    [Senate Hearing 114-659]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-659

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2017

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

                                    HEARINGS

                                    BEFORE A

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

                               H.R. 5394/S. 2844

    AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND
    HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 2017, AND FOR OTHER PURPOSES

                                   __________

                  Department of Housing and Urban Development
                          Department of Transportation
                           Nondepartmental Witnesses

                                   __________

             Printed for the use of the Committee on Appropriations

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

       Available via the World Wide Web: http://www.gpo.gov/fdsys/browse/
            committee.action?chamber=senate&committee=appropriations

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    98-771 PDF                  WASHINGTON : 2017

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                              COMMITTEE ON APPROPRIATIONS

                      THAD COCHRAN, Mississippi, Chairman
    MITCH McCONNELL, Kentucky            BARBARA A. MIKULSKI, Maryland,
    RICHARD C. SHELBY, Alabama               Vice Chairwoman
    LAMAR ALEXANDER, Tennessee           PATRICK J. LEAHY, Vermont
    SUSAN M. COLLINS, Maine              PATTY MURRAY, Washington
    LISA MURKOWSKI, Alaska               DIANNE FEINSTEIN, California
    LINDSEY GRAHAM, South Carolina       RICHARD J. DURBIN, Illinois
    MARK KIRK, Illinois                  JACK REED, Rhode Island
    ROY BLUNT, Missouri                  JON TESTER, Montana
    JERRY MORAN, Kansas                  TOM UDALL, New Mexico
    JOHN HOEVEN, North Dakota            JEANNE SHAHEEN, New Hampshire
    JOHN BOOZMAN, Arkansas               JEFF MERKLEY, Oregon
    SHELLEY MOORE CAPITO, West Virginia  CHRISTOPHER A. COONS, Delaware
    BILL CASSIDY, Louisiana              BRAIN SCHATZ, Hawaii
    JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
    STEVE DAINES, Montana                CHRISTOPHER MURPHY, Connecticut

                          Bruce Evans, Staff Director
                  Charles E. Kieffer, Minority Staff Director

                                    ------

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

                      SUSAN M. COLLINS, Maine, Chairwoman
    RICHARD C. SHELBY, Alabama           JACK REED, Rhode Island, Ranking
    LAMAR ALEXANDER, Tennessee           BARBARA A. MIKULSKI, Maryland
    MARK KIRK, Illinois                  PATTY MURRAY, Washington
    ROY BLUNT, Missouri                  RICHARD J. DURBIN, Illinois
    JOHN BOOZMAN, Arkansas               DIANNE FEINSTEIN, California
    SHELLEY MOORE CAPITO, West Virginia  CHRISTOPHER A. COONS, Delaware
    BILL CASSIDY, Louisiana              BRAIN SCHATZ, Hawaii
    STEVE DAINES, Montana                CHRISTOPHER MURPHY, Connecticut
    THAD COCHRAN, Mississippi, (ex
        officio)

                               Professional Staff

                               Heideh Shahmoradi
                                 Lydia Collins
                                   Gus Maples
                                  Rajat Mathur
                                 Jason Woolwine
                             Dabney Hegg (Minority)
                          Christina Monroe (Minority)
                           Nathan Robinson (Minority)

                             Administrative Support

                            Jordan Stone (Minority)

                               C O N T E N T S

                                  ----------

                                    HEARINGS
                            Thursday, March 10, 2016

                                                                       Page

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

                           Wednesday, March 16, 2016

    Department of Transportation: Office of the Secretary............    67

                         Wednesday, September 21, 2016

    Department of Housing and Urban Development: Housing Vulnerable
      Families and Individuals: Is There a Better Way?...............   127

                          Wednesday, November 16, 2016

    Department of Transportation: The Automated and Self-Driving
      Vehicle
      Revolution: What is the Role of Government?....................   199

                                  ----------

                                  BACK MATTER

    List of Witnesses, Communications, and Prepared Statements.......   259

    Subject Index....................................................   261
        Department of Housing and Urban Development..................   261
            Housing Vulnerable Families and Individuals: Is There a
              Better Way?............................................   261
            Office of the Secretary..................................   261
        Department of Transportation.................................   262
            Office of the Secretary..................................   262
            The Automated and Self-Driving Vehicle Revolution: What
              is the Role of Government?.............................   263

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2017

                                  ----------

                            THURSDAY, MARCH 10, 2016

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:30 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Susan M. Collins (chairman)
    presiding.
        Present: Senators Collins, Boozman, Capito, Daines, Reed,
    Murray, Schatz, and Murphy.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                            Office of the Secretary

    STATEMENT OF HON. JULIAN CASTRO, SECRETARY

                 opening statement of senator susan m. collins

        Senator Collins. The subcommittee will come to order.
        Today we welcome both Secretary Castro, who will testify on
    the President's fiscal year 2017 budget request for the
    Department of Housing and Urban Development (HUD), as well as
    Inspector General Montoya, who will discuss not only his
    office's budget request but also the oversight and other work
    the Office of Inspector General (OIG) has conducted at HUD. I
    look forward to hearing from both of you.
        I am pleased to be joined today by our ranking member,
    Senator Jack Reed, a fellow New Englander, as we begin our
    subcommittee's work on the fiscal year 2017 appropriation. When
    offsetting receipts from the Federal Housing Administration
    (FHA) and Ginnie Mae are excluded, the President's request is
    nearly $49 billion, an increase of nearly $2 billion and 4
    percent above the fiscal year 2016 enacted level. It's
    important for us to remember that this request does not exist
    in a vacuum. It must be considered in the broader context of an
    unsustainable $19 trillion debt.
        The budget cap for non-defense discretionary spending
    government-wide is essentially the same for fiscal year 2017 as
    it was for 2016. This subcommittee in particular has to cope
    with the central truths about HUD's budget that are present
    every year.
        The cost of simply renewing existing rental assistance,
    which consumes 84 percent of HUD's overall budget, will
    increase, and, as FHA returns to its countercyclical role,
    offsetting receipts will decline.
        In addition to the constraint of needing an additional $1.4
    billion just to renew existing rental assistance, the
    subcommittee again must deal with the uncertainty of how much
    on offsetting receipts will be credited from FHA's mortgage
    insurance premiums.
        The Office of Management and Budget's (OMB's) score of
    receipts is $2.8 billion above fiscal year 2016. Good news to
    be sure, however, we must keep in mind that the Congressional
    Budget Office's (CBO's) baseline score for fiscal year 2017 is
    more than $400 million below current levels and $2.7 billion
    below the OMB's assumptions, an enormous discrepancy. Until the
    CBO finishes scoring the President's budget, prudence dictates
    that we assume the lower level as we review HUD's request.
        In an environment where the top line remains flat, the
    increase of 4 percent over current levels proposed in the
    President's budget would be extremely challenging.
        Yet rather than submit a budget request that seeks to bend
    the cost curve of rental assistance without doing so on the
    backs of low-income families and seniors, the Administration
    proposes new spending of $750 million above what is needed to
    maintain existing rental assistance, plus an additional $11.3
    billion in new mandatory spending that lacks an offset and,
    frankly, is simply a gimmick to evade the current budget
    agreement.
        Yet despite all of the additional spending requested, the
    Administration inexplicably once again proposes a $200 million
    cut to the Community Development Block Grant (CDBG) program.
        Well, just this week, mayors and other community officials
    were in town, and I can tell you that one of their top
    priorities is the CDBG program, because it remains one of the
    most adaptable and welcomed community and economic development
    and job creation programs, because it can be tailored to meet
    the unique need in each State.
        In addition to my concerns regarding the proposed funding
    levels, I believe that it is critical that HUD continue to
    invest in the effective oversight of the management and
    physical condition of its assisted housing stock. It must
    provide technical assistance where needed, and it must take
    action implementing sanctions where appropriate.
        Neither residents nor taxpayers are well served when poor
    conditions are allowed to continue. I am troubled to read about
    egregious examples of poor housing quality in States such as
    Tennessee and Florida, and I'm aware of similar problems in my
    home State of Maine.
        But I am even more troubled to learn that some of these
    properties initially received passing inspection scores from
    HUD before public outcry compelled a second look. It is
    inexcusable that vulnerable residents are ever placed into
    substandard housing with serious violations, but it is doubly
    offensive when the taxpayers are subsidizing these unfit units.
        This is the final budget request of this Administration,
    and is a good opportunity to reflect not only on the
    disappointments or shortcomings but also on what we have been
    able to accomplish working together. I am particularly proud of
    what we have been able to do to reduce the number of people who
    are homeless.
        Since 2010, investments made by this Committee have led to
    a 36-percent reduction in the number of homeless veterans,
    chronic homelessness has declined by 22 percent, and homeless
    families by 19 percent.
        While we cannot yet point to meaningful reductions in youth
    homelessness, I believe that the targeted funding we just
    approved in December will bear fruit. We can point to improved
    communication among Federal agencies and targeted funding to
    better assess the number and needs of homeless youth as well as
    the effectiveness of current programs targeted to these
    vulnerable people.
        Improved coordination among agencies and at the local
    level, especially in the context of coordination with the child
    welfare system, is still needed, and that's why I've joined
    several of my Senate colleagues in leading the effort to
    reauthorize the Runaway and Homeless Youth and Trafficking
    Prevention Act, as well as to introduce the Family Unification,
    Preservation, and Modernization Act.
        I will continue to work with Senator Reed and others on
    this subcommittee to ensure that we respond to the housing
    needs of these vulnerable children and teenagers.
        Finally, Senator Reed and I will be introducing a bill this
    afternoon to reform the Housing Opportunities for Persons with
    AIDS Program so that the formula no longer counts deceased
    individuals.
        And yes, you did hear me correctly. The current formula
    actually counts people who are no longer living. Currently, 55
    percent of the HIV and AIDS cases used in the formula represent
    people who have passed on. A formula change is very much needed
    to ensure that the scarce resources available are directed to
    communities most in need of assistance today.
        [The statement follows:]
                 Prepared Statement of Senator Susan M. Collins
        The subcommittee will come to order. Today we welcome both
    Secretary Castro, who will testify on the President's fiscal year 2017
    budget request for the Department of Housing and Urban Development, as
    well as Inspector General Montoya who will discuss not only his
    office's budget request but also the oversight and other work the OIG
    conducted at HUD. I look forward to hearing from each of you.
        I am pleased to be joined today by our Ranking Member, Senator Jack
    Reed, as we begin the subcommittee's work on the fiscal year 2017
    appropriation for the Department of Housing and Urban Development. When
    offsetting receipts from F.H.A. and Ginnie Mae are excluded, the
    President's request is $49 billion, an increase of nearly $2 billion
    and 4 percent above the fiscal year 2016 enacted level. This request
    does not exist in a vacuum and must be considered in the broader
    context of an unsustainable $19 trillion debt.
        The budget cap for non-defense discretionary spending government-
    wide is essentially the same as fiscal year 2016. This subcommittee, in
    particular, has to cope with the central truths about HUD's budget that
    are present every year: the cost of renewing existing rental
    assistance, which consumes 84 percent of HUD's overall budget, will
    increase, and as F.H.A. returns to its countercyclical role, offsetting
    receipts will decline.
        In addition to the constraint of needing an additional $1.4 billion
    just to renew existing rental assistance, the subcommittee again must
    deal with the uncertainty of how much offsetting receipts will be
    credited from F.H.A.'s mortgage insurance premiums. OMB's score of
    receipts is $2.8 billion above fiscal year 2016. Good news to be sure,
    however, we must keep in mind that CBO's baseline score for fiscal year
    2017 is more than $400 million below current levels and $2.7 billion
    below the OMB's assumption, an enormous discrepancy. Until CBO finishes
    scoring the President's budget, prudence dictates that we assume the
    lower level as we review HUD's request.
        In an environment when the top line remains flat, the increase of 4
    percent over current levels proposed in the President's budget would be
    extremely challenging. Yet rather than submit a budget request that
    seeks to bend the cost curve of rental assistance without doing so on
    the backs of low-income families and seniors, the Administration
    proposes new spending of $750 million above what is needed to maintain
    existing rental assistance, plus an additional $11.3 billion in new
    mandatory spending that lacks an offset and is simply a gimmick
    intended to evade the current budget agreement.
        Yet, despite all of the additional spending requested, the
    Administration once again proposes a $200 million cut to the Community
    Development Block Grant program. The CDBG program remains one of the
    most adaptable and welcomed community and economic development and job
    creation programs that can be tailored to meet unique needs within each
    State.
        In addition to my concerns regarding the proposed funding levels, I
    believe it is critical that HUD continue to invest in the effective
    oversight of the management and physical condition of its assisted
    housing stock. It must provide technical assistance when needed, and it
    must take action implementing sanctions when appropriate.
        Neither residents nor taxpayers are well served when poor
    conditions are allowed to continue. I am troubled to read about
    egregious examples of poor housing quality in places such as Tennessee
    and Florida and am aware of similar problems in my home State of Maine.
    But I am even more troubled to learn that some of these properties
    initially received passing inspection scores from HUD before public
    outcry compelled a second look. It is inexcusable that residents are
    ever placed into substandard housing with serious violations, but it is
    doubly offensive when the taxpayers are subsidizing these unfit units.
        This is the final budget request of this Administration and is a
    good opportunity to reflect not only on the shortcomings but also on
    what we have accomplished together. I am particularly proud of what we
    have been able to achieve in reducing the number of people who are
    homeless. Since 2010, investments made by this Committee have led to a
    36 percent reduction in the number of homeless veterans; chronic
    homelessness has declined by 22 percent; and homeless families by 19
    percent.
        While we cannot yet point to meaningful reductions in youth
    homelessness, I believe the targeted funding we just approved in
    December will bear fruit. We can point to improved communication among
    Federal agencies and targeted funding to better assess the number and
    needs of homeless youth as well as the effectiveness of current
    programs targeted to these vulnerable young people. Improved
    coordination among agencies and at the local level, especially in the
    context of coordination with the child welfare system, is still needed.
    That is why I joined my Senate colleagues to lead the effort to
    reauthorize the Runaway and Homeless Youth and Trafficking Prevention
    Act, as well as to introduce The Family Unification, Preservation, and
    Modernization Act of 2015. I will continue to work to ensure that this
    Subcommittee responds to the housing needs of these children and
    teenagers.
        Finally, Senator Reed and I will be introducing a bill this
    afternoon to reform the Housing Opportunities for Persons with AIDS
    program, otherwise known as HOPWA, so that the formula no longer counts
    deceased individuals. Currently, 55 percent of the HIV and AIDS cases
    used in the formula represents deceased individuals. A formula change
    is very much needed to ensure the scarce resources available are
    directed to communities most in need of assistance today.
        Mr. Secretary, I hope you will commit to working with us on this
    important bill, and I look forward to hearing from you and Inspector
    General Montoya. I now turn to Senator Reed for his opening statement.
        Senator Collins. Mr. Secretary, I look forward to working
    with you on this important bill, and to hearing from you and
    the inspector general. It now gives me great pleasure to turn
    to the ranking member, Senator Reed, for his opening statement.

                         STATEMENT OF SENATOR JACK REED

        Senator Reed. Thank you very much, Madam Chairman. It has
    been a pleasure working with you as the ranking member and in
    so many other ways.
        And we've worked together for many years, even before our
    assignment together on this subcommittee, and I'm pleased and
    delighted that today we're joining to introduce the Housing for
    Persons with AIDS Program. As you pointed out, the formula must
    be corrected, and your leadership is going to make that change
    effective.
        We've also worked for many years together on lead-based
    paint in our housing stock, and that's another critical issue
    that effects our constituents, not just ours, but across the
    Nation. And Mr. Secretary, I know you share many of our
    concerns, and we look forward to working with you on these
    issues and many others.
        Welcome to the subcommittee. Thank you for your years of
    service. And you have shown a great deal of leadership
    advocating for families in need and the importance of ending
    homelessness. Thank you for that.
        Let me also welcome David Montoya, who will be joining us
    for the second panel. David, you have served as HUD's inspector
    general since 2011. You bring a great wealth of knowledge in
    HUD's financial management performance, and we look forward to
    your testimony.
        Today, as the chairman pointed out, we are here to discuss
    the fiscal year 2017 budget request for the Department of
    Housing and Urban Development. The Administration's
    discretionary budget request for HUD is $49 billion, nearly $2
    billion more than fiscal year 2016. But this increase in
    spending is based on very optimistic Federal Housing
    Administration receipts, as the chairman pointed out.
        As you are aware, these receipts are fundamental to HUD's
    budget request, and changes to these receipt levels in a year
    of tight budget constraints can mean the difference between
    maintaining current programs and literally cutting services.
        I am concerned that the request assumes $2.3 billion more
    in FHA receipts than in 2016, however, as again, the chairman
    intimated, CBO indicates that we could be looking at $400
    million less in receipts than in 2016, leaving your budget
    request with a $2.7 billion gap.
        As we all know too well, just last year we were faced with
    another threat of cuts to every budget through sequestration.
    We avoided that through great leadership, and particularly,
    Senator Collins and others.
        But we have a responsibility to not only maintain our
    rental assistance programs, our home programs, but as you
    suggested, budget to expand programs that are necessary to the
    quality of life for many, many Americans.
        Your proposal purports to do both, maintain our equities
    with respect to rental housing and other programs that are
    existing and also to provide enhanced choices, particularly for
    low-income Americans, in their housing. But if we're faced with
    cuts to the FHA receipts and do not have an increase in
    budgetary resources, it'll be very challenging to meet these
    dual objectives.
        I support many of the proposals which you're advancing
    today. They include more than $40 billion to maintain HUD's
    rental assistance program to continue the support for nearly
    500 million households, it's absolutely essential; combined
    $112 million in new vouchers and rapid re-housing assistance
    for families with children, again, a very critical program; $15
    million to assist families who want to move to high opportunity
    areas, this is an issue that I think is one we have to address;
    and $200 million to revitalize HUD-assisted housing through the
    Choice Neighborhoods initiative.
        This program has been very effective in my home State
    you've been kind to visit, both in Woonsocket, Rhode Island,
    and Olneyville, a part of Providence. You want to address in
    the budget homelessness, and this is one of the areas where
    Senator Collins has taken a tremendous leadership role,
    increasing the Continuum of Care Program by $414 million, as
    you want to do in your budget.
        These projects, all of them, are extremely important, and
    we want to work with you to find a way to get them done. And
    while the request includes new targeted investment in
    homelessness on the discretionary side, it also assumes
    significant investment on the mandatory side.
        Nearly $11 billion in mandatory budget authority is
    requested over 10 years to end homelessness with children by,
    we hope, 2020. And while this mandatory request to fulfill the
    Administration's homeless goals is unlikely to be enacted given
    the present climate, I applaud the vision.
        But I'm concerned that these broad investments do not
    include funding for a program that has proved essential, that's
    the HUD-Veterans Affairs Supportive Housing (HUD-VASH)
    vouchers.
        Mr. Secretary, there are still veterans experiencing
    homelessness in this country, and I'd like to understand why
    the Administration did not include HUD-VASH in its request for
    the second year in a row.
        Overall, what we have in front of us today is a budget
    request that emphasizes housing choice and opportunity for the
    many American families that struggle to meet their day to day
    needs. Our elderly, our disabled, working poor, they all
    deserve a fair chance at affordable and decent housing.
        There are more than 400 parents and children in Rhode
    Island who remain homeless and deserve a place to call home.
    Our veterans also, as I point out, have fought to protect this
    country, they, too, deserve this opportunity. We're obligated
    to figure out the best and most cost-effective ways to address
    these needs, and Mr. Secretary, that is why you're here today
    to explain the budget and to work with us going forward so that
    we can achieve these objectives.
        And thank you, again, Madam Chairman.
        Senator Collins. Thank you very much, Senator Reed.
        I want to give, since we don't have a huge number of
    members with us today, I want to just check to see if either
    Senator Daines or Senator Boozman have any opening comments, or
    whether you're content to wait. Thank you.
        Secretary Castro, the floor is yours.

                    SUMMARY STATEMENT OF HON. JULIAN CASTRO

        Secretary Castro. Thank you very much, Chairman Collins, to
    Ranking Member Reed, and the members of the subcommittee. It
    really is an honor to appear before you today to discuss with
    you HUD's proposed budget for fiscal year 2017.
        The President understands that expanding access to quality
    and affordable housing will put more Americans on a path to
    prosperity, and our budget honors his commitment to promote
    inclusive opportunity for all Americans.
        This proposal comes at a time of great momentum for our
    Nation's economy. Over the past 6 years, businesses have added
    14.3 million new jobs, the longest streak of private sector job
    growth on record. And now, our challenge is to provide every
    person with the chance to share in this promise. And at HUD,
    that starts with helping more folks to secure a safe and
    affordable place to call home.
        Today, a quarter of American renters spend more than half
    of their incomes on housing. And too many families are forced
    to cut back on food, on health care, and other basic
    necessities just to put a roof over their heads. That's why the
    President's budget proposes to increase HUD's funding to $48.9
    billion, $1.9 billion over the enacted level for fiscal year
    2016.
        As you noted, Chairman, between 84 and 85 percent of our
    budget would go solely toward renewing rental assistance for
    nearly 5.5 million households. But we've also taken strong
    steps that maximize our remaining resources to achieve bold
    goals, such as ending homelessness in America. We've made great
    strides in the 6 years since President Obama introduced his
    Opening Doors initiative, and the best example of this, a 36-
    percent decline in veteran homelessness between 2010 and 2015.
        I want to thank you, Chairman, and Ranking Member, and all
    of the members of this committee for your continued support of
    HUD-VASH. The success proves that, by working together, we can
    fully fulfill the President's vision, and we can help the next
    generation to escape the cycle of homelessness.
        HUD's Family Options Study shows that rapid rehousing and
    housing choice vouchers are the most effective solutions for
    families with children experiencing homelessness, so we've
    asked for a historic $11 billion investment in mandatory
    spending over the next 10 years that will use these tools to
    assist approximately 550,000 families.
        HUD is also committed to empowering Americans through
    housing mobility. We've requested $20.9 billion for our housing
    choice voucher program, an increase of $1.2 billion from the
    enacted level for fiscal year 2016. This would provide 2.2
    million families with the chance to move into neighborhoods
    with better schools, safer streets, and more jobs, and to stay
    there for the long term.
        But HUD's mission extends beyond housing mobility. Too many
    communities remain segregated by race and by income, and too
    many Americans see their futures limited by the ZIP Code where
    they were born. So HUD's proposed budget makes vital
    investments in underserved communities.
        It contains $200 million for Choice Neighborhoods, which
    helps transform areas of concentrated poverty by creating
    quality mixed income housing, improving public safety, and
    sparking growth for local small businesses. And $50 million is
    requested for our rental assistance demonstration program to
    help make crucial repairs in 25,000 units of HUD-assisted
    housing.
        We're also taking decisive action to protect children from
    the dangers of lead-based paint. We've requested $110 million
    for our Office of Lead Hazard Control and Healthy Homes and
    $2.07 billion for public housing administrative fees, which can
    be used by PHAs to, among other things, increase inspections
    and ensure property owners control lead hazards. And we're
    improving our policies to mirror the CDC's lead safety
    guidelines.
        Finally, the President knows that many Native communities
    face significant barriers to opportunity, so this budget asks
    for $780 million to improve housing and development on Native
    American lands, including $20 million for youth programs like
    community centers and Head Start facilities. And we continue
    our commitment to providing safe, affordable homes through our
    Native Hawaiian Housing Block Grant Program.
        The President's budget advances a fundamental belief, that
    all Americans deserve a fair shot at achieving their dreams. I
    look forward to working with this committee to fulfill this
    mission and to use housing as a powerful platform to spark
    greater opportunity for the American people. Thank you.
        [The statement follows:]
                    Prepared Statement of Hon. Julian Castro
        Thank you, Chairman Collins and Ranking Member Reed, for this
    opportunity to discuss how HUD's fiscal year 2017 budget proposal
    follows the roadmap the President has laid out for jumpstarting our
    economy through educating, innovating, and building. This Budget
    targets our investments to the families and geographies that need them
    the most, and puts more Americans back to work.
        HUD's Budget is an essential component of the President's vision of
    investing in the things we need to grow our economy, create jobs,
    increase skills training and improve education, while continuing long
    term deficit reduction. Our request maintains assistance to low-income
    families currently served by HUD programs, expands assistance to
    targeted vulnerable populations, including the homeless and Native
    Americans, and revitalizes neighborhoods with distressed HUD-assisted
    housing and concentrated poverty. HUD's work is critical to the
    Administration's efforts to strengthen communities, bolster the
    economy, and improve the quality of life of the American people.
        Overall, the President's Budget provides $48.9 billion for HUD
    programs, an increase of $1.9 billion above the 2016 enacted level.
    This spending is offset by projected receipts of $10.9 billion.
    Increases are provided to protect vulnerable families, make significant
    progress toward the goal of ending homelessness, and support community-
    centered investments, including funding to revitalize neighborhoods
    with distressed HUD-assisted housing and concentrated poverty. This
    budget is built on rigorous research and evidence of what works,
    providing flexibility and investing in strategies that have been proven
    to pay dividends for families and communities.
                        the fiscal year 2017 hud budget
        Provides Opportunities for America's Most Distressed Neighborhoods
    to Revitalize and Increase Economic Growth.--The Budget provides $200
    million for Choice Neighborhoods to continue to transform neighborhoods
    of concentrated poverty into opportunity-rich, mixed-income
    neighborhoods. This funding level will be used to revitalize HUD-
    assisted housing and surrounding neighborhoods through partnerships
    between local governments, housing authorities, nonprofits, and for-
    profit developers. Preference for these funds will be given to
    designated Promise Zones--high-poverty communities where the Federal
    Government is working with local leadership to invest and engage more
    intensely to create jobs, leverage private investment, increase
    economic activity, reduce violence and expand educational
    opportunities. To further support Promise Zones, the Budget includes
    companion investments of $128 million in the Department of Education's
    Promise Neighborhoods program and $24 million in the Department of
    Justice's Byrne Criminal Justice Innovation Grants program, as well as
    tax incentives to promote investment, jobs and economic growth.
        The Budget proposes $300 million in mandatory funds for a new Local
    Housing Policy Grants program. This program will provide grants to
    localities and regional coalitions to support new policies, programs or
    regulatory initiatives that create a more elastic and diverse housing
    supply, and in turn, increase economic growth, access to jobs and
    improve housing affordability. These funds will support a range of
    transformative activities in communities across the Nation that reduce
    barriers to housing development, increase housing supply elasticity and
    affordability, and demonstrate strong connections between housing,
    transportation, and workforce planning.
        Supports Strategic Infrastructure Planning and Investments To Help
    Make America a Magnet for Jobs.--HUD is committed to ensuring that its
    core community and housing development work contributes to more and
    better transportation choices; promotes equitable, affordable housing;
    helps communities address the lingering neighborhood impacts of the
    foreclosure crisis; and aligns Federal policies and funding to remove
    barriers to local collaboration. The Budget provides $2.8 billion for
    the Community Development Block Grant (CDBG) formula program, and
    proposes reforms to better target CDBG investments to address local
    community development goals. The budget also provides $950 million for
    the HOME Investment Partnerships Program to help State and local
    governments increase the supply of affordable housing and expand
    homeownership opportunities for low-income families.
        Protects the Vulnerable Recipients of HUD Rental Assistance and
    Makes Progress on the Federal Strategic Plan to End Homelessness.--The
    Budget includes $20.9 billion for the Housing Choice Voucher program to
    help about 2.2 million low-income families afford decent housing in
    neighborhoods of their choice. This funding level supports all existing
    vouchers and adds 10,000 new vouchers to the program, targeted to
    families with children experiencing homelessness. The Budget also
    includes $10.8 billion for the Project-Based Rental Assistance program
    to maintain affordable rental housing for 1.2 million families, and
    provides $6.4 billion in operating and capital subsidies to preserve
    affordable public housing for an additional 1.1 million families.
        The Budget provides $2.7 billion for Homeless Assistance Grants,
    $414 million above the 2016 enacted level. The increased funding will
    enable HUD to maintain existing projects, fund the increased
    competitive renewal demand for Continuums of Care in fiscal year 2016,
    and create 25,500 beds of permanent supportive housing for chronically
    homeless persons to reach the goal of ending chronic homelessness in
    2017. In addition, the Budget includes 8,000 rapid rehousing
    interventions for households with children, which will support the goal
    of ending child, family and youth homelessness by 2020, and $25 million
    in new projects targeted to homeless youth.
        In addition to the targeted requests for homeless families with
    children above, the Budget requests $11 billion in mandatory funds for
    vouchers and rapid rehousing to end family homelessness. Approximately
    550,000 families will be supported over 10 years to stabilize their
    housing and assist them to become more self-sufficient. This proposal
    is based on rigorous research and will give families the right support
    at the right time to promote better outcomes.
        Improves Mobility Through the Housing Choice Voucher Program.--The
    Budget provides $2.1 billion in Public Housing Authority (PHAs)
    administrative fees using a new evidence-based formula that not only
    more accurately reflects the actual cost of running the program, but
    ensures that PHAs have sufficient resources to provide low-income
    families greater access to opportunity areas. In addition, the Budget
    requests $15 million for a new mobility counseling demonstration that
    is designed to help HUD-assisted families move and stay in higher-
    opportunity neighborhoods. A portion of the funding will also support
    an evaluation to measure the impact of the counseling pilot to further
    inform the policy process and design.
        Puts HUD-Subsidized Public and Assisted Housing on a Financially
    Sustainable Path.--Public housing authorities (PHAs) house over three
    million families. To bring our rental housing system into the 21st
    century and continue to address the $26 billion in public housing
    capital needs, the Budget includes proposals that would facilitate the
    conversion and preservation of additional Public Housing and other HUD-
    assisted properties under the Rental Assistance Demonstration (RAD). At
    the same time, the Budget provides $50 million for a targeted expansion
    of RAD to Public Housing properties in high-poverty neighborhoods and
    requests authority to convert Section 202 Housing for the Elderly
    Project Rental Assistance Contract properties to Section 8 platforms.
        Improves the Way Federal Dollars are Spent.--The Administration
    supports legislation to modernize the Housing for Persons With AIDS
    (HOPWA) program to better reflect the current case concentration and
    understanding of HIV/AIDS and ensure that funds are directed in a more
    equitable and effective manner. The Budget's $335 million investment in
    HOPWA, in combination with the proposed modernization, will assist
    local communities in keeping individuals with HIV/AIDS housed, making
    it easier for them to stay connected to treatment, and therefore
    improving health outcomes for this vulnerable population.
        The Budget also provides $35 million for the evidence-based Jobs-
    Plus program, a proven model for increasing public housing residents'
    employment and earnings. Through Jobs-Plus, public housing residents
    will receive on-site employment and training services, financial
    incentives that encourage work and ``neighbor-to-neighbor''
    information-sharing about job openings, training, and other employment-
    related opportunities.
        Invests in Research and Support to Make HUD and its Grantees More
    Effective.--The American economy of the future requires a Federal
    Government that is efficient, streamlined, and transparent. This Budget
    once again calls for the flexible use of resources through HUD's Office
    of Policy Development and Research, which the Department will use to
    invest in technical assistance to build local capacity to safeguard and
    effectively invest taxpayer dollars; conduct innovative research; and
    evaluate program initiatives and demonstration programs so we can fund
    what works and stop funding what doesn't.
        The Budget also continues to invest in focused upgrades to the IT
    infrastructure to improve service delivery and to better track and
    monitor our programs.
        Consistent with the previous 3 years, HUD's fiscal year 2017 Budget
    is structured around the five overarching goals the Department adopted
    in its new Strategic Plan 2014-2018. These goals reflect the
    Department's--and my--commitment to `moving the needle' on some of the
    most fundamental challenges facing America. Indeed, every month, I hold
    HUDStat meetings on one or more of these goals, to assess progress and
    troubleshoot problems in order to: 1) ensure that HUD is as streamlined
    and effective as possible in the way that we administer our own
    programs and partner with other Federal agencies; and 2) hold our
    grantees accountable for their expenditure of taxpayers' hard-earned
    dollars.
     goal 1: strengthen the nation's housing market to bolster the economy
                             and protect consumers
        This Administration entered office confronting the worst economic
    crisis since the Great Depression. And while the largest factors
    contributing to this crisis were market driven, the American people
    have turned to Congress and the administration for leadership and
    action in righting our Nation's housing market. HUD remains firmly
    committed to working together with communities and individuals to cope
    with these unprecedented challenges. This Budget drives economic growth
    by increasing access to credit and strengthening the FHA.
        In fiscal year 2017, HUD is requesting $400 billion in loan
    guarantee authority for the Mutual Mortgage Insurance Fund, and $30
    billion in loan guarantee authority for the General and Special Risk
    Insurance Fund. The need for FHA is clear as it stepped up in recent
    years to address the unprecedented challenges wrought by the housing
    crisis, playing an important countercyclical role that has offered
    stability and liquidity throughout the recession. While a recovery of
    the housing market is currently underway, FHA continues to act as a
    crucial stabilizing element in the market, and to assure ongoing access
    to credit for qualified first-time, low-wealth or otherwise underserved
    borrowers.
        The Budget also includes a request for the FHA Administrative Fee
    that will assist FHA in performing critical Quality Assurance work by
    funding important Information Technology investments as well as
    administrative investments to maintain FHA as an effective partner with
    borrowers and lenders. This modest fee on lenders will be applied only
    prospectively, and these funds will make it possible for FHA to
    continue to increase access, helping to place homeownership within the
    reach of more Americans.
           goal 2: meet the need for quality, affordable rental homes
        In an era when more than one-third of all American families rent
    their homes and over 7.7 million unassisted families with very low
    incomes spend more than 50 percent of their income on rent and/or live
    in substandard housing, it remains more important than ever to provide
    a sufficient supply of affordable rental homes for low-income
    families--particularly since, in many communities affordable rental
    housing does not exist without public support. HUD's 2017 Budget
    maintains HUD's core commitments to providing rental assistance to some
    our country's most vulnerable households as well as distributing
    housing, infrastructure, and economic development funding to States and
    communities to address their unique needs. Overall, 85 percent of HUD's
    total 2017 budget authority requested goes toward renewing rental
    assistance for current residents of HUD-subsidized housing, including
    public housing and HUD grants to homeless assistance programs, and to
    some limited, strategic expansion of rental assistance to specific
    vulnerable households.
        HUD's core rental assistance programs serve some of the most
    economically vulnerable families in the country. In these programs,
    including Housing Choice Vouchers, Public Housing and Project Based
    Rental Assistance (PBRA): almost 75 percent of families are extremely
    low-income (below 30 percent of area median income) and an additional
    20 percent are very low-income (below 50 percent of area median
    income). Although worst case housing needs decreased to 7.7 million in
    2013 from the record high of 8.5 million in 2011, these needs are still
    a national problem. Housing needs have expanded dramatically during the
    past decade and were exacerbated by the economic recession and
    associated collapse of the housing market, which reduced homeownership
    through foreclosures and increased demand for renting.''
    Preserving Affordable Housing Opportunities in HUD's Largest Programs
        This Budget provides $20.9 billion for HUD's Housing Choice
    Vouchers program, which is the Nation's largest and preeminent rental
    assistance program for low-income families. For over 35 years it has
    served as a cost-effective means for delivering safe and affordable
    housing in the private market. This 2017 funding level is expected to
    assist approximately 2.2 million families and support new incremental
    vouchers for areas of high need, for targeted populations. This Budget
    adds voucher leasing opportunities through funding for approximately
    10,000 new units of housing for homeless families with children.
        The Budget also provides a total of $6.4 billion to operate public
    housing and modernize its aging physical assets through the Public
    Housing Operating ($4.6 billion) and Capital ($1.9 billion) funds, a
    critical investment that will help over 1.1 million extremely low- to
    low-income households obtain or retain housing. Similarly, through a
    $10.8 billion request in funding for the PBRA program, the Department
    will provide rental assistance funding to privately-owned multifamily
    rental housing projects to serve over 1.2 million families nationwide.
    Rebuilding our Nation's Affordable Housing Stock
        Over the last 75 years, the Federal Government has invested
    billions of dollars in the development and maintenance of public and
    multifamily housing, which serve as crucial resources for some of our
    country's most vulnerable families. Despite this sizable Federal
    investment and the great demand for deeply affordable rental housing,
    we continue to see a decline in the number of available affordable
    housing units. Unlike other forms of assisted housing that serve very
    similar populations, the public housing stock is nearly fully reliant
    on Federal appropriations from the Capital Fund to make capital
    repairs. Funding and regulatory constraints have impaired the ability
    for these local and State entities to keep up with needed life-cycle
    improvements. The most recent capital needs study of the public housing
    stock, completed in 2010, estimated the backlog of unmet need at
    approximately $26 billion, or $23,365 per unit. Funding for the Capital
    Fund has been insufficient to meaningfully reduce public housing's
    backlog of repair and replacement needs or even meet the estimated $3
    billion in annual accrual needs. Under the strain of this backlog, and
    without financing tools commonly available to other forms of affordable
    housing, the public housing inventory has lost an average of 10,000
    units annually through demolitions and dispositions.
      --Rental Assistance Demonstration. To help address the backlog of
            unmet capital needs and to preserve this critical source of
            affordable housing, HUD is continuing to implement the Rental
            Assistance Demonstration (RAD), a program which enables PHAs to
            convert public housing to the Section 8 platform. In addition
            to the public housing stock, the RAD program targets certain
            ``at-risk'' HUD legacy programs. Prior to RAD, units assisted
            under Section 8 Moderate Rehabilitation (MR) and Section 8
            Moderate Rehabilitation Single-Room Occupancy (MR SRO) were
            limited to short-term renewals and constrained rent levels that
            inhibit the recapitalization of the properties, and units
            assisted under Rent Supplement (RS) and Rental Assistance
            Program (RAP) had no ability to retain long-term project-based
            assistance beyond the current contract term. As a result, as
            their contracts expired, these projects would no longer be
            available as affordable housing assets.

        Conversion to Section 8 rental assistance, as permitted under RAD,
            is essential to preserving these scarce affordable housing
            assets and protecting the investment of taxpayer dollars these
            programs represent. Long-term Section 8 rental assistance
            allows for State and local entities to leverage sources of
            private and public capital to rehabilitate their properties.
            While the Department expects and continues to process Public
            Housing conversions of assistance without additional subsidy,
            HUD requests $50 million in 2017 for the incremental subsidy
            costs of converting assistance under RAD for properties that
            cannot feasibly convert to Section 8 at existing funding
            levels. This funding would also support a requested expansion
            of the RAD authority to include Section 202 Housing for the
            Elderly Project Rental Assistance Contracts (PRACs). Overall,
            the requested funding will be targeted to: 1) Public Housing
            properties located in high-poverty neighborhoods, including
            designated Promise Zones, and in areas where the Administration
            is supporting comprehensive revitalization efforts as well as
            transfer of assistance to high opportunity locations where
            there is a limited supply of affordable housing, and 2) Section
            202 PRACs with significant recapitalization needs, including
            those properties with service coordinators for frail and
            elderly residents. The Department estimates that the $50
            million in incremental subsidies will support the conversion
            and redevelopment of approximately 25,000 Public Housing and
            Section 202 PRACs, while helping to increase private investment
            in the targeted projects.

        In addition to the funding request, the proposed legislative
            changes to RAD are designed to allow for maximum participation
            by those PHAs and private owners whose current funding levels
            are sufficient for conversion. This includes, for example,
            elimination of the 185,000 unit cap, which will allow for a
            greater portion of the Public Housing stock that can convert at
            no cost to the Federal Government to participate in the
            demonstration.
        goal 3: use housing as a platform for improving quality of life
        Stable housing provides an ideal platform for delivering a wide
    variety of health and social services to improve economic, health, and
    broad-based societal outcomes. For some, housing alone is sufficient to
    ensure healthy outcomes, while others require housing with supportive
    services to assist with activities of daily living or longterm self-
    sufficiency, as well as proximity to crucial services. HUD's fiscal
    year 2017 Budget acknowledges this reality by making critical
    investments in housing and supportive services, and partnering with
    other Federal agencies to maximize resources and best practices.
    Moreover, these investments will save money in the long term, by
    avoiding overuse of expensive emergency and institutional
    interventions.
    Preventing and Ending Homelessness
        Nowhere is the relationship between housing and supportive services
    clearer than in the successful efforts in communities around the
    country to address homelessness, which have led to a 36 percent
    reduction in veterans' homelessness and a 22 percent reduction in
    chronic homelessness, and a 19 percent in family homelessness since
    2010. Additionally, this work has yielded a substantial body of
    research, which demonstrates that providing permanent supportive
    housing to chronically homeless individuals and families not only ends
    their homelessness, but also yields substantial cost saving in public
    health, criminal justice, and other systems. This year's Budget once
    again invests in this critical effort, by providing $2.7 billion in
    Homeless Assistance Grants. This funding level will support competitive
    programs that annually serve over 800,000 homeless families and
    individuals, and create 25,500 beds of permanent supportive housing for
    chronically homeless persons to reach the goal of ending chronic
    homelessness in 2017. The Budget also includes 8,000 rapid rehousing
    interventions for households with children. In addition, the Budget
    includes $88 million for housing vouchers for homeless families with
    children and also proposes another $11 billion in new mandatory
    spending to reach and maintain the goal of ending family homelessness
    by 2020.
    Leveraging Capital Resources and Serving our Most Vulnerable
        This Budget provides a total of $659 million for the Housing for
    the Elderly and Housing for Persons with Disabilities programs. Doing
    more with less, the Budget proposes reforms to the Housing for the
    Elderly program to target resources to help those most in need, reduce
    the up-front cost of new awards, and better connect residents with the
    supportive services they need to age in place and live independently.
        Historically, HUD has provided both capital advances and operating
    subsidies to non-profit sponsors to construct and manage multifamily
    housing for low-income people with disabilities. In an effort to
    maximize the creation of new affordable units in a time of funding
    restraints, in fiscal year 2012 HUD began providing operating
    assistance to State housing agencies that formed partnerships with
    State healthcare agencies for service provision to low-income persons
    with disabilities. These funds are used to set aside supportive units
    for this target population in affordable housing complexes whose
    capital costs are funded through Low-Income Housing Tax Credits, HOME
    funds, or other sources. Investing Section 811 funds under this
    authority allows HUD to rely on the expertise of the State housing
    agencies to administer the award and on the State healthcare agency to
    identify the most critical population to be served and guarantee the
    delivery of appropriate services. In fiscal year 2014, HUD requested,
    and received, similar authority for the Section 202 program. Drawing on
    lessons learned from implementation in the Section 811 program, HUD
    will take advantage of efficiencies inherent in these same agencies'
    oversight responsibilities for tax credits, HOME funds or similar
    housing funding.
           goal 4: build strong, resilient and inclusive communities
        No longer can the American economy tolerate the marginalization
    from the labor force of significant numbers of people because of
    individualized or systemic discrimination, or because they live in
    isolated neighborhoods of concentrated poverty. An American economy
    built to last requires an increased supply of affordable rental homes
    in safe, mixed-income communities that provide access to jobs, good
    schools, transportation, high-quality services, and, most importantly,
    economic self-sufficiency. As such, HUD's fiscal year 2017 Budget puts
    communities in a position to plan for the future and draws fully upon
    their resources, most importantly their people.
        Each year HUD dedicates approximately 16 percent of its funds to
    the capital costs of housing and economic development projects
    throughout the country. Through this investment, HUD and its partners
    are able to provide better opportunities for people living in
    neighborhoods of concentrated poverty and segregation, offer choices
    that help families live closer to jobs and schools, and support locally
    driven solutions to overarching economic development challenges. HUD's
    capital grants--including the Public Housing Capital Fund, Choice
    Neighborhoods, CDBG, and HOME--are focused on assisting areas of great
    need, including communities with high unemployment.
    Preserving HUD's Major Block Grant Programs for Community Development
            and Housing
        Through both formula and competitive grants, HUD has partnered with
    local organizations and State and local governments to fund innovative
    solutions to community development challenges. Underpinning these
    partnerships is the fundamental philosophy that local decision-makers
    are best poised to drive a cohesive development strategy. In 2017, HUD
    is requesting a total of $2.9 billion in funding for the Community
    Development Fund to support economic development initiatives and
    projects that demonstrate the ability to connect private sector growth
    to some of our country's most distressed citizens and communities, and
    $950 million for the HOME program.
        The Budget requests $2.8 billion for the Community Development
    Block Grant (CDBG), which remains the largest and most adaptable
    community and economic development program in the Federal portfolio for
    meeting the unique needs of States and local governments. Since its
    inception in 1974, CDBG has invested in economic development at the
    local level, investing in infrastructure, providing essential public
    services and housing rehabilitation, and creating jobs primarily for
    low-and moderate-income families. Altogether, CDBG funding annually
    reaches an estimated 7,000 local governments across the country, in
    communities of all shapes and sizes. However, to ensure that CDBG funds
    effectively provide targeted benefits to these communities, especially
    to low- and moderate-income populations, HUD proposes a suite of
    reforms to strengthen the program; help grantees target funding to
    areas of greatest need; enhance program accountability; synchronize
    critical program cycles with the consolidated plan; and reduce the
    number of small grantees while providing more options for regional
    coordination, administration and planning.
        Often, CDBG dollars alone are insufficient to complete crucial
    economic development projects that communities desperately need. In
    those instances, HUD offers another potent public investment tool in
    the form of the Section 108 Loan Guarantee program. Section 108 allows
    States and local governments to leverage their CDBG grants and other
    local funds into federally guaranteed loans in order to pursue large-
    scale physical and economic investment projects that can revitalize
    entire neighborhoods or provide affordable housing to low- and
    moderate-income persons. In 2017, HUD is requesting Section 108 loan
    guarantee authority of $300 million, and the continuation of a fee-
    based structure will eliminate the need for budget authority to cover
    the program's credit subsidy.
        In addition, the HOME program is proposed at $950 million and the
    Budget proposes legislative changes to better target the assistance
    provided with this funding. HOME is the primary Federal tool of State
    and local governments for the production of affordable rental and for-
    sale housing for low-income families. In the past 21 years, HOME has
    completed 1.22 million affordable units. The Budget also proposes
    statutory changes that would eliminate the 24-month commitment
    requirement, eliminate the 15 percent Community Housing Development
    Organization (CHDO) set-aside, establish a single qualification
    threshold, revise ``grandfathering'' provisions so that HOME
    participating jurisdictions that fall below the threshold three out of
    the 5 years would be ineligible for direct grants, and provide for
    reallocation of recaptured CHDO technical assistance funds.
        Notably in 2017, CDBG and HOME are part of the proposed Upward
    Mobility Project, a new initiative to allow States, localities or
    consortia of the two to blend their CDBG and HOME allocations with
    funding from the Department of Health and Human Services' Social
    Services Block Grant and Community Services Block Grant in a flexible
    way to achieve local goals. Communities would design Upward Mobility
    Projects around achieving a specific outcome--like increasing families'
    earnings, improving children's outcomes, expanding employment
    opportunities, or increasing housing stability--then employ the most
    promising evidence-based methods to achieve that goal. To support the
    Upward Mobility Projects, Federal agencies will partner with applicants
    to blend the identified funds and provide the appropriate waivers
    needed for required flexibilities, including but not limited to
    aligning household eligibility criteria, aligning and streamlining
    reporting requirements, and coordinating and sustaining service
    delivery.
        In addition, the new Local Housing Policy Grants program would
    complement and leverage communities' CDBG and HOME activities by
    providing a total of $300 million in mandatory funding for competitive
    grants to increase economic growth, access to jobs and improve housing
    affordability by supporting new policies, programs or regulatory
    initiatives to create a more elastic and diverse housing supply. To
    that end, the funding would allow localities to make investments in
    areas like infrastructure expansion or improvement, housing market
    evaluations, code writing or design assistance, and stakeholder
    outreach and education.
    Assisting Native Americans
        Through innovative programming, HUD has found new ways to partner
    with American Indian and Alaska Native tribal governments to help these
    communities craft and implement sustainable, locally-driven solutions
    to economic development challenges. HUD recognizes the right of Indian
    self-determination and tribal self-governance, and has fostered
    partnerships that allow tribal recipients the flexibility to design and
    implement appropriate, place-based housing programs according to local
    needs and customs. In most of these communities, housing and
    infrastructure needs are severe and widespread, disconnected from
    transportation networks and isolated from key community assets
    including jobs, schools and healthcare facilities. In fiscal year 2017,
    HUD is requesting a total of $786 million to fund programs that will
    directly support housing and economic development in American Indian,
    Alaskan Native, and Native Hawaiian communities nationwide, including:
      --$700 million for the Indian Housing Block Grant (IHBG) program,
            which is the single largest source of Federal funding for
            housing on Indian tribal lands today.
      --$80 million for Indian Community Development Block Grants, a
            flexible source of grant funds for federally-recognized tribes
            or eligible Indian entities, requested within the Community
            Development Fund. Of this funding, $20 million is set aside for
            projects to improve outcomes for Native Youth, such as the
            development, rehabilitation or acquisition of community centers
            and health clinics.
      --$5.5 million for the Indian Housing Loan Guarantee Fund, which
            provides loan guarantees to increase the availability of
            mortgage lending on Indian reservations and other Indian areas.
      --Increases the set-aside for colonias investment in communities
            along the U.S.-Mexico border from 10 percent to 15 percent, to
            address problems with lack of infrastructure, including
            adequate water, sewer facilities and decent housing.
        In addition, up to $5 million in funding requested for Jobs-Plus
    would be used to implement a demonstration of the successful Jobs-Plus
    model in Indian Country.
    Transforming Neighborhoods of Poverty
        The President has made it clear that we cannot create an economy
    built from the middle class out if: a fifth of America's children live
    in poverty, at a cost of $500 billion per year--fully 4 percent of
    GDP--due to reduced skills development and economic productivity,
    increased later life crime, and poor health; a growing population lives
    with the problems of concentrated neighborhood poverty--high
    unemployment rates, rampant crime, health disparities, inadequate early
    care and education, struggling schools, and disinvestment--all of which
    isolate them from the global economy.
        That's why HUD's fiscal year 2017 Budget provides $200 million for
    Choice Neighborhoods to continue transformative investments in high-
    poverty neighborhoods where distressed HUD-assisted public and
    privately owned housing is located. Choice Neighborhoods--along with
    RAD--is an essential element of the President's Promise Zones
    initiative, which is designed to support revitalization in some of
    America's highest-poverty communities by creating jobs, attracting
    private investment, increasing economic activity, expanding educational
    opportunity, and reducing violent crime.
        The President announced the first five Promise Zones in January
    2014 and will designate an additional 15 Zones by the end of calendar
    year 2016. Communities compete to earn a Promise Zone designation by
    identifying a set of positive outcomes, developing a strategy,
    encouraging private investment and realigning Federal, State, and local
    resources to support achievement of those outcomes. The Promise Zone
    designation process ensures rural and Native American representation.
    Promise Zones will receive tax incentives, if approved by Congress, to
    stimulate hiring and business investment along with intensive Federal
    support and technical assistance aimed at breaking down regulatory
    barriers and using Federal funds available to them at the local level
    more effectively. Applicants from Promise Zones will also receive
    points for competitive Federal grants that will increase the odds of
    qualifying for support and assistance to help them achieve their goals.
        Promise Zones are aligning the work of multiple Federal programs in
    communities that have both substantial needs and a strong plan to
    address them. The Promise Zones initiative builds on the lessons
    learned from existing place-based programs like the Department of
    Education's Promise Neighborhoods and the Department of Justice's Byrne
    Criminal Justice Innovation program, both of which receive substantial
    increases in the Budget. Other Federal agencies that will be aligning
    their work with that of local Promise Zone partners include the
    Departments of Commerce, Health and Human Services, and Agriculture.
        The Choice Neighborhoods initiative is a central element of the
    Administration's inter-agency, place-based strategy to support local
    communities in developing the tools they need to revitalize
    neighborhoods of concentrated poverty into neighborhoods of
    opportunity. The Department's administration of the first rounds of
    funding for Choice Neighborhoods grants exemplify how our practices
    generate effective partnerships with local housing and community
    development efforts. In the past, many Federal grant programs followed
    a rigid, top-down, `one-size fits all' approach that dictated what
    local policymakers could and could not do rather than listening to them
    and providing the tools they needed to meet local needs. Having served
    in local government myself, I am committed to a collaborative approach
    responsive to local needs--and believe the results thus far demonstrate
    that we are making good on that commitment.
    Ensuring Inclusive Housing Nationwide
        An inclusive community is one in which all people--regardless of
    race, ethnicity, religion, sex, disability, or familial status--have
    equal access to housing and economic opportunities. Throughout its
    portfolio of programs, HUD is committed to maintaining that inclusivity
    and providing accountability in housing and lending practices
    nationwide. Through inclusive development, education, enforcement of
    fair housing laws, expanded training and language assistance, HUD will
    affirmatively further fair housing and the ideals of an open society.
        The Fair Housing Initiatives Program (FHIP) is critical to building
    and sustaining inclusive communities. FHIP is the only grant program
    within the Federal Government whose primary purpose is to support
    private efforts to educate the public about fair housing rights and
    conduct private enforcement of the Fair Housing Act. In fiscal year
    2017, HUD is requesting $46 million in FHIP funds, representing the
    Department's strong commitment to fair housing. The requested amount
    will continue funding to support fair housing enforcement by all
    statutorily eligible private fair housing organizations. In addition,
    it will fund fair housing education at the local, regional and national
    levels.
        The Fair Housing Assistance Program (FHAP) is a critical component
    of HUD's effort to ensure the public's right to housing free from
    discrimination. FHAP multiplies HUD's enforcement capabilities,
    allowing the Department to protect fair housing rights in an efficient
    and effective manner. In fact, FHAP agencies investigate the majority
    of housing discrimination complaints filed in the United States. In
    fiscal year 2017, the Budget provides $21.9 million in FHAP grants to
    nearly 90 government agencies to enforce laws that prohibit housing
    discrimination that have been reviewed and deemed substantially
    equivalent to Federal law.
    Ensuring that an Economy Built from the Middle Class Out Includes
            Opportunities for Rural Americans
        The Administration has placed a significant emphasis on ensuring
    that America's rural communities are competitive in the global
    economy--particularly given the reality that rural communities
    generally have less access to public transportation, along with higher
    poverty rates and inadequate housing. HUD serves families in small
    towns and rural communities through almost every major program it
    funds.
        As the single largest sources of funding for housing on Indian
    tribal lands today, HUD initiatives in Indian country continue to have
    some of the Department's most successful track records. Programs like
    Indian Housing Block Grants, Indian Housing Loan Guarantees, and Indian
    Community Development Block Grants support development in remote areas
    where safe, affordable housing is desperately needed. HUD recognizes
    the right of Indian self-determination and tribal self-governance by
    allowing the recipients the flexibility to design and implement
    appropriate, place-based housing programs according to local needs and
    customs. Taken together, in fiscal year 2017 HUD is requesting $786
    million to fund programs that will support housing and development in
    American Indian, Alaska Native, and Native Hawaiian communities.
        In addition, HUD and the Departments of Treasury and Agriculture
    meet regularly through the interagency Rental Housing Policy Working
    Group to better align and coordinate affordable rental housing
    programs. For homeowners, the FHA helps first-time homebuyers and other
    qualified families all over the country purchase their own homes. HUD
    has also entered into a Memorandum of Understanding with the Department
    of Treasury's Community Development Financial Institutions Fund and the
    Department Agriculture--Rural Development, to expand the capacity of
    organizations providing loans and investment capital in underserved
    rural regions. The initiative, which is being piloted in colonias along
    the U.S.-Mexico border, will improve the delivery of funding from
    Federal agencies and private sources supporting small business,
    affordable housing and community facilities.
                    goal 5: achieving operational excellence
        A 21st century American economy that is a magnet for jobs and
    equips its residents with the skills they need for those jobs demands a
    government that's leaner, smarter, and more transparent. The current
    economic and housing crisis; the structural affordability challenges
    facing low-income homeowners and renters; and the new, multidimensional
    challenges facing our urban, suburban, and rural communities all
    require an agency in which the fundamentals matter and the basics
    function. As such, HUD remains committed to transforming the way it
    does business. This transformation is more crucial now than perhaps
    ever before--HUD remains at the forefront of the Federal response to
    the national mortgage crisis, economic recovery, Hurricane Sandy
    recovery, and the structural gap between household incomes and national
    housing prices--roles that require an agency that is nimble and market-
    savvy, with the capacity and expertise necessary to galvanize HUD's
    vast network of partners. HUD's 2016 Budget reflects these critical
    roles, by investing in transformation, research, and development that
    will be implemented strategically.
    Investing In Our Staff
        HUD's greatest resource is its dedicated staff. When employees
    attain skills and are motivated to use those skills to help their
    organization reach goals, the capacity of the organization grows and
    employees in the organization grow as well; which is why HUD is
    creating training and leadership development opportunities for
    employees at all levels. Over time, the rules and regulations that
    develop within an organization become hurdles instead of the helpful
    pathways they were intended to be. HUD is in the process of simplifying
    and combining programs, streamlining regulations, and eliminating rules
    and constraints. In addition, the Department is in the middle of a
    major reform of its information technology, human resources,
    procurement, and other internal support functions to give more
    authority to managers and provide better service to HUD customers.
        In 2016, HUD is requesting $1.365 billion in salaries and expenses,
    in addition to $23 million for Ginnie Mae and $129 million for HUD's
    Office of Inspector General (OIG). The HUD request includes several
    initiatives to streamline the HUD organization, consolidate functions
    for increased efficiency, and increase training for our staff. HUD is
    making specific investments of more staff to manage major rental
    assistance programs, increasing our ability to enforce new fair housing
    rules and provide more oversight to our community grant programs. The
    Department will continue to improve operations and create a dynamic
    organization capable of addressing some of our Nation's most difficult
    challenges.
    Carrying Out Critical Program Demonstrations and Research
        HUD's ongoing transformation is a multiyear effort that can only be
    achieved through the relentless focus of agency leadership, full
    transparency and accountability for real results, and sustained and
    flexible budget resources. The Department has taken an enterprise-wide
    approach to both technical assistance and research that has bolstered
    these efforts and increased the efficiency and effectiveness of the
    Department's programs. Further, this shared approach has provided a
    mechanism for innovative, cross-cutting technical assistance that goes
    beyond program compliance to improve grantee capacity, performance and
    outcomes.
        While the Department's transformation is a crucial long-term
    commitment, HUD continues to prioritize these efforts in a responsible
    manner that ensures HUD's constituent services don't suffer at the
    hands of internal transformation. This year's Budget proposes to again
    fund research and demonstrations by transfers from program accounts. In
    fiscal year 2017, HUD's request includes transfer authority of up to
    $120 million into the Office of Policy Development and Research, up to
    $35 million of which will be for research, evaluations and program
    demonstrations, and at least $85 million of which will be for cross-
    cutting technical assistance, including place-based technical
    assistance. This includes training, education, support and advice to
    help community development corporations and community housing
    redevelopment organizations carry out community development and provide
    affordable housing activities for low- and moderate-income persons, as
    previously funded through the Self-Help and Assisted Homeownership
    Opportunity Program (SHOP) account. This modified approach will enable
    HUD to better integrate technical assistance and capacity building.
    Upgrading the Department's Information Technology Infrastructure
        In 2017, HUD is requesting $286 million for the Information
    Technology Fund. HUD will continue development efforts and will focus
    on delivery of discrete capabilities in our FHA and voucher management
    systems, as well as exploring consolidation of several grant management
    applications. In fiscal years 2015 and 2016, HUD deployed three
    successful releases of the New Core project, which transitioned key
    administrative and financial management functions to the Treasury
    Department in the largest financial management shared service
    arrangement established to date. HUD also implemented an enterprise-
    wide financial system that allows the Department to resolve material
    weakness and audit findings though a consolidated shared services
    infrastructure platform. These changes are allowing HUD to deliver
    services and manage these multi-billion dollar programs faster, more
    accurately and using better information for analysis.
                                   conclusion
        Chairman Collins, this Budget reflects the Administration's
    recognition of the critical role the housing sector must play to ensure
    that America becomes a magnet for jobs that strengthen the Nation's
    middle class, including providing economic opportunity for all
    Americans, whatever their circumstances. Equally important, it
    expresses the confidence of the President in the capacity of HUD to
    meet a high standard of performance.
        It's about making hard choices to reduce the deficit--and putting
    in place much-needed reforms to hold ourselves to a high standard of
    performance. But most of all, it's about the results we deliver for the
    vulnerable people and places who depend on us most.

