
               Staff Attorney, Fair Share Housing Center
                             March 12, 2014
    Good morning, Chairman Menendez, Ranking Member Moran, and Members 
of the Committee. Thank you for convening this morning's hearing. My 
name is Adam Gordon and I am a Staff Attorney with Fair Share Housing 
Center, which works throughout New Jersey to ensure that people of 
every race, ethnicity, and income level, including families, seniors, 
and people with special needs, can live near their schools, jobs, and 
families. Since Sandy hit, we've worked with a broad range of community 
groups and individuals impacted by the storm to ensure that the 
rebuilding process, including Federal money available for rebuilding, 
is distributed fairly to everyone impacted by Sandy. We run a hotline 
for people impacted by Sandy and provide rebuilding information on our 
Web site and through partnerships with local community groups.
    It has now been nearly a year and half since Superstorm Sandy 
devastated communities throughout New Jersey, from Moonachie in Bergen 
County to Ocean City in Cape May County. For too many people in New 
Jersey, it is still as if Sandy happened yesterday. There are places in 
our State where street after street sits with half-destroyed homes or 
homes filled with mold, with the people who live there unsure what 
comes next for them and their families. With tens of thousands of 
renters and homeowners still displaced and wondering if they will ever 
be able to move home, many people are asking: ``Couldn't the recovery 
be going better?'' In fact, according to a recent Monmouth University 
poll, three-quarters of people impacted by Sandy believe that the 
recovery is not helping people like them. Some of the stronger 
complaints that we've heard include the veteran who said dealing with 
the State has been harder than fighting in Afghanistan and the local 
community leader who compared the programs to a shady used car salesman 
trying to figure out how to get away with providing as little aid as 
possible.
    We agree with something Senator Menendez said earlier this week: 
the most important thing at this point is not to assign blame, but 
rather to chart a path forward that fixes the problems. This hearing 
comes at a critical time: when New Jersey is about to receive $1.4 
billion in additional Federal funds. The allocation of these funds 
provides a singular opportunity--for many people impacted by Sandy 
perhaps the last opportunity--to get this recovery on track and help 
people rebuild.
    Today, we'll describe program and policy changes we and others have 
proposed to make the recovery stronger, fairer, and more transparent. 
These proposals come from us and a broad range of other groups, 
including people impacted by Sandy, civil rights groups such as the 
NAACP and Latino Action Network, business groups such as housing 
developers, the nonprofit Housing and Community Development Network, 
and to faith-based organizations and congregations throughout New 
Jersey. We described many of these recommendations in a report in 
January available on our Web site, and have submitted them as comments 
to both State and Federal officials.
    We're going to focus on three main areas: first, fixing the two 
main New Jersey homeownership programs, RREM and Resettlement, which 
have been plagued by widespread problems in implementation that have 
hit lower-income people, African Americans, and Latinos the hardest, 
but have more generally not worked well enough for everyone impacted by 
Sandy. Second, making sure that renters impacted by Sandy are not left 
out. And finally, targeting scarce Federal funds to the hardest hit 
areas.
    First, the State's main programs for rebuilding for homeowners, the 
Reconstruction, Rehabilitation, Elevation, and Mitigation, or RREM, 
program, which helps with structural rebuilding, and the Resettlement 
program, which helps with short-term grants, simply are not working the 
way they should be. That's true for everyone, but especially true for 
lower-income people, African Americans, and Latinos hit hard by the 
storm.
    It recently came to light, only after we had to sue the State for 
access to documents under our freedom of information law, that the 
State and its contractors unfairly rejected thousands of applicants for 
both of these programs. We'd hear the stories day after day--people who 
had four feet of flooding would call us and say they got a letter that 
they did not have enough damage to qualify. And it turns out that the 
data that the State relied upon was systemically flawed. In fact, when 
people appealed their denials, nearly 80 percent of people appealing 
won. That means that when the State reviewed denials for funding, four 
out of five times they got it wrong. But most people didn't appeal--
they trusted in the process, even though it turns out the process was 
fundamentally flawed.
    These problems hit people of every racial and ethnic group, and all 
incomes. But they hit African Americans and Latinos particularly hard. 
African Americans were rejected from these programs at 2.5 times the 
rate of white applicants, and Latinos at 1.5 times the rate of white, 
non-Latino applicants. Yet for people who appealed denials, approval 
rates in the RREM program were similar--over 75 percent for people of 
all races and ethnicities--in fact Latinos had the highest approval 
rate of any group. And even when you isolate applications by zip code--
thus looking at people with similar levels of damage--the disparities 
persist.
    We still don't know the full story of how this happened, but we 
have some clues. The State frequently provided incorrect information in 
Spanish. There was no information for months on the appeals process or 
the date applications were due on the Spanish language Web site, when 
that information was readily available in English. When Spanish-
speaking applicants went to in-person application centers, they often 
found nobody who could help them, even in heavily Spanish-speaking 
areas. And many people in African American and Latino communities did 
not know about the programs at all due to poor publicity and outreach. 
One particularly troubling example is in the heavily Latino community 
of Moonachie, where some applicants were told, incorrectly, that the 
mobile homes they lived in did not qualify for the program and it was 
for the ``big houses in the center of town''; out of hundreds of mobile 
homes damaged there have been only 10 grants that we know of to mobile 
homeowners.
    The whole program was shoddily run. Walk-in centers were located 
far from damaged communities to save on rent. Call centers were told to 
get people off the phone as quickly as possible instead of helping them 
solve their problems. To its credit, the State has now fired the 
contractor running the program, HGI, though it hid that decision for 6 
weeks until a reporter uncovered it and it is unclear who is now 
running the show.
    The main problems now are that while everyone agrees the program 
wasn't working, there is an attitude of defensiveness about the debacle 
that transpired. Instead of working together to fix the problems, the 
State has consistently hid information, failing to respond to public 
records requests, and only reacting after litigation and severe 
pressure from the media and angry homeowners.
    The fixes in many cases are obvious. Here's a few:

