    [Senate Hearing 114-511]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-511

                    OVERSIGHT OF THE HUD INSPECTION PROCESS

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

                                     HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
               HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

                                     OF THE

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

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

    EXPLORING THE HUD INSPECTION PROCESS, FOCUSING SPECIFICALLY ON PROJECT-
      BASED SECTION 8 HOUSING INSPECTIONS, IN WHICH RESIDENTS' DEPLORABLE
     LIVING CONDITIONS HAVE BEEN EXPOSED IN FLORIDA AND OTHER STATES, AND
                      EXPLORING SOLUTIONS FOR THESE ISSUES

                                   __________

                               SEPTEMBER 22, 2016

                                   __________

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

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                     Available at: http: //www.fdsys.gov /

                                 __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      RICHARD C. SHELBY, Alabama, Chairman

    MIKE CRAPO, Idaho                    SHERROD BROWN, Ohio
    BOB CORKER, Tennessee                JACK REED, Rhode Island
    DAVID VITTER, Louisiana              CHARLES E. SCHUMER, New York
    PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
    MARK KIRK, Illinois                  JON TESTER, Montana
    DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
    TIM SCOTT, South Carolina            JEFF MERKLEY, Oregon
    BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    JERRY MORAN, Kansas

               William D. Duhnke III, Staff Director and Counsel

                     Mark Powden, Democratic Staff Director

                           Dawn Ratliff, Chief Clerk

                          Troy Cornell, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                     ______

       Subcommittee on Housing, Transportation, and Community Development

                      TIM SCOTT, South Carolina, Chairman

             ROBERT MENENDEZ, New Jersey, Ranking Democratic Member

    MIKE CRAPO, Idaho                    JACK REED, Rhode Island
    DEAN HELLER, Nevada                  CHARLES E. SCHUMER, New York
    JERRY MORAN, Kansas                  JON TESTER, Montana
    BOB CORKER, Tennessee                JEFF MERKLEY, Oregon
    TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
    MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
    DAVID VITTER, Louisiana

                  William Gardner, Subcommittee Staff Director

             Rebecca Schatz, Democratic Subcommittee Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------

                          THURSDAY, SEPTEMBER 22, 2016

                                                                       Page

    Opening statement of Chairman Scott..............................     1

    Opening statements, comments, or prepared statements of:
        Senator Menendez.............................................     2
        Senator Corker...............................................     3
        Senator Tester...............................................     4

                                   WITNESSES

    Bill Nelson, a U.S. Senator from the State of Florida............     4
        Prepared statement...........................................    23
     Marco Rubio, a U.S. Senator from the State of Florida...........     5
        Prepared statement...........................................    24
    Edgar Olsen, Professor of Economics and Public Policy, University
      of Virginia Batten School of Leadership and Public Policy......     8
        Prepared statement...........................................    25
    Tracy Grant, President, Eureka Gardens Tenants' Association,
      Jacksonville, Florida..........................................    10
        Prepared statement...........................................    34
    Major Josh Lewis, Riviera Beach Police Department, Riviera Beach,
      Florida........................................................    11
        Prepared statement...........................................    36
    Vincent F. O'Donnell, Affordable Housing Consultant..............    13
        Prepared statement...........................................    38

                  Additional Material Supplied for the Record

    Pictures of damage at HUD Section 8 properties, Global Mission
      Foundation and Windsor Cove, submitted by Chairman Scott.......    43

                                     (iii)

                    OVERSIGHT OF THE HUD INSPECTION PROCESS

                                  ----------

                          THURSDAY, SEPTEMBER 22, 2016

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

                OPENING STATEMENT OF CHAIRMAN TIM SCOTT

        Senator Scott. Good morning to everyone. Thanks for being
    here. This Committee will come to order.
        Today we will learn about the HUD inspection process,
    specifically at project-based Section 8 housing. Witnesses will
    testify about their experiences with the HUD inspection process
    and, hopefully, suggest solutions to prevent these types of
    deplorable living conditions for residents in the future.
        We have two very special guests with us this morning. One
    is here, actually. Both of them are here. We have my colleagues
    from the State of Florida, Senator Bill Nelson and Senator
    Marco Rubio, who both represent the State of Florida here in
    the U.S. Senate.
        Our second panel will have witnesses including Ms. Tracy
    Grant, President of The Eureka Garden Tenants' Association in
    Jacksonville, Florida, also, I think, a home girl from
    Charleston, South Carolina. Go St. Andrews Rocks, who I used to
    play in football. I will not say the outcome, just to save her
    the embarrassment.
        Ms. Grant is here to give testimony on her first-hand
    experience as a resident of Global Mission Foundation-owned
    properties.
        We will also hear from Major Josh Lewis of the Riviera
    Beach Police Department--thank you for being here, sir--in
    Riviera Beach, Florida. Major Lewis is in charge of code
    enforcement for the GMF property in Riviera Beach.
        Finally, we will receive testimony from Dr. Edgar Olsen,
    who is also here with us. Dr. Olsen is a Professor of Economics
    and Public Policy at the Frank Batten School of Leadership and
    Public Policy at the University of Virginia. He has been a
    postdoctoral fellow at Indiana University, an economist at the
    RAND Corporation, a project associate in the Institute for
    Research on Poverty, and a visiting scholar at the U.S.
    Department of Housing and Urban
    Development. Dr. Olsen has been a consultant to HUD during six
    Administrations.
        It deserves being pointed out that the title of today's
    hearing is ``Oversight of the HUD Inspection Process,'' yet
    clearly missing is anyone from HUD. Not a single employee of
    HUD could make the time to come inform and educate us on why
    these deplorable conditions are the way they are. After several
    attempts from my office, after weeks of asking them to come,
    out of their 8,400 employees, they cannot spare a single
    individual to be here this morning. A $32 billion budget,
    located--many of those employees located here in DC, not a
    single one of them could make it. I actually have email
    confirmation of the conversation that my staff had, asking them
    to come, giving them time to figure it out, but they are not
    here.
        I first learned about the issues at Eureka Gardens
    Apartments when my friend, Marco Rubio, sent a letter to the
    Chair and the Ranking Member of the Senate Banking Committee,
    requesting a hearing on the matter. After digging into the
    issue, I learned that there was widespread neglect at these
    properties and that many residents were living in unsafe
    conditions. Residents had to be hospitalized at some units.
    Frankly, this is unacceptable.
        I want to show a quick video of the definition of
    deplorable conditions.
        [Video played.]
        Senator Scott. Here is my question. How can we allow these
    living conditions to persist? How is it that not a single
    employee at HUD would make the time to come out and explain
    what is not happening? Should we not care about the living
    conditions of poor folks in this Nation? Should we not take
    greater advantage of the opportunity to help all of us
    understand and appreciate what is happening or what is not
    happening? Thank goodness Senator Nelson and Senator Rubio have
    brought a big, bright light to these deplorable conditions.
        I am disappointed in HUD. I cannot believe the conditions
    that Global Ministries allows at their properties, but I am
    thankful for Senators who care enough about every one of their
    citizens to be here this morning.

                  STATEMENT OF SENATOR ROBERT MENENDEZ

        Senator Menendez. Thank you, Mr. Chairman, for holding this
    hearing. I want to thank our two distinguished colleagues for
    bringing this to light and driving the opportunity for the
    Committee to look at the issues affecting not only this
    particular housing community in Florida but across the country,
    and I appreciate the witnesses who have come to join us today.
        In my home State of New Jersey, like many other States
    across the country, it is facing a two-fold problem of an aging
    housing inventory and an incredibly tight rental market that
    leaves far too many families without an affordable place to
    call home. In fact, nearly 65 percent of New Jersey's housing
    stock was built before 1975. Add to that the fact that a
    minimum-wage earner in New Jersey, at $8.38 per hour, would
    have to work an astounding 105 hours per week to simply afford
    a modest, one-bedroom apartment at fair market rent, and you
    have got the making of an affordability crisis on your hands.
        Our affordable housing stock is one of the most valuable
    resources, and for the approximately 1.2 million households
    that benefit from project-based rental assistance--who are
    merely seniors, families with children, and people with
    disabilities--these units can be opportunity creators. We know
    that when we see better outcomes for low-income and extremely
    low-income families, the elderly, people with disabilities,
    when they have sustained access to safe and affordable housing
    in areas rich with employment opportunities, educational
    centers, and transportation hubs, and project-based assistance
    is a critical element of this equation. As such, we must be
    thoughtful in how we address issues impacting tenants and in
    the steps we take to preserve affordable housing inventory.
        Now let me take a step back for a moment and address the
    issues in Florida, which initially brought this hearing to the
    Committee. Let me be clear. There should be no place in our
    affordable housing programs for dishonest and duplicitous
    landlords who fail to meet the most basic duty to their
    residents--providing them with decent, safe, and sanitary
    homes. Homes, after all, are the place that we go to when we
    are born, it is where we are nurtured as we grow up, it is
    where we spend good and bad times, it is when we ultimately
    leave, when we move on in life and then start a new home. And
    so the very essence of home, whether it be by ownership or
    whether it be by rent, is an incredibly important concept in
    our country, and that home should be nurturing and the
    environment should be safe, clean, and affordable.
        So, Ms. Grant, I want to thank you for your willingness to
    share your difficult story with us here today, and those of
    other tenants. It is critical for the Committee to hear
    experiences of tenants, and believe when I say that it informs
    our work. It has, for me, as a Member of this Committee for
    quite some time.
        As the saying goes, when Members of Congress feel the heat
    at home, we see the light in Washington. So Congress relies on
    our constituents--so, too, should HUD--and landlords rely on
    their tenants to bring issues to light and inform solutions.
        So today as we are confronting this issue, and hopefully
    putting a garish light on it, and by doing so improving the
    lives of the tenants in this particular location, I hope that
    it can broaden that light as it relates to the processes that
    we engage, to ensure that the type of housing we want to see is
    realized.
        I look forward to hearing from Ms. Grant on her experience,
    from Mr. O'Donnell on how landlords and HUD can be better
    equipped to effectively respond to tenant and property needs,
    and I think, in addition, it is critical that we examine HUD's
    role in responding to troubled properties, how we can ensure
    tenants have access to high-opportunity neighborhoods, and are
    not displaced when landlords do not hold up their end of the
    bargain, and how best to preserve our units of affordable
    housing.
        I look forward to the testimony. Thank you, Mr. Chairman.
        Senator Scott. Thank you. Senator Corker.

                    STATEMENT OF SENATOR BOB CORKER

        Senator Corker. I will be very brief. I know we have
    distinguished panels before us.
        I want to thank you, Senator Scott, and Senator Menendez
    for causing this hearing to take place. I know each of us are
    so busy here that many times we do not know much about each
    other's paths, but I likely would not be a United States
    Senator today had I not been aware of these types of problems
    in my own community, and as a private citizen led a very large
    effort to try to make sure that Chattanoogans had decent, fit,
    and affordable housing.
        And I have seen, as you have, as all of us have, some of
    the
    deplorable conditions that people live in, and Senator
    Menendez, your comments about home, it is when you look at
    yourself and maybe the way you were able to go through your own
    high school years, and others, and you see other young people
    living in conditions that really are not fit for human beings,
    it causes you to rise up and want to do something about it, and
    again, I thank you for putting a light on this issue.
        I especially thank Senators Nelson and Rubio for
    highlighting this to the Nation, and I think you know the
    landlord in concern also had some facilities in Tennessee, and
    even though HUD has been nonresponsive today, in having a
    witness, I will say they responded fairly quickly to some of
    the conditions that we had there that would not have been
    known, really, publicly, without the efforts of the two of you.
    So I thank you very much.
        It actually caused us to personally go inspect some other
    units that we have been concerned about in other places in the
    State. And so, therefore, again I thank you. I appreciate you
    guys really shining the light, as has been mentioned by the
    Chairman, on this issue, and I look forward to reviewing the
    legislation that you are proposing.
        So, again, thank you so much for bringing this to the
    Nation's attention and hopefully helping us provide a much
    better solution for oversights, especially with landlords--I
    mean, some of these landlords are--some of them are obviously
    good, but, you know, so many of them are just total absentee,
    have no regard for the people who live in these various
    facilities, and obviously that has got to change. So thank you.
        Senator Scott. Thank you, Senator Corker. Senator Tester.

                    STATEMENT OF SENATOR JON TESTER

        Senator Tester. I just echo the remarks of Senator Corker
    and thank you and Senator Menendez for calling this hearing.
        I do not care if you live in Montana or New Jersey or
    anywhere in between, affordable housing is a big, big, big
    issue, and making sure that the housing is livable is critical,
    and transparency and oversight is huge, so thank you for having
    this hearing.
        Senator Scott. Yes, sir. Senator Nelson.

      STATEMENT OF BILL NELSON, A U.S. SENATOR FROM THE STATE OF
                                FLORIDA

        Senator Nelson. Mr. Chairman, I appreciate you expressing
    the outrage that both of us feel as we visited these places. I
    also want to say what Senator Corker said, that HUD did respond
    to us but it is totally unacceptable that they would not accept
    your invitation of this Committee, and I think you ought to
    consider a subpoena to haul them in here.
        For example, why was it that in the complex called Windsor
    Cove, that Senator Rubio and I visited, why was it that when we
    saw those conditions that you saw amply displayed in that
    Channel 9 clip, as well as the Channel 4 clip in Jacksonville,
    why was it that just a few months earlier they had had an
    inspector, and out of a grade of 100 he gave them 91? And when
    we raised Cain they had another inspector come back and he gave
    them a grade of 48.
        And then they appealed that, and then it takes more months,
    so that the residents had to wait 10 months for HUD to get it
    right, and then have that new inspection that ultimately got--
    they got some relief, all the time with intimidation that if
    you go and blow the whistle, we are going to evict you from the
    apartment.
        Now that is the atmosphere, and I am glad the Senator from
    Tennessee is here, because that particular outfit that has
    apartments in a number of States--they have a good deal of
    concentration in Florida; they have about 16 of them in
    Florida--they are located in Tennessee.
        Now, the bright break in the clouds is--for this particular
    situation, is that HUD is facilitating a sale but they are in a
    60-day due diligence period with an outfit from Ohio that has a
    lot more apartments, and, therefore, is integrated with their
    own construction company, their own management company, et
    cetera.
        But what about the inspections? Why did HUD have such a
    crazy system that was not reflective of the reality that we saw
    when we stepped on the squishy, water-filled carpets, and saw
    the mold on the ceiling by the vents? These are not conditions
    that people ought to be living in, and you saw it in those
    clips.
        Now, what we are doing is introducing the Housing
    Accountability Act to remove the overdependence on unscrupulous
    managers and faulty inspections, so that HUD has a better idea
    of what our Federal taxpayer money is doing, to try to help
    people have a decent place to live. I will not go through the
    legislation. You will have it explained in detail. It codifies,
    in law, what are some regulations. It establishes a process for
    independent contract examinations, so that you will not have a
    91 out of 100 as a score on deplorable living conditions. And
    it will create a new penalty for the owners who fail to
    maintain the safe and secure environment, as Senator Menendez
    says, that is a home environment that ought to be a place for
    security and safety.
        We certainly appreciate you having this hearing to bring to
    light these things.
        Senator Scott. Thank you, Senator Nelson. Senator Rubio.