                           FUNDING FOR VASH VOUCHERS

        Senator Collins. Thank you very much, Mr. Secretary. I want
    to pick up where the ranking member, Senator Reed, left off,
    the issue of the budget containing no new money for VASH
    vouchers which go to our homeless veterans. The same was the
    case in last year's budget, and we remedied that by putting in
    funding for the VASH program.
        As I indicated in my statement, we have made some
    significant progress, in large measure due to the VASH program
    as well as additional programs for homelessness prevention
    among our veterans in reducing the number of veterans who are
    homeless.
        It's down by 36 percent by 2010. But I very much remember
    the Administration having a goal of ending homelessness among
    our veterans by the end of last year, and clearly, that didn't
    happen. We're not even close to that, even though we're
    continuing to make progress, and there are some cities around
    the country that have achieved that goal.
        So my first question is, why is the Administration
    proposing to zero out the VASH account in terms of new
    vouchers? And related to that, has the Administration changed
    its mind about reaching the goal of no homeless veterans?
        Secretary Castro. I definitely appreciate the opportunity
    to answer that question. Let me answer your second question
    first. The Administration is firmly committed to effectively
    ending veteran homelessness, and so that goal remains.
        I want to commend you and the committee again, Chairman
    Collins, for the investment that you all have made over the
    years in HUD-VASH. It has been, I think, absolutely key to the
    36-percent reduction that we've seen. You're right that we did
    not request additional or new HUD-VASH vouchers, because we
    believe that the resources are there for HUD-VASH for who it
    includes to serve.
        We think that the communities are making tremendous
    progress with those HUD-VASH vouchers. Last year, the committee
    did grant us additional HUD-VASH vouchers, and we are utilizing
    those, and we're going to utilize them in effective ways.
        But through the combination of agencies that dedicate
    resources to homeless veterans and other mainstream resources
    at HUD, we believe that we can continue to drive down the
    number of homeless veterans.
        I would also note, and I know that we had this conversation
    last year, that there are some veterans who did not fit into
    the HUD-VASH program, were not able to be served by the HUD-
    VASH program, that we believe that, through use of mainstream
    resources, that we can serve. One good example that I cited
    last year was veterans that were other than honorably
    discharged because of the don't ask, don't tell policy.
        And so we think that we have the HUD-VASH vouchers that we
    need, and I commend the committee for the investment that it's
    made, and we can combine that with other mainstream resources
    and vouchers to get to functional zero on veteran homelessness.

                PHYSICAL INSPECTIONS OF HUD ASSISTED PROPERTIES

        Senator Collins. Mr. Secretary, as I mentioned in my
    opening statement, I'm deeply troubled by reports of deplorable
    living conditions in subsidized properties in Memphis,
    Tennessee, and Jacksonville, Florida. Last month, a judge in
    Cincinnati placed five HUD-assisted properties in judicial
    receivership after the city sued the owners regarding more than
    1,800 health and safety violations.
        The scale and the longevity of these problems highlight
    systemic concerns about the effectiveness of HUD's oversight,
    and those concerns are underscored by the fact that contractors
    hired by HUD to inspect the Florida property gave it a passing
    score just weeks before the city inspectors found hundreds of
    code violations, and indeed, the press mentions toilets leaking
    into bathtubs, roaches, raw sewage backing up into a bathtub,
    water leaking into apartments, trash, debris, sick children, a
    really appalling circumstance, which I know must trouble you
    gravely as well.
        So what's wrong with HUD's system for inspection that
    properties could receive passing grades from HUD and then be
    cited by local inspectors with literally hundreds of serious
    code violations?
        Secretary Castro. Yes, let me just begin by saying that, of
    course, I share your deep concern with the specific instances
    that you've cited that were mentioned in Florida and Tennessee
    and one in Maine recently.
        And number one, I think that the vast majority of
    properties out there are being inspected and inspected well.
    And when there are issues, they're responded to in a
    responsible way by owners.
        But there are instances that I don't think anybody can be
    proud of and that HUD is committed to improving our processes
    to better respond in a shorter timeframe to ensure that
    residents are not living in the kind of conditions that we've
    seen described in media reports and that we have received
    internal reports about.
        So you asked what are we doing to improve this process. We
    have created an internal working group to look at our
    inspections process, to understand how we can strengthen it, to
    make sure that we're getting to properties like those troubled
    assets that have been noted in a quicker time, that we're
    ensuring compliance by the owners more quickly, and ultimately
    providing a better quality of life to residents.
        Another component of this is making sure that residents get
    tenant protection vouchers more quickly so that they have a
    choice and, for the long-term, working with Congress to ensure
    that we can strengthen our enforcement capabilities.
        So for instance, our fiscal year 2017 budget requests
    authority for HUD to issue double damages to owners that
    violate their Section 8 contract with HUD, a penalty that's
    less burdensome on tenants than abatement, and the same
    enforcement capabilities for the 202 project rental assistance
    contract properties for the elderly and disabled as for other
    Section 8 project based rental assistance properties.
        So we want to make sure that we have all the tools that we
    can to effectively enforce, and that includes improving our own
    processes and working with Congress where we need that help.
        Senator Collins. Thank you.
        Senator Reed.

                     FEDERAL PROGRAMS FOR HOMELESS VETERANS

        Senator Reed. Well, thank you very much, Madam Chairman.
        Again, Mr. Secretary, Senator Collins and I share this
    concern about the HUD-VASH vouchers, the fact that progress has
    been made, but there's no request this year for additional
    vouchers, even though roughly 48,000 veterans are still in the
    United States looking for homes.
        Are there any other Federal partnerships or programs in
    place to provide housing and service to these veterans who are
    experiencing homelessness that could sort of soften the blow,
    if you will, or help you?
        Secretary Castro. Well, there absolutely are, Ranking
    Member Reed, both within HUD and also in other agencies. And
    the U.S. Interagency Council on Homelessness (USICH) has been
    fantastic at coordinating the focus on veterans, but just to
    give you a good example of that, the VA is continuing to fully
    fund the Supportive Services for Veteran Families, or SFVS, at
    $300 million. They've committed to fully staffing all of the
    homelessness programs under their auspices. The Department of
    Labor has its Homeless Veterans Reintegration Program.
        And we found that one of the most effective ways of driving
    down veteran homelessness, in addition to HUD-VASH, was to use
    mainstream resources, the prioritization of mainstream
    resources that go into the hands of veterans. And we are
    absolutely committed to continuing to do that.

                       UPDATING STANDARDS FOR LEAD PAINT

        Senator Reed. Thank you, Mr. Secretary. There's another
    area that the chairman and I share, and that is the lead
    exposure. And we've all been galvanized by the incident in
    Flint from water pipes, but roughly 70 percent of exposure
    comes from lead paint, which is ubiquitous. It's all over the
    place, particularly in older neighborhoods like Bangor and
    Portland and Providence.
        And as you mentioned in your testimony, the CDC recently
    has strengthened the lead standard, because they found that
    minute quantities of lead are toxic, very toxic to children,
    and cause long-term damage. And you suggested that HUD is going
    to modify your stand to reflect this. Can you give us an idea
    when that will happen?
        Secretary Castro. Yes. Well, we just submitted, on March 8,
    the proposed new rule to the OMB, and so this will go through
    the rulemaking process. One of the components of this is to
    bring our standard in conformity with the CDC standard.
        I will note that, since 2013, we actually have strongly
    recommended that our grantees conform to that standard, but I
    also understand that strongly encouraging is not the same thing
    as requiring, so it will require that. It will also make more
    robust responsibilities that folks who come into knowledge
    about elevated blood levels in children have in terms of
    notification.
        I also applaud--I know Senator Durbin is working on and
    other have proposed a lead-based paint legislation. We look
    forward to doing what we can with this new rule and also
    working with Congress to improve enforcement and inspections
    and so forth.

                             LEAD PAINT INSPECTIONS

        Senator Reed. And you've sort of led me to my next
    question, which is the issue of inspection. The chairman
    pointed out the broad based issues in terms of how do these
    properties slip through. When it comes to lead, information we
    have is it's sort of a variable standard, and it's not
    consistently enforced. And as you increase and strengthen the
    regulation, you literally will have more units that fall
    outside the standard.
        Can you talk about how you're going to ensure that there's
    a consistent standard for lead inspections, it's enforced
    consistently, particularly in an additional group of units?
        And the other issue I would just point out, and you
    suggested, too, is many times the only way you find out about
    this, not by a proactive inspection, but the child shows up in
    an emergency room, they draw blood, and they found they've been
    exposed, and then suddenly, they go to the unit and start
    inspecting and saying, ``Boy, this is terrible.'' I think we've
    both like to see that reversed. Your comments?
        Secretary Castro. I believe we're in agreement here, and
    we're committed on our end actually to working toward a common
    inspection standard, and we're committed basically to improving
    this process fully within what is in our authority, including
    on the inspection standard.
        You're correct that right now, based on whether it's
    multifamily housing or Section 8 housing, there are different
    categories of requirements and inspection standards, and we
    would like to work to bring those into harmony. And some of
    that, we can do on our own. Other pieces of that, we're
    definitely going to need congressional help.
        I met with Senator Durbin just a couple of days ago on this
    issue, and so look forward to working on it.
        Senator Reed. Thank you.
        Senator Collins.
        Senator Collins. Thank you very much, Senator Reed.
        Senator Schatz.

                       HOUSING VOUCHERS FOR THE HOMELESS

        Senator Schatz. Thank you, Chairwoman Collins and Ranking
    Member Reed. And I want to thank Secretary Castro for the help
    that HUD has provided to Hawaii. And I had the opportunity
    yesterday to meet with Jennifer Ho and talk about our
    partnership with the PHAs and service providers in the State,
    and I just wanted to say thank you to you and your excellent
    staff.
        And I also want to request that you stay engaged and make
    sure that, as we transition to a new administration, that we
    retain the commitment at the career professional level to
    maintain continuity. Whatever happens in city, State, and
    Federal administrations, this is a partnership that I think has
    to continue.
        With respect to homelessness, I support the request for
    additional housing vouchers, but I want to understand how these
    vouchers are going to be allocated if funded.
        And specifically, I want to make sure that places like
    Hawaii, that have the need certainly to justify more resources
    but are smaller than some of the big urban areas with needs
    that could frankly swallow up whatever else we're able to
    appropriate, how do we make sure these dollars are spent
    throughout the country wherever there are needs, including
    Hawaii, but also other rural areas?
        Secretary Castro. And thank you, Senator, for your
    engagement with our staff. I know you and I have had the
    opportunity to sit down and speak to these issues, and I know
    how engaged you are on this and what a pressing challenge it is
    in Hawaii. I also just recently met, visited with the governor,
    and have, on a couple of occasions, visited with Mayor Caldwell
    of Honolulu.
        Your question relates to essentially making sure that
    communities like those in Hawaii get their fair share, I
    imagine, of resources. And I want to assure you that, as we
    allocate these vouchers, that we do so in a way that ensures
    that it's not just the biggest of cities or the usual suspects,
    so to speak, that get these resources.
        They're allocated, in fact, based on relative need, and
    that need it not determined just based on population, but
    instead, it considers other factors, such as the rate of
    homelessness in the area, availability of existing resources,
    the geographic concentration, housing market conditions, and
    other pertinent factors.
        And so it is a multidimensional analysis that goes into the
    allocation of these vouchers. I'm very well aware of the
    challenge there in Honolulu particularly and on the West Coast
    more broadly.
        I had a chance to sit down with several mayors in a West
    Coast mayor's summit to tackle some of these issues of growing
    street homelessness, unsheltered homelessness, and we look
    forward to continuing to work with you and the folks in Hawaii
    on this challenge.
        Senator Schatz. Thank you. And thanks to Senator Reed and
    Chairwoman Collins' leadership.

                          NATIONAL HOUSING TRUST FUND

        As you know, 2016 will be the first year that the States
    receive an allocation from the National Housing Trust Fund to
    focus on creating affordable housing options for people earning
    30 percent of area median income (AMI). When do you expect to
    be able to push these dollars out?
        Secretary Castro. Yes, we expect that the first allocations
    of the Housing Trust Fund, the HTF, will be made this summer.
        There's a timeline here that will kick off basically in
    April, where States will have to submit to us a State
    allocation plan, and then we'll have 45 days to respond to
    that. So we think that the timeline, we're confident that the
    timeline now for the States that most timely submit their plan
    is going to be in the summer.
        And we look forward to that, because, as you mentioned,
    this HTF is important, because it's serving extremely low-
    income individuals which suffer from the biggest gap in
    affordability for housing that is out there. So it's a unique
    tool that we can use to fill that gap.

                         FAIR MARKET RENT CALCULATIONS

        Senator Schatz. Thank you. And in my limited time left, I'd
    like to just flag an issue for you, which I'm sure you're aware
    of, but especially in the State of Hawaii, this fair market
    rent (FMR), the level that is set in terms of FMR, is just
    totally unrealistic.
        For instance, on Kauai, HUD set FMR for a two bedroom unit
    at $1,238. It's actually $1,800 throughout the island of Kauai.
    And so that's too big of a delta for people living on fixed
    income. It's too big of a delta in a place where we pay three
    to four times the national average in terms of electricity.
        And so we're going to need your help to kind of remedy
    this, first of all in terms of the way you set FMR, but second
    of all, then you ask the county to conduct a study at its own
    expense, $50,000 or so, and then I think that, you know, at
    both of those steps, we're not doing this right. Thank you.
        Secretary Castro. Thank you.
        Senator Collins. Thank you very much, Senator.
        Senator Daines.
        Senator Daines. Thank you, Madam Chair. Secretary Castro,
    welcome to the committee.
        I grew up in the housing business. My dad's a home builder,
    so I spent most of my summers working on construction crews
    there putting myself through college. And this is such an
    important issue for me personally, certainly housing,
    difference between a house and a home, right, such an important
    part of America, the American dream and so forth.
        But this hearing does come in the wake of a long trail of
    instances, established a pattern within HUD of waste and abuse
    of taxpayer funds. I want to probe that a bit here with you, if
    I could, Secretary Castro.
        Certainly, the mission of HUD is very laudable. The fact
    is, is repeatedly misallocated resources, that are meant to
    really help low-income households in the ordinary course of
    operations, and I'm concerned about accountability.

                    HIGH INCOME HOUSEHOLDS IN PUBLIC HOUSING

        You've seen the July 21, 2015 inspector general report,
    which revealed that HUD provided housing assistance to over
    25,000 households that exceeded the income limit, some earning
    incomes over $90,000. These misallocated funds total over $100
    million.
        At the same time, there were 600,000 low-income families
    were left waiting in public housing backlog. Let me put that in
    perspective. That's more families than in my entire State.
    These numbers aren't small.
        The first question is, does HUD accept the responsibility
    for the over $100 million that OIG estimated was misallocated
    away from low-income households?
        Secretary Castro. Thank you for bringing this up, Senator.
    We share the concern here, of course. And the report from the
    inspector general did identify those 25,000 units out of about
    1.1 million units.
        We share the concern. We agree with the inspector general
    that, particularly in these egregious cases, some of which were
    pointed out in that report, these egregious cases of over-
    income tenants that they ought not to be living in public
    housing. So we, in short order, sent out a letter to public
    housing authorities strongly encouraging them to address these
    cases.
        We also have put out an advanced notice of proposed
    rulemaking that would actually allow us to change the way that
    we handle these cases.
        Senator Daines. Yes, Secretary Castro, on that point, and I
    appreciate that rulemaking, that was result of what was
    required and prompted by the fiscal year 2016 appropriations
    bill.
        Secretary Castro. Well, I think it's consistent with what
    the direction that HUD wants to go in as well. It's also true,
    though, that this issue has come up before. It came up a few
    years ago and was in the hands of Congress. And I think what it
    boils down to is that there needs to be some nuance in how this
    is approached.
        For instance, if somebody is, you know, literally making
    $20 more than the income cutoff, are we going to summarily put
    them on the street because they're $20 off? It requires, I
    think, a recognition that we do want folks who live in public
    housing to work and try and earn more income, so that they can
    better themselves and become upwardly mobile.
        I think the challenge is, how much of a grace period do we
    give folks, recognized that we want them to be able to be more
    self-sufficient.
        Senator Daines. Yes, and I'd agree that the $20 probably
    gives us less heartburn than those who were found making in
    excess of $90,000 a year, which I think is a real concern.
        Secretary Castro. I agree. Yes, I agree.

          OFFICE OF INSPECTOR GENERAL--SEMI-ANNUAL REPORT TO CONGRESS

        Senator Daines. I want to pivot over and talk a bit now
    about another issue which the HUD inspector general semi-annual
    report to Congress published just this last September,
    September 30, 2015. The audit results revealed $1.9 billion,
    with a B, of funds that could have been put to better use,
    according to the report, and $2.1 billion in questioned costs.
    And again, I'm quoting the inspector general. I believe
    Congress must ensure that HUD is a good steward of taxpayer
    funding, and I'm sure you'd agree with that.
        My question is, the inspector general just published its
    report here end of last fiscal, what can we expect the next
    semi-annual report that will be issued March 31, which is
    coming up here in a few weeks? What number can we expect to
    come out of that report, and what's your goal?
        Secretary Castro. Well, our goal is that all funds are used
    exactly as they should be and that we improve our performance
    on this score. And so let me assure you that--and I know that
    the inspector general is going to testify in just a little
    while----
        Senator Daines. Well, let me say this. I spent 28 years in
    business. I understand aspirational targets, and certainly, we
    should aspiring to zero. But there's an old saying, at least
    coming from business, if you aim at nothing, you'll hit it.
        I mean, is there a goal set here? If the inspector general
    said there's $1.9 billion of funds that could be put to better
    use and $2.1 billion questioned costs, did anybody sit down and
    say, okay, we're not going to get that overnight, we better set
    a target here, try to hit here in the next report?
        Secretary Castro. Yes, the way that we approach that is to
    work with the inspector general and say these are the
    recommendations that the inspector general made so that we can
    cut down on those instances, and our goal is to implement those
    recommendations. And so across the board----
        Senator Daines. Well, let me say, a goal of implementing is
    an activity. I'm looking for the results. What result do you
    expect we'll see here? The activity produces--ultimately, it's
    a mean to an end. What's the end going to be do you think?
        Secretary Castro. So I'd be glad to follow up with you on
    the ones that can implemented within this fiscal year, because
    you asked about the fiscal year, and so it depends on which
    ones can be implemented during the fiscal year and what their
    budgetary impact would be.
        Senator Daines. That would be helpful, because I think it's
    important that we all hold ourselves accountable with something
    that's quantitative. And so this will be a mid-fiscal report,
    then I'd like to see a glide path March 16--or excuse me, March
    31 will be a number followed by a September 30 number here as
    we're trying to make that number lower.
        It's not going to get to zero, I think we all agree. We'd
    like to see it at zero. I think it's important we have some
    glide path metrics here, so we can make sure we're making
    progress here, reduce the waste and abuse of the program.
        Thank you, Secretary Castro.
        Secretary Castro. Thank you.
        Senator Collins. Thank you, Senator Daines. I want you to
    know that one reason I'm inviting the inspector general to
    testify both at both HUD and Transportation at our hearings is
    precisely because of the issues you've just raised, so that we
    can make sure we hear from the inspector generals on the areas
    that deserve our further attention as well as the Secretary's.
    So thank you for raising that issue.
        Senator Murphy.
        Senator Murphy. Thank you, Madam Chairman. Good afternoon,
    Mr. Secretary. Good to see you again. Thank you very much for
    your visit to Connecticut about a month ago. You were very
    generous to spend a day with us, and we're busy at work on many
    of the initiatives that you helped us launch and accentuate
    while you were there.

                          CHURCH STREET SOUTH PROJECT

        I wanted to cover two topics with you this morning, one
    related to your visit, talk a little bit about HUD's work with
    the city of New Haven to address the Church Street South
    project that you remarked on when you were there, and second,
    talk a little bit about the 811 Supportive Housing program
    moving forward.
        But first, I think this is your last appearance before the
    Appropriations Committee. I just want to thank you personally
    for your work, for your focus on many of our shared priorities,
    and we really have noticed how attentive and the Administration
    has been to many members of this committee. So I thank you for
    that.
        So maybe I'll start with our situation in New Haven. You
    know the details. This is a HUD-funded project, Church Street
    South, that is really in absolutely decrepit condition, to the
    point where we've had to move many of the residents out. Black
    mold, bedbugs, really bad crumbling lead infrastructure are the
    main causes.
        And I guess my question to you is two-fold. I just want to
    get your continued assurance that HUD is going to continue to
    work with us, not just to move the residents out of that
    facility but to then rebuild that affordable housing capacity,
    but second, what we've learned is that the Real Estate
    Assessment Center (REAC) doesn't really look at some of the
    conditions that were the root cause of the problem in Church
    Street South. So for instance, black mold, bedbugs, and lead
    don't seem to be part of that assessment.
        And so I know you've got a short amount of time left
    between now and the end of the President's term, but are you
    thinking about ways to make these REAC assessments maybe mirror
    some of the real threats that a lot of families are dealing
    with, mold and bedbugs at the top of the list, which are
    becoming, you know, real epidemic problems in places like
    Connecticut?
        So one, do we have your continued commitment to help solve
    this particular problem? And then is there a reform of REAC
    that you'll be working on?
        Secretary Castro. Yes, and let me just briefly say thank
    you, and I enjoyed the visit to Connecticut and having the
    opportunity to hear some of the concerns of folks throughout
    the State. And of course, we have been working on Church
    Street. We'll look forward to making sure that those residents
    have what they need in terms of tenant protection vouchers.

                            REAC INSPECTION PROCESS

        To answer your question just directly, the answer is that
    we do need to improve our REAC inspections process. And I
    believe we can make some of those improvements internally, on
    others that we may need legislative help.
        You brought up mold, for instance. It's my understanding
    that one of the challenges that we have is that right now, the
    detection of mold does not trigger a negation or subtraction of
    points to the degree that it probably should and that we need
    to adjust the scoring system there, and that in this case and
    in some other cases that we've seen, that that would help us be
    able to get to intervention or enforcement quicker.
        So we would like to work with you. You absolutely do have
    my commitment to continue to work with you, both in ways that
    that can be improved, that that process can be improved, and
    that we ensure we're taking care of those residents.

                         SECTION 811 SUPPORTIVE HOUSING

        Senator Murphy. I appreciate both of those commitments.
        In the time that I have remaining, just wanted to talk to
    you about the Section 811 Supportive Housing program, what a
    tremendous success that program has been over the course of the
    last 3 years. We were building about 500 new units out of 811
    with Federal dollars when I came to Congress, in part because
    of legislation that I helped write, where now, over the last 3
    years, we built 7,500 units with Federal dollars, great credit
    to the folks who have administered the changes that the law
    included in your Department.
        But this year's budget, I think, flat funds 811. After 2
    years of requests of about $25 million in increases, there's
    not any new money in 811 this year. I just wanted to sort of
    ask you about the decision to flat fund 811 and ask you to give
    an update on the continued reforms that are really leveraging
    massive private sector and State level and local level dollars.
        Big success story, but I don't want our successes to abate
    and us to maybe think that we don't need to allocate as much
    Federal money because of our success in getting other partners
    to put money into these projects.
        Secretary Castro. And certainly, we're proud of those
    partnerships, and as you know, in 2012 and 2014, we completed
    two NOFA competitions that resulted in the award of $218
    million to 28 States and the District of Columbia.
        You're right that we did request last year, I believe,
    funds for 700 new units. That request is not in the budget. I
    do put this into the category of very tough choices that we
    made in this budget, but that's not because we're not committed
    to the 811 program. We see the value of it. We see the housing
    opportunity that it is creating out there for a needy
    population and look forward to continuing to work with you on
    it.
        Senator Murphy. States like ours are just in tremendous
    budget crunches, in part because, when you don't properly house
    these individuals, the cost of inappropriate care, where it--be
    in emergency rooms or prisons, gets passed largely down to
    State governments.
        And so, coming from a State that has pretty regular budget
    deficits these days, this small investment that we make at the
    Federal level saves an awful lot of money to the taxpayer at
    the State level.
        I know I'm preaching to the converted here, and I thank you
    for your commitment to the 811 program. Thank you, Madam Chair.
        Senator Collins. Thank you. Senator Murray, welcome back to
    your old subcommittee.
        Senator Murray. Great to be here. Thank you for the great
    job that you're doing, both of you. I really appreciate it.

                                  HOMELESSNESS

        Mr. Secretary, good to see you again. Let me start with an
    increasingly urgent issue in my State, that's homelessness,
    which I know is a struggle for many States, but it's gotten so
    bad now that the mayor of Seattle and the King County executive
    have both declared states of emergency. And I believe this
    issue really demands a coordinated and robust response from
    local, State, and, of course, the Federal Government.
        The numbers actually really tell the story here. In the
    early hours of January 29, hundreds of volunteers walked
    through Seattle and King County neighborhoods, as they do
    everywhere, to count the number of people sleeping outside in
    doorways, cars, beneath overpasses, or just on the ground.
        The preliminary results show a 19-percent increase in the
    number of unsheltered men, women, and children, and some parts
    of our county experienced increases of over 50 percent over
    last year, and that's, of course, on top of double digit
    increases the year before.
        These are really heartbreaking situations for everyone,
    especially tragic when more and more children are involved. But
    it's not just happening in our most populated areas. It's
    happening in our suburbs, it's happening in smaller cities,
    Longview and Vancouver in my State, where families are actually
    being priced out of their homes.
        And I really think it's important that the Federal
    Government does all it can to help provide the resources in
    coordination with State and local authorities. I was really
    encouraged to see the President's commitment to addressing this
    crisis reflected in your Department's budget request with
    targeted investments in rapid rehousing, permanent supportive
    housing, and new vouchers.
        Many organizations in my State, from our housing
    authorities to groups like Seattle's Downtown Emergency Service
    Center, are really providing some excellent examples of how
    these investments can change lives for the better.
        I wanted you to talk for a few minutes about HUD's strategy
    for addressing homelessness. And is there sufficient
    coordination between the different levels of government here?
        Secretary Castro. Thank you, Senator Murray, for your
    leadership. I know that you and I have had a chance to speak on
    some of these issues, as well as Moving to Work (MTW), which I
    know is important to you.
        Senator Murray. Right. Which thank you very much for your
    staff for working on that.
        Secretary Castro. So we have had a lot of success over the
    last several years in reducing not just veteran homelessness
    but family homelessness, chronic homelessness. But it's also
    true that in the last year to 18 months, we've seen a spike in
    unsheltered homelessness in some communities, and particularly
    along the West Coast.
        A few months ago in Portland, I joined the mayors of
    Seattle, Portland, San Francisco, and Los Angeles at this West
    Coast mayor's summit to address these very issues.
        And so, number one, I want to assure you that our staff is
    working hand in hand with the Seattle mayor to see how we can
    provide technical assistance. We spoke at that meeting about
    waivers that might be offered to ensure that they could be as
    effective as possible with their resources. We spoke about the
    need for continuing to invest in housing first, because that is
    the most effective way to end homelessness, but recognizing
    that we need a successful street strategy as well for the
    unsheltered population.
        And we see a similar thing in Los Angeles, that it's not
    just on skid row, it's out there in the suburbs and the other
    parts of LA that people don't normally think of as having
    homeless people.
        So that's why I'm very proud of the proposal that's in this
    budget, both on the mandatory side and on the discretionary
    side, and particularly with regard to the population that we're
    talking about, the rapid rehousing intervention as well as the
    25,500 units of permanent supportive housing to deal with
    chronic homelessness, these are the, I think, strategic
    investments that we can make to deal with the challenge.
        Senator Murray. And I want to thank our chair, Senator
    Collins, and our ranking member, Senator Reed, for the
    commitment they have continually shown to make sure that no
    family who relies on a voucher to stay in a safe home loses
    that support. Even when this subcommittee had a really tough
    allocation last year, you made a commitment to that, and I
    really appreciate it.

                                LOCAL RENT COSTS

        I'm going to work to continue to protect those existing
    vouchers and, of course, work for more. But a major challenge
    for HUD is proper allocation of the resources it has given for
    the voucher program. This is a really difficult task, given the
    complexity of local housing trends across the country, and I
    really do want to applaud you and your Department for working
    hard to continue to refine the formula used to accurately
    capture local rent inflation.
        Seattle and King County in particular have experienced huge
    year-over-year rent increases that couldn't have been
    predicted. When HUD last fully revised its inflation formula,
    it was back in 2012. I was glad to hear that, when this year's
    inflation factor was announced recently, HUD was better able to
    capture that drastic increase.
        But this is an issue that requires continued analysis, and
    I just want to ask for your commitment to continue to examine
    that renewal funding inflation factor, to make sure it's
    working for what we need to today.
        Secretary Castro. We absolutely will. And, you know, we
    were pleased to work in forecasting as we set those levels, and
    I think that's important, particularly for communities like
    Seattle, which ranks at the top in terms of the increase in
    rent. So we absolutely can make that commitment.

                                 MOVING TO WORK

        Senator Murray. Okay. And I did want to thank you, again,
    for your staff's hard work on the Moving to Work. It was really
    essential. And separately, if you can give us an update on how
    that's working, I'd appreciate it.
        And I just wanted to mention to you, we have a vacancy in
    our regional HUD administrator office, and I've heard from many
    that the acting regional administrator, Donna Batch, has been
    just providing excellent reliable leadership, and I hope we can
    get that filled soon.
        Secretary Castro. I'm glad to hear that. Thank you.
        Senator Murray. Great. Thank you.
        Senator Collins. Thank you, Senator. We will do one more
    round of questions for the Secretary before we turn to the
    inspector general. I know he's very much looking forward to
    another round of questions, and I didn't want to disappoint him
    in any way.

                       COMMUNITY DEVELOPMENT BLOCK GRANTS

        Mr. Secretary, I mentioned how disappointed I am that the
    budget, once again, proposes a $200 million reduction, that's
    nearly 7 percent, in the Community Development Block Grant
    program. Last year, the justification was that there were going
    to be legislative changes submitted to the Congress that would
    somehow justify the funding cut. We never received those
    legislative proposals.
        Once again, in this year's budget request, the same funding
    reduction exists and the same promise of a legislative proposal
    that would justify the funding reduction is made. What are
    those legislative reforms, and when will we receive them?
        Secretary Castro. Yes, thank you very much for the
    question. And I will say that I am a big fan of CDBG. As a
    former mayor, that was my favorite program.
        Senator Collins. You're a mayor, right.
        Secretary Castro. And I know how flexible it is. The mayors
    were in town last week, and of course, every time I see them,
    they mention how much they appreciate CDBG. So I am very much
    aware of how important this program, this particular program,
    is to America's local communities, and we do want to preserve
    it.
        We do intend--we would like to submit legislation to create
    more flexibility and also to help communities maximize the
    resources that they have now. One example of that was for
    smaller communities, allowing them to share in terms of
    overhead cost or pool their overhead costs, their
    administrative costs, so that they can use more of that money
    in an impactful way.
        Something else that we're proposing here is this upward
    mobility initiative, and that's an initiative that would allow
    10 communities, in a demonstration way, to pool their Community
    Development Block Grant, their home money, their Social Service
    Block Grant, and Community Service Block Grant funds between
    HUD and the Department of Health and Human Services (HHS), pool
    those together and get a bigger bang for their buck on local
    projects. We think that that's one way of making that money go
    further, by enhancing flexibility.
        The other part of it, I would say, just candidly, chairman,
    is, you know, that we do see this extreme challenge with the
    housing need. And right now, our best estimate is that 25
    percent of CDBG is actually used directly on housing.
        And so what we have are--it's a great program, and I know
    that it's not only meant for housing, that it's meant for other
    infrastructure investments in local communities, and I know
    when I was mayor, we used it for that as well.
        But in these difficult choices that we're making in the
    budget, also, we've chosen to focus a little bit more on, okay,
    how can we get that direct housing money to communities, and
    that's another reason.
        Senator Collins. Well, we look forward to getting the
    specifics. I'm glad that you talked with your fellow mayors,
    and that they reminded you of the value of this program. It's
    been absolutely critical as the lynchpin of many economic
    development projects in my State, whether it's revitalizing
    downtowns or cleaning up waterfront areas. And it has produced
    investment, jobs, and better housing as well.

                           YOUTH EXITING FOSTER CARE

        As you know, based on your visit to Maine, and I very much
    appreciated that visit where we went to the New Beginnings
    Youth Homeless Shelter in Lewiston, the issue of reducing the
    homelessness among our youth is one that is a passion of mine.
    And last year, Senator Reed and I worked very closely together
    to provide some new funding, despite the budget constraints.
        But one area where there's clearly a breakdown among the
    supporting agencies at all levels of government is in the
    context of youth who are aging out of the foster care program.
    Youth that are exiting foster care are at a significantly
    higher risk of falling into homelessness, yet HUD's budget
    materials are silent, not only on coordination with the child
    welfare system, but also on how to better leverage these
    significant funding resources.
        What is HUD doing to better coordinate with State and local
    facilities to help those young people who may, in some States,
    still be in high school, and yet are aging out of the foster
    care program and literally have nowhere to go?
        Secretary Castro. Yes, thank you so much for that question.
    Number one, we do coordinate with child welfare agencies. And
    you're right that this is a particular challenge for young
    people who are aging out of that foster care system. And so we
    believe that, and we have proposed that, we be able to extend
    the time that a person can avail himself or herself of that
    voucher from 18 months to 5 years, and that that is just so
    important to ensure stability in the person's life.
        In the demonstration project that we've undertaken, we've
    combined it with family self-sufficiency. So we believe that
    the combination of these two, going up to 5 years and
    participation in the family self-sufficiency program, will set
    that young person on a more stable course to be able to, you
    know, get a job, be gainfully employed, provide for themselves,
    and become self-sufficient, because you're correct that all of
    the data shows that this is a particularly vulnerable
    population.
        And we would be glad to follow up with you. If there are
    other ways that you think we ought to be working with child
    welfare agencies, we're glad to do it.
        Senator Collins. Thank you very much.
        Senator Reed.

               UNITED STATES INTERAGENCY COUNCIL ON HOMELESSNESS

        Senator Reed. Well, thank you, Madam Chairman, again.
        One of the issues that's come up persistently is most of
    these programs, if not all of them, require interagency
    coordination. And when you responded to my question about VASH,
    you mentioned the Interagency Council on Homelessness, and that
    was formed in the 80s. It's scheduled to expire in October
    2017. Actually, about ten times, it's been scheduled to expire.
    But it raises the issue of how you're going to do the
    coordination with veterans, for example, with the Department of
    Veterans Affairs (VA), with Department of Defense.
        When it comes to the youth homelessness program, which
    Senator Collins led on, really, that's going to--engagement
    with Department of Education, engagement with local education
    authorities, Department of Labor. Will the demise or the
    projected demise of this Interagency Council impede your
    efforts in any way, or how are you going to plan to compensate
    for this?
        Secretary Castro. Yes, and I'm glad to get to address this,
    Senator. USICH has just been tremendously important to
    achieving the reductions in homelessness that we have seen
    across the board. And the best example of that has been on
    veteran homelessness.
        USICH coordinates the activities, as you know, of 19
    different Federal agencies. Earlier in my remarks I mentioned,
    in responding to a question about HUD-VASH, about SSVF, about
    the Department of Labor's programs. Of course, there's HHS and
    so forth.
        USICH has very effectively taken those different pieces and
    helped the agencies break through silos to work together
    effectively to reduce veteran homelessness. And it's doing the
    same thing this year on youth homelessness and other types of
    homelessness.
        So I just want to note that I strongly support the
    President's call for extending the agency's authorization, at
    least until 2020. I believe that we would not nearly be where
    we are on veteran homelessness had it not been for the
    leadership at USICH. We just can't accomplish it in the same
    way without that coordination.

                               YOUTH HOMELESSNESS

        Senator Reed. Let me focus more specifically on youth
    homelessness. Again, last year, the subcommittee included $33
    million for demonstration to test and target intervention for
    youth. You're requesting this year $25 million for a continuing
    care project that targeted youth. Does this $25 million build
    on, complement? How is it related to the existing $33 million
    program?
        Secretary Castro. Yes, the way we see it--of course, what
    we see out there is tremendous need. And so we were very, very
    pleased with the $33 million that was dedicated last year.
    We're in the process of making that real for communities out
    there, and we look forward to a competitive process and then an
    implementation where communities across the United States, who
    are being innovative and creative, will be able to drive down
    their numbers of youth homelessness.
        This $25 million request is meant to build on that, to
    further drive down those numbers on youth homelessness. And we
    think that the experience that we've had working in a cross-
    agency way on veteran homelessness will be very helpful as we
    address youth homelessness and family homelessness as well.
        Senator Reed. And you're confident that you can get the
    grants out under the existing $33 million in such a way that
    they're ready to accommodate additional grants under your
    proposal this year?
        Secretary Castro. I am confident.
        Senator Reed. Because one thing, frankly, we don't want to
    be in a situation where you're still really honestly trying to
    work out a grant program, and then you ask for sort of an
    additional add-on, but that, I think has----
        Secretary Castro. Yes, I know, and I should have been more
    precise, perhaps, to say that I am confident in that, that we
    have a very dedicated team, and that we would ensure that
    that's done so that these two can work together.