    As I noted, denials were wrong 80 percent of the time. Yet 
        most people didn't appeal the denials because they didn't know 
        about the process, were concerned about the potential costs or 
        bureaucracy involved, or didn't think it mattered--in fact 
        fewer than 1 in 3 people rejected appealed, and African 
        Americans and Latinos appealed at particularly low rates. The 
        State should affirmatively review every denial and see if in 
        fact the applicant was eligible. Instead, the State is 
        requiring people to go through a complex appeals process. When 
        you're wrong 4 out of 5 times, it's on you to fix the problem, 
        not people impacted by the storm.

    Too many people were wrongly told they didn't qualify, or 
        provided the wrong information, whether mobile home owners or 
        people using the Spanish language Web site. The Latino Action 
        Network filed a Federal complaint in response to the Spanish 
        language Web site problems, which included incorrect 
        information about the appeals date and location of the centers, 
        and asking for the lists to be reopened. That complaint, 5 
        months later, remains unanswered by either the State or HUD. 
        The State needs to reopen the application process given these 
        widespread failures, which it has to date refused to do.

    The State promised to grant 60 percent of Resettlement 
        funds and 70 percent of RREM funds to low and moderate income 
        homeowners. They have not met those targets because they claim 
        there were not enough qualified applicants. We now know that 
        many of the people the State found unqualified in fact were 
        qualified--so it's time to make sure that these promises are 
        kept.

    We need to make sure this money gets out efficiently and 
        effectively, and people know where they stand. We hear from 
        people all of the time that they are told different things 
        about whether they will get money or not, and confusing 
        information about their place in the wait list. We need a plan 
        to fairly treat everyone who qualifies based on need and damage 
        alone.

    Second, while programs for homeowners are not working well or 
fairly, in many cases renters have it even worse and aren't eligible 
for funding at all. An analysis that I worked on with the Furman Center 
for Real Estate and Urban Policy at New York University, where I am a 
nonresident fellow, showed that 40 percent of all families impacted by 
Sandy in New Jersey are renters. About two-thirds of the lowest-income 
people hit by Sandy in New Jersey, those families earning less than 
$30,000 per year, are renters. In addition, over two-thirds of African 
Americans and Latinos impacted by Sandy in New Jersey are renters.
    So far, only 25 percent of housing funds made available from the 
Federal Community Development Block Grant have gone to renter programs, 
despite renters constituting 40 percent of the damage. In particular, 
New Jersey has made very little money available directly to help 
renters impacted by the storm. While homeowners have been eligible for 
over $200 million of Resettlement grants of $10,000 in immediate funds 
to help people get back on their feet, the State has only just now 
proposed a $15 million program for renters. Meanwhile, as rents 
skyrocket due to the damage to housing stock and new competition in the 
rental market from displaced owners, families have to split up or are 
being displaced from their home communities. In many areas, rents have 
gone up by 20 percent or more due to a lack of housing supply; vacancy 
rates in some counties fell after the storm to under 1 percent. We hear 
from people living in isolated areas in campers, doubled up with 
relatives, or having to leave because their rents are going up--with no 
idea of where they will be even a few months from now.
    Long-term rebuilding efforts are also severely underfunded and, as 
I'll discuss next, are being funded in areas with little or no damage 
from Sandy far from where most people displaced by the storm live. Our 
second recommendation is to increase funding available to renters to 
both meet immediate needs and long-term rebuilding, so it is 
proportional to the damage from the storm.
    Finally, we are very concerned that the money there is for renters 
isn't actually going to where the damage from the storm was. The two 
hardest hit counties, Ocean and Monmouth, had 52.5 percent of major and 
severe rental damage. However, these two counties have received only 
21.7 percent of the funds in the main rental rebuilding program to 
date, the Fund for Restoration of Multi-Family Housing. In contrast, 
the eligible county with the least damage, Essex, which is about 60 
miles from Monmouth and Ocean Counties, had just 1 percent of major and 
severe rental damage--or less than one fiftieth of the damage in 
Monmouth and Ocean Counties. However, that single county has received 
16.1 percent of funding for the main rental rebuilding program to 
date--nearly as much as Monmouth and Ocean County combined--including 
in municipalities such as Belleville that had little or no damage from 
the storm. I can't overemphasize how much we hear from people who are 
angry about this. They ask why Belleville could get money, but there is 
no money for people to relocate to replacement homes in their 
communities.
    The potential is there. We hear from landlords and developers that 
they are quite willing to invest in rebuilding in the hardest hit areas 
and would like to do so. However, the State's programs are not 
structured in a way that sets clear rules to target the funding to the 
places with the most impact. As such, developers have no incentive to 
deal with the regulatory tangle that inevitably comes with developing 
in a disaster area, if they can more easily get Federal funds in areas 
that were barely hit. It isn't right, but it is how the State's 
incentives are structured, and it is not realistic to expect private 
market actors to invest a lot of time and money in the areas truly hit 
by Sandy if they won't get funding at the end of the day.
    What impact does that have on families? Let me put it in the 
context of a few of the Members of the Committee's States that I have 
the pleasure to have visited. Senator Toomey, it's like telling someone 
displaced from a disaster in Reading that they have to move to 
Harrisburg if they want recovery money; Senator Warren, it's like 
telling someone hit with a disaster in Boston that they have to move 
somewhere out past Worcester if they want relief. It's wrong to use 
Federal disaster money in a way that severs people from their 
communities, and forces them to choose between moving far away and 
getting to rebuild. Especially when we have heard from the development 
community that they are willing to rebuild in storm-impacted areas if 
the State prioritizes those areas. Our final recommendation is that for 
the next $1.4 billion the State needs to put the hardest hit areas 
first.
    I'll conclude by noting that both the State and HUD have known 
about the problems I have identified for many months, yet we have not 
seen any significant action to address them. While HUD was helpful in 
requiring changes of the State nearly a year ago in the first Action 
Plan to shift more money to renters impacted by Sandy, since that time 
we have seen too little action to ensure that these Federal funds are 
spent fairly. Given the magnitude of the problems on the ground in New 
Jersey and the urgent needs of people impacted by Sandy that are going 
unmet, HUD needs to take a leadership role in making sure that these 
problems are corrected.
    The time to act is now. As I noted before, the next $1.4 billion 
from HUD is critical. If we don't make sure these funds are spent 
fairly--fixing the broken RREM and Resettlement process, addressing the 
needs of both renters and owners, and targeting the people and areas 
hardest hit--it will be lights out for too many New Jerseyans trying to 
rebuild. Unfortunately, absent a strong course correction through a 
partnership between the Federal and State governments and impacted 
communities, too many people will not be able to rebuild. We want a 
better result for our State that uses these scarce Federal funds fairly 
and effectively. Thank you for your time.
                                 ______
                                 