      STATEMENT OF MARCO RUBIO, A U.S. SENATOR FROM THE STATE OF
                                FLORIDA

        Senator Rubio. Thank you. Thank you, Mr. Chairman. Thank
    you all for holding this hearing on this important issue.
        So the central mission of HUD is to provide safe and
    sanitary conditions for people receiving housing assistance,
    and so I think we are all deeply disturbed to see taxpayer
    dollars being wasted like this, and disappointing that HUD has
    failed to provide a
    witness here today. I think what you will learn as you look
    into this deeper is, in addition to perhaps some negligence on
    the part of individuals at HUD, and certainly the blame that
    falls in the hands of these slum lords that own and operate
    these buildings, we have a process that is broken, and I will
    describe that in detail in a moment.
        I do, again, want to thank your two witnesses that are
    going to be testifying on the second panel, Ms. Tracy Grant and
    Major Josh Lewis. Both of them have done much to help Florida
    and the entire country through the work--through their work to
    make these conditions known. We would not be having these
    hearings here today, for example, if Ms. Grant had not come
    forward, and I want to thank them for taking the time to travel
    here and testify before the Committee.
        I became involved in this situation about a year ago, when
    the tenants of Eureka Gardens took their case to the public,
    and these tenants bravely made their voices heard, even as they
    faced the threat of eviction from their landlord, a landlord by
    the name of Global Ministries Foundation. Since then, residents
    at Global Ministries Foundation properties, and at derelict
    Section 8 housing properties around the State, have also spoken
    of their troubles.
        And I want to leave this on the record without any doubt.
    Global Ministries Foundation are slum lords. They operate these
    facilities at the bare minimum. They take money from the
    American taxpayer and they spend as little as possible on
    maintenance, and I invite you to look at their financials so
    you can see how much money they pay themselves and the people
    that work around them, including many family members of the
    individual at the head of this organization.
        When I visited Eureka Gardens in Jacksonville I saw
    crumbling staircases, exposed electrical wires, boarded-up
    windows that would trap a child inside if there was a fire. I
    saw an apartment that had not been painted in 13 years. I saw
    pieces of wood with exposed nails put up in place of a door, in
    a unit that had small children living in it. This was evident
    even after Global Ministries rushed crews to the property to
    make cosmetic repairs just 48 hours before I arrived. The scene
    was unreal. As we arrived, they had set up banners, all these
    work crews around, just to kind of make it look like they were
    doing things, but in the end, as soon as we left, the crews
    left, and the work they did was largely cosmetic.
        I spoke with tenants who had been through a lot over the
    last few years and heard stories like some of the ones you will
    hear today from Ms. Grant, stories of neglect and crime and
    bureaucratic indifference from HUD.
        When Senator Nelson and I visited Windsor Cove Apartments
    in Orlando, another GMF property, as he said we saw standing
    water in apartments, and damaged roofs, collapsed ceilings, and
    we breathed air that reeked of mold. We spoke with residents
    who lived there for multiple years now, trapped in a facility
    whose conditions no one should have to endure.
        A couple of weeks ago I visited Stonybrook Apartments in
    Riviera Beach, and I want to--this is hard for me to say
    because the other two places were so bad, but what I saw at
    Stonybrook is even worse. In addition to all the other things
    we just talked about, as you walked through the courtyard you
    will see little nickel bags and dime bags of drugs, consumed
    drugs, all over the place, more common than any other garbage
    that might be laying around, in the courtyard of that building.
        And unwillingness to repair these properties is
    unfortunately par for the course for Global Ministries. They
    willfully neglect the well-being of their tenants, as you will
    hear from Major Lewis testifying today.
        These are the three GMF properties I visited in the State
    of Florida. In each case, I am sad to say that HUD has enabled
    fraud and abuse to continue, all while taxpayer money continues
    to flow into the pockets of these slum lords. Bureaucratic red
    tape, miscommunication, a lack of urgency have plagued the
    administrative response.
        But nothing displays how broken this program is better than
    HUD's own inspection process. The passing score for a HUD
    inspection is 60 out of 100. If a property scores above this
    threshold, HUD gives it the stamp of approval, declaring the
    conditions are decent, safe, and sanitary, an approval that
    traps tenants at the property and keeps money flowing to the
    landlord.
        What I have discovered in Florida, however, is that HUD has
    compromised the integrity of these standards. Last year, the
    inspection at Windsor Cove, which we visited, they gave them a
    passing score of 90 out of 100. The next inspection, which
    happened to occur a week after Senator Nelson and I visited the
    property, gave it a failing score of 48. That inspection found
    a projected 86 life-threatening deficiencies on the property.
    From one score to the next, this kind of inconsistency is
    beyond belief.
        Eureka Gardens received a score of 80 out of 100 during the
    summer inspection that occurred just before the tenants came
    forward. After months of back-and-forth repairs,
    hospitalizations from gas leaks, alleged lead poisoning, and
    incessant mold outbreaks, HUD came back with a follow-up
    inspection and still passed them, but this time 62 out of 100.
    Can you imagine--62 out of 100 in the facility that you just
    saw images of a moment ago.
        Right after that inspection, in a letter sent to GMF after
    visiting the property, the Deputy Assistant Secretary for
    Multifamily Housing wrote that HUD officials do not believe the
    property would currently pass another REAC inspection, despite
    the fact that an inspection had just happened barely a month
    before.
        These slum lords cause the problems but HUD has enabled it,
    and the twin vices that so often afflict massive Federal safety
    net programs, bureaucracy and corruption, have prevented the
    kind of action necessary to protect the tenants and allow this
    crisis to go on for far too long. So that is why we introduced
    and passed three amendments to the HUD legislation that we
    considered back in May, and Senator Nelson and I have also
    introduced legislation that would enact a tenant survey, in
    order to better identify problems in properties like GMF's.
        The problems at these properties are not limited to the
    State of Florida. These slum lords, GMF, they own properties in
    Alabama, Indiana, Louisiana, North Carolina, New York, Georgia,
    and Tennessee, and similarly bad conditions have led to Federal
    investigations because of those properties. They own over 5,000
    taxpayer-funded units across the Nation. And beyond GMF, if HUD
    is falsely certifying the living conditions at these many
    properties for one organization, then it is probably doing the
    same for many other entities we have yet to hear about.
        So I look forward to hearing from today's witnesses about
    the
    effects of GMF's fraud and HUD's neglect, and I hope we can
    continue working together, across party lines--this is not a
    partisan issue--to investigate GMF, and to pass legislation to
    fix HUD's faulty inspection process.
        Thank you.
        Senator Scott. Thank you, Senator Rubio.
        We will now go to the second panel, as our good colleagues
    clear the way.
        [Pause.]
        Senator Scott. Dr. Olsen, do you want to start?

      STATEMENT OF EDGAR OLSEN, PROFESSOR OF ECONOMICS AND PUBLIC
    POLICY, UNIVERSITY OF VIRGINIA BATTEN SCHOOL OF LEADERSHIP AND
                             PUBLIC POLICY

        Mr. Olsen. OK. Thank you, Senator Scott.
        I am delighted to be here today to discuss what should be
    done about the poor condition of privately owned, subsidized
    housing projects, like those observed by Senators Rubio and
    Nelson, and the disconnect between their observations and what
    is reported in HUD's system for monitoring the condition of
    these units. Although I did not observe the units directly
    until right now, and I am not intimately familiar with HUD's
    monitoring system, I hope that I will be able to contribute a
    little to the discussion based on my knowledge of the programs
    involved and the evidence on their performance. I have studied
    low-income housing assistance for more than 40 years.
        I will cut to the chase. What Senator Rubio and Senator
    Nelson have uncovered is a perfect illustration of what the
    systematic evidence shows about the performance of the Section
    8 new construction program, and other programs that subsidize
    the construction of privately owned, low-income housing
    projects. The total cost of providing this housing, that is,
    what the tenants pay and all of the public subsidies, greatly
    exceeds the market rents of the units provided. The ultimate
    solution to this problem is to phaseout programs of this type.
        However, we also need to deal with the existing projects to
    ensure that they provide housing that meets the program's
    minimum standards. The units observed did not meet these
    standards, obviously, and HUD's monitoring system said that
    they did.
        I will describe the program's incentives for poor
    maintenance and then talk about what should and should not be
    done about it.
        In exchange for substantial subsidies, the developers of
    privately owned projects agreed to provide housing meeting
    certain standards, at restricted rents, to eligible households
    for a specified number of years. HUD has a system for
    monitoring the condition of subsidized units. The Senators'
    observations suggest that this system is not working at all
    well. Senator Rubio has already shown that the units in a
    number of projects owned by a particular organization that
    operates many projects are in deplorable condition. You should
    not assume that this problem is limited to this one owner.
        The structure of the program incentivizes poor maintenance.
    When built, the units tended to be of reasonable quality
    because the projects received development subsidies that were
    proportional to the cost of building them. When new, they were
    terrific bargains for the tenants. However, the landlords have
    no incentive to maintain them except for dealing with problems
    that would severely damage the structure. It takes many years
    of poor maintenance for units to deteriorate so much that some
    tenants are unwilling to pay the 30 percent of their modest
    incomes to live in them. Until that happens, the owners can
    retain their tenants, even though they spend a little or
    nothing on maintenance.
        The monthly subsidy that owners get from HUD does not
    depend on the level of maintenance, and it is automatically
    adjusted upward each year to account for inflation. So owners
    get the same subsidy in real terms, year after year, even
    though the housing provided gets worse and worse. With this
    setup, the owners maximize profits by skimping on maintenance.
        This problem is exacerbated by the existence of the low-
    income housing tax credit program, that provides large
    additional subsidies for the renovation of many of these
    projects. This restarts the process of under-maintenance and
    excessive profits.
        As long as the units meet the program's minimum housing
    standards, the owners have honored their commitment and are
    legally entitled to receive the promised subsidies. HUD is
    responsible for the inspection of units in these properties, on
    a regular basis, to ensure that they meet the standards. If
    violations are detected, owners are given a certain amount of
    time to correct them. If they fail to do it, HUD is supposed to
    terminate the contract, stop sending the monthly subsidy to the
    owner, and provide the tenants with housing vouchers.
        On my understanding of the facts, that did not happen for
    the projects inspected by Senator Rubio, because HUD's
    monitoring system said that the units met the program's minimum
    standards.
        The question is what to do about Senator Rubio's discovery.
    The first step is obviously to deal promptly with the
    particular projects that have already been observed. The second
    is to determine whether these are isolated incidents or
    widespread. Given what I have said, I would not be surprised if
    they were widespread.
        Senator Rubio and Senator Nelson have already done, I
    think, what is needed to deal with these particular matters.
    What should not be done, in response to Senator Rubio's
    discovery, is to provide additional subsidies to the owners of
    these projects to renovate them. The evidence indicates that
    this is a highly cost-ineffective method for delivering housing
    assistance.
        Indeed, we should go further and not renew the contracts on
    these projects at the end of their use agreements but instead
    give their occupants housing vouchers. The evidence indicates
    that amounts well above market rents are paid when government
    renews use agreements with owners of privately owned subsidized
    projects. In contrast, market rents are paid for units that are
    occupied by voucher recipients. If the owners of projects are
    providing good housing for the money at the end of the use
    agreements, their tenant will want to use their vouchers to
    remain in their current units. Otherwise, the owners should not
    be in the business of providing housing.
        Senator Scott. Ms. Grant.

     STATEMENT OF TRACY GRANT, PRESIDENT, EUREKA GARDENS TENANTS'
                   ASSOCIATION, JACKSONVILLE, FLORIDA

        Ms. Grant. Good morning. Thank you, Chairman Scott and
    Senator Rubio, for inviting me.
        I came from Charleston, South Carolina, and I moved to
    Jacksonville, or back to Jacksonville, in 2010--August, 2010. I
    went to apply for an apartment in Eureka Gardens at the
    beginning of September. I got approved and got my keys on
    September 24 of 2010.
        In the process of even trying to get the apartment, I went
    through a lot of stumbling blocks. It was--your birth
    certificate was not a proper birth certificate because it was
    not from Florida and it was too small, so it did not have all
    the information they were looking for, like who my mother was,
    and my father was. And they wanted a big copy, and I told them,
    I said, ``No. this is a legitimate birth certificate,'' and
    they had--there was someone else in the office that knew what
    South Carolina birth certificates--the smaller version--looked
    like.
        So I went through that issue with them, and then it was the
    issue--when I told them I did not come in there with any
    income, because I was told it was income-based, so I did not
    have to pay a light bill, I did not have to pay a gas bill, and
    I did not have money to pay rent. And I had to get a letter
    from my cousin saying that, you know, she was helping me pay my
    rent.
        So those three things, right off, just threw me. I knew
    something was wrong. I knew that there was a problem but I did
    not know how far or how much of a problem it was.
        So I moved in October--the first weekend in October of
    2010, and that night that I actually moved in there was a
    gunshot by my window, that night. Me and my kids slept on the
    hard cement floor, and this was not what I was looking for.
        Needless to say, it persisted. Things just started to
    unfold. When I really went through my apartment, the walk-
    through was even horrible because the floors had still looked
    dirty, like they did not take up the floors and redo them. They
    waxed over whatever was on the floor. They just waxed over it.
    When I moved in, the kitchen sink, right behind the faucet, was
    moldy, and in the bathroom there was mold.
        Then when my kids and I started to take a bath, water just
    started coming from the bathtub and I could not figure out
    where it was coming from. It was not coming over the bathtub.
    It was not coming from under or over the toilet. It just--water
    just appeared, not realizing that the water was actually going
    into the bedroom that I was sleeping in, in the closet.
        So, over time, that water just started to smell because I
    did not clean it up, meaning I did not know it was there. So
    when I said something about it they just kind of came in. It
    was like, ``Oh, OK. We do not see a problem,'' and I kept
    calling and calling, for the same issue, until they actually
    figured out the pipe under the tub was broken. Never seen a tub
    come up. Never seen them take anything out to get moisture or
    anything.
        The same issue was going on with a lot of the tenants in
    the apartment complex. So with all the mold, then it became the
    gas issue. You were smelling gas, and it was not just inside
    the apartment. It was outside. So when you smell the gas it is
    kind of like, OK, where is the gas coming from? Somebody needs
    to turn the gas off, somebody needs to check their stove, and
    not realizing that underneath the ground the pipe was bursting.
        All of this was going on. I have been there for 6 years,
    and it has been persistent. Global Ministries, they did send
    their people out to patch things up, and right now it is a
    temporary fix. Yes, they did come in, and yes, they did do
    work, but how long will those patches stay up? How long will
    those patches be there, you know, to satisfy whatever passing
    score they have to get?
        I know a lot of my residents in Eureka Gardens. They want
    to move out. They do not want to stay there anymore. They want
    completely out. They want to be able to live clean, decent.
    They want central air. They want better stoves, they want
    better refrigerators, better everything. They are tired. I have
    residents there that have been there since the apartments
    opened, and that has been almost 50 years ago. Some that have
    been there 20-something years, and they do not understand.
        And when you were talking about disability and elderly
    people, most of our elderly people that were there, some of
    them have passed away in those apartments. Were any of those
    causes due to the mold, the gas leaks, and any other problems
    that were in the apartment? I cannot say. But when you start
    talking about children with lead issues, enough is enough.
        I have a 7-year-old, and when I moved here I had found out
    that she had asthma. I do not know if it was because of the air
    here or anything, but I know that she has asthma. Last year, in
    November, I found out I had asthma. I found out lately that I
    have had neighbors that are on CPAP machines, that have asthma
    machines, pumps, and not just one of each. Some of them have
    all of these things.
        So we do not want to live like this consistently, but you
    change----
        Senator Scott. Thank you. I will give you 30 seconds to
    wrap up.
        Ms. Grant. Oh, OK--you change the way that we live, we will
    be happy.
        Senator Scott. Thank you, ma'am, and for all the speakers
    we do have a lighting system there--green, start; red, stop.
    Thank you.
        Major Lewis.