                        FAMILY SELF-SUFFICIENCY PROGRAM

        Senator Reed. Let me ask a final question about the family
    self-sufficiency program. In 2015, we gave the Department
    authority to expand the program to project-based Section 8
    households, and since then, you have started to pilot this at
    several sites. Can you give us the status of the pilot and when
    you think you'll be prepared to issue guidance so that all
    project-based property owners can apply or have access to it?
        Secretary Castro. Yes, you know, we do believe that it
    makes sense for PBRA, or project-based rental assistance, to be
    able to participate in family self-sufficiency (FSS). And so
    right now, to give you an update, we're finalizing the
    implementing notice for FSS in multifamily properties. And
    we're looking forward to getting stakeholder feedback, and
    we're going to post the draft notice to the HUD Web site by
    March 15 to see comments from stakeholders.
        Senator Reed. Thank you. Thank you, Madam Chairman.
        Senator Collins. Thank you very much, Mr. Secretary. I know
    that many of the members as well as Senator Reed and I have
    additional questions, but we will submit them to you for the
    record, and we will keep that record open until Friday, March
    18.
        Senator Collins. We will now go to our second witness,
    Inspector General Montoya.
        Secretary Castro. Thank you all very much.
        Senator Collins. Thank you very much, Mr. Secretary. Mr.
    Inspector General, please proceed.
    STATEMENT OF HON. DAVID A. MONTOYA, INSPECTOR GENERAL,
                DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
        Mr. Montoya. Chairman Collins, Ranking Member Reed, and
    members of the subcommittee, thank you for the opportunity to
    discuss the Office of Inspector General fiscal 2017 budget
    request, the Department's top management and performance
    challenges, and our oversight of HUD's programs and operations.
        I'm pleased to highlight the results from fiscal year 2015
    semiannual reports to the Congress and how our budget request
    supports and advances our efforts.
        In 2015, our audits and other reviews resulted in nearly $2
    billion in recommendations that funds be put to better use,
    over $2 billion in questioned costs, and nearly $500 million in
    collections. Our investigative efforts also led to nearly $670
    million in restitution, judgments, recoveries, and receivables.
    When you add in our civil recoveries and receivables, our total
    results are close to $6 billion.
        According to an April 2015 report by Brookings, my office
    ranked third of all Office of Inspectors General for a high
    return on investment, meaning that for every dollar my office
    spent, we brought in approximately $30 in savings or recovered
    funds between 2010 and 2014. Our overall return on investment
    for fiscal year 2015 is over 46-to-1.
        Our request of $129 million in fiscal year 2017 includes
    additional funds to hire specialized skills and resources to
    fund cost of living adjustments, increased benefit costs, and
    within grade increases. Our request is a modest one that will
    assist us not only to continue but to enhance our efforts and
    oversight of two very large financial institutions which are
    vital to the U.S. economy.
        We will continue to build on the successes of the last
    number of years and ensure our work provides the means to keep
    the Secretary and the Congress fully and currently informed
    about the Department's problems and deficiencies while also
    highlighting best practices. I note that we have seen efforts
    by the Department to address their challenges.
        Our mission is to also promote economy efficiency and
    effectiveness in the Department's programs and operations. In
    doing so, we have determined that achieving HUD's mission
    continues to be an ambitious challenge for its limited staff,
    given its diverse programs, the thousands of intermediaries
    assisting the Department, and the millions of beneficiaries of
    its housing and development programs.
        Proposed and new program changes have introduced new risks,
    oversight, and enforcement challenges. For example, the
    national credit and financial crisis continues to have a
    profound impact on departmental operations. HUD is an important
    component of the Nation's housing industry, and in that, FHA-
    insured mortgages financed approximately one-fourth of all home
    purchases in the United States. FHA's portfolio now exceeds $1
    trillion.
        Over the past 5 years, Ginnie Mae has seen its outstanding
    mortgage-backed securities increase by more than 50 percent and
    has experienced its fastest growth in the last 6 years. As of
    August 2015, Ginnie Mae's mortgage-backed securities portfolio
    exceeded $1.6 trillion and is estimated to reach the $2
    trillion mark in a little over a year.
        We remain concerned that increases in demand on the FHA
    program are having collateral implications on the integrity of
    Ginnie Mae's mortgage-backed securities program, including the
    potential for increases in fraud.
        Finally, in October 2016, my office reported on nine
    management and performance challenges facing HUD in 2016 and
    beyond. Our work has noted that these challenges are so
    interrelated and interconnected that one impacts another to
    such a degree that, in many cases, the Department will not be
    able to remedy one without first correcting another. This
    becomes a taxing challenge to determine which needs to come
    first or whether several need to be accomplished
    simultaneously.
        A common thread underlying many of these management and
    performance challenges is the lack of a cohesive department-
    wide approach to enforcement, risk management, monitoring, and
    following through on our findings.
        While HUD is starting to make some changes in certain
    programs to correct this, we will continue to stress a
    department-wide risk monitoring approach that is data driven
    and supports taking appropriate actions when warranted.
        I want to acknowledge that I have regular meetings with
    Secretary Castro and Deputy Secretary Coloretti on HUD's
    management and performance challenges, and their continued
    interest and focus is paramount to ensuring HUD can address and
    correct these longstanding issues.
        My office is strongly committed to working with the
    Department and the Congress to ensure that these important
    programs operate efficiently and effectively as intended for
    the benefit of those most in need now and into the future.
        Again, thank you for the opportunity. I'm looking forward
    to the questions that you may have of me.
        [The statement follows:]
                  Prepared Statement of Hon. David A. Montoya
        Chairman Collins, Ranking Member Reed, and Members of the
    Subcommittee, I am David Montoya, Inspector General of the U.S.
    Department of Housing and Urban Development (HUD). Thank you for the
    opportunity to discuss the Office of Inspector General's (OIG) fiscal
    year 2017 budget request. The committee also asked that I address the
    Department's top management and performance challenges and my Office's
    oversight of HUD's programs and operations.
        The Department's primary mission is to create strong, sustainable,
    inclusive communities and quality, affordable homes for all. HUD seeks
    to accomplish this mission through a wide variety of housing and
    community development grant, subsidy, and loan programs. Additionally,
    HUD assists families in obtaining housing by providing Federal Housing
    Administration (FHA) mortgage insurance for single-family and
    multifamily properties. It relies upon many partners for the
    performance and integrity of a large number of diverse programs. Among
    these partners are cities that manage HUD's Community Development Block
    Grant funds, public housing agencies that manage assisted housing
    funds, HUD-approved lenders that originate and service FHA-insured
    loans, Government National Mortgage Association (Ginnie Mae) mortgage-
    backed security issuers that provide mortgage capital, and other
    Federal agencies with which HUD coordinates to accomplish its goals.
    HUD also has responsibility for administering disaster assistance
    programs which has evolved substantially over the years. It also has
    assumed a prominent role in administering new mortgage assistance and
    grant programs in response to the Nation's financial crisis, to
    increases in foreclosures, and to declining home values.
        I want to acknowledge that I have continuing open dialogues with
    Secretary Castro and Deputy Secretary Coloretti on the management and
    performance challenges that the Department faces and on the work my
    office does to bring these matters to their attention. I meet regularly
    with them and their key staff on areas of concern.
        I am pleased to highlight the results from our last two Semiannual
    Reports to the Congress which showcase key results for fiscal year
    2015. The Inspector General Act requires each inspector general to
    report on its results every 6 months. My office is charged with
    eliminating and preventing fraud, waste, abuse and mismanagement in HUD
    programs and operations, and the audits, evaluations and investigations
    conducted by my office have had a significant impact on safeguarding
    Federal funds. My office takes the approach that early detection and
    prevention are key to ensuring taxpayer funds are not lost. During the
    last two 6-month cycles, we issued 148 audits and other reviews, which
    resulted in nearly $2.0 billion in recommendations that funds be put to
    better use, over $2.1 billion in questioned costs, and nearly $500
    million in collections from audits. Our investigations led to nearly
    $670 million in restitution, judgments, recoveries and receivables. Our
    audits, evaluations and investigations assist HUD in identifying
    program vulnerabilities and the rest of my testimony will focus on the
    management and performance challenges faced by HUD as well as the OIG's
    budget request for the upcoming fiscal year 2017.
                                    overview
        The mission of the Office of Inspector General is not only to
    prevent and detect fraud, waste, and abuse in the programs and
    operations of the Department but to promote economy, efficiency and
    effectiveness as well. We accomplish this by conducting independent
    audits, evaluations, and investigations. The work performed by our
    auditors, evaluators, and investigators provides the means to keep the
    Secretary and the Congress fully and currently informed about the
    Department's problems and deficiencies while also highlighting best
    practices. After identifying problems and deficiencies, we make
    recommendations to improve operations and follow-up with departmental
    officials on corrective actions. We are committed to reducing fraud at
    the outset or at least halting it at the earliest opportunity.
    Protecting taxpayer dollars is one of the Inspector General's highest
    priorities in order to account for money going to the right place,
    doing what it was supposed to do, and having the results it was
    intended to have. We actively pursue financial and other fraud schemes
    in all of HUD's programs that can have a significant economic impact
    often at the expense of the American taxpayer.
                            fiscal year 2017 request
        OIG requests $129 million and 655 Full Time Equivalents (FTE) in
    fiscal year 2017. This includes additional funds for the cost of new
    hires and resources to fund cost-of-living adjustments, promotions,
    increased benefit costs, and within grade increases. Despite some
    struggles to replace lost staff previously due in part to budget
    interruptions, in fiscal year 2015 the OIG was able to make gains in
    total FTE as part of the overall goal of building the organization back
    to pre-sequestration levels. The OIG is continuing to build on this
    success into fiscal year 2016. Utilizing this active workforce
    management should allow the OIG to maintain a staffing base that is
    moving closer to historical norms and what is needed based on workload
    facing the organization. Twelve new FTEs are requested for fiscal year
    2017 representing a small increase over fiscal year 2016. Approximately
    seven FTE will operate within the Office of Audit, where the skill sets
    needed will mostly concentrate on the increased workload as a result of
    bringing the HUD consolidated financial statement audits in-house which
    requires highly specialized skills in Federal financial auditing,
    actuarial modeling, and information technology (IT) skills. The
    remaining five new FTEs will bolster the Office of Evaluations
    multidisciplinary teams that work on overseeing, testing, and improving
    the information security systems and protocols in place within HUD,
    which require highly technical skills in IT security and penetration
    testing, especially in light of breaches to Federal IT systems.
                             oig program divisions
    Office of Audit
        The Office of Audit (OA) is responsible for conducting audits to
    identify, evaluate, and report on the Department's activities and
    programs so corrective actions can be taken and future problems can be
    prevented. Auditors assigned to headquarters and to seven regional
    offices initiate audits based on information obtained from program
    officials, program research, complaints, congressional requests, and
    risk assessments.
        OA provides oversight across a wide array of responsibilities. The
    funding requested for the mission of OA allows the organization to
    expand and concentrate its expert oversight in several areas:
      --Financial audits consisting of the HUD Consolidated Financial
            Statement including the audit of FHA ($1.2 trillion mortgage
            insurance program) and Ginnie Mae ($1.6 trillion in mortgage-
            backed securities) which determine whether financial statements
            are fairly presented, internal controls are adequate, and
            regulations have been followed. Because of the critical impact
            these agencies have had to the financial stability of the
            national economy particularly during the last downturn, the OIG
            began performing FHA's and Ginnie Mae's financial audits in-
            house in fiscal year 2014. This was done to ensure the highest
            level of accuracy and due diligence.
      --Information system audits determine, among other things, the
            adequacy of general and application controls, and whether
            security over information resources is adequate, and in
            compliance with system development requirements. Ensuring
            taxpayer and HUD client information is stored with the
            guarantee that it will be safe and private is something system
            audits seeks to scrutinize and work to correct when
            vulnerabilities are found. In addition, OA has been involved
            with assessing new information system deployments within HUD,
            an especially large task with HUD's transition to a shared
            services system with the Department of Treasury.
      --The Joint Civil Fraud Division is a multidiscipline team that
            audits and reviews, working with investigators, attorneys, and
            other support staff, any suspected financial fraud against HUD
            and makes referrals for civil actions and administrative
            sanctions. This group provides case support to the Department
            of Justice, Civil Division; United States Attorney's Offices
            nationwide; and HUD's Office of General Counsel to investigate
            and bring civil fraud cases. As a result, since this initiative
            began, the Government has reached civil settlements regarding
            FHA deficient loan underwriting totaling $3.5 billion for
            alleged violations of the False Claims Act; the Financial
            Institutions Reform, Recovery, and Enforcement Act; and the
            Program Fraud Civil Remedies Act. Nearly $2.4 billion of the
            $3.5 billion in settlements is of direct benefit to the FHA
            insurance fund and I am proud that the HUD OIG staff from
            different components played a prominent role in these efforts.
        Moreover, the OA has been incredibly successful in rooting out and
    exposing waste, fraud, abuse of taxpayer funds. In fiscal year 2015,
    the HUD-wide impact of the audit findings and reports totaled $4.1
    billion. This amount compared with the OIG's appropriated dollars means
    that for every appropriated dollar received, $36 are returned to
    taxpayers or reallocated to other valued mission objectives. When
    combined with other OIG units (investigations, evaluations, and other
    support divisions) the overall return on investment rises to even more
    returned per dollar spent.
    Office of Evaluation
        The Office of Evaluation (OE) provides a flexible and effective
    mechanism for oversight and review of HUD's operations, programs and
    policies by using a multidisciplinary staff and multiple methods for
    gathering and analyzing data. OE is comprised of integrative teams,
    concentrating on areas of risk and multiple methods for analyzing data
    providing a flexible and effective process to produce impartial and
    reliable results. In an effort to concentrate resources where they can
    be most effective, and where the greatest institutional risk is
    present, several priorities have been identified:
      --HUD maintains a tremendous amount of data in many diverse systems
            and databases. The ability for OE to leverage the information
            from those systems into products that can be used to identify
            fraud and wasteful tendencies before they occur, or early on so
            that they do not have the chance to grow into a larger problem,
            is a central goal and tenet of the OE mission. Using the data
            available to recognize patterns from historical events and to
            learn how those patterns can be used to prevent future
            incidents is a powerful tool that OE is trying to enhance in
            strength and deploy in larger scale. In addition to directly
            identifying weaknesses in the administration of HUD funds and
            programs, the task of improving data analysis and predictive
            analytics will provide OIG with the best information when
            communicating with constituents, directing enforcement
            strategies, and allocating limited resources.
      --Cybersecurity and insuring the protection of IT systems has become
            a mission of the utmost importance for the Federal Government
            as a whole. HUD is at a critical crossroads with the aging of
            the Department's IT infrastructure and the need to modernize
            these systems. In this environment, the opportunities for
            assessing cybersecurity are heightened. In addition many HUD
            systems are supported by outside vendors. While this model of
            IT acquisition and maintenance is sometimes necessary, it also
            creates additional IT security vulnerabilities or risk. OE
            contributes to the OIG's IT security mission by conducting
            necessary oversight and by monitoring these systems.
      --OE is responsible for conducting the Federal Information Security
            Modernization Act of 2014 (FISMA) reviews and other IT
            operational evaluations. One of the best tools that the OIG has
            to measure this security effectiveness is technical testing to
            include ``penetration testing.'' Penetration testing can be
            conducted in different ways and on multiple levels to
            technically test mandated IT security controls. Recently we
            conducted testing which greatly assisted in finding
            vulnerabilities within the HUD network and provided the OIG
            with additional key information and recommendations for FISMA
            reporting. Into the future, follow-up technical testing will be
            required by the OIG to validate corrective action of previously
            found vulnerabilities are being implemented by HUD, to assess
            other areas of the HUD network, FISMA assessment topics, or any
            future Federal cybersecurity guidance.
        The Office of Evaluation is maturing and becoming fully staffed and
    operational with the heightened mission; the key to completing this
    process is ensuring the timely and consistent availability of budgetary
    resources and critical technical skills.
    Office of Investigation
        The Office of Investigation (OI) is responsible for the development
    and implementation of the OIG's investigative activities and is
    comprised of criminal investigators, investigative analysts, and
    administrative personnel. OI initiates and conducts criminal, civil and
    administrative investigations of possible violations of laws and
    regulations relating to the administration of HUD programs and HUD-
    funded activities as well as employee misconduct.
      --The Office of Investigation has recently produced significant
            criminal and civil findings relating to HUD program fraud,
            including participation in large-scale settlements that have
            returned money to the FHA fund. OI has made it a priority to
            root out fraud involving the origination of FHA mortgages,
            multifamily equity skimming schemes at housing developments
            receiving HUD subsidized rental assistance for tenants, and at
            nursing homes. These efforts have produced noteworthy results
            in the past and this trend is expected to continue into the
            future. The OIG is a full-time participant in the Department of
            Justice's Financial Fraud Enforcement Task Force where the
            Inspector General is the Co-Chair of the Mortgage Fraud Working
            Group. This focus on finding and identifying fraudulent
            activity will continue to protect taxpayers from those who look
            to defraud the government, negatively impact the financial
            health of our economy, and undermine the true mission of HUD
            programs.
      --OI also works to reduce fraud, waste, and abuse in the Public and
            Indian Housing arena, with a focus on Public Housing
            Authorities (PHAs). Ensuring that public housing dollars are
            being administered properly and utilized by the intended
            recipients is a challenge the Office of Investigation
            emphasizes every day. This work with the PHAs takes on many
            different forms: identifying public corruption, management and
            administration deficiencies, contract fraud, embezzlement,
            bribery, and rental assistance fraud. The fight against
            corruption also takes place in the management of Community,
            Planning and Development grant programs.
      --OI continues to dedicate time and resources to the work in
            communities affected by previous disasters, such as the Gulf
            Coast area after Hurricane Katrina and, more recently,
            Hurricane Sandy. Designated disaster sites are provided large
            amounts of grant and emergency funding in the wake of these
            disasters. OI conducts investigations of fraud and abuse of
            disaster recovery funds efforts, assists to ensure that these
            resources are utilized properly, and leads the effort to
            prevent disaster fraud schemes. It also provides training to
            those entities tasked at the State and local level on how to
            detect and deter fraud and abuse.
        Over the last 4 years the Office of Investigation has produced over
    $4.3 billion in criminal judgments and nearly $2.2 billion in
    recoveries. The reach of this office is extended by resources that keep
    investigators in the field working with the tools they need to root out
    the waste, fraud, and abuse they are tasked with exposing.
                  hud's performance and management challenges
        Achieving HUD's mission continues to be an ambitious challenge for
    its limited staff given the agency's diverse programs, the thousands of
    intermediaries assisting the Department, and the millions of
    beneficiaries of its housing and development programs. The national
    credit and financial crisis continues to have a profound impact on
    departmental operations. Proposed and new program changes have
    introduced new risks, oversight and enforcement challenges. HUD is an
    important spoke to the Nation's housing industry in that FHA-insured
    mortgages finance approximately one-fourth of all home purchases in the
    United States and in that it has stepped in to bolster the marketplace
    during economic challenges.
        In October 2016, OIG reported on nine key management and
    performance challenges facing HUD for fiscal year 2016 and beyond. They
    are so interrelated and interconnected that our reviews suggest one
    impacts another to such a degree that, in many cases, the Department
    will not be able remedy one without first correcting another. This
    becomes a taxing challenge to determine which needs to come first or
    whether several be accomplished simultaneously. These challenges are in
    the following areas:
        1. Human capital management,
        2. Financial management governance of HUD,
        3. Financial management systems,
        4. Information security,
        5. Single-family programs,
        6. Public and assisted housing program administration,
        7. Administering programs directed toward victims of natural
    disasters,
        8. Office of Community Planning and Development programs, and
        9.  Compliance with the Improper Payments Elimination and Recovery
    Act of 2010.
        Since our October 2016 report, my office has completed an
    additional evaluation relating to HUD's acquisition management and its
    efforts to address long-standing concerns in this area. I have added a
    discussion to summarize the results of that review.
    Human Capital Management and Financial Management Governance
        For many years HUD has struggled and been challenged to effectively
    manage its limited staff to accomplish its primary mission. HUD
    continues to lack a valid basis for assessing its human resource needs
    and allocating staff within program offices. Several studies have been
    completed in recent years by the Office of Personnel Management and the
    Government Accountability Office that point to a lack of human capital
    accountability and insufficient strategic management of human capital
    as pervasive problems at HUD. To some extent, these human capital
    challenges have contributed to HUD's inability to maintain an effective
    financial management governance structure which we have been reporting
    for the past 3 years as part of our annual audits of HUD's financial
    statements.
        In our most recent report on HUD's fiscal year 2015 financial
    statements, we continued to report that HUD's financial management
    governance remained ineffective. While HUD and its components took
    steps to address some of the weaknesses in its financial management
    governance structure and internal controls over financial reporting,
    deficiencies continued to exist. Specifically, HUD needs to recruit and
    hire a Chief Financial Officer and Deputy Chief Financial Officer (CFO)
    with the requisite accounting and technical financial management skills
    to provide stronger direction to program office accounting so as to
    improve financial management and governance issues throughout the
    Department and specifically at Ginnie Mae. Additionally, HUD needs to
    be more consistent in its control and monitoring activities, including
    front-end risk assessments, management control reviews and
    reconciliation activities.
        These conditions stemmed from the lack of a senior management
    council which limits the CFO's ability to stress the importance of
    financial management and to facilitate internal control over financial
    reporting throughout HUD. Additionally, as we have reported in prior
    year audits, HUD did not have reliable financial information for
    reporting and has been slow in replacing its outdated legacy financial
    systems. Weaknesses in program and component internal control that
    impacted financial reporting were caused in part by a lack of financial
    management governance processes. Entity-level controls could improve
    HUD's governance and enable the prevention, detection, and mitigation
    of significant program and component-level internal control weaknesses.
    As a result, there were multiple deficiencies in HUD's internal
    controls over financial reporting, resulting in misstatements on the
    financial statements and noncompliance with laws and regulations.
        A 2015 report from the National Academy of Public Administration
    (NAPA) also recognized the need for an internal management council to
    strengthen HUD's financial governance structure and enhance its
    monitoring of financial activity and controls. Such a council would:
      --Assess and monitor deficiencies in internal control resulting from
            HUD's assessment process.
      --Advise the HUD Secretary of the status of corrections to existing
            material weaknesses.
      --Inform the Secretary of any new material weaknesses that may need
            to be reported to the President and Congress through the annual
            financial report.
        We believe that these are critical steps towards establishing
    effective internal controls. In addition to its concerns and
    recommendations regarding HUD's impending transition to a shared
    service provider for financial management functions, NAPA found that
    HUD should strengthen its finance workforce. As we have previously
    reported, HUD's ability to monitor and perform routine financial
    management activities has been hampered by both turnover and reductions
    in staff. Between 2009 and 2014, there was a 40 percent turnover in CFO
    staff and an 11 percent reduction in full-time permanent CFO employees.
    Between 2014 and 2015 there was a 15 percent turnover and a 9 percent
    reduction in full-time employees. The turnover and reductions have
    placed additional burdens on CFO staff and limited its ability to
    perform its duties in a timely and efficient manner.
        In addition to issues at the Departmental level, we have identified
    significant financial governance issues within Ginnie Mae. In fiscal
    year 2015, Ginnie Mae failed to maintain a governance framework to
    ensure the reliability and integrity of Ginnie Mae's financial and
    accounting information. This failure in governance was the underlying
    cause of the problems cited in the Ginnie Mae financial statement audit
    report. Specifically, Ginnie Mae failed to adequately:
      --Identify, analyze, and respond to changes in the control
            environment and risk associated with the acquisition of a
            multi-billion-dollar servicing portfolio.
      --Establish accounting policies, procedures, and systems to manage
            and control the loan accounting and processing of the
            activities related to its defaulted issuers' portfolio.
      --Oversee the implementation of the budgetary accounting module in
            its financial system to ensure accurate reporting of budgetary
            activity.
        This condition occurred because of finance staff turnover and
    insufficient internal controls to manage the risks associated with
    business decisions and changes in its business environment.
    Additionally, Ginnie Mae's executive leadership failed to backfill a
    number of critical financial management positions, including the deputy
    chief financial officer, controller, and the economic modeling
    director, all of which have significant financial reporting roles.
    These positions had been vacant for an extended period, and Ginnie Mae
    relied heavily on contractors to compensate for finance staffing
    deficiencies. As a result, serious financial reporting deficiencies
    occurred at Ginnie Mae, the most recent of which required $1.9 billion
    of restatement adjustments to HUD's fiscal year 2014 consolidated
    financial statements. Compounding the problem was Ginnie Mae's late
    notification, inadequate communication, and lack of transparency,
    resulting in difficulties for HUD's CFO to preparing consolidated
    financial statements within the required timeframes and ultimately
    inhibiting our ability to validate the accuracy of the accounting
    adjustments. Time will tell whether a recent leadership change within
    Ginnie Mae will ameliorate some of these conditions.
        Ginnie Mae's management of risks associated with (1) handling
    complex and changing financial management operations without the
    appropriate accounting policies and procedures in place and (2)
    monitoring the work performed by third-party service providers on
    Ginnie Mae's multi-billion-dollar servicing portfolio have challenged
    Ginnie Mae's inadequate financial management staff. These governance
    weaknesses contributed to Ginnie Mae's inability to produce auditable
    financial statements.
    Financial Management Systems
        Annually since 1991, OIG has reported on the lack of an integrated
    financial management system, including the need to enhance FHA's
    management controls over its portfolio of integrated insurance and
    financial systems. HUD has been working to replace its current core
    financial management system since fiscal year 2003. The previous
    project, the HUD Integrated Financial Management Improvement Project
    (HIFMIP), was based on plans to implement a solution that replaced two
    of the applications currently used for core processing. In March 2012,
    work on HIFMIP was stopped and the project was later canceled. This
    previous attempt to use a commercial shared service provider to start a
    new financial management system failed after more than $35 million was
    spent. Our review of the project determined that OCFO did not properly
    plan and manage its implementation of the project.
        In the fall of 2012, the New Core Project was created to move HUD
    to a new core financial system that would be maintained by a shared
    service provider, the U.S. Department of the Treasury's Bureau of
    Fiscal Services (BFS). We have completed two audits of HUD's
    implementation of the New Core Project. In the first audit, published
    in June 2015, we found that weaknesses in the planned implementation of
    release 3 of phase 1 in the New Core Project were not adequately
    addressed. We determined that HUD did not follow its own agency
    policies and procedures, the policies established for the New Core
    Project, or best practices. HUD will become the first cabinet-level
    agency to use a Federal shared service provider. The transfer of its
    financial management to a shared service provider has been widely
    publicized. If HUD is not successful in this implementation, it could
    reflect negatively on OMB's mandate to use Federal shared service
    providers. The weaknesses identified in this report relate to
    requirements and schedule and risk management. These areas are
    significant to the project plan, and the effectiveness with which HUD
    manages them is critical to the project's success.
        Our second review, published in September 2015, found that HUD's
    implementation of release 1 of phase 1 was not completely successful.
    Due to missed requirements and ineffective controls, interface
    processing of travel and relocation transactions resulted in inaccurate
    financial data in HUD's general ledger and BFS' financial system. As a
    result, processing continued for more than 6 months with unresolved
    errors, leaving HUD's general ledger and BFS' financial system with
    inaccurate financial data and discrepancies in the balances between
    HUD's general ledger and Treasury's Government Wide Accounting System.
    We concluded that the implementation of release 1 confirmed the
    concerns we cited in our initial review. Although HUD had taken action
    to mitigate some of the problems that occurred with release 1 and
    address some of the issues we highlighted, we are concerned that HUD
    could be moving too fast with its implementation plans and may repeat
    these weaknesses.
        We are also concerned about the current state of FHA's IT systems
    and the lack of systems capabilities and automation to respond to
    changes in business processes and the IT operating environment. In
    August 2009, FHA completed the Information Technology Strategy and
    Improvement Plan to address these challenges, which identified FHA's
    priorities for IT transformation. The plan identified 25 initiatives to
    address specific FHA lines of business needs. Initiatives were
    prioritized with the top five related to FHA's Single-family program.
    The FHA transformation initiative was intended to improve the
    Department's management of its mortgage insurance programs through the
    development and implementation of a modern financial services IT
    environment. The modern environment was expected to improve loan
    endorsement processes, collateral risk capabilities, and fraud
    prevention. However, to date, few initiatives have been completed
    because of a lack of funding. The transformation team is in operations
    and maintenance mode for the few initiatives that have been
    implemented, and has limited capability to advance with the project due
    to the continued lack of funding.
        Overall, funding constraints diminished HUD's ability to complete
    the new application systems and phase out and deactivate the outdated
    systems. Some progress has been made by creating new systems with
    modernized capabilities that replaced manual processes. However, many
    legacy systems remain in use. Another concern is the ability to
    maintain the antiquated infrastructure on which some of the HUD and FHA
    applications reside. As workloads continue to gain complexity, it
    becomes more difficult to maintain these legacy systems, which are 15
    to 30 years old, and ensure that they can support the current market
    conditions and volume of activity. The use of aging systems has
    resulted in poor performance and high maintenance costs. As part of our
    annual review of information systems controls in support of the
    financial statements audit, we continue to report weaknesses in
    internal controls and security regarding HUD's general data processing
    operations and specific applications. The effect of these weaknesses is
    that the completeness, accuracy, and security of HUD information is at
    risk of unauthorized access and modification.
    Information Systems Security Controls
        HUD information systems have extensive amounts of sensitive data,
    with thousands of entities in the private sector and program officials
    directly accessing and using HUD applications daily. However, HUD has
    not adequately planned for its future IT and IT security needs. The
    primary HUD infrastructure services contract is in a period of
    transition and the agency has been forced to issue short-term sole-
    source contracts with the previous vendors to ensure continuation of
    service. Further, a significant number of critical HUD applications are
    legacy systems that are increasingly difficult to maintain and present
    security risks that HUD will be challenged to mitigate without
    modernization. Legacy systems are difficult or unable to migrate to
    cloud technology, further complicating the agency's long-term efforts
    to modernize and secure its systems and data while creating
    efficiencies and cost savings.
        HUD has taken some initial steps to address these long-term
    challenges. The agency has finally filled and stabilized several key
    positions including the Chief Information Officer, Chief Information
    Security Officer, Chief Technology Officer, and Enterprise Architect.
    Strategic longterm planning documents have been developed, including an
    Enterprise Architect Roadmap aimed in part at guiding modernization
    efforts, and a Cybersecurity Framework to address IT security program
    deficiencies and prioritize initiatives to correct deficiencies.
    Notable change and implementation from these initiatives is not
    anticipated to be realized until later this year. Further, successful
    implementation of these plans will be directly dependent upon the
    agency's ability to obtain adequate resources including technical
    expertise. In the process of outsourcing infrastructure and application
    maintenance and support, HUD has divested itself of much of its
    technical expertise and continues to face significant staffing
    challenges. For example, an organizational chart provided to OIG during
    its fiscal year 2015 FISMA assessment reflected that 17 of the 35 key
    managerial/supervisory positions stationed at headquarters were either
    vacant (13) or filled by temporary ``acting'' personnel (4) during
    fiscal year 2015. This presents significant challenges to HUD's ability
    to conduct technical security reviews of its infrastructure (e.g.,
    penetration testing, network assessments) or adequately oversee the
    technical security provided by vendors.
        Meanwhile, our annual evaluation of HUD's IT security program, as
    mandated by Federal Information Security Management Act (FISMA), has
    revealed continued and extensive noncompliance with Federal IT
    guidance. As depicted in OIG's fiscal year 2015 FISMA report, HUD has
    extensive deficiencies in five of the ten program areas which OIG
    reports to OMB. HUD is showing progress in remediating these
    deficiencies; examples include significant upgrades in its security
    awareness training program, account access management, and issuance of
    proper guidance for managing Plans of Action and Milestones (POA&Ms).
    However, the agency has not adequately addressed many long-standing
    security weaknesses identified in prior OIG evaluations.
    Procurement and Contract Management
        In prior years, we have reported on various concerns relating to
    HUD's procurement and contract management including HUD's information
    technology infrastructure contracts and HUD's transition to the third
    generation of its management and marketing contracts that are used to
    manage and dispose of its extensive inventory of foreclosed Single-
    family properties. HUD continues to be challenged by its over-reliance
    on contractors in general and its ability to allocate sufficient
    resources to adequately oversee its contractor work force.
        HUD has developed several acquisition improvement initiatives to
    address the long-standing concerns in this area. We recently completed
    an evaluation to assess the status of these efforts and whether
    practices used by other agencies would enhance the quality and
    effectiveness of HUD acquisitions.\1\ HUD had made progress in several
    areas, including revising and updating its procurement handbook and
    redesigning its web site. However, some initiatives had not been fully
    implemented or completed on schedule. HUD officials said that
    additional resources would be needed to effectively implement ongoing
    and planned improvement efforts. HUD had not developed a sound,
    cohesive strategy to address its improvement initiatives, and program
    offices did not all agree on resource requirements and respective
    responsibilities for their acquisitions staff.
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        \1\ Evaluation Report 2015-OE-0004, Comprehensive Strategy Needed
    To Address HUD Acquisition Challenges, February 2, 2016.
    ---------------------------------------------------------------------------
        Some of HUD's improvement initiatives did not follow successful
    program management practices or meet the U.S. Government Accountability
    Office's criteria for achieving an efficient, effective, and
    accountable acquisition function. We identified several successful
    practices of other Federal agencies that would improve HUD's
    acquisition function by using measurable objectives and goals, building
    partnerships, engaging stakeholders, managing change, streamlining
    functions, and training staff.
        HUD procurement officials and the program offices did not always
    collaborate or communicate effectively and did not agree on the best
    way to address acquisition problems. HUD had also not maintained cost
    and performance metrics to determine where inefficiencies existed.
    Program offices continued to experience challenges, and some sought
    alternatives in shared services arrangements with Federal agencies to
    accomplish their acquisition objectives because the Department could
    not do it for them. HUD leadership needs to address these issues, or
    its acquisition function will remain at risk.
    Single-Family Programs
        FHA's Single-family mortgage insurance programs enable millions of
    first-time borrowers and minority, low-income, elderly, or other
    underserved households to benefit from home ownership. HUD manages a
    sizable portfolio of Single-family insured mortgages exceeding $1.2
    trillion. Effective management of this portfolio represents a
    continuing challenge for the Department.
        For the 6 years following the financial crisis of 2008, the FHA
    fund had failed to meet its legislatively mandated 2 percent capital
    ratio. From a low following the financial crisis, the fund has shown
    gradual improvement and, at the end of fiscal year 2015, the capital
    ratio stood at 2.07 percent. Much of this success is heavily dependent
    on a strong Home Equity Conversion Mortgage insurance program (HECM), a
    program we have reported on several times. The HECM program is
    sensitive to a number of factors that can influence its financial
    stability which then, in turn, can have a significant impact on the
    achievement of an adequate capital ratio as mandated by statute. While
    barely above the mandated level, this improvement is a positive
    development and occurred a year earlier than predicted at the end of
    2014. Restoring the fund's reserves and finances has been a priority
    for HUD, and it has increased premiums, reduced the amount of equity
    that may be withdrawn on reverse mortgages, and taken other steps to
    restore the financial health of the fund.
        It is incumbent upon the Department to make every effort to prevent
    or mitigate fraud, waste, and abuse in FHA loan programs. OIG continues
    to take steps to help preserve the FHA insurance fund and improve FHA
    loan underwriting by partnering with the Department, the U.S.
    Department of Justice, and multiple U.S. Attorney's offices nationwide
    in a number of FHA lender civil investigations. In some instances,
    these investigations involve not only the loan underwriting of FHA
    loans but also the underwriting of conventional loans and government-
    insured loans related to Federal programs other than FHA. For those
    investigations that involved OIG's assistance on the FHA-related part
    of the cases, the Government has reached overall civil settlements
    yielding nearly $13.2 billion in damages and penalties in the last 4
    fiscal years.
        For the FHA-insured loans, results in the last 4 fiscal years have
    shown that a high percentage of loans reviewed should not have been
    insured because of significant deficiencies in the underwriting. As a
    result and as pointed out in the beginning of the testimony, the
    Government has reached civil settlements regarding FHA loan
    underwriting totaling $3.5 billion for alleged violations of the False
    Claims Act; the Financial Institutions Reform, Recovery, and
    Enforcement Act; and Program Fraud Civil Remedies Act. Nearly $2.4
    billion of the $3.5 billion is of direct benefit to the FHA insurance
    fund. Ongoing investigations are expected to lead to additional
    settlements that will further strengthen the health of the fund.
        In spite of these positive steps, we remain concerned about HUD's
    resolve to take the necessary actions going forward to protect the
    fund. HUD is often hesitant to take strong enforcement actions against
    lenders because of its competing mandate to continue FHA's role in
    restoring the housing market and ensure the availability of mortgage
    credit and continued lender participation in the FHA program. For
    example, FHA has been slow to start a rigorous and timely claims review
    process. OIG has repeatedly noted in past audits and other types of
    lender underwriting reviews HUD's financial exposure when paying claims
    on loans that were not qualified for insurance, most recently last
    year. Adding to this concern, HUD increased its financial exposure by
    not recovering indemnification losses.
        The Reverse Mortgage Stabilization Act of 2013 gave FHA the tools
    to improve the fiscal safety and soundness of the HECM program in a
    timelier manner. Despite the ability to quickly make needed changes as
    appropriate to the program, FHA faces challenges in ensuring that
    homeowners comply with the principal occupancy requirements (though not
    all dual HECM's are considered improper). For example, borrowers are
    not required to repay the loan as long as they continue to occupy the
    insured property as its principal residence. To date, OIG has completed
    four audits on the HECM program and compliance with principal occupancy
    requirements. Our initial audit identified borrowers with more than one
    HECM loan despite the principal occupancy requirement. Borrowers were
    able to obtain more than one HECM loan because of a lack of controls in
    place to identify this noncompliance. The Department has been receptive
    to our findings and has implemented controls to address this problem.
        Departmental clearance is a necessary and important process to
    ensure requisite agreement by applicable HUD leadership on the subject
    matter and content of a directive or policy change. This action
    requires a review by HUD offices that have expertise, policy or legal,
    with the subject matter of the change and that there is no conflict
    with other HUD or administration policies.
        At a time when FHA is working to restore confidence in the housing
    market, OIG has concerns that when the Department is making program,
    policy or procedural changes, it is (1) not identifying the significant
    changes in its notice, (2) not following the formal clearance process
    and instead opting for a more informal method, or (3) avoiding the
    process altogether and making changes unilaterally. For example, in May
    2015, HUD issued a notice in the Federal Register seeking OMB approval
    for information collection. However, OIG believes that the notice did
    not adequately describe the changes to be made. The Notice proposed to
    make changes to the loan-level certifications that lenders must make to
    obtain insurance from FHA. As a result, the certification process
    became ineffective and allowed loan originators, firms, or principals
    that have been convicted of certain violations to do business with FHA.
    However, this detail was not provided in the notice. Another example is
    FHA's Single-Family Housing Loan Quality Assessment Methodology (Defect
    Taxonomy). The goal of this methodology is to give lenders better
    clarity on the quality assurance reviews of their FHA loans. Although
    HUD stated that the draft Taxonomy documents had been published on
    FHA's Drafting Table web site, FHA did not follow the proper protocol
    for issuing a new directive. These changes fit the description of a
    directive change and should have been announced through the proper
    steps and clearance process as outlined in its own Handbook.
        FHA also remains vulnerable to criminal activity and single-family
    criminal investigations continue to be a priority of my office. We
    recently concluded an investigation of Great Country Mortgage Bankers,
    a former FHA mortgage lender in Miami, FL. The owner of the company was
    sentenced in U.S. District Court to 135 months incarceration and 60
    months supervised release and agreed to forfeit $8 million following
    his conviction of conspiracy to commit wire fraud affecting a financial
    institution. From at least 2006 through September 2008, the owner and
    other conspirators specialized in approving FHA loans primarily for
    buyers of condominiums at complexes where he had an ownership interest.
    As part of the scheme, the conspirators provided false information on
    loan documents to qualify borrowers and in some cases, also paid
    inducements to borrowers to purchase the condominium units. Many of the
    loans defaulted, causing losses to FHA and financial institutions. To
    date, 25 individuals have been charged in this investigation, including
    the owner, 3 partner developers, and 20 former employees of the
    mortgage lender. Of those charged, 14 individuals have pled guilty, and
    1 has signed a plea agreement. Losses to FHA exceeded $64 million. This
    case, and others, highlight why the HUD OIG believes that FHA needs to
    remain diligent in its efforts, including keeping or enhancing
    practices that oversee and monitor abusive or wasteful behavior, aimed
    at those who seek to harm the viability of the program and ultimately
    the public.
        Over the past 5 years, Ginnie Mae has seen its outstanding
    mortgage-backed securities increase by more than 50 percent and has
    experienced its fastest growth in the last 6 years. As of August 2015,
    Ginnie Mae's mortgage-backed securities (MBS) portfolio exceeded $1.6
    trillion and is estimated to reach the $2 trillion mark in a little
    over a year and a half. We remain concerned that increases in demand on
    the FHA program are having collateral implications for the integrity of
    Ginnie Mae's MBS program, including the potential for increases in
    fraud. Ginnie Mae securities are the only mortgage-backed securities to
    carry the full faith and credit guaranty of the United States. If an
    issuer fails to make the required pass-through payment of principal and
    interest to MBS investors, Ginnie Mae is required to assume
    responsibility for it. Typically, Ginnie Mae defaults the issuer and
    assumes control of the issuer's government or agency MBS pools.
    Historically, Ginnie Mae issuer defaults have been infrequent,
    involving small to moderate-size issuers. However, major unanticipated
    issuer defaults beginning in 2009 have led to a multi-billion-dollar
    rise in Ginnie Mae's nationwide mortgage servicing as well as its
    repurchase of billions of dollars in defaulted whole loans to meet its
    guarantee commitments to MBS investors. In the near term, these changes
    have strained both its operating and financial resources.
        Another key challenge facing Ginnie Mae is the risk posed by the
    growing number of Ginnie Mae issuers that are institutions other than
    banks. In June 2011, 7 of the top 10 servicers were banks, but by
    September 2015, only 4 of the top 10 servicers were banks. Ginnie Mae's
    potential for losses occurs when an issuer fails to fulfill its
    responsibilities. With the significant shift of its business going to
    nonbanks, Ginnie Mae can no longer rely on the Office of the
    Comptroller of the Currency and other bank regulators to ensure that
    its servicers can meet their financial obligations. To mitigate the
    risks, Ginnie Mae will need to be more involved with nonbanks to
    adequately monitor them, which would require Ginnie Mae to increase its
    current staffing level and expertise.
        With the approval of OMB and Congress, Ginnie Mae has significantly
    increased its management capacity. The total number of Ginnie Mae full-
    time employees increased from 89 in fiscal year 2012 to 130 at the end
    of fiscal year 2015. However, Ginnie Mae continues to rely heavily on
    third-party contractors to perform almost all key operating loan
    servicing, pool processing, and other functions. It is imperative to
    the country's larger financial health that Ginnie Mae be able to
    increase staffing with the needed skills, knowledge, and abilities to
    manage a $1.6 trillion program.
        Ginnie Mae could benefit from an estimated 30 positions with a
    higher salary level than what the general schedule allows in order to
    attract the needed and specialized skill sets to operate in the U.S.
    financial market. HUD's lack of human capital management support and a
    weak procurement process have contributed to Ginnie Mae's inability to
    promptly recruit and hire needed skills as well as hampered its ability
    to operate swiftly and timely in the marketplace.
    Public and Assisted Housing Program Administration
        HUD provides housing assistance funds under various grant and
    subsidy programs to public housing agencies (PHA) and multifamily
    project owners. These intermediaries, in turn, provide housing
    assistance to benefit primarily low-income households. The Office of
    Public and Indian Housing (PIH) and the Office of Multifamily Housing
    Programs provide funding for rent subsidies through public housing
    operating subsidies and the tenant-based Section 8 Housing Choice
    Voucher and Section 8 multifamily project-based programs. More than
    4,000 intermediaries provide affordable housing for 1.2 million
    households through the low-rent operating subsidy public housing
    program and for 2.2 million households through the Housing Choice
    Voucher program. Multifamily project owners assist more than 1.5
    million households.
                Housing Choice Voucher Monitoring
        HUD has a challenge in monitoring the Housing Choice Voucher
    program. The program is electronically monitored through PHAs' self-
    assessments and other self-reported information collected in PIH's
    systems. Based on recent audits and HUD's on-site confirmatory reviews,
    the self-assessments are not always accurate and the reliability of the
    information contained in PIH systems is questionable. PIH targets PHAs
    for various types of on-site reviews using its Utilization Tool and
    National Risk Assessment Tool. It also states that it will further
    address limitations with the Next Generation Management System, which
    continues to be delayed due to a shortage in IT funding. HUD will
    continue to face challenges in monitoring this program until it has
    fully implemented a reliable, real-time, and all-inclusive monitoring
    tool.
                Central Office Cost Centers
        We are concerned that HUD may not be ensuring that deFederalized
    administrative fees paid to PHAs for their public housing program are
    reasonable. We found that HUD could not adequately support the
    reasonableness of operating fund management, book-keeping, and asset
    management fees and Public Housing Capital Fund management fee limits.
    In addition, HUD lacked adequate justification for allowing PHAs to
    charge an asset management fee, resulting in more than $81 million in
    operating funds being unnecessarily deFederalized annually. Our concern
    continues to be that the fee amounts implemented are not supported and
    may not be reasonable. Excess administrative fees, if deFederalized,
    are not required to be used for the public housing program. Ensuring
    that only the funds that are needed are transferred to the COCC will
    allow more funds to be used directly for the public housing program.
    After input from OMB, HUD and OIG have reached an agreement to
    implement the recommendations as stated in our audit report. HUD has
    agreed to reFederalize the fees and will be reevaluating the fee
    amounts. HUD will need to go through the rulemaking process to fully
    implement the changes, so it may take some time.
                Cash Management Requirements
        In fiscal year 2012, PIH implemented procedures to reduce the
    amount of excess funds accumulating in PHAs' net restricted asset
    accounts in accordance with Treasury's cash management requirements as
    directed by a congressional conference report. By that point, a
    significant amount of reserves had accumulated with the PHAs. As of
    2015, most of the funds had been transitioned back to HUD. However, PIH
    has not transitioned any of the excess funding from its Moving to Work
    (MTW) program PHAs. Through PIH's confirmation process, MTW PHAs
    reported holding $556 million and $514 million, as of September 30,
    2014, and March 31, 2015, respectively. PIH must now validate these
    balances before it transitions the funds back. This process may take
    some time because the composition of these balances is complex and HUD
    was not tracking the funds for these agencies. Until HUD validates and
    collects the funds, MTW PHAs will continue to hold hundreds of millions
    of dollars in excess of their immediate disbursement needs, making the
    funds susceptible to fraud, waste, and abuse. Further, this is a
    continued departure from Treasury's cash management requirements.
        Adding to this challenge, HUD continues to lack an automated
    process to complete the reconciliations required to monitor all of its
    PHAs and to ensure that Federal cash is not maintained in excess of
    immediate need. Reconciliations are prepared manually on unprotected
    Excel spreadsheets for more than 2,200 PHAs receiving approximately $17
    billion annually. This process is time consuming, antiquated and labor
    intensive, and does not allow for accurate financial reporting at the
    transaction level as required by FFMIA. This process also increases the
    risk of error and causes significant delays in the identification and
    offset of excess funding. We recommended that HUD automate this process
    during our 2013 financial statement audit, and the matter has been
    elevated to the Deputy Secretary for a decision.
                Monitoring of Moving to Work Agencies
        HUD's monitoring and oversight of the 39 PHAs participating in the
    MTW demonstration program is particularly challenging. The MTW program
    provides PHAs the opportunity to develop and test innovative, locally-
    designed strategies that use Federal dollars more efficiently, help
    residents become self-sufficient, and increase housing choices for low-
    income families. However, in the more than 15 years since the
    demonstration program began, HUD has not reported on whether the
    program is meeting its objectives which such a long-standing
    demonstration should assert. This is particularly important as under
    the MTW program participants receive less oversight from the
    Department. HUD has requested and Congress is considering expanding the
    program to include more participants without knowing whether
    participating PHAs are reducing costs to gain increased housing choices
    and incentives for families to work. HUD is experiencing challenges in
    developing program-wide performance indicators that will not inhibit
    the participants' abilities to creatively impact the program. It is
    developing renewal contracts to replace contracts expiring in 2018. HUD
    management developed new metrics to help measure program performance
    and states that the new contracts will allow it to better evaluate each
    PHA's performance. We continue to believe that this is essential before
    new agencies are allowed into the program. Moreover, HUD could benefit
    from a formalized process for terminating participants from the
    demonstration program for failure to comply with their agreement.
                Overincome Families in Public Housing
        HUD's challenge in addressing overincome families living in public
    housing units is exacerbated by public housing agencies' lack of desire
    to address these issues themselves. HUD's December 2004 final rule gave
    public housing authorities discretion to establish and implement
    policies that would require families with incomes above the eligibility
    income limits to find housing in the unassisted market. HUD regulations
    require families to meet eligibility income limits only when they are
    admitted to the public housing program. Neither public law nor
    regulations limit the length of time that families may reside in public
    housing. Our recent audit \2\ showed that as many as 25,226 families,
    whose income exceeded HUD's 2014 eligibility income limits, lived in
    public housing. The PHAs that we contacted during the audit chose not
    to impose limits based on the notice. In response to our audit, PIH
    initially disagreed. After some public discourse, HUD issued a letter
    to PHA executive directors, strongly encouraging them to use the
    discretion available to them to remove extremely overincome families
    from public housing. However, HUD does not have the authority to
    require PHAs to implement limits. Consequently, to comply with our
    recommendation, HUD initiated the rulemaking process through an
    advanced notice of proposed rulemaking. Through this process, HUD will
    collect public comments from stakeholders and determine how to proceed
    with rulemaking. We will be part of this process. Our concern is that a
    nationwide policy may limit flexibility to protect tenants. Until a new
    final rule is established, PIH will need to find a way to encourage PHA
    participation and ensure the effectiveness of its policies.
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        \2\ Audit Report 2015-PH-0002, Overincome Families Resided in
    Public Housing Units, July 21, 2015.
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                Environmental Review Requirements
        In recent reports,\3\ we demonstrated that PIH did not adequately
    implement environmental requirements or provide adequate oversight to
    ensure compliance with these requirements. The Offices of Housing and
    Public Housing did not adequately monitor or provide training to their
    staff, grantees, or responsible entities on how to comply with
    environmental requirements. Also, HUD did not have an adequate
    reporting process for the program areas to ensure that the appropriate
    headquarters programs were informed of field offices' environmental
    concerns. Further, our review of five Office of Public Housing field
    offices found that none of them followed environmental compliance
    requirements. HUD relied heavily on its Office of Environment and
    Energy to ensure compliance with environmental requirements. HUD stated
    that cross-office collaboration should be encouraged as a sensible and
    efficient way to achieve oversight and compliance objectives. While HUD
    shares OIG's concerns regarding responsible entities' compliance with
    environmental requirements and agreed with our recommendations, HUD
    believes that the program offices do not always have the authority to
    impose corrective actions or sanctions. We provided several examples in
    which environmental issues, if not detected, can severely impact the
    residents and communities as well as consume significant resources.
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        \3\ Audit Report 2015-FW-0001, HUD Did Not Adequately Implement or
    Provide Oversight To Ensure Compliance With Environmental Requirements,
    June 16, 2015; Audit Report 2014-FW-0005, Improvements Are Needed Over
    Environmental Reviews of Public Housing and Recovery Act Funds in the
    Detroit Office, September 24, 2014; Audit Report 2014-FW-0004,
    Improvements Are Needed Over Environmental Reviews of Public Housing
    and Recovery Act Funds in the Greensboro Office, July 14, 2014; Audit
    Report 2014-FW-0003, Improvements Are Needed Over Environmental Reviews
    of Public Housing and Recovery Act Funds in the Columbia Office, June
    19, 2014; Audit Report 2014-FW-0002, Improvements Are needed Over
    Environmental Reviews of Public Housing and Recovery Act Funds in the
    Kansas City Office, May 12, 2014; and Audit Report 2014-FW-0001, The
    Boston Office of Public Housing Did Not Provide Adequate Oversight of
    Environmental Reviews of Three Housing Agencies, Including Reviews
    Involving Recovery Act Funds, February 7, 2014.
    ---------------------------------------------------------------------------
        As a result, HUD began providing more training to staff and
    grantees and implemented processes to improve its training program and
    curriculum to better support all program areas. Also, HUD was piloting
    a recently developed electronic data system, HUD's Environmental Review
    Online System (HEROS), which is part of HUD's transformation of IT
    systems. HEROS will convert HUD's paper-based environmental review
    process to a comprehensive online system that shows the user the entire
    environmental process, including compliance with related laws and
    authorities. It will allow HUD to collect data on environmental reviews
    performed by all program areas for compliance. HUD's Office of
    Environment and Energy had also implemented an internal process within
    HEROS to track findings, which will allow the program areas to focus
    training on recurring issues.
        While HUD has made improvements, it faces several challenges,
    including lack of resources, unclear guidance, and a perceived lack of
    authority to impose corrective actions or sanctions on responsible
    entities. Until HUD fully addresses these needed improvements, it faces
    an increased risk of creating a potential human health and safety
    concern as well as possible damage to the environment. For the five
    Office of Public Housing field offices we visited, PHAs spent almost
    $405 million for activities that either did not have required
    environmental reviews or had reviews that were not adequately
    supported.
                Physical Condition of the Housing Choice Voucher Units
        In response to a 2008 audit report,\4\ HUD developed a plan to
    monitor the physical condition of its Housing Choice Voucher program
    units. HUD is testing a system of inspections similar to the model used
    for its public housing units and multifamily projects. However, this
    testing with an initial target completion date of September 30, 2014,
    is taking considerably longer than expected. HUD has performed initial
    inspections of a sample of its voucher units. However, it needs
    resources to continue developing the new protocol and related software
    for its comprehensive monitoring system. Meanwhile, we continue to
    identify PHAs with inspection programs which do not ensure that voucher
    program units comply with standards.
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        \4\ Audit Report 2008-AT-0003, HUD Lacked Adequate Controls Over
    the Physical Condition of Section 8 Voucher Program Housing Stock, May
    14, 2008.
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                OIG's Fraud Prevention Program
        To assist the department in addressing these various issues, my
    office has initiated a fraud prevention program. A key component of
    this is a series of Integrity Bulletins to aid commissioners and public
    housing executives to identify red flags of fraud and mismanagement.
    The series includes topics such as Procurement and Contracting,
    Embezzlement, Charge Cards, Fraud Policy, Hiring, and a Primer for
    Commissioners. These bulletins are available on the OIG public web
    site. To further alert public housing boards and directors of these
    bulletins, a direct emailing went out July 2015 that was signed jointly
    by Principal Deputy Assistant Secretary Lourdes M. Castro Ramirez and
    me. The letter emphasized that public trust and integrity is a
    collective responsibility, and encourages recipients to read and share
    the Integrity Bulletins.
        The fiscal year 2014 appropriation language required HUD to work
    jointly with the OIG ``...to determine the critical skills that PHA
    boards should have to effectively oversee PHA operations, as well as
    the actions HUD will take to ensure that PHAs possess them....'' HUD
    has since developed a web-based training program for boards of
    commissioners. The training, named ``Lead the Way'' includes the basic
    skills and knowledge commissioners need to understand their roles and
    responsibilities. HUD is now in a second phase working with our office
    to update the training to add skills and knowledge for identifying
    risks and responding to them. The training will also cover identifying
    common fraud and mismanagement issues and how to report cases to OIG.
    The target for completion of the training is mid-summer 2016.
        One challenge that has not been resolved is how to get
    commissioners to complete this training. HUD has no authority to
    require completion of the training of the boards (or PHA executive
    staff either). HUD reports that about 500 commissioners have completed
    the training. Industry group training for commissioners appears to have
    the same problem in getting commissioners to attend training with 300
    commissioners being certified by the National Association of Housing
    and Redevelopment Officials, and a similar number being certified
    through the Public Housing Authority Directors Association. All these
    together have trained and certified about 7 percent of commissioners.
        Professional certification for public housing commissioners and
    executive directors exists in a conflicting array of certificates
    offered by public housing industry groups. While these certification
    programs are available, completion of the training is not a requirement
    to serve as a commissioner or executive director.
        We believe it would take congressional action to require boards and
    key executive staff to be certified. A certification body needs to be
    designated, with HUD approval of a curriculum, and timeframes
    established for phasing in the requirement. A requirement would also be
    useful that would establish a deadline for successfully completing the
    training. Certification of executive directors should likewise be
    mandated for at least medium and larger size agencies.
          administering programs directed toward victims of disasters
        The Department faces significant challenges in monitoring disaster
    program funds provided to various States, cities, and local governments
    under its purview. This challenge is particularly pressing for HUD
    because of the limited resources to directly perform oversight, the
    broad nature of HUD projects, the length of time needed to complete
    some of these projects, the ability of the Department to waive certain
    HUD program requirements, and the lack of understanding of disaster
    assistance grants by the recipients. HUD must ensure that the grantees
    complete their projects in a timely manner and that they use the funds
    for intended purposes. Since HUD disaster assistance may fund a variety
    of recovery activities, HUD can help communities and neighborhoods that
    otherwise might not recover due to limited resources. However,
    oversight of these projects is made more difficult due to the diverse
    nature of HUD projects and the fact that some construction projects may
    take between five and 10 years to complete. HUD must be diligent in its
    oversight to ensure that grantees have identified project timelines and
    are keeping up with them. HUD also must ensure that grantee goals are
    being met and that expectations are achieved.
        My office has completed 16 audits and 1 evaluation relating to
    CDBG-DR funding for Hurricane Sandy and other eligible events occurring
    in calendar years 2011, 2012, and 2013. There are a number of other
    audits and evaluations, as well as investigative work, that are
    currently underway. Prior to Hurricane Sandy, HUD-OIG had extensive
    audit and investigative experience with HUD's CDBG-DR program, most
    notably, with grants relating to recovery after Hurricane Katrina and
    the terrorist attacks of September 11, 2001. Over the years, HUD has
    gained more experience and has made progress with assisting communities
    recovering from disasters, but it continues to face the following
    challenges in administering these grants:
      --Ensuring that expenditures are eligible and supported;
      --Approving the program waiver process;
      --Certifying that grantees are following Federal procurement
            regulations;
      --Conducting consistent and sufficient monitoring efforts on disaster
            grants;
      --Promoting disaster resiliency within communities trying to recover;
            and
      --Keeping up with communities in the recovery process.
        I will elaborate on the first two areas above as they represent the
    most serious challenges faced by HUD.
    Ensuring That Expenditures Are Eligible and Supported
        In overseeing the CDBG-DR program, HUD must ensure that funds
    disbursed for disaster recovery programs are used for eligible and
    supported items. Our audits relating to Hurricane Sandy funding have
    identified $3.5 million in ineligible costs, $458 million in
    unsupported costs, and $360 million relating to recommendations that
    funds be put to better use. We have highlighted three audit reports
    that demonstrate these challenges for HUD in administering grants made
    under this program:
      --In our review of New York City's Health and Hospitals
            Corporation,\5\ we determined that City officials disbursed
            $183 million to the City's subrecipient for unsupported salary
            and fringe benefits and unreasonable and unnecessary expenses
            and did not adequately monitor its subrecipient and
            sufficiently document national objectives. As a result, City
            officials could not assure HUD that (1) $183 million in CDBG-DR
            funds was disbursed for eligible, reasonable, and necessary
            program expenses and (2) going forward the City will have
            adequate accounting and financial controls in place to ensure
            the remaining allocation of $40 million will be properly spent
            for the purposes intended.
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        \5\ Audit Report 2015-NY-1001, The City of New York, NY, Did Not
    Always Disburse Community Development Block Grant Disaster Recovery
    Assistance Funds to Its Subrecipient in Accordance With Federal
    Regulations, November 24, 2014.
    ---------------------------------------------------------------------------
      --In our review of New Jersey's Sandy Integrated Recovery Operations
            and Management System, we found that the State did not procure
            services and products for its system in accordance with Federal
            procurement and cost principle requirements. The State's
            procurement process was not equivalent to Federal procurement
            standards. As a result, it disbursed $38.5 million for
            unsupported costs. It was also planning to disburse another
            $21.7 million to extend the initial period of the related
            contract for 3 additional options years including $9.1 million
            for costs that it had not shown were fair and reasonable.
      --In our review of New York State's buyout program,\6\ we determined
            that officials did not always administer the program in
            accordance with program procedures. As a result, officials
            disbursed $6.6 million for properties that did not conform to
            published requirements. This amount included $672,000 and
            $598,300 for ineligible incentives and purchase prices in
            excess of authorized limits, respectively. In addition,
            documentation was inadequate to support that $1.7 million was
            disbursed for eligible purchases and that $8.7 million spent
            for contracts complied with Federal or State requirements.
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        \6\ Audit Report 2015-NY-1010, New York State Did Not Always
    Administer Its Rising Home Enhanced Buyout Program in Accordance with
    Federal and State Regulations, September 17, 2015.
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      --In our review of the New York Rising Housing Recovery Program,\7\
            we found that officials did not establish adequate controls to
            ensure that CDBG-DR funds were awarded and disbursed for
            eligible costs. As a result, more than $2.2 million in CDBG-DR
            funds was disbursed for ineligible costs and $119,124 for
            unsupported costs. Additionally, the use of a statewide cost
            figure, by which more than $87.5 million was awarded, was
            unsupported. Also, State officials needed to ensure that
            receipts were available to support work completed, or request
            that more than $241.2 million be repaid.
    ---------------------------------------------------------------------------
        \7\ Audit Report 2015-NY-1011, Program Control Weaknesses Lessened
    Assurance That New York Rising Housing Recovery Program Funds Were
    Always Disbursed for Eligible Costs, September 17, 2015.
    ---------------------------------------------------------------------------
        We attributed these conditions to the grantees' weaknesses in
    maintaining file documentation, unfamiliarity with HUD rules and
    regulations, and failure to follow State and Federal procurement
    regulations.
    Approving the Program Waiver Process
        We performed two reviews of the State of Louisiana's Road Home
    Elevation Incentive (RHEI) Program, in 2010 \8\ and a follow-up review
    in 2012.\9\ Based on these reviews, it appears that HUD has established
    a pattern and practice to either waive the program requirements, or
    retroactively approve the State's amended action plan after the fact,
    when deficiencies are identified with this program. The initial
    review's objective was to determine whether homeowners used funds to
    elevate their homes as set out in their grant agreements. The review
    found that 79 percent of the homes we inspected had not been elevated,
    strongly suggesting that the grant program was at risk and could fail
    to achieve its intended goal of reducing homeowner flood risks from
    future hurricanes. Our follow-up review found that as of August 31,
    2012, the State did not have conclusive evidence that approximately
    $698.5 million in CDBG-DR funds provided to 24,000 homeowners had been
    used to elevate homes. As an example of HUD's practice to minimize or
    eliminate original program requirements, HUD approved the State's
    Amendment 60 on July 26, 2013, which retroactively allowed homeowners
    who received a grant under Road Home to prove that they used those
    funds to either elevate or rehabilitate their home, although the grant
    was specifically intended for elevation only. The amendment is contrary
    to the elevation incentive agreement which stated that the funds were
    intended to assist homeowners to only elevate their homes. If the funds
    were not used for this sole purpose, they were to be repaid to the
    State.
    ---------------------------------------------------------------------------
        \8\ Inspections and Evaluations Report IED-09-002, Inspection of
    the State of Louisiana's Road Home Elevation Incentive Program
    Homeowner Compliance, March 2010.
        \9\ Audit Report 2013-IE-0803, Follow-up of the Inspections and
    Evaluations Division on Its Inspection of the State of Louisiana's Road
    Home Elevation Incentive Program Homeowner Compliance (IED-09-002 March
    2010), March 29, 2013.
    ---------------------------------------------------------------------------
        In August 2015, HUD again unilaterally waived the Road Home program
    requirements. Specifically, HUD changed its 2013 documentation
    requirement for rehabilitation expenses to permit an affidavit by the
    homeowner and a ``valuation inspection'' by the State to determine the
    value of home repairs that were previously performed. This waiver of
    requirements was due to the fact that it was still having difficulty
    acquiring documentation from homeowners as proof of repair. This new
    approach does not consider whether recipients previously received
    grants or insurance funds for rehabilitation and could result in a
    duplication of benefits. While Congress provided considerable
    flexibility in the use of CDBG-DR funds, it specifically required HUD
    to establish procedures that prevent duplication of benefits.
        HUD has not properly enforced the intent of the Road Home program,
    instead opting to change the rules ex post facto so that violations can
    potentially be excused. If HUD wishes to implement proper risk
    management in its programs, this most recent action seems to defeat the
    purpose as it announces to all recipients of HUD funds that
    noncompliance may be pardoned because the Department will allow it in
    the end with no consequences for divergent actions.
        HUD's actions, and retreat from its position and the original
    intent of the approved State action plans, diminishes HUD's ability to
    properly administer grant agreements, provide proper oversight and
    enforcement when needed, and lessens the affected homeowners' trust and
    confidence that HUD maintains the highest standards of efficiency and
    fairness in its grant award process.
    Government-wide Concerns
        In view of the significance of funding to multiple agencies to
    address Hurricane Sandy, my office is leading a joint cross-cutting
    review with seven other OIGs \10\ to assess participating Federal
    entities' funding, expenditures, and monitoring. Our objective is to
    identify common concerns and make recommendations to improve oversight,
    enhance collaboration, and report on best practices.
    ---------------------------------------------------------------------------
        \10\ In addition to HUD-OIG, OIGs from the following agencies are
    participating: Department of Homeland Security, Department of Health
    and Human Services, Department of Defense, Department of the Interior,
    Department of Transportation, Small Business Administration, and
    Environmental Protection Agency.
    ---------------------------------------------------------------------------
        As noted earlier, Congress imposed time limits with respect to the
    funding it provided to HUD in the Disaster Relief Appropriations Act,
    2013. Funding for other agencies either included varying time limits
    or, in some cases, imposed no time limit and will remain available
    until spent. Based upon our audits of funds relating to prior
    disasters, we believe that imposing statutory deadlines will help to
    ensure that funds are promptly spent. HUD is not alone in facing
    challenges with timely expenditure of funding. A representative from
    the Department of Homeland Security's OIG told us that FEMA disaster
    funds remained unspent for extended periods and FEMA still had unspent
    funding relating to the Northridge earthquake (more than 21 years ago)
    and Hurricane Katrina (more than 10 years ago).
        Funding for oversight activities also varied. Separate funding was
    provided to both HUD and HUD-OIG for oversight. The Department of
    Health and Human Services, which received more than $500 million in
    funding, also received funding for its OIG but not for the agency to
    conduct administrative oversight. OIGs from the Department of the
    Interior, Environmental Protection Agency and the Department of Defense
    did not receive separate funding to provide for oversight of their
    respective agencies' funding that ranged from $577 million to more than
    $5 billion.
        Our collaboration with other OIGs has noted a common concern with
    respect to time limits being placed on oversight funding relating to
    Hurricane Sandy. As is the case with HUD CDBG-DR funds, HUD-OIG's
    funding must be obligated by the end of fiscal year 2017. This presents
    a challenge for HUD-OIG because much of the expenditure activity under
    the CDBG-DR program will occur well after that date, as late as the end
    of fiscal year 2022. In addition, a waiver was obtained that allows the
    Department to extend program funds beyond the original deadline. It is
    unclear from the current statutory language whether HUD-OIG will be
    able to use its Sandy funding beyond the obligation deadline. HUD-OIG
    is planning to seek an opinion on the specific appropriation issue from
    the GAO.
        As of the end of fiscal year 2015, over 70 percent of HUD's
    Hurricane Sandy funding remains unspent and until the bulk of that
    funding is spent, our ability to conduct effective oversight is
    limited. This is a concern with at least two other OIGs who have
    expressed similar concerns with the slow rate at which their respective
    agencies are using their disaster assistance funding. I urge the
    Congress to recognize that oversight activities conducted by the
    various agencies and their OIGs need to occur well beyond the
    obligation deadline and to consider providing relief to the affected
    organizations to extend the date at which these oversight funds will
    expire.
                  community planning and development programs
        Due to the use of what the Department calls the FIFO method (first-
    in, first-out as an accounting methodology of appropriated funds) \11\
    for committing and disbursing obligations, HUD's accounting for its
    Community Planning and Development formula grant programs' accounting
    does not comply with accounting standards resulting in material
    misstatement of HUD's financial statements. Since 2013, we have also
    reported that the information system used, the Integrated Disbursement
    Information System (IDIS) Online, a grants management system, was not
    designed to comply with Federal financial management system
    requirements. Further, HUD's plan to eliminate FIFO from IDIS Online
    was applied to fiscal year 2015 and future grants and not to fiscal
    years 2014 and earlier. Moreover, because of funding problems,
    completion of the elimination plan will be delayed until December 2016.
    ---------------------------------------------------------------------------
        \11\ The FIFO method is a way in which CPD disburses its
    obligations to grantees. Disbursements are not matched to the original
    obligation authorizing the disbursement, allowing obligations to be
    liquidated from the oldest available budget fiscal year appropriation
    source. This method allows disbursements to be recorded under
    obligations tied to soon-to-be-canceled appropriations.
    ---------------------------------------------------------------------------
        As a result, budget year grant obligation balances continued to be
    misstated and disbursements made using an incorrect U.S. Standard
    General Ledger (USSGL) attribute resulted in additional misstatements.
    Although FIFO has been removed from fiscal year 2015 and forward
    grants, modifications to IDIS were necessary for the system to comply
    with the Federal Financial Management Improvement Act (FFMIA) and USSGL
    transaction records.
        The inability of IDIS Online to provide an audit trail of all
    financial events affected by the FIFO method made it impossible to
    quantify the financial effects of FIFO on HUD's consolidated financial
    statements. Further, because of the amount and pervasiveness of the
    funds susceptible to the FIFO method and the noncompliant internal
    control structure in IDIS Online, the obligated and unobligated balance
    brought forward and obligated and unobligated balances reported in
    HUD's combined statement of budgetary resources for fiscal year 2015
    and in prior years were materially misstated. The effects of not
    removing the FIFO method retroactively will continue to have
    implications on future years' financial statement audit opinions until
    the impact is assessed to be immaterial.
        HUD's continued inability to provide data to monitor compliance
    with the HOME Investment Partnership Act (HOME statute) requirements
    for committing and spending funds continues to remain a concern until
    appropriate system changes in IDIS Online are implemented and
    regulatory changes are fully implemented. The HOME Investment
    Partnerships Program is the largest Federal block grant to State and
    local governments designed to create affordable housing for low-income
    households. Because HOME is a formula-based grant, funds are awarded to
    the participating jurisdictions noncompetitively on an annual basis.
        In 2009, OIG challenged HUD's cumulative method \12\ for
    determining compliance with section 218(g) of the HOME statute, which
    requires that any uncommitted funds be reallocated or recaptured after
    the expiration of the 24-month commitment deadline. After a continuous
    impasse with HUD, OIG contacted GAO in 2011 and requested a formal
    legal opinion on this matter. In July 2013, GAO issued its legal
    opinion affirming OIG's position and citing HUD for noncompliance. In
    its decision, GAO repeated that the language in the statute was clear
    and that HUD's cumulative method did not comply with the statute.
    Accordingly, GAO told HUD to stop using the cumulative method and
    identify and recapture funds that remain uncommitted after the
    statutory commitment deadline.
    ---------------------------------------------------------------------------
        \12\ HUD implemented a process, called the cumulative method, to
    determine a grantee's compliance with the requirements of section
    218(g) of the Statute and determine the amount to be recaptured and
    reallocated with section 217(d). HUD measured compliance with the
    commitment requirement cumulatively, disregarding the allocation year
    used to make the commitments.
    ---------------------------------------------------------------------------
        The effects of the GAO legal opinion require extensive
    reprogramming and modification to IDIS Online in addition to regulatory
    changes. However, these system and regulatory changes, which are
    already underway, will apply only to new grants awarded going forward
    and will not be changed retrospectively. Therefore, HUD's plan does not
    comply with the GAO legal opinion and allows grantees to spend HOME
    program funding that would normally be recaptured if the 24-month
    commitment timeframe was not met.
        Compliance with GAO's opinion would enable HUD to better monitor
    grantee performance in a more timely, efficient, and transparent way.
    It also would strengthen internal controls, bring HUD into compliance
    with HOME statutory requirements, and accurately and reliably report
    financial transactions.
        On June 16, 2015, we issued a memorandum to HUD regarding potential
    Anti-Deficiency Act (ADA) violations due to the noncompliance issues
    noted above. In the memorandum, we requested that the Chief Financial
    Officer (1) open an investigation and determine the impact of FIFO and
    the cumulative method for commitments for the HOME program on HUD's
    risk of an ADA violation; (2) as part of the violation, obtain a legal
    opinion from GAO and OMB to determine whether maintaining the
    cumulative method for determining compliance with the HOME statute
    results in noncompliance with the Statute and potential ADA violations;
    and (3) if HUD incurred an ADA violation, comply with the reporting
    requirements at 31 U.S.C. (United States Code) 1351 and 1517(b) and OMB
    Circular No. A-11, Preparation, Submission, and Execution of the
    Budget, section 145, (June 21, 2005). We determined that HUD has opened
    an ADA investigation in response to our memorandum.
        We will continue to report that HUD is not in compliance with laws
    and regulations until the cumulative method is no longer used to
    determine whether commitment deadlines required by the HOME Investment
    Partnership Act are met by the grantees.
    Subgrantee Monitoring
        In fiscal years 2014 and 2015, at least seven of our audits have
    found that in some instances, little or no monitoring occurred,
    particularly at the subgrantee level. HUD focuses its monitoring
    activities at the grantee level through its field offices. Grantees, in
    turn, are responsible for monitoring their subgrantees. HUD should
    continue to stress the importance of subgrantee monitoring to its
    grantees. OIG has concerns regarding the capacity of subgrantees
    receiving funding from HUD programs, including grantees receiving CDBG
    Disaster Recovery (CDBG-DR) funds. Therefore, audits of grantees and
    their subgrantee activities will continue to be given emphasis this
    fiscal year as this continues to be a challenge for HUD and its
    grantees.
    OIG Prevention Activities
        To assist the Department with these and other Community Planning
    and Development Program concerns, we are currently working with HUD
    staff to issue a series of bulletins similar to the topics we have
    issued for public housing but adapting them to Community Planning and
    Development program grantees. The first of the series is scheduled for
    issuance in May. These will also be announced through a joint
    communique, signed by Principal Deputy Assistant Secretary Harriet
    Tregoning and me, to encourage public official to read and share the
    bulletins.
     compliance with the improper payments elimination and recovery act of
                                      2010
        For the second year in a row, we determined that HUD did not comply
    with the Improper Payments Elimination and Recovery Act of 2010
    (IPERA). Specifically, our fiscal year 2015 audit \13\ found that HUD
    did not adequately report on its supplemental measures and its risk
    assessment did not include a review of all relevant audit reports.
    Additionally, we found that HUD's estimate of improper payments due to
    billing errors was based on out-of-date information, a finding that was
    repeated from the prior-year audit.
    ---------------------------------------------------------------------------
        \13\ Audit Report 2015-FO-0005, Compliance With the Improper
    Payments Elimination and Recovery Act of 2010, issued May 15, 2015.
    ---------------------------------------------------------------------------
        After exceeding the targeted improper payment rate of 3.8 percent
    in fiscal year 2012, HUD's goal for the targeted improper payment rate
    was increased to 4.2 percent for fiscal year 2013. While HUD met its
    fiscal year 2013 goal with an improper payment rate of 3.2 percent,
    with estimated improper payments of $1.03 billion, it continues to face
    significant challenges to comply with the requirements of IPERA and
    further reduce its improper payments.
        For example, without sufficient funding, it will be difficult for
    HUD to perform the studies needed to update its estimates of improper
    payments due to billing errors. Additionally, there were several
    recommendations from our fiscal year 2014 audit report \14\ without
    agreed-upon management decisions that had to be referred to the Deputy
    Secretary. During fiscal year 2015, HUD increased its efforts to
    address these recommendations, as well as current-year recommendations,
    and develop corrective action plans. HUD needs to continue its efforts
    to address our recommendations and improve its processes for reporting
    on its improper payments to become compliant with IPERA in the future.
    ---------------------------------------------------------------------------
        \14\ Audit Report 2014-FO-0004, Compliance With the Improper
    Payments Elimination and Recovery Act of 2010, issued April 15, 2014.
    ---------------------------------------------------------------------------
                            departmental enforcement
        A common thread underlying several of the issues discussed earlier
    is the lack of a cohesive departmental approach on monitoring and
    follow-through on findings. In an evaluation we conducted on the
    effectiveness of the Departmental Enforcement Center (DEC), we found
    that the Department does not have an enterprise risk management
    approach to monitoring. Its monitoring is for the most part siloed in
    each program office and the approaches and results differ greatly.
    While there were some successes, there is a much greater task that lies
    ahead. The DEC, working with the Office of Multifamily Housing Programs
    and the Real Estate Assessment Center, improved housing physical
    conditions and financial management of troubled multifamily properties.
    Although some other program offices had taken steps toward risk-based
    enforcement, they had not taken full advantage of the benefits
    demonstrated when programs allow the DEC to assess compliance and
    enforce program requirements. The DEC proved that it can remedy poor
    performance and noncompliance when programs are willing to participate
    in enforcing program requirements.
        The DEC was established in part to overcome a built in conflict of
    roles. The HUD management reform plan stated that program offices had a
    conflicting role in getting funds to and spent by participants versus
    holding them accountable when fraud or mismanagement of the funds
    occurs. However, memoranda of understanding between the DEC and the
    program offices, for the most part, limit the DEC's ability to monitor,
    report, and take action to end noncompliance.
        HUD is starting to make some changes. Recent attention has
    emphasized the point that improvements are necessary for the DEC, REAC
    and Office of Multifamily Housing to effectively oversee its aging
    portfolio. PIH is working with the DEC to identify risk-based triggers
    to target monitoring, and the Chief Financial Officer is leading a
    Departmental task force looking at enterprise risk management. The
    Department should strive for a Department-wide risk monitoring approach
    that is data driven and supports taking actions that will end
    noncompliance or will seek the return of funds or other enforcement
    steps when corrective actions are ignored.
                                   conclusion
        The Department's role has greatly increased over the last decade as
    it has had to deal with unanticipated disasters and intervening
    economic crises, in addition to its other missions, that have increased
    its visibility and reaffirmed its vital role in providing services that
    impact the lives of our citizens. My office is strongly committed to
    working with the Department and the Congress to ensure that these
    important programs operate efficiently and effectively and as intended
    for the benefit of the American taxpayers now and into the future.