                PREPARED STATEMENT OF JANICE FINE, Ph.D.
 Associate Professor, Rutgers School of Management and Labor Relations
                             March 12, 2014
    State Oversight of Hurricane Sandy: Some Problems and Questions
Introduction
    In December 2013, the Christie Administration terminated the 
largest contractor hired to provide Hurricane Sandy relief services, 
HGI (Hammerman & Gainer) which had a 3 year, $67.5 million contract to 
manage the Renovation, Reconstruction, Elevation and Mitigation (RREM) 
program,\1\ and more recently, the URS Corporation, which had a $20 
million contract to supervise the rebuilding of homes destroyed in the 
hurricane.\2\ What went wrong?
---------------------------------------------------------------------------
    \1\ Colleen O'Dea, ``Botched Process Denied NJ Residents Millions 
in Sandy Relief,'' NJ Spotlight, Feb. 7, 2014.
    \2\ Matt Katz, ``NJ Quietly Fires Second Contractor Hired to Help 
Sandy Victims,'' NJ Spotlight, Feb. 14, 2014.
---------------------------------------------------------------------------
    These companies, that were awarded multi-million dollar contracts 
and charged with administering millions in Sandy Recovery funds, were 
supposed to be overseen by the Department of Community Affairs (DCA). 
Their failures have had far-reaching consequences for Sandy victims. 
Recovery centers frequently lost applications or provided misleading 
advice on what documentation was needed. Ultimately thousands of 
homeowners were wrongly found to be ineligible and the process they 
could utilize to appeal these decisions was also poorly publicized.\3\ 
Documents released by the Fair Share Housing Center paint a disturbing 
portrait of what happens when oversight is neglected. From what we have 
come to understand after studying the State's oversight policies and 
practices for close to 3 years, this was not an isolated problem due to 
emergency circumstances but rather a consequence of a deep, systemic 
problem many years in the making.
---------------------------------------------------------------------------
    \3\ Fair Share Housing Center, et al., ``The State of Sandy 
Recovery: Fixing What Went Wrong with New Jersey's Sandy Programs to 
Build a Fair and Transparent Recovery for Everyone,'' Housing and 
Community Development Network of New Jersey, January 2014, http://
www.hcdnnj.org/assets/documents/report%20state%20of%20sandy.pdf. 
(accessed Feb. 2014).
---------------------------------------------------------------------------
    While many State governments are actively engaging in government 
contracting, research strongly suggests that government capacity to 
provide adequate and effective oversight has dwindled--and New Jersey 
is no exception.\4\ The two keys to contract oversight are (1) well-
written contracts adequately defining the responsibilities of the 
contractor and the protections of the State and (2) strong, 
experienced, well trained managers with a deep knowledge of the 
activities they are monitoring and time to do the job well. 
Unfortunately, between 2004 and 2011, the size of the State workforce 
in New Jersey shrank by 36,319 while the total value of contracts held 
steady and in some years especially 2013, increased quite 
significantly.\5\
---------------------------------------------------------------------------
    \4\ Van Slyke, David M. ``The mythology of privatization in 
contracting for social services,'' Public Administration Review 63, no. 
3 (2003): 296-315.
    \5\ Despite our best efforts to arrive at comprehensive numbers, we 
have only been able to obtain figures regarding Department of 
Purchasing and Property contracts. The State Office of Management and 
Budget generally estimates that these contracts account for 
approximately 50 percent of all State contracts. We have no data about 
the other 50 percent, which includes all human service contracts.
---------------------------------------------------------------------------
    Contract management involves both people who maintain relationships 
with contractors and clients, and systems that facilitate the work of 
those people. Our research project looked at the capacity of the 
current State workforce to conduct contract oversight and analyzed the 
overarching institutions--laws, regulations and policies--governing the 
entire contracting process. Below we summarize best practices in 
contracting as documented in scholarly literature on public 
administration and supply chain management. Next we describe how the 
State of New Jersey conducted contracting in the aftermath of Hurricane 
Sandy. We conclude with a discussion of the consequences of New 
Jersey's approach to contracting and oversight and provide a list of 
questions that merit further investigation.
Best Practices
    When employment is shifted to another party that is paid to provide 
services, the lead employer is simply ``less able to monitor 
performance, since those doing the work are now potentially hidden 
within another organization.''\6\ Best practices in the business 
literature \7\ suggest that lead firms maintain quality in services 
delivered by their subcontractors, by providing for 3 things:
---------------------------------------------------------------------------
    \6\ Weil, The Fissured Workplace, 59.
    \7\ Ibid., 63-73.