    STATEMENT OF MAJOR JOSH LEWIS, RIVIERA BEACH POLICE DEPARTMENT,
                         RIVIERA BEACH, FLORIDA

        Mr. Lewis. Good morning. On behalf of the grateful city of
    Riviera Beach, we thank you for bringing light to this. It was
    definitely necessary and needed, and it is a pleasure to be
    here.
        My name is Major Josh Lewis of the Riviera Beach Police
    Department, which is a municipal police department located in
    Palm Beach County, Florida. I have been in law enforcement for
    approximately 19.5 years, all with the city of Riviera Beach.
    My professional highlights include attending the SPI Command
    Institute Academy, along with the FBI National Academy. I
    currently have a master's degree in critical incident
    management.
        The Riviera Beach Police Department initiated an
    investigation at Stonybrook, which is located at 1555 Martin
    Luther King Boulevard in Riviera Beach, in an effort to impact
    various public safety, health, and quality of life issues at
    the apartment complex. Stonybrook, which was constructed in
    1972, is an affordable residential development comprised of a
    mix of two- and three-bedroom, two-bath housing units. There is
    a laundry and maintenance facility and a community center on
    the property. Fourteen buildings house 216 residences. The
    property sits on approximately 8.67 acres.
        I would like to discuss a timeline of events that took
    place at Stonybrook, some of the conditions, some of the
    actions the city has taken, and some of the inactions others,
    to include GMF Management and Property Management, have failed
    to do.
        Between November 28, 2012, and March 20, 2013, city
    officials held a series of meetings with representatives of the
    property management company for Stonybrook and the Regional
    Director for the U.S. Department of Housing and Urban
    Development, HUD. The topics of discussion were the prevalence
    of criminal activity at the location, along with property
    maintenance issues. At the same time, the property owner was
    notified about these issues. However, the property owner and
    their agent resisted the attempts of city officials to compel
    them to implement strategies and improvements, and no action
    took place.
        During this time, there were numerous drug warrants
    executed, which resulted in multiple felony arrests. These
    arrests satisfy the legal standard to declare Stonybrook
    Apartments as a public nuisance. Property owners and HUD were
    also notified about these findings. Research as early as 2012
    indicated that GMF Stonybrook, the property owner of
    Stonybrook, has a history of not maintaining the residential
    units in decent, safe, and sanitary manners, more specifically
    in Memphis, Tennessee, and Jacksonville, Florida, which has
    lost their Federal funding based on repeated code violations.
        In March 2013, Stonybrook received a notice of violation
    for accumulation of debris, loose garbage, landscaping
    overgrowth, and an assortment of other miscellaneous code
    violations. In June 2014, Stonybrook was declared a public
    nuisance again, pursuant to our city ordinance. The property
    owner stipulated to complete the following improvements which
    were designed to abate the ongoing criminal nuisances to
    include securing access points to the property, providing armed
    security, installing security cameras,
    installing a controlled access gate, install landscaping,
    remove loose garbage, fix irrigation systems, paint the
    exterior of the buildings, and to add lighting.
        In August 2013, at a code enforcement magistrate hearing,
    the owner was found in violation of all the said items. The
    magistrate allowed the owner 120 days to comply or the fines
    would commence. The police department continued to monitor the
    property, in reference to the magistrate's order.
        In May 2014, a nuisance abatement status hearing took
    place. After presenting evidence, the magistrate found the
    nuisance had still not been corrected. As a result, the city
    and property owners agreed to extend the magistrate's
    jurisdiction over the property until December 2014.
        In November 2014, a notice of hearing to impose fines and
    claim of lien hearing was held. The magistrate found that the
    property owner had still not complied with the order and
    violations of landscaping and loose garbage remained. In
    December of 2014, a nuisance abatement status hearing was held.
    At this hearing, the city provided evidence that Stonybrook was
    still not fully in compliance with the nuisance abatement order
    and their landscaping and loose garbage violations had still
    not been corrected.
        In January 2015, Stonybrook fired the property management
    company. The police department continued to monitor the
    property to ensure compliance with the conditions set forth by
    the magistrate's order.
        In October 2015, a new case was heard before the magistrate
    for continued nuisance issues and the property was again
    declared a public nuisance. As such, the owners again
    stipulated to improving the property, to work on the ongoing
    criminal nuisance, and provide security service onsite, and to
    deal with some of the perimeter security issues on the
    property, such as a front gate, surveillance systems, parking
    details, towing system, and a tenant
    eviction process.
        These improvements were ordered to be completed within 45
    days. The police department again continued to monitor to
    ensure compliance. In May 2016, a nuisance abatement status
    hearing took place. In the hearing, the magistrate found that
    the city provided sufficient evidence and testimony
    establishing Stonybrook as a recurring public nuisance. This
    was based, in part, due to a series of drug deals which had
    recently taken place on the property.
        In June 2016, with Stonybrook management compliance, the
    city fire department conducted an inspection. Numerous
    violations were located.
        In 2016, we were lucky to be contacted by Senator Rubio's
    office regarding the inquiry of the violations, and to
    summarize my testimony today, the property owners have
    continuously, as I testified to, failed to completely correct
    the nuisance and code issues and do not appear to have any
    inclination to do so.
        Senator Scott. Thank you, sir. Mr. O'Donnell.