                    HIGH INCOME HOUSEHOLDS IN PUBLIC HOUSING

        Senator Collins. Thank you very much. My first question for
    you follows up on the issue that Senator Daines mentioned, and
    that is, in your July 2015 report, you found that more than
    25,000 families with household incomes exceeding HUD's program
    eligibility income limits were receiving public housing rental
    assistance. This is disturbing for many reasons.
        Your estimate was that HUD would pay over $104 million over
    the next year for public housing units occupied by families
    that were over the income limits. That means that there are
    lower income families that aren't receiving assistance, and
    that clearly needs to be remedied.
        I was also concerned that, of those 25,000-plus families,
    that nearly 18,000 of them had exceeded the qualifying amount
    for more than 1 year, so this wasn't a case where there was a
    temporary blip, if you will.
        I'm also not talking about a hard-working individual who
    gets a pay raise at work and thus, is over the limit by a few
    hundred dollars for the year. What you found was that there
    were some individuals who owned assets and properties that were
    worth literally hundreds of thousands of dollars.
        My question is, what has HUD done in response to your
    recommendation for better internal controls, and are you
    satisfied with the progress that HUD is making?
        Mr. Montoya. Yes, ma'am. Thank you for the question. It is
    an important issue, as I said in my opening statement, that we
    address those most in need in our communities.
        I want to make clear that our audit focused on two
    categories of over income. One was those numbers of family
    below a $10,000 mark and then those that were above a $10,000
    mark for a given years. For those over $10,000, I want to note
    that that was 47 percent of that 25,000 number that were over a
    $10,000 amount per year income, and again, over a year. It
    wasn't just a blip on the radar.
        I want to make clear also that these public housing
    authorities, since 2004, have had the authority to remove over
    income, or at least extremely over income families, as we
    noted, and have failed to do so. So while I know HUD took a lot
    of heat for its oversight, and certainly, it has some
    responsibility, proper oversight, I do want to note that
    housing authorities currently have that authority to do this.
        I would recognize that HUD has sent a letter to these
    public housing authority directors, encouraging to follow that
    2004 rule, and I know HUD is working with the Congress to
    implement some new legislation that would make this more
    mandatory.
        The question for me is going to become what is going to be
    defined as extremely or significantly over income, and of
    course, what timeline will HUD put on that, how long do you
    have to be over income. I do want to make clear that we
    certainly recognize that people's incomes will ebb and flow,
    and we were looking for those extreme circumstances.
        Senator Collins. But that's what you found, were some
    extreme circumstances.
        Mr. Montoya. Yes, ma'am.
        Senator Collins. Correct?
        Mr. Montoya. Correct.
        Senator Collins. Because none of us, I don't believe, would
    want to put someone out of public housing because of the ebb
    and flow, as you say, and also, we don't want to discourage
    people from doing better at work.
        Mr. Montoya. Right.
        Senator Collins. But clearly, there were egregious
    examples, as I read your report, that are very troubling,
    because it's taking away from scarce resources. Does HUD have
    the sufficient statutory authority that it needs to require the
    public housing authorities to implement and enforce limits?
        Mr. Montoya. No, ma'am. They currently do not have a
    regulation or a statute that will have them require the housing
    authorities to do this sort of thing, which is what they're
    seeking through Congress now.
        Senator Collins. I know that they're also engaged in a
    notice of proposed rulemaking to try to address this. What was
    HUD's initial reaction to your report?
        Mr. Montoya. Well, unfortunately, what we've seen too often
    with some of my reports is the knee jerk reaction to say the
    inspector general is wrong as opposed to stopping to take a
    look at what it is regarding and having a conversation with us.
        Very shortly after that position was taken by a lower level
    employee, I think the Secretary and the Deputy Secretary very
    quickly turned that around and were very much in agreement with
    what our position was, I think, once they understood what our
    report really was meant, designed to do, and that was identify
    those egregious examples, and of course to assist them to put
    these limited dollars that we're all talking about here to use
    for those that are most in need.
        Senator Collins. Thank you.
        Senator Reed.
        Senator Reed. Well, thank you very much, Madam Chairman.
    And I, too, want to second your point, which is, I think,
    entirely pertinent.
        This is not about a temporary spike in income, up or down.
    This is not about essentially some year where you do well, and
    the next year, you might do much worse. This is consistent and
    substantial.
        Mr. Montoya. We would agree with you, certainly, sir.
        Senator Reed. And thank you. One aspect of this issue is
    you mentioned, you know, that they certainly have the authority
    to remove these people from the property. Do they have the
    authority to raise the rent, so that they capture this extra
    income?
        Mr. Montoya. I believe that's what happened in some of
    these cases, they just allowed them to do the market rent. The
    problem is, when you do that in some of these situations, it
    takes that particular unit away from, you know, somebody who's
    on the waiting list.
        Senator Reed. Indeed. But I just want to be clear that one
    remedy, it's maybe not the best remedy, is that they can, in
    fact, and do, in fact, raise----
        Mr. Montoya. That is my understanding, sir, yes.
        Senator Reed. Right. But again, I think your point's well-
    taken. These units are very scare.
        Mr. Montoya. That's correct.
        Senator Reed. And intended for people who otherwise would
    be literally homeless.
        Mr. Montoya. That's correct.
        Senator Reed. There's another aspect of this, too, and I
    think I just want to make sure we cover the whole area, and
    that is we have been very aggressive in pushing family self-
    sufficiency programs, job plus programs.
        In your analysis, have you made any correlation between
    these people who are making more money and participating in
    these programs? Because if we move sort of aggressively, and it
    turns out that the message we send is, if you get into a family
    self-sufficiency program to raise your wages or a jobs program,
    you're going to lose your housing, that's not the right message
    either.
        Mr. Montoya. I would agree. And I don't think that we made
    the specific correlation, although we didn't find any of these
    extreme examples of somebody who was in the self-sufficiency
    type of program, and that's how they got to where they were.
    Certainly, that is a consideration.
        But the idea of the self-sufficiency program is, of course,
    you'll, at some point, get to a point where you can move out of
    housing. So at some point, where is that deadline, and what is
    that amount, and I think that's what we're going to be anxious
    to see when----
        Senator Reed. No. I think you have raised some very serious
    issues and very important issues, and the Department must
    respond, and that is your function as the inspector general. So
    thank you for doing your job.
        Mr. Montoya. Yes, sir. Thank you, sir.

                   HOUSING INSPECTIONS OF SECTION 8 VOUCHERS

        Senator Reed. One area that has been woven throughout the
    Secretary's testimony, your discussions, has been the
    consistency of inspections of the Section 8 voucher units. Your
    2008 audit suggests that it was wildly inconsistent, etc. What
    progress has HUD made to ensure Section 8 voucher units are in
    compliance with current housing quality standards? That's come
    up repeatedly in both our questioning.
        Mr. Montoya. I tell you, we struggle with that almost in
    every audit we do, finding that these units are just not very
    livable. I think the Secretary addressed that at some point
    these reviews didn't even really include mold or bedbugs. It
    was so lowly ranked in the scheme of things that inspectors
    could've cared less, even if they saw it, quite frankly.
        And I think it boils down to some of these inspections are
    only as good as the inspector. Too often, from our
    investigative side of the house, we've seen unscrupulous
    inspectors who are going to go in, just give it a clean bill of
    health as quickly as they can, so they can make the amount of
    money they've charged to do this inspection and move onto the
    next thing. So we've seen a number of those kinds of issues.
        We've also seen that in the lead-based paint sort of issue
    that you addressed earlier, where, you know, these communities
    and HUD is trying to do the right thing, but you have
    unscrupulous inspectors who will come in just give them a good,
    clean bill of health and move on, having made their income for
    the day.
        So I think HUD is on the right track. We're certainly
    anxious to see them do a little bit more. I think REAC and the
    Department, the real estate section that does these inspections
    has done well. I think, like anything, there's always more room
    for oversight. I would like to see more oversight, though, at
    the local level.

                              LOCAL BUILDING CODES

        Senator Reed. That raises an interesting question, because
    as the Secretary was discussing this issue, it struck me there
    are local building codes, there are local health and safety
    codes, and frankly, those are probably being violated, too,
    which municipality has full authority to go in and order--in
    fact, probably more authority to order correction, to place
    liens on the property, to go in and do the correction itself.
        To what extent are you urging or the Department is
    contemplating a more significant role for local housing
    officials?
        Mr. Montoya. Well, myself and the Principal Deputy
    Assistant at the Office of Public and Indian Housing (PIH), Ms.
    Lourdes Castro, we've joined together to do a number of
    different things, primarily driven on awareness.
        We called them, as we started, fraud awareness bulletins,
    but it's migrated to a joint effort with her office to do more
    of an educational thing, sort of a technical educational thing.
    And of course, what we, as the inspector general, see as
    problems with regards to the inspectors, you know, it's a
    collective responsibility, so we all hold some level of that.
        And you couldn't be more right with regards to the State
    and local ordinances that these inspectors have to live by, and
    often, they're only given a license to perform this if they
    follow State and local regulations. We've seen incidents where
    people are coming in as inspectors, and they're not even
    licensed.
        So what we would look to see to do, and certainly what we
    try to do in our investigations, is when we find that
    unscrupulous licensed individual, we'd like to report them to
    the State and local. They lose their license. They lose their
    livelihood. So just how important is it to you to lie about a
    number of these things?
        So those are the different kinds of enforcement things that
    I think we can all sort of fall in behind.
        Senator Reed. And those could be implemented immediately
    without legislation?
        Mr. Montoya. I certainly think they could. I think
    certainly housing authorities, with advice from us, there's
    nothing wrong with picking up the phone and reaching to your
    local ordinance and saying, I just had Mr. John Doe, an
    inspector come in, and here's what happened, and I hear he's
    licensed by the city or by the State, and we'd like to report
    him.
        Senator Reed. Well, thank you very much, Mr. Montoya.
        Mr. Montoya. Thank you, sir.
        Senator Reed. Thank you.

                   COMPLIANCE WITH FHA UNDERWRITING STANDARDS

        Senator Collins. Mr. Inspector General, in your testimony,
    you highlighted the fact that, for the last four fiscal years,
    the results of audits and evaluations of the FHA fund revealed
    a disturbing percentage of loans that were reviewed that should
    not have been insured due to significant deficiencies in
    underwriting.
        What actions do you believe are necessary on the part of
    the Department to ensure that lenders are in compliance with
    FHA's underwriting standards?
        Mr. Montoya. Yes, ma'am. Thank you for the question. It's
    an extremely important question, as we've been struggling with
    this certainly since my tenure.
        We often find that FHA, it struggles with its role to
    enhance and advance the market for home ownership for those low
    to moderate income individuals while at the same time playing
    the enforcement role, and often, those two don't seem to meet.
        So certainly with regards to, I think, stronger enforcement
    on the behalf of FHA is an important issue, we have made
    recommendations for a number of years about these underwriting
    deficiencies and the fact that HUD should actually do more
    random sampling of these loans so that they can determine early
    on whether these loans are going to be viable in the long run
    or not. They're doing a better job at that, certainly not as
    fast as we'd like to see it.
        We also think that, with regards to the claim process, HUD
    doesn't do a very good job often at reviewing these claims to
    ensure that they're not paying claims that are far more than
    they need to be paying. That's another area that impacts the
    fund, certainly with regards to their loss mitigation issues
    and whether, again, these claims should be paid. These are all
    enforcement issues that we think they should be taking a
    serious look at.
        We are certainly doing our part. We are continuously
    finding lenders, and again, unscrupulous people out there who
    are trying to defraud the Department. We just did a large case
    in the Florida area. It amounted to about a $65 million loss to
    the Department. It was a criminal investigation where we
    rounded up probably 25 people, a lot of folks, unfortunately,
    going to jail.
        But there's so many different avenues of that that we're
    certainly trying to do our part to assist the Department in
    that role.
        Senator Collins. Sounds to me like it's fortunate rather
    than unfortunate that they're going to jail, if they're
    defrauding the Department.

                     WASTE, FRAUD AND ABUSE IN HUD PROGRAMS

        My final question to you is, as you survey the landscape of
    programs at the Department, are there any that particularly
    stick out in terms of being particularly vulnerable to waste,
    fraud, and abuse that you would like to bring to our attention.
        Mr. Montoya. I don't know that I would single out any one
    program. I think they are all vulnerable in some way, shape, or
    form. I do want to acknowledge that, not only with PIH, but
    more recently with the Office of Community Planning and
    Development (CPD), we're working at the highest levels to do
    joint things, to go out there and train the communities and
    these professionals who are running these programs to
    understand where the red flags are, to understand where the
    hiccups and the roadblocks might be, so they don't get into
    that trouble.
        Our motto is prevention first, because once we lose those
    funds, then we can't get them back. So we're doing as much as
    we can to assist them. I think if there was a program, albeit
    not a program that it would raise some real concerns, is HUD's
    information technology, because these programs, whether it's
    PIH or CPD, are so heavily wedded to these IT programs, that if
    you have a failure in one particular case, you know, a
    catastrophic failure, there is no other way to get the monies
    out to these individuals who are going to need it.
        And constantly, in our IT security reviews, we are finding
    aging systems that are incapable of really patching from a
    security standpoint. HUD maintains millions of records of
    personally identifiable information that becomes susceptible in
    those kind of arenas. And really, what happens if these systems
    fail, and how do we get this money out to all these communities
    and all these recipients is sort of what's keeping us awake at
    night at this point.
        Senator Collins. Thank you. I think that's a statement you
    could make about every single department in the Federal
    Government.
        Mr. Montoya. It's unfortunate.
        Senator Collins. And it is very worrisome. Thank you very
    much for your testimony. Senator Reed, do you have anything
    further?

                       HUD INFORMATION TECHNOLOGY SYSTEMS

        Senator Reed. I just want to thank you, Madam Chairman, for
    the hearing. And I think the point that the inspector general
    just made about the IT systems, as you point out, could be
    made, many Federal agencies.
        And one of the dilemmas is that I would suspect that their
    system are probably already out of date by many years, and
    there's nothing in this budget really that would be a total
    recapitalization of their IT enterprise so that they'd be ahead
    of the curve.
        Mr. Montoya. That's correct.
        Senator Reed. Yes.
        Mr. Montoya. That's correct. They're basically in operation
    and maintenance mode. There is no advancement of these
    programs.
        Senator Reed. Yes, and again, that's something we could
    sort of find in probably every Federal agency, and that is a
    real, real problem. But I think you focused on something which
    is absolutely critical, so thank you, again.
        Mr. Montoya. Thank you, sir. Thank you, ma'am.
        Senator Collins. Thank you, Senator Reed.
        Thank you very much, Mr. Inspector General, for being here
    with us. As we proceed with putting together this bill and
    getting more input, I'm sure we will have additional questions
    for you as well and hope that you won't hesitate to contact us
    with your recommendations and suggestions.
        We are going to have a real challenge, as we always do, in
    writing this bill, given the fact that 84 to 85 percent of the
    budget is, if you will, spoken for, given that that's necessary
    for the renewal of vital rental assistance, and we need your
    help in finding efficiencies where they may exist.
        So thank you very much for testifying today and for your
    assistance to the committee.
        Mr. Montoya. Thank you.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Collins. The hearing record, as I mentioned, will
    remain open until next Friday, March 18.
        [The following questions were not asked at the hearing, but
    were submitted to the Department subsequent to the hearing:]
                Questions Submitted by Senator Susan M. Collins
                        rental assistance demonstration
        Question. The budget request proposes additional funding and
    authority for the Rental Assistance Demonstration in order to preserve
    affordable housing. However, the Department's implementation of the
    project-based rental assistance option for owners of properties
    eligible under the second component of RAD appears contrary to the goal
    of preservation. By arbitrarily limiting initial rents to 110 percent
    of the Section 8 Fair Market Rent, HUD discourages owners from
    participating in RAD and preserving scarce affordable housing options
    in high cost areas.
        Why hasn't the Department fully utilized the flexibility and
    discretion to establish appropriate rent levels to preserve this
    housing stock that the RAD statute provides?
        Answer. Section 8 (c)(1) of the U.S. Housing Act of 1937 allows the
    Secretary to set rents for new Section 8 contracts up to 120 percent of
    the Fair Market Rent (FMR). For properties assisted under Moderate
    Rehabilitation (Mod Rehab) contracts, HUD permits conversions at
    current contract levels, not to exceed this statutory cap. For
    properties assisted under the Rent Supplement/Rental Assistance Program
    (Rent Supp/RAP) programs, the rationale for limiting rents to 110
    percent of the FMR is as follows:
        First, the vast majority of Rent Supp/RAP projects--103 of 109
    projects that are currently eligible under this conversion option, or
    95 percent--have current rent levels below 110 percent of the FMR.
    Accordingly, a rental price set at 110 percent of the FMR would be a
    significant increase for the majority of our Rent Supp/RAP contracts.
        Second, HUD's decision to set a rent limit of 110 percent of the
    FMR was also informed by the desire to maintain a financially
    consistent conversion option between project-based voucher (PBV) and
    project-based rental assistance (PBRA). PBV rents are statutorily
    limited to 110 percent of the FMR. Further, RAD conversions rely in
    part on transfers from the tenant-based rental assistance (TBRA)
    account to the PBRA account.
        Finally, HUD has the statutory flexibility to allow owners to
    request a waiver of the RAD Implementation Notice (PIH 2012-32 Rev 2)
    to seek an alternative rent limit of up to 120 percent of the FMR. HUD
    is currently entertaining such waivers on a case-by-case basis.
        Question. If an owner of a second component RAD property will get
    an enhanced voucher set at comparable market rent why would they
    participate in a preservation program that arbitrarily limits rents to
    a lower level?
        Answer. Owners may receive an enhanced payment standard from an
    enhanced voucher being issued to a tenant, at the expiration of their
    Rental Supplement or Rental Assistance Payment (RAP) contract or when
    prepayment of an underlying Section 236 mortgage takes place. However,
    not all vouchers triggered through these events will yield an enhanced
    voucher. In order for a voucher to become an enhanced voucher, the
    market rents of the property would need to exceed 110 percent of the
    FMR. Further, since many of these projects are still encumbered by
    236(e)(2) use agreements at the time of their conversion, the rent
    increase is not automatic. Rather, the owner would have to request a
    budget-based rent increase process with HUD or with their State housing
    finance agency. While it is entirely possible that the voucher will
    carry with it an enhanced payment standard, it is not a guarantee.
        Further, the value of a long-term project-based subsidy contract
    cannot be discounted since the tenant-based subsidy is contingent on
    the tenant staying at the property. Many owners are only able to access
    debt and equity financing in conjunction with the execution of a long-
    term project-based subsidy contract. Since an enhanced voucher is
    mobile and a tenant can take it with them at any time, the Project-
    Based Rental Assistance (PBRA) or project-based voucher (PBV) contract
    that an owner receives as a result of a RAD conversion is the only way
    an owner can receive a long-term subsidy contract in place of the Rent
    Supplement, RAP, or Mod Rehab contract.
        Question. Isn't it better to encourage preservation of these
    affordable housing resources by providing the owner with at least the
    same rent that they would get under another HUD program but which does
    not preserve the property as affordable?
        Answer. As noted above, the rent paid to the owner using an
    enhanced voucher is not guaranteed--neither the rent level itself nor
    the ongoing payment of the rent if the voucher holder chooses to leave
    the property. In contrast, through RAD, the property owners receive a
    multiyear contract with adjustments to contract rents at regular
    intervals to ensure the long-term viability and affordability of the
    property.
                                      fha
        Question. FHAs primary purpose is to act as a countercyclical
    balance during economic downturns, not to compete with the private
    market. Such a role was critical during the recession of 2008 to
    mitigate even further economic uncertainty and the loss of trillions of
    dollars in household wealth. But there comes a time when FHA should
    return to its traditional role. Through fiscal year 2015, FHA accounted
    for 19 percent of the total purchase mortgage market while its
    historical market share averages 13 percent. FHAs current market share
    is artificially maintained in part due to last year's decision to
    reduce single-family mortgage insurance premiums.
        As we begin our work writing the fiscal year 2017 appropriations
    bills, does the Department plan to make further reductions to single-
    family mortgage insurance premiums, placing it in further competition
    with the private sector rather than returning to its countercyclical
    role?
        Answer. FHA's mission is to ensure the availability of credit in
    the mortgage market while protecting the health of the Fund. With a
    constantly changing housing market and other economic forces, FHA must
    continually evaluate that balance, and when necessary make appropriate
    changes in pricing.
        In regards to market share, FHA has a mission mandate to improve
    access to credit, not a market share or revenue mandate such as a
    private firm faces. The size and shape of overlap between FHA and
    others will continue to vary with changes in economic conditions,
    industry practices, and public policy objectives. Consequently, the
    Department cannot predict how the market will shift.
                                      gao
        Question. According to GAO's review of the U.S. Government's fiscal
    year 2015 and 2014 consolidated financial statements, HUD was one of
    three agencies to receive a disclaimer on the audit of its financial
    statements. GAO also reported that HUD started fiscal year 2015 with
    eight material weaknesses, adding three new ones, and resolving two, to
    end up at the end of the fiscal year with nine material weaknesses. The
    Inspector General separately audited HUD and in addition to these
    material weaknesses, also identified eight significant deficiencies in
    internal controls, and six instances of noncompliance with applicable
    laws and regulations. According to the audit, these weaknesses were due
    to an inability to establish a compliant control environment, implement
    adequate financial accounting systems, retain key financial management
    staff, and identify appropriate accounting principles and policies.
        What steps has HUD taken to improve on this situation and at least
    end fiscal year 2016 with fewer material weaknesses than it started
    with?
        Answer. Improving HUD's longstanding financial management
    challenges has been a top priority. Between fiscal year 2014 and fiscal
    year 2015, by working closely with OIG, GAO and OMB, HUD has been able
    to drop its number of material weaknesses from 11 to 9 and anticipates
    improving upon those numbers in fiscal year 2016. This effort will not
    and has not been easy, but HUD is changing financial management across
    the Department to address the OIG's findings by investing in its people
    and our systems, re-engineering outdated processes, engaging with
    stakeholders, and implementing a financial shared-service provider.
      --HUD is making progress in establishing a sound, resilient financial
            governance structure that is flexible enough to adapt to the
            changing landscape and complex program structure. HUD is
            tackling challenges by investing in its people and our systems,
            re-engineering outdated processes, engaging with stakeholders,
            and leveraging implementation of a financial shared-service
            provider to improve our financial reporting.
      --Public Housing Authority (PHA) Assets: In 2015, HUD enhanced its
            capabilities for making timely reclassification of PHA data to
            address the material weakness regarding non-GAAP accounting for
            PIH assets and liabilities. We are continuing to make a
            concerted effort to obtain data from grantees which will allow
            for validation of the grant accruals and obtain data from PHAs
            to properly account for advance payments.
      --Office of Community Planning and Development (CPD) Grant Accrual:
            In 2016, HUD's Office of the Chief Financial Officer and Office
            of Community Planning and Development made progress in
            addressing the non-GAAP validation of CPD's grant accruals by
            initiating a process to obtain data from the grantees, which
            will allow validation of the accruals.
      --CPD First In-First Out (FIFO) Formula Grant Payment Method and HOME
            Cumulative Method for Assessing Grantee 24-Month Commitment
            Requirement: CPD formula grant programs used the FIFO
            accounting disbursement method for fiscal year 2014 and prior
            grants; and a cumulative method was used to determine whether
            HOME grantees met their 24-month commitment requirement. After
            considerable work with OIG, OMB, and GAO, HUD has changed its
            accounting to be grant specific instead of FIFO, and is in the
            process of amending the HOME regulation to change its method
            for assessing grantee compliance with the HOME commitment
            requirement from cumulative to fiscal year specific. The grant
            administration and financial systems have been modified to
            capture the level of detail to record the financial
            transactions and allow such grant-specific and fiscal-year
            specific reporting for disbursements and commitments for grants
            awarded for fiscal year 2015 and thereafter.
      --Ginnie Mae Financial Statements: Ginnie Mae has also made
            significant progress on each of the material weaknesses
            identified by the OIG. Ginnie Mae has been overhauling legacy
            processes, and has filled three key leadership positions--
            including hiring a CFO, Controller, and a new Accounting Policy
            and Financial Reporting Advisor. Ginnie Mae continues to invest
            in accounting for non-pooled loans and properties at the loan
            level. As with FIFO, this will take time to resolve, but GNMA
            is making progress.
      --Finally, HUD is revamping the audit coordination and remediation
            process to more quickly identify, engage, and resolve potential
            issues and improve timeliness of resolutions, which will help
            to overcome our material weaknesses. As part of the process, we
            briefed the Office of the Inspector General on annual financial
            statement process based on implementation of shared-service
            provider (Treasury ARC).
                               housing trust fund
        Question. The Housing and Economic Recovery Act of 2008 authorized
    the deposit of receipts from Fannie Mae and Freddie Mac into a new
    Housing Trust Fund in order to finance the development, rehabilitation,
    and preservation of affordable housing for extremely low-income
    residents. Along with the HOME program and the Low-Income Housing Tax
    Credit, the Housing Trust Fund is an important tool in the goal of
    eliminating homelessness and reducing the rent burden on the most
    vulnerable.
        How much funding will be available for the Housing Trust Fund and
    when will HUD release this funding to the States?
        Answer. Collections of assessments from Fannie Mae and Freddie Mac
    in the amount of $186,256,610 were made available for the Housing Trust
    Fund (HTF) in fiscal year 2016. Of this amount, $12,665,449 is
    temporarily unavailable due to the sequestration of 6.8 percent of the
    funds. After adjusting for sequestration, HUD will make $173,591,160
    available to HTF grantees, which HUD expects to announce individual
    allocations to States later this spring and execute this summer/fall.
        Question. Last month your office issued a report on HUD's
    Departmental Enforcement Center (DEC). That report indicates that the
    DEC can improve the physical condition of housing stock and improve the
    financial management of troubled multifamily properties. However the
    report also indicates that the DEC has very limited authority to
    monitor failing participants or require enforcement in any program
    offices, and that in cases where program offices chose to disregard
    DEC's recommended enforcement actions, it could not appeal these
    decisions. The report concludes that HUD should provide the DEC with
    the authority, independence, and resources to address HUD-wide
    enforcement risks. Do you believe that the DEC should be moved out of
    the Office of General Counsel in order to address these concerns?
        Answer. HUD's own management reform plan known as ``HUD 2020''
    recognized the conflicting role program offices face in getting funds
    to and spent by participants while also holding them accountable. We
    think the Office of General Counsel may have a similar conflict as it
    protects HUD's program clients when the DEC recommends enforcement
    against those clients. The DEC could increase its effectiveness with
    broader enforcement authority that looks at HUD programs from an
    enterprise wide view. Independence for the DEC is also critical, which
    would allow it to take enforcement action when necessary to bring about
    program compliance. While the DEC would likely be effective regardless
    of its organizational placement, placement outside the Office of
    General Counsel may present the best resolution to independence
    concerns that arise when the enforcement program is part of the legal
    team that will defend the Department's position on enforcement.
                                     ______

              Questions Submitted by Senator Shelley Moore Capito
                       community development block grant
        Question. CDBG provides many benefits, but I'd like to ask about an
    area that seems to be a natural fit under the scope of this program.
    West Virginians are unfortunately well below the national standard for
    broadband adoption.
        Do you feel that CDBG grants could be a means for communities to
    invest in this vital capability in the 21st century?
        Answer. Community Development Block Grant (CDBG) funding can be
    used by grantees in a variety of ways to promote broadband access and
    adoption.
      --Installation of broadband infrastructure in particular
            neighborhoods or, in some cases, community-wide, can be carried
            out as an eligible public facility activity.
      --Likewise, installation of broadband infrastructure to schools,
            libraries, hospitals, and similar community facilities can be
            eligible as a public facility activity.
      --Installation of wiring in housing to support broadband service can
            be considered as a housing rehabilitation activity.
      --Educational and training programs with respect to broadband usage
            could be qualified as eligible public service activities.
        In each case, the activity would need to meet a national objective
    of the CDBG program and usually the national objective will be benefit
    to low- and moderate-income persons. The Department recently posted
    several questions and answers on use of CDBG in support of broadband on
    its website at: https://www.hudexchange.info/resource/4891/cdbg-
    broadband-infrastructure-faqs/. Further, HUD is proposing regulatory
    revisions that would require CDBG grantees to consider broadband access
    and adoption issues in preparing consolidated plans governing annual
    funding for the Office of Community Planning and Development's four
    formula funding programs (CDBG, HOME, Emergency Solutions Grants (ESG)
    and Housing Opportunities for Persons With AIDS (HOPWA)).
                                  connecthome
        Question. Could you share with us what HUD has learned so far from
    your ConnectHome pilot initiative to accelerate broadband adoption by
    children and families in HUD-assisted housing?
        Answer. HUD's ConnectHome was officially launched less than a year
    ago, in July 2015. A total of 27 Public Housing Authorities and cities
    (a few are city/county consolidated metro governments) and one Tribal
    Nation received the ConnectHome pilot community designation. Almost all
    of the sites are currently working with Internet Service Providers
    (ISP) in their area to connect public housing families with school-age
    children to the Internet.
        We have learned a lot about connectivity among public housing
    residents since this program was launched, including the following:
      --Connecting public housing residents to the Internet requires the
            involvement of other key stakeholders in addition to the Public
            Housing Authority, the City and the ISP. To be successful, the
            collaboration should also include local schools and colleges,
            digital literacy groups and other organizations that serve
            young children, as well as foundations, businesses and other
            private partners.
      --Local staff working on the ConnectHome initiative typically perform
            many other duties, which makes it difficult to dedicate the
            time necessary for the initiative to succeed.
      --Once connectivity has been established, a second hurdle exists:
            securing laptops and computers for the families. While many
            public housing residents have smartphones that allow them to
            access the Internet, a significant number of residents may not
            have access to the Internet through devices such as laptops or
            computers. For school-aged children, a lack of appropriate
            hardware and software can pose a critical problem, as it is
            extremely difficult to complete homework assignments using a
            smartphone. At least one ConnectHome community has a
            relationship with its local college that donates used computers
            to ConnectHome residents. HUD is encouraging PHAs to connect
            with city governments and local colleges, non-profits, and
            businesses willing to donate used computers.
        We are also pursuing research in conjunction with the ConnectHome
    initiative that will help to inform both ongoing and future broadband
    connectivity efforts in HUD-assisted housing. HUD's Office of Policy
    Development and Research is currently surveying residents across
    ConnectHome communities to estimate Internet connection rates, as well
    as to assess the types of devices commonly used by these residents to
    access the Internet. This will be HUD's first-ever nationwide look at
    Internet use among residents of public housing. Most research on the
    digital divide defines low income families as having incomes of $25,000
    per year or less, a range which encompasses incomes much higher than
    those of the average family in public housing. The results will be
    released in late spring of this year.
        In addition, HUD plans to conduct a series of focus group
    discussions in several ConnectHome communities with an emphasis on
    understanding whether and how new subscribers experience the benefits
    of Internet connectivity in their homes, as well as what factors are
    keeping families from subscribing and lessons learned from the
    implementation of the ConnectHome initiative. HUD also plans to conduct
    a telephone survey of ConnectHome subscribers with a focus on
    understanding families' digital literacy and training needs.
                                     ______

                  Questions Submitted by Senator Brain Schatz
                                fair market rent
        Question. I have heard from public housing authorities (PHAs) and a
    number of voucher holders on each of Hawaii's four counties who are
    frustrated that fair market rents are unrealistically low. This
    difference makes it hard for a person or a family to use a voucher
    especially in a neighborhood that may be near better schools and
    employment centers. And the only way for a county to meaningfully
    challenge the FMR is to pay for a rent study which can run $50,000.
        I have no doubt that intentions are good and HUD wants a successful
    program but the methodology appears systemically flawed, so what are we
    going to do? We need some combination of a better methodology or more
    administrative fees to PHAs if we expect them to pay for rent studies
    as the way to right size FMRs. I do understand HUD is pursuing the
    Small Area FMR but initial feedback from PHAs in Hawaii is that the
    result of that may not result in more accurate FMRs but will add to the
    administrative costs to administer vouchers across the State.
        Answer. HUD does not believe that the Fair Market Rent (FMR)
    estimation methods are ``systemically flawed.'' While there may be
    certain cases where HUD's FMR estimates are not in line with the local
    rental market, the overwhelming majority are sufficiently accurate to
    use in operating voucher programs. Out of the approximately 2,400
    jurisdictions for which HUD estimates FMRs each year, generally less
    than a dozen areas request, and fewer still conduct, rent surveys
    because they feel the FMRs are not accurate. FMRs are, however, most
    likely to be out-of-line in markets that have had recent spikes in
    demand and where housing supply is slow to respond.
        Hawaii's unique natural beauty creates demand for housing there
    beyond what purely local economic activity can support. This results in
    high, and potentially volatile, rents, and a serious shortage of
    housing affordable to low-income residents. That said, of the PHAs
    operating in Hawaii, only Kauai County appears to be at the limits of
    local flexibility to set payment standards around the fiscal year 2016
    FMRs according to HUD's voucher tenant data. The remaining PHAs should
    explore further use of their payment standard-setting authority before
    conducting a survey. The Kauai County PHA should consult with HUD staff
    to see what options are available, aside from a rent survey, to make
    the voucher program work better there.
        In terms of methodological improvements that might better capture
    recent, large changes in rent, HUD is assessing forecasting approaches
    that might better capture such local variation going forward.
        family unification program-family self sufficiency demonstration
        Question. HUD recently released its FUP-FSS demonstration program
    to better improve system coordination between housing providers and
    child welfare agencies to improve outcomes for at-risk youth. I hope
    this demonstration will increase the utilization of FUP vouchers for
    transition age youth.
        What other recommendations does HUD have to improve utilization of
    these vouchers and ensure that they are effective tools to assist
    transitioning these young people to adulthood?
        Answer. HUD has begun working with the Children's Bureau at the
    U.S. Department of Health and Human Services (HHS) this year to provide
    joint guidance to PHA and Public Child Welfare Agencies (PCWA) on
    strategies for better collaboration in order to help increase referrals
    of youth to Family Unification Program (FUP) and improve coordination
    of housing and supportive services. There are, however, still several
    major barriers to youth accessing and successfully utilizing FUP
    vouchers.
        One of the main barriers is the 18-month time limit on the FUP
    voucher for eligible youth. This time limit is one of the main reasons
    HUD pursued the FUP/FSS Demonstration Project, as well as proposed a
    statutory change in the fiscal year 2017 Budget. The demonstration
    project allows for an extension of voucher assistance for FUP youth
    from 18 months to up to 60 months (or 5 years). The 18-month time limit
    is often too short of an amount of time for youth to obtain stable
    housing and transition to adulthood and self-sufficiency, and the short
    timeframe of the voucher presents significant costs to the PCWA and PHA
    due to the necessarily frequent turnover. HUD continues to support the
    Budget proposal to extend the FUP youth time limit from 18 months to 60
    months.
        Even with extended timeframes, FUP youth will need critical
    supportive services from the PCWA. There is a need for critical new
    investments in PCWA in order to provide supportive services to former
    foster youth transitioning to adulthood. In a 2014 report on FUP for
    youth conducted by HUD, 40 percent of PCWA surveyed reported that
    funding for the supportive services for youth is either somewhat a
    challenge or a major challenge in some cases.
                  assisted housing and criminal justice reform
        Question. HUD recently published Notice PIH 2015-19, ``Guidance for
    Public Housing Agencies (PHAs) and Owners of federally-Assisted Housing
    on Excluding the Use of Arrest Records in Housing Decisions'' stating
    arrest records cannot be the basis for denying admission, terminating
    assistance or evicting tenants of federally assisted housing.
        What are the methods HUD will use to determine compliance with this
    guidance, and how will requirements of this guidance take into account
    the balance between access to housing and the safety of all residents?
        Answer. HUD's plans to enforce the guidance are consistent with its
    approach to enforcing other requirements related to admission or
    eviction. HUD Field Offices are preparing to conduct a compliance
    monitoring assessment, during which they will review PHAs' Admissions
    and Continued Occupancy Policies. Field Office staff will monitor
    whether a PHA's policies treat an individual's arrest as a reason to
    deny admission, terminate assistance, or evict that individual. Where
    polices are noncompliant, PHAs will be required to change them. On an
    ongoing basis, HUD Field Offices will monitor compliance via targeted
    reviews, with special emphasis on PHAs who are determined to be at a
    higher risk of non-compliance according to HUD's National Risk
    Assessment Tool (updated quarterly). Further, residents have the option
    of reporting any violation of any guidance and/or regulation in writing
    or by telephone. All complaints are investigated by the Field Office
    and the person is notified of the outcome. Finally, HUD will remind all
    PHAs that they must comply with the published guidance on an annual
    basis.
        PHAs have an obligation to ensure the safety and security of their
    residents. While the guidance makes clear that an individual's arrest
    cannot be used to prove disqualifying criminal activity, it also states
    that a record of an arrest might properly ``trigger'' an inquiry into
    whether a person actually engaged in disqualifying criminal activity.
    As part of such an inquiry, the guidance allows a PHA or owner to
    continue to obtain and review the police report, record of disposition
    of any criminal charges, and other evidence associated with the arrest
    to inform its eligibility determination, and thereby make an informed
    assessment.
        Question. What are the fair housing implications of screening out
    applicants with criminal records?
        Answer. The Fair Housing Act (Act) prohibits both intentional
    housing discrimination and housing practices that have an unjustified
    discriminatory effect because of race, national origin, or other
    protected characteristics. While the Act does not prohibit housing
    providers from appropriately considering criminal history information
    when making housing decisions, selective use of criminal history as a
    pretext for unequal treatment of individuals based on race, national
    origin, or other protected characteristics violates the Act.
        Additionally, criminal history-based restrictions on housing
    opportunities violate the Act if such restrictions have an unjustified
    and disproportionate impact on individuals of one race or national
    origin versus another. Under the standard for proving discriminatory
    effects claims set out in HUD regulations, a criminal history policy
    that causes a disparate impact lacks a legally sufficient
    justification, and therefore violates the Act, if either the housing
    provider cannot prove that the policy is necessary to serve a
    substantial, legitimate, nondiscriminatory interest, or a plaintiff can
    prove that the housing provider's interest could be served by another
    practice that has a less discriminatory effect.
        In the context of criminal history-based housing restrictions,
    whether a particular policy that causes a disparate impact violates the
    Act will generally depend on whether, or to what extent, the policy
    takes into account such factors as the nature of a prior conviction and
    the length of time since the conviction. Discriminatory effects
    liability is always assessed on a case-by-case basis.
        For more information, please consult the Office of General
    Counsel's Guidance on Application of Fair Housing Act Standards to the
    Use of Criminal Records by Providers of Housing and Real Estate-Related
    Transactions, issued on April 4, 2016.
                 local housing policy grants-affordable housing
        Question. The lack of housing inventory is a major cause of the
    affordability crisis that cities are currently facing. In Hawaii, one-
    third of families pay more than half of their income on rent. While
    housing vouchers are an important tool, they cannot solve this
    challenge alone. Creating more units of housing will reduce the rent
    increases for those in market-rate housing, allow government assistance
    to stretch further, and keep our communities more affordable. HUD's
    budget includes $300 million in mandatory funding to provide localities
    with resources to engage in comprehensive planning to solve this
    systemic problem.
        How would this program would work and how will HUD partner with
    localities to tackle these challenges if these additional funds do not
    materialize?
        Answer. The initiative would fund competitive grants to be awarded
    to localities and regional coalitions of localities that demonstrate an
    ability to execute and carry out policy, program and regulatory
    streamlining initiatives that serve to create a more elastic and
    diverse housing supply. The funding would allow localities to address
    any needs that arise from the new policy, program or regulatory
    initiatives, e.g., infrastructure expansion and/or improvements, as
    well as support market evaluations, code writing assistance, design
    options, stakeholder outreach and education, and implementation. Funds
    would also establish a learning network that would provide ongoing
    capacity building to the organizations and entities, facilitate shared
    learning opportunities among similar cohorts, and share or disseminate
    the results of learning and resulting effective best practices.
        In order to encourage innovation, learn from local experience, and
    better align multiple HUD and other Federal programs and reduce Federal
    barriers, local governments, with support from HUD and other Federal
    agencies would develop plans to realize their own visions for building
    more prosperous, affordable and economically vital regions.
        Without these funds, HUD will look to use a portion of its
    technical assistance (TA) resources to support local efforts to
    increase housing supply, but TA funds are in high demand. HUD would
    also still try to create knowledge sharing among localities that have
    developed innovative, local solutions to housing supply challenges,
    which can be shared and possibly replicated. Unfortunately, these
    alternatives would not completely mitigate the time and cost that many
    localities need in developing and implementing these types of policy
    reforms.
                                     ______

               Questions Submitted by Senator Christopher Murphy
                                      fha
        Question. After FHA reduced the Mortgage Insurance Premium, the
    agency's total number of loans endorsed increased by 73 percent in the
    third quarter of fiscal year 2015 (April-June) as compared to the year
    before, including a 34 percent increase in purchase-loan endorsements.
        Can you differentiate between FHA's current market share of the
    low- to moderate-income single family borrower cohort as compared to
    Fannie Mae and Freddie Mac?
        Answer. At this time, the Department cannot differentiate between
    FHA's current market share of the low- to moderate-income single-family
    borrower cohort as compared to those of Fannie Mae and Freddie Mac;
    but, FHA can demonstrate that the median FICO score of an FHA borrower,
    even post MIP reduction, is in the 680's and in line with FHA's mission
    to serve low- and moderate-income households. We would note though that
    this median is affected by our countercyclical role in the market--and
    in times of market expansion and contraction, that the median FHA FICO
    score will ebb and flow accordingly as FHA serves the market for credit
    access in underserved households at all income ranges. Generally, as
    private capital comes back to the market--FHA median FICO decreases and
    rises when it leaves the market and more households need FHA insured
    financing.
        Question. Following FHA's Mortgage Insurance Premium reduction last
    year, can you confirm that FHA loans are currently priced appropriately
    for their risk?
        Answer. The estimated fiscal year 2016 and 2017 credit subsidy
    rates for those budget cohorts of -3.70 and -4.42 percent,
    respectively, indicate that FHA single-family forward loans are priced
    appropriately. Negative subsidy estimates mean that the cohorts'
    activity are estimated to result in savings to the government on a net
    present value basis.
        Question. Do you believe that the GSEs are overpricing for their
    risk?
        Answer. The Department is not in a position to evaluate the
    Government Sponsored Enterprises (GSE's) pricing since the GSEs use a
    different methodology, have different risk exposure, and charge
    different fees in their role as guarantors of mortgages on the
    secondary market.

                              SUBCOMMITTEE RECESS

        Senator Collins. The hearing is now adjourned.
        [Whereupon, at 4:04 p.m., Thursday, March 10, the
    subcommittee was recessed, to reconvene at a date and time
    subject to the call of the Chair.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2017

                                  ----------

                           WEDNESDAY, MARCH 16, 2016

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:30 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Susan Collins (chairman)
    presiding.
        Present: Senators Collins, Blunt, Boozman, Capito, Reed,
    Mikulski, Coons, Schatz, and Murphy.

                          DEPARTMENT OF TRANSPORTATION

                            Office of the Secretary

    STATEMENT OF HON. ANTHONY FOXX, SECRETARY

                 OPENING STATEMENT OF SENATOR SUSAN M. COLLINS

        Senator Collins. The subcommittee will come to order.
        Today, we welcome Secretary Foxx, who will testify on the
    President's fiscal year 2017 budget request for the Department
    of Transportation (DOT) as well as Inspector General Scovel,
    who will discuss his office's budget request and the oversight
    and other work the Office of Inspector General (OIG) has been
    and will be conducting at the Department.
        The budget proposes $98 billion for the Department of
    Transportation in mandatory and discretionary spending for
    fiscal year 2017. The administration has asserted that this
    request abides by the bipartisan budget agreement Congress
    passed last year. Regrettably, that is simply not accurate.
        Instead of living within fiscal reality, the budget evades
    the caps by using the same old gimmicks that we have seen in
    past proposals. By shifting programs from discretionary to
    mandatory, the President is able to show a 36-percent reduction
    in spending under the budget caps. At the same time, he takes
    credit for increasing DOT's overall budget by almost 30
    percent. This undermines the essence of the budget agreement.
        I am also disappointed that just 3 months after Congress
    passed the Fixing America's Surface Transportation Act (FAST
    Act), the budget proposes an entirely new 10-year, $495
    billion, 21st Century Clean Transportation plan on top of the
    FAST Act. It is paid for by a new $10.25 per barrel tax on
    crude oil and other unspecified business tax reforms.
        I am simply perplexed by the administration waiting to put
    forth this plan now when Congress debated and passed a
    multiyear transportation reauthorization, which the President
    signed into law, just 3 months ago. It is particularly
    astonishing that after ignoring Congress' repeated requests to
    engage in developing the necessary reforms to keep the Highway
    Trust Fund solvent, the administration has finally proposed a
    source of funding, though unrealistic, as it enters its final
    year.
        I just do not understand why this plan, which is a
    legitimate plan, even if it is not one that I think would pass,
    was not proposed last year in the midst of the negotiations on
    the FAST Act.
        For the Federal Aviation Administration (FAA), the request
    includes nearly $16 billion to support investments to keep our
    aviation system the safest and most efficient airspace in the
    world.
        I have serious reservations about the legislative proposal
    in the House of Representatives. It seeks to privatize air
    traffic control outside of the FAA largely under the control of
    the major airlines. The public, in my judgment, would not be
    well-served by exempting any part of the FAA from annual
    congressional oversight, which is necessary to ensure
    accountability, and a sustained focus on aviation safety.
        The United States has the busiest, most complex airspace in
    the entire world. Our Nation's air traffic controllers handle
    more than 50,000 flights a day and more than 700 million
    passengers each year. To liken our system to any other in the
    world is preposterous.
        Congressional oversight ensures that the FAA maintains a
    system that works across the aviation industry, including for
    general aviation and supporting small and rural communities.
    Rural States like Maine and other States represented by members
    on this committee benefit greatly from services that connect
    rural America with the larger transportation network.
        The Next Generation Air Transportation System (NextGen) is
    modernizing our air traffic control system, and it is happening
    today. Much of the backbone work for NextGen is finally
    complete. The FAA has safely reduced wake separation standards
    at 11 locations, and data comms departure clearance services
    are used at eight tower sites.
        As a result, we will see reduced flight delays. That will
    be very welcome by us who travel back and forth every week to
    our home States. And it will also lower fuel consumption.
        One of the most innovative DOT programs, which I have
    consistently advocated for, is the Transportation Investment
    Generating Economic Recovery (TIGER) program. I am very pleased
    to see that the Department and the administration continue to
    highlight the importance of this vital program.
        TIGER has some flexibility to fund a wide range of
    transportation projects that demonstrate national or regional
    significance to economic growth and job creation. In my home
    State of Maine, TIGER has supported vital bridge, port, and
    rail projects that otherwise might not have been built.
        I am also interested to hear more about the Department's
    implementation plan for the new freight and highway competitive
    program known as FASTLANE to address the critical freight
    issues facing our Nation's aging infrastructure.
        With regard to our rail network, I am deeply concerned by
    the number of rail accidents that have occurred over the past
    several years, including earlier this week. I know this is of
    great concern to Secretary Foxx as well.
        The Federal Railroad Administration's (FRA's) budget
    request highlights the need to ensure safe transportation of
    crude oil and other energy products across North America.
        Unfortunately, last year, several members of this committee
    experienced firsthand the importance of this issue due to
    freight derailments in their States. All of us who live near
    Quebec, Canada, will never forget the 2013 inferno caused by a
    runaway freight train that killed 47 people and decimated the
    downtown of a small Canadian community.
        Rail safety is a very important issue that this committee
    takes seriously, and I know the Department does as well. In
    recent years, we have provided funding for FRA to hire
    additional inspectors and safety personnel. Last year, we
    included funding to provide 33 additional safety personnel, as
    well as $50 million for new railroad safety grants. I look
    forward to hearing the Department's progress in hiring
    inspectors and its timeline for allocating these railroad
    safety grants.
        With this being the final year of this administration, I
    would also like to emphasize to the Secretary the importance of
    prioritizing the Department's regulatory agenda. There are many
    regulations working their way through the Department and the
    Office of Management and Budget (OMB). Priority should be given
    to regulations that are urgently needed and are required,
    indeed, mandated, by Congress. This is not the time to be
    issuing unnecessary, burdensome regulations in the midnight
    hours.
        Finally, as we all know, Washington, DC, is experiencing
    its own transportation crisis today as the DC Metro is shut
    down for emergency inspections of power cable systems.
    According to the new general manager, the shutdown is the
    result of a fire at McPherson Square station on Monday, which
    is similar to a fatal fire that occurred at L'Enfant Plaza just
    1 year ago.
        The unfortunate timing of the notification for the 29-hour
    shutdown as commuters were heading home last evening is having
    a severe impact on the Federal work force, on tourists who are
    visiting their Nation's capital, and on the DC local school
    system.
        Safety clearly must be the top priority for all transit
    agencies. While this was a very tough decision for Metro to
    make, it once again brings into question the reliability of the
    system and whether or not adequate oversight is being conducted
    in a system that it relied upon by so many daily commuters and
    tourists who visit the Washington, DC, area. I am sure that
    this issue will be brought up in questioning as well.
        [The statement follows:]
                 Prepared Statement of Senator Susan M. Collins
        The subcommittee will come to order. Today, we welcome Secretary
    Foxx, who will testify on the President's fiscal year 2017 budget
    request for the Department of Transportation, as well as Inspector
    General Scovel who will discuss his office's budget request and the
    oversight and other work the OIG has been and will be conducting at the
    Department.
        I welcome both of you and look forward to hearing your testimony.
        The budget proposes $98 billion for the Department of
    Transportation in mandatory and discretionary spending for fiscal year
    2017. The Administration has asserted that the request abides by the
    bipartisan budget agreement Congress passed last year; however, this is
    simply not accurate. Instead of living within fiscal reality, the
    budget evades the budget caps by using the same old gimmicks we have
    seen in past proposals. By shifting programs from discretionary to
    mandatory, the President is able to show a 36 percent reduction in
    spending under the budget caps. At the same time, he takes credit for
    increasing DOT's overall budget by almost 30 percent. This undermines
    the essence of the budget agreement.
        I am also disappointed that just 3 months after Congress passed the
    FAST Act, the budget proposes an entirely new 10-year, $495 billion
    ``21st Century Clean Transportation Plan'' on top of the FAST Act. It
    is paid for by a new $10.25 per barrel tax on crude oil and other
    unnamed business tax reforms. I am perplexed why the Administration
    waited to put forth this plan now when Congress debated and passed a
    multi-year transportation reauthorization, which the President signed
    into law, just 3 months ago.
        It is particularly astonishing that after ignoring Congress'
    repeated requests to engage with this Administration on developing the
    necessary reforms to keep the Highway Trust Fund solvent, the
    Department has finally proposed a source of funding, though
    unrealistic, as this Administration enters its final year.
        For the Federal Aviation Administration, the request includes
    nearly $16 billion to support investments to keep our aviation system
    the safest and most efficient airspace in the world. I have serious
    reservations about the legislative proposal in the House that seeks to
    privatize air traffic control outside of the F.A.A., largely under the
    control of the major airlines. The public would not be well served by
    exempting any part of the F.A.A. from annual Congressional oversight,
    which is necessary to ensure accountability for program performance and
    a sustained focus on aviation safety.
        The United States has the busiest, most complex airspace in the
    world. Our Nation's air traffic controllers handle more than 50,000
    flights a day and more than 700 million passengers each year. These men
    and women from all over the country are responsible for providing us
    with the safest and most efficient airspace in the world. To liken our
    system with any other in the world is preposterous.
        Congressional oversight ensures the F.A.A. maintains a system that
    works across the aviation industry, including general aviation and
    supporting small and rural communities. Rural States like Maine, and
    other States represented by Members on this committee, benefit greatly
    from services that connect rural America with the larger transportation
    network.
        NextGen is modernizing our air traffic control system, and it is
    happening today. Much of the backbone work for NextGen is finally
    complete. The F.A.A. has safely reduced wake separation standards at 11
    locations and Data Comm's departure clearance services are used at
    eight tower sites. As a result, we will see reduced flight delays and
    less fuel consumption.
        One of the most innovative DOT programs, which I have advocated for
    consistently, is the TIGER program. I am pleased to see the
    Administration continues to highlight the importance of this vital
    program. TIGER has the flexibility to fund a wide range of
    transportation projects that demonstrate national or regional
    significance to economic growth and job growth. In my home State of
    Maine, TIGER has supported vital bridge, port, and rail projects that
    might not have otherwise been built. I am also interested to hear more
    about the Department's implementation plan of the new Freight and
    Highway competitive program, known as FAST LANE, to address the
    critical freight issues facing our Nation's aging infrastructure.
        With regard to our rail network, I am deeply concerned by the
    number of train accidents that have occurred over the past several
    years, including earlier this week. The Federal Railroad
    Administration's budget request highlights the need to ensure the safe
    transportation of crude oil and other energy products across North
    America. Unfortunately, last year several members of this Committee
    experienced firsthand the importance of this issue due to freight
    derailments in their States. All of us who live near Quebec, Canada,
    will never forget the 2013 inferno caused by a runaway freight train
    that killed 47 and wiped out a community's downtown.
        Railroad safety is an important issue that this Committee takes
    very seriously. In recent years, we have provided funding for F.R.A. to
    hire additional inspectors and safety personnel. In fiscal year 2016,
    we included funding to provide 33 safety personnel as well as $50
    million for new Railroad Safety Grants. I look forward to hearing the
    Department's progress in hiring inspectors and the timeline for
    allocating the Railroad Safety Grants. I will once again be looking
    closely at how we can best target Federal funds to reduce accidents in
    both passenger and freight trains.
        With this being the final year of this Administration, I would like
    to emphasize to the Secretary the importance of prioritizing the
    Department's regulatory agenda in the months ahead. There are many
    regulations working their way through the Department and OMB. Priority
    should be given to regulations that are urgently needed and are
    required by Congress. This is not a time to be issuing unnecessary,
    burdensome regulations in the midnight hours.
        With that, let me call upon my colleague and friend Senator Reed,
    the ranking member.
        Senator Collins. With that, let me call upon my colleague
    and friend from Rhode Island, the subcommittee's distinguished
    ranking member, Senator Reed.

                         STATEMENT OF SENATOR JACK REED

        Senator Reed. Thank you, Madam Chairman, for your kind
    introduction and leadership.
        And thank you, Secretary Foxx. Welcome. You have led the
    Department with great energy and honesty, and we appreciate
    very much your efforts over the months you have been leading
    the Department.
        As you work through the last year of this administration, I
    want you to know that we all appreciate your leadership and the
    way you have worked with the subcommittee. So thank you again,
    Mr. Secretary.
        Once again, I hope we can convince you to come up to Rhode
    Island for a visit. In your earlier trips to Rhode Island, you
    saw how our transportation is essential to our State, just as
    it is to Maine and Maryland and Missouri and West Virginia and
    every other State in the country. You visited our Port of
    Davisville, which, once again, celebrated another record year
    handling automobiles, over 269,000 vehicles in 2015, a
    remarkable economic engine for the State.
        You have also helped us break ground on the T.F. Green
    runways for the new airport, so thank you very much. This
    project will be done in 2017. Indeed, two international
    airlines started service to Rhode Island because of the ongoing
    efforts. Thank you again.
        And we are also working with you to study intercity rail,
    which is a key aspect of our economy, as it is in so many other
    metropolitan areas in the United States. We want to maximize
    intermodal efficiency. We want our airports, our rail systems,
    and our bus systems all to operate together. These intermodal
    connections are absolutely critical as we go forward. Thank you
    for your interest and your personal involvement.
        There are, however, some potential difficulties facing the
    air traffic control system and airports in general. The
    chairman has pointed them out.
        As you know, the House of Representatives is considering a
    bill to privatize air traffic control. Giving away billions of
    dollars in Federal assets to a nonprofit corporation controlled
    by airlines without any congressional oversight is I believe an
    ill-conceived idea at best. And I do not think that
    privatization will offer a path to safer skies.
        I think it will, rather, stop NextGen investments in its
    tracks, increase costs to consumers, and cut services to small
    and rural commercial airports. I think it is a dangerous
    proposal that moves this country in the wrong direction.
        What this country does need is investment in our airports,
    bridges, roads, transit systems. Again, the chairman pointed
    out the Metro service interruption of 29 hours, another
    indication underscoring the need for investment in transit,
    railroads, ports, a host of facilities that need additional
    resource, additional effort.
        Deficiencies and underinvestment in our transportation
    system impact American lives in ways we feel every day. Once
    again, we feel it here in Washington today.
        We have not been keeping up with the demand. We have not
    made the necessary investment to keep pace with this demand.
    The FAST Act we passed last year is to start, but America needs
    more investment in infrastructure that produces more jobs and a
    safer, more efficient transportation system to move our economy
    forward.
        Our needs are great, as you well know. Roads and bridges
    throughout the country are crumbling and inadequate for the
    traffic they carry.
        Rhode Island's Route 610 connector, for example, is
    crumbling with patches upon patches barely holding it together.
    As the director of our Department of Transportation said, his
    agency has been in design or on replacement for more than 30
    years trying to deal with this problem. So this is not a recent
    development.
        Under the leadership of our Governor, Governor Raimondo,
    the State has a vision, not just about fixing the 610 connector
    but also making it safe, adding a bus rapid transit lane so we
    can have an increase in transit in the State along with
    highways. That is thinking ahead and thinking big, and it is
    worthy of Federal support. And I am going to ask you to
    consider that.
        Amtrak, which serves the Providence rail center, has a $7.3
    billion state of good repair backlog for the Northeast alone.
    Many of its assets are over a century old and need to be
    replaced. I support updating the entire corridor, including the
    Providence station, which is an important component to the
    overall system.
        As I mentioned before, the FAST Act has provided modest
    growth in transportation funding. But, unfortunately, the
    levels fall short of demand. I do want to applaud you for your
    advocacy leading up to reauthorization and for pushing us to do
    more. Thank you.
        Now it is your job to implement the law, and it is now our
    task on this subcommittee to make decisions about
    transportation funding for fiscal year 2017. Your request
    includes FAST Act, level funding for service programs as well
    as the new 21st Century Clean Transportation plan.
        It is a bold proposal, and I appreciate the administration
    looking forward with big investments. It shows the world of
    possibilities on what we could achieve with the right vision.
        For example, the administration's request includes $1.25
    billion for the TIGER program, which is in extremely high
    demand and is a linchpin in making innovative projects happen
    all across this country; $15.9 billion for the FAA, which fully
    funds air traffic controller work force and provides $1 billion
    for NextGen programs; $2.3 billion for Amtrak current service;
    and $3.7 billion for improving rail service nationwide. Again,
    critical.
        And as I mentioned, we are looking very closely in Rhode
    Island at integrating all the services at T.F. Green Airport
    and also at the Pawtucket and Central Falls locations. These
    funds would help expand service not only in Rhode Island but
    many other parts of the country.
        $1.2 billion for the National Highway Traffic Safety
    Administration, which will allow the agency to improve vehicle
    safety defect investigations. $3.5 billion for FTA's capital
    investment grant program, which has seen a 70-percent growth in
    projects since fiscal year 2013.
        These programs all rely on discretionary resources provided
    in the transportation, housing and urban development bill and
    they all save lives, create jobs, and grow the economy.
        I know we will be unable to meet many of these goals due to
    budget constraints, but I know that you make your request based
    on the real needs you see and hear about each day. Congress
    needs to hear about these needs.
        Again, Secretary Foxx, thank you for your service. I look
    forward to your testimony.
        And thank you, Madam Chairman.
        Senator Collins. Thank you very much, Senator Reed.
        Normally, we would now turn to the Secretary's opening
    statement, but Senator Mikulski, I know that your constituents
    have been most affected by the Metro, so I wanted to give you
    an opportunity.
        Senator Mikulski. I will do it in the question round.
        Senator Collins. That sounds great. Thank you.
        Senator Foxx--Secretary Foxx. I do not know whether that
    was a promotion or demotion.
        [Laughter.]
        Senator Collins. These days, it is hard to tell.