---------------------------------------------------------------------------
    Clear and explicit guidance on what is expected

    A system of monitoring and auditing to ensure that those 
        standards are followed

    Significant penalties in the face of failure to meet goals

    In terms of conducting oversight, best practices therefore include 
thorough contract costing and design, transparent and competitive 
bidding, and strong performance management. The latter involves ongoing 
communication and cooperation between contract managers and contractors 
and strategic contract monitoring with clear performance requirements 
and standards. These in turn require adequate staffing and training of 
contract managers who are responsible for the process. The challenges 
ordinarily posed by contracting to provide services are exacerbated in 
emergencies, which can dramatically increase the demand for oversight 
in a very short period of time. Details regarding the three best 
practices are summarized below, including qualifications relating to 
emergency relief.
1--Thorough Contract Costing and Design -> Transparent and Competitive 
        Bidding
    Typically, the contracting process proceeds in three stages: RFP 
generation, bidding, and contract management. The RFP generation stage 
is critical because it is here that the terms of the contract are 
created. Prospective contractors bid on the RFP and the terms of that 
RFP largely become the terms of the contract between the State and the 
winning bidder. Given that the RFP essentially becomes the contract, it 
also effectively defines what the State can demand of the contractor 
and what remedies are available if the contractor fails to live up to 
its duties. Best practices suggest that contract design and contract 
oversight are closely linked and contracting units should develop and 
communicate, during the RFP process, clear and detailed performance 
measures, specifications and contract monitoring requirements.
    The bidding process offers another opportunity to exercise control 
over contractors. This is where the State gets to choose its partners. 
However, for the State to have a choice, and for bidders to have an 
incentive to maximize quality and minimize cost, there must be multiple 
bidders who compete on a level playing field. Information is key to 
this competition. The more information the State has on what is being 
offered, the better a consumer the State can be. Likewise, transparency 
helps level the playing field by offering competitors and other 
interested parties the information needed to hold the State accountable 
for its decisions.
    As these practices suggest, the process is very intensive and can 
be extremely time consuming. It is difficult under the best of 
circumstances. In emergencies--including one of the most destructive 
natural events to hit New Jersey--temporarily relaxing some best 
practices relating to contract creation and bidding is understandable. 
It provides the State flexibility to immediately respond to human 
needs. The increased flexibility is exemplified by DCA using the less 
detailed RFQ process as opposed to the more extensive RFP process. This 
does not, however, absolve the State of all due diligence in designing 
contracts or choosing contractors. The State can, for example, identify 
obvious flaws in past performance and conduct desk reviews of capacity 
and competence. Moreover, strongly institutionalized oversight--
discussed further below--can make it far easier to conduct these 
analyses on short notice.
2--Contract Management
    Expediency cannot justify a complete relaxation of contract 
management best practices. On the contrary, less stringent contract 
creation and bidding procedures impose a heightened burden on the 
contract management process to compensate for any increased scope for 
abuse. Best practices suggest that States should have:

    a corps of highly qualified contract managers with the 
        expertise and resources to engage intimately with the 
        contractor

    systems, and especially data systems, that make the process 
        more efficient and more transparent
3--Strong Institutions
    In all circumstances, good oversight requires strong overarching 
institutions. The laws, regulations and policies governing the process 
provide the foundation for oversight. The need for strong institutions 
is especially acute in emergencies because they exacerbate the already 
significant challenges of contract administration. Strong institutions 
ensure that the State has the capacity and competence to handle 
ordinary oversight and absorb sudden spikes in demand that come with 
emergencies. Creating strong institutions involves the following:

    Laws ensuring that contracts are managed by qualified 
        individuals with sufficient capacity to engage intimately with 
        the contractor

    Laws providing mandates and resources for meta-oversight of 
        the contracting process

    Laws requiring and providing appropriations for integrated 
        and standardized data systems and regulations detailing 
        technical requirements to ensure compatibility across units

    Laws making transparency, including the publication of all 
        key documents and details, non-negotiable and providing 
        mechanisms for interested citizens to act on that information
How New Jersey Responded to Hurricane Sandy:
    In our in-depth review of New Jersey's capacity to oversee its 
contractors, we found significant issues that may provide insight into 
why the State has struggled to handle the contracts associated with 
Sandy Relief. In general, where legal and administrative structures for 
contract oversight exist, they are not being effectively implemented. 
Where they do not exist, people and systems are not sufficient to 
compensate. Our brief review of Sandy relief suggests that both issues 
may be at play. In particular, there are executive orders and 
documented plans that on their face should have enhanced oversight. How 
they were executed in practice may be one key to the failure of 
oversight. Similarly, despite the additional orders and plans, they 
were not likely sufficient to fill the existing holes in New Jersey's 
oversight capacity.
    New Jersey has significant structural and practical flaws that make 
it extremely difficult for it to conduct ordinary oversight, let alone 
handle the sharp increase in demand created by the administration of a 
massive disaster-relief grant. In particular we found large 
institutional deficiencies and significant neglect of on-the-ground 
oversight. These led predictably to significant consequences for 
taxpayers and clients.
    Many of the most significant oversight decisions and processes are 
subject to few if any formal rules. Only the bidding process is well-
regulated and only for about half of all State contracts. There are few 
central institutions governing contracts for services provided directly 
to residents.
    There are no institutionalized mechanisms within State government 
to ensure that sufficient resources exist so that individuals 
responsible for the majority of oversight are able to do the job well. 
Simply put, the budgetary process does not build in the cost of 
oversight of contractors at individual State agencies.
    There does not appear to be any agency within the State with the 
capacity or competence to monitor the overall efficiency or 
effectiveness of resources allocated to contractors. OSC and the Office 
of Management and Budget (OMB) are prime candidates, with relevant 
competencies, but neither currently has a mandate or the resources to 
do so.
    Attrition is a predominant problem, depriving every contracting 
unit we studied of practical expertise while simultaneously increasing 
the burdens on those workers that remain. This is not surprising, given 
the structural lack of priority given to oversight. It occurred in all 
four of the departments for which we were able to obtain such 
information.
    No contract costing and minimal specification of contract terms 
prior to the issuance of RFP's. Every official we asked confirmed that, 
to their knowledge, costing was not done in any systematic way.
    Contract Managers are not always qualified or properly trained to 
fulfill their roles effectively. According to officials from every 
department studied, there are not enough human resources being assigned 
to oversight and effective oversight is not being fulfilled by many of 
the individuals who are being designated as contract managers.
    Contracts had weak performance requirements and standards. Only a 
minority of contracts had outcome-based performance measures and there 
was little evidence of performance targets being integrated into a 
comprehensive oversight system. Only the Department of Mental Health 
Services (DMHS) had clear, outcome-based performance measures in 
contracts combined with a comprehensive system of oversight.
    Very few contracts required specific data collection and reporting, 
outcomes-based benchmarks with clear performance measures and 
milestones tied to payment despite these being widely accepted best 
practices. Similarly, very few contracts had automatic sunset 
provisions and requirements that contractors would have to reapply in a 
competitive bidding process.
    There are substantial impediments to transparency. The biggest of 
these is that data for many contracts is simply not kept in any 
systematic way. As a result, it is nearly impossible to gather and 
analyze information.
    Prior to Sandy, lack of oversight had already had significant 
consequences for vulnerable people and for New Jersey taxpayers and was 
continuing to place assets at risk

    A lack of contract monitoring at DCF's Division of Child 
        Protection and Permanency (DCPP) leaves children vulnerable to 
        being served by inadequate providers

    Lack of oversight at DHS's Department of Developmental 
        Disabilities led to substantial waste of taxpayer money with 
        little assurance that services for which the State has 
        contracted are being provided

    Lack of oversight at DOC's Residential Community Release 
        Program (RCRP) led to assaults and deaths in the facilities as 
        well as in communities