         STATEMENT OF VINCENT F. O'DONNELL, AFFORDABLE HOUSING
                               CONSULTANT

        Mr. O'Donnell. Thank you, Chairman Scott, Ranking Member
    Menendez, other Members of the Committee, and Senators Rubio
    and Nelson and Ms. Grant for bringing this out for all of us to
    discuss today and the opportunity to testify.
        My name is Vincent O'Donnell. I am a private affordable
    housing consultant. I have worked for over 40 years with
    nonprofits, State and local governments, and policymakers, and
    I have worked a lot with HUD around the issue of affordable
    housing preservation. I started my career in code enforcement,
    and it is distressing, really, to have to continue to be
    talking about that but it seems to be an issue that is always
    with us.
        I work with a group called the National Preservation
    Working Group, which is a coalition of organizations, again,
    similar to what I said before, nonprofits and policy
    organizations, State and local governments, that are interested
    in the preservation of affordable housing in the United States,
    specifically HUD-assisted and USDA-assisted housing. This
    coalition was convened by the National Housing Trust and has,
    for over several decades, worked with Congress and with HUD to
    try to improve our system of providing affordable rental
    housing.
        And although it is really distressing to hear what is going
    on with these particular properties, as a perspective, in my
    opinion, I do think that the overall system, writ large, for
    providing project-based rental assistance is a sound system,
    and HUD has very powerful asset management tools and quality
    control tools. But it is clear, from this discussion so far,
    that better coordination, better execution, is needed to ensure
    that no property ever reaches this level of distress.
        In fact, I think the overwhelming majority of HUD-assisted
    rental housing is in pretty good shape, and it is just
    unfortunate that we have outliers. And it is also clear to me
    from the discussion that when the system for measuring
    performance, REAC, in particular, becomes called into question,
    then we do not really know exactly what the shape of the
    portfolio is. And so one of the things we need to do is to
    double down on that tool, and make sure that it is executed
    properly. It is a vital tool and we have to make sure that that
    is well done.
        But in my experience, as I look around and work with other
    owners, I think the majority of the owners do want to do a good
    job, and are doing a good job, and when they are not, we have
    to work with HUD to make sure that its enforcement tools are
    properly used.
        I want to go back in history just to bring out some basic
    principles. In the 1970s, HUD was the largest landlord in
    Boston,
    because of distressed properties being foreclosed with
    subsidized mortgages that HUD controlled. And a group of
    tenants at an organization--at a property called Methunion
    Manor, went to Senator Edward Brooke and pointed out that their
    property was up for foreclosure, and under those rules, at the
    time, foreclosure for them meant displacement. And this is a
    neighborhood that was becoming gentrified and revitalized
    partly due to the Federal investment that created their own
    housing.
        And they went to Senator Brooke and said, ``This is an
    irony. Why should we be displaced when this neighborhood is
    just now improving and the Federal Government's rules are going
    to result in restoration of funds to the FHA fund but not to
    us?'' And Senator Brooke worked with Congress and with HUD to
    create legislation that gave HUD both a mandate and tools, and
    it was based on three principles: the property should have
    long-range repairs, there should be community engagement in the
    redevelopment process, and there should be a preservation of
    project-based rental
    assistance.
        And those three principles have informed all of our other
    preservation activities since then. When subsidized mortgage
    prepayment became an issue because it allowed the deregulation
    of properties, those were the principles that were applied to
    create the LIHPRHA program, which resulted in the preservation
    of affordability of thousands of units.
        When Section 8 contract--long-term Section 8 contract
    expirations became an issue, again, those same principles were
    applied, and are still used today. And over time, there has
    been an increasing market focus on how those tools are applied,
    but they are sound tools and they should continue to be used in
    any solution to this problem of distressed housing.
        So that is the general point I want to make, and I think
    the focus on the long-term, the community engagement, and the
    preservation of project-based rental assistance are the really
    key things.
        Attached to my testimony is a piece that was written by the
    Preservation Working Group to HUD, to specifically address some
    things that we think HUD can do with the toolkit that it has. I
    think right now I would say----
        Senator Scott. Thirty seconds.
        Mr. O'Donnell. OK. Thank you. The main point I think I want
    to make is that HUD does have a very powerful toolkit.
    Sometimes what holds HUD back is this kind of what I call an
    on-off switch, that when things get really difficult with a
    property, the termination of the Section 8 contract is a very
    powerful tool. But HUD has intermediate tools as well, and by
    working with local communities and with groups like the
    Preservation Working Group, they can tailor and make more fine-
    grain adjustments and bring owners into compliance without
    losing the subsidy, because----
        Senator Scott. Thank you.
        Mr. O'Donnell.----if you lose a subsidy, the tenants are
    going to be displaced.
        Senator Scott. Thank you.
        Senator Rubio has to preside so I am going to give you my
    first few minutes.
        Senator Rubio. Well, I thank you for your indulgence. I
    thank you all again for being here today, and I think there
    will be a broader conversation one day about the structure of
    the program in general, but right now we want to make the
    program we have in place work better.
        One of the things that we have learned in this process, and
    Ms. Grant, I am going to ask you about this, is one of the
    reasons why these tenants do not come forward--and we have
    heard this now on the three properties--is there is a level of
    intimidation and threats of eviction. And, in essence, you get
    hassled. If you start showing up in the newspaper and on
    camera--we have had tenants say, ``I do not want to be on
    camera because, you know, bad things happen to people around
    here that come forward and complain.''
        Ms. Grant, could you share with us a little bit about some
    of those impediments that you have faced? And also, related to
    that--some of the threats of eviction, the threats that come
    from the management company about not complaining too much, and
    also--and I do not know if this has been the reality in Eureka
    Gardens--you have also heard that, from time to time, the
    management
    company will come in and give preferential treatment to certain
    tenants in exchange for them being kind of the voice of the
    tenants, in essence, the owner-sponsored tenant association
    president, who supposedly speaks on behalf of tenants.
        I know that is not the case in Eureka Gardens. We have
    heard about that on other properties, and therefore, they
    basically self-appoint the person they want to speak on behalf
    of the tenants, and these people think everything is great but
    they are getting the new refrigerator, and they are getting
    preferential treatment. I do not know if you saw any of that in
    Eureka Gardens beforehand. So if you have, we would love to
    hear about it, but in particular, the threats from management
    to tenants if they complain too much.
        Ms. Grant. Yes. You have--if you speak out or if you were
    bold enough to just go up there and say, ``Hey, this is my
    problem. You need to fix it or I am going to go to Legal Aid,''
    or ``I am going to go to the news media,'' then it is like,
    ``OK, well, I will give you a 10-day eviction notice so that
    you can get off the property,'' or it is a 10-day eviction
    notice for noncompliance, for whatever reason. It may not be
    for what they are complaining about. They will just find
    something and say, ``I am giving you a 10-day notice.''
        We have had residents just say, ``OK, they do not have a
    legitimate reason for giving me a 10-day notice.'' Then when
    they go to Legal Aid--because one of the--the management--the
    manager that was there before our new manager that is in place
    right now, she would just say, ``I know the big guy at Legal
    Aid and he is not going to do anything.'' Later on we found out
    that she did not know him and he does not like her. So when
    that was found out, then everybody went to Legal Aid, and so
    she got pissed off, you know, because now she does not have any
    leverage over these people.
        And the new manager, she does not say anything. If you feel
    like, you know, the issues that you have, then, you know, she
    will just say, ``OK. Well, this is what I feel is done, you
    know, that you have not complied or whatever, and I will give
    you a 10-day notice. Now you can either work on it or, you
    know, leave the property.'' But yes, we have had----
        Senator Rubio. So, basically, there have been instances and
    multiple cases at Eureka Gardens where the tenant complained
    too much, the management company would suddenly come up with a
    reason to----
        Ms. Grant. Right.
        Senator Rubio.----evict you, and that got around, everybody
    knew if you complained you were going to get an eviction
    notice.
        Ms. Grant. Exactly.
        Senator Rubio. Thank you.
        Senator Scott. Senator Nelson.
        Senator Nelson. Just a quick question.
        Ms. Grant. Yes, sir.
        Senator Nelson. Ms. Grant, what goes through your mind when
    you get a 10-day eviction notice, and you have got children
    that you have to provide a home for? What goes through your
    mind?
        Ms. Grant. Fright. You are frightened. You are scared. You
    do not know what to do next, because now you have to--your mind
    is going a million miles a minute. You are trying to figure out
    where I am going to go, who I am going to go stay with, or do I
    have any relatives to stay with, you know, because you have a
    lot of families that are just coming from out of town and this
    is the easiest place to get into. They do not have any family
    that lives in Florida. So they are trying to rely on people
    that they know, or maybe go to the shelter if one is open, so
    that they can try to provide a place. Or they will figure out a
    way of calling family and say, ``Hey, I need some money,'' or
    ``I need this. They are about to put me out.''
        Senator Nelson. So to avoid being evicted----
        Ms. Grant. Mm-hmm.
        Senator Nelson.----because you have no place to go----
        Ms. Grant. Mm-hmm.
        Senator Nelson.----you keep quiet.
        Ms. Grant. Right.
        Senator Nelson. Thank you, Mr. Chairman.
        Senator Scott. Thank you, Senator Nelson, once again, for
    bringing this to light, along with Senator Rubio.
        Let me start my questions with Major Lewis. First, thank
    you for your service to your community as a law enforcement
    officer.
        Mr. Lewis. Thank you, sir.
        Senator Scott. Yes, sir. I would imagine--how long have you
    been in code enforcement, specifically?
        Mr. Lewis. I am not over code enforcement but I have
    participated in code enforcements investigation.
        Senator Scott. How long, on and off?
        Mr. Lewis. In this investigation, since 2012.
        Senator Scott. OK. So you have years of experience in this
    area?
        Mr. Lewis. Yes, sir.
        Senator Scott. What we are hearing today--how often do you
    see these types of situations, do you hear the types of
    comments from residents in different locations? Is this normal
    or is this an outlier?
        Mr. Lewis. Sir, this is absolutely not normal. In my area
    of command alone I have probably seven other similar housing
    areas, none of which have the problems that Stonybrook has.
        Senator Scott. So none. GMF----
        Mr. Lewis. GMF.
        Senator Scott.----the land owner, is consistently, it
    appears, finding themselves in precarious positions. Is that--
    so this seems to be a--within a silo, something that is
    specific to GMF?
        Mr. Lewis. In my 19.5 years, yes, absolutely.
        Senator Scott. That is amazing. Thank you very much.
        Dr. Olsen, based on your expertise, how can Congress better
    structure or regulate HUD to provide assistance to people who
    find themselves in need of housing assistance? How do we
    improve this system?
        Mr. Olsen. Well, I think, broadly, the evidence indicates
    that the least costly way of providing housing assistance of a
    given quality is the housing voucher program. That is much less
    costly than project-based Section 8 and public housing. What
    this means is that for the amount of money we spend, we can
    serve many more people if we do it with vouchers. So that is
    what leads me to believe that we should really be trying to
    phaseout project-based assistance altogether. We should not
    renew use contracts. We should not create new projects.
        Ms. Grant says that the tenants want out. I think they
    should be given vouchers and let out. I think that the landlord
    will find that his property is not so valuable if he does not
    have government subsidies going to it.
        Senator Scott. Thank you very much, and I should say to
    Senator Menendez, thank you for helping with the legislation
    that you and I passed to provide more vouchers for more folks
    so that they can determine where they want to live, as folks
    find themselves in a situation, as does Ms. Grant.
        Ms. Grant, you have been there for 6 years? Five years?
        Ms. Grant. Six years, come the 24th of this month.
        Senator Scott. Yes, ma'am. Thank you for being here this
    morning as well.
        Ms. Grant. You are welcome. Thank you.
        Senator Scott. Thank you for sharing your story.
        Ms. Grant. Yes.
        Senator Scott. I cannot imagine the pain and the challenges
    that you have faced, and the sense of intimidation that comes
    your way on a consistent basis.
        If you could change just a few things about where you live,
    can you give me a quick list of things that you would like to
    see better, obviously?
        Ms. Grant. I want to say everything--management, the inside
    of the apartments, because they--those apartments are 50-years
    old, and I found out that the last time they had done anything
    to them was when they were built. So the entire apartment
    complex needs to be redone.
        Instead of having gas right now--because the pipes are old,
    and when I say old, the pipes that you show behind you, nothing
    compared to what I saw behind my toilet, when they opened my
    wall. Nothing. That is nothing compared to the rust that is
    peeling off of the pipes. And if you peel too much, the pipes
    may burst.
        Senator Scott. Thank you.
        Major Lewis, do you have any specific changes or
    suggestions that you would like to see with the way that HUD
    works with GMF, from your years of experience in code
    enforcement?
        Mr. Lewis. I think there needs to be a closer relationship.
    I think there has to be accountability. I think people have to
    care. I know that HUD is aware of the incidents that took place
    at Stonybrook, but yet they somehow were able to continue from
    2013 to present day. And I think maybe better coordination,
    more communication, I think would be helpful----
        Senator Scott. Thank you, Major.
        Mr. Lewis.----to start.
        Senator Scott. Yes, sir. Thank you.
        I will say that I am certainly pleased that other locations
    within the HUD housing apparatus or umbrella are nothing like
    this, which is really good news. I do wish that HUD was here to
    explain and share with us their success stories as well as
    their challenges, and what they are doing to remedy the
    situation. Unfortunately, with their absence, not only does it
    fuel my frustration but it also brings a negative light unto
    the HUD agency.
        Thank you very much.
        Mr. Lewis. Thank you.
        Senator Scott. Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman, and thank you
    all for your testimony.
        Let me ask you, Major Lewis--and again, thank you for your
    service to your community and to the State. Global Ministries--
    do we know who they are?
        Mr. Lewis. It is a pastor. I believe a pastor--a minister
    owns it. It is a religious group that owns the property.
        Senator Menendez. All right. It suggests so from its name
    but I did not want to presume that. Well, that type of ministry
    we do not need.
        Mr. Lewis. It is a pastor that owns it.
        Senator Menendez. Well, certainly that type of ministry we
    do not need.
        Let me ask Ms. Grant, Ms. Grant, did you have any knowledge
    that you have the right, as a tenant, and maybe were never
    told, but to engage HUD and to--I do not know if you ever, in
    your efforts to try to improve your situation, did you know
    that you could engage HUD? Did you try to engage HUD at all?
        Ms. Grant. Well, not before we formed the Tenant
    Association. I had no idea. I wanted to find out, or at least
    figure out who I can call on to get help, because at this point
    I have never went through anything like this, so to have--to
    say we need help or say, ``Hey, can you help me?'' I did not
    even know where to start.
        Senator Menendez. Yeah, and that is not unusual, and a
    matter of fact, Mr. O'Donnell, one of the elements of your
    testimony speaks to residents--natural partners in identifying
    properties with chronic problems, and it specifically, in the
    letter attached to your testimony made part of the record, it
    urges HUD to provide residents with more opportunity to engage
    in REAC inspections and management and occupancy reviews. And I
    have heard from conversations myself, with tenant advocates,
    that residents are often not aware of their recourse in such a
    set of problems, and they do not know that they can reach out
    for the performance-based contract administrator.
        So is not there a better way to engage residents? They
    should be, probably, the best eyes and ears of what is really
    happening at a location.
        Mr. O'Donnell. Yeah, tenants are the best eyes and ears,
    and I think there are certainly already in place anti-
    harassment policies, but I think we need to have a better
    conversation about the best way to involve residents in those
    oversight procedures like REAC.
        Senator Menendez. Major Lewis, in the process of your
    investigations and actions, did you have opportunity to engage
    HUD at a local level?
        Mr. Lewis. Just the regional level. The Regional Level
    Director came up.
        Senator Menendez. And were they responsive?
        Mr. Lewis. The problem still exists today.
        Senator Menendez. Uh-huh.
        Mr. Lewis. They were responsive with their comments
    regarding that they spoke with GMF, and that they were trying
    to ensure compliance. But for whatever reason, the problems
    exist to this day.
        Senator Menendez. So they were responsive without results.
        Mr. Lewis. Exactly.
        Senator Menendez. OK. Well, that is not responsive.
        Mr. O'Donnell, let me--I am a big advocate, as the Chairman
    said--we joined together to pass some housing reforms that
    include more vouchers. However, I am always thinking, because
    of--I grew up poor, in a tenement, and it was not a tenement
    with HUD subsidy, so I know what it is to live in a place that
    stinks, and I do not think anybody should have to live like
    that. But I also understand that preserving affordable housing
    stock is incredibly important to protect vulnerable families.
    And I am struck that Dr. Olsen proposes, in his testimony,
    wholesale phase-out of project-based rental assistance in favor
    of a system made up exclusively of
    vouchers.
        Now I have, and always will, support the tenant-based
    voucher programs but I know a lot of parts of this country
    where that voucher does not go very far, and where the very
    issue of where that voucher is taken, in terms of the housing
    that exists, may equally be substandard.
        So the issue here seems to be more of enforcement, and I am
    glad to hear that Major Lewis pointed out that there are many
    other similar locations, but not with the problems of
    Stonybrook here, or of this particular location. Can we rely--
    people who are elderly, families, people with disabilities--if
    we, quote, rely only on market mechanisms to achieve the social
    goals of providing affordable housing?
        Mr. O'Donnell. Well, I could talk all day about that. That
    is a really powerful question.
        Senator Menendez. Well, neither the Chairman or are going
    to give you all day.
        [Laughter.]
        Mr. O'Donnell. No, I think it is an extremely important
    question. First of all, the market does not provide for all
    needs, especially for vulnerable people, and part of the role
    of government is to step in where the market does not satisfy
    everybody's needs. That said, I am a big fan of vouchers, and
    respectfully, also do not agree that they are the full
    solution.
        Simple example. Very recently, in this world of Section 8
    housing, people say there are two things that will never
    happen. One is that a landlord, in their right mind, would
    never get rid of a Section 8 contract because it supplies their
    rental stream, as Dr. Olsen is pointing out, especially in a
    weak market. Second, nobody would ever displace elderly
    tenants.
        Well, in the city of Detroit, recently, an elderly Section
    8 property had its Section 8 contract come up for renewal and
    the owner elected to not renew it and to displace all those
    tenants. You had elderly tenants displaced in a weak market,
    and those folks had a really hard time finding a new place to
    live, and it is very stressful, as you know, for any kind of
    move to be required like that.
        So there is no simple solution for those folks with a
    voucher
    formula.
        And again, going back to the Methunion example, but it is
    still true today, that neighborhood, in South End of Boston, is
    one of the most desirable neighborhoods in the United States,
    not just Boston, and the only poor people who can afford to
    live in the South End are people who have project-based
    subsidies, because the market rent in South End is too high for
    a voucher to work. So the only Section 8 that works there is a
    project-based Section 8 that pays market rent. They do not pay
    over market, but they pay market.
        Senator Menendez. I appreciate that answer, and----
        Mr. O'Donnell. And one of the other things is that Section
    8 vouchers are very difficult to use in other communities. We
    have a great problem here in Massachusetts getting communities
    to
    accept low-income housing of any type, and all around the
    country there is discrimination against people because they
    hold vouchers. In Massachusetts you cannot do that because you
    cannot discriminate against voucher holders, but in most States
    you can. There are cultural barriers, racial barriers to
    acceptance of vouchers. It is a very difficult problem to rely
    on that.
        Senator Menendez. Thank you for your answer.
        I will just close by saying, in my own experience, there
    are
    communities that were, at one time, depressed, in terms of
    their situation, and then they gentrified and became the Gold
    Cost, as we say, along New Jersey. Individuals who sometimes
    live for long times in their lives, many on a Section 8
    project-based situation, and suddenly--and then those who went
    to vouchers, found that it was impossible to live in the
    communities where they and their families had lived because the
    housing markets prices rose so dramatically that the voucher,
    you know, offered them nothing, and therefore they were forced
    out.
        That is not a market mechanism that I think, at the end of
    the day. So it is a mix, in my view, of the vouchers, which I
    have strongly supported, and at the same time, having the
    appropriate enforcement of project-based subsidies that will
    give us the mix that we need for the affordable housing I think
    we deserve in the country.
        Thank you, Mr. Chairman.
        Senator Scott. I want to say to all the panelists thank you
    for investing your time this morning, and I certainly am not
    sure that--Dr. Olsen said that vouchers were our panacea, that
    would solve all the problems that we have with HUD. Certainly
    it is another alternative, another avenue forward, another way
    forward. And Mr. O'Donnell, thank you for your comments this
    morning, as well. Major Lewis, again, thank you for being here.
    Ms. Grant, you can come on back home to Charleston any time you
    want to. We appreciate you being before the panel.
        I will say that there are many issues in the housing
    footprint that we ought to engage in. Growing up in poverty, in
    a single-parent household myself, the issue of housing is such
    an important foundational issue, so that children who go to
    school can come home and learn in a safe environment, that
    adults who want to continue to improve their lives can see a
    path forward.
        There is such a project in Spartanburg, South Carolina,
    called the Northside Project, that is helping to reduce
    gentrification by having the current residents be a part of the
    board of directors and create a vision for how to do housing in
    a new and inventive--
    innovative way. It is a fabulous project that needs more
    attention, and it does, in fact, blend vouchers with places
    like--hopefully not exactly like where you live, Ms. Grant--but
    places that are for apartment-type settings, as well as, then,
    community housing. So a person can stay in the same
    neighborhood and live the evolution of improving their plight.
        Thank you all for bringing light to this issue and doing it
    in such a professional manner.
        Any Member that may want to provide questions for the
    record would have up to 7 days to do so.
        This hearing is adjourned.
        [Whereupon, at 11:18 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                   PREPARED STATEMENT OF SENATOR BILL NELSON
        Mr. Chairman, Ranking Member Menendez, and Members of the
    Committee:

        Thank you for inviting me here today to talk about what Senator
    Rubio and I saw when we visited Windsor Cove, a subsidized housing
    facility in Orlando, and to talk about the bill we filed earlier this
    year in response to the problems we found at that facility and other
    subsidized properties, like Eureka Gardens and Washington Heights in
    Jacksonville.
        The conditions at these properties are unacceptable. I challenge
    the owners of these properties to spend a week in their own buildings.
    I doubt any of them will take me up on that though.
        When Senator Rubio and I visited Windsor Cove apartments in
    Orlando, we saw evidence of severe water damage. With so much water
    sitting everywhere, it's no wonder the tenants are constantly battling
    against instances of mold and roach infestation.
        When I stepped into one of the apartments, the carpeting was so
    saturated with water that it made a squishing sound. Think about that.
        Since that visit, we learned Federal inspectors have cited the
    property for various housing code violations, including broken smoke
    detectors, exposed electrical wires, blocked fire exits, leaky water
    valves, window cracks, missing floor tiles, and water seeping in from
    roof damage--just to name a few.
        The property was given a failing grade in April, 10 months after
    receiving a nearly perfect score from a contract inspector working for
    the Department of Housing and Urban Development. HUD invalidated that
    previous score only after receiving a barrage of complaints from
    tenants at their local office. The contractor was then barred from
    performing further inspections for the agency.
        I appreciate the corrective action taken by HUD, but it's not
    enough.
        Residents had to wait 10 months for HUD to get it right and perform
    a new inspection--and even then they had to wait an extended period for
    the owner to appeal the new inspection results before HUD could demand
    remediation.
        HUD clearly needs to do a better job to find these problems before
    they reach a boiling point. And the owners of these properties need to
    be held accountable for their shortcomings.
        This isn't the case of one housing complex or one property owner.
    Several properties around the country are falling victim to the problem
    of lax oversight.
        For example, according to one report, tenants at Goodwill Village
    in Memphis, Tennessee had to deal with an onslaught of snakes--which
    were attracted to the property because of a rat infestation.
        It would take too long for me to talk about every failing property
    in the country, but I think we can all agree that one is too many.
        So I introduced the Housing Accountability Act with Senator Rubio
    to give tenants a voice and to remove the over dependence on
    unscrupulous property managers and faulty inspections to clue HUD into
    what's going on at these properties.
        The bill does four main things:

        First, it codifies in law--rather than through regulation
            or contract--that subsidized property owners have to maintain
            safe and sanitary conditions at their properties. This should
            be common sense, but unfortunately we need to put the fear of
            law into some of these owners.