                     SUMMARY STATEMENT OF HON. ANTHONY FOXX

        Secretary Foxx. Madam Chairman, thank you so much. And I
    want to thank the members of the committee, Ranking Member
    Reed, and the ranking member of the full committee, Senator
    Mikulski. Thank you all very much. I want to thank you for the
    opportunity to meet with you today to discuss the President's
    2017 fiscal year proposal for the Department of Transportation.
        At the outset, however, I want to begin my statement today
    by discussing the suspension of operations by Washington's
    Metrorail system. This service suspension has not only been
    disruptive to the local Washington, DC, community, but to the
    operations of the Federal Government. Ranking Member Mikulski
    has been a leader in the effort to get this system in shape,
    and she and I have worked together on this issue, despite many
    shared frustrations with the Washington Metropolitan Area
    Transit Authority (WMATA).
        Earlier this year, the Federal Transit Administration (FTA)
    determined that the safety oversight entity that DC, Maryland,
    and Virginia had created was a failure. We then informed the
    three jurisdictions that we will temporarily assume safety
    oversight duties while they set up a new, stronger, permanent
    safety oversight entity.
        Frankly, the three jurisdictions have not yet acted on
    their responsibility, and I have made that point abundantly
    clear in recent months and will continue to until that work is
    done.
        However, all of us still need to roll up our sleeves and
    help WMATA help itself.
        WMATA has hundreds of millions of unspent balances and open
    grants. I am directing the FTA to evaluate the status of these
    funds and prioritize their direction to safety wherever
    possible.
        Also, as work proceeds on the jumper cable issue, the FTA
    will conduct a safety inspection blitz starting next week on
    three other critical areas that we have identified as serious
    problems for Metro: red light running, use of emergency brakes,
    and track integrity. This builds on inspections that have been
    conducted over the last several months.
        Every year since I have been Secretary, I have urged
    Congress to pass a long-term surface transportation bill.
    Today, I have come in part to thank Congress for passing a
    bipartisan bill last year, the FAST Act, which has done a lot
    to remove the cloud of uncertainty hanging over our surface
    system for the better part of a decade.
        Today, I ask you to join the Obama administration as we
    seek to build on the FAST Act with an even more robust 21st
    century-focused plan to win the future.
        For fiscal year 2017, the President's plan includes $98
    billion in transportation investments, a significant increase
    over the FAST Act levels to support advancements in safety,
    repairing and replacing infrastructure, and driving forward
    innovation and emerging technologies that can help us move
    faster, more efficiently, and safer in the future.
        The President's budget recognizes that neither our current
    patchwork funding approach nor the rigid and antiquated
    distribution of transportation dollars through formulas is
    going to put our Nation's infrastructure in the best possible
    position for our kids and grandkids. As the long and tortured
    debate about how to put together a surface transportation bill
    has shown, our transportation bills are no longer layups.
        If we work hard now, it will save stress when the FAST Act
    expires. While the FAST Act helps, we are still playing catch-
    up, and the same demographic and economic pressures are coming.
        Our future challenges, as our report Beyond Traffic tells
    us, will get even worse tomorrow than they are today; 70
    million more people by 2045, creating even more demand on our
    transportation system; freight volumes increasing by 45
    percent; 65 percent more trucks on the road; and more of the
    population concentrated in what social scientists and other
    observers called mega-regions.
        In short, our funding and funding distribution models for
    America's transportation are rearview mirrors, and the massive
    demographic and economic pressures are our front windshield.
        With the FAST Act's passage, Congress should rethink our
    strategy, and the President's budget offers a pathway for the
    future. Specifically, the President's request proposes a new
    clean transportation plan. This plan not only increases
    spending on infrastructure, it also looks to spend the money
    smarter, pushing it to the local and regional levels where
    system integration is most needed and projects can be built
    much faster.
        That is why the President recommends a series of
    innovative, new grant programs that advance a 21st century
    approach with an annual average budget of $10 billion over the
    life of the plan. Also included is a nearly $20 billion
    allocation for transit to address fast-growing needs, $6
    billion a year for high-performance rail, and finally a clean
    transportation plan that will help us prepare for the future by
    providing nearly $4 billion over 10 years to research the
    integration of new technologies in transportation, including
    autonomous vehicles.
        Some have already spoken to the allocation for NextGen and
    for FAA. This funding will enable the FAA to continue
    operations at current funding levels while maintaining its
    focus on aviation safety.
        With that, I want to thank you, Madam Chairman, for
    allowing me to present the President's budget request to you. I
    look forward to your questions, and I again thank the
    committee.
        [The statement follows:]
                    Prepared Statement of Hon. Anthony Foxx
                                  introduction
        Chairman Collins, Ranking Member Reed, and members of the
    Subcommittee, I want to thank you for the opportunity to meet with you
    today to discuss the President's fiscal year 2017 budget plan for the
    Department of Transportation. The President's request totals $98.1
    billion in resources that will support the Department's top priority,
    safety. This plan is focused on the future with high impact investments
    in the safe integration of emerging technologies, such as autonomous
    vehicles and unmanned aircraft systems (UAS). It supports improvements
    that have the potential to transform transportation systems, save
    lives, and reduce carbon emissions. The President's Budget charts a
    path towards fundamental changes in the way the government balances and
    integrates transportation options in planning for the future.
                        enhancing surface transportation
        The surface transportation investments in the President's fiscal
    year 2017 Budget build on the recently enacted Fixing America's Surface
    Transportation (FAST) Act, which President Obama signed into law on
    December 4, 2015. The FAST Act is an important down-payment for
    building 21st Century surface transportation systems. It includes a
    series of important changes, to improve the efficiency of permitting
    and project delivery, including a number of provisions fostering
    ladders of opportunity, establishes new freight-focused funding
    programs, and makes changes to a number of the Department's safety
    programs. These changes include creating a new grant program and
    enhancing authority with respect to recalls, civil penalties, and the
    collection of safety data.
        However, the FAST Act largely maintains current programs--including
    the traditional funding and program distribution between highway and
    transit funding, with limited support for multimodal plans and
    projects. While the FAST Act included authorization for rail programs,
    rail funding will continue to be determined on an annual basis, without
    the certainty provided by the multi-year trust fund structure that
    currently supports highway and some transit programs.
        Thus, the fiscal year 2017 Budget builds on the FAST Act, taking
    the next steps to reform funding streams and encourage better planning
    and projects at the State and regional levels through increased
    investment in areas such as rail and transit. It also includes a series
    of new, multimodal programs that increasingly cut across traditional
    siloes, in support of more comprehensive regional strategies that
    connect communities and support climate and greenhouse gas reduction
    goals.
        To address these concerns, the President's request directs
    investments over a 10--year period towards a 21st Century Clean
    Transportation Plan that reflect America's changing demographics and
    economy, while at the same time providing access to opportunity.
      --As more Americans move to cities, regions, and megaregions, it is
            time for us to reassess how we plan for and use our limited
            transportation dollars.
      --At the same time, this Clean Transportation Plan recognizes the
            impact today's transportation systems have on climate change
            and the environment and seeks to build incentives that will
            encourage new, cleaner forms of transportation and better land
            use planning.
      --This plan also acknowledges the important role that innovation and
            technology play in keeping transportation safe, reliable, and
            efficient by requesting funds for programs such as a new
            autonomous vehicle deployment pilot that will yield important
            benefits.
        Overall, the President's Budget request represents a combination of
    these proposed 21st Century Plan investments and funding for the
    Department's traditional transportation programs. Key elements of the
    request include the following:
     investing in clean, 21st century surface transportation options that
         reflect america's changing demographics and provide access to
                                  opportunity
        Enhances Clean Transportation Options for American Families.--Over
    the next decade, the Budget invests an average of nearly $20 billion
    per year in new investments to reduce greenhouse gas emissions and
    provide new ways for families to get to work, to school, and to the
    store. The Budget would expand transit systems in cities, fast-growing
    suburbs, and rural areas; make high-speed rail a viable alternative to
    flying in major regional corridors; modernize our freight system; and
    expand the successful Transportation Investment Generating Economic
    Recovery (TIGER) program to support high-impact, innovative local
    projects.
        Supports Investment Decisions Towards a ``21st Century Regions''
    Approach That Reflects a Changing Demographics and Economy.--Currently,
    the majority of Federal transportation funding flows, via formula,
    through the State. To address the shifting demographics in America,
    this Budget balances that funding stream, by directing billions of
    dollars through regional governments, such as Metropolitan Planning
    Organizations, empowering them to play a stronger role in
    decisionmaking. Over a 10-year period, the Budget invests an average of
    $10 billion a year towards a series of new, innovative multimodal
    programs that improve the balance of funding and decisionmaking and
    will accelerate the move towards smarter, cleaner, and more integrated
    communities. The funding would flow across transportation modes to
    support transit-oriented development; reconnect downtowns divided by
    freeways; and, bicycle and pedestrian networks.
        The President's Budget fully supports FAST-authorized funding
    levels for surface transportation programs, aimed at keeping the system
    safe and in a state of good repair. In addition to the proposed
    increases for surface programs, the Budget fully funds FAST Act levels
    for fiscal year 2017, across transportation modes which include: $44
    billion to invest in the Nation's critical highway and bridge systems;
    nearly $10 billion to support operations of public transit systems
    across the Nation; roughly $730 million for the National Highway
    Traffic Safety Administration (NHTSA) to research and develop new,
    life-saving technologies and programs; and over $640 million to support
    nationwide motor carrier safety through the Federal Motor Carrier
    Safety Administration (FMCSA).
      advances public and private sector collaboration to accelerate cost-
      competitive, low-carbon technologies and intelligent transportation
                                    systems
        Continues the Transition to the Next Generation Air Transportation
    System (NextGen).--The Budget requests a total of $1 billion to support
    NextGen. This includes $877 million for NextGen Capital investments, an
    increase of $22 million above fiscal year 2016, which will advance
    modernization efforts; enhance automation; implement satellite-based
    surveillance capabilities; improve data communication practices and
    technology; and maximize traffic flow.
        Funds Pilot Deployments of Safe and Climate-Smart Autonomous
    Vehicles to Create Better, Faster, Cleaner Urban and Corridor
    Transportation Networks.--To accelerate the development and adoption of
    autonomous vehicles, the Budget includes $3.9 billion over 10-years for
    large-scale deployment pilots to develop a common multistate
    interoperability framework for connected and autonomous vehicles.
     ensures transportation safety keeps pace with changing technology and
                              organizational needs
        Integrates Surface Transportation Technologies Safely Into the
    Transportation System.--High impact investments will support activities
    such as NHTSA's New Car Assessment Program (NCAP), to test vehicle
    safety through state-of-the-art equipment and more realistic crash
    dummies. The Budget invests $35 million in fiscal year 2017 for this
    integration.
        Strengthens Regulatory Enforcement Agencies Across the Department
    Through Resources and Organizational Changes.--Across the Department,
    agencies are taking action to strengthen the regulatory and enforcement
    capabilities that are key to protecting the safety of travelers and
    movement of goods.
      --Investments would provide over $47 million for NHTSA's Office of
            Defects Investigation to improve its effectiveness in
            identifying safety defects quickly, ensuring remedies are
            implemented promptly, and notifying the public of critical
            defects.
      --The Budget's $295 million request for the Pipeline and Hazardous
            Materials Safety Administration (PHMSA) also includes proposed
            organizational changes to elevate the role of research and
            analysis in support of regulatory development and enforcement.
        Supports Rail Safety Through Research and Development and
    Implementation of Positive Train Control (PTC).--The Budget includes
    $213 million to support the Federal Railroad Administration's (FRA's)
    rail safety and development programs, including implementation and
    enforcement of PTC, as well as related track and bridge safety
    activities, and another $53 million for additional safety research.
    This includes $12.5 million to analyze and demonstrate the safety and
    environmental benefits of Electronically Controlled Pneumatic brakes.
        Protects Our Maritime Interests.--The Budget provides over $428
    million for the Maritime Administration to implement programs that
    promote the economic competitiveness, efficiency, and productivity of
    U.S. Maritime transportation.
            invests in 21st century government and project delivery
        Modernizes Permitting and Project Delivery.--The Budget supports
    investments, consistent with new requirements in the FAST Act that
    ensure we are making 21st Century investments through 21st Century
    delivery mechanisms. The Budget expands the Administration's progress
    to expedite permitting and approval processes while protecting safety
    and the environment.
        Supports Ongoing Establishment of a National Surface Transportation
    and Innovative Finance Bureau.--Building on the Administration's
    successful Build America Investment Initiative, the FAST Act created a
    new office to streamline and improve the application processes for
    credit programs, expedite project delivery, and promote innovative
    financing best practices. The Budget requests resources for
    implementation, as well as $275 million for the Transportation
    Infrastructure Finance and Innovation Act (TIFIA) Program, along with
    flexibility to also use resources from a range of new multi-modal
    programs to cover credit subsidy costs.
        Protects Cybersecurity and Data Integrity.--The Budget includes $15
    million to continue improvements to the Department's cybersecurity
    protections, and another $4 million to assist the Department in meeting
    the requirements of the Digital Accountability and Transparency Act of
    2014.
        When taken together all of these new initiatives support our
    expanding freight network, and address the ongoing need for
    improvements in the transportation options that support ladders of
    opportunity for all Americans.
                    preparing for reauthorization of the faa
        Planning for the Future of the FAA.--The President's fiscal year
    2017 Budget request includes a total of $15.9 billion to support the
    ongoing work of the Federal Aviation Administration (FAA). This funding
    level would provide the FAA with ``steady-state'' funding overall when
    compared with fiscal year 2016 levels. The FAA's authorization is set
    to expire on March 31, 2016. As new legislative proposals are offered
    and considered, the President's budget continues to propose expanded
    funding flexibilities that would help FAA manage its resources in a
    more efficient and effective way.
        Thank you again, for the opportunity to appear before you today and
    I will be happy to answer your questions.

        Senator Collins. Thank you very much, Mr. Secretary.
        We are going to start the questioning with the ranking
    member of the full committee, Senator Mikulski, in light of the
    fact that her constituents more than any of ours have been
    adversely affected by the shutdown of the Metro system.
        Senator Mikulski.
        Senator Mikulski. Thank you, Madam Chair, for once again
    your usual sensitivity and courtesy, something very much needed
    in the body politic, and the vice chair of the committee,
    Senator Reed.
        Secretary Foxx, it is good to see you again. I want to
    commend you and your professional staff for the outstanding job
    that you do. You are a very hands-on administrator and your
    staff takes their job very seriously. We in Maryland are very
    happy and proud of our assets, whether it is the Port of
    Baltimore, the airport, the MARC commuter rail, or the Purple
    Line.
        But today, we have heartburn once again over the Washington
    Metro. Seven-hundred-thousand people ride the Metro every day,
    700,000 people. Some older senior citizens. Many work age going
    to work here at the Capitol and in the great District of
    Columbia. Some are schoolchildren coming to school here in our
    community, and they count on a system that is safe, reliable,
    and they can count on.
        Well, you know what happened. Paul Wiedefeld shut down the
    system today. It was drastic. It was disruptive. And yet I
    believe it was necessary.
        We are deeply concerned about this. I am no Janie-come-
    lately to this. Going back to 2009 when on June 7 nine people
    died when two Metro trains collided, we have been working to
    change the governance, improve the management, and bring more
    resources.
        From 2009 to 2016, we have had seven incidents of tragedy.
    We have had 15 deaths, nine rider deaths, and six Metro deaths.
    Some happened at Metro itself. Right after the terrible June 9
    crash in August, we had a Metro employee die in Silver Spring.
    He was hit by the maintenance equipment.
        I will not go through every incident, but here we are,
    2010, Metro employee struck by a maintenance truck. Shady
    Grove, the carwash fell on an employee who lost limbs. So it is
    at Metro that many of these accidents occur to Metro employees.
        Then, of course, not too long ago, we had the terrible fire
    at L'Enfant Plaza where one person died, but 80 nearly died of
    smoke inhalation. They could not get out. Thank God for the
    District of Columbia first responders who literally moved
    heaven and Earth to get there to help them out.
        So where are we today? We have tried to change the
    management structure. We have tried to improve the governance.
    You have been a big part of that, where you could appoint the
    board. And we have tried to increase money.
        This subcommittee has put over $1 billion into Metro every
    year. It helps us buy new crash-worthy cars.
        So my constituents and those in the District of Columbia
    and Virginia say, well, we will tough it out for 1 day, but is
    this change going to be reliable? Is it going to be
    sustainable? Is it going to stick?
        For months and years now, we have called for a culture of
    safety. But what we get is a culture of resistance to making
    changes for safety.
        So my question to you, as someone who is really involved
    himself, and you have run into the buzz saw of resistance just
    the way I have, and the way Ben Cardin and Mark Warner and Tim
    Kaine have, and Senator John Warner when he was here, so my
    question to you is, what more can the Federal Government do to
    help? What more should we in Congress do? Do we need more
    money? Do we need more authority? What kind of change? Because
    what we need is a Metro that really works, and in a way that
    people have confidence that when they get on, they will get off
    and they will be okay.
        I also worry about the workers who themselves have often
    been hurt or injured.
        What could you share with us today where we can make a
    change, where what you can do to help Wiedefeld get this
    literally on track, and a track that gets people where they
    need to go?
        Secretary Foxx. Senator, first of all, I want to thank you
    for what I would call your ferocious advocacy on behalf of
    safety and on behalf of the workers and users of the system.
        What I would say is that the coalition of the willing here
    has to involve the jurisdictions themselves, and it has to
    involve all stakeholders who have decisionmaking authority over
    WMATA. For months, for months, I have called on the
    jurisdictions to stand up an effective State safety oversight
    organization.
        We took over State safety oversight temporarily to give
    them time to get it stood up correctly, and yet we have no
    concrete movement on the part of these jurisdictions.
        That would be a good start. All of us, those jurisdictions,
    Congress, our Department, the board of directors, and the
    leadership of the organization itself, Mr. Wiedefeld and his
    team, have to have relentless focus on safety.
        I am prepared to do more. I have already said that we are
    going to look at open grants that WMATA has available and look
    at directing those to safety-enhancing investments.
        But I really think this is a place where WMATA is going to
    have to run itself in a safe fashion. The culture down there
    has got to change. And we cannot enable the continuation of
    these safety failures any longer.
        Senator Mikulski. Well, first of all, thank you.
        Second, I also want to say that we are not going to take
    the whole hearing today, and the leadership of the committee
    has been very generous to me this morning.
        The Senators from Maryland to Virginia intend to hold an
    oversight meeting with Mr. Wiedefeld and other people who could
    help solve this problem as soon as we get back from our spring
    work period.
        But are you telling me that Metro has unspent money that
    they could be using right now for safety? Why is it unspent?
    What do you think it could buy?
        Secretary Foxx. Well, we have the authority to direct that
    they use those monies to focus on their safety priorities. Some
    of these dollars were appropriated or provided to them in past
    years for any number of things. I have the FTA team looking at
    whether any of these funds are constrained by contracts that
    WMATA may have.
        But rest assured, we are going to make sure that resources
    are not the issue. But I think the point that I am trying to
    make is, I do not think it is just resources. I think it is
    culture, and I think it is a deliberate decision that is needed
    on the part of everyone involved in this to focus relentlessly
    on safety and get things right. We are digging ourselves out of
    a hole.
        Senator Mikulski. I know my time is up, but what you are
    saying is there has to be an insistence and persistence, not
    only from you, not only for me, but from the leaders of the
    jurisdictions whose constituents themselves ride it.
        We have to look at not only the money but the consistently
    run red lights, and we had to make sure the tracks are rider-
    worthy, and then this whole issue. But the running of the red
    lights really is a fearsome issue.
        Let's follow up in another meeting. I appreciate the fact
    that we have a beginning framework here.
        Thank you very much, Madam Chair and Senator Reed.
        Senator Collins. Thank you, Senator.

                              AUTONOMOUS VEHICLES

        Mr. Secretary, I am very interested in the development of
    driverless cars, so-called autonomous vehicles, which could
    provide a substantial improvement to our transportation
    network, particularly by giving more options to seniors who are
    living in rural areas where there is not mass transit of any
    kind.
        The key benefit, however, is in reducing the number of
    crashes and fatalities that occur every year due to human
    error. While fully autonomous vehicles may be years away, there
    are tools such as collision avoidance, lane deviation,
    electronic stability control, that can help reduce crashes in
    the near term.
        The National Highway Traffic Safety Administration (NHTSA)
    has traditionally provided the testing regime and standards-
    setting for such new safety technologies.
        The budget request includes a new $4 billion request for
    over 10 years for large-scale deployment pilots to test
    autonomous vehicles in designated corridors. This appears to be
    an entirely new role for the Department, and there are no
    details in the budget on how this large amount of funding would
    be used.
        What is the plan? Is the budget potentially duplicative of
    private sector efforts already underway to deploy these
    vehicles in real-world driving situations?
        Secretary Foxx. Thank you for the question. You are correct
    that the proposal is $4 billion over 10 years for pilot
    programs.
        We also agree with you that the automated technologies have
    enormous potential for safety benefits. And to accelerate those
    benefits, we are proposing to invest these resources in support
    of real-world testing. Now there is private-sector testing that
    is currently being engaged in, but we believe that the
    Government has an interest in understanding further things like
    whether national policy should focus on licensing, what sorts
    of testing is reliable, information-sharing among States and
    the Federal Government, and to what extent we can build on
    those systems.
        We have actually already speeded up the deployment of these
    systems through regulations, including the New Car Assessment
    Program (NCAP), which is beginning to require or at least
    encourage some of these technologies as you talked about, some
    of the automated types of systems to come into the vehicle as
    part of the grading system for NCAP.
        Having said that, we believe it is beneficial for the
    private sector to test, just as the public sector tests. And
    many of these tests will be done in conjunction with the
    private sector.

                                 SPEED LIMITERS

        Senator Collins. Thank you. Last year, Mr. Secretary, I
    asked you about the status of the Department's proposed
    rulemaking on speed limiters or Governors, as they are also
    known. You stated at that hearing that the rule would be out
    ``no later than the fall.'' Here we are in our hearing a year
    later and well-beyond last fall and the Department has yet to
    issue its rulemaking.
        I am puzzled by this because this is a rule that will help
    to reduce highway fatalities. It has the support of the
    trucking industry. It has the support of various safety
    advocates.
        Why has there been a delay in this rulemaking?
        Secretary Foxx. So subsequent to our hearing last year, OMB
    did accept the heavy truck speed limit, or Notice of Proposed
    Rulemaking (NPRM), on May 18, 2015, as a top priority. We have
    been working closely with OMB to get that rule pushed out.
        Based on our current estimates, we expect the rule to be
    completed by April 22, 2016. So within the next month or so.
        Senator Collins. Thank you. I will hold you to that.
        Senator Reed.

                        AIR TRAFFIC CONTROLLER STAFFING

        Senator Reed. Thank you very much, Madam Chairman.
        We spoke about air traffic controllers previously in our
    statements regarding this proposed privatization. I think it
    should clear where both the chair and I stand on that one. But
    there is another issue and that is there is a significant
    number of controllers who are eligible to retire at FAA
    facilities. In fact, it looks like there are more potential
    retirees than there are individuals in the pipeline prepared to
    come aboard.
        So what are you doing to ensure that there is no gap, that
    we have an adequate number of controllers?
        Secretary Foxx. I can get you the statistics, Senator, but
    in short, we have annual hiring goals for air traffic
    controllers, and we are currently at about 54 percent of our
    hiring goal for the current year and still going. We feel very
    comfortable that we will meet that target this year.
        You are correct that we do have an aging work force, and we
    are working to onboard new air traffic controllers and move
    them through our systems as quickly as possible so that we can
    stay ahead of that attrition.
        In addition to the hiring goals, we are also looking at two
    other aspects of the process. One is getting folks to the FAA
    Academy or equivalent training as quickly as possible from the
    time they get onboarded. And secondly, we are actually looking
    at some of our testing programs to ensure that those are
    calibrated to get us the best possible air traffic controllers.
        Senator Reed. A follow-on question, the inspector general
    has raised concerns that when you are looking at your work
    force, you are looking at historical trends and not specific
    and critical facilities.
        What are you and the FAA doing to better factor in
    facility-specific air traffic so that you might have the right
    number, but they are just not properly located?
        Secretary Foxx. I would like to take that back to the FAA
    and give you a more complete answer. But what I would say is
    that our airspace remains fairly dynamic. We know where a lot
    of their traffic is, but we also have some modeling that helps
    us predict where we think it is going to get more intense over
    time.
        I fully expect that our answer will reflect our projections
    going forward, and our response to that. But I would like to
    give a sharper answer from FAA.

                             NEXTGEN MODERNIZATION

        Senator Reed. Thank you very much, Mr. Secretary.
        On a related issue, an FAA issue, the inspector general
    issued a report in January with some criticism regarding the
    management of NextGen modernization efforts. It was a rather
    long sweep in terms of the beginning of the program until
    today.
        But can you fill us in on some of the reforms and the pace
    of reforms in this administration under your leadership?
        Secretary Foxx. Sure. I will be honest, I cannot take full
    credit for what I am about to say. There have been a lot of
    people who have been working on this in this administration.
        But effectively, what the FAA has done in this
    administration is rebaseline NextGen. There was a certain
    critical path for the project. It was way off scale prior to
    the administration. We have since right-sized that critical
    path. And we are meeting our targets even notwithstanding some
    of the budget shockwaves we have experienced in past years.
        Some of the deliverables are the rolling out of metroplexes
    across the country; some of the flight enhancements like
    optimized profile descents, which are saving millions of
    dollars and tons of gasoline as planes land in our airspace;
    the development of ERAM; as well as the rollout of data comm,
    which will be coming on board over the next year or two.
        So we feel good that we're starting to get capabilities out
    there. I think one of the big risks for NextGen is getting
    equipage in the cockpit of airplanes across the country,
    including general aviation, and we look forward to working with
    you and others to get that done.
        Senator Reed. Thank you very much, Mr. Secretary.
        Thank you, Madam Chairman.
        Senator Collins. Senator Capito.

                         AIRPORT RECONSTRUCTION PROJECT

        Senator Capito. Thank you, Madam Chair.
        I want to thank the Secretary for being here with us today.
    I read your interview in the New York Times business section
    last Sunday. I really appreciated learning a little bit about
    your history. The tributes that you paid to your parents, in
    terms of your education, I thought were very inspiring for the
    next generation, so thank you for doing that.
        I have a localized question here. I am from West Virginia.
    As you are aware, a landslide at Yeager Airport in Charleston
    forced the evacuation of several people and destroyed the
    Keystone Apostolic Church. It was the engineered materials
    arrestor system (EMAS) that collapsed, because our airport is
    built on top of three different mountains. Thankfully, nobody
    was injured.
        There have been a lot of entities, including the FAA, that
    have been trying to do the repair work. We have also been
    working with FEMA and the West Virginia Division of Highways.
    The FAA provided the initial investment for the EMAS system,
    which prevents planes from going over the side of the airport
    down the hill.
        I believe that the FAA should help us play a role in
    rebuilding a new one. We need a new one. This is a very
    important project for basic safety, but also, I have learned,
    will play into what types of aircraft will land or be permitted
    to land in the Yeager Airport, which obviously has great
    circumstances.
        I know there is litigation pending on this matter, but I
    would like to get a sense from you any thoughts or perspectives
    you might have where the FAA could be more helpful to us and to
    the local community to try to rebuild the system.
        Secretary Foxx. Obviously, first of all, I want to tell you
    thank you on behalf of my family, for your comments. That was
    very nice of you.
        Secondly, to acknowledge that the collapse of the runway
    safety area at Yeager Airport is a very complex issue. The FAA
    continues to work with the airport. As they do that, I look
    forward to giving you updates on how that conversation is
    going. But I want the FAA to be helpful to you. I want the FAA
    to be helpful to the community in getting that service back up
    and running.
        Senator Capito. Thank you. Hopefully, we can have
    subsequent conversations. The rebuild on that is estimated to
    cost between $25 million and $35 million. That is a lot for a
    county airport to be able to sustain.
        I want to ask you about the Transportation Infrastructure
    Finance and Innovation Act (TIFIA) appropriation that you have
    in the budget and the development of the National Surface
    Transportation and Innovative Finance Bureau. In our State, we
    have really used these public-private partnerships to make our
    money go farther and complete some highways. I am curious to
    know, I noticed you asking for $3 million in new resources for
    this implementation, so I am going to assume that this finance
    bureau has not been implemented yet. Is that correct?
        Secretary Foxx. We are in the process of standing it up. We
    have some efforts underway to figure out which programs need to
    be consolidated and how to set up the staffing mechanisms. But
    I expect that by the time the year ends, we will have this
    organization stood up.
        I think the goal is to have enough personnel and resources
    to make sure that it is delivering what you need in West
    Virginia.

                           PASSENGER FACILITY CHARGES

        Senator Capito. Yes, I think every State is trying to
    maximize resources. Certainly, what has worked for us is to
    have the private company do the forward financing and then have
    a steady stream paying back, because if you can get them done
    sooner, they are cheaper--or less expensive. Nothing is cheap,
    but less expensive.
        As I was reading through your report, I noticed an issue
    about the ability to increase the pass-through facility charge
    limit. I guess that is a fee on every airline ticket from $4.50
    to $8. Again, living in a rural area, smaller airports, what
    caused my concern was it would eliminate guaranteed Airport
    Improvement Program (AIP) entitlement funding for large hub
    airports. I do not know what that would do to a small or
    medium-sized airport. Who gets the flexibility to raise that?
    The local airport?
        Secretary Foxx. So it would be local airports, but really
    the largest airports in the country, the rural airports, the
    smaller and medium-sized airports, would be held harmless. They
    would not have any change in their AIP grant access. But the
    larger airports would not have access to AIP, but they would
    have access to their own passenger facility charge (PFC)
    increases.
        Senator Capito. What happens in smaller and more rural
    airports that have commercial services? It is so expensive. I
    mean, for me to fly back to West Virginia an hour, to
    Charleston, West Virginia, the capital city, sometimes your
    airline ticket can be $700 and $800 for a round-trip ticket.
    That is just preposterous.
        So even though it is a small change, is just put prices
    even further and further out of the market. That is my concern
    on that.
        But anyway, I thank you again. Thanks for your service, and
    we will follow up about Yeager and see what kind of help we can
    get from you and from the FAA.
        Secretary Foxx. I look forward to working with you.
        Senator Capito. Thank you.
        Senator Collins. Thank you.
        Senator Coons.

                 AMTRAK INVESTMENTS AND POSITIVE TRAIN CONTROL

        Senator Coons. Thank you, Senator Collins.
        Thank you, Mr. Secretary, for your service and your
    leadership.
        As other Senators have commented, today's emergency
    shutdown of the DC Metro system was a big surprise, and for
    many an inconvenience. But as someone who rides Amtrak rail
    every day, I know what a priority safety has to be regardless
    of the transportation mode. So I appreciate your engagement and
    diligence in ensuring that we put passenger safety first.
        Let me start by thanking you for your leadership, your
    focus, your staff's terrific work in responding to the I-495
    challenge that we had in my home community of Delaware. DOT's
    support on the emergency relief funding and your ability and
    willingness to work well together, Federal and State agencies,
    in a compressed timeframe to fix a critical infrastructure
    problem for us was greatly appreciated.
        I just attended the groundbreaking of an expanded Route 301
    through Delaware with the Federal Highway Administration (FHWA)
    administrator, Greg Nadeau. It was only possible because of
    TIFIA financing.
        I know Senator Collins and others have spoken about the
    value of TIFIA financing, but I just want to add my voice. It
    makes possible projects like this. Mayor Branner of Middletown
    has been working on it for, I think, 30 years, so it is a long
    hoped for investment.
        Amtrak is of critical importance to my State, not just to
    me. Like the Vice President, I think I have spent more time on
    Amtrak than with my family during my time in the Senate. I am
    pleased the President continues to be a strong advocate and
    supporter.
        As Senator Reed mentioned, there is a $7.3 billion backlog
    in State of Good Repair in the Northeast Corridor alone. While
    the FAST Act makes important progress in providing
    authorization, I am really concerned about the sufficiency of
    funding.
        So tell me, if you would, what the positive train control
    (PTC) investments in your budget do for Amtrak and what you see
    as the prospects for sustaining investment in Amtrak and
    improving its State of Good Repair.
        Secretary Foxx. So in terms of how far dollars would go
    specifically for Amtrak, we do not exactly have a number on
    that, in terms of how far our investments would go because that
    is sort of an Amtrak question in terms of how they would
    invest. But our budget actually contains $1.3 billion for PTC.
    That, of course, is part of our desire to ensure that we are
    getting that system deployed as quickly as possible.
        Senator Coons. I support the increased request for Amtrak,
    and I am hopeful that we will be able to sustain that over
    time.
        Delaware actually happens to be one of the deadliest States
    in America for pedestrians, unfortunately. Tragically, it was
    number one in the country--this is on a per capita basis,
    obviously--in 2012, 2013, and number three in 2014 and 2015.
    The Federal Highway Administration (FHWA) has done some great
    research and funded some projects on how to deal with this.
        But for us, it is really a suburban problem, not an urban
    problem. It is a challenge of high-speed, multi-laned suburban
    commercial corridors.
        Can I help start a dialogue between your office, DelDOT,
    and advocacy groups about this issue and future research?
        Secretary Foxx. Absolutely.
        Senator Coons. I would be grateful for a chance to work
    with you on that.
        Funding and continuation, as I mentioned, of the TIGER
    program is absolutely instrumental in advancing rail projects
    in the Northeast Corridor (NEC). And improving the NEC is the
    only way we can ensure our ability to add more commuter rail
    frequencies to all Delaware stations, including access to MARC
    service from Maryland.
        I would be interested in your view on whether you think
    TIGER programs will continue to be reviewed and approved on a
    timely basis.
        Secretary Foxx. Yes. We understand how important the TIGER
    program is. We quite frankly appreciate this committee's just
    incredible support for the program. You can rest assured that
    we are going to work hard to review and move those dollars out,
    so they can get people to work and do the good things that
    TIGER grants do.
        Senator Coons. It has made possible that Delaware third
    track project, in part. There are some critical chokepoints
    south of Wilmington, but there are another two north of
    Wilmington, so it is my hope we can continue to work on that.
        I am also encouraged by the great progress you are making
    with New York and New Jersey on the Gateway Tunnel project.
    Congratulations. I suspect you have become a good friend of
    Senator Schumer's through all this, and I am hopeful we can
    continue to invest in that.
        Secretary Foxx. And the Governor's.

                                SHORT LINE RAIL

        Senator Coons. Let me just last mention that short-line
    railroads handle a great deal of agricultural commerce in my
    community and on the Eastern Shore of Maryland. If you could
    tell me briefly anything about how you think we can do a better
    job of helping America's short-line rail and the critical role
    they play for our ag sector.
        Secretary Foxx. You are exactly right. Our short-lines are
    critical. I think the changes that the FAST Act made to
    hopefully make the Railroad Rehabilitation and Improvement
    Financing (RRIF) program more accessible to short-line
    railroads will be very helpful because many of them do have
    large capital needs that they cannot necessarily meet on their
    own. The RRIF program was designed to help them, so we want to
    use as much of our existing capacity in the RRIF program to
    help them.
        We will do anything else we can think of to ensure that
    those short-line railroads are strong.
        Senator Coons. Thank you very much, Mr. Secretary.
        Secretary Foxx. Thank you.
        Senator Collins. Thank you.
        Senator Blunt.

                              SMART CITY CHALLENGE

        Senator Blunt. Thank you, Chairman.
        Mr. Secretary, thank you for your leadership of the
    Department. The FAST Act, the 5-year highway bill. After 37
    extensions of the highway bill, it is really well-received
    throughout the country. It would not have happened without your
    leadership, and we are all pleased we had a small part of
    working with you on that.
        TIGER grants, as you know, the Champ Clark Bridge, which is
    I think the oldest bridge still crossing the Mississippi River,
    is going to be replaced with partially a TIGER grant, and a big
    commitment from both Illinois and Missouri. But I think the
    TIGER grant made that whole package come together.
        Our hope now is that that bridge can safely be used until
    its replacement is put in place, because it is a significant
    detour to get to the next bridge on the river, if that bridge
    is not working. So thank you for that.
        To follow up on Senator Coons' thoughts about the PTC, just
    awareness for you and the folks in the line of chairs there
    behind you, in the FAST Act, we authorized almost $200 million
    of that $1.3 billion to help commuter railroads install PTC,
    particularly in areas where the State has a significant
    obligation for how those commuter terminals work.
        We have a situation in both Kansas City and St. Louis where
    access to some of that $200 million--actually, it is $199
    million. I assume $200 million would have been too much, so
    Congress, in its wisdom put $199 million in that particular
    category. It is available for States who are involved in public
    transportation and have some unique responsibility for
    implementing positive train control. I just wanted to mention
    that, so you are aware that it matters significantly to how the
    commuter rail system works in our State.
        Also, I was pleased, as I am sure the other Smart City
    Challenge finalists were, to see Kansas City--I am sure
    everybody who had a city in that was pleased to be part of it.
    But I clearly think Kansas City is a great potential testing
    ground for Smart Cities.
        It is the first Google fiber city. It is a nexus of
    interstate transportation from west of us, south of us, north
    of us. Several interstates come together there. And also
    putting in that new trolley system, they have been able to put
    some of the first phase equipment in already.
        I know the chairman mentioned her interest and an interest
    I share with what is happening with smart car technology. How
    do you see that Smart City model coming together? And what do
    you think we learn by looking at the city you finally select? I
    think you are down to six or seven finalists now to be the
    Smart City finalist.
        Secretary Foxx. It is a great question. I see three
    different buckets. One is what the private sector is doing,
    which is testing, innovating, coming up with new ideas for
    technology.
        Currently, in general terms, there are some that are
    working on connected cars that talk to each other using kind of
    a GPS signal, and there is another group that is working on
    autonomous cars, which have a roving eye and kind of see the
    environment just like you and I do.
        We actually believe those two technologies are going to
    merge and you are going to have autonomous connected cars in
    the future. But industry is working to innovate.
        The second bucket is what we do at the government level. We
    have promised to give the industry our best guidance--not the
    industry, but even the States--good guidance on how to lay a
    foundation for this technology to be integrated into the
    marketplace. That is work that we have promised to do as an
    agency.
        Then the third piece is, if you have the technology and you
    have the foundation, how do people actually make use of it? The
    Smart City Challenge is really our way of putting the challenge
    to American cities to help define how these technologies can be
    used. And not just those technologies, but how to use data and
    analytics better to shape this transportation decisionmaking,
    how does land use integrate with that.
        So we are very pleased to see 78 great cities submit
    applications. We have seven finalists, and we plan to announce
    the winner of the challenge in June. But we also plan to give
    every city that has applied our best pathway to use Federal
    programs to implement the plans they sent to us so that there
    are hopefully no losers. Every city hopefully wins.
        Senator Blunt. Thank you, Chairman.
        Senator Collins. Thank you.
        Senator Schatz.

                               PEDESTRIAN SAFETY

        Senator Schatz. Thank you very much.
        Secretary Foxx, thanks for your leadership. I am still
    waiting to hear from you regarding your trip to Hawaii. We have
    a request. As you know, we have some unique needs and some
    unique new projects, the Kauai TIGER grant, the rail transit
    program. And we are the most isolated populated place on the
    planet. So we have some unique transportation infrastructure
    needs.
        As you know, I support community planning strategies to
    create walkable neighborhoods and to take care of pedestrians.
    I think you understand that transportation systems have to be
    complete. They have to be viable for cars and rail, for buses,
    for bikes, and for people.
        Senator Heller and I worked in the FAST Act to include a
    provision that would allow the Department of Transportation to
    work with metropolitan planning organizations (MPOs) and other
    agencies to work on reducing traffic fatalities.
        In particular, Hawaii has the unfortunate distinction of
    being number one in terms of senior fatalities on the street.
    We had nearly 5,000 in 2014, and that number continues to creep
    up.
        So can you tell me what the Department will do to implement
    the policy that Senator Heller and I worked on in the FAST Act,
    and more generally, what you are doing this year to reverse the
    trend on pedestrian fatalities?
        Secretary Foxx. First of all, thank you for the question.
    It is an incredibly important issue. When I walked into the
    Department, that was the one area, bike and pedestrian
    fatalities, where we were actually seeing an uptick. This year,
    I think our estimates are a 9 percent increase.
        A couple things. Just this week, the Federal Highway
    Administration published new safety performance measures that
    call for State and regional targets to reduce highway deaths
    and injuries. And it includes a separate target for pedestrian
    and bicyclist fatalities and serious injuries.
        We have also included a bike pedestrian performance measure
    to signal our commitment to nonmotorized safety.
        We have also launched a Safer People, Safer Streets
    initiative with America's mayors. We have more than 200 mayors
    across the country who signed on to use best practices in their
    cities to build the kinds of sidewalks and pedestrian and bike
    facilities that are necessary to ensure safety.
        There is still a lot of work to do and building on the
    language that you had put in the FAST Act, we are going to
    implement that as soon as we possibly can.
        Senator Schatz. We are going to need your continued
    leadership, because one of the challenges that we have in
    Congress is that this has actually become, unfortunately, a
    partisan issue for some where it becomes a question of whether
    or not you support smart growth, location efficiency,
    multimodal transportation, rail, all those things, which
    sometimes cut along liberal and conservative lines when, in
    fact, if you look at mayors, if you look at the AARP, this is a
    question of keeping people safe as they walk around.
        It was incredibly disappointing to see that this became a
    sort of dividing line about whether or not you think people
    ought to use cars.
        We have two cars in our family. We use cars. We appreciate
    the highway system. We appreciate every aspect of the
    transportation system.
        But I think it is going to require the continued leadership
    of the Federal Department of Transportation to push on MPOs, to
    push on not-for-profits, to make sure that everybody
    understands it cannot possibly be a partisan issue to keep our
    seniors and our kids safe as they walk to school or they walk
    to the market.
        Secretary Foxx. Thank you. If I may just add one small
    additional point?
        Senator Schatz. Please.
        Secretary Foxx. Which is that on these revised NCAP
    standards, the way that we rate cars, the five-star rating
    system that NHTSA uses, one of the things we are going to score
    in the future is the collision avoidance systems that deal with
    things outside the car, including pedestrians.
        That is another way that we are working to address this
    issue, and it is a way that technology did not make available
    just a few years ago but now we think it can. So that is
    another way we are trying to get at this.
        Senator Schatz. Thank you very much.
        Secretary Foxx. Thank you.
        Senator Collins. Thank you.
        Senator Boozman.

                                     TIGER

        Senator Boozman. Thank you, Madam Chair. And I thank you
    and the ranking member for holding this important hearing.
        We appreciate having you here, Secretary Foxx, and all of
    your hard work on the behalf of improving our infrastructure in
    so many different ways.
        I appreciate the work that Senator Collins and the
    committee have done to strengthen the TIGER program and provide
    critical infrastructure resources. I do hear concerns from
    applicants that the Department can do a little bit more to
    increase support and help applicants improve their proposals.
        Then also, very importantly, those who were not fortunate
    enough to get a grant, as to what the problem was, how they can
    come back on the next go-round and really the criteria of what
    you are looking for. So we would like to work with you on that.
        Can you talk a little bit about that and just tell us how
    you are trying to remedy that? I suspect you are hearing that a
    little bit also.
        Secretary Foxx. Sure. I think it is a great point. I think
    Congress has done us a service by lowering the minimum amount
    that can be used, for example, for rural areas and even urban
    areas, because there are some communities where $1 million or
    $2 million could do something really big for that community.
        Senator Boozman. Very much. You understand that as an old
    mayor.
        Secretary Foxx. I do. I do. I also understand that some
    communities can hire fancy consultants to package their
    proposals, and in some communities, you have two people sitting
    across a desk trying to figure out when the deadline is.
        So what we have tried to do is to avail ourselves through a
    variety of mechanisms, outreach where we actually deploy people
    out in the country to do focus groups with people to try to
    help them understand the process. We have done webinars.
        By the way, we offer technical assistance. So if you or
    someone in your State called us and said, ``Hey, I am thinking
    about applying to TIGER. Can someone help me work through the
    process?'' my instructions to our staff is to help those folks
    get their package together and help them do the best they can
    in the process.
        So those are the tools that we try to use. I am
    particularly concerned, quite frankly, for our rural areas that
    are a lot of times stretched thin and underresourced to make
    sure that we in the review phases are giving folks a very
    careful look and asking a lot of questions to try to make sure
    that we are making an evaluation that is fair to them.
        So that is the work that we do. We have had some successes.
    In fact, the last round of TIGER, we had almost 40 percent of
    the TIGER grants go to rural America. I am very proud of our
    ability to do that.
        Senator Boozman. Very good. Thank you.
        Secretary Foxx. Yes.

                             AIRPORT CERTIFICATION

        Senator Boozman. Another thing that I would like to
    emphasize is the importance of modernizing and improving the
    airport certification process. I know you have worked hard to
    help the aircraft industry. And again, to make it more
    competitive and successful, it would be nice if we could make
    it so that was a little bit easier to get done.
        I would like you to comment about that, but also, on a
    related note, the FAA recently published their notice of
    proposed rulemaking on Small Airplane Revitalization Act. The
    purpose of the legislation is to improve safety while cutting
    in half the cost of new aircraft certification.
        I believe the goal is to have the rulemaking done by the
    end of the year.
        So both of those, that is, certainly, very important, and I
    think it really would greatly help our aircraft industry, which
    I know that you are very interested in doing. So can you
    comment about those things a little bit?
        Secretary Foxx. Certainly, on part 23, which is the
    certification process you are referring to, I am very
    supportive of getting that rule done so that we can avail more
    of our industry of the advantages of being able to self-certify
    if they make certain requirements, if they meet certain
    requirements. So that process is underway.
        I am very hopeful that we will have that rule out before
    the end of the year, certainly--hopefully.
        And on the other one, I need to probably come back to you.
    I do not know that I am familiar with it, so I would like to
    have a chance to write you back on that.
        Senator Boozman. On the other one that you commented on,
    certainly, that is very important. It would be part of a
    significant part of the legacy, in the sense I know that you
    have worked very hard to get some of these things accomplished.
    But that is one that really does need to be and it is something
    we have grappled with for a while and we appreciate you taking
    it on. So hopefully, we can get it done in a timely process.
        Thank you all very much.

                           CONTRACT WEATHER OBSERVERS

        Senator Collins. Thank you, Senator.
        Mr. Secretary, we are going to do one more round of
    questions before we turn to the inspector general.
        The budget, as you are well-aware, proposes to eliminate
    contract weather observers at 57 airports across the country
    and require that air traffic controllers perform those
    functions, in addition to their existing responsibilities.
        In January, Senator Reed and I wrote to you and the FAA
    administrator, urging the FAA to fully assess all of the safety
    risks and hazards that could result from the loss of
    professional weather observers, particularly in cold-weather
    States like ours, prior to going through with the plan to
    eliminate the contract weather observer program at airports.
        These observers are really important in providing real-
    time, critical weather information that helps keep our pilots
    and our passengers safe.
        For example, in Bangor, Maine, air traffic controllers are
    simply unable to leave the tower, which would prohibit them
    from observing real-time conditions like freezing rain or ice,
    which may not be easily discernible from the tower. And that is
    what our current weather observers do at Bangor International
    Airport.
        I also think it is important that our air traffic
    controllers remain focused on safely managing the air traffic,
    not on performing tasks that they are not specifically trained
    or have the experience to do and that others are now doing.
        So my question is, Mr. Secretary, have you considered our
    recommendation that the safety risk management panel reevaluate
    its proposal to determine if this change is truly wise and what
    the impact would be on safety, particularly in cold climate
    States?
        Secretary Foxx. Yes. Yes, the FAA is actually looking at
    this question. The way they are looking at this is they have
    deployed several panels to various sites across the country,
    including some cold-weather areas, to have these testers, if
    you will, test in accordance with FAA safety management
    systems.
        The panels will come back to the FAA with recommendations.
    Those recommendations will not be final until they have gone
    through an internal process at the FAA.
        So what I would say is that your letter has prompted the
    FAA to do a much more extensive review of this question, and
    that is prompting this work that is being undertaken. And no
    final decisions will be made until we have heard back from
    those folks, and we will, certainly, be happy to share what we
    hear back with you.
        Senator Collins. That is very good to hear. I know that the
    air traffic controllers and the airport managers in both of our
    States would be happy to talk with FAA further also.
        Secretary Foxx. Good.
        Senator Collins. Let me switch to one other issue for my
    final question, and then I am going to submit the rest for the
    record. There are many, so you can be happy about that part.
        Secretary Foxx. Thank you.

                           MARITIME TRAINING VESSELS

        Senator Collins. Training ships at our State maritime
    academies are rapidly approaching the end of their service
    lives. The fleet ranges in age from 27 to 55 years old. Without
    training vessels, the maritime academies simply will not be
    able to prepare adequately the future generations of maritime
    workers. These vessels are an important part of the curriculum
    as sea time is required for graduation and for licensure.
        Last year, in the 2016 budget, the administration requested
    and Congress provided $5 million for the design and planning of
    a replacement vessel. I would note that the oldest vessel
    reaches the end of its service life in 2019, and the T.S. State
    of Maine at Maine Maritime Academy will reach the end of its
    service life in 2025.
        I am disappointed, therefore, that instead of moving
    forward with the design and construction of the new vessel,
    which is what we anticipated, the budget request instead
    proposes to conduct yet another analysis of alternatives.
        Now the Department has already completed a feasibility
    study and initial analysis of alternatives, and a preliminary
    business case analysis for the national security multimission
    vessel.
        Mr. Secretary, I guess my question is, given the $5 million
    that was provided, why isn't the administration seeking funding
    for the construction of a replacement training vessel, given
    the age of these vessels that are fast approaching the end of
    their useful lives?
        Secretary Foxx. That was a very well-put question. The
    reality is that we have been debating this internally within
    the Department for quite some time. I think it is fair to say
    that our Maritime Administration feels very strongly that we
    need to tackle this issue and to get the new ships put in
    place.
        I guess the best answer I can give you is that, in the
    course of balancing all of the equities throughout the budget
    process, this is one where we felt like additional independent
    verification and analysis and consideration of the training
    requirements for cadets, we believe that we need to look at
    this more in terms of understanding whether the ships are, in
    fact, necessary for training.
        But I understand the argument on the other side and,
    certainly, understand if the committee feels differently about
    it.
        Senator Collins. Having christened one of those ships, I
    can tell you that they are absolutely essential. Most of these
    cadets either end up going into the Navy or most of them into
    the Merchant Marine. If they do not have actual sea time, they
    cannot get the licenses that they need. They can't even
    graduate from these academies.
        So let me just end by saying that I hope you will work with
    us. Surely, in a $98 billion budget, we ought to be able to
    find this funding.
        Senator Reed.

                        TRANSPORTING HAZARDOUS MATERIALS

        Senator Reed. Thank you very much, Madam Chairman.
        Mr. Secretary, the Pipeline and Hazardous Materials Safety
    Administration (PHMSA) maintains a database with respect to
    special permits and approvals for hazardous materials
    transportation. The inspector general has issued a report that
    describes it as out-of-date and incomplete, which inhibits the
    ability of FRA inspectors to carry out their role of ensuring
    the safe transportation of these materials.
        So could you comment on what the PHMSA is doing to address
    the issue? And, critically, when we will the FRA inspectors be
    able to get ready access to that information to do their jobs?
        Secretary Foxx. The fiscal year 2017 request includes
    investments and requests for funding to do some additional IT
    investments to help us in this regard. It is part of a 6-year
    IT strategy that includes a well-developed investment plan
    supporting improvements and a Web-based system.
        PHMSA has made improvements to the hazardous material
    shipment data collected, including adding a Dun & Bradstreet
    identifying number and shipper profile information to its Web
    portal. It is also developing certification for a data
    operations quality management system that will improve user
    satisfaction with data portals, including the hazmat Web
    portal. And PHMSA is also developing an online smart form that
    will streamline the incident reporting process to improve the
    quality of data.
        So there are steps that are being undertaken. We are also
    asking for resources in the budget to help us take those steps
    further.

                      SEXUAL ASSAULT AND SEXUAL HARASSMENT

        Senator Reed. Thank you, Mr. Secretary. Let me turn to
    another topic.
        You are the Cabinet Secretary responsible for the United
    States Merchant Marine Academy. This is an issue that cuts
    across too many campuses across the country and for my service
    on the Armed Services Committee, it is also obviously an issue
    at the service academies, the Air Force, the Navy, and West
    Point. That is the issue of sexual harassment.
        Each year there is a survey that must be done. Of the 136
    women at the academy, 17 percent reported in this anonymous
    survey that they were victims of sexual assault, and 63 present
    reported being a victim of sexual harassment.
        I know you do not tolerate this. You do not accept it. The
    question is what we can all do to change the culture and to
    provide more training and more support, so these statistics
    improve dramatically and quickly.
        Secretary Foxx. First of all, I want to thank you for the
    question, and I want to thank this committee, including
    Chairman Collins and former Ranking Member Patty Murray so much
    for continuing to focus on this.
        It is a culture issue in our academies and, in particular,
    at the Merchant Marine Academy. When I came into the
    Department, we had this issue on the plate. We worked with the
    academy to ensure that there were people in place at the
    academy who were focused on making sure that complaints had a
    ready place to go and that they were being adjudicated
    effectively.
        Unfortunately, this is an area where our success in that
    regard looks like failure because you start to get reports up.
        The other thing that we have taken very seriously is to
    ensure we are being very intentional about ensuring more gender
    diversity in the ranks of recruits to the academy. The
    statistics that I have been given tell me that at the 25
    percent level, the culture starts to shift and you begin to
    have a culture in which these types of behaviors are not
    tolerated and there is a critical mass of women there to
    enforce against that. So we are working on that as well.
        But we will continue at this until we get it right.
        Senator Reed. I think just an aside, but the experience--my
    closest proxy is West Point--is that as more and more female
    cadets came in, that culture began to change, but more
    specifically, as more and more of the faculty and instructors
    and administrators were females, it accelerated that change.
        I say with some pride that we have our first female
    Commandant at the military academy, so that is another
    direction I would encourage you to go in.
        Secretary Foxx. Absolutely.