    businesses

    Given our findings regarding the State's lack of capacity to 
oversee ordinary contracts, it is not surprising that it has struggled 
to handle the massive relief program. The State's response required the 
coordinated action of various organizations, each providing services to 
New Jersey citizens and each with long lists of detailed 
responsibilities. On the surface, the State's Action Plan and Executive 
Order 125--signed by Governor Christie appear to enhance oversight 
under special circumstances. However, our prior findings and the 
stories that are now coming to light suggest that these paper 
requirements were insufficient, not followed well, or both.
    The core of New Jersey's effort to enhance oversight capacity to 
handle the demands of Sandy relief are Executive Order 125, the 
creation of a special management Division within DCA and the use of an 
Internal Auditor within DCA. The latter two come directly from New 
Jersey's Action Plan.
    Executive Order 125 offered three potential enhancements to the 
existing systems and requirements. First, it mandated that the 
Comptroller pre-clear all RFP's prior to bidding. This effectively 
subjects all 100+ contracts to the process that was already in place 
within the Department of Public Purchasing (DPP) for contracts in 
excess of $10,000,000. However, it requires only that the Comptroller 
ensure that all laws are followed and therefore would not necessarily 
enhance programmatic review. Moreover, insofar as it would impose a 
much greater burden on Comptroller staff, to be effective it should 
come with an increase in staff or some reallocation. We do not know if 
any additional capacity within the Comptroller's office was created.
    The second enhancement of E.O. 125 was the appointment of 
Accountability Officers in each unit responsible for Sandy relief 
contracts. The qualifications and specific duties of these officers, 
beyond liaising with the Governor's office to ensure success, are not 
specified. Likewise, there is no indication that these would be new 
staff positions, rather than just titles added to already swamped staff 
members. If our research is any indication, the latter is far more 
likely to have occurred.
    Finally, E.O.125 had a transparency provision that required the 
creation of a Web site to post contract information on all Sandy 
contracts. This Web site does in fact exist and provides both contract 
documents and some nominal aggregate data. The HGI contract is 
available on the Sandy Web site, however, when searching the site for 
the contract manager, clicking on the HGI contract link leads to an 
error page.
    New Jersey's Action Plan promised further enhancements. Two keys 
were the creation of a 50+ person special division to manage the grant 
and the use of a special audit plan by the DCA's Internal Auditor. The 
special division was created and some documents suggest it may have as 
many as 95 employees. It is not clear, however, what roles they are 
tasked with. Moreover, even if they were all newly hired contract 
managers,\8\ each one would be responsible for more than one contract. 
Given the sheer complexity and size of many of the contracts, the HGI 
contract being a prime example, it would seem that no one contract 
manager could have adequately handled the process alone.
---------------------------------------------------------------------------
    \8\ State law requires the assignment of a contract manager to 
every contract let through DPP. However, we found that in general, 
State contract managers were employees with other primary duties 
assigned as State contract managers merely to meet this requirement. 
The specialized training required to manage contracts came down to a 3-
hour Web tutorial.
---------------------------------------------------------------------------
    There is little readily available information on the Internal 
Auditor. We do not know how many audits were conducted, by whom, how 
diligently they were done, what they found, or whether there were 
consequences. These are key questions.
    The State's response to Hurricane Sandy required the coordinated 
action of various organizations, and these organizations needed to be 
properly vetted to ensure they had the expertise, capacity and 
legitimacy to support the State in recovery efforts. Certainly best 
practices suggest that contracting units must perform their due 
diligence and gather information on contractor past activities to serve 
as a basis for contracting decisions and to ensure that potential 
contractors do not have a prior history of poor performance. Again, on 
the face of it, New Jersey appeared to have made this part of the RFQ 
process. For example the State's solicitation to Hammerman and Gainer 
(HGI), specifically states the ``bidder should have significant proven 
experience and a history of successful professional engagements in 
disaster recovery'' (RFQ774882S, p. 33). Media reports suggest 
however,\9\ that the State of New Jersey did not thoroughly vet HGI's 
performance during Hurricane Katrina. Nine years after Katrina 
devastated New Orleans claims and issues from HGI's services remain 
unresolved.
---------------------------------------------------------------------------
    \9\ Haddon, Heather, Sandy Contractor Draws Fine in Home-
Reconstruction Effort, Wall Street Journal, NY Region, September 22, 
2013, http://online.wsj.com/news/articles/SB100014241
27887323808204579087420937630290. (accessed Mar. 2014)
---------------------------------------------------------------------------
    Moreover, best practices literature \10\ stresses that contracting 
units compare potential contractor costs with the cost of providing the 
service in-house. In the context of Sandy Recovery efforts, it is 
unclear if the State engaged in this comparative process. We cannot 
determine from available records if State contracting units found that 
it was not in their best interest to ramp up internal H.R. capacity to 
hire additional staff and therefore chose to rely on private 
contractors instead. For example, the State should have compared the 
internal costs for managing the Superstorm Sandy Housing Incentive 
Program, with the proposal submitted by Hammerman & Gainer, Inc. 
Similarly, it is not clear how the State determined that 95 staff could 
adequately handle the work for the Sandy Recovery Division.\11\
---------------------------------------------------------------------------
    \10\ See Sclar, Elliott D. You don't always get what you pay for: 
The economics of privatization. Cornell University Press, 2001.
    \11\ State of New Jersey Department of Community Affairs, Sandy 
Recovery Division, CDBG Disaster Recovery Action Plan and Reports, 
``Superstorm Sandy Performance Reports 4Q 2013,'' p. 6, http://
www.state.nj.us/dca/divisions/sandyrecovery/pdf/
4th%20Qtr%202013%20Submit
ted%20QPR%20Submitted%20for%20Approval.pdf. (accessed Mar, 2014).
---------------------------------------------------------------------------
    Successful contract monitoring and oversight requires significant 
managerial competence and aptitude,\12\ including ability to assess 
costs and benefits, identify needs, and critically analyze vendor 
strengths. No organizational chart is available on the Sandy Recovery 
Division's Web site, therefore we cannot determine whether the 95 staff 
were actually hired, whether they are contract managers and what their 
qualifications and experience are. We can surmise that the Division is 
still without the required oversight capacity given the numerous 
employment vacancies at the department. From what we can see, all of 
the current vacancies in the Sandy Recovery Division are for compliance 
and monitoring positions. These include: Chief Financial Officer, 
Assistant Director of Compliance and Monitoring, Administrative 
Analyst-Procurement, Program Specialist, and Network Administrator.
---------------------------------------------------------------------------
    \12\ See Brown, Trevor, and Matt Potoski. ``Contracting for 
management: Assessing management capacity under alternative service 
delivery arrangements.'' Journal of Policy Analysis and Management 25, 
no. 2 (2006): 323-346; Romzek, Barbara S., and Jocelyn M. Johnston. 
``Effective contract implementation and management: A preliminary 
model.'' Journal of Public Administration Research and Theory 12, no. 3 
(2002): 423-453; Chen, Yu-Che, and James Perry. ``Outsourcing for e-
government: Managing for success.'' Public Performance & Management 
Review (2003): 404-421.
---------------------------------------------------------------------------
    Our review of RFQ 774882S for the Management & Other Related 
Services of the ``SSHIP'' program indicates that the State is 
``developing an MIS system and related interface for DCA for 
aggregating data for financial management, production reporting, 