        Second, it establishes a process for independent contract
            administrators to survey tenants twice a year in order to
            identify persistent problems relating to the physical condition
            of the properties or the performance of the building's
            management.

         Currently, HUD requires tenants to file complaints with the
            building's management--who may not be responsive or may use the
            threat of eviction to intimidate tenants. The survey would act
            as a check on management, as well as on the property owners.

        Third, the bill would create a new penalty for owners that
            fail to maintain safe and sanitary conditions, or are
            repeatedly referred to HUD for remediation under the tenant
            survey previously mentioned.

        Last, the bill requires HUD to issue a report examining the
            capitalization of all subsidized properties in the country,
            particularly with regard to the use of taxpayer funds for
            purposes unrelated to the subsidized housing.

         We've heard stories that some of these landlords pocket the
            subsidy they get from HUD, while refusing to make needed
            repairs.

         We need to know if that's indeed what's happening. If it is, then
            we need to tighten the controls on these property owners.
            Taxpayers fund these programs to look out for those in need,
            not to pad the wallets of real estate companies looking to make
            a quick buck.

        Last--I've said this before but it begs repeating--no American
    should have to live in the conditions that we've seen at Windsor Cove
    and Eureka Gardens. We can't let this continue. I thank the Committee
    for taking the time to discuss this very important issue. Thank you.
                                     ______

                   PREPARED STATEMENT OF SENATOR MARCO RUBIO
        Thank you, Chairman Scott, for holding today's hearing on
            this important issue.

        Providing safe and sanitary conditions for people receiving
            housing assistance is central to HUD's mission, so it's
            disturbing to see taxpayer dollars wasted like this, and
            disappointing that HUD failed to provide a witness today.

        I would like to welcome two witnesses that will be
            testifying on the second panel, Ms. Tracy Grant and Major Josh
            Lewis.

        Both of these Floridians have done much to help my State
            and the entire country through their work to make these
            conditions known, and I want to thank them for taking the time
            to travel up to Washington to testify before this Committee
            today.

        I became involved with this situation about a year ago,
            when the tenants of Eureka Gardens took their case to the
            public. These tenants bravely made their voices heard while
            they faced threats of eviction from the landlord, Global
            Ministries Foundation (GMF).

        Since then, residents at other GMF properties and at
            derelict Section 8 properties around the State have spoken of
            their troubles and I am proud to represent their voices here
            today.

        When I visited Eureka Garden Apartments in Jacksonville, I
            saw crumbling staircases, exposed electrical wires, and
            boarded-up windows that would trap a child inside if there was
            a fire.

        I saw an apartment that hadn't been painted in 13 years. I
            saw pieces of wood with exposed nails put up in place of a
            door, in a unit with small children.

        This was all evident even after GMF rushed crews to the
            property to make cosmetic repairs just 48 hours before I
            arrived.

        I spoke with tenants who had been through a lot over the
            last few years and heard stories like some of the ones you will
            hear Ms. Grant tell today--stories of neglect, crime, and
            bureaucratic indifference from HUD.

        When Senator Nelson and I visited Windsor Cove Apartments
            in Orlando, we saw standing water in apartments, damaged roofs,
            collapsed ceilings, and breathed air that reeked of mold.

        We spoke with residents who had lived there for multiple
            years now, trapped in a facility with conditions that no one
            should have to endure.

        When I visited Stonybrook Apartments in Riviera Beach, I
            saw even more of the same.

        An unwillingness to repair these properties is
            unfortunately par-for-the-course for GMF.

        They willfully neglect the well-being of their tenants, as
            you will hear Major Lewis testify.

        These are the three GMF properties I have visited in the
            State of Florida. In each case, HUD has enabled fraud and abuse
            to continue, all while taxpayer money continues to flow into
            the pockets of these slumlords.

        Bureaucratic red tape, miscommunication, and a lack of
            urgency have plagued this Administration's response.

        But nothing displays how broken this program is better than
            HUD's inspection process.

        The passing score in HUD's inspection process is a 60 out
            of 100.

        If a property scores above this threshold, HUD gives it the
            stamp of approval, declaring that the conditions are ``decent,
            safe, and sanitary''--an approval that traps tenants at the
            property and keeps money flowing to the landlord.

        What I have discovered in Florida, however, is that HUD has
            compromised the integrity of its standards.

        Last year, the inspection of Windsor Cove gave it a passing
            score of 90 points out of 100.

        The next inspection, which occurred a week after Senator
            Nelson and I visited the property, gave it a failing score of a
            48.

        That inspection found a projected 86 life-threatening
            deficiencies on the property. From one score to the next, this
            kind of inconsistency is beyond belief.

        Eureka Gardens received a score of over 80 out of 100
            during the summer inspection that occurred just before the
            tenants brought forth their complaints.

        After months of back-and-forth repairs, hospitalizations
            from gas leaks, alleged lead poisoning, and incessant mold
            outbreaks, HUD's follow-up inspection gave the property a score
            of 62 out of 100.

        Just barely passing, if you can imagine that.

        Right after that inspection, in a letter sent to GMF after
            visiting the property, the Deputy Assistant Secretary for
            Multifamily Housing wrote that ``HUD officials do not believe
            the property would currently pass another REAC inspection,''
            despite the fact that an inspection had just happened barely a
            month before.

        The slumlords at Global Ministries Foundation caused this
            problem, but HUD enabled it.

        And the twin vices that so often afflict massive Federal
            welfare programs--bureaucracy and corruption--have prevented
            the kind of action necessary to protect the tenants, and
            allowed this crisis to go on for far too long.

        This is why I introduced and passed three amendments to the
            HUD appropriations legislation the Senate considered back in
            May.

        These amendments would enact a clear, 15-day deadline for
            property owners to respond to physical deficiencies, make
            tenant protection vouchers available to residents living at
            properties with imminent health and safety risks like GMF's
            properties, and order a nationwide audit of HUD's inspection
            process.

        Senator Nelson and I have also introduced legislation that
            would enact a tenant survey in order to better identify problem
            properties like GMF's.

        The problems found at these properties are not limited to
            the State of Florida. GMF owns properties in Alabama, Indiana,
            Louisiana, North Carolina, New York, Georgia, and Tennessee--
            where similarly bad conditions have led to Federal
            investigations.

        GMF owns over 5,000 taxpayer-funded units across the
            Nation.

        And beyond GMF, if HUD is falsely certifying the living
            conditions at this many properties for one organization, then
            it is probably doing the same thing for many other entities.

        I look forward to hearing from today's witnesses about the
            effects of GMF's fraud and HUD's neglect, and hope we can
            continue working together to investigate GMF and pass
            legislation to fix HUD's faulty inspection process.
                                     ______

                       PREPARED STATEMENT OF EDGAR OLSEN
        Professor, Economics and Public Policy, University of Virginia *
    ---------------------------------------------------------------------------
         * This paper was submitted for the Hearing on Oversight of the HUD
    Inspection Process and reflects the views of its author. It does not
    represent the official position of the University of Virginia. The
    University does not have an official position on low-income housing
    policy. It will appear in an American Enterprise Institute volume on
    means-tested programs Helping the Poor Better edited by Robert Doar.
    ---------------------------------------------------------------------------
                               September 18, 2016
            Reducing Poverty by Reforming Housing Policy
        Low-income housing assistance is fertile ground for reforms that
    would provide better outcomes with less public spending. The majority
    of current recipients are served by programs whose cost is enormously
    excessive for the housing provided. Phasing out these programs in favor
    of the system's most cost-effective program would ultimately free up
    the resources to provide housing assistance to millions of additional
    people and reduce taxes.\1\
    ---------------------------------------------------------------------------
        \1\ Edgar O. Olsen, ``The Effect of Fundamental Housing Policy
    Reforms on Program Participation,'' University of Virginia, January 14,
    2014, http://eoolsen.weebly.com/uploads/7/7/9/6/7796901/
    ehpfinaldraftjanuary2014coverabstracttextreferencetablesonlineappendices
    .pdf.
    ---------------------------------------------------------------------------
        Furthermore, the current system of low-income housing assistance
    provides enormous subsidies to some households while offering none to
    others that are equally poor, and it provides subsidies to many people
    who are not poor while offering none to many of the poorest. Avoiding
    these excessive subsidies and focusing assistance on the poorest
    families will contribute further to poverty alleviation. Well-designed
    reforms of the current system of low-income housing assistance would
    substantially alleviate poverty with less public spending.
    Overview of Current System
        To appreciate the potential for alleviating poverty through housing
    policy reforms, it is essential to know the nature of current programs
    and the evidence about their performance.\2\ The bulk of low-income
    housing assistance in the United States is funded by the Federal
    Government through a large number of programs with a combined cost of
    more than $50 billion a year. Unlike other major means-tested transfer
    programs in the United States, low-income housing programs do not offer
    assistance to many of the poorest families that are eligible for them.
    Eligible families that want assistance must get on a waiting list.
    ---------------------------------------------------------------------------
        \2\ For a detailed overview of the current system of low-income
    housing assistance and a summary of the evidence, see Edgar O. Olsen,
    ``Housing Programs for Low-Income Households,'' in Means-Tested
    Transfer Programs in the U.S., ed. Robert Moffitt (Chicago: University
    of Chicago Press, 2003); and John C. Weicher, Housing Policy at a
    Crossroads: The Why, How, and Who of Assistance Programs (Washington,
    DC: AEI Press, 2012). For a more detailed account of the evidence, see
    Edgar O. Olsen and Jeff Zabel, ``U.S. Housing Policy,'' in Handbook of
    Regional and Urban Economics, ed. Giles Duranton, J. Vernon Henderson,
    and William Strange, vol. 5 (Amsterdam: North-Holland, 2015).
    ---------------------------------------------------------------------------
        Most low-income housing assistance in the United States is for
    renting a unit, and the most important distinction among rental housing
    programs is whether the subsidy is attached to the dwelling unit
    (project-based assistance) or the assisted household (tenant-based
    assistance). If the subsidy is attached to a rental dwelling unit,
    families must accept the particular unit offered to receive assistance
    and lose the subsidy if they move, unless they obtain alternative
    housing assistance before moving.
        Each family offered tenant-based assistance is free to occupy any
    unit that meets the program's minimum housing standards, that rents for
    less than the program's ceiling, that is affordable with the help of
    the subsidy, and whose owner is willing to participate in the program.
    Families retain the subsidy if they move to another unit meeting these
    conditions. Figure 1 indicates the percentage of households that
    receive rental assistance of various types.
    Figure 1. Percentage of Households That Receive Each Type of Rental
            Assistance

    Source: Author's calculations based on 2013 American Housing Survey.

    Note: Includes assistance from U.S. Department of Housing and Urban
    Development and other sources.