                                 AMTRAK SERVICE

        Senator Reed. Final question, if I may, and that is the
    Northeast corridor, the Federal Railway Administration has
    launched this. They are looking ahead, which I commend them
    for, the vision for the Northeast corridor in the future. I
    would hate to see that vision exclude in any way services to
    Rhode Island.
        Amtrak plays a key role in our economy. In fact, the
    Providence station is not only a large Amtrak station, it is
    the biggest Massachusetts Bay Transportation Authority (MBTA)
    station outside of Boston's South Station. To have a future
    which would avoid Rhode Island in any way, shape, or form,
    either through routes or through services, would be, I think,
    wrongheaded. So I wonder what you might comment.
        Secretary Foxx. Yes, look, I know how the alternatives
    process works. But I see no future where Rhode Island gets
    bypassed. That is where I come down very solidly.
        In fact, I have had conversations with Governor Raimondo
    about ways to potentially look at enhancing service in Rhode
    Island. We look forward to working with you and her on that.
        Senator Reed. Thank you very much, Mr. Secretary.
        Thank you, Madam Chairman.
        Senator Collins. Thank you.
        Mr. Secretary, I very much appreciate your testimony today.
    I was thinking about the range of questions that you answered
    today, which literally spanned the spectrum from trains to
    driverless cars to metros to ships to bridges to subways. It
    really is an amazing span that your Department covers, and we
    did not get even get to two questions I wanted to ask you, one
    on buses and the other having to do with drones. So the number
    of areas under your responsibility truly is tremendous.
        We will be submitting additional questions for the record,
    and the hearing record will remain open until next Friday,
    March 25, for other members to submit questions to supplement
    ours.
        Senator Collins. I now thank you for testifying and would
    call up our next witness, the inspector general.
        Secretary Foxx. Madam Chair, if I might just say one thing,
    I was talking to my staff yesterday and they said that this may
    be my last appearance before this committee, perhaps my final
    testimony, period, knock on wood. I hope that is true.
        [Laughter.]
        Secretary Foxx. But I wanted to say, on a personal note to
    both you and to the ranking member, that a lot of times in
    politics, particularly in a rancorous presidential election
    year, there is a lot of noise about how things do not work.
        What I wanted to say to you is that I appreciated your
    friendship, your willingness to work out issues with us, and
    the fact that we all recognize that transportation is neither a
    Democratic nor Republican issue. It is an American issue.
        So I just wanted to say thank you so much for your
    friendship. Thank you for the hard work that you do for our
    Department and for the American people, and I look forward to
    working with you through this budget process. Thank you.
        Senator Collins. Thank you very much, Mr. Secretary. I very
    much appreciate those thoughtful words. I look forward, as I
    know the ranking member does, to working with you as we draft
    our bill. It has been a pleasure working with you, and I
    commend you for your leadership.
        Secretary Foxx. Thank you.
        Senator Collins. Thank you.
        Our next witness today is the Hon. Calvin Scovel, the
    inspector general of the Department of Transportation.
        Mr. Inspector General, when you are ready, please proceed
    with your statement.
    STATEMENT OF HON. CALVIN SCOVEL, INSPECTOR GENERAL,
                DEPARTMENT OF TRANSPORTATION
        Mr. Scovel. Chairman Collins, Ranking Member Reed, members
    of the subcommittee, thank you for inviting me to testify today
    on DOT's budget priorities. Each year, DOT spends more than $70
    billion across a wide range of transportation programs.
    Regardless of specific budget levels, effective oversight and
    management are key to meeting the Department's goals and
    protecting taxpayers' investments.
        My testimony today focuses on three crosscutting management
    challenges: safety, stewardship, and IT security.
        Improving highway safety continues to be one of the
    Department's most important priorities. In 2015, we made 17
    recommendations to enhance NHTSA's ability to remove unsafe
    vehicles from roads. This includes collecting and analyzing
    more comprehensive vehicle safety data.
        While NHTSA has taken steps to strengthen its defect
    investigations, the agency must now effectively implement its
    planned improvements to ensure automakers promptly identify
    defects and recall defective vehicles. Unsafe commercial
    drivers further threaten the safety of our highways,
    particularly those who repeatedly violate medical-, drug-, and
    alcohol-testing requirements and other safety regulations.
        Of the 272 motor carrier safety cases that OIG's criminal
    investigators have initiated since 2008, 14 percent involved
    carriers that were banned from the roads for safety violations
    but continued to operate under a new business name.
        At the same time, DOT must work to maintain our Nation's
    strong aviation safety record. The introduction of unmanned
    aircraft systems (UAS) creates one of the most significant
    safety challenges in decades. This week, FAA will have approved
    more than 4,000 commercial UAS to operate in our airspace, and
    the number of operators is certain to increase once FAA
    publishes a final rule for small UAS this year.
        However, FAA has yet to establish standard procedures or
    training for air traffic controllers to safely manage UAS in
    the same airspace as manned aircraft. In addition, FAA
    inspectors lack clear guidance for how to conduct UAS
    oversight, and FAA lacks formal systems to track and classify
    the severity of UAS incidents.
        With regard to stewardship, DOT has opportunities to
    improve oversight of its investments and assets. For example,
    we recently reported that FAA awarded a new $727 million
    contract for controller training without first addressing
    longstanding issues that we had identified in its prior
    controller-training contract, issues that resulted in millions
    of dollars in cost overruns.
        Similarly, last year we reported FTA had not fully
    implemented the required processes and internal controls to
    award and monitor $10 billion in grant funds allocated for
    Hurricane Sandy relief. Strong risk-based oversight, financial
    controls, and planning are vital to eliminating fraud and
    maximizing Federal investments.
        Sustaining a skilled workforce, DOT's most important asset,
    also remains a key challenge, particularly as workforce
    demographics change.
        For example, 22 percent of DOT's acquisition workforce, not
    counting FAA, was retirement eligible last year. From air
    traffic controllers to FAA oversight personnel to vehicle
    defect analysts, DOT must identify how many staff it needs in
    these positions and ensure its training programs keep pace with
    changing technology.
        Finally, with regard to IT security, DOT has made major
    progress in implementing the required use of personal identity
    verification (PIV) cards for all employees and contractors.
    This is a key step in securing access to facilities and
    systems.
        However, DOT has been slow to address longstanding
    cybersecurity weaknesses, such as the lack of effective systems
    to continuously monitor for threats.
        The September 2014 fire at a Chicago air traffic control
    facility also demonstrated the importance of effective
    contingency planning. Damage from the fire crippled that
    facility and its systems for 2 weeks, significantly impacting
    passengers and airlines.
        Earlier this month, we reported that 5 of the Department's
    12 operating administrations were not effectively testing or
    meeting all requirements for their disaster recovery plans.
        The Department has consistently demonstrated its commitment
    to addressing these challenges, but effective management and
    follow-through remain imperative. My office will continue to
    assist the Department as it works to meet these goals.
        Chairman Collins, this concludes my prepared statement. I
    am happy to answer any questions you and members of the
    subcommittee may have.
        [The statement follows:]
                Prepared Statement of Hon. Calvin L. Scovel III
        Chairman Collins, Ranking Member Reed, and Members of the
    Subcommittee:
        Thank you for inviting me here today to discuss the Department of
    Transportation's (DOT) budget priorities. Each year, the Department
    spends over $70 billion on a wide range of programs to meet its top
    priority of transportation safety and to maintain and modernize
    transportation systems. We remain committed to assisting DOT as it
    works to improve how it manages programs and resources. My statement
    today will focus on three cross-cutting management challenges: (1)
    addressing DOT's new and longstanding safety challenges, (2) continuing
    diligent stewardship over DOT's critical investments, and (3) enhancing
    DOT's information technology (IT) security and preparedness. Regardless
    of specific budget levels requested or approved, effective oversight
    and management of safety efforts, major transportation projects, and
    DOT assets are critical to ensure the greatest return on the taxpayers'
    investment.
                                    summary
        Safety is DOT's top priority, and the Department faces a range of
    emerging and longstanding safety challenges. These include safely
    integrating Unmanned Aircraft Systems (UAS) into the National Airspace
    System (NAS), addressing risks posed by the transport of hazardous
    materials (hazmat), and removing unsafe vehicles and commercial drivers
    from roadways. At the same time, DOT must carry out its safety mission
    within a framework of diligent stewardship over its investments and
    assets. In particular, continued attention to strengthening the
    Department's internal controls and risk-based oversight is critical to
    the efficiency of taxpayer-funded projects to build, repair, and
    maintain the Nation's surface transportation system. DOT can also do
    more to reduce risk in its billion-dollar efforts to modernize the
    Nation's aviation system and to develop and sustain a high-performing
    workforce. Finally, DOT continues to struggle to secure the 450-plus
    information systems it uses to conduct business and operate critical
    transportation systems, ensure continuity of operations, and safeguard
    systems from insider threats.
               addressing new and longstanding safety challenges
        Making the Nation's airspace, environment, and roads safer
    continues to be DOT's top priority. Addressing a number of new and
    longstanding safety issues we have identified will be critical for DOT
    to maintain and improve the Nation's transportation safety record. In
    addition to the new challenges of safely integrating UAS into the NAS,
    DOT must continue to reduce safety risks in transporting hazardous
    materials while improving safety on our Nation's roadways.
    Integrating Unmanned Aircraft Systems Safely Into the National Airspace
            System
        DOT, the Federal Aviation Administration (FAA), and industry have
    maintained a remarkably safe aviation system, with no fatal passenger
    accidents involving domestic commercial carriers in over 7 years.
    However, the growing demand for commercial UAS operations--for purposes
    ranging from precision agriculture operations to package delivery--
    presents one of the most significant safety challenges for FAA in
    decades. Analysts predict that as much as $93 billion will be invested
    in the technology worldwide over the next 10 years.
        The FAA Modernization and Reform Act of 2012 requires FAA to take
    multiple steps to safely integrate UAS into the NAS. However, FAA and
    industry have not reached consensus on UAS-specific technology
    standards that are critical to safe integration. For example, FAA and
    industry still lack standards to ensure that UAS can automatically
    detect and successfully maneuver around other aircraft operating in
    nearby airspace.\1\
    ---------------------------------------------------------------------------
        \1\ While FAA 14 CFR 91.113 describes a pilot's ability to ``see
    and avoid'' other aircraft, the UAS community is using the term
    ``detect and avoid'' to describe the desired capability of UAS.
    ---------------------------------------------------------------------------
        FAA also lacks a regulatory framework for UAS integration, which
    would govern areas such as small UAS (under 55 pounds) operations,
    beyond-line-of-sight procedures, larger unmanned aircraft systems, and
    pilot qualifications. FAA currently approves commercial UAS operations
    only on a case-by-case basis, leveraging an authority granted by
    Congress to exempt small UAS from certification requirements.\2\ So
    far, FAA has issued over 3,800 exemptions. We are currently reviewing
    the UAS exemption and safety oversight processes. FAA intends to issue
    its rule on small UAS operations in late spring 2016--more than a year
    and a half behind the schedule established in the act. However, several
    high-profile aspects of UAS use--such as package delivery--will not be
    covered under the rule, which underscores the need for further
    regulatory efforts. FAA also has not established standard procedures
    for safely managing UAS in the same airspace as manned aircraft or an
    adequate UAS training program for controllers.
    ---------------------------------------------------------------------------
        \2\ These requirements include the steps necessary to obtain an
    airworthiness certificate, including demonstrating to FAA that the UAS
    conforms to an approved aircraft design and is in condition for safe
    operation.
    ---------------------------------------------------------------------------
        As the number of UAS operations continues to grow, safety and
    oversight will remain a significant concern. According to FAA, reported
    UAS sightings by pilots have increased significantly, with more than
    1,100 reports in 2015, compared to just 238 reported in all of 2014.
    Some reports indicated safety risks, such as pilots altering the course
    of their aircraft to avoid UAS. Despite these risks, FAA does not have
    a formal system to track and classify the severity of UAS incidents. In
    addition, FAA inspectors still lack clear guidance on how to conduct
    UAS oversight. FAA reports that, through its recently established
    registration process, nearly 370,000 operators have already registered
    their unmanned aircraft. The impending rule on small UAS is likely to
    further increase the number of UAS in our airspace, making UAS
    oversight an increasingly critical responsibility for FAA's safety
    inspector workforce.
    Strengthening Cross-Modal Efforts To Address Pipeline and Hazmat Safety
            Risks
        A key DOT mission requiring strong cross-modal efforts is
    mitigating the safety risks posed by transportation of hazmat. From
    2010 through 2014, there were more than 3,000 pipeline and 78,000
    hazmat incidents in the United States, including about 3,500 rail
    incidents involving hazmat. These incidents resulted in fatalities and
    injuries, as well as environmental and property damage. Transportation
    of hazmat by air also presents serious risks, with more than 70
    incidents worldwide between 1991 and 2014 involving lithium batteries
    in aviation cargo and passenger baggage.\3\
    ---------------------------------------------------------------------------
        \3\ These incidents included extreme heat, smoke, fire, or
    explosions in aviation cargo and passenger baggage.
    ---------------------------------------------------------------------------
        The Pipeline and Hazardous Materials Safety Administration (PHMSA)
    works to implement robust and timely safety measures for mitigating
    significant hazmat and pipeline accidents. However, PHMSA has made
    limited progress towards meeting safety recommendations by the National
    Transportation Safety Board (NTSB) and congressional mandates. For
    example, PHMSA has not fully implemented a 2007 NTSB recommendation to
    require railroads to immediately provide emergency responders with
    real-time information regarding the identity and location of all
    hazardous materials on a train. PHMSA also has not fully implemented
    the safety measures included in the Pipeline Safety, Regulatory
    Certainty, and Job Creation Act of 2011.\4\ These measures aim to
    improve operators' assessments of gas pipelines, require leak detection
    systems on hazardous liquid pipelines, and establish regulations for
    transporting carbon dioxide by pipeline.
    ---------------------------------------------------------------------------
        \4\ Public Law No. 112-90 (2012).
    ---------------------------------------------------------------------------
        On the aviation front, FAA established the Hazardous Materials
    Voluntary Disclosure Reporting Program (HM VDRP) in 2006, which allows
    air carriers to voluntarily disclose violations of hazmat regulations
    without receiving civil penalties. While this is a good step towards
    encouraging air carriers to improve hazmat safety, our 2015 report \5\
    found that FAA lacked an adequate framework of internal controls to
    effectively carry out HM VDRP. For example, FAA requires air carriers
    to complete corrective actions for violations they disclose through the
    program. However, for 31 of the 48 (65 percent) closed cases we
    reviewed, FAA did not request sufficient evidence to verify that air
    carriers completed all corrective actions or conducted self-audits as
    required. In response to our findings, FAA recently issued a new policy
    to require air carriers to document all corrective actions taken and
    FAA regions to coordinate with FAA Headquarters on proposed corrective
    actions and significant HM VDRP cases. Effective implementation of this
    policy will require follow through with adequate training and guidance
    to maximize HM VDRP's potential as a safety program.
    ---------------------------------------------------------------------------
        \5\ Program and Data Limitations Impede the Effectiveness of FAA's
    Hazardous Materials Voluntary Disclosure Reporting Program (OIG Report
    Number AV-2015-034), March 13, 2015.
    ---------------------------------------------------------------------------
        Finally, the Federal Railroad Administration's (FRA) enforcement of
    PHMSA regulations plays a large role in the safety of hazmat
    transported by rail. In fiscal year 2015, FRA reported that its
    inspectors identified 1,670 violations of hazardous materials
    regulations, and the Agency fined railroads and other regulated
    entities \6\ roughly $3.9 million. Key elements in an effective
    enforcement program are considering risk when allocating enforcement
    resources and imposing sufficient penalties to deter future violations.
    Last month, we issued a report identifying shortcomings in the risk
    assessments FRA uses for allocating hazardous materials inspection
    resources and raised concerns about FRA's use of civil penalties and
    lack of criminal case referrals to OIG. FRA has agreed to implement our
    recommended improvements.\7\
    ---------------------------------------------------------------------------
        \6\ Entities that received these violations and fines may include
    railroads, shippers, or tank car repair facilities.
        \7\ FRA's Oversight of Hazardous Materials Shipments Lacks
    Comprehensive Risk Evaluation and Focus on Deterrence (OIG Report
    Number ST-2016-020), February 24, 2016.
    ---------------------------------------------------------------------------
    Increasing Safety on Our Nation's Highways
        Recent large-scale recalls from automotive manufacturers and
    continued efforts to enforce motor carrier regulations highlight a
    number of safety challenges the Department faces. Over the last 2
    years, General Motors (GM) has recalled nearly 9 million U.S. vehicles
    for a defect involving a faulty ignition switch after it received more
    than 100 reports of death claims and more than 200 injury claims.\8\
    The GM recall and others have prompted reviews and recommendations on
    how NHTSA can improve its safety processes and controls, and NHTSA is
    working to address these concerns. For example, in 2011 we made
    recommendations to strengthen NHTSA's Office of Defects Investigations'
    (ODI) procedures for documenting and retaining evidence on defects
    investigations, coordinating with foreign nations to identify safety
    defects or recalls, and documenting its justifications for not
    investigating identified defects. Last month, we reported on NHTSA's
    progress towards those recommendations.\9\ While NHTSA has completed
    the agreed-upon actions, we are concerned with how it is implementing
    some of them; in particular, NHTSA lacks mechanisms to ensure staff
    consistently apply the new policies. For example in response to one of
    our recommendations, ODI agreed to document justifications for
    exceeding investigation timeliness goals; however, over 70 percent of
    delayed investigations we reviewed did not include justifications for
    why these goals were not met. We made two new recommendations to
    enhance ODI's quality control mechanisms, and NHTSA fully concurred.
    ---------------------------------------------------------------------------
        \8\ GM's ignition switch compensation fund had approved 124 death
    and 275 injury claims as of August 21, 2015.
        \9\ Additional Efforts Are Needed To Ensure NHTSA's Full
    Implementation of OIG's 2011 Recommendations (OIG Report Number ST-
    2016-021), February 24, 2016.
    ---------------------------------------------------------------------------
        NHTSA also agreed to implement the 17 recommendations stemming from
    our June 2015 audit, which found weaknesses with how ODI collects
    vehicle safety data and uses that data to determine whether to open an
    investigation.\10\ For example, ODI's processes were insufficient for
    verifying that manufacturers submit complete and accurate early warning
    reporting data, which can be essential for identifying potential safety
    trends or concerns.
    ---------------------------------------------------------------------------
        \10\ Inadequate Data and Analysis Undermine NHTSA's Efforts To
    Identify and Investigate Vehicle Safety Concerns (OIG Report Number ST-
    2015-063), June 18, 2015.
    ---------------------------------------------------------------------------
        It will also be critical for NHTSA to follow through on NHTSA's
    Path Forward, a 2015 self-evaluation report released by the Secretary
    of Transportation. Through this effort, the Secretary seeks to improve
    NHTSA's ability to hold manufacturers accountable by implementing more
    effective methods for overseeing carmakers and their suppliers, as well
    as collecting and communicating vital safety information. The Secretary
    also announced the formation of an expert panel to help strengthen
    NHTSA's defect investigation workforce. It will be important for DOT to
    closely monitor how NHTSA addresses the panel's findings and
    recommendations.
        At the same time, DOT has important opportunities to improve the
    safety of its highway infrastructure, particularly the bridges and
    tunnels that connect our Nation's roadways. For example, the Federal
    Highway Administration (FHWA) must maintain momentum in its initiatives
    in response to our recommendations to implement data driven, risk-based
    oversight of bridges and implement improvements to bridge safety
    mandated under the Moving Ahead for Progress in the 21st Century Act
    (MAP-21).\11\ FHWA must also continue its oversight of highway tunnel
    safety according to the National Tunnel Inspection Standards that
    became effective in August 2015 and maintain a national tunnel
    inventory.
    ---------------------------------------------------------------------------
        \11\ FHWA Has Not Fully Implemented All MAP-21 Bridge Provisions
    and Recommendations (OIG Report Number MH-2014-089) August 21, 2014,
    and FHWA Effectively Oversees Bridge Safety, but Opportunities Exist To
    Enhance Guidance and Address National Risks (OIG Report Number ST-2015-
    027) February 18, 2015.
    ---------------------------------------------------------------------------
        Another critical--and longstanding--highway safety concern is
    reducing motor carrier fatalities. Our safety investigations continue
    to identify challenges for the Department and the Federal Motor Carrier
    Safety Administration (FMCSA) as they seek to remove unsafe motor
    carriers from highways. Since fiscal year 2008, we have opened 272
    criminal investigations involving motor carrier safety. I would like to
    highlight two focus areas where the Department and FMCSA can bolster
    their safety efforts.
        First, FMCSA must take stringent enforcement and out-of-service
    actions to remove motor carriers that repeatedly violate and blatantly
    seek to circumvent safety regulations, including (1) hours of service
    regulations and records of duty status; (2) medical, drug, and alcohol
    testing requirements for drivers; and (3) vehicle inspection, repair,
    and maintenance records. In some instances, these carriers have been
    involved in multi-vehicle crashes and fatalities. While FMCSA has taken
    enforcement actions and is collaborating with our office and other law
    enforcement partners to remove these carriers from service, carriers
    intent on breaking the law continue to pose a significant threat to
    highway safety. Key actions to keep unsafe carriers off the road
    include effective vetting of carriers' applications, focusing resources
    on high-risk carriers, and prosecuting companies that are caught
    violating the law.
        The second area concerns reincarnated carriers--carriers that
    attempt to operate as different entities in order to evade FMCSA's
    enforcement actions. Reincarnated carriers have been involved in
    approximately 14 percent of the motor carrier safety investigations we
    opened since fiscal year 2008. For example, in Texas, we investigated a
    company that was issued an unsatisfactory safety rating by FMCSA for
    numerous violations, including falsifying hours-of-service requirements
    and using drivers who were not medically examined or certified. After
    being placed out of service by FMCSA, the company reincarnated under a
    different name and was involved in a passenger bus crash that killed 14
    people. FMCSA proposed that Congress modify Section 521 of Title 49
    U.S.C. to make it a criminal penalty for knowingly and willfully
    violating an out-of-service order, which will assist in prosecuting
    reincarnated carriers. Criminal penalties under Section 521 currently
    contain only a misdemeanor provision, which is difficult to prosecute
    and less likely to result in jail time if prosecuted; therefore, its
    effect as a deterrent is limited.\12\
    ---------------------------------------------------------------------------
        \12\ 49 United States Code Section 521(b)(6)(A) is a misdemeanor
    statute for violations of certain FMCSA regulations.
    ---------------------------------------------------------------------------
        continuing diligent stewardship over dot's critical investments
        Diligent stewardship of DOT's investments of taxpayer funds is
    vital for the Department to effectively carry out its mission. While
    DOT remains committed to strengthening its oversight for highway, rail,
    and transit projects, opportunities remain to improve its risk-based
    oversight of projects and strengthen financial controls to protect its
    investments. In addition, FAA faces challenges in its efforts to
    provide effective contract and acquisition management--a critical
    element in reducing risk for the major programs and systems in which it
    has invested.
    Maximizing Federal Investments Through Improved Risk-Based Oversight
            and Better Financial Controls
        DOT receives over $50 billion in Federal dollars annually to fund
    projects to build, repair, and maintain the Nation's surface
    transportation system. Strong risk-based oversight and financial
    controls are key to the success of the more than 100,000 transportation
    projects funded by the Federal Highway Administration (FHWA) and
    Federal Transit Administration (FTA) each year.
        FHWA recently revised its overall risk-based strategy to overseeing
    Federal-aid highway project funds. This revised effort includes
    improving the linkage between FHWA's annual assessments of State and
    Federal-aid highway programs and analyzing that information to better
    target its oversight reviews of highway and bridge projects. FHWA
    recently completed its first full performance cycle with these revised
    initiatives; in future performance cycles, management will need to
    assess whether the program is robust and working as designed and make
    improvements where needed.
        However, to address more specific risks, FHWA needs to improve
    oversight of financial and program plans covering major highway and
    bridge projects--those exceeding $500 million in funding--to implement
    its new guidance on project estimating, and address the backlog of
    pending Federal-aid highway project closeouts to ensure effective use
    of Federal funds. In addition, FHWA has yet to finalize improvements to
    its financial information system to improve project data used to
    oversee its programs.
        FTA has similar opportunities to better target its oversight and
    use tools to meet its goals to ensure major projects are on time and
    within budget. For example, FTA did not verify the adequacy of the
    Metropolitan Washington Airports Authority's (MWAA) support for claimed
    costs on grant expenses for FTA's Dulles Rail Project.\13\ As a result,
    FTA initially reimbursed MWAA for more than $36 million in unsupported
    and unallowable costs.\14\ In addition, FTA faces challenges in
    overseeing how local transportation agencies continue to use the
    approximately $10 billion in relief funds for Hurricane Sandy. In 2015,
    we reported that FTA had not fully implemented the processes and
    internal controls (required by the Disaster Relief Appropriations Act)
    it established to award and monitor Hurricane Sandy funds.\15\ FTA also
    has yet to develop a formal coordination process with the Federal
    Emergency Management Agency to reduce the risk of duplicating emergency
    and disaster-related assistance.
    ---------------------------------------------------------------------------
        \13\ MWAA's Financial Management Controls Are Not Sufficient To
    Ensure Eligibility of Expenses on FTA's Dulles Rail Project Grant, (OIG
    Report Number ZA-2014-021), January 16, 2014.
        \14\ FTA and Federal grant conditions require that grant recipients
    maintain support for federally funded project costs. MWAA did not have
    sufficient documentation to support some of the expenses charged to the
    Dulles Rail Project and these costs are considered unsupported. These
    principles also specify the types of costs that are allowable under
    Federal grant awards. An example of an unsupported cost that we found
    was invoices that said ``labor'' with no further details or
    documentation about what these charges included. An example of an
    unallowable cost that we found was $54,000 for expenses that were
    outside the scope of the Phase 1 Project to which they were charged.
        \15\ FTA Has Not Fully Implemented Key Internal Controls for
    Hurricane Sandy Oversight and Future Emergency Relief Efforts (OIG
    Report Number ST-2015-046), June 12, 2015.
    ---------------------------------------------------------------------------
        Fraud remains another ongoing concern. For example, our
    investigators determined that an owner of a Massachusetts transit
    authority bus operator diverted grant funds that were designated to pay
    salaries, benefits, and other expenses for employees of the bus
    company.\16\ Similarly, during liaison and coordination efforts with
    FTA and other stakeholders, we discovered that a Hurricane Sandy
    grantee was not reporting fraud settlements to FTA. We have reported
    that the use of integrity monitors can help to prevent and detect fraud
    and noted the importance of sharing fraud allegations across
    organizations so we can partner to combat wrongdoing.\17\ As we stated
    in June 2015,\18\ FTA must focus on promptly addressing identified
    oversight issues; strengthening stakeholder agreements; and enhancing
    controls to prevent, detect, and report fraud.
    ---------------------------------------------------------------------------
        \16\ The former owner was sentenced in July 2015 to 70 months in
    prison and ordered to pay $688,772 in restitution in connection with
    his diversion of grant funds.
        \17\ Initial Assessment of FTA's Oversight of the Emergency Relief
    Program and Hurricane Sandy Relief Funds (OIG Report Number MH-2014-
    008), December 3, 2013.
        \18\ Oversight of Major Transportation Projects: Opportunities To
    Apply Lessons Learned (OIG Briefing No. CC-2015-010), June 8, 2015. We
    briefed Members of the Committee on Oversight and Government Reform,
    Subcommittee on Transportation and Public Assets, United States House
    of Representatives.
    ---------------------------------------------------------------------------
    Structuring Major Aviation Acquisitions To Successfully Manage Risk
        FAA continues to award high-dollar contracts without fully
    addressing and mitigating risk in the acquisition planning and contract
    award stages, often resulting in large cost overruns and delays in
    system implementation.
        First, FAA has had ongoing challenges in effectively structuring
    several of its major acquisitions.\19\ These issues have been prevalent
    with the $1.8 billion Automatic Dependent Surveillance-Broadcast (ADS-
    B) system. ADS-B is a new satellite-based surveillance system for
    managing air traffic that is critical to the success of FAA's Next
    Generation Air Transportation System (NextGen). Since 2010, we have
    reported that FAA faces significant risks in implementing ADS-B and
    realizing benefits due to weaknesses such as its contract structure and
    oversight. For example, the ADS-B contract structure bundles tasks and
    costs, making it difficult for decisionmakers to manage the contract
    and track costs. In addition, FAA covered the first 18 years of ADS-B's
    28-year lifecycle through one contract award, rather than breaking it
    into more manageable segments as OMB and the Federal Chief Information
    Officer recommend.\20\ While FAA has finished deploying the 634 ADS-B
    ground radio stations, based on our ongoing review, it remains unclear
    whether FAA has fully mitigated past problems associated with contract
    management and oversight to ensure it can achieve ADS-B technical
    requirements and do so within budget. We plan to issue our next report
    providing an update on how FAA is addressing ADS-B contract weaknesses
    later this year.
    ---------------------------------------------------------------------------
        \19\ These acquisitions include the Wide Area Augmentation System
    (WAAS) Program, the Standard Terminal Automation Replacement System
    (STARS), and the En Route Automation Modernization (ERAM) system. FAA
    has awarded contracts for these large modernization efforts using a
    grand design, rather than through successive incrementally priced
    awards--each of which experienced cost increases, delays, and
    performance issues.
        \20\ FAA's AMS lacks sufficient guidance on practices that could
    minimize mistakes associated with acquisition planning, such as using
    modular contracting to award information technology contracts in
    incremental, workable segments; and using contract line items, with
    separate pricing, contract types, and deliverables, to better manage
    the acquisition.
    ---------------------------------------------------------------------------
        Second, FAA did not take sufficient steps to assess and mitigate
    risk factors we identified on a previous significant contract when
    selecting a bidder and awarding the new contract, potentially resulting
    in increased costs to the Agency. In 2015, FAA decided to award a $727
    million new Controller Training Contract (CTC), without first
    addressing longstanding issues we reported with its prior controller
    training contract, the $859 million Air Traffic Control Optimum
    Training Solution (ATCOTS) contract. Specifically, in 2013, we reported
    that before awarding ATCOTS, FAA determined there was a 60- to 80-
    percent likelihood that the successful bidder would not meet FAA's
    training needs with the limited staff hours proposed.\21\ However, FAA
    did not require the contractor to address this issue prior to award and
    had to spend millions of dollars more than expected to make up for the
    shortfall in contracted resources. We made 10 recommendations in 2013
    to improve FAA's management and oversight of the ATCOTS contract. We
    recently reported that while FAA addressed recommendations related to
    contract administration practices and oversight, it has not implemented
    those related to better defining training requirements and validating
    training costs. \22\ These recommendations were designed to improve
    FAA's ability to develop a comprehensive understanding of its training
    needs and, in turn, a more reliable estimate of the Agency's training
    costs. Because FAA awarded CTC without fully addressing these
    recommendations, it may encounter many of the same issues that
    compromised the success of the ATCOTS contract.
    ---------------------------------------------------------------------------
        \21\ FAA Needs To Improve ATCOTS Contract Management To Achieve Its
    Air Traffic Controller Training Goals, (OIG Report Number ZA-2014-018)
    December 18, 2013.
        \22\ FAA Has Not Sufficiently Addressed Key Weaknesses Related to
    Its ATCOTS Contract (OIG Report Number ZA-2016-010), December 10, 2015.
    ---------------------------------------------------------------------------
    Developing and Sustaining an Effective and Skilled DOT Workforce
        Maintaining an effective and skilled workforce is critical to
    ensuring a safe and vibrant transportation system. This means
    identifying and hiring the right number of staff with the requisite
    skill mix; adapting hiring and training practices to account for
    changing missions, requirements, and workforce demographics; and
    implementing policies and procedures that promote employees' success
    and ability to carry out DOT's mission effectively.
        However, DOT agencies have not always taken adequate actions to
    ensure a robust workforce. For example, FAA lacks a comprehensive
    process for determining staffing levels needed to oversee its
    Organization Designation Authorization (ODA) program--a program that
    allows FAA to delegate certain functions, such as certifying aircraft
    components, to manufacturers and other organizations. Although FAA uses
    a staffing model to help identify overall ODA staffing needs, the model
    does not include detailed data on important workload drivers, such as a
    company's size and location, type of work performed, past performance,
    and project complexity and volume. In addition, FAA does not have the
    data or an effective model to accurately identify how many air traffic
    controllers it needs to maintain efficiency without compromising
    safety. Therefore, as we recently reported, many of FAA's busiest and
    most complex air traffic control facilities have a shortage of fully
    trained controllers.\23\ We have an ongoing audit to examine FAA's new
    controller hiring process and the changes that have occurred since its
    implementation in 2014.
    ---------------------------------------------------------------------------
        \23\ FAA Continues to Face Challenges in Ensuring Enough Fully
    Trained Controllers at Critical Facilities, (OIG Report Number AV-2016-
    014), January 11, 2016.
    ---------------------------------------------------------------------------
        My office has made a number of recommendations to help DOT ensure
    its employees keep abreast of changing technology and missions. Now,
    agencies must follow through on actions planned in response to these
    recommendations. For example, in 2011 we found that NHTSA's ODI did not
    have a formal training program to help develop its current and future
    workforce to promote continuity of institutional knowledge. In 2015,
    NHTSA provided us a workforce assessment that evaluated its staffing
    and training needs for ODI. NHTSA must now fully implement the results
    of the workforce assessment to help inform future decisions on the
    resources required for this critical mission. Similarly, we found in
    2014 that FHWA had not conducted a comprehensive assessment of MAP-21's
    impact on its workforce--despite the significant structural changes the
    act brought about, such as consolidation of several FHWA programs. FHWA
    has since completed an assessment that recognizes the Agency's need to
    make changes to the way it does business and deploys staff to meet MAP-
    21 requirements and carry out its mission effectively.
        Changes in workforce demographics also present unique challenges
    for DOT. For example, 22 percent of DOT's acquisition workforce was
    retirement-eligible in fiscal year 2015, heightening the need for
    improved compliance with contracting officer (CO) training and
    experience requirements across all DOT agencies.\24\ DOT's acquisition
    workforce is composed of hundreds of COs, CO representatives, and other
    supporting staff who provide agencies with the goods and services
    required to accomplish their mission at the best value to
    taxpayers.\25\ While DOT has several training improvement initiatives
    under way for its acquisition workforce, our 2015 review found that it
    still needs to clarify and enforce its policies governing certification
    and warrant authority for COs.\26\ Of the 63 COs we reviewed, 15 (24
    percent) did not fully comply with DOT requirements. For example, 10
    COs' certifications had expired, yet they continued to approve over
    3,000 contract actions and obligate over $731 million. While DOT
    recently revised its acquisition workforce policy in response to our
    report, full implementation of our recommendations and enforcement of
    these policies will be critical to ensure that COs have the appropriate
    training, experience, and certification to award and administer DOT's
    complex, high-dollar acquisitions.
    ---------------------------------------------------------------------------
        \24\ FAA is excluded from these data and the scope of our work
    described in this paragraph because Congress exempted FAA from Federal
    acquisition laws and regulations in DOT's fiscal year 1996
    Appropriations Act. Congress provided FAA with broad authority to
    develop its own acquisition process. Under this authority, FAA
    developed the Acquisition Management System and a set of policies and
    guidance designed to address the unique needs of the Agency.
        \25\ COs are Government employees who can bind the Federal
    Government to a contract. COs are responsible for ensuring performance
    of all necessary actions for effective contracting, ensuring compliance
    with the terms of the contract, and safeguarding the interests of the
    United States in its contractual relationships. Contracting Officer
    Representatives (COR) are Government employees responsible for
    monitoring the contractor's progress in fulfilling the technical
    requirements specified in the contract. For example, CORs maintain
    administration records, approve invoices and perform quarterly
    monitoring reports to confirm the contractor is meeting the terms and
    conditions under the contract.
        \26\ Some Deficiencies Exist in DOT's Enforcement and Oversight of
    Certification and Warrant Authority for Its Contracting Officers (OIG
    Report Number ZA-2015-041), April 9, 2015.
    ---------------------------------------------------------------------------
                  enhancing dot's it security and preparedness
        Attacks on public and private sector information systems, carried
    out by increasingly well-funded and organized hackers, pose a
    continuous threat to the more than 450 information systems DOT uses to
    conduct business and operate some of the Nation's most critical
    transportation systems. While DOT has made progress in protecting its
    information systems, many remain vulnerable to compromise, underscoring
    the need for more effective contingency planning, and aggressive
    deterrence of insider threats.
    Protecting DOT's Information Systems From Increasing Threats
        DOT continues to face longstanding cybersecurity vulnerabilities
    and must take corrective actions to address identified weaknesses that
    pose threats to its information systems. To its credit, DOT has made
    major progress in implementing the required use of Personal
    Identification Verification (PIV) cards \27\ for all DOT employees and
    contractors--a key step in securing access to DOT facilities and
    systems. DOT reported issuing PIV cards to 100 percent of its
    employees, and 98.3 percent have been configured for use in accessing
    networks--an increase of 74.5 percent from last year.
    ---------------------------------------------------------------------------
        \27\ A PIV card is a smart card that contains the necessary data
    for the holder to be granted access to Federal facilities and
    information systems and assure appropriate levels of security for all
    applicable applications.
    ---------------------------------------------------------------------------
        However, DOT has been slow to take corrective actions to address
    many other cybersecurity weaknesses. To help reduce cybersecurity
    risks, OMB requires agencies to track identified weaknesses using plans
    of actions and milestones (POA&M). Yet, in 2015, DOT had a backlog of
    more than 3,800 POA&Ms, which included 21 unimplemented recommendations
    we have made. DOT also remains behind schedule in implementing
    recommendations we have made in our annual Federal Information Security
    Management Act (FISMA) reports and other IT-related audits.
        Many of our recommendations focus on key Administration priorities.
    For example, OMB requires agencies to implement continuous information
    system monitoring, which can provide near real-time security
    information to senior leaders, by 2017.\28\
    ---------------------------------------------------------------------------
        \28\ Continuous monitoring involves establishing processes and
    capabilities to provide near real-time security information to senior
    leaders.
    ---------------------------------------------------------------------------
        However, DOT has not yet defined the practices or technologies that
    should be used or established common security controls \29\ to help
    protect its information systems, including high-value asset \30\
    systems. Specifically, DOT is still conducting planning and research to
    determine the resources needed to ensure that common controls are
    properly used, implemented, and monitored. Until those are finalized,
    DOT remains vulnerable to more aggressive and complex cyber threats due
    to insufficient security controls.
    ---------------------------------------------------------------------------
        \29\ Necessary to meet requirements of the National Institute of
    Standards and Technology (NIST), common system security controls are
    controls that exist in one system that can be used to protect other
    systems.
        \30\ High-value assets are assets, systems, or datasets that may be
    considered ``high-value'' by the Department based on the following
    attributes--sensitivity of the information, uniqueness of the dataset,
    impact of loss or compromise, system dependencies, and systems that are
    integral to supporting critical department communications. A system is
    considered ``high impact'' if the loss of confidentiality, integrity,
    or availability for that system could be expected to have a severe or
    catastrophic adverse effect on organizational operations,
    organizational assets, or individuals.
    ---------------------------------------------------------------------------
    Strengthening Contingency Plans and Security Protocols To Deter Insider
            Threats
        We continue to find weaknesses in DOT's ability to plan for
    contingencies and recover from disruptions, even for critical systems.
    For example, our ongoing work has shown that several Operating
    Administrations did not conduct annual contingency plan testing for
    their selected mission critical or high- and moderate-impact systems to
    ensure they will work in the event of a disruption, as required.\31\
    Specifically, 5 of the Department's 12 Operating Administrations did
    not comply with DOT policy to conduct such testing or meet all DOT
    requirements for their disaster recovery plans, potentially limiting
    their effectiveness at ensuring continuity of critical systems in the
    event of a malicious attack.
    ---------------------------------------------------------------------------
        \31\ Departmental Cybersecurity Compendium Supplement to DOT Order
    1351.37, ``Departmental Cybersecurity Policy,'' Version 3.0, September
    2013.
    ---------------------------------------------------------------------------
        The importance of effective contingency plans was demonstrated on
    September 26, 2014, when an FAA contract employee deliberately started
    a fire that destroyed critical telecommunications equipment at FAA's
    Chicago Air Route Traffic Control Center in Aurora, IL. As a result of
    the damage, Chicago Center was unable to control air traffic for more
    than 2 weeks,\32\ thousands of flights were delayed or cancelled, and
    aviation stakeholders and airlines reportedly lost over $350 million.
    While FAA completed comprehensive reviews of its contingency plans and
    security procedures following the Chicago Center incident, significant
    work remains to prevent or mitigate the impact of similar events in the
    future.
    ---------------------------------------------------------------------------
        \32\ Chicago Center's air traffic and airspace responsibilities
    were eventually transferred to other facilities, based on a 2008
    contingency plan and airspace map. This required extensive adjustments
    to ensure adequate radar and radio communication coverage.
    ---------------------------------------------------------------------------
        Notably, the event highlighted the need to enhance security and
    increase the flexibility and resiliency of the national air traffic
    control system. For example, FAA lacked the controls necessary to block
    access to a contract employee no longer assigned to this facility,
    thereby leaving the Center's high-value systems vulnerable to
    unauthorized access, disruption, and loss of information. Other insider
    threats pose significant threats to security, ranging from an employee
    who maliciously steals data to an employee who unwittingly opens
    infected email attachments. For example, in 2014, a DOT employee opened
    an infected email attachment and unleashed a serious computer virus
    (known as ``Dyre'') into DOT's network, compromising more than 5,000
    computers and resulting in loss of productivity, email interruptions,
    and data loss. The virus was designed to steal information (including
    passwords), avoid routine detection, and generate new emails with
    attachments to further spread the virus. While DOT reported that the
    virus has been mostly eradicated, it noted the need to better train
    employees to protect DOT's systems to lower the risk of system
    compromise.
                                   conclusion
        The safe and efficient movement of people and goods is vital to our
    Nation's economic growth, global partnerships, and quality of life. The
    Department has clearly demonstrated its commitment to advance these
    priorities. To continue addressing the management issues we have
    identified as well as a changing transportation environment, it will be
    important for the Department to follow through with new safety
    standards and recommended actions, stronger financial and project
    controls over major investments, and vigilant security and preparedness
    measures.
        We remain committed to assisting DOT as it works to improve how it
    manages programs and resources and to our role in ensuring the greatest
    return on investment to taxpayers. I appreciate this Committee's
    continued support in the coming fiscal year to enable us to enhance our
    coverage of the Department's safety programs, high-dollar
    administrative and management assets, and information systems security.
        This concludes my prepared statement. I will be happy to answer any
    questions you or other Members of the Subcommittee may have.

                                 CYBERSECURITY

        Senator Collins. Thank you very much.
        I was very pleased that you mentioned cybersecurity and the
    vulnerabilities there. What is your assessment of the
    vulnerabilities and risk to critical infrastructure that is
    part of the Department of Transportation?
        Mr. Scovel. Thanks for the question.
        We are very concerned. It remains a significant
    vulnerability for DOT as it does for virtually every other
    agency across all of government. It is a threat that seems to
    grow by leaps and bounds. And despite the best efforts of the
    cybersecurity officials in DOT as well as other units of the
    Government, it is almost as if they are being overtaken by the
    threat and by technology itself.
        As you know, we are required to conduct a Department-wide
    survey, if you will, of information security management every
    year. We have found that, in the past year, DOT made
    significant progress, as I mentioned, in the use of PIV cards,
    requiring PIV cards, which, when they are fully implemented
    across the board, will be essential not only for facility
    access, physical security, if you will, but also for what the
    techies call logical access. They can be used to gain access to
    particular security or computer programs.
        On the other hand, where the Department has struggled is in
    implementing its plan of action and milestones (POA&Ms). They
    are plans of action and milestones to address critical
    vulnerabilities.
        In fiscal year 2014, DOT had about 5,600 POA&Ms on the
    books. By the end of fiscal year 2015, they had reduced that
    number to about 3,200, so they had made some progress.
        But those that remain constitute significant tough nuts, in
    our opinion, to crack. Many of those POA&Ms do not yet have
    start dates assigned to them. The Department has not yet been
    able to even estimate the remediation costs in order to
    implement those.
        I mentioned in my prepared statement continuous monitoring,
    which is a top priority across all of government, so that
    senior officials can understand on a real-time basis when
    threats are appearing and what immediate action they may be
    able to take to deal with them.
        In order to make progress on that, the Department has to
    identify those key nodes across all of DOT's cyberspace, so
    that if there are places where a single, common system security
    control can be effective, it can be placed at that one place,
    and it can have a ripple effect for security across the board.
        Just very quickly, and I have talked a long time on this,
    because, as you know, it is a significant problem. DOT has
    about 200 critical systems out of the 463 on the books; 163 of
    those belong to FAA. DOT understands it needs to prioritize its
    cybersecurity efforts to protect those most critical systems
    through the means that I mentioned, the POA&Ms, the continuous
    monitoring, and the common system security controls.

                             CYBERSECURITY--NEXTGEN

        Senator Collins. That was an excellent answer, and I very
    much appreciate the thoroughness. This has been a major concern
    of mine.
        Do you think that the NextGen system, which we are
    installing for air traffic control, will help decrease the
    vulnerability of our air traffic system to a cyber attack?
        Mr. Scovel. Madam Chairman, it will help in some respects,
    but in other respects, the NextGen systems themselves may be
    vulnerable. We have undertaken some testing of some of the
    systems, ADS-B (Automatic Dependence Broadcast System) and
    others. We have concerns about those.
        I am not at liberty in an open forum to discuss those,
    because our reports have been properly deemed, after review by
    the Department, to constitute sensitive security information.
    We have spoken with your staff on some of those matters in the
    past. We would be happy to come over and in a closed setting
    discuss them with you in more detail.

                      SEXUAL ASSAULT AND SEXUAL HARASSMENT

        Senator Collins. Thank you very much. This is an issue that
    I continue to pursue from my seat on the Intelligence Committee
    as well.
        I want to follow up on a question that Senator Reed asked
    the Secretary, and that has to do with sexual assault at the
    U.S. Merchant Marine Academy.
        The Department's most recent report on the academy shows
    that the level of sexual assault and harassment remains
    unacceptably high. There continues to be a large discrepancy in
    the number of sexual assaults that are officially reported and
    the responses to the anonymous survey. That is very troubling
    because it implies that the midshipmen women still do not have
    the trust and faith in the academy's leadership to report
    incidents when they occur, whether it is on campus or at sea.
        What recommendations do you have for how we can change the
    underlying cultural attitudes that the Secretary referred to
    that appear to either turn a blind eye to or in some ways not
    really condone but do not forcefully act on such a disturbing
    level of sexual assault and harassment at the academy?
        Mr. Scovel. Madam Chairman, this is a most disturbing
    problem. You and I and Senator Murray have had discussions on
    this in the past, and I greatly appreciate your interest and
    concern on behalf of the students at the Merchant Marine
    Academy. I think the ranking member is exactly right when he
    pointed out earlier, in questions to the Secretary, his
    observations concerning his experience at West Point and
    elsewhere in the military, Senator.
        But when a critical mass is achieved in the student body
    and even more particularly, in the administration leadership at
    the academy itself, things can change.
        Obviously, as inspector general, I am not in a position to
    influence that, but where we have brought our forces to bear,
    on, that is, with the assistance and at the request of this
    committee and others, to take a look at what the school and the
    Maritime Administration have done, what they have planned, what
    other recommendations for improvement we might be able to make
    to them.
        We did that in the 2014 report. We furnished them nine
    recommendations at the time. After close scrutiny, my staff
    concluded that the recommended actions had all been taken by
    the academy administration, so we were able to close all nine
    of our recommendations from the 2014 report.
        At about the same time, the academy, much to its credit,
    embarked on its own action plan, 44 steps across six or seven
    different phases that they intended to carry out in order to
    make concrete progress on building the trust and confidence
    that you mentioned is necessary on behalf of students.
        They closed their action plan in 2015 without having
    completed all 44 items that constituted the plan. They left--
    not unaccounted for, but unresolved, at least to our
    satisfaction--a handful. I think it was seven, to be specific.
        But we are continuing our discussions. At the committee's
    request, we have been asked to examine the academy's actions on
    that action plan and see if it meets with our approval, at
    least. We are continuing those discussions. We are going to
    have further meetings over the next month or so on the
    remaining seven. We will be in a position at that point to come
    and discuss with the staff and you, if you wish, how we feel on
    the academy's progress.
        You mentioned earlier, and it has come up, but I would like
    to mention it too, because it is a concern for me, and I have
    emphasized with our staff--that is, a look at the academy's
    action plan, however good it may appear to be for
    implementation on the grounds at King's Point. There are
    anywhere from 8 to 12 months of an academic year when students
    go out in very small groups and are at sea for extended periods
    of time and put into port in places that are much different
    culturally and, frankly, can get wild. We can all use our
    imaginations on things like that.
        Those are opportunities for young people, male or female,
    to be vulnerable and to find themselves in trouble. So the
    Academy's action plan needs to really get at that specific
    point in order to have a fighting chance of getting trust and
    confidence back among the students.
        Senator Collins. Thank you.
        Senator Reed.

                              HAZARDOUS MATERIALS

        Senator Reed. Thank you very much, Madam Chairman.
        And thank you, Mr. Scovel. Obviously, we take your reports
    very seriously, since we have used it for significant questions
    of the Secretary.
        Again, going back to your report on hazardous materials
    transportation, one aspect of the report was a finding that
    many cases merit referral to your office for actual criminal
    investigation. Can you provide some examples of those types of
    cases?
        Mr. Scovel. I can. I will be happy to.
        Just to review it a little bit, and I will try to do it
    quickly, a couple years ago, I was on a field visit to one of
    our investigative field offices in Florida. And I spoke with
    one of our agents there who reported that in her 15-year career
    or so with our Office of Inspector General, she had received
    criminal referrals from virtually every other operating
    administration in the Department except for FRA. She was
    disturbed by that.
        That got my attention. I came back to headquarters. We had
    on our planning schedule a look at FRA hazmat procedures, and I
    asked them to put in a specific objective to examine this
    question of criminal referrals. So we were able to tackle that.
        I can say that in the cases that we looked at, and there
    were 75 between fiscal year 2010 and fiscal year 2014, we had
    received zero criminal referrals from FRA. We found, however,
    that there were instances of those 75--23 percent, as we looked
    at it through both auditors' and investigators' eyes, should
    have merited some attention from my staff, trained criminal
    investigators. So those were 17 out of the 75 cases.
        A couple of examples. One company produced valves that had
    not been put through a required design approval process. Those
    valves later caused leaks on tank cars carrying hazardous
    materials. FRA chose to pursue civil penalties against that
    company and in March 2015 released a rail worthiness directive
    on valve replacement, but never referred the case to our office
    for criminal investigation.
        Another example. A different company released overweight
    tank cars for use several times without rectifying the weight
    problems and after they had been certified by that company as
    underweight. These circumstances indicate possible false
    statements by a repeat violator, but FRA did not refer that
    case to our office for criminal investigation either.
        A final example. Another company may have made a false
    statement when it did not include in a bill of lading the
    radioactive containers located on a flat railcar on the train,
    but FRA again did not refer the matter to our office.
        Senator Reed, we have heard from every single other
    operating administration in the Department, including even the
    St. Lawrence Seaway Development Corporation, in those years,
    2010 through 2014. Even St. Lawrence Seaway referred a criminal
    matter to us.
        We have had zero from FRA, whether it was safety related or
    whether it was potentially grant-fraud related. As you know,
    FRA has significant oversight responsibility now for high-speed
    rail grants.
        So we have embarked on a concerted effort, and I know we
    have the support and attention of the Department's highest
    leadership as well as FRA itself, in order to turn that around,
    without using every tool in the toolbox--which includes not
    only civil penalties to FRA's leadership but also criminal
    investigations, when properly warranted. It amounts to what I
    call partial disarmament on the part of the safety regulator.
    That is most disturbing. I would like to see it corrected.

                              CRIMINAL VIOLATIONS

        Senator Reed. Let me just follow up with a question. This
    is for my benefit as much is anybody else.
        The procedure in the Department is that an agency would
    submit a potential criminal violation to your office. You would
    investigate it, and then you would submit it to the Federal
    Bureau of Investigation (FBI) or the Federal attorney? What is
    the stop out of your office?
        Mr. Scovel. Thanks. We would take it to the assistant U.S.
    attorney, to the U.S. attorney in the district where the
    alleged violation occurred.
        Quite honestly, they have their own priorities, as I am
    sure you understand. Counterterrorism and public corruption
    these days are number one on the list for FBI and Department of
    Justice attention. So matters like this can sometimes be
    difficult for us to attract attention. But with safety cases,
    particularly where the potential for grievous effects is
    significant, depending on when and where, we can often get
    Department of Justice cooperation.
        Senator Reed. So it is not like that FRA is going directly
    to the Federal level. They have to go through you. They are not
    going through you.
        Mr. Scovel. Yes. This is in contravention I should say,
    too, of Department orders that are very specific--that when
    possible criminal activity comes to the attention of any of the
    modes, they are to refer it to the Office of Inspector General.

                              ADDITIONAL RESOURCES

        Senator Reed. Thank you. Just a final question on that, the
    administration submits a budget for your office and you submit
    a budget for your office. And we have to sort of parse it.
        You are requesting additional resources from the
    administration's budget, including 25 additional full-time
    equivalent (FTE) positions, I believe. First of all, again, we
    appreciate the work you are doing and the work is increasing, I
    am sure. But can you explain how you are going to use this
    additional staff, and why you need it?
        Mr. Scovel. I would be happy to, and thank you for the
    question. I have some notes, and if you will bear with me, I
    want to be careful in how I say this because we, of course,
    have had communications with the Department and with OMB as
    well as others on the Hill here already, and I want to make
    sure I am consistent.
        Senator Reed. Yes, sir.
        Mr. Scovel. We have always appreciated it, at DOT OIG, this
    committee's, and your colleagues' committees over on the House
    side, concern and interest in and support across all the years.
    I have been the inspector general for a little over 9 years,
    and it has been magnificent.
        Here is where we stand now. OIG's budget request to OMB was
    $93.6 million in support of an estimated 422 career level FTEs.
    The President's budget request is for $90.2 million in support
    of an estimated 397 career level FTEs. That would be sufficient
    as well for 13 student and expert FTEs.
        We do appreciate that the President's budget is intended to
    help us move in the right direction. But I consider myself duty
    bound to advise you, and now that you have asked, we have
    advised OMB in our original budget request, the 25 additional
    FTEs we originally requested is the number of staff that would
    enable us to fully execute our mission focusing on safety
    across all transportation modes while continuing to identify
    cost-saving opportunities and making recommendations to improve
    program efficiency and effectiveness. Operating below OIG's
    requested level puts at risk our ability to provide full and
    effective oversight of expanding DOT programs.
        I submit that based on our office's record for many years
    now, whatever appropriated dollars are sent our way, we make
    tremendous use of. A traditional measure in the accountability
    community is called return on investment. In 2015, our return
    on investment was 32-to-1; for each single appropriated dollar,
    we were able to return financial recoveries to the Government
    of $32. For the 5 years prior to that, it was 29-to-1. So that
    puts us really among the top tier of Federal Offices of
    Inspector General.
        The resources we have requested for 2017 we believe are
    necessary to enable us to provide critical audit and
    investigative support of aviation and surface safety issues. We
    plan to sharpen our focus on administrative, management, and
    procurement programs with significant budget and information
    security impacts.
        We need to maintain certain technical capabilities needed
    to conduct increasingly complex audits and investigations.
        And we are also overdue, since we are talking about
    cybersecurity, to take measures to reinforce our own IT
    security posture.
        We also have significant new oversight responsibilities,
    and we welcome them, that have been associated and handed to us
    through the FAST Act, the Digital Accountability and
    Transparency Act (DATA Act), the Grants Oversight and New
    Efficiency Act (GONE Act), and the Surface Transportation Board
    (STB) Reauthorization Act.
        Full funding would enable us to, most importantly, cover
    the increasing personnel costs that are largely outside of our
    control and that have left us with insufficient funds to
    support our full allotment of career level FTEs.
        Sir, 75 percent of OIG's budget goes to payroll, if you
    will. Much of the balance of that 25 percent is for expenses
    over which we have no control--rent and the Department's own
    working capital fund.
        I will close by thanking you and the chairman and all
    members of the committee for your consistent concern and
    support for our mission. I well recognize that every government
    agency these days operates in a financially constrained
    environment. And I pledge to you that no matter what the final
    decision may be for our office's appropriation, we will do all
    we can with all we have, and my staff sitting behind me has
    heard me utter those exact words in all-hands meetings and
    everything else. We will always do all we can with what we have
    to support the Secretary and the Congress.
        Senator Reed. Thank you.
        If I can make just one brief comment, the chairman has been
    very thoughtful about including the inspector general in these
    hearings, and the HUD inspector general has made the same basic
    comments about IT security, which is a multibillion-dollar,
    government-wide sort of cost that is recognized but not funded.
    We were commenting about that after he left.
        So we have to do some thinking I think. Thank you, Madam
    Chair.
        Mr. Scovel. Thank you, sir.
        Senator Collins. I certainly agree with the ranking member
    in that regard.
        Mr. Inspector General, I want to thank you so much, not
    only for your excellent testimony today. I was impressed, since
    we gave you know warning that I was going to ask you about
    cybersecurity, how extremely on top of that issue that you are,
    which I think is appropriate because I do believe it is one of
    the greatest vulnerabilities that we have facing our critical
    infrastructure and one that we have done the least to truly
    deal with in a serious way.
        But I am always very impressed when I meet with you, have
    discussions with you, or hear you testify. So my thanks to you
    and your office and dedicated employees who are working hard to
    make sure the Department is as efficient as possible.