compliance reporting and auditing.'' It remains unclear if the MIS 
system has been adequately developed and if personnel have been trained 
on the system. This is particularly important to aid in monitoring and 
compliance, since contractors were required, per the RFP, to have data 
collection and storage systems that were compatible with the State's 
MIS and SSHIP HP-CMIS systems.\13\
---------------------------------------------------------------------------
    \13\ Ibid., p. 27
---------------------------------------------------------------------------
    To bolster State capacity to oversee contracts, on March 27, 2013, 
The Integrity Oversight Monitor Act (P.L.2013, Chapter 37) was enacted. 
This legislation authorized the deployment of oversight monitors in the 
implementation of recovery and rebuilding contracts, resulting from 
Superstorm Sandy and other major storms in NJ, in order to prevent, 
detect, and remediate waste, fraud, and abuse. However, the State spent 
10 months training the monitors and to date no reports on the work of 
integrity monitors are publicly available. A companion bill (A61) that 
would have strengthened oversight by requiring the State to ``maintain 
a public Web site dedicated to the dissemination and transparent 
administration of Hurricane Sandy recovery funding'' was approved by 
both the Assembly and the Senate but was vetoed by the Governor who 
contended it would, ``produce unnecessary redundancies and waste 
government resources'' (http://www.njleg.state.nj.us/2012/Bills/A0500/
61_V2.PDF).
    Additionally, although the State required Sandy contractors in its 
RFP to submit weekly reports on their progress toward recovery response 
and HGI promised it would ``generate and submit a weekly report'' and 
also provide a monthly ``Program Status Report'' which would provide 
``an accounting of progress toward major Program milestones,'' it did 
not do so for 8 months. When Fair Shar Housing requested copies of the 
reports promised in the bid they were advised by the State that they do 
not exist. These were essential tools necessary for the State to engage 
in oversight and they were ignored. As Fair Share has pointed out, 
along with the failure to provide the integrity monitors required by 
State law, allowing HGI not to submit reports amounted to another major 
missed opportunity to correct mistakes before they led to widespread 
systemic failure of the State's recovery programs.
    A key component of the RREM program, is the establishment of two 
categories of contractors--those who administer the program and those 
who monitor the program.\14\ Even though the RFQ for the management of 
the RREM Program states that the State Contract Manager is responsible 
for the overall management and administration of the contract,\15\ RREM 
contractors are required to ``perform management, file review, 
reporting and document management for compliance with all program 
policies and procedures. File documentation, document management, 
quality control, reporting, program and Federal compliance, and issue 
tracking are also embedded requirements for this functional area'' (RFQ 
for the Management of the RREM Program, 2013, p. 25). This ultimately 
means that RREM contractors remained at the forefront of contract 
monitoring and compliance. The DCA did identify an internal monitoring 
agent.\16\ However it is unclear if the internal monitoring agent was 
provided with the requisite training, financial resources, and 
additional staff required to engage in effective contract oversight.
---------------------------------------------------------------------------
    \14\ State of New Jersey, Department of Community Affairs, 
Reconstruction, Rehabilitation, Elevation and Mitigation Program and 
Procedures (RREM), 2013, Number 2.10.36, p. 6.
    \15\ State of New Jersey, Division of Purchase and Property, 
Request for Quote for Management of the Reconstruction, Rehabilitation, 
Elevation and Mitigation Program (``RREM'') for the State of New Jersey 
Department of Community Affairs, 2013, RFQ775040S, p. 53.
    \16\ New Jersey Department of Community Affairs, ``RREM Program and 
Procedures,'' 2013, p. 6.
---------------------------------------------------------------------------
    Finally, the partitioning of the RREM program into two categories 
of contractors--those who administer the program and those who monitor 
the program further distanced the DCA from the service being provided. 
The DCA's ability to monitor and oversee the performance of a 
contractor is directly related to their ability to identify the actor 
who is responsible. Similar to a situation where a contractor 
subcontracts a service, DCA's already limited capacity to monitor 
contractors was further strained. In this context, DCA essentially 
outsourced a core governmental function--contract monitoring and 
oversight.
Consequences and Questions for Further Investigation:
    Contracting out under emergency circumstances is challenging and 
complex, but there must be protocols in place to ensure that those at 
risk are treated carefully and equitably. A 2014 analysis by the Fair 
Share Housing Center found that 79 percent of residents who appealed 
denials of funds for housing recovery were successful which raises 
questions about how well the firm hired to determine eligibility did 
its job. The report also found troubling racial and ethnic disparities. 
African Americans were rejected for RREM and resettlement grants at two 
and a half times the rate of whites. Latinos were also 
disproportionately rejected.\17\ Moreover, numerous media reports 
suggest that those applying for, or those in the process of receiving, 
RREM funding lacked access to the feedback mechanisms required to voice 
their concerns and issues.\18\ \19\ All of these problems are in direct 
contradiction to the process stated in the DCA's Community Development 
Block Grant Action Plan.\20\ Finally, documents analyzed by the Fair 
Share Housing Center suggest that even after contracts were let, 
program details and policies continued to be amended without going out 
for public comment.\21\ Worse, in many cases, there were no policies in 
place until after the program started.
---------------------------------------------------------------------------
    \17\ Fair Share Housing Center, et al., ``The State of Sandy 
Recovery,'' 2014, p. 8.
    \18\ Ibid.
    \19\ Katz Matt, New Jersey Quietly Fires Second Contractor Hired to 
Help Sandy Victims, NJ Spotlight, February 14, 2014, http://
www.njspotlight.com/stories/14/02/13/amid-criticism-nj-quietlyfires-
2nd-sandy-contractor. (accessed Feb. 2014).
    \20\ State of New Jersey, Department of Community Affairs, CBDG 
Disaster Recovery Action Plan, 2014, p. 6-12.
    \21\ ``Documents Obtained from Christie Administration Through 
Litigation Raise Questions of Mismanaged Sandy Relief Funds'', Fair 
Share Housing, press release, November, 2013, on the Fair Share Housing 
Web site, http://fairsharehousing.org/media/ (accessed Feb. 2014).
---------------------------------------------------------------------------
    Despite the deeply flawed service being provided, in less than 8 
months, we now know that HGI billed the State over $51 million--
although it had proposed a 3-year contract for a total of $67 million. 
There is an ongoing dispute over at least $18 million that HGI claims 
it is owed, but the State has not paid; this number may grow 
significantly depending on the payments HGI claims are due between the 
December 6 termination and the January 20 date when all of HGI's 
activities ceased. While HGI claims that the State demanded far more 
work than the contract originally anticipated and that it received 
``express representations from State contracting officials that HGI 
would be paid for the work,'' the lack of reporting makes all of this 
extremely difficult to assess. There were also apparently no written 
amendments to the contract to account for the additional costs, which 
again raises troubling questions about how the State managed this 
contract and led to the current dispute.
    Overall, our analysis suggests that New Jersey lacked the capacity 
to oversee the contracts involved in such a large and complex natural 
disaster recovery program. This lack of capacity was compounded by a 
lack of transparency. In other words, we don't have adequate staffing 
to ``police'' the contracts and citizen watch dogs cannot obtain the 
information necessary to sound the ``fire alarm.'' We conclude here 
with a list of questions that merit further investigation.
Questions
  1.  Who are the State contract managers assigned to each contract? 
        How many contracts are they responsible for? Are they specially 
        qualified or just allocated from other staff as we found in 
        general? A look at any one contract, for example the HGI 
        contract, highlights the enormity of the task facing even a 
        highly qualified individual.