        The Department of Housing and Urban Development (HUD) housing
    voucher program is the only significant program that provides tenant-
    based assistance. It is the second-largest low-income housing program,
    serving about 2 million households and accounting for about 32 percent
    of all households that receive low-income rental assistance.
        There are two broad types of project-based rental assistance:
    public housing and privately owned subsidized projects. Both types have
    usually involved constructing new projects. In almost all other cases,
    they have required substantial rehabilitation of existing buildings.
    Many of these programs no longer subsidize the construction of
    projects, but most projects built under them still house low-income
    households with the help of subsidies for their operation and
    renovation. Overall, project-based assistance accounts for about 68
    percent of all households that receive low-income rental assistance.
        Public housing projects are developed and operated by local public
    housing
    authorities established by local governments, albeit with substantial
    Federal subsidies and regulations that restrict their choices. For
    example, regulations limit the circumstances under which housing
    projects can be sold and what can be done with the proceeds. In the
    public housing program, government employees make most of the decisions
    that unsubsidized for-profit firms would make in the private market--
    what to build, how to maintain it, and when to tear it down. Decisions
    about where to build projects have been heavily influenced by local
    political bodies. The public housing stock has declined by about
    400,000 units since its peak in 1991. About 1 million households live
    in public housing projects.
        Government agencies also contract with private parties to provide
    housing in subsidized projects. Most are for-profit firms, but not-for-
    profits have a significant presence. The largest programs of this type
    are the IRS's Low-Income Housing Tax Credit, HUD's Section 8 New
    Construction and Substantial Rehabilitation and Section 236 Rental and
    Cooperative Housing for Lower-Income Families programs, and the U.S.
    Department of Agriculture's Section 515 and 521 programs. Under these
    programs, in exchange for certain subsidies, private parties agree to
    provide rental housing meeting certain standards at restricted rents to
    eligible households for a specified number of years.
        None of these programs provide subsidies to all suppliers who would
    like to participate. This is highly relevant for their performance. In
    general, subsidies to selected sellers of a good have very different
    effects than subsidies to all sellers. Subsidies to selected sellers
    lead to excessive profits and much greater wasteful rent seeking. About
    4 million households live in projects of this type.
    Performance of U.S. Low-Income Housing Programs
        Many aspects of the performance of low-income housing programs have
    been studied, such as their effects on recipients' labor earnings and
    the types of neighborhoods occupied by them.\3\ We certainly do not
    have evidence on all aspects of performance for all programs, and the
    evidence leaves much to be desired in many cases. However, we cannot
    avoid making a decision about reforms until we have excellent evidence
    on all aspects of performance for all programs. Enough evidence exists
    to give policymakers confidence that certain changes would move the
    program in the right direction. Making no change in current policies is
    a decision.
    ---------------------------------------------------------------------------
        \3\ Olsen and Zabel, ``U.S. Housing Policy.''
    ---------------------------------------------------------------------------
        Of all the differences in the performance of various methods for
    delivering housing assistance to low-income families, differences in
    cost-effectiveness are by far the most consequential for poverty
    alleviation. Evidence on housing programs' performance indicates that
    project-based assistance is much more costly than tenant-based
    assistance when it provides equally good housing. These studies define
    equally good housing to be housing that would rent for the same amount
    in the same locality in the unsubsidized market. This measure accounts
    for the desirability of the neighborhood and the housing itself. In the
    best studies, the estimated magnitude of the excess cost is
    enormous.\4\
    ---------------------------------------------------------------------------
        \4\ For a detailed summary of the evidence on the cost-
    effectiveness of low-income housing programs, see Edgar O. Olsen,
    ``Getting More from Low-Income Housing Assistance,'' Brookings
    Institution, September 2008, http://www.brookings.edu/papers/2008/
    09_low_income_housing
    _olsen.aspx.
    ---------------------------------------------------------------------------
        The best study of Section 8 New Construction and Substantial
    Rehabilitation, HUD's largest program that subsidized the construction
    of privately owned projects, found an excess total cost of at least 44
    percent.\5\ That is, the total cost of providing housing under this
    program was at least 44 percent greater than the total cost of
    providing equally good housing under the housing voucher program. This
    translates into excessive taxpayer cost of at least 72 percent for the
    same outcome. It implies that housing vouchers could have served all
    the people served by this program equally well and served at least 72
    percent more people with the same characteristics without any increase
    in public spending.
    ---------------------------------------------------------------------------
        \5\ James E. Wallace et al., Participation and Benefits in the
    Urban Section 8 Program: New Construction and Existing Housing, vol. 1
    and 2 (Cambridge, MA: Abt Associates, 1981).
    ---------------------------------------------------------------------------
        The best study indicates even larger excess costs for public
    housing.\6\ More recent evidence has confirmed the large excess cost of
    the Section 8 New Construction and Substantial Rehabilitation Program,
    and U.S. General Accounting Office (GAO) studies have produced similar
    results for the major active construction programs: LIHTC, HOPE VI,
    Section 202, Section 515, and Section 811.\7\ In contrast, a succession
    of studies over the years have found that the total cost of various
    types of tenant-based housing assistance have exceeded the market rent
    of the units involved by no more than the modest cost of administering
    the program.\8\
    ---------------------------------------------------------------------------
        \6\ Stephen K. Mayo et al., Housing Allowances and Other Rental
    Assistance Programs--A Comparison Based on the Housing Allowance Demand
    Experiment, Part 2: Costs and Efficiency, Abt Associates Inc., 1980.
        \7\ Meryl Finkel et al., Status of HUD-Insured (or Held)
    Multifamily Rental Housing in 1995: Final Report, Abt Associates Inc.,
    May 1999, Exhibit 5-1; Mark Shroder and Arthur Reiger, ``Vouchers
    Versus Production Revisited,'' Journal of Housing Research 11, no. 1
    (2000): 91-107; U.S. General Accounting Office, Federal Housing
    Programs: What They Cost and What They Provide, GAO-01-901R, July 18,
    2001, http://www.gao.gov/products/GAO-01-901R; and U.S. General
    Accounting Office, Federal Housing Assistance: Comparing the
    Characteristics and Costs of Housing Programs, GAO-02-76, January 31,
    2002, http://www.gao.gov/products/GAO-02-76.
        \8\ Mayo et al., Housing Allowances and Other Rental Assistance
    Programs--A Comparison Based on the Housing Allowance Demand
    Experiment, Part 2: Costs and Efficiency; Wallace et al., Participation
    and Benefits in the Urban Section 8 Program: New Construction and
    Existing Housing; Mireille L. Leger and Stephen D. Kennedy, Final
    Comprehensive Report of the Freestanding Housing Voucher Demonstration,
    vol. 1 and 2 (Cambridge, MA: Abt Associates Inc., 1990); and ORC Macro,
    Quality Control for Rental Assistance Subsidies Determination, U.S.
    Department of Housing and Urban Development, Office of Policy
    Development and Research, 2001, chap. 5.
    ---------------------------------------------------------------------------
        The preceding evidence on the cost-effectiveness of project-based
    assistance applies to units built or substantially rehabilitated under
    a subsidized construction program and still under their initial use
    agreement. Evidence from the Mark-to-Market program indicates the
    excessive cost of renewing use agreements for privately owned
    subsidized projects. In most cases, owners are paid substantially more
    than market rents for their units.\9\
    ---------------------------------------------------------------------------
        \9\ For a summary of the evidence, see Olsen, ``Getting More from
    Low-Income Housing Assistance.'' 14.
    ---------------------------------------------------------------------------
        The results concerning the cost-effectiveness of different housing
    programs illustrate the virtue of substantially relying on market
    mechanisms to achieve social goals, especially the virtue of forcing
    sellers to compete for business. Under a program of tenant-based
    assistance, only suppliers who provide housing at the lowest cost given
    its features can remain in the program. If the property owner attempts
    to charge a voucher recipient a rent in excess of the market rent, the
    tenant will not remain in the unit indefinitely because he or she can
    move to a better unit without paying more for it. Under programs of
    project-based assistance, suppliers who receive payments in excess of
    market rents for their housing can remain in the program indefinitely
    because their tenants would lose their subsidies if they moved. These
    suppliers have a captive audience.
        Recent events in Washington, DC, vividly illustrate the pitfalls of
    providing subsidies to selected suppliers.\10\ The mayor has proposed
    spending about $4,500 per month per apartment to lease units in
    buildings owned mainly by contributors to her campaign. This cost does
    not include services to these families, and most units are dormitory
    style. It has been estimated that these agreements would increase the
    market value of the properties tenfold. At the same time, families with
    HUD's Section 8 housing vouchers have been able to find regular two-
    bedroom apartments for rents around $1,600 a month. These are better
    than average rental units that meet HUD's housing standards. The median
    rent of two-bedroom units in DC is about $1,400.
    ---------------------------------------------------------------------------
        \10\ Aaron C. Davis and Jonathan O'Connell, ``Shelter Plan May
    Benefit Mayor's Backers,'' Washington Post, March 17, 2016; and Fenit
    Nirappil, ``Shelters' Cost Stun Some DC Lawmakers,'' Washington Post,
    March 18, 2016.
    ---------------------------------------------------------------------------
        The evidence on cost-effectiveness argues strongly for phasing out
    project-based assistance in favor of tenant-based assistance. This
    would contribute greatly to poverty alleviation without spending more
    money by increasing the number of poor families that receive housing
    assistance.
        Phasing out project-based assistance will contribute to poverty
    alleviation for another reason. Under the current system, the best
    units in new projects in the best locations have very high market
    rents. They are much more desirable than the average rental unit. The
    worst units in the oldest projects in the worst locations have very low
    market rents. Identical families living in the best and worst projects
    pay the same rent. Therefore, the current system provides enormous
    subsidies to some families and small subsidies to others in the same
    economic circumstances.
        Equalizing these subsidies would contribute to poverty alleviation.
    Under the housing voucher program, identical households within the same
    housing market are offered the same assistance on the same conditions.
    Therefore, providing incremental housing assistance in the form of
    housing vouchers rather than subsidized housing projects would
    contribute to poverty alleviation by giving larger subsidies to the
    families that would have received the smallest subsidies in the absence
    of reform and smaller subsidies to similar families that would have
    received the largest subsidies.
        These inequities have not been carefully documented but are obvious
    to all knowledgeable observers. A recent segment on PBS NewsHour
    revealed that $500,000 had been spent per apartment to build a housing
    project for the homeless in San Francisco.\11\ This is expensive even
    by Bay Area standards. The median value of owner-occupied houses in the
    San Francisco metro area was $558,000, and the median household income
    of their occupants was $104,000. So this government program provided
    apartments to the poorest families that were almost as expensive as the
    houses occupied by the average homeowner.
    ---------------------------------------------------------------------------
        \11\ PBS NewsHour, aired October 9, 2013 (New York, MGM
    Television).
    ---------------------------------------------------------------------------
        Ensuring that the homeless occupy housing meeting reasonable
    minimum standards does not require anything like the amount of money
    spent on these units. More than 20 percent of owner-occupied houses in
    the San Francisco area sell for less than $300,000. Furthermore, almost
    half of the families in the area are renters whose median income is
    about $50,000. They live in much less expensive units than homeowners.
        We do not need to build new units to house the homeless. They can
    be housed in satisfactory existing units at a much lower taxpayer cost.
    More than 6 percent of the dwelling units in the area were vacant at
    the time.
        In Portland, Oregon, where the median value of owner-occupied
    houses was $249,000, $360,000 per apartment was spent to build another
    housing project for the homeless.\12\ These cases are not anomalies.
    The HUD website is filled with photographs of such housing. The desire
    of the people involved in the current system to provide the best
    possible housing for their clients is understandable. However, this is
    not costless. Dollars spent on these high-cost projects are dollars not
    spent providing housing to more people.
    ---------------------------------------------------------------------------
        \12\ Peter Korn, ``Police threaten complaint as calls mount at the
    commons,'' Portland Tribune, January 9, 2014.
    ---------------------------------------------------------------------------
        Tenant-based assistance has other important advantages in addition
    to its greater equity and its much lower cost for providing equally
    desirable housing. For example, it allows recipients to choose housing
    that better suits their preferences and circumstances, such as living
    close to their jobs. This increases their well-being without increasing
    taxpayer cost.
        In contrast to occupants of subsidized housing projects, voucher
    recipients have chosen to live in neighborhoods with lower poverty and
    crime rates. Susin found that public housing tenants live in census
    tracts with poverty rates 8.8 percentage points higher than in the
    absence of assistance, tenants in HUD-subsidized privately owned
    projects live in tracts with poverty rates 2.6 percentage points
    higher; and voucher recipients live in tracts with poverty rates 2.3
    percentage points lower.\13\ Michael C. Lens, Ingrid Gould Ellen, and
    Katherine O'Regan found that occupants of tax-credit projects live in
    neighborhoods with crime rates about 30 percent higher than voucher
    recipients and only slightly lower than the crime rates in public
    housing neighborhoods.\14\ Because voucher recipients have much more
    choice concerning the location of their housing, this suggests that
    subsidized housing projects are poorly located from the viewpoint of
    recipient preferences.
    ---------------------------------------------------------------------------
        \13\ Scott Susin, ``Longitudinal Outcomes of Subsidized Housing
    Recipients in Matched Survey and Administrative Data,'' Cityscape 8,
    no. 2 (2005): 207.
        \14\ Michael C. Lens, Ingrid Gould Ellen, and Katherine O'Regan,
    ``Do Vouchers Help Low-Income Households Live in Safer Neighborhoods?
    Evidence on the Housing Choice Voucher Program,'' Cityscape 13, no. 3
    (2011): 135-59.
    ---------------------------------------------------------------------------
        Voucher recipients have exercised this choice in a way that
    benefits their children. A widely cited, recent paper shows that better
    neighborhood environments lead to better adult outcomes for children in
    recipient households.\15\ They have higher college attendance rates and
    labor earnings and are less likely to be single parents.
    ---------------------------------------------------------------------------
        \15\ Raj Chetty, Nathaniel Hendren, and Lawrence F. Katz, ``The
    Effects of Exposure to Better Neighborhoods on Children: New Evidence
    from the Moving to Opportunity Experiment,'' American Economic Review
    106, no, 4 (2016): 855-907.
    ---------------------------------------------------------------------------
        Before considering reforms of low-income housing policy, it is
    important to address a bit of folklore that has been influential in
    housing policy debates: that construction programs perform better than
    housing vouchers in tight housing markets. Todd Sinai and Joel
    Waldfogel show that additional housing vouchers result in a larger
    housing stock than the same number of newly built units in subsidized,
    privately owned housing projects.\16\
    ---------------------------------------------------------------------------
        \16\ Todd Sinai and Joel Waldfogel, ``Do Low-Income Housing
    Subsidies Increase the Occupied Housing Stock?'' Journal of Public
    Economics 89, no. 11-12 (2005): 2137-64.
    ---------------------------------------------------------------------------
        In light of other evidence, the most plausible explanations are
    that subsidized construction crowds out unsubsidized construction
    considerably and that the housing voucher program induces more
    recipients to live independently. The voucher program serves poorer
    households that are more likely to be doubled up in the absence of
    housing assistance. Crowding out is surely greatest in the tightest
    housing markets. In the absence of subsidized construction in these
    markets, unsubsidized construction would be high, and unemployment
    among construction workers would be low. Subsidized construction would
    divert workers from unsubsidized construction.
        Furthermore, it is reasonable to believe tenant-based vouchers get
    families into satisfactory housing much faster than any construction
    program, even in the tightest housing markets. For example, the amount
    of time from when new vouchers are allocated to housing authorities to
    when they are used by voucher recipients is surely less than the amount
    of time from when new tax credits are allocated to State housing
    agencies to when tax-credit units are occupied.
        Even though some households do not use the vouchers offered,
    housing authorities can put all, or almost all, their vouchers to use
    in less than a year in any market condition. They can fully utilize
    available vouchers by over-issuing vouchers early in the year and then
    adjusting the recycling of the vouchers that are returned by families
    that leave the program late in the year. No production program can hope
    to match this speed in providing housing assistance to low-income
    households.
    Proposed Reforms of Low-Income Housing Policies To Alleviate Poverty
        The available evidence on program performance has clear
    implications for housing policy reform. To serve the interests of
    taxpayers who want to help low-income families with their housing and
    the poorest families that have not been offered housing assistance,
    Congress should shift the budget for low-income housing assistance from
    project-based to tenant-based housing assistance as soon as current
    contractual commitments permit and phaseout active construction
    programs.
        This section describes proposals for reform of low-income
    assistance that will alleviate poverty without spending more money. The
    reforms deal with all parts of the current system--active construction
    programs, existing privately owned housing projects, public housing,
    and the housing voucher program.
        Active Subsidized Construction Programs. The Low-Income Housing Tax
    Credit (LIHTC) is the largest active construction program. It
    subsidizes the construction of more units each year than all other
    programs combined. LIHTC recently became the Nation's largest low-
    income housing program, serving 2.4 million households, and it is the
    fastest growing. The tax credits themselves involved a tax expenditure
    of about $6 billion in 2015. However, these projects received
    additional development subsidies from State and local governments,
    usually funded through Federal intergovernmental grants, accounting for
    one-third of total development subsidies.\17\ Therefore, the total
    development subsidies were about $9 billion a year.
    ---------------------------------------------------------------------------
        \17\ Jean L. Cummings and Denise DiPasquale, ``The Low-Income
    Housing Tax Credit: An Analysis of the First Ten Years,'' Housing
    Policy Debate 10, no. 1 (1999): 299.
    ---------------------------------------------------------------------------
        Furthermore, the GAO found that owners of tax-credit projects
    received subsidies in the form of project-based or tenant-based Section
    8 assistance on behalf of 40 percent of their tenants.\18\ The
    magnitude of these subsidies has never been documented. If their per-
    unit cost were equal to the per-unit cost of tenant-based housing
    vouchers in 2015, they would have added more than $8 billion a year to
    the cost of the tax-credit program. If so, the full cost of housing
    people in tax-credit projects would have been about $17 billion in
    2015.
    ---------------------------------------------------------------------------
        \18\ U.S. General Accounting Office, Tax Credits: Opportunities to
    Improve Oversight of the Low-Income Housing Program, GGD/RCED-97-55,
    1997, 40.
    ---------------------------------------------------------------------------
        Unlike HUD's programs, the LIHTC is poorly targeted to the poorest
    households. Some tax credits are used to rehabilitate older housing
    projects built under HUD and U.S. Department of Agriculture programs
    that continue to provide deep subsidies to their occupants. Other tax-
    credit units are occupied by families with portable Section 8 housing
    vouchers. The families in these units typically have very low earnings.
    However, the majority of occupants of tax-credit projects do not
    receive these deep subsidies related to their income. Their average
    income is more than twice the average for the occupants who receive the
    deep subsidies, and they are well above poverty thresholds.\19\
    ---------------------------------------------------------------------------
        \19\ Ibid., 146.
    ---------------------------------------------------------------------------
        The poor targeting of its subsidies and the evidence on its cost-
    ineffectiveness argue strongly for the cessation of subsidies for
    additional LIHTC projects. Reducing new authorizations under the
    program by 10 to 20 percent each year would achieve this outcome in an
    orderly fashion. The money spent on this program would be better spent
    on expanding HUD's well-targeted and cost-effective Section 8 Housing
    Choice Voucher Program.
        Because the congressional committees that oversee the two programs
    are different, this transfer of funds would be difficult to arrange.
    However, the committees that oversee the LIHTC could divert the reduced
    tax expenditures on the LIHTC to a refundable tax credit for the
    poorest low-income homeowners, thereby offsetting to some extent the
    anti-homeownership bias of the current system of low-income housing
    assistance. About 25 percent of all unassisted households in the lowest
    real-income decile are homeowners.\20\ To avoid excess profits to
    sellers, it is extremely important that buyers are able to purchase
    from any seller.\21\
    ---------------------------------------------------------------------------
        \20\ In determining a household's real income, this calculation
    adds an imputed return on home equity to the income of homeowners and
    accounts for differences in family size and composition and price
    levels across locations. Edgar O. Olsen, ``Promoting Homeownership
    Among Low-Income Households,'' Urban Institute, August 20, 2007, Table
    1, http://www.urban.org/UploadedPDF/411523_promoting_homeownership.pdf.
        \21\ Edgar O. Olsen and Jens Ludwig, ``The Performance and Legacy
    of Housing Policies,'' in The Legacies of the War on Poverty, ed.
    Martha Bailey and Sheldon Danziger (New York: Russell Sage Foundation,
    2013), 218-21.
    ---------------------------------------------------------------------------
        Existing Privately Owned Subsidized Projects. The second broad
    proposal to reform low-income housing policy in the interest of poverty
    alleviation is to not renew contracts with the owners of private
    subsidized projects. The initial agreements that led to building or
    substantially rehabilitating these projects called for their owners to
    provide housing that meets certain standards to households with
    particular characteristics at certain rents for a specified number of
    years. At the end of the use agreement, the government must decide on
    the terms of the new agreement, and the private parties must decide
    whether to participate on these terms. A substantial number of projects
    end their use agreements each year. When use agreements are not
    renewed, current occupants are provided with other housing assistance,
    almost always tenant-based vouchers.
        Up to this point, housing policy has leaned heavily in the
    direction of providing owners with a sufficient subsidy to induce them
    to continue to serve the low-income households in their projects. We
    should not repeat these mistakes. Instead we should give their tenants
    portable vouchers and force the owners to compete for their business.
    The evidence on the cost-effectiveness of renewing use agreements
    versus tenant-based housing vouchers indicates that offering such
    vouchers would reduce the taxpayer cost of assisting these families.
    The savings could be used to assist additional families.
        It is important to realize that for-profit sponsors will not agree
    to extend the use agreement unless this provides at least as much
    profit as operating in the unsubsidized market. Because these subsidies
    are provided to selected private suppliers, the market mechanism does
    not ensure that rents paid for the units will be driven down to market
    levels. If this is to be achieved at all, administrative mechanisms
    must be used. Administrative mechanisms can err in only one direction--
    providing excess profits. If the owner is offered a lower profit than
    in the unsubsidized market, the owner will leave the program. We should
    leave the job of getting value for the money spent to the people who
    have the greatest incentive to do so: namely, the recipients of housing
    assistance.
        It is often argued that giving families that live in privately
    owned subsidized housing projects portable housing vouchers at the end
    of the use agreement will force them to move. This would not be the
    case if tenants are offered the same options as they are offered under
    the current system when the project's owner opts to leave the program.
    HUD will pay the market rent for the unit as long as the tenant wants
    to remain in it but offers the tenant the option of a regular housing
    voucher. This would enable the family to continue to live in its
    current unit without devoting more income to rent, and it would offer
    the family other options that it might prefer.
        It is also argued that the failure to renew use agreements on
    privately owned subsidized projects reduces the number of affordable
    housing units. If the occupants of these projects are offered portable
    vouchers, this could not be further from the truth. When use agreements
    are extended, the only unit that is made affordable to an assisted
    family living in the project is its own unit. If that family is offered
    a portable voucher, many units become affordable to the family.
    Contrary to the arguments of lobbyists for project-based housing
    assistance, failing to renew use agreements on subsidized housing
    projects increases rather than decreases the stock of housing that is
    affordable to low-income households.
        Public Housing. The public housing reform proposals are proposals
    to better use the funds and assets currently available to public
    housing authorities. They are
    designed to alleviate poverty by delivering better housing to tenants
    who remain in public housing, providing current public housing tenants
    with more choice concerning their housing, assisting additional
    households, and reducing the concentration of the poorest families in
    public housing projects. The proposals would require congressional
    action to change the restrictions on housing authorities, except
    possibly for those participating in HUD's Moving to Work Demonstration.
        Currently, HUD provides public housing authorities with more than
    $6 billion each year in operating and modernization subsidies for their
    public housing projects. My proposal would give each housing authority
    the same amount of Federal money as it would have gotten with the old
    system, so no authority would be able to object on the grounds that it
    would have less to spend on its clients. However, the proposal would
    alter greatly the restrictions on the use of this money and increase
    the total revenue of housing authorities.
        The proposal requires every public housing authority to offer
    current tenants the option of a portable housing voucher or remaining
    in their current unit on the previous terms, unless the housing
    authority decides to demolish or sell its project. To ensure that
    housing authorities can pay for these vouchers with the money
    available, the generosity of the voucher subsidy would be set to use
    the housing authority's entire Federal subsidy in the highly unlikely
    event that all public housing tenants accepted the vouchers. The
    generosity of these vouchers would almost always differ from the
    generosity of regular Section 8 vouchers, although the difference would
    be small in most cases.
        Housing authorities would be allowed to sell any of their projects
    to the highest bidder with no restrictions on its future use. This
    would provide additional revenue to improve their remaining projects or
    provide vouchers to additional households. The requirement that these
    projects must be sold to the highest bidder maximizes the money
    available to help low-income families with their housing. It also
    avoids scandals associated with sweetheart deals.
        Many housing authorities would surely choose to sell their worst
    projects. With uniform vouchers offered to families living in all of a
    housing authority's projects, it is reasonable to expect that the
    vouchers will be accepted by more tenants in the worst projects. These
    are the projects that would be the most expensive to renovate up to a
    specified quality level. They are the types of projects that have been
    demolished under the HOPE VI program and that Congress intended to
    voucher out under the 1998 Housing Act. By selling the public housing
    projects on which they would have spent the most money and providing
    their occupants with vouchers that have the same cost as the
    authority's average net expenditure on public housing units, the public
    housing authority would free up money to better maintain its remaining
    units or provide vouchers to additional households.
        When a project is sold, the remaining tenants in that project would
    be offered the choice between vacant units in other public housing
    projects or a housing voucher, the standard procedure when projects are
    demolished or substantially rehabilitated. When public housing units
    are vacated by families that accept vouchers, the housing authority
    would offer the next family on the waiting list the option of occupying
    the unit or a portable housing voucher. If the family takes the
    voucher, the housing authority would be allowed to charge whatever rent
    the market will bear for the vacant unit. This would provide additional
    revenue to housing authorities without
    additional government subsidies.
        To reduce poverty concentrations in public housing projects,
    Congress might want to eliminate the income-targeting rules for
    families that pay market rents for public housing units. Indeed, it
    might want to eliminate upper-income limits for these families. Under
    current regulations, at least 40 percent of new occupants must have
    extremely low incomes. Under the proposal, the new occupants will
    receive no public subsidy, and so income targeting would serve no
    public purpose.
        Each year some former public housing tenants who had used the
    proposed vouchers to leave their public housing units would give up
    these vouchers for a variety of reasons. The money saved from their
    departure should be used to offer similar vouchers to other families
    eligible for housing assistance. The recycling of voucher funds would
    ensure that the tax money spent on public housing will continue to
    support at least the same number of families.
        The preceding proposals would benefit many current public housing
    tenants without increasing taxpayer cost. The public housing tenants
    who accept vouchers would obviously be better off because they could
    have stayed in their current units on the old terms. They would move to
    housing meeting HUD's housing standards that better suits their
    preferences. Tenants who remain in public housing would benefit from
    better maintenance of their units.
        The only public housing tenants who might be hurt by the proposal
    are tenants who want to remain in the projects that housing authorities
    decide to sell. Since it is impossible to justify renovating structures
    that reach a certain level of obsolescence and dilapidation, the
    initial opposition of a small minority of public housing tenants should
    not prevent benefits to the majority. Generally, public housing
    redevelopment has not required occupants' consent.
        Given the difficulty of predicting all of the consequences of such
    far-reaching changes, we should start with a controlled experiment
    involving innovative public housing authorities willing to implement
    these proposals for a randomly selected subset of their public housing
    projects. This experiment would produce evidence on the effects of the
    proposals, and it would provide useful information for modifying them
    to avoid unforeseen negative consequences and achieve better outcomes.
        Housing Voucher Program. Even though HUD's Housing Choice Voucher
    Program is the country's most cost-effective and equitable low-income
    housing program, it too offers opportunities for reform in the interest
    of poverty alleviation. The Housing Choice Voucher Program provides
    very large subsidies to its recipients while offering nothing to other
    families in similar circumstances.
        In 2015, the national mean subsidy for a household with one adult,
    two children, and no countable income was almost $12,000. The poverty
    threshold for this family was about $20,000. A voucher subsidy of this
    magnitude enables its recipient to
    occupy a rental unit of about average desirability among two-bedroom
    units, that is, a unit with about the median market rent.
        From the viewpoint of poverty alleviation correctly conceived, it
    is surely better to provide somewhat more modest housing to more of the
    poorest households rather than housing of this quality to a fortunate
    few. The current welfare system provides recipients of housing vouchers
    with resources well above the relevant poverty threshold, while leaving
    others without housing assistance well below it.
        In the interest of ameliorating this inequity and reducing poverty
    without harming current recipients, new recipients could be offered
    less generous subsidies so that more households could be served with a
    given budget, and current voucher recipients could receive the generous
    subsidies that are offered by the current program. Because more than 10
    percent of voucher recipients exit the program each year, this
    initiative will allow more families to be served each year without
    spending more money and will improve the program's equity. Eventually,
    all participants in the same economic circumstances would receive the
    same lower subsidy.
        The new subsidy level could be chosen so that the voucher program
    could serve all of the poorest households that asked for assistance. At
    current subsidy levels, many more people want to participate than can
    be served with the existing budget. Reducing the voucher subsidy by the
    same amount for households at all income
    levels would make families currently eligible for subsidies less than
    this amount ineligible for voucher assistance. These are the currently
    eligible households with the largest incomes. This would free up money
    to provide vouchers to needier households that would not have been
    served by the current system.
        By reducing the subsidies sufficiently, we would reach a point
    where all of the poorest households that ask for assistance would get
    it. Olsen analyzes the effect of alternative reforms of this type on
    who is served by the voucher program.\22\ This reform would surely
    reduce evictions and homelessness, although these effects have not been
    studied.
    ---------------------------------------------------------------------------
        \22\ Olsen, ``The Effect of Fundamental Housing Policy Reforms on
    Program Participation.''
    ---------------------------------------------------------------------------
    Conclusion
        The rapid growth of spending on entitlement programs for the
    elderly that will occur until they are substantially reformed will
    create pressure to reduce spending on programs such as low-income
    housing programs whose budgets are decided each year by Congress. In
    this situation, we should be focusing on how to get more from the money
    currently allocated to these programs.
        Building new units is an extremely expensive way to provide better
    housing to low-income households, and subsidizing selected suppliers is
    especially expensive. Renting existing units that meet minimum
    standards is much cheaper. This also avoids providing recipients of
    low-income housing assistance with better housing than the poorest
    families ineligible for assistance. The proposed reforms will gradually
    move the system of low-income assistance toward more cost-effective
    approaches and enable us to provide housing assistance to millions of
    additional people without spending more money.
        It is often argued that a shortage of affordable housing calls for
    subsidizing the construction of new units. This argument is seriously
    flawed. Almost all people are currently housed. If we think that their
    housing is too expensive (commonly called unaffordable), the cheapest
    solution is for the government to pay a part of the rent. The housing
    voucher program does that. This program also ensures that its
    participants live in units that meet minimum standards. Building new
    units is a much more expensive solution to the affordability problem.
        Furthermore, it is not necessary or desirable to construct new
    units to house the homeless. The number of people who are homeless is
    far less than the number of vacant units--indeed, far less than the
    number of vacant units renting for less than the median. In the entire
    country, there are only about 600,000 homeless people on a single night
    and more than 3.6 million vacant units available for rent. Even if all
    homeless people were single, they could be easily accommodated in
    vacant existing units, and that would be much less expensive than
    building new units for them. Furthermore, most of the 600,000 people
    who are homeless each night already have roofs over their heads in
    homeless shelters, which are also subsidized. The best provide good
    housing.
        Reducing the substantial differences in subsidies across identical
    households that characterize the current system would contribute
    further to poverty alleviation. It would help fill the gap between
    poverty thresholds and the resources of the poorest households. The
    current system provides substantial subsidies to recipients while
    failing to offer housing assistance to many others who are equally
    poor. Even among the fortunate minority who are offered assistance, the
    variation in the subsidy across identical households living in
    subsidized housing projects is enormous. The best housing projects
    offered by a particular program are much more desirable than the worst,
    but tenants with the same characteristics pay the same rent for units
    in either. Because the most cost-effective program offers the same
    subsidy to identical recipients, the shift away from other programs
    toward it will focus more of the system's resources on the poorest
    families.
                                     ______