                         ADDITIONAL COMMITTEE QUESTIONS

         The hearing record will remain open, as I indicated, until
    next Friday, March 25. Undoubtedly, additional questions will
    be submitted to you for the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department subsequent to the hearing:]
                Questions Submitted by Senator Susan M. Collins
        Question. The Department recently announced the seven finalists for
    the Smart City Challenge, which is intended to provide $40 million over
    3 years to a medium-sized city for deployment of intelligent
    technologies. These may include technologies such as autonomous
    vehicles, urban automation, sensor-based infrastructure, and electric
    vehicle fleets to help reduce congestion and provide innovative
    solutions for safety and mobility.
        Mr. Secretary, given the limited amount of funding available for
    research and technology, does it really make sense to spend a
    substantial amount of money on only one city?
        Answer. On December 2015 USDOT issued a Notice of Funding
    Opportunity challenging medium-sized cities to solve tomorrow's
    transportation challenges using technology and innovation. The
    overwhelming response surprised us. Seventy-eight medium-sized cities
    from across the country--from Portland to Providence and from Anchorage
    to Albuquerque--submitted thirty-page vision proposals.
        We intend to offer one city $40 million because a substantial
    amount of money focused on one city has the potential to (1) be more
    effective in getting the attention of medium-sized cites, (2) inspire
    cities to use 21st century technology and innovation to solve
    tomorrow's transportation challenges, (3) produce solutions that are
    replicable in other medium-sized cities, (4) make the United States the
    leader in the development of smart city transportation solutions, (5)
    be enough money to create a demonstration that will make an impact in a
    medium-sized city, (6) encourage universities, foundations, NGOs to
    help these cities look to the 21st century solutions, and (7) be
    sufficient to attract technology companies to form partnerships with
    the seven finalists. While only one city will win, the Smart City
    Challenge started a conversation in seventy-eight cities that has the
    potential of changing how they look at transportation.
        Question. As I mentioned in my opening statement, I am frustrated
    the Department continues to use the same old gimmicks we have seen in
    the past, shifting programs from discretionary to mandatory. The budget
    proposal, excluding funding for Amtrak, includes $4.1 billion in
    proposed mandatory spending for ``High-Performance Rail'' all the while
    we have the Railroad Rehabilitation and Improvement Financing Program
    with nearly $33 billion in available loan assistance sitting
    unobligated.
        The fiscal year 2016 omnibus provided nearly $2 million to the
    Federal Railroad Administration to support short line railroads with
    costs associated with RRIF loan applications. Additionally, the FAST
    Act included reforms to RRIF to make the program more accessible.
        Mr. Secretary, how does the Department plan to use the funds
    provided in fiscal year 2016 and given the changes made by the FAST Act
    what concrete steps are you taking to get RRIF funding out the door?
        Answer. As directed by the fiscal year 2016 Consolidated
    Appropriations Act, the Department intends to use the $1.96 million
    appropriated under Section 152 of Division L of the Act to assist Class
    II and Class III railroads in lowering costs related to applying for a
    loan under the Railroad Rehabilitation and Improvement Financing (RRIF)
    Program. Specifically, these funds will be made available for applicant
    expenses in preparing to apply and applying for direct loans and loan
    guarantees. The Department is currently developing guidance to define
    how these funds will be made available to eligible applicants to defray
    costs, ensure efficient application processing, and achieve loan
    closing.
        Increasing access to and usage of the RRIF Program is a top
    priority of the Department. The program can play an important role in
    advancing major infrastructure projects and assisting potential
    borrowers in completing smaller infrastructure, equipment, and
    refinancing projects that play a vital role in the borrowers'
    operations and the overall performance of the rail network. Prior to
    the enactment of the FAST Act, the Department had implemented process
    improvements to increase stakeholder outreach, provide technical
    assistance to prospective borrowers, and improve the efficiency of the
    loan application process. In 2015, the FRA completed the same number of
    loans--two--as the previous 3 years combined.
        The FAST Act contains several provisions intended to further
    streamline the loan approval process, increase applicant eligibility,
    and fund a wider array of projects.
        The FAST Act also established the National Surface Transportation
    and Innovative Finance Bureau (Bureau) within DOT. The Department is in
    the process of establishing the Bureau to help consolidate outreach/
    coordination of DOT credit programs, process applications more
    efficiently, provide technical assistance, and communicate best
    practices regarding DOT financing and funding opportunities.
        Question. Last fall, Administrator Huerta testified before this
    subcommittee on how to successfully integrate unmanned aircraft systems
    into our Nation's airspace. Given the rise in the number of U.A.S.
    sightings near our Nation's airports, I remain concerned about the
    threat posed by potential interference with airport operations. Mr.
    Secretary, what is the F.A.A. doing to address this alarming growth in
    ``close calls'' of U.A.S. near airports?
        Answer. As of December 21, 2015, everyone who flies a UAS that
    weighs more than 0.55 pounds and less than 55 pounds outdoors must
    register using the FAA's new online registration system. Before
    completing registration, registrants must acknowledge safety
    guidelines, which include restrictions and requirements for flying near
    airports. As of the end of March, over 415,000 operators have
    registered.
        Registration is a key component of the FAA's education efforts,
    which also include the No Drone Zone campaign, the B4UFLY smartphone
    app, and providing airports with educational public service
    announcements to display in their terminals.
        Recognizing that education has its limits, the FAA is also working
    with interagency partners to evaluate UAS detection technology in the
    vicinity of airports. As part of the FAA's Pathfinder program, testing
    of a detection system developed by CACI International was completed at
    the Atlantic City International Airport in February 2016. A total of
    141 tests were conducted--72 with a UAS on the ground and 69 with
    different, small UAS in flight. Engineers from the FAA, CACI, and the
    Department of Homeland Security will develop a final report of findings
    by August 2016.
        The FAA pursues enforcement action against the operator where
    unsafe or unauthorized UAS operations occur that have a medium to high
    impact to the safety of the National Airspace System (NAS), where the
    operator is intentionally non-compliant, or where the case involves
    repeat violations. Enforcement action can take the form of a civil
    penalty or a certificate action if the operator holds an FAA issued
    certificate. If criminal statutes are implicated, the FAA also works
    with our law enforcement partners in prosecuting those cases.
        Question. I have been outspoken about the need to improve the
    safety of our rail network, not just on the larger Class One railroads,
    but also on the ``short lines.'' Maine has no Class One railroads.
    Therefore, short lines play an integral role in connecting goods to our
    citizens. In order to address their unique needs, Congress provided
    funding in fiscal years 2015 and 2016 to assist the short lines in
    building a stronger, sustainable safety culture through the
    establishment of the Short Line Safety Institute. The Short Line Safety
    Institute recently hired an Executive Director and last year began
    conducting safety culture assessments at several short line railroads
    across the country. How is the Department using feedback from these
    assessments as it works with the Institute on the development of
    training, education, and recommendations to improve the safety
    performance of short lines?
        Answer. The Short Line Safety Institute's (Institute) primary goals
    are to enhance and improve safety practices and to increase the short
    line and regional railroad industry's culture of commitment to safety
    through assessing their safety culture, recommending how to improve it,
    and providing leadership, training, and education about safety culture
    and conformance. The Institute will accomplish these goals through Four
    Pillars of activities:
        (1)  Safety Culture Assessment: Conducting voluntary, non-punitive,
            confidential safety culture assessments (initially focused on
            railroads that transport crude oil);
        (2)  Education & Training: Serving as a long-term training and
            education resource for short line and regional railroads;
            providing resources, based on industry ``best practices'', for
            strengthening railroad safety culture;
        (3)  Research & Evaluation: Serving as a research center that
            compiles and disseminates information on safety needs and
            trends within the short line and regional railroad industry
            (e.g., assessing education/training needs, identifying
            communications gaps, and analyzing safety metrics over time);
            and
        (4)   Strategic Communications: Disseminating timely information to
            industry stakeholders about the Institute's mission and vision
            and providing guidance on how to communicate internally and
            externally about safety culture improvement efforts
            stakeholders may undertake at their properties.
        After a safety culture assessment, assessors synthesize information
    collected from multiple methods (interview, document review,
    observation, survey) from employees across all levels of the short line
    railroad. In addition to providing individualized feedback to the
    railroads assessed, the assessments are also used to identify industry-
    wide gaps in safety culture knowledge. The Institute will address these
    gaps with training, webinars, conferences, and other strategic
    education and communication efforts. As a result, the Institute will
    provide short line and regional railroads with the tools needed to
    drive safety culture change.
        FRA is partnering with the American Short Line and Regional
    Railroad Association (ASLRRA) and the Institute in this effort,
    providing continuing support to the Institute as it strives to improve
    safety and safety culture in the short line industry. FRA's Office of
    Research & Development continues to work closely with ASLRRA, Volpe
    National Transportation Systems Center, and the University of
    Connecticut to ensure the Institute's processes and procedures are
    evaluated for effectiveness and based on scientific rigor.
        Question. We continue to hear aviation stakeholders question the
    F.A.A.'s ability to implement NextGen. We have spent approximately $6
    billion on NextGen to date, but passengers, shippers, and aircraft
    operators have realized few benefits. This lack of progress seems to be
    one of the main arguments driving the push for significant changes to
    F.A.A.'s structure. Surely by now the aviation industry is seeing
    benefits from the billions of dollars this committee has provided. Can
    you tell us what progress F.A.A. has made on NextGen?
        Answer. Passengers and operators benefit from NextGen in multiple
    ways, by flying on more direct paths to their destinations with fewer
    delays. NextGen benefits include fewer carbon emissions, contributing
    to a greener environment.
        Nationwide, the FAA has measured $1.6 billion in benefits to
    airlines and the traveling public from NextGen capabilities already in
    place since 2010 through 2014. Over the next 15 years, NextGen will
    produce an additional $11.7 billion in benefits from those
    improvements. Once all currently planned programs are in place, the FAA
    expects NextGen to deliver $134 billion in direct airline, industry,
    and passenger benefits through 2030. The benefits were based on the
    fiscal year 2014 Business Case for the Next Generation Air
    Transportation System.
        Last year, the FAA completed deployment of the En Route Automation
    Modernization (ERAM) system, in all FAA Centers in the continental
    United States. The system is already processing information from the
    634 ground transceivers that comprise Automatic Dependent Surveillance-
    Broadcast, ADS-B. In places such as Alaska and the Gulf of Mexico, our
    controllers can continuously track equipped aircraft, even though the
    nearest radar site might be several hundred miles away.
        The FAA is making flying more efficient. The Metroplex initiative
    has transformed the airspace around some of our busiest cities,
    replacing inefficient ground-based routes. We now have scores of new
    satellite-based air traffic procedures in Houston, North Texas,
    Charlotte, Washington, DC, and Northern California.
        The FAA has collaborated with the aviation industry through the
    NextGen Advisory Committee (NAC), a Federal advisory committee, to
    develop a plan to implement a number of high-priority NextGen
    capabilities in the areas of Multiple Runway Operations, Performance
    Based Navigation, Surface Operations, and Data Communications. To date,
    the FAA and industry have completed 42 NextGen Priorities commitments,
    introducing a wide range of benefits into the NAS.
        Question. In the fiscal year 2016 Omnibus bill, this Committee
    provided a substantial increase in resources to the National Highway
    Traffic Safety Administration for the Office of Defects Investigation.
    Given the dramatic increase in recalls and fines issued in recent
    years, ranging from fault GM ignition switches to Takata airbags, it
    was apparent NHTSA did not have sufficient engineers and resources to
    properly vet defect claims. The O.I.G. has issued several reports on
    NHTSA's inability to properly identify and address vehicle safety
    defects due to inadequate standards and procedures. I find it troubling
    that, according to the O.I.G., NHTSA has failed to consistently apply
    the recommendations from a 2011 report and lacks the mechanisms to
    ensure that staff consistently applies these recommendations. This
    finding from the O.I.G. makes me question whether the Department is
    truly making permanent changes as called for in I.G. reports for any of
    the agencies within DOT. Mr. Secretary, can you tell us how you, in the
    last few months of this Administration, will ensure the O.I.G.
    recommendations are taken seriously throughout the Department?
        Answer. NHTSA has performed a comprehensive review of its defects
    program. NHTSA's internal review and the review performed by the O.I.G.
    last year form the agency's roadmap for building a more effective and
    comprehensive defects program. NHTSA established an aggressive schedule
    to implement all of the O.I.G. recommendations, and the agency will
    meet its June 30, 2016 deadline. NHTSA has already initiated additional
    actions to address O.I.G.'s recent recommendations about establishing
    controls and procedures over the new policies.
        The Department, through its Office of Audit Relations and Program
    Improvement, recently initiated bi-monthly recommendation update
    meetings with each Operating Administration to discuss the status of
    every open recommendation. As of April 1, 2016, the Department had 547
    open recommendations. The OIG has closed 152 open recommendations,
    including 5of the 33 that it listed as high priority, based on actions
    taken by the Department to implement those recommendations. The
    potential savings of the closed recommendations total over $518
    million.
        My office is carefully monitoring and will continue to monitor
    NHTSA's and other DOT agencies' progress in meeting the benchmarks
    established by the O.I.G.
        Question. A local bus company in Maine has brought to my attention
    a troubling rulemaking issued by the Federal Motor Carrier Safety
    Administration, regarding ``bus lease-interchange''. This rule hurts
    operators who have a safe record but find themselves having to partner
    with other bus companies to provide service. For example, if bus
    company ``A'' breaks down on the side of the highway, full of
    passengers, then company ``A'' would have to find alternative service
    to get the passengers quickly and safely to their destination through a
    lease agreement with another company ``B''. This rule puts full burden
    of compliance and liability for company ``B'' on company ``A'', even
    though company ``B'' has DOT operating authority and its own safety
    record. This makes no sense if both companies have their own operating
    authority and are deemed safe by DOT. While the intent of this rule was
    to prevent unsafe carriers that attach themselves to reputable
    companies with DOT operating authority, the rule simply fails to do
    that. The very class of carriers that the rule was trying to go after
    would fall entirely outside of this final rule--in short, it really
    only hits the folks following the rules. The rule is detrimental to bus
    service providers across the country that regularly, and often without
    much notice, have to lease or charter additional service from other
    carriers. I am pleased to learn the Department delayed implementation 1
    year. Mr. Secretary, do I have your commitment to address these
    concerns before the end of this Administration?
        Answer. The Department acknowledges motor carriers of passengers'
    concerns about the Federal Motor Carrier Safety Administration's
    (FMCSA) 2015 final rule about the lease and interchange of buses. FMCSA
    received numerous petitions for reconsideration of the final rule and
    based upon a review of the petitions, determined that the compliance
    date should be extended to January 1, 2018 to provide sufficient time
    to address the issues raised by the petitioners. You have my commitment
    that FMCSA will issue a decision concerning each of the petitions for
    reconsideration by the end of the calendar year, and FMCSA anticipates
    publishing amendments to the final rule in the Federal Register for
    petitions which are granted, in early 2017.
                                     ______

                  Questions Submitted by Senator Steve Daines
        Question. Secretary Foxx, the President's budget request is over
    $98 billion. That is more than $22 billion, nearly 30 percent, above
    last year's enacted amount. The Office of Inspector General (OIG)
    reported to the Commerce Committee in January that there were 569 open
    recommendations with nearly $2 billion in potential savings. What is
    DOT doing to expedite implementation of these recommendations?
        Answer. The Department, through its Office of Audit Relations and
    Program Improvement, recently initiated bi-monthly recommendation
    update meetings with each Operating Administration to discuss the
    status of every open recommendation. As of April 1, 2016, the
    Department had 547 open recommendations. The OIG has closed 152
    recommendations, including 5of the 33 that it listed as high priority,
    based on actions taken by the Department to implement those
    recommendations involving questioned costs and funds put to better use,
    as identified by the OIG, total over $518. The potential savings of the
    closed recommendations total over $518 million.
        Question. The single biggest savings is in Federal Aviation
    Administration (FAA) air traffic control (ATC) towers, totaling $853
    million. DOT's target action date is in July. What is DOT doing to
    expedite implementation of these ATC savings?
        Answer. The FAA concurred with OIG Report #ST-2015-080: Efficiency
    of FAA's Air Traffic Control Towers Ranges Widely. The FAA is in the
    process of performing a ``Deep Dive'' into the facilities outlined in
    the report in order to determine the root causes of the inefficiencies.
    This will allow the FAA to determine if, in the interim, these causes
    have been corrected or if there are actions that can be implemented to
    improve efficiencies. The FAA is working to deliver a response to the
    OIG by the end of May 2016 and to issue a final response and results,
    as applicable, by the end of July 2016.
        Question. Airports in Montana utilize the Federal Contract Tower
    (FCT) program. These towers account for approximately 28 percent of
    operations while only utilizing about 14 percent of funds. Would
    expanding the FCT program improve DOT's finances?
        Answer. The FAA does not believe that expanding the contract tower
    program would improve FAA's or DOT's finances at this time. The FAA
    currently has no plans to convert any FAA towers into contract towers.
    Any expansion of the program would therefore solely involve adding more
    non-Federal towers to the program, thus raising FAA's overall costs.
        Question. In addition to financial responsibility, maintaining a
    safe transportation network is critically important. When it comes to
    addressing behavioral safety issues, States agencies, not the Federal
    Government, have the best understanding of their individual challenges.
    One provision I was proud to champion in the Fixing America's Surface
    Transportation (FAST) Act was to qualify 24/7 sobriety programs for
    National Highway Traffic Safety Administration (NHTSA) safety grants.
    While implementing the FAST Act, how will DOT ensure States have the
    flexibility to institute safety programs that address their unique
    challenges?
        Answer. NHTSA encourages States to develop creative approaches to
    improve safety. The general approach is to allow States the maximum
    flexibility consistent with statutory language. With regard to the
    implementation of 24-7 sobriety program grants, NHTSA plans to use the
    statutory language in the FAST Act as the basis to determine those
    States eligible for a grant. Although the statute specifies certain
    requirements that must be met in order to receive a grant, we believe
    it affords room for flexibility for a State to tailor an approach to
    suit its needs while satisfying the requirements imposed under the
    statute.
        Question. The Amtrak's Empire Builder runs across Montana's Hi-
    Line, providing much needed connectivity to 12 rural communities.
    Amtrak completed a feasibility study that concluded a stop in
    Culbertson, MT would have a net positive impact on Amtrak's finances.
    How will DOT facilitate coordination between the Federal Railroad
    Administration (FRA), Amtrak, and local stakeholders to help bring this
    service online?
        Answer. Amtrak's Long Distance routes, such as the Empire Builder,
    play a critical role in connecting the national rail network and
    provide a vital transportation alternative to communities throughout
    the country.
        As directed by the Senate's fiscal year 2016 Transportation and
    Housing and Urban Development Appropriations Bill report (Report 114-
    75), FRA and Amtrak are in the process of re-evaluating a previous
    Amtrak feasibility study on adding a station stop along the Empire
    Builder route in Culbertson, MT. The Amtrak ``Passenger Rail in the
    Bakken Region'' study is due to the Appropriations Committee by
    December 18, 2016 and FRA and Amtrak are on track to meet this
    deadline. In addition to re-evaluating the revenue, ridership, and
    other operating cost metrics of the previous Amtrak study, the fiscal
    year 2016 Senate report language instructs FRA and Amtrak to also
    examine the capital infrastructure improvements that would be necessary
    to bring intercity passenger rail service to Culbertson, MT. FRA and
    Amtrak must communicate with local stakeholders and the host freight
    railroad, BNSF, to gather the resource and operational requirements
    needed to carry out the study.
        FRA is always available to provide technical assistance to States
    and local governments regarding rail issues. Depending on the results
    of the study and whether Federal funding will be sought for the capital
    improvements required to add a station stop, FRA may also play a more
    formal role in the environmental, engineering, and design processes to
    construct the local government's preferred station facilities.
        Question. Inspector General Scovel, the President's budget request
    is over $98 billion, more than $22 billion increase above last year. In
    a letter you sent to the Commerce Committee in January, you highlighted
    569 open recommendations with nearly $2 billion in potential savings if
    implemented. What is the status of these recommendations?
        Answer. Of the 569 open recommendations we identified as of
    December 31, 2015, 174 have since been closed and 395 remain open.
    Additionally, since January 2016, we have issued 40 audit reports
    containing 145 new recommendations, of which 135 remain open.
    Accordingly, as of April 26, 2016, there are a total of 530 open audit
    recommendations.
                                 highway safety
        Question. In your testimony, you discussed recommendations for the
    National Highway Traffic Safety Administration (NHTSA). We discussed
    many of these recommendations, specifically the Office of Defects
    Investigation (ODI) recommendations, during a Commerce Committee
    hearing last June. What recommendations has NHTSA closed since our last
    meeting? Has NHTSA improved its stewardship of taxpayer resources?
        Answer. Since my testimony on June 23, 2015, we have closed 6 of
    the 17 recommendations we made to improve ODI's pre-investigative
    processes. More specifically:
      --Recommendation 6, which was closed on September 30, 2015, was aimed
            at improving the quality of consumer complaint data and
            enhancing ODI access to important data sources such as pictures
            and accident reports. In response to our recommendation, ODI
            enhanced safercar.gov to:
        --Provide definitions for affected parts \1\ to assist consumers in
                appropriately categorizing their complaints,
    ---------------------------------------------------------------------------
        \1\ The online complaint submission form requires consumer to
    select up to 3 affected parts from a drop-down list of 18 options such
    as airbags, brakes, lighting, and powertrain.
    ---------------------------------------------------------------------------
        --Provide guidance to consumers on what sort of information to
                include in their narrative descriptions of incidents and
                their vehicles that would be most helpful to ODI in
                identifying potential safety concerns, and
        --Allow consumers to upload up to 5 files while submitting their
                complaints, and also encourage them to hold on to important
                information such as police reports and photographs for at
                least 5 years.
      --Recommendation 13, which was closed on October 30, 2015, was aimed
            at documenting supervisory review throughout ODI's pre-
            investigative process including data screening.\2\ In response
            to our recommendation, ODI implemented a process to conduct a
            one-on-one meeting twice a month between each Defects
            Assessment Division (DAD) screener and the DAD chief to discuss
            all ongoing investigation proposals and issues. These meetings
            will also include discussion of any limitations confronted by
            screening staff, the need for future training, and staff
            utilization. These meetings will serve as a platform for the
            DAD chief to provide guidance to screeners. Additionally, ODI
            developed a process to document these meetings and to store the
            documentation within pertinent case files.
    ---------------------------------------------------------------------------
        \2\ ODI has two groups that are primarily involved with its pre-
    investigation process: the Defects Assessment Division (DAD) and the
    Early Warning Division. OIG and ODI mutually agreed that ODI's process
    for supervising the Early Warning Division would be covered under its
    proposed action to close out recommendation 10.
    ---------------------------------------------------------------------------
      --Recommendation 15, which was closed on October 30, 2015, was aimed
            at developing and implementing guidance on the amount and type
            of information needed to determine whether to open an
            investigation. In response to our recommendation, ODI developed
            risk assessment matrices that take into account the frequency
            and hazard levels associated with a potential safety defect.
            ODI guidance defines the specific information needed to
            populate the matrices, describes how that information is
            evaluated, and sets forth specific standards for when an
            investigation must be opened. The matrix groups issues into
            red, yellow and green--red suggesting that an investigation
            should be opened, yellow suggesting that more information is
            required to make a call, and green suggesting a low hazard. ODI
            also identified a plan to develop matrices in 11 areas that
            present the highest risk to safety such as cyber-security,
            brakes, and air bags by April 30, 2016.
      --Recommendation 17, which was closed on November 30, 2015, was aimed
            at documenting and establishing a process for enforcing
            timeframes to determine whether to open investigations and to
            establish a process for documenting justifications for these
            decisions. In response, ODI developed a process to ensure:
        --All investigation proposals will be reviewed and dispositioned by
                the appropriate investigative division within 6 weeks of
                initial transmittal. Additionally, if an investigation
                division chief does not make a decision on an investigation
                proposal in the prescribed 6-week timeframe, it will
                automatically be forwarded to the Defects Assessment Panel
                for consideration.
        --Compliance with the 6-week standard and the justifications for
                opening investigations will be documented in ARTEMIS
                through internal e-mails, defect assessment panel meeting
                minutes, preliminary evaluation opening resumes, and
                evaluations.
        --Justification for declining to investigate must reference either
                an applicable risk assessment matrix (see recommendation 15
                above) or a detailed explanation of why the elements of a
                potential safety defect do not exist. The justifications
                will be documented in ARTEMIS.
        --Timely dispositioning of issues will be factored into division
                chief and ODI director's performance.
      --Recommendation 3, which was closed on March 31, 2016, was aimed at
            requiring manufacturers to develop and adhere to procedures for
            complying with early warning reporting requirements, and
            require ODI to review these procedures periodically. In
            response, ODI sent a notice to auto manufacturers requiring
            them to provide an explanation of their current procedures to
            comply with early warning reporting (EWR) requirements. Under
            this notice, manufacturers will have to describe their
            practices for ensuring the accuracy and timeliness of their EWR
            submission, as well as their process for ensuring the correct
            assignment and interpretation of ODI component codes. ODI
            developed a process for conducting ongoing periodic reviews of
            manufacturer practices to ensure their continued compliance
            with EWR requirements.
      --Recommendation 10, which was closed on April 18, 2016, was aimed at
            implementing a supervisory review process to ensure that all
            EWR data are analyzed according to ODI policy and procedures.
            In response ODI implemented a process to conduct a bi-weekly
            meeting between Early Warning Division (EWD) screeners--both
            Federal employees as well as contractors--and the EWD chief.
            These meetings will cover screeners' analysis of all forms of
            EWR data and allow the EWD chief to provide feedback to
            screeners, assess their familiarity with ODI policies and
            procedures, and keep them informed of any updates to those
            policies and procedures.
        Based our interactions with Agency staff and their actions taken to
    date, we believe that NHTSA is focused on implementing and closing our
    17 recommendations, and is on the right path to improving the
    stewardship of taxpayer resources.
        Question. Inspector General Scovel, in your 2015 Financial
    Information Security Management Act (FISMA) audit, you reported DOT had
    a number of challenges resolving plans of actions and milestones
    (POA&Ms) \3\--longstanding security vulnerabilities within DOT systems.
    What are DOT's challenges in resolving POA&Ms, and what is the Agency's
    status in implementing OIG recommendations?
    ---------------------------------------------------------------------------
        \3\ Per OMB Memorandum M-02-01,--A POA&M is a tool that assist
    agencies in identifying, prioritizing, and monitoring progress of
    corrective efforts for security weaknesses found in programs and
    systems.
    ---------------------------------------------------------------------------
        Answer. In 2014, DOT had a backlog of over 5,600 POA&Ms. In 2015,
    DOT had only resolved 1,798 (32 percent), leaving more than 3,820
    POA&Ms. Of the 3,820 unresolved POA&Ms:
      --2,023 POA&Ms do not have actual start dates. Of these, 188 are high
            priority, and 1,569 are medium priority.
      --960 POA&Ms had no documented remediation costs. Of these, 53 are
            high priority, 316 are moderate priority, 534 are low priority,
            and 57 are not categorized.
        As part of our fiscal year 2015 FISMA audit, we issued 9 additional
    recommendations increasing the total number of OIG outstanding
    recommendations to 21. DOT's target action completion dates for all 21
    recommendations indicate that actions would be completed by the end of
    fiscal year 2016. However, we note that several recommendations have
    been open since 2010.
                                     ______

                    Questions Submitted by Senator Jack Reed
        Question. What is the timing for the NHTSA rulemaking for the 405
    grants?
        Answer. The agency plans to issue an interim final rule
    implementing the provisions for the Section 405 grants in May 2016..
        Question. Does NHTSA consider county-based or pilot 24/7 programs
    as qualifying for 405 and 164?
        Answer. NHTSA is currently engaged in rulemaking to implement this
    and other statutory grant requirements, and plans to publish a rule in
    the near future. Under Section 405, a 24-7 sobriety program is defined
    as a State law or program that authorizes a State court or an agency
    with jurisdiction to require driving under the influence (DUI)
    offenders to be subject to testing for alcohol or drug use. Section 164
    is similar in that States are responsible for meeting the statutory
    requirements and must either have the required law or program in place
    to be compliant.
        Question. Should NHTSA be doing a rulemaking to certify 24/7
    devices?
        Answer. Under the grant program in Section 405 and the transfer
    program in Section 164, compliance is based on a State having a law or
    program that authorizes DUI offenders to be tested for alcohol or
    drugs. The statutes direct a State to meet process requirements related
    to testing to be determined compliant (e.g., at least twice per day or
    by continuous transdermal monitoring). They do not mandate a particular
    device or that any device be used. Consequently, we do not believe that
    certifying 24/7 devices is necessary under the programs.
        Question. FRA and PHMSA have received increases in funding in
    recent years for safety with direct calls for more inspectors on routes
    that carry flammable liquids and passengers. What is the status for
    hiring the inspectors and safety personnel funded by this subcommittee
    at FRA and PHMSA?
        Answer. Regarding PHMSA:
        In fiscal year 2015, PHMSA received 7 additional inspection and
    enforcement positions to support the safe transportation of flammable
    liquids. The positions were allocated based on risk related to the
    transportation of flammable liquids. The position breakdown includes
    five new Inspectors located in Trenton, NJ (2), Kansas City, MO (1),
    Ontario, CA (1), and Houston, TX (1). In addition, there are two new
    Hazardous Materials Safety Assistance Team safety personnel located in
    Ontario, CA (1) and Atlanta, GA (1). As of April 2016, all positions
    have been successfully filled.
                Regarding FRA:
        The FRA received funding for 10 new inspectors, in fiscal year
    2014, and five more in fiscal year 2015. All 15 of these positions have
    been filled
        In fiscal year 2016, we received funding for four new inspectors.
    One of these positions has already been filled, and the remaining 3 are
    underway.
        FRA also filled all 15 positions for which we received funding in
    fiscal year 2014 in our Office of Railroad Policy and Development.
    These critical positions included analysts, engineers, and
    environmental and freight policy experts. Additionally, we filled 14
    more positions of the 20 for which we were funded for safety
    headquarters staff.
        In fiscal year 2016, we received funding for an additional 29
    regional and headquarters safety staff. FRA has already or will soon
    initiate the hiring process for all of these positions, and expects to
    fill most of them in this fiscal year.
        Question. Tire Pressure Monitoring Systems: Motorcoach safety is a
    priority for both NTSB and the Committee. Per Section 32703(c) of MAP-
    21, DOT was directed to consider within 3 years whether motorcoaches
    should be equipped with direct tire pressure monitoring systems (TPMS).
    Such a requirement would be consistent with the 2009 National
    Transportation Safety Board (NTSB) Safety Recommendation H-09-022 that
    all new motor vehicles weighing over 10,000 pounds to be equipped with
    direct TPMS. Further, in February 2014, NTSB echoed the need for
    implementation this safety recommendation. The Committee requested a
    status update on the implementation of the MAP-21 requirement in Senate
    Report 113-182, which was adopted as part of the fiscal year 2015
    omnibus appropriations bill.
        The Committee is aware that the National Highway Traffic Safety
    Administration (NHTSA) recently conducted motorcoach safety equipment
    testing that included a testing of direct TPMS. Nonetheless, the MAP-21
    deadline has passed and the NTSB's recommendation remains open.
        What is the current status of the agency's consideration of direct
    TPMS on motorcoaches?
        Will the agency promulgate requirements in this area consistent
    with Safety Recommendation H-09-022?
        Answer. The agency has reviewed and evaluated the available crash
    data. The analysis did not reveal a safety need to justify regulatory
    action at this time. The agency will continue to monitor the crash data
    for tire under-inflation on motorcoaches and will pursue future
    regulatory action if warranted.
        Question. FMCSA Regulations on Windshield Mounted Vehicle Safety
    Technology: The Senate Appropriations Committee is aware of current
    FMCSA regulations that limit the ability of commercial motor carriers
    to mount vehicle safety technologies on windshields to prevent
    obstruction of a driver's field of view. The Committee is also aware
    that the agency routinely has recognized the benefits of certain safety
    technologies, and under current rules have provided 2 year exemptions
    (the maximum time allowable under the current rules) for such
    technologies.
        To that end, the Committee directed the FMCSA to move forward on
    prescribing regulations to modify 49 CFR 393.60(e) to permanently allow
    the voluntary mounting on a vehicle's windshield of vehicle safety
    technology likely to achieve a level of safety that is equivalent to,
    or greater than, the level of safety that would be achieved absent such
    an exemption. Further, the Senate also included such a provision in the
    FAST Act (Public Law 114-94), specifically Section 5301, which directed
    the agency to prescribe a regulation to address this, as well.
        Please provide an update on the status of these directives?
        When can the Committee expect an NPRM on this issue to be put
    forward?
        Will the agency meet the deadline included in the FAST Act to
    promulgate a rule to meet the requirements of the law?
        Answer. The Department's Federal Motor Carrier Safety
    Administration (FMCSA) has drafted an Interim Final Rule to amend 49
    CFR 393.60(e) to permanently allow the voluntary mounting of vehicle
    safety technology in the windshields of commercial motor vehicles.
    FMCSA does not anticipate completion of the rulemaking by the June 1,
    2016, deadline provided in the FAST Act. However, the Agency is
    committed to issuing the Interim Final Rule by July 1 and a final rule
    by the end of the calendar year.
        Question. Amtrak PTC Deployment: We were all deeply troubled by the
    deadly Amtrak accident in Philadelphia last year.
        Has Amtrak activated PTC on all Amtrak-owned infrastructure?
        Answer. No. Amtrak has activated PTC on all 396 route miles of the
    Northeast Corridor (NEC) which it owns, and 97 route miles of line in
    Michigan. Its electrified Harrisburg line is currently undergoing final
    testing, and is expected to be in service in 2016, along with its
    Empire Connection in New York. All other Amtrak owned line segments are
    slated to have PTC activated, or in operation, by the end of 2017.

    ----------------------------------------------------------------------------------------------------------------
                                                                                                     Estimated Start
                                                             Number of Route     Status at End of        Date for
                     Segment Identification                      Miles in         Calendar Year      Revenue Service
                                                                 Segment                              Demonstration
    ----------------------------------------------------------------------------------------------------------------
    NEC (Boston to Washington).............................             396           Operational/Complete         Completed
    Philadelphia to Harrisburg.............................             104                Testing       March 2016
    Springfield Line (New Haven to Springfield, MA)........              62             Installing        Dec. 2017
    Empire Connection......................................              10                Testing       April 2016
    Michigan Line (Amtrak Owned)...........................              97            Operational                 Completed
    Michigan Line (State Owned)............................             135             Installing        June 2017
    Hudson Line (Poughkeepsie to Hoffmans).................              94             Installing        Dec. 2017
    Chicago Union Terminal.................................             1.5            Not Started        Dec. 2017
    ----------------------------------------------------------------------------------------------------------------

        Question. The next step that Amtrak will face is full deployment of
    PTC on the National Network. As you know, unlike the Northeast
    Corridor, most of Amtrak's operations occur over infrastructure owned
    by host railroads. I understand negotiations between host railroads and
    Amtrak over who will cover the cost for PTC implementation on the
    National Network are proceeding slowly, if at all. In order to meet the
    deadline for PTC implementation, Amtrak will have to make various
    investments in its rail network and equipment over the next two fiscal
    years.
        What is the FRA doing to budget for the costs of PTC implementation
    on Amtrak's National Network?
        Answer. The Department of Transportation has long-stated that
    public sector funding is necessary to assist resource-constrained
    commuter railroads, short line railroads, Amtrak, and States with
    implementing PTC. FRA has requested funding for PTC system development
    and implementation grants in every budget request dating back to fiscal
    year 2011 (which was released by President Obama on February 1, 2010).
    In fiscal year 2017, the $1.9 billion FRA requested for Grants to
    Amtrak includes funding under both the Northeast Corridor and National
    Network for PTC capital, equipment, and maintenance costs. Further, FRA
    requested $1.25 billion for PTC implementation under the new
    Consolidated Rail Infrastructure and Safety Improvement Program. In
    addition to supporting commuter and short line railroads, this program
    is targeted to assist States and Amtrak with their proportional share
    of PTC costs on Amtrak's State-Supported routes that are required due
    to Amtrak operations on those routes.
                                     ______

                  Questions Submitted by Senator Patty Murray
        Question. Secretary Foxx, the safe transport of crude-by-rail is of
    great importance to me and my constituents. In almost every meeting
    that I take back home, people tell me they are concerned about oil
    trains running through their towns. While I appreciate the Department's
    attention to this critical issue to date and the investments in the
    fiscal year 2017 budget request, there is more work to be done. And it
    needs to be done at a much quicker pace.
        The National Transportation Safety Board issued three
    recommendations to the Pipeline and Hazardous Materials Safety
    Administration (PHMSA) in January 2014 after finding that current
    regulations are outdated and do not account for the reality of trains
    frequently transporting more than 100 tank cars. Today, we have robust
    requirements for oil spill response plans for pipelines and ships. We
    need them for railroads, too.
        Despite issuing an Advanced Notice of Proposed Rulemaking on
    comprehensive oil spill response plans in July 2014 and clear direction
    from Congress to begin a rulemaking within 90 days of enactment of the
    fiscal year 2016 Omnibus, PHMSA has failed to do so. In a January 4,
    2016 letter you outlined that PHMSA expects to release a proposed rule
    no later than June 2016 and complete a final rule in June 2017. This
    time line is simply unacceptable.
        Secretary Foxx, I am extremely disappointed in the continual delays
    on this critical rulemaking. My constituents are counting on this
    rulemaking to provide better protection for their communities and the
    environment. What is causing the delay? Do you need additional
    resources to support PHMSA's work on this rulemaking? I strongly urge
    you to begin and complete this rulemaking earlier than the current June
    2016 and June 2017 timeline. We must ensure trains carrying oil are
    treated no differently than pipelines or maritime vessels.
        Answer. The Pipeline and Hazardous Materials Safety Administration
    (PHMSA) shares your concerns and is working expeditiously to publish
    the Notice of Proposed Rulemaking (NPRM) entitled, ``Hazardous
    Materials: Oil Spill Response Plans and Information Sharing for High-
    Hazard Flammable Trains.'' The DOT's Rulemaking Requirements \4\
    outline the processes and procedures for completing significant
    rulemakings. In accordance with the procedures and as mandated by
    Executive Order, the Department provided the NPRM to the Office of
    Management and Budget (OMB) for interagency review on February 24,
    2016. The interagency review process coordinated by OMB may take up to
    90 days. Therefore, PHMSA expects the NPRM will be published in June
    2016. The DOT rulemaking procedures also require a 60 day public notice
    and comment period. Receiving comments from our stakeholders, including
    the emergency response community, is essential to protecting people and
    the environment from the risks of hazardous materials transportation.
    The volume and complexity of comments also impacts the additional
    analysis and drafting during the final rule stage. Typically, final
    rules require 1 year after the close of the NPRM comment period to
    complete.
    ---------------------------------------------------------------------------
        \4\ See https://www.transportation.gov/regulations/rulemaking-
    requirements-2012.
    ---------------------------------------------------------------------------
        Question. Communities in Washington remain very concerned with the
    safety of the trains already running through their cities. And for good
    reason. Crude oil shipments by rail have skyrocketed in Washington
    State. The number went from almost no crude oil in 2011 to 17 million
    barrels of oil shipped across the State in 2013. With more than 10
    refinery expansions or crude oil facilities under consideration in
    Washington, this figure could raise to 241 million barrels a year.
        The new tank car standards rulemaking completed by DOT in May 2015
    is a step in the right direction to improve the safety of transporting
    crude oil.
        Secretary Foxx, is the Department on track to meet the first
    deadlines for upgrades to the DOT-111 non-jacketed tank cars by January
    1, 2018 and the DOT-111 jacketed tank cars shortly thereafter by March
    1, 2018? Do you foresee any problems with the manufacturing industry
    being capable of delivering these upgraded tank cars on this time line?
    The final rule also required any new tank cars constructed after
    October 1, 2015 to meet the enhanced DOT-117 design and performance
    criteria. How many of these DOT-117 tank cars have been produced and
    are in use today to transport crude oil?
        Answer. As of the 4th quarter of 2015, there were 1,793 DOT-117 and
    DOT-117R cars used in flammable liquid service. Almost 1,600 of those
    cars were constructed after October 1, 2015, to meet the enhanced DOT-
    117 design and performance criteria. FRA does not expect the industry
    to have difficulty in producing additional DOT-117 cars.
        Question. I understand that the FAA is proposing to eliminate the
    Contract Weather Observer (CWO) program at 57 airports, including
    Spokane International Airport in Washington State. Today, the CWO
    program provides weather monitoring, augmentation, and back up for
    automated weather systems (ASOS) at 136 airports across the Nation.
        I believe this proposal would compromise aviation safety. The ASOS
    is limited in its ability to detect and accurately report on rapidly
    changing weather conditions and weather sensors periodically fail or
    malfunction. For example, weather such as freezing rain, freezing
    drizzle, smoke, and haze are critical to flight safety at Spokane
    International Airport, but these conditions are not reported by ASOS.
    In fact, in December 2015, the CWO program at Spokane International
    Airport documented over 900 separate augmentations to ASOS
    measurements. In addition, adding weather observation duties to air
    traffic controllers would degrade the speed and accuracy of the weather
    observations given existing workloads managing aircraft and
    requirements to for air traffic controllers to remain in the tower and
    make weather observing their lowest priority.
        Secretary Foxx, the CWO program is vital to the safety of our
    Nation's airspace and I am very concerned with this proposal. What
    analysis has the FAA conducted to ensure that such a change does not
    increase safety risks and hazards at these 57 airports? Furthermore, if
    the FAA believed air traffic controllers can and should take on weather
    observation duties why is this change not being proposed for all 136
    airports that currently have the CWO program? What makes the remaining
    79 airports with CWO programs different? I respectfully request that
    you reconsider this proposal and ask that you provide a full
    explanation of FAA's initial decision to eliminate the CWO program,
    including the stakeholder input and public comment that contributed to
    this decision.
        Answer. In accordance with our Safety Management System, the FAA
    conducted two Safety Risk Management Panels (SRMP) at appropriate
    facilities in order to make updates to weather data and variables, and
    traffic volume and complexity. The SRMPs also reviewed factors to
    consider in determining whether to use air traffic controllers or
    contract weather observers (CWO) to observe weather. Stakeholders and
    industry groups served on the panels, including Southwest Airlines,
    National Air Traffic Controllers Association, National Business
    Aviation Association, Air Line Pilots Association, National Oceanic
    Atmospheric Administration, CWO vendors, and others.
        Air traffic controllers currently function as weather observers at
    75 percent of the towers in the NAS (391 facilities). CWOs function in
    that capacity at the remaining 136 facilities. As a result of the
    SRMPs, the updated policy identified 57 of those 136 facilities as
    having similar weather and traffic volume/complexity as facilities
    where air traffic controllers are used as weather observers, and at
    this time the FAA is considering transitioning these facilities to
    controller-provided weather services.
        The SRMPs assessed the risk in transferring weather observation
    responsibilities from CWO to air traffic controllers at the 57 sites.
    No decision has been made at this time to transition any of the 57 CWO
    sites to controller provided observation services.
        Each of these safety panels will result in a recommendation, but
    they do not make the final decision. The FAA must take a comprehensive
    view of safety when it makes its final decisions. Ensuring the safety
    of our aviation system is always the highest priority, and the
    importance of accurate, reliable and detailed weather observations will
    be a priority concern during this process.
        Question. In the 2012 FAA authorization bill, Congress directed the
    FAA to develop a plan to realign and consolidate Terminal Radar
    Approach Control (TRACON) facilities. The FAA is now considering
    whether to close the TRACON facility at Grant County International
    Airport in Washington State and relocate the TRACON controllers to
    another airport.
        Grant County International Airport provides unique civilian and
    military aviation services to the aviation industry, both in support of
    national security interests and to the local community. On any given
    day, there is a blend of fast moving military aircraft, Boeing
    production and test aircraft, and slower-moving civilian aircraft all
    utilizing the same airspace and the same five active runways. During
    the summer months, this airspace is also shared by aircraft fighting
    forest fires in the Northwest. Very rarely do these aircraft arrive at
    Grant County International Airport and simply taxi off the runway as is
    the case at most other airports. Instead, these aircraft perform a
    variety of activities, including Rejected Take Off situations,
    simulated or actual equipment failures, touch-and-go landings, full
    stop and goes, wide area pattern work, and other operations that
    require an aircraft to hold on a runway or execute unusual maneuvers
    overhead.
        Grant County International Airport is a critical training ground
    for the Air Force and Navy. C-17s from Joint Base Lewis-McChord (JBLM)
    operate on the assault strip, P-3s and P-8s from Naval Air Station
    Whidbey Island conduct touch-and-go training, F-15s from the Oregon Air
    National Guard and EA-18Gs from Naval Air Station Whidbey Island come
    to operate within the airport's pattern, and KC-135s come from
    Fairchild Air Force Base (AFB) for training exercises. For JBLM in
    particular, the conditions and characteristics of Grant County
    International Airport cannot be replicated elsewhere in the Northwest.
    In the case of Fairchild AFB, the airport provides easy access for
    military aircrew training, allows training to occur at times when it
    cannot at Fairchild AFB due to weather or runway closures, and serves
    as their ready reserve base in the event of a natural disaster or other
    emergency.
        Secretary Foxx, I am concerned the FAA is not taking national
    security into account when it evaluates whether or not to close the
    TRACON at Grant County International Airport. Can you provide me with
    assurance that the FAA will in fact be considering national security
    when making the final decision?
        Answer. The FAA is evaluating TRACON facilities and services for
    realignment across the NAS, as required by the FAA Modernization and
    Reform Act. For clarification, the FAA is considering realigning TRACON
    facilities so that air traffic control services would be provided at
    another location, and not closing facilities and ending the provision
    of air traffic control services. The air traffic control towers are not
    a part of this process.
        The agency is fully committed to developing realignment
    recommendations and implementing any realignments in the safest manner,
    without affecting national security. At Grant County, the FAA
    management and Labor Union representatives met with stakeholders,
    including military, industry, and local government, to share
    information, answer questions regarding TRACON services, and discuss
    safety and security considerations. As required by the legislation, the
    FAA takes all stakeholder input and considerations into account
    throughout its analysis, recommendation development, and during the
    final decisionmaking stage of the process.
                                     ______

                  Questions Submitted by Senator Brian Schatz
        Question. Safe Streets: Secretary Foxx, as you know I support
    community planning strategies to create walkable neighborhoods that
    minimize pedestrian fatalities. Hawaii has the highest pedestrian
    fatality rate among adults over 65 so this is more than an abstract
    philosophy to me, this is about reducing deaths among older people in
    Hawaii.
        Unfortunately, traffic fatalities among pedestrians went up again
    to 4,884 deaths in 2014. The FAST Act included language Senator Heller
    and I worked to secure directing USDOT to work with States and MPOs to
    help them implement planning that takes into pedestrian safety into
    account.
        Can you tell me how the department will implement this policy and
    generally what are you doing in 2016 to reverse the trend of pedestrian
    fatalities?
        USDOT has created a number of planning tools, manuals and best
    practices for States, MPOs and others to refer to and that's important.
    But what is the next step to take all of that information and get
    States to integrate it into their regular planning and construction
    process and start reducing that 4,884 number?
        Answer. First, I share your concern and assure you that safety is
    our highest priority and that commitment is the same for all forms of
    transportation people choose, including walking and bicycling..
        The lead action FHWA is taking in 2016 to ensure pedestrian safety
    is the recently issued Safety Performance Management Final Rule (23 CFR
    490), which requires all States and MPOs to annually establish and
    report on a target for each of five safety performance measures,
    including a nonmotorized safety performance measure: the number of
    combined nonmotorized fatalities and nonmotorized serious injuries on
    all public roads in the State or MPO planning area. This performance
    measure encourages all States and MPOs to address pedestrian and
    bicycle safety; recognizes that walking and biking are modes of
    transportation with unique crash countermeasures distinct from
    countermeasures to prevent motor vehicle crashes; and addresses the
    increasing trend in the total number of pedestrian and bicyclist
    fatalities in the United States. The Safety Performance Management
    regulation will improve data; foster transparency and accountability;
    and allow safety progress to be tracked at the national level. More
    information is available at: http://safety.fhwa.dot.gov/hsip/
    rulemaking.
        Regarding the FAST Act provision you reference (section 1442), DOT
    is committed to continuing to encourage States and MPOs to adopt
    standards for the design of Federal surface transportation projects
    that provide for the safe and adequate accommodation of all users of
    the surface transportation network.
        We have significant programmatic work underway to build national
    capacity around multimodal planning and design issues, encourage a
    flexible approach to design, and reverse the trend of increasing
    pedestrian fatalities. This work will be captured in the report called
    for in section 1442.
        Question. Transit Costs: Secretary Foxx, I've read several articles
    recently which discussed how per-mile transit and rail capital
    construction in the US costs two to five times more than it does in
    other industrialized nations, such as Japan or Spain. There are even
    some very wide variations within the United States. Experts agree that
    this is a problem that must be fixed, but don't fully know the cause of
    these differences. Some speculate the issue may be due to poor
    interagency cooperation, project design and routing, procurement
    challenges or perhaps regulatory barriers.
        Here are some examples of the problem:
      --New York City's price for one kilometer of subway or commuter rail
            tunnel is about five times more expensive than Tokyo's, eight
            times more expensive than Berlin's or Paris's, and twelve times
            more expensive than Barcelona's.
      --Phase 1 of WMATA's Silver Line which is entirely above-ground and
            isn't located in a dense city center, clocked in at over $150
            million per kilometer. In many developed European and Asian
            countries, this would be enough to build a fully underground
            subway line in a dense urban core.
      --For Amtrak, the Gateway project is estimated to cost $25 billion,
            and its most ambitious plan for high speed rail on the
            Northeast Corridor would cost nearly $300 billion. On a per-
            kilometer basis, this is about twice as expensive as the
            predominantly underground Maglev bullet train that Japan is
            building.
        With the underlying goal of stretching our transit dollars further
    I'm interested in pursuing a study to identify the root causes of these
    cost differentials.
        Is USDOT currently studying or otherwise working to understand why
    the costs of transit are so much more expensive in the U.S. than in
    other industrialized nations?
        If so, can you describe those efforts including a timeline for the
    work to be complete?
        Answer. FTA has not conducted an analysis comparing the costs of
    construction of transit systems within the United States with those of
    Europe or Asia. Additionally, FTA is not aware of research that has
    determined that the cost of constructing transit in the U.S. is more
    expensive than in other industrialized nations.
        FTA cautions that the average costs per kilometer cited in the
    question may not accurately reflect the actual costs of construction.
    Cost per-mile comparisons may not include major items such as the
    number of stations constructed or the number of vehicles purchased.
    Additionally, the comparisons may not take into account whether right-
    of-way is privately or publicly held, costs of financing, etc.
        FTA has undertaken considerable efforts to analyze costs of FTA
    funded projects. In 2005 FTA implemented a new capital costing format,
    the Standard Cost Categories, to establish a consistent format for the
    reporting, estimating, and managing of capital costs for major transit
    projects. This information is then housed within FTA's Capital Cost
    Database that currently contains the as-built costs for 35, federally-
    funded, light rail and heavy rail projects. The database is used for
    performing historical cost analysis and developing ``order-of-
    magnitude'' cost estimates for conceptual transit projects. However,
    the database does not include information for international projects
    and it is therefore difficult to make like-to-like comparisons with
    those projects.
        Question. Port Financing: Secretary Foxx, I hear regularly from
    people in my State that they need more resources to improve port and
    harbor operations. Specifically the question I typically hear is,
    surface transportation has the Highway Trust Fund and airports have the
    Airport Trust Fund so why don't we have dedicated resources for land
    side improvements to our ports?
        The FAST Act created some grant programs for which port
    improvements are an eligible use and directed the creation of a
    National Multimodal Freight Policy. My question is, are we on track to
    systematically partner with States and port authorities in a way that
    meets the infrastructure needs described in the Department's Beyond
    Traffic framework over the next 30 years?
        Answer. The FAST Act includes several provisions to improve the
    condition and performance of the national freight network and to
    support investment in freight-related surface transportation projects,
    including opportunities to enhance land-side improvements to ports.
    States and port authorities will have an unprecedented opportunity to
    partner in an effort to address our infrastructure deficit.
        FASTLANE Grants, under the Nationally Significant Freight and
    Highway Projects program, authorizes $4.5 billion for nationally and
    regionally significant freight and highway projects over fiscal years
    2016 to 2020, with up to $500 million authorized this year for freight
    rail, water (including ports), or other freight intermodal projects.
    Applications for FASTLANE grants were due April 14,2016, and we have
    had significant initial interest in the program, including from States
    and port authorities.
        The Department has also taken important strides to educate ports
    about the existing eligibilities within the Surface Transportation
    Block Grant Program, the Transportation Infrastructure Finance and
    Innovation Act (TIFIA) program, and the Railroad Rehabilitation and
    Improvement Financing (RRIF) program. MARAD's StrongPorts initiative
    has published a Port Financing Guide and is partnering with the Build
    America Transportation Investment Center to provide technical
    assistance to ports looking to access U.S. DOT funding and financing.
        Additionally, the TIGER grant program received $500 million in
    fiscal year 2016 appropriations and offers another opportunity to fund
    port infrastructure projects. Through seven rounds, TIGER has awarded
    funding to 45 port projects totaling $541.1 million, including two
    planning grants. These projects are located across 24 States and
    account for 11.7 percent of total TIGER funding.
        These programs will help to meet some of the infrastructure needs
    described in our Beyond Traffic framework. The FAST Act provides
    certainty to States, local governments, port authorities, and the
    private sector; however, it is only a down-payment for building 21st
    Century surface transportation systems that our Nation deserves. The
    demand for surface transportation infrastructure investment is
    overwhelming, yet the FAST Act largely maintains current programs, with
    limited support for multimodal plans and projects. That is why the
    President's fiscal year 2017 budget request includes additional
    multimodal programs and investments, to build off of the FAST Act
    provisions and to continue to meet the infrastructure needs of our
    surface transportation system over the next 30 years.
        Question. Paratransit programs: Secretary Foxx, the FAST Act
    includes several provisions to improve the mobility of people with
    disabilities including new flexibility for the use of funds for
    operating expenses to transit agencies that demonstrate paratransit
    improvement activities, new inter-agency coordination efforts among
    Federal agencies and new demonstration authority. Can you discuss the
    Department's plans to assure these programs get up and running as
    quickly as possible?
        Answer. The FAST Act includes several provisions to improve the
    mobility of individuals with disabilities and the Federal Transit
    Administration (FTA) has moved quickly to implement these provisions as
    described below.
        The FAST Act permits FTA grant recipients to use up to 20 percent
    (rather than up to 10 percent) of urban or rural transit formula funds
    to operate Americans with Disabilities Act (ADA) paratransit service if
    certain conditions are met. On February 16, 2016, FTA published in the
    Federal Register a Notice of FTA Transit Program Changes, Authorized
    Funding Levels, and Implementation of Federal Public Transportation Law
    as Amended by the Fixing America's Surface Transportation (FAST) Act
    and FTA fiscal year 2016 Apportionments, Allocations, Program
    Information and Interim Guidance that implemented this provision.
        The FAST Act also created a new pilot program for innovative
    coordinated access and mobility, authorizing grants to eligible
    recipients to assist in financing innovative projects for the
    transportation disadvantaged that improve the coordination of
    transportation services and non-emergency medical transportation
    services. On March 29, 2016, a Notice of Funding Opportunity (NOFO) was
    published in the Federal Register announcing the availability of $2
    million of fiscal year 2016 funding under this program, as well as $3.3
    million in additional research funding for the Rides to Wellness
    Demonstration and Innovative Coordinated Access and Mobility Grants
    (R2W Demonstration Grants). The FTA will be holding a webinar on April
    20, 2016 to further explain the grant program to potential grantees.
    The application deadline is May 31, 2016. The goal of the competitive
    R2W Demonstration Grants is to find and test promising, replicable
    public transportation healthcare access solutions that support the
    following Rides to Wellness goals: increased access to care, improved
    health outcomes and reduced healthcare costs.
        Finally, the FAST Act included new statutory requirements regarding
    the Federal Coordinating Council on Access and Mobility (CCAM),
    including a requirement to publish a strategic plan. FTA is working
    with its Federal agency partners on CCAM to develop a work plan that
    addresses the required elements of this plan. FTA is already working
    together with staff from the Departments of Health and Human Service,
    Veterans Affairs, and Agriculture on joint projects to improve the
    linkages between transportation and healthcare. These projects include
    a series of Rides to Wellness forums to increase partnerships between
    healthcare and transportation providers, a research project to identify
    the impact of transportation on missed appointments and therefore on
    the cost of healthcare and funding to encourage innovative solutions to
    healthcare access challenges.
                                     ______

                 Questions Submitted by Senator Lindsey Graham
        Question. The recently enacted FAST Act contains three tire-related
    provisions for which rulemakings are required: tire performance
    standards for rolling resistance and wet traction; mandatory tire
    registration by tire sellers at point of sale and; a tire recall lookup
    tool on NHTSA's web site. What is the agency's timetable for
    implementing each of these rulemakings?
        Answer. The FAST Act requires NHTSA to promulgate regulations for
    tire rolling resistance and wet traction minimum performance standards
    by December 4, 2017. NHTSA has already begun the required testing to
    guide the wet traction regulation.
        The FAST Act requires NHTSA to initiate a rulemaking for mandatory
    tire registration by independent sellers. However, there is no
    statutory deadline for completing this rulemaking and the agency has
    not yet developed a time table for completing this rulemaking.
        The FAST Act also requires NHTSA to establish a publicly available
    and searchable electronic tire recall database. The statute does not
    require this provision to be implemented through a rulemaking and there
    is no statutory deadline. NHTSA has not yet developed a time table for
    completing this provision. The agency is gathering information and
    meeting with stakeholders to discuss each of these requirements.
        Question. NHTSA has not completed a rulemaking required under the
    2007 Energy Independence and Security Act (EISA) that mandated consumer
    information about tire fuel efficiency, wet traction and tread wear.
    The White House announced in December 2014 that NHTSA would finalize
    that rule by 2017. According to NHTSA's most recent schedule, a
    proposed rule should have been sent to OMB on February 10, 2016 but
    that did not happen. What is the agency's revised timetable for
    completing this rulemaking within the White House imposed deadline?
        Answer. NHTSA published a final rule in 2010 establishing test
    methods that would be used for the new consumer information program.
    However, the 2010 final rule did not specify the content or
    requirements of the consumer information and education portions because
    NHTSA needed to conduct additional consumer testing and resolve
    important issues raised by public comments on the proposal. The agency
    is drafting a supplemental notice of proposed rulemaking and expects to
    finalize the rule in 2017.

                              SUBCOMMITTEE RECESS

        Senator Collins. This hearing is now adjourned.
        [Whereupon, at 4:24 p.m., Wednesday, March 16, the
    subcommittee was recessed, to reconvene at a date and time
    subject to the call of the Chair.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2017

                                  ----------

                         WEDNESDAY, SEPTEMBER 21, 2016

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:30 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Susan Collins, (chairman)
    presiding.
        Present: Senators Collins, Boozman, Cassidy, Daines, and
    Reed.

                  Housing Vulnerable Families and Individuals:
                             Is There a Better Way?

                 OPENING STATEMENT OF SENATOR SUSAN M. COLLINS

        Senator Collins. The hearing will come to order.
        Good morning. I am pleased to be joined today by our
    ranking member, Senator Jack Reed, as we begin our hearing
    examining whether there are more effective ways to meet the
    housing needs of vulnerable families and individuals.
        The question of how best to house families and individuals
    in need of assistance has simply not received the attention it
    deserves.
        Today, I want to focus on whether the place-based rental
    assistance of the current public housing and project-based
    Section 8 programs still has a beneficial role to play. Should
    limited Federal resources be directed to tenant-based Section 8
    vouchers and existing projects converted to vouchers?
        We focus on public housing and project-based Section 8
    because unlike, for example, housing for the elderly or housing
    for the disabled programs, public housing and Section 8,
    intended to serve a diverse population, are not limited to a
    particular demographic group.
        Public housing and project-based Section 8 both provide
    rental assistance that is tied to specific properties, limiting
    a family to receiving assistance only at that property. The
    tenant-based Section 8 program, on the other hand, enables a
    family to move at its discretion while continuing to receive
    rental assistance.
        The biggest difference between public housing and project-
    based Section 8 is that public housing was built and is owned
    and operated with Federal funds by public housing agencies that
    are entities of State and local governments. Project-based
    Section 8 properties are privately owned, and HUD has entered
    into a long-term contract with the owner to provide rental
    assistance.
        This conversation is particularly timely, given the overall
    fiscal constraints of the current budget caps and our Nation's
    $19.5 trillion national debt.
        In addition to the overall fiscal constraints, this
    subcommittee annually faces the uncertainty of how much
    offsetting receipts will be credited from the Federal Housing
    Administration's mortgage insurance premiums. These offsetting
    receipts significantly affect our ability to fund our programs.
    Ensuring that sufficient funds are provided to renew existing
    rental assistance has, however, always been a priority.
        The challenge is that the cost of renewing rental
    assistance continues to grow by hundreds of millions, if not
    billions, of dollars each year. Rental assistance consumes an
    ever-larger share of HUD's budget. For fiscal year 2017, the
    rental assistance takes up 84 percent of HUD's overall budget,
    reducing funds available for other critical priorities,
    including the popular Community Development Block Grant and
    HOME programs. We have a wonderful chart, which I have asked to
    be brought over, that demonstrates visually how much of HUD's
    budget--right on cue--is consumed by rental assistance. And
    that is just keeping us even. Keep in mind that we are not
    beginning to serve many people who qualify for rental
    assistance and are very low income individuals.
        [The chart follows:]

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Senator Collins. Directing 84 percent of HUD's budget to
    rental assistance might be reasonable if it were to effectively
    meet the housing needs of all vulnerable families and
    individuals. However, as I pointed out, with notable yet
    relatively small exceptions, such as the HUD voucher program,
    the VASH program for our homeless veterans, our expenditures on
    rental assistance are barely holding on to the existing
    inventory of Section 8 and public housing units.
        As the directors of homeless shelters will attest, there
    are so many families and individuals, including homeless young
    people, with tremendous unmet housing needs all across the
    country.
        The issue goes beyond those who are actually homeless.
    Nationally only one out of four families eligible for housing
    assistance receives it. According to HUD's most recent
    estimate, approximately 7.7 million households experiencing the
    worst case housing needs, that is, renters whose incomes are
    below 50 percent of the area median, do not receive government-
    funded rental assistance and who pay more than half their
    monthly incomes for rent or live in severely substandard
    conditions, or both. In other words, we have this huge group of
    individuals who are very low income, and we are barely
    scratching the surface of serving them.
        In addition to the funding challenges, emerging research
    also raises the question of whether project-based assistance is
    the best approach. Research released by a group of Harvard
    economists in 2015 makes the case that not only does the
    quality of the neighborhood contribute to the health, well-
    being, and overall success of all of the residents, but also it
    had a significant impact on children moving into better
    neighborhoods. For these children, better neighborhoods
    contributed to improved long-term outcomes, including future
    earnings and college attendance, with each additional year in a
    high-poverty neighborhood leading to worse long-term outcomes.
        Both OMB Director Shaun Donovan and HUD Secretary Julian
    Castro have pointed out that the single biggest predictor of a
    child's opportunity and even life expectancy is the ZIP code of
    the community in which that child grows up.
        Unfortunately, existing public housing and project-based
    Section 8 properties are found predominantly in high-poverty
    neighborhoods. The Census Bureau defines an extreme poverty
    area as one with a poverty rate of 40 percent or higher. For
    public housing, 34 percent of properties are located in extreme
    poverty areas. For tenant-based vouchers, only 14 percent are
    located in extreme poverty areas.
        I am concerned that the funding of existing project-based
    assistance in high-poverty neighborhoods may be creating more
    problems than it solves. With that in mind, if project- or
    place-based housing still has an important role to play, would
    we be better off divesting the current stock and investing in
    project-based housing in high-opportunity areas? That is one of
    the many issues I want to explore with our panel today.
        As we consider alternative approaches to rental assistance,
    we should not forget that changes to the administration of the
    voucher program may also lead to better ways to assist
    vulnerable families and individuals. The Center on Budget and
    Policy Priorities, for example, points out that in 2015, over
    70 percent of voucher tenants lived in the 100 largest
    metropolitan areas across the country and that in 35 of those
    100 areas, voucher administration was divided among 10 or more
    agencies. In such situations, the large number of public
    housing agencies may well act as an unintentional barrier to
    mobility across a metro area. So looking at limited
    consolidation of housing agencies is one issue that we should
    explore as to whether it would lead to more opportunities for
    voucher residents to move to areas of greater opportunities.
    That is only one example of the kinds of reforms that have been
    suggested.
        This morning, I have highlighted concerns that have been
    expressed about project-based rental assistance, concerns that
    lend themselves to the argument that we should consider
    replacing these units with Section 8 vouchers. But I want to be
    clear that the purpose of this hearing is to explore all of the
    options and that while I find these ideas intriguing, I do not
    have a preconceived policy preference. I am trying to figure
    out what is a very complicated issue and how we can better
    serve our very low-income families and ensure that we are
    targeting Federal investment to achieve better results for
    those families and to produce brighter futures for our most
    vulnerable children.
        [The statement follows:]
                 Prepared Statement of Senator Susan M. Collins
        I am pleased to be joined today by our Ranking Member, Senator Jack
    Reed, as we begin our hearing examining whether there are more
    effective ways to meet the housing needs of vulnerable families and
    individuals.
        The question of how best to house families and individuals in need
    of assistance has not received the attention it deserves. Today, I want
    to focus on whether the place-based rental assistance of the current
    public housing and project-based Section 8 programs still has a
    beneficial role to play. Should limited Federal resources be directed
    to tenant-based Section 8 vouchers and existing projects converted to
    vouchers? We focus on public housing and project-based section 8
    because unlike, for example, the Housing for the Elderly and Housing
    for the Disabled programs, public housing and Section 8 are intended to
    serve a diverse population, and are not limited to a particular
    demographic group.
        Public housing and project-based Section 8 both provide rental
    assistance that is tied to specific properties, limiting a family to
    receiving assistance only at that property. The tenant-based Section 8
    program, on the other hand, enables a family to move at its discretion
    while continuing to receive rental assistance. The biggest difference
    between public housing and project-based Section 8 is that public
    housing was built and is owned and operated with Federal funds by
    public housing agencies that are entities of State and local
    government. Project-based Section 8 properties are privately owned, and
    HUD has entered into a long-term contract with the owner to provide
    rental assistance.
        This conversation is particularly timely given the overall fiscal
    constraints of the current budget caps and our Nation's $19.5 trillion
    national debt. In addition to the overall fiscal contraints, this
    subcommittee annually faces the uncertainty of how much offsetting
    receipts will be credited from the Federal Housing Administration, or
    F.H.A.'s, mortgage insurance premiums. These offsetting receipts
    significantly affect the ability of the subcommittee to fund its
    programs. Ensuring that sufficient funds are provided to renew existing
    rental assistance has always been a priority.
        The challenge is that the cost of renewing rental assistance
    continues to grow by hundreds of millions, if not billions, each year.
    Rental assistance consumes an ever larger share of HUD's budget. For
    fiscal year 2017, rental assistance takes up 84 percent of HUD's
    overall budget, reducing funds available for other critical priorities
    including the popular Community Development Block Grant and HOME
    programs.
        Directing 84 percent of HUD's budget to rental assistance might be
    reasonable if it effectively met the housing needs of all vulnerable
    families and individuals. However, with notable, yet relatively small,
    exceptions such as HUD-VASH vouchers for homeless veterans, our
    expenditures on rental assistance are barely holding on to the existing
    inventory of Section 8 and public housing units. As the directors of
    homeless shelters will attest, there are still families and
    individuals, including homeless young people, with tremendous unmet
    housing needs across the country. The issue goes beyond those who are
    actually homeless. Nationally, only one out of four families eligible
    for housing assistance receives it. According to HUD's most recent
    estimate, approximately 7.7 million households experiencing worst case
    housing needs--that is, renters whose incomes are below 50 percent of
    the area median, do not receive government-funded rental assistance and
    who paid more than half their monthly incomes for rent or live in
    severely substandard conditions, or both.
        In addition to funding challenges, emerging research also raises
    the question of whether project-based assistance is the best approach
    to meeting housing needs. Research released by a group of Harvard
    economists in 2015 makes the case that not only does the quality of a
    neighborhood contribute to the health, well-being, and overall success
    of its residents, but also it had a significant impact on children
    moving to these neighborhoods. For these children, better neighborhoods
    contributed to improved long-term outcomes, including future earnings
    and college attendance, while each additional year in a high-poverty
    neighborhood led to worse longterm outcomes.
        Both O.M.B. Director Shaun Donovan and HUD Secretary Julian Castro
    have often pointed out that the single biggest predictor of a child's
    opportunities, and even life expectancy, is the ZIP Code of the
    community where they grow up. Unfortunately, existing public housing
    and project-based Section 8 properties are found predominantly in high-
    poverty neighborhoods. The Census Bureau defines an ``extreme poverty
    area'' as one with a poverty rate of 40 percent or higher. For public
    housing, 34 percent of properties are located in extreme poverty areas.
    For tenant-based vouchers, only 14 percent are located in extreme
    poverty areas.
        I am concerned that the funding of existing project-based
    assistance in high-poverty neighborhoods may be creating more problems
    than it solves. With that in mind, if project or place-based housing
    still has a role to play, would we be better off divesting the current
    stock and investing in project-based housing in high-opportunity areas?
    I look forward to hearing from our panel today on this point.
        As we consider alternative approaches to rental assistance, we
    should not forget that changes to the administration of the voucher
    program may also lead to better ways to assist vulnerable families and
    individuals. The Center on Budget and Policy Priorities, for example,
    points out that in 2015, over 70 percent of voucher tenants lived in
    the 100 largest metropolitan areas across the country and that in 35 of
    these 100 areas, voucher administration was divided among ten or more
    agencies. In these situations, the large number of public housing
    agencies may well act as an unintentional barrier to mobility across a
    metro area. Even limited consolidation of housing agencies in these
    areas could lead to more opportunities for voucher residents to move to
    areas of greater opportunity.
        This is only one example of reforms that experts have suggested. I
    have no doubt that our panel has other such ideas as well.
        This morning I have highlighted concerns that have been expressed
    about project-based rental assistance, concerns that lend themselves to
    the argument that we should consider replacing these units with Section
    8 vouchers. I want, however, to be clear that I approach today's
    hearing with no pre-conceived policy preferences. This hearing is an
    opportunity to have a broader conversation that challenges us to
    explore what is possible and evaluate if we can target the Federal
    investment in rental assistance to achieve better results to produce
    brighter futures for our most vulnerable children.
        Senator Collins. It is now my pleasure to turn to our
    ranking member, Senator Jack Reed of Rhode Island.