  2.  Who are the accountability monitors (required under E.O. 125)? 
        Are they qualified? Do they have real knowledge of contractor 
        performance? How are they integrated with other staff 
        responsible for oversight?

  3.  The State action plan involved the creation of a new division 
        within DCA with 50 staff to administer the program. The State 
        Web site mentions 95 employees. What are their job 
        descriptions? To what extent has that division fully staffed 
        up? Are they State contract managers? What do the staff do? 
        There are current postings for CFO and Assistant Director 
        positions. Were these ever filled? Are they open because of the 
        fallout from press.

  4.  E.O. 125 adds a requirement that all RFQs be pre-cleared by OSC. 
        That effectively has every Sandy Contract treated like a 
        $10,000+ contract. There are over 100 contracts over a short 
        period of time. Did OSC increase staff to handle the dramatic 
        increase in workload? What was the review process to determine 
        compliance ``with all applicable public laws, etc.'' To the 
        extent that the laws were relaxed, how meaningful was it 
        really?

  5.  Who is responsible for ensuring contractors provide reports and 
        for reviewing the quality of those reports? Contracts such as 
        the HGI contract grant the contractor millions ($3,006,864) for 
        internal oversight. Who ensures that the State gets anything 
        out of this? [Note that this is mainly for fraud by program 
        participants, not the program administrator. ]

  6.  The Action Plan (s6.6.5) refers to DCA's Internal Audit office 
        and several procedures that it will conduct to ensure 
        compliance. To what extent were these procedures actually 
        followed. Was the Internal Audit office staffed up to handle 
        this?

              Additional Material Supplied for the Record

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