                       PREPARED STATEMENT OF TRACY GRANT
                 President, Eureka Gardens Tenants' Association
                               September 22, 2016
        I would like to thank Chairman Scott and Senator Rubio for inviting
    me to testify today. Almost exactly a year ago, I worked with the
    community of tenants that I lead as the President of the Eureka Gardens
    Tenants' Association to publicize the conditions that we have to live
    in every day. I would have scarcely imagined then that today, 1 year
    later, I would be testifying before this Committee today in Washington,
    DC. In the time I have spent at Eureka Gardens, I have seen and
    experienced both hardships and triumphs, and I would like to share some
    of those stories with you today.
        My story begins in September 2010, when I applied for the
    apartment, signed my lease, got my keys and did the walk through. Even
    early on in my time at Eureka Gardens, I had to deal with mold in the
    kitchen and bathroom. Some days I would come home and the bathroom was
    flooded. This bathroom flooding was not done by me or my children, it
    just happened all by itself. The water even began coming into my room.
        That wasn't everything, either. There wasn't an air conditioning
    unit in my apartment, like with many others. I had to pay the front
    office manager's husband $50 to put an air conditioning unit in the
    window. Now, I don't know how many people in this room have had to
    endure a Florida summer without air conditioning, but it's not a fun
    experience, and it felt ridiculous to me that I had to pay off the
    manager's husband in order to have a necessity like AC in my home.
        But the problems at Eureka Gardens didn't stop once I walked out
    the door. Crime is prevalent in and around Eureka Gardens. There was
    even a shooting in the area that occurred not long after I moved there.
    It was then that I realized this was not an environment that I wanted
    my children to have to grow up in and I wanted to do something about
    it.
        When another young man was shot in October 2014, a lot of the
    residents were fed up with the poor conditions created by the owner's
    neglect of the property and the crime it attracted, so we had a
    resident meeting. There, I realized that I wasn't the only resident
    that felt this way about Eureka Gardens, and at the next resident
    meeting I was elected Tenants' Association President.
        The nationwide attention that Eureka Gardens has received for gas
    leaks, persistent mold, and lead poisoning has all occurred during my
    tenure as President. In September 2015--just over a year ago--there was
    a meeting with the Tenants' Association and the owner and management
    teams where we were supposed to talk about bringing new programs to the
    neighborhood. But at this meeting, everyone was so frustrated that it
    turned into a discussion of the conditions they were forcing us to live
    in.
        We were so frustrated by the lack of changes at Eureka Gardens that
    on September 29, 2015, I wrote a letter outlining our issues and
    concerns and sent it to our local officials, including the HUD office.
    On October 2, 2015, I received a response back, and before you knew it
    we had Mayor Lenny Curry, Councilman Garrett Dennis, Pastor Mark
    Griffin, the fire marshal, the sheriff lined up in our support. I want
    to thank our local government officials for their strong support and
    commitment to our community during this time.
        Even with all of this support, conditions did not significantly
    improve. Gas leaks sent some of our residents to the hospital, and
    persistent mold made it hard to breathe sometimes. Repair crews often
    did more harm than good, like when they had to shut off the heat in
    November. There was even a case where a child had a case of lead
    poisoning. Crime is still a problem. About a month ago, seven people
    were shot at Eureka Garden, including a 20-year-old mother of two.
        The residents of Eureka Gardens have had to endure conditions like
    this for years, but now we are speaking together as one voice so that
    people can know what it's like to live there. I'm grateful for the
    public attention that our situation has received, but I know I speak
    for all of the residents when I say that what matters most to us are
    some real changes. Changes that help us live our lives without fear of
    crime or sickness. Changes that give our children a safe place to come
    home to after school.
        I am here today because I want to make sure that we have better
    living conditions. I pray that if we are able to get a new owner, they
    will rebuild the apartments and make it better for the residents. Thank
    you for this opportunity.
                                     ______