                         STATEMENT OF SENATOR JACK REED

        Senator Reed. Well, thank you, Madam Chairman.
        This is a very important hearing and we are honored to have
    a distinguished panel of witnesses. So welcome, all.
        Senator Collins and I both share a commitment to finding
    innovative ways to provide adequate, decent, affordable housing
    for all of our citizens. I must commend her for her leadership
    on this issue and so many others.
        Again, we have called upon some very distinguished and
    insightful witnesses.
        Ms. Erika Poethig from the Urban Institute, thank you.
    Erika has an extensive background on affordable housing
    preservation, which is evidenced by her prior roles at HUD and
    the MacArthur Foundation in Chicago. She has led numerous
    research efforts that have informed many of the transformative
    HUD policies that are under discussion today. Thank you for
    your work, for what you have done, and thank you for being here
    today.
        We are also joined by Mr. Ed Olsen, who is no stranger to
    Congress. You have testified about low-income housing policy
    many times with insights and with quite insightful comments on
    that area. So thank you very much, Mr. Olsen.
        And finally, we are joined by Mr. Rick Gentry. Thank you.
    San Diego Housing Commission. Mr. Gentry has on-the-ground
    experience with implementing HUD programs and can offer some
    innovative ways to think about this problem. Thank you again
    for joining us, Mr. Gentry.
        We are here today because the Nation faces an affordable
    housing crisis. Only one out of every four eligible low-income
    households in this country receives the rental assistance they
    need to avoid homelessness. In Rhode Island, nearly 42,000
    households spend more than 50 percent of their income on rent,
    and that is a 49 percent increase since 2000. So we are not
    doing better. We are falling behind. In fact, we will need to
    develop at least 3,460 units in Rhode Island of affordable
    housing each year just to keep pace with the growing population
    of our elderly and multi-generational residents. I can just
    tell you we are not even coming close to generating that kind
    of enhanced and new housing properties.
        This gap is not unique to Rhode Island. It spans the entire
    Nation. As the chairman has pointed out, we dedicate 84 percent
    of HUD's budget to preserving rental assistance for nearly 5
    million households, and we are just racing to stay in place. We
    are not getting ahead. According to HUD, the severely burdened
    renters group by 54 percent across this Nation between 2001 and
    2013. This is a national crisis. It is getting worse. It is not
    getting better.
        7.7 million renters are paying more than 50 percent of
    their monthly income on rent. That is way beyond what is
    reasonable for families. And in addition, it squeezes out other
    valuable investments, and it frankly squeezes out investments
    in demand in the economy so that when you look at growth rates
    that are tepid, some of it is because people do not have the
    discretionary income they used to have because of their rental
    burden.
        So in order to effectively address this gap in quality,
    affordable housing, we need more resources, more units, more
    resources to support individuals in those units.
        Just last year, we were faced with another threat of cuts
    due to sequester in the level of defense and non-defense budget
    caps, and with Senator Collins' leadership particularly, we
    were able to push back on that and able to raise the caps for
    both defense and non-defense. We are in that same dilemma, as
    we speak, anticipating next year's budget. We know if the caps
    do not go up, the problem will get worse. If the caps only go
    up for defense, this problem will get worse, in fact, quite a
    bit worse because there will be a tendency to offset those
    increases with further decreases on the domestic side.
        So we have to face this challenge. And again, that is why
    this hearing is so important and so timely. Even if we do get
    relief, as the chairman has pointed out, essentially we are
    just making sure that we cover the rental assistance program.
    We are not doing the innovative extra things to create new
    units, to move people into those units, also to work with other
    agencies because one of the factors of how successful housing
    is supportive services for those who are in the housing. So we
    have to keep working.
        I am pleased that both houses unanimously passed the
    Housing Opportunity through Modernization Act. That bill made
    important changes to HUD programs, even created savings that
    allow us to either house more families or reduce the cost of
    housing. So we are making progress there. A step in the right
    direction.
        Today, we will consider other ways that we can reduce the
    cost of rental housing assistance while also expanding the
    supply of affordable housing for low-income individuals and
    families.
        While today's hearing will focus on how HUD can better
    serve the vulnerable population, HUD alone cannot solve this
    problem. It will require working across Federal departments and
    in partnership with States and local governments because this
    has to be literally a team effort. So we are obligated to
    figure out the most cost-effective way to do that. This hearing
    can help us do that.
        I thank you and I thank the chairman. Thank you, Madam.
        Senator Collins. Thank you very much, Senator Reed.
        We will now turn to our panel. I think Senator Reed
    essentially did a very nice job of introducing our panel, for
    which I thank him.
        And so our first will be Dr. Ed Olsen, Professor of
    Economics and Public Policy at the University of Virginia.
    STATEMENT OF DR. EDGAR OLSEN, PH.D., UNIVERSITY OF
                VIRGINIA PROFESSOR OF ECONOMICS AND PUBLIC
                POLICY
        Dr. Olsen. Thank you, Senator Collins. I am delighted to be
    here today to share with you and the members of the committee
    what I know about the performance of low-income housing
    programs and share some ideas about how to get better outcomes
    from the money spent on them.
        I speak from the perspective of a taxpayer who wants to
    help low-income families, albeit a taxpayer who has spent more
    than 40 years studying the performance of these programs. What
    I know is based in part on the research of hundreds of other
    researchers who like me have no financial interest in
    particular ways of delivering housing assistance. So I am
    particularly pleased that the hearing will consider major
    reforms of the current system because low-income housing
    assistance is fertile ground for reforms that would allow us to
    serve many more of the poorest households without greater
    public spending.
        In my view, the current system has two main defects.
        First, the majority of current recipients are served by
    programs of project-based assistance, whose cost is enormously
    excessive for the housing provided. The best study of HUD's
    largest program that subsidized the construction of privately
    owned projects indicated an excess taxpayer cost of at least 72
    percent. The best study of public housing indicated an even
    larger excess cost.
        The second major defect of the current system is that it
    provides large subsidies to some households while offering none
    to others in identical circumstances. And it provides subsidies
    to many people who are not poor while offering none to many of
    the poorest. Less than 35 percent of families with extremely
    low incomes on HUD's definition receive housing assistance.
    Phasing out programs of project-based assistance in favor of
    the system's most cost-effective program, the tenant-based
    voucher program, would ultimately free up the resources to
    provide housing assistance to millions of additional people.
        I will offer several specific proposals to that end.
        The low-income housing tax credit is the largest and
    fastest growing low-income housing program. Its costs are
    excessive for the housing provided, and most of the families
    served are not poor. Therefore, I think we should phase out
    funding for new tax credit projects and replace these tax
    credits with refundable tax credits for the poorest homeowners.
        The best evidence also indicates that above-market rents
    are paid when the government renews use agreements with owners
    of privately owned subsidized projects. Therefore, when
    existing housing projects come to the end of their use
    agreements, we should not renew them, but instead give their
    tenants portable vouchers.
        I also have some proposals for public housing reforms that
    would better use the funds and assets currently available to
    public housing authorities.
        First, we should require each public housing authority to
    offer a housing voucher to each public housing tenant using its
    current budget for public housing.
        Second, we should allow public housing authorities to
    charge market rents for the units vacated by families that
    accept the vouchers and use the increased revenue to improve
    their projects.
        Third, we should allow public housing authorities to sell
    any of their projects to the highest bidder with the
    restriction that they must provide occupants with housing
    vouchers and use the net proceeds of the sale to improve the
    remaining projects.
        Finally, the housing voucher program provides very large
    subsidies to recipients while offering nothing to other
    families in identical circumstances. The national mean subsidy
    to a household with one adult and two children and no countable
    income is about $12,000 a year. A voucher subsidy of this
    magnitude enables its recipient to occupy a rental unit of
    about average desirability. From the viewpoint of poverty
    alleviation and basic fairness, it is surely much better to
    provide somewhat more modest housing to more of the poorest
    households rather than housing of this quality to a fortunate
    few. Therefore, I think we should provide new voucher
    recipients with a less generous subsidy and use the savings to
    provide vouchers to more of the poorest households.
        I realize that this subcommittee does not have the
    authority to implement many of these suggestions, so I will
    make one recommendation that is clearly within the committee's
    authority and that would, I believe, have an enormous positive
    effect on the future course of low-income housing policy.
        Specifically, I recommend that the committee appropriate
    the money for analyses of the highest quality that compare the
    cost-effectiveness of housing vouchers with the cost-
    effectiveness of various types of tax credit projects,
    including ones that renovate HUD's subsidized projects and ones
    involved in public housing's rental assistance demonstration.
    The cost of these studies would be trivial compared to the
    amount of money spent on these programs each year.
        Thank you.
        [The statement follows:]
                  Prepared Statement of Dr. Edgar Olsen, Ph.D.
        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 U.S., 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 U.S. 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.
        [The chart follows:]

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

      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 D.C. 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 phase out 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 household 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.

        Senator Collins. Thank you very much, Professor. I very
    much appreciate the number of years you have spent on this
    issue and your very specific recommendation.
        We will next hear from Erika Poethig, Institute Fellow and
    Director of Urban Policy Initiatives at the Urban Institute.
    Thank you for being here.

    STATEMENT OF ERIKA POETHIG, FELLOW AND DIRECTOR OF URBAN POLICY
          INITIATIVES, THE URBAN INSTITUTE

        Ms. Poethig. Thank you, Madam Chairwoman, Ranking Member
    Reed, and members of the THUD Subcommittee for the opportunity
    to be an expert on this panel.
        My name is Erika Poethig. I am Director of Urban Policy
    Initiatives at the Urban Institute, which is a nonprofit
    research organization dedicated to the power of evidence to
    improve lives and strengthen communities.
        The views expressed before you today are my own and should
    not be attributed to the Urban Institute, its trustees, or its
    funders.
        There is an overwhelming body of evidence that Federal
    rental assistance makes a difference in people's lives and
    communities. Increasingly, research demonstrates that housing
    serves both as an essential safety net and as a platform from
    which individuals, families, and older adults can improve their
    health, education, and economic outcomes. When families cannot
    afford housing, it undermines their ability to get to the next
    rung on the economic ladder and prevents older adults from
    aging safely and securely.
        Yet, America's housing policy has never fully met the
    demand for affordable rental housing. Today, there are nearly
    20 million households that qualify for housing assistance, but
    only one in four receives it.
        I would like to make two points. One, we must expand
    Federal rental assistance. And, two, as we work to do so, we
    must use the best evidence available to reform existing
    policies and programs. Let me elaborate on these two points.
        First, this committee has made the smart decision to
    prioritize Federal investment in rental assistance. But given
    the current and growing need, we must build a new generation of
    rental assistance focused on the most vulnerable households. We
    leverage housing as a platform for service delivery and access
    to opportunity by targeting expanded rental assistance to
    families with children earning less than 30 percent of area
    median income, people with disabilities, and older adults on
    fixed incomes.
        Targeting these vulnerable populations pays dividends.
    Stable housing generates cost savings to other Federal
    programs. For instance, evidence suggests that for homeless
    families, rental assistance is more effective than costly
    services. At the same time, connecting the housing platform to
    services for older adults, such as health care coordination,
    has proven reductions in Medicare spending. This is one
    opportunity to bring new resources to the table as we work to
    expand rental assistance.
        Second, evidence tells us that housing policy is one
    important lever to promote upward mobility. A low-income child
    that gains access to a low-poverty neighborhood will see their
    income as an adult grow by 30 percent. Unfortunately, our
    current programs are not well designed to enable individuals to
    reach their full potential. We need to reform existing policies
    and programs.
        For instance, greater flexibility is needed to move
    project-based subsidy contracts to buildings in lower poverty
    neighborhoods. At the same time, we need to prioritize place-
    based investment strategies that can catalyze neighborhood
    revitalization and improvement, and we need to preserve
    existing assets in low-poverty communities.
        Finally, the voucher program is a great tool to promote
    upward mobility. However, the program could be strengthened by
    the use of small area FMRs (Fair Market Rents) and by marrying
    vouchers to greater supports for mobility. That is why I am
    very excited and thankful to see that this committee included
    the mobility demonstration in the fiscal year 2017
    appropriations bill that passed the Senate. The demonstration
    will generate timely and needed evidence to ensure that
    vouchers are indeed a platform for upward mobility.
        Thank you very much for this invitation to testify. I look
    forward to your questions.
        [The statement follows:]
                     Prepared Statement of Erika C. Poethig
        Thank you for asking me to testify at this hearing. My name is
    Erika C. Poethig, and I am an Institute fellow and director of urban
    policy initiatives at the Urban Institute in Washington, DC. The views
    expressed here are my own, not those of the Urban Institute, its
    trustees, or its funders.
        Congress committed the first national resources to public housing
    during the Great Depression. That decision altered the course of
    millions of lives for the better, providing the most vulnerable
    Americans with a home that was otherwise out of reach and giving
    children the promise of a better future. Today, the long bipartisan
    legacy of affordable rental housing is in doubt. Millions of Americans
    are unable to find safe and secure housing that they can afford.
        Housing assistance plays an important role improving lives across
    the age continuum. Yet America's housing policy has never fully met the
    demand for affordable rental housing. Over the next 15 years, the
    demand for rental housing will continue to grow. During this same time
    period, the number of senior renters is projected to double, increasing
    from 5.8 million to 12.2 million households. More than a quarter will
    pay more than 50 percent of their income for rent (Goodman, Pendall,
    and Zhu 2015). Absent increased resources for Federal rental
    assistance, America's older adult population will face increased
    housing instability and homelessness, which can lead to poor health and
    diminished quality of life. At the same time, safe and stable housing
    also plays an important role in the early stages of life. Rigorous
    evidence has demonstrated that housing assistance is an essential
    driver of economic mobility for low-income children. In order to meet a
    growing unmet need, we must expand Federal rental assistance to serve
    the most vulnerable households including older adults, people with
    disabilities, and families with children.
        Today, over 5.1 million households use Federal rental assistance,
    which includes the housing choice voucher program, project-based rental
    assistance, public housing, and USDA programs. While we work to expand
    the Federal investment in housing assistance, we can also use the best
    evidence available to reform existing policies and programs in order to
    maximize better health, education, and economic mobility outcomes. Such
    reforms will require better alignment between Federal housing programs
    and policies, increasing incentives to move and preserve subsidies in
    lower poverty neighborhoods, tailoring approaches to address the
    continuum of housing and service needs, and capturing and reinvesting
    savings housing generates for Medicare and Medicaid.
    Rental Assistance Creates Positive Benefits to Individuals and Families
        The evidence of the importance of housing assistance for people's
    lives is overwhelming. Research demonstrates that housing is both an
    essential safety net and a platform from which families can improve
    their health, educational, and economic outcomes. Since 2008, more than
    40 studies, by a wide array of scholars across many different
    institutions, have focused on how housing matters for individuals and
    communities. This body of research, which has been largely supported by
    the John D. and Catherine T. MacArthur Foundation, has found that
    housing location, stability, quality, and affordability affect
    kindergarten readiness, children's math and reading scores, child
    development, mental and physical health, and income growth.
        There are four important ways housing assistance serves as a
    platform for better outcomes.
        First, housing assistance frees up resources that can be invested
    in improving economic mobility and better health outcomes. For
    instance, when families cannot find affordable housing, they make
    tradeoffs that affect medical care, children's health, child enrichment
    activities, food security, and retirement savings (JCHS 2015; Newman
    and Holupka 2014). One third of households in the Milwaukee Eviction
    Court Study--a sample composed almost exclusively of very low-income
    renters who were trying unsuccessfully to afford their rent without a
    subsidy--paid at least 80 percent of their household incomes for rent
    (Desmond 2012). This leaves very little income to pay for other
    expenses. For seniors, rental assistance is an essential protection, as
    the potential to increase income is limited. Housing costs account for
    the largest proportion of older adults' expenses. Seniors spend more on
    housing than healthcare or anything else (Johnson 2015).
        Second, housing assistance can reduce frequent moves for children
    and seniors. When families are not stably housed, it can lead to
    frequent school moves, high rates of absenteeism, and low test scores
    among children (Cunningham, Harwood, and Hall 2010). For older adults,
    housing stability coupled with age-restricted housing can create a
    platform to healthcare coordination and services that slows growth in
    Medicare costs. The Support and Services at Home (SASH) model leverages
    housing as a platform to connect residents of federally assisted
    housing with community-based services and care coordination. A recent
    study estimated that the growth in Medicare expenditures for early SASH
    participants was $1,756-$2,197 lower than the growth in expenditures
    for the comparison groups (Sanders 2014).
        Third, housing assistance can be used to revitalize communities. In
    1986, New York City Mayor Ed Koch launched a 10-year, $5.1 billion
    capital plan for housing, investing local, State, and Federal resources
    to revitalize a distressed housing stock and preserving its
    affordability. Based on analysis by scholars from the New York
    University Furman Center for Real Estate and Urban Policy, this
    investment more than paid back the local investment through increased
    property tax receipts. The positive spillover effects from the
    investment were significant enough to justify government support for
    housing production, including the State and Federal resources (Ellen et
    al. 2003). In the same study, Ellen and colleagues did not find the
    same spillover effects for the tenant-based voucher program largely
    because voucher holders are more dispersed and the aim of the program
    is not to revitalize neighborhoods but rather enable low-income
    households to rent housing from private landlords. At the same time,
    some evidence suggests that larger concentrations of voucher holders
    can produce negative effects in a neighborhood (Galster, Tatian, and
    Smith 1999; Popkin et al. 2012). When Galster and colleagues looked
    across neighborhoods they found that positive effects associated with
    concentrations of voucher holders were limited to high-value,
    predominantly white neighborhoods.
        Fourth, housing assistance can help low-income individuals and
    families access low-poverty neighborhoods that would otherwise be
    unaffordable. In the United States, access to opportunity is intimately
    tied to place. Where you live determines school quality, available
    transportation options, proximity to jobs, and community assets.
    Because place is so closely linked to access to opportunity, housing
    policy can provide critical ladders of mobility for people experiencing
    poverty (Blumenthal and McGinty 2015). Moving to low-poverty
    neighborhoods can also improve mental health and lower incidence of
    diabetes and obesity, as demonstrated by the Moving to Opportunity
    (MTO) experiment (Ludwig et al 2013).
        In 2015, a team of researchers led by Stanford economist Raj Chetty
    and Harvard economist Nathaniel Hendren published new empirical
    evidence that strongly supports the notion that opportunity and
    economic mobility are shaped, in part, by where you grow up (Chetty and
    Hendren 2015). Linking data from the MTO experiment to longitudinal
    data from the IRS, they conducted a national rigorous study of five
    million families to measure how strongly economic mobility and
    opportunity are shaped by the neighborhood in which you grow up. Their
    findings show that every year a child is exposed to a better
    environment improves a child's chances of success. Moving a young child
    from a high-poverty neighborhood to a low-poverty neighborhood improves
    her chances of going to college, lowers her chances of being a single
    mother, and increases her expected earnings by 30 percent. Chetty and
    Hendren's research also points to wide regional differences in access
    to opportunity.
        Although Chetty and Hendren's study is based on a mobility
    experiment that used housing choice vouchers, vouchers are not the only
    mechanism for enabling low-income children to access low-poverty
    neighborhoods. The study's key insight is that place matters and the
    longer a low-income child spends in high-opportunity neighborhoods, the
    better she is able to climb the rungs on the mobility ladder. It is
    possible that these results might also hold true for project-based
    rental assistance and public housing located in low-poverty
    neighborhoods.
    Demand for Affordable Rental Units is Increasing
        Housing affordability is a long-term, systemic problem that has
    become a crisis. This problem touches nearly every community in the
    United States and undermines the ability of low-income individuals and
    families to get to the next rung on the economic ladder. This is a
    perpetual problem, driven by stagnating low wages and increasing
    operating costs. The dynamic is particularly problematic now because
    demand for affordable rental housing is surging and is not being met
    with sufficient supply.
        Since 2000, the number extremely low-income households (ELI) has
    grown at a greater rate than the number of affordable housing units.
    Simply put, the demand for affordable housing is outpacing the supply.
    These two pressures make finding affordable housing even tougher for
    individuals and families with low incomes. The number of households who
    are housing cost--burdened is at a record high. In 2013, over one in
    four renters in the United States, or 11.4 million households, were
    facing severe rent burdens, meaning they spend more than half of their
    income on housing (JCHS 2016). Affordability challenges are especially
    pronounced at the lowest end of income spectrum. Over 70 percent of
    severely cost-burdened renter households are ELI, meaning they make
    less than 30 percent of the area median income (AMI).
        The problem is not isolated to tight rental markets on the coasts.
    Forty-eight percent of very low income renters who live in non-metro
    areas face severe rent burdens. Housing in rural areas is twice as
    likely to lack complete plumbing as typical U.S. housing, and in tribal
    areas, substandard housing is even more common (JCHS 2016).
        For those who are not living in assisted housing, the conditions
    are deplorable. HUD's biennial Worst Case Needs report documents
    housing needs for very low income renters (people with incomes no
    greater than 50 percent of AMI) who do not receive rental assistance.
    HUD considers two forms of worst-case housing needs: severe rent
    burden, which means spending 50 percent or more of household income on
    rent and utilities; and severely inadequate housing, which refers to
    housing with one or more serious heating, plumbing, and electrical or
    maintenance problems. In 2013, there were 7.7 million very low income
    unassisted renters who had worst-case housing needs, which is 49
    percent greater than in 2003. Severe rent burdens accounted for more
    than 97 percent of worst-case housing needs (Steffen et al. 2015).
        Severe housing burdens are so prevalent partly because low-wage
    workers do not earn enough to afford adequate housing. A worker earning
    the Federal minimum wage would need to work 104 hours a week to afford
    a typical two-bedroom apartment. Renters on average earn $14.64 an
    hour, while full-time wage earners on average need to earn $18.92 an
    hour to afford a two-bedroom apartment. At the State level, the average
    hourly wage a full-time worker needs to earn to afford a two-bedroom
    apartment ranges from $12.56 in Arkansas to $31.54 in Hawaii (Leopold
    et al. 2015).
    Supply of Affordable Housing Units is Not Keeping Pace With Demand
        These affordability challenges for the lowest-income families
    coincide with a broader surge in rental demand. Between 2010 and 2030,
    the growth in rental households will exceed that of homeowners, five
    new rental households for every three homeowners (Goodman, Pendall, and
    Zhu 2015). According to recent analysis by my colleagues Rolf Pendall
    and Laurie Goodman, the United States added more than one million new
    households in 2015, but only 620,000 net new units were added to the
    stock, creating a shortage of just over 430,000 units. This gap has
    pushed up home prices and rents, a trend that is likely to continue
    (Pendall and Goodman 2016). Meanwhile, the stock of nonsubsidized
    housing that is affordable to extremely low-income renters has steadily
    declined. Thirteen percent of nonsubsidized units with rents at or
    below $400 in 2001 had been demolished by 2011. Nearly half (46
    percent) of the remaining units were built before 1960, putting them at
    high risk of demolition (JCHS 2013). These market pressures are felt
    first by families at the lowest end of the income spectrum, many of
    whom are already severely cost burdened, further exacerbating their
    ability to find safe, stable, affordable housing.
        The supply of affordable rental housing is not keeping pace with
    demand, in part because without scarce government subsidies, it is
    nearly impossible to build and operate rental housing in most markets
    (Blumenthal and Handelman 2016). Developers cannot make projects
    targeted to low-income renters pencil out, meaning that the expected
    revenue stream from rents is too low to cover the costs of maintaining
    the property and to pay back the debt incurred in development. Lenders
    loan money for housing development based on the property's expected
    income, and when rents are set to affordable levels, there's a huge gap
    between the money needed to build and the money lenders and investors
    are willing to provide. Increasing rents to generate additional
    expected income puts apartments out of reach for extremely and very low
    income households. In order for developments to pencil out, owners need
    subsidy contracts that guarantee a long-term commitment to cover the
    gap between what extremely low-income tenants can afford and the
    established rent.
           the private market alone cannot supply affordable housing
        These market dynamics are why building affordable rental housing is
    truly a public-private partnership. But private contributions alone
    cannot close the affordability gap.
        Public subsidies are needed to close the gap between the costs of
    constructing and operating affordable housing developments and the
    revenue such developments are able to bring in. The largest subsidy
    source for low-income housing development, the Low-Income Housing Tax
    Credit, is designed to make units affordable to households with incomes
    at 50-60 percent of AMI, up to twice the ELI limit. The assistance
    available through Federal block grant programs (such as the Community
    Development Block Grant) and most State and local programs cannot keep
    housing affordable to ELI renters over the long term (Cunningham,
    Leopold, and Lee 2014).
        HUD's rental assistance programs are increasingly the only source
    of affordable housing for ELI renters in many areas. Yet, the need for
    rental assistance far exceeds the supply. Unlike other safety net
    programs--like Social Security, food stamps, Medicaid, or Medicare--
    housing assistance is not treated as an entitlement only 24 percent of
    the 19 million eligible households receive assistance (JCHS 2013). As a
    result, millions of low-income individuals and families face serious
    challenges ranging from severe cost burdens to overcrowding to
    homelessness.
    Federal Rental Assistance Serves One in Four Eligible Households
            Through a Variety of Programs
        Publicly and privately owned rental housing supported with Federal
    rental assistance represents an important supply of affordable rental
    housing, especially for extremely low-income households. Over 5.1
    million households use Federal rental assistance, which includes the
    housing choice voucher program, project-based rental assistance and
    public housing. Altogether these three programs cost nearly $35 billion
    in fiscal year 2016 and that is to support a level of subsidy that does
    not come close to fully meeting the need (NLIHC 2016). Sixty-eight
    percent of rental assistance recipients are extremely low income,
    meaning they earn 30 percent of area median income or less.
        A mix of housing options is essential to serve the varied needs
    individuals and families living in public and assisted housing.
    Recipients of rental assistance include working families, single
    adults, seniors, and people with disabilities. In 2014, over 70 percent
    of non-elderly, non-disabled households receiving HUD rental assistance
    worked (CBPP 2015). About one third of rental assistance recipients are
    families with children. More than half of the recipients of Federal
    assistance are seniors or people with disabilities. And, as the older
    adult population grows and the number of senior renters doubles over
    the next 15 years, they are likely to become a larger share of
    households with rental assistance. For this population, rental
    assistance is an essential protection, as the potential to increase
    income is limited. Policies to support the housing needs of low-income
    older adults could substantially improve their financial security
    (Johnson 2015). Project-based units are especially important to seniors
    and people living with disabilities as it allows for the colocation of
    housing and services.
        A brief overview of the programs follows:
      --The housing choice voucher program is the dominant form of Federal
            rental assistance. These tenant-based vouchers provide 2.1
            million households with the opportunity to find housing in the
            private rental market. Vouchers typically help pay the
            difference between what a family can afford and the actual rent
            of a unit that meet's HUD's health and safety standards, up to
            a regionally determined rent limit (Leopold et al. 2015).
            Families are expected to contribute the larger amount of either
            30 percent of family income or the minimum rent amount of up to
            $50. By law, 75 percent of new households admitted to the
            voucher program each year must be ELI. Nearly 40 percent of the
            households receiving housing vouchers are families with
            children, while another 40 percent are elderly or disabled,
            with some overlap (CBPP 2015).
      --Project-based rental assistance operates through an agreement
            between a private property owner and HUD. The program serves
            1.2 million families. Households must contribute the greater of
            30 percent of their income or a minimum rent of $25, while the
            subsidy compensates the landlord for the difference between the
            tenant portion and the contract rent. By law, 40 percent of the
            project-based assisted units in a development must be
            designated for ELI households (CBPP 2015). The vast majority of
            developments were built between the 1960s and mid-1980s using
            financial incentives that included low-cost mortgages and
            subsidy contracts, but Congress has not authorized new subsidy
            contracts since the late 1980s (Treskon and McTarnaghan 2016).
            Nearly 50 percent of households assisted through the project-
            based rental assistance program are elderly, and 15 percent are
            disabled, with some overlap (CBPP 2015).
      --Public housing units are owned and operated by local public housing
            agencies. The program serves 1.2 million households, 72 percent
            of which are extremely low-income. Some public housing
            developments have been redeveloped as mixed-income properties,
            primarily through HOPE VI and the Choice Neighborhoods
            Initiative. New public housing is no longer being developed.
            The backlog of capital needed to support existing public
            housing has reached such a scale that it stands to jeopardize
            the number of desperately needed units available. In 2010, HUD
            estimated that 1.2 million public housing units needed an
            estimated $25.6 billion for large-scale repairs (Finkel et al.
            2010). As demand for affordable housing continues to rise, the
            need to preserve the existing stock of affordable units is
            vital--and less costly than building new rental housing. When
            the full costs of both construction and upkeep are tallied, new
            construction costs 25 to 45 percent more than preservation
            (Wilkins et al. 2015; Brennan et al. 2013). Of the households
            living in public housing, 33 percent are families with
            children, 31 percent are elderly, and 21 percent are disabled
            single adults or disabled adults with children.
    Rental Assistance Strategies Need to Work for Both People and Places
        U.S. rental housing policy is made up of many different tools and
    levers that operate at the Federal, State, and local level. At the
    Federal level, the Low Income Housing Tax Credit is the largest driver
    of rental housing production, but it is not designed to meet the needs
    of the lowest-income Americans. HUD's programs still fill that gap
    through tenant-based and project based-assistance, which primarily
    includes housing choice vouchers, public housing, Section 8 project-
    based vouchers, Section 202 and Section 811 supportive housing, and the
    newly established Housing Trust Fund. At the State level, housing trust
    funds often play an important role in filling financing gaps in LIHTC
    deals or providing rental assistance with State generated revenues. For
    instance, 50 percent of the real estate transfer taxes collected in
    Maine are dedicated to the HOME fund, which provides gap financing as
    one of the eligible activities. Some States also raise capital through
    bonds and tax credits for housing. For instance, there is a referendum
    on the ballot in Rhode Island that would raise $50 million in bond
    proceeds for affordable housing (Dunn 2016). Some States provide
    incentives or require developers and local communities to better
    integrate rental housing into low-poverty communities. At the local
    level, cities and counties design and implement housing programs using
    resources from CDBG and HOME tailored to local need. Cities also create
    incentives to leverage private-market development to create greater
    affordability and access to opportunity for low-income residents. Some
    cities also dedicate significant local resources to affordable rental
    housing.
        This multiplicity of tools and approaches at different levels of
    government is both a strength and weakness. It allows communities to
    tailor housing strategies to market conditions, population need, and
    goals such as affordability, stability, quality, and access to
    opportunity; there are many ways to try to ``move the dial.'' But it
    also signals a basic need that is underfunded at every level of
    government. Every generation we create a new tool or strategy aimed at
    solving a problem that is largely the result of insufficient resources.
        We need an evidence-based portfolio of tools that can be tailored
    to local context. But we also need sufficient investment to meet the
    need of America's most-vulnerable households.
        Below I outline five key ingredients to expanding and reforming
    rental housing assistance to better meet the needs of people who cannot
    afford housing, especially in areas of opportunity.
                Expand Resources for Rental Assistance
        A full expansion of assistance to all eligible ELI households is a
    necessary ingredient to serving vulnerable households. Under current
    policy, housing assistance is delivered through programs with more
    losers than winners: only one in four eligible households receive
    assistance. This imbalance creates fundamental challenges in the
    housing system and reduces its general effectiveness.
        For these and other reasons, in 2014, the Bipartisan Policy
    Center's Housing Commission called for expanding the housing voucher
    program to ensure that rental assistance is universally available to
    all ELI households (Lubell 2014).The BPC estimated that expansion of
    vouchers would extend subsidies to an additional 3.1 million
    households, bringing the total assisted to 6.7 million. Through the
    proposal, higher-income households would transition off vouchers,
    shrinking the gap from 3.1 million to 2.9 million (BPC 2015).
        Housing vouchers are extremely effective in helping low-income
    families pay rent by filling the gap between what a household can
    afford and the fair-market rent. Rigorous evidence from the Welfare to
    Work voucher program found that receipt of a voucher reduced
    homelessness by 74 percent (Patterson et al. 2004). Researchers at the
    Urban Institute estimated that expanding housing vouchers to households
    with children would reduce child poverty 20.8 percent from the current
    baseline (Giannarelli et al. 2015).
                Improve Access to Low-Poverty Areas
        However vouchers alone may not be enough to effectively expand
    housing choice at scale. Even with a voucher, families face constrained
    choices due to factors such as lack of good information about
    neighborhood and housing options, lack of affordable units in
    opportunity-rich areas, and discrimination (Luna and Leopold 2013).
    Therefore, expanding resources for vouchers alone will not necessarily
    facilitate greater access to low-poverty neighborhoods.
        The Obama administration has made some important strides to
    increase housing choice voucher use in low-poverty communities. In
    particular, HUD has proposed to expand the use of Small Area Fair
    Market Rents (SAFMRs) in order to enable housing vouchers to be used in
    neighborhoods with higher rents and presumably more amenities (Kahn and
    Newton 2014). HUD's proposal, which concluded its comment period on
    August 15, would require State and local housing agencies to use SAFMR
    to set voucher subsidies in metro areas where vouchers are
    disproportionately concentrated in low-income areas, and allow agencies
    elsewhere to voluntarily adopt SAFMRs. Although the HUD approach is
    sound, the Center for Budget and Policy Priorities has recommended that
    HUD adjust its criteria for deciding where to require SAFMRs to ensure
    the policy is doing the most good (Fischer 2016). In hot-market areas,
    for instance, the policy may not be sufficient to help families access
    opportunity areas and may need to be coupled with other strategies such
    as counseling, source-of-income protections, portability between
    housing authorities, and move-in assistance.
        Additional low-cost or no-cost strategies for encouraging access to
    opportunity neighborhoods includes giving greater weight to the
    location of voucher holders when assessing public housing authority
    performance, reinforcing compliance with the Affirmatively Furthering
    Fair Housing rule, and giving housing authorities an administrative fee
    bonus for better location outcomes (Sard and Rice 2016).
        A complimentary strategy is HUD's policy for transferring budget
    authority via Section 8(bb)(1) of the Housing Act. This tool can be
    used for properties receiving the budget authority to move the subsidy
    contract to a building in a low-poverty neighborhood. PBRA subsidy
    contracts are a very important piece of a financing or refinancing
    request. They help an affordable housing development pencil out, and
    provide housing for extremely low-income households in areas with
    greater opportunity.
                Preserve Access to Low-Poverty Areas
        At the same time, it is important to preserve existing Federal
    investments in lower-poverty communities. Losing this resource by
    contract expiration of project-based assistance or vouchering out
    public housing would be a step backward in efforts to deconcentrate
    poverty and expand access to opportunity. Project-based rental
    assistance (PBRA) units house over 1.2 million low-income households
    (Jordan and Poethig 2015). Thirty-three percent of active PBRA units
    are at risk of loss largely because contracts that will expire in the
    next 24 months, which will allow property owners to leave rental
    affordability programs if they choose, or they are in poor physical
    condition. This amounts to over 446,000 units at risk of losing their
    affordability status. Sixteen percent of these at-risk PBRA units are
    in neighborhoods with poverty rates below 10 percent. Preserving these
    units leverages previous and existing investments to help keep low-
    income families in higher opportunity communities. Several States and
    cities have model approaches to encouraging preservation of at-risk
    units, but they rely heavily on support from the philanthropic sector
    and HUD regional office engagement, which is not uniform across the
    country (Treskon and McTarnaghan 2016).
        Another effort to improve and preserve the public housing stock is
    the Rental Assistance Demonstration (RAD). This effort, currently still
    a pilot program, helps convert public housing projects in need of
    repair to project-based vouchers or rental assistance contracts. Doing
    this enables public housing agencies more flexibility to access much-
    needed private capital or other public funding sources, providing
    another stream of resources outside the Federal Government to help
    preserve and repair the backlog of capital needs. While this program
    holds promise, it is not yet clear how RAD will reach, if at all, some
    of the most distressed public housing units or units located in higher-
    poverty communities with less market activity. We also need to know
    more about how residents are faring through this conversion; an
    evaluation underway by scholars at the Urban Institute is looking at
    exactly this point. It is essential to better understand both the
    impacts to properties and the people who call them home before reaching
    a conclusion about the broader implications of the program.
                Solve the Wrong Pockets Problem
        More than half the recipients of Federal assistance are seniors or
    people with disabilities (CBPP 2015). Housing stability and easy access
    to services and amenities are paramount factors for these groups. A
    growing body of evidence finds cost savings to other systems when
    seniors and people with disabilities are stably housed and connected to
    services. Yet, we do not have standard mechanisms for capturing those
    savings in other systems like health and reinvesting them in the
    housing supply.
        One approach is to build a case that housing assistance should be a
    reimbursable expense for Medicaid, especially when stable housing is
    proven to lower healthcare costs. Another approach is to provide HUD
    with demonstration authority to test different approaches, such as pay
    for success, which would enable cost savings in one system to be
    reinvested in affordable housing production or rental assistance. There
    are several examples of pay for success transactions paying for
    services on the site of affordable housing, but not the housing itself.
    Some additional Federal incentives might encourage local demonstrations
    that would use a pay for success model to finance rental assistance
    (Pay for Success n.d.).
                Grow the Evidence Base
        As we anticipate future demand for affordable rental housing, it is
    critical that we continue to grow our knowledge base about the most
    effective strategies for meeting these needs. At all levels of
    government, public leaders are increasingly leveraging the rapid growth
    of available data to evaluate how well their programs are working--and
    at what cost. Evidence-based policymaking is an approach to learning
    and doing ``what works'' that involves both real-time performance
    management strategies and longer-term evaluation of programs, as well
    as innovative data linking and analysis that can reveal new insights
    about how programs should be targeted. This data-centric approach can
    build ground for bipartisan compromise, as evidenced in the
    establishment of the Commission on Evidence-Based Policymaking, which
    has been spearheaded by Speaker Ryan and Senator Murray.
        While a great deal of research has shown the value of housing
    assistance and mobility in increasing access to opportunity and
    improving long-term outcomes, much more research and experimentation is
    needed to discern the best ways to help families take advantage of
    mobility. The Mobility Demonstration proposed in the President's budget
    would go a long way toward building an evidence base for strategies
    that encourage moves to low-poverty neighborhoods. It is also critical
    that Moving to Work (MTW) agencies are investing in high-quality
    evaluations of the interventions they are developing under their
    authority.
        At the same time, we need to invest more in research on how these
    place-based investments may contribute to neighborhood revitalization
    and improved resident outcomes. HUD has learned through the evolution
    from HOPE VI to the Choice Neighborhoods program that a more
    comprehensive community development approach to public housing
    transformation better integrates the developments into their
    surrounding communities and enables the public housing agency and its
    partners to address longstanding issues such as crime, education, and
    employment as part of overall redevelopment efforts. Through these
    efforts, we have also learned that we need better mechanisms to protect
    tenants from long-term displacement and support their ability to stay,
    should they so choose. In communities that are revitalizing, place-
    based investments such as public housing or PBRA can be an important
    way to help residents stay and benefit from these changes but we need
    better ways to track these results.
        Continuing to build the evidence base on rental assistance will
    require both increasing the supply of data available to researchers and
    pursuing further opportunities to integrate existing datasets. While
    much can be learned from surveys and from Federal, State, and local
    administrative datasets, private property owners and managers are an
    essential group in the evidence-building process; they often have more
    nuanced, on-the-ground information about tenure and outcomes than
    governments can collect. But because providing such information usually
    isn't mandated by housing assistance programs, incentives should be
    developed to encourage owners and managers to regularly submit data on
    tenant outcomes. The form these incentives take may vary by program,
    but getting more consistent information from private owners will give
    researchers a clearer picture on best practices for place-based housing
    assistance.
        Finally, researchers must be able to better take advantage of the
    rich datasets already available. Chetty's and Hendren's groundbreaking
    research relied in part on connecting previously unlinked datasets from
    government offices like the Census, the IRS, the Department of Housing
    and Urban Development, and the Integrated Postsecondary Education Data
    System. A range of other important data linking efforts are under way,
    including the development of integrated data systems hosted by
    universities, research organizations, or governments that serve as one-
    stop-shops for researchers to connect datasets across scales and policy
    areas. Though legal barriers and the important need to protect
    individual privacy can make data linking slow, only by expanding access
    to public data resources can researchers most effectively glean deeper
    insights about families' needs and how these programs are able to meet
    them.

        Senator Collins. Thank you so much for your testimony.
        We will next hear from Richard Gentry, the President and
    CEO of the San Diego Housing Commission. I look forward to
    hearing your testimony.
    STATEMENT OF RICHARD GENTRY, PRESIDENT AND CEO, SAN
                DIEGO HOUSING COMMISSION
        Mr. Gentry. Thank you, Senator Collins, for having me here
    today, and thank you, Senator Reed, for that kind introduction.
    I do not know the quality of my track record, but I have been
    around for a while. I began my 45th year in this industry
    earlier this month, and I have worked in it all the way from my
    home State of North Carolina to now southern California. And I
    have seen a wide variety of iterations of affordable housing in
    the country, and that does come to bear on what my testimony
    is.
        I will point out that I presented written testimony for the
    record. I am not going to try to repeat that. We certainly do
    not have the time for that, but I would like to hit three or
    four of the highlights from that paper.
        Number one is I do not think it is good to start with
    defending particular programs. I think what is important are
    the principles involved in who we serve and who pays the bill
    for who we serve, and those principles are fairly obvious but I
    think bear restating. And that is, that we should look to
    achieve the greatest benefit of the program for the low-income
    families who are served and also to maximize the efficiencies
    and expenditures by the taxpayers who are footing the bill for
    all of these programs one way or the other.
        I think that the methodologies involved in responding to
    those two principles are basically twofold. One I think is
    providing choice to the families involved. And I think that we
    transform low-income families from passive clients into active
    consumers when they are able to make choices which, in turn,
    empower them, and the choice of where a family lives is one of
    the most basic I think that any of us can have. I think that
    what can help turn a low-income family into a middle-income
    family is the recognition that they have a choice in their
    lives and that the choices they make can empower them and their
    families.
        I think, in turn, the methodology locally that will help to
    create those choices are, as much as possible, local
    decisionmaking. I think different jurisdictions across the
    country have unique housing needs. I have seen that in the
    course of my career which has taken me from North Carolina to
    Texas back to Virginia, to Chicago, where I worked across the
    country as a low-income housing tax credit syndicator, and now
    to San Diego.
        I think that decisions are best made when they are made on
    the local level. There is a term that is in great use in the
    European Union that I think would apply to this country as
    well, and that term is ``subsidiarity.'' And subsidiarity means
    over there that when I make a decision in Brussels, if it can
    be made in London, why make it in London if it can be better
    made in Liverpool. And I think the analogy here is why make a
    decision in Washington, D.C. if that decision can be made in
    Sacramento. Why make it in Sacramento if it can be made in San
    Diego?
        So I think getting the decisionmaking as close to the local
    action as is possible with the flexibility inherent in those
    decisions is another key to providing choice to the families
    and ensuring not only do the families get served well but that
    the taxpayers are rewarded with efficient programs as well.
        That said, it is my belief in my 44 years of experience
    that public housing is itself a failed business model. It does
    not work. It is a top-down command-and-control, one-size-fits-
    all formula that tries to wedge everybody into the same box.
    And that is not to denigrate either the residents of the
    programs or the program operators. Indeed, if you can make a
    public housing program work, you can make just about anything
    in this country work in my opinion.
        What I believe, though, is that the public housing program
    as it has been traditionally applied is like a metaphor of an
    assembly line. High volume of the same thing, which may have
    fit this country well in decades past. I think a better
    metaphor for our current society is that of a network of smart
    phones and personal computers that have the same platform but
    provide great variety in use of flexibility for the end user.
    That said, the Section 8 housing choice voucher program works
    very well in providing that flexibility.
        I will point out as well that what we have tried to do in
    San Diego--and I would refer you to the San Diego model as
    spelled out in the paper and as described in great detail on
    the Housing Commission's website--is what I believe the
    industry needs to move to. That is a balance between supply-
    side and demand-side housing for this business. And please bear
    with me. I always get those two mixed up.
        The supply side is making sure that there is product to be
    housed in and the subsidies needed for that. Demand side is
    subsidies to the consumer to help them choose where to live and
    live in it successfully. I think getting a proper balance
    between those two is utterly crucial as we move forward.
        I would be glad to go into that in more detail during
    question and answer.
        [The statement follows:]
                    Prepared Statement of Richard C. Gentry
                                  introduction
        Good morning, Chair Collins, Ranking Member Reed, and members of
    the subcommittee. I am Richard C. Gentry, the President and Chief
    Executive Officer of the San Diego Housing Commission, which serves
    low-income residents in the city of San Diego--the eighth largest city
    in the Nation and second largest city in California. I am honored to be
    here today to testify about Federal Section 8 Housing Choice Voucher
    rental assistance and public housing.
        I began working in San Diego in 2008; however, my experience in
    affordable housing spans 44 years--beginning with the U.S. Department
    of Housing and Urban Development (HUD) in 1972. I have served as the
    CEO of the public housing authorities in Austin, Texas, and Richmond,
    Virginia, as well as working in the private sector as the Senior Vice
    President of Asset Management for the National Equity Fund in Chicago,
    Illinois, the Nation's largest nonprofit Low-Income Housing Tax Credit
    syndicator, and as the Vice President for Public Housing Initiatives at
    the Local Initiatives Support Corporation (LISC) in Washington, D.C. My
    opinions today reflect the diversity of my background and the breadth
    of my experience.
        Federal housing programs should be guided by two principles:
        1.  Achieving the greatest benefit of the program for the low-
            income families that are served; and
        2.  Maximizing efficiencies in the expenditure of taxpayer funds.
        With this in mind, methodologies need to be evaluated to determine
    if they are the best practices to accomplish the mission of assisting
    individuals and families in the most effective way.
        As methodologies are evaluated, two additional factors are
    essential to consider:
        1.  Housing Choice--Low-income families are transformed from
            ``clients'' into ``consumers'' when they are able to make
            choices, which empowers them. A lack of choices hinders
            families from reaching the middle class.
        2.  Local Decision-making--Different jurisdictions across the
            country have unique housing needs. With this in mind, decisions
            are most effective when they are localized as often as possible
            and are made at the level closest to the jurisdiction.
    Public Housing and Section 8 Housing Choice Voucher Rental Assistance--
            History
        Federally funded public housing in the United States dates back to
    the Housing Act of 1937, which provided Federal funds to public housing
    for low-income working class families. However, public housing
    proliferated after the Housing Act of 1949, which began applying income
    limits so that public housing served low-income residents, while
    working class families were supported in their access to private sector
    housing.
        HUD was created by legislation in 1965 to oversee Federal housing
    programs for vulnerable low-income households, such as seniors,
    individuals with disabilities, and families.
        The Housing and Community Development Act of 1974 and subsequent
    revisions to it, along with program rules from HUD, created the Section
    8 Housing Choice Voucher rental assistance program.
        It is important to note that private sector rental housing today
    continues to provide the majority of the rental housing opportunities
    for both Americans who receive Federal housing assistance and those who
    do not.
        According to HUD, approximately 1.1 million American households
    live in public housing, which is 1 percent of the approximately 116
    million households in the United States, based on U.S. Census Bureau
    data. In addition, approximately 3.4 million households, or 2.9 percent
    of all households in the United States, receive Federal Housing Choice
    Voucher rental assistance or Project-Based rental assistance, according
    to HUD's proposed budget for fiscal year 2017 (October 1, 2016--
    September 30, 2017).
        With that said, I believe that the United States' traditional
    public housing program is no longer viable in its current form to
    continue serving the needs of low-income Americans. America's
    traditional public housing program has been, since its inception, a
    top-down, one-size-fits-all, centralized, command-and-control program
    operated in Washington, D.C., that is intended for implementation
    uniformly across the country. In a country as large and diverse as the
    United States, a public housing program with centralized mandated rules
    does not work.
        This is not criticism or denigration of the low-income individuals
    and families who live in public housing or those who operate the
    program. However, the program's structure is flawed and needs to be
    changed to more efficiently use taxpayer resources to serve the housing
    needs of low- income Americans.
        The public housing program reflects an assembly line methodology of
    producing a high volume of uniform housing across jurisdictions, which
    was better suited to American culture decades ago in the 1930s, 1940s
    and 1950s.
        However, today's culture reflects the influence of technological
    advancement and is analogous to a network of smartphones and personal
    computers supported by a standard structure, but with variabilities to
    meet individual needs. The Section 8 Housing Choice Voucher rental
    assistance program better serves this culture, delivering
    individualized assistance tailored to the needs of the individual
    customer.
        The Section 8 Housing Choice Voucher rental assistance program is
    the most useful affordable housing program that I have seen the Federal
    Government develop in my 44 years working with affordable housing. It
    is the most effective option available in the United States today and
    in the future for providing affordable housing for low-income
    individuals and families.
        In addition, it is important to keep in mind the need for funding
    at appropriate levels if public housing is converted to Housing Choice
    Voucher rental assistance. In its fiscal year 2017 budget, HUD proposed
    funding approximately $9,500 per family for Housing Choice Voucher
    rental assistance ($20.9 billion for 2.2 million families), compared
    with approximately $5,863 per family for public housing ($6.45 billion
    for 1.1 million families). Therefore, to successfully address
    affordable housing needs, the conversion of public housing to Housing
    Choice Voucher rental assistance requires a corresponding increase in
    funding per family.
        As this subcommittee considers the question, ``Housing vulnerable
    families and individuals--is there a better way?'' I submit that
    providing affordable housing opportunities should look much like the
    San Diego model, with the innovative approaches we have implemented at
    the San Diego Housing Commission (SDHC).
                 public housing conversion--the san diego model
        A landmark agreement on September 10, 2007, between SDHC and HUD
    transferred full ownership and operating authority for 1,366 public
    housing units to SDHC--the largest public housing conversion at the
    time.
        ``San Diego knows more about what San Diego needs than the Federal
    Government does. And when San Diego came to me and said we need to do
    this, I was compelled to listen,'' said Orlando Cabrera, the former HUD
    Assistant Secretary, who approved the landmark agreement with SDHC.
        SDHC paid HUD $1,366--a nominal $1 per unit--to acquire 137
    properties with a combined fair market value of $124.2 million. All the
    properties were debt-free.
        In exchange, SDHC committed to leverage the equity lying fallow in
    these former public housing units to create at least 350 additional
    affordable housing units--a number SDHC far surpassed.
        The SDHC Board of Commissioners and the San Diego City Council
    approved SDHC's application to withdraw from HUD's public housing
    program, which HUD also approved.
        ``What the San Diego Housing Commission did was basically say we
    can't rely on the Federal taxpayer to continue to maintain units,
    because it's not serving our residents well. It's not serving our
    community well. They essentially took resources, and then they created
    better units with them,'' said former HUD Assistant Secretary Cabrera.
    Creating and Preserving Additional Affordable Housing
        SDHC presented HUD with a variety of options it was considering to
    fulfill the obligation for the creation of additional affordable rental
    housing units.
        HUD responded on Oct. 17, 2008, by approving seven options, all of
    which required SDHC to have a property ownership.
        Ultimately, SDHC chose two courses of action that would create and
    preserve affordable housing for families in the city of San Diego:
        1.  Purchase the land and provide a loan and ground lease to the
            developers. After the 15-year tax credit compliance period,
            SDHC would have the option to buy the public-private
            partnership properties.
        2.  Purchase property directly or in partnership with a government
            agency.
        Also required were a series of administrative steps to obtain the
    appropriate local approvals from the SDHC Board of Commissioners and
    the San Diego City Council, sitting as the Housing Authority of the
    City of San Diego.
        These approvals would bring about internal changes to past
    operating practices and set up SDHC for the financing and ongoing
    management of the public housing conversion program.
        SDHC then implemented an innovative Finance Plan that was developed
    in 2009, which leveraged significant private sector financial
    investment.
        San Diego City Councilmember Todd Gloria, who served on the SDHC
    Board of Commissioners at the time the agreement with HUD was being
    negotiated, said: ``I think the concern that I had was how do we
    maintain the solvency of the agency as we saw the subsidy being
    reduced. That obviously produced a lot of financial challenges to the
    organization.''
        SDHC leveraged the equity from this new real estate portfolio to
    create or preserve 810 additional affordable housing in the city of San
    Diego through direct acquisitions and public- private partnerships. All
    of the units will remain affordable for at least 55 years.
    Minimizing Financial Risk
        In its loan underwriting, SDHC sought to minimize any financial
    risk. Among the key elements of the borrowing:
      --Both Fannie Mae and FHA mortgage programs were used as sources of
            borrowing, providing more than one option for capital under
            circumstances when time was of the essence.
      --SDHC limited its use of equity to only 78 converted public housing
            properties of five units or more, a total of 1,254 units.
      --While lenders would have accepted a loan-to-value ratio (LTV) of 80
            to 85 percent, SDHC limited itself to 70 to 75 percent,
            providing additional cash flow to support the debt load going
            forward.
      --Variable interest rates were slightly better at the time, but SDHC
            used fixed-rate loans only to better quantify its risk, and
            used 30-year instead of 10-year loans.
      --Reserve accounts also were established.
        When SDHC closed its loans with Fannie Mae on December 30, 2009, it
    had raised $37.1 million at a 7.32 percent interest rate.
        The FHA loans closed on August 31 and September 30, 2010. SDHC
    raised $58.2 million with a 3.76 percent interest rate.
    Rehabilitating Former Public Housing Units
        Lender requirements prompted SDHC to collect financial statements,
    rent rolls, appraisals, title and zoning reports, regulatory agreements
    and other documents--as many as 80 reports per property--on the 78
    former public housing properties that were leveraged.
        After the properties were reviewed, lenders requested that SDHC
    perform critical and non- critical repairs. While the original work
    list was lengthy, it was limited in scope.
        SDHC capitalized on this opportunity to