                     PREPARED STATEMENT OF MAJOR JOSH LEWIS
          Riviera Beach Police Department, Palm Beach County, Florida
                               September 22, 2016
    Good morning,

        My name is Major Josh Lewis of the Riviera Beach Police Department,
    a municipal police department located in Palm Beach County, Florida. I
    have been a law enforcement for almost 19 \1/2\ years, all with the
    Riviera Beach Police Department. My professional training highlights
    include having attended the Southern Police
    Institute Command Officers Development Academy and the FBI National
    Academy. I also possess a Master's Degree in Criminal Justice, with a
    Major in Critical Incident Management.
        The Riviera Beach Police Department initiated an investigation at
    the Stonybrook Apartment Complex, located at 1555 Martin Luther King
    Boulevard, Riviera Beach, Florida, in an effort to impact the various
    public safety, health, and quality of life issues at this apartment
    complex. Stonybrook, which was constructed in 1972, is an affordable
    residential development comprised of a mix of two- and three-bedroom,
    two-bath housing units. There is a laundry/maintenance facility and a
    community center on the property. Fourteen buildings house 216
    residential rental units. The property sits on 8.67 acres.
        Between November 28, 2012 and March 20, 2013, city officials held a
    series of meeting with representatives of MiamiMar, the property
    management company for Stonybrook, and Armando Fana, the Regional
    Director for the U.S. Department of Housing and Urban Development
    (HUD). The topics of discussion were the prevalence of criminal
    activity and property maintenance issues at this property.
        Simultaneously, the property owner was notified of the existence of
    public nuisance conditions of the property; however, the property owner
    and their agent have resisted the attempts of city officials to compel
    them to implement strategies and improvements at their property and the
    public and other conditions continued to exist.
        During this time, there were numerous drug warrants executed which
    resulted in numerous felony arrests. These arrests satisfied the legal
    standard to declare Stonybrook Apartments as a public nuisance.
    Property owners and HUD were notified of these findings. Research as
    early as 2012 revealed that GMF Stonybrook LLC, the property owner of
    Stonybrook, has a history of not maintaining the
    residential units in decent, safe and sanitary manners; more
    specifically, in Memphis, Tennessee, and Jacksonville, Florida, where
    it has lost its Federal funding based on repeated code violations.
        In March 2013, Stonybrook received a Notice of Violation for
    accumulation of debris, loose garbage, landscaping, and overgrowth,
    along with an assortment of other miscellaneous code violations. In
    June 2014, Stonybrook was declared to be a public nuisance pursuant to
    Chapter 11, Section 11-183 (1). The property owners stipulated to
    complete the following improvements which were designed to abate the
    ongoing criminal nuisances, to include securing access points of the
    property, to provide armed security, install security cameras, install
    a sliding access controlled gate, install landscaping, remove loose
    garbage, fix irrigation systems, paint exterior of the buildings, and
    add lighting.
        In August 2013, at a Code Enforcement Magistrate Hearing, the owner
    was found in violation of accumulation of debris, loose garbage,
    landscaping, and overgrowth, along with an assortment of other
    miscellaneous code violations. The Magistrate allowed the owner 120
    days to comply or fines would commence. The police department continued
    to monitor the property to ensure compliance with the Magistrate's
    order.
        In May 2014, a Nuisance Abatement Status Hearing took place; after
    presenting evidence, the Magistrate found that the nuisance had not
    been corrected. As a result, the city and property owners agreed to
    extend the Magistrate's jurisdiction over the property until December
    2014.
        In November 2014, a Notice of Hearing to impose Fines and Claim of
    Lien hearing was held. The Magistrate found that the property owner had
    not complied with the order and the violations of landscaping and loose
    garbage remained.
        In December 2014, a Nuisance Abatement Status hearing was held. At
    this hearing, the city provided evidence that Stonybrook was still not
    fully in compliance with the Nuisance Abatement Order, and that the
    landscaping and loose garbage violations were not corrected.
        In January 2015, Stonybrook fired their property management
    company. The police department continued to monitor this property to
    ensure compliance with the conditions of the Nuisance Abatement and
    Code Enforcement cases.
        In October 2015, a new case was heard before the Magistrate for
    continued public nuisance issues and again, the property was declared
    to be a public nuisance pursuant to Chapter 11, Section 11-183 (1). As
    such, the owners stipulated to improvements designed to abate the
    ongoing criminal nuisance, to include providing security services
    onsite, perimeter integrity to secure the entire property (front gate),
    surveillance systems, parking decal and towing system, and removal and/
    or eviction procedures. These improvements were ordered to be completed
    within 45 days. The police department continued to monitor the property
    to ensure compliance with the Magistrate's order.
        In May 2016, a Nuisance Abatement Status Hearing took place. In
    this hearing, the Magistrate found the city provided sufficient
    evidence and testimony establishing Stonybrook as a recurring public
    nuisance. This was based in part through a series of drug sales which
    had taken place on the property.
        In June 2016, with Stonybrook management compliance, city fire
    department personnel completed a detailed fire safety inspection of
    Stonybrook Apartments. In this inspection, numerous violations were
    identified pertaining to smoke detectors, sounders, lighting, and other
    life safety issues.
        In May 2016, the city was contacted by Senator Rubio's office
    regarding an inquiry into violations at Stonybrook owner property for
    possible Department of Justice involvement. The city will continue to
    work hand and hand with HUD to
    address these matters, but diligent oversight and stringent monitoring
    will be paramount. The property owners have continuously failed to
    completely correct the
    Nuisance and Code issues present and show no inclination to do so.
                                     ______

                   PREPARED STATEMENT OF VINCENT F. O'DONNELL
                         Affordable Housing Consultant
                               September 22, 2016
        Good morning, Chairman Scott, Ranking Member Menendez, and
    distinguished Members of the Committee. Thank you for the opportunity
    to testify regarding the process of HUD oversight of federally assisted
    multifamily housing.
        I am Vincent O'Donnell, and am currently a private affordable
    housing consultant who has worked for over 40 years with State and
    local government, nonprofit developers, Local Initiatives Support
    Corporation, the Nation's largest nonprofit
    community development intermediary, and resident organizations. My
    primary mission has been, and is, to promote the creation and
    preservation of safe, affordable multifamily housing. In many of these
    capacities, I have worked closely with HUD at the local and
    Headquarters leadership level on issues specifically related to
    assisted multifamily housing that has become distressed.
        Today, I speak for myself, but want to note that I am a co-author
    of an August 1, 2016, letter from the National Preservation Working
    Group to HUD regarding the recent challenges that the U.S. Department
    of Housing and Urban Development (HUD) has been confronting regarding
    HUD-assisted properties experiencing conditions of distress and
    unsuitable living conditions for residents. The PWG is a broad
    coalition of organizations that have advocated for the preservation of
    federally assisted affordable rental housing. Its members include local
    and national nonprofit developers, policy organizations, tenant
    advocates, and State and local government. The PWG is convened by the
    National Housing Trust, a national nonprofit engaged in housing
    preservation through public policy advocacy, nonprofit real estate
    development and lending. This letter is attached to my testimony. In
    this testimony, I will summarize the PWG letter, while also attempting
    to put the current situation into a larger context. In my opinion, the
    overall system of providing project-based rental assistance is sound,
    and HUD has powerful asset management and quality control tools, but
    better coordination is needed to ensure that no property reaches the
    severe level of distress that has prompted the need for this hearing.
        I think it is important to note that the overwhelming majority of
    project-based rental assistance properties are in good physical
    condition. The portfolio of properties that have brought us here today
    are unfortunate and unacceptable outliers, but were distressed when
    transferred to the current ownership.
        Best practices for stabilizing and preserving distressed properties
    have been
    developed over several decades and are effective and vitally important
    in today's high-cost housing market. In the late 1970s, HUD was on its
    way to becoming the largest landlord in Boston, as a result of large
    scale foreclosure of properties with HUD-subsidized mortgages. One of
    those properties was Methunion Manor, in Boston's South End. This
    property's tenant association pointed out to then-Senator Edward Brooke
    that HUD's policies of ensuring a market return to the FHA Insurance
    Fund would result in their displacement from a neighborhood that was
    beginning to gentrify, in part because they and the Federal investment
    has helped to stabilize a previously distressed neighborhood. With the
    Senator's leadership, Congress gave HUD both a mandate and a set of
    tools to enable them to remain in this neighborhood, based on mutually
    reinforcing principles:

        long-range repairs,

        community engagement; and

        preservation of project-based rental assistance.

        The result was the restoration to physical and financial health of
    Methunion Manor [as a housing cooperative], and thousands of other
    units in Boston. Since then, there have been other challenges to the
    retention of this affordable housing stock: prepayment of subsidized
    mortgages and resulting deregulation, and expiration of project-based
    Section 8 contracts, but those core principles have continued to be
    observed.
        Resident and community engagement ensures that the property's
    physical and
    social needs are identified; adequate project-based rental assistance
    ensures the availability of financing for capital repairs and also
    retains a stock of units restricted as affordable housing.
        Over the years, a toolkit has been developed for HUD portfolio
    oversight based on the preservation principles I mentioned. This
    toolkit also provides flexibility to tailor solutions to local needs.
    Some of what we've learned includes:

        Most assisted properties are good physical condition. The National
    Housing Trust has reported that, according to HUD, 96 percent of its
    23,198 multifamily properties have passing scores of 60 or higher on
    REAC inspections. The average passing score is 86.7 percent. Only 0.1
    percent of properties score below 30, 3.5 percent score between 31 and
    59 percent. In other words, although we must double-down on problem
    properties and their causes, this inventory is mostly successful.

        Early identification of problems and intervention are
            essential. HUD has now restored its Management and Occupancy
            Review process, which will enable HUD to look more deeply into
            issues affecting the property's operations than a REAC score
            alone can do. REAC itself can be a blunt instrument, not always
            revealing serious problems. Further, it would be of great value
            to be able to mine the REAC and MOR data to detect multiple
            problems associated with common ownership or management.

        HUD has recently redesigned its entire multifamily
            portfolio oversight function to align better with private
            sector asset management techniques and create more
            accountability, but it needs more careful allocation of
            resources for its oversight to reach its full potential.

        Mature properties undergo ownership transfers as a result
            of normal market processes. HUD's purchaser review process is
            an opportunity to ensure not only a strong owner committed to
            affordability, but a sound ownership and management plan that
            also reflects the property's true physical needs. The
            preservation community stands ready to support HUD in improving
            its existing tools for this essential process.

        HUD has many intervention strategies, but their
            implementation works best if there are clear thresholds for
            classifying properties as distressed, after consultation with
            local stakeholders. The experience of the Commonwealth of
            Massachusetts, the city of Boston and the local HUD office
            provide good examples of the positive outcomes of this
            approach.

        If a property has become distressed, remediation is urgent,
            both for resident health and safety, and also for long-term
            preservation. For this, resources are needed, and termination
            of assistance contracts should be a remedy of last resort: it
            displaces current residents from their homes and their social
            support systems, removes the long-term affordability from the
            property, and usually leaves a troubled asset to blight the
            community. Intermediate steps can be taken and, in the worst
            case where the current location is unsuitable, subsidies can be
            transferred to a new neighborhood with better opportunities.

        When a new owner takes over a distressed property, a
            combination of forbearance of enforcement and strong
            accountability is needed. Several years ago, in a different
            property in Jacksonville, where Eureka Gardens is located, a
            coalition of local stakeholders working with HUD and LISC was
            able to effect such a balance and that provided a window of
            time to make both immediate urgent repairs and to restore this
            major property to being a healthy community asset.

        Some of HUD's intervention tools require cooperation from
            other governmental agencies. For example, Congress has given
            HUD authority to seek a
            Federal receiver when it lacks mortgage enforcement rights, but
            this depends on the U.S. Attorney's willingness to participate.
            In addition to greater interagency cooperation, the powers and
            duties of such a Federal receiver should be clarified. For
            example, it is not clear whether such a receiver can require
            the sale of a property if that is found to be the only path to
            correction of problems.

        Now we also have to recognize that best practices don't always
    work, since no system is perfect, which is why we're here today. Those
    of us in the affordable housing preservation community continue to work
    with HUD, residents and owners to
    ensure that these valuable Federal investments in our communities
    aren't lost. Now, more than ever, as our cities undergo recovery,
    assisted housing is now located in places that are on their way back to
    being neighborhoods of opportunity, and only place-based subsidies
    enable them to stay there.
        Many Federal investments in affordable housing were sited based on
    economic considerations, with developers basically going where land
    prices fit budgetary constraints of the programs.
        Many of those neighborhoods are now rising markets in which current
    subsidized housing residents have for decades helped stabilize these
    neighborhoods. These same residents now could not afford to live there,
    with or without a voucher, but place-based rental assistance enables
    them to remain in their community. On Monday, at a convening about
    neighborhood change, displacement and equitable development organized
    by the Federal Reserve Bank of New York, LISC and the New York
    University Furman Center, the constant refrain from around the country
    was that preservation of the existing affordable housing stock is
    integral to mitigating the negative effects on current residents of
    otherwise desirable rising neighborhood property values.
        In conclusion, the portfolio of HUD-assisted affordable multifamily
    is an increasingly valuable asset that needs strong oversight as well
    as preservation. HUD has a powerful set of tools, and should be
    supported and held accountable in its robust application of these
    measures. Preservation of place-based subsidies is often the only way
    that low-income residents can afford to remain in vibrant urban
    communities or in rural communities where there is no other decent
    rental stock and one of few tools to ensure a stock of well-maintained
    affordable units. This point of view is complementary to recent efforts
    at promoting utilization of portable Section 8 vouchers in
    neighborhoods of opportunity. These efforts are not mutually exclusive.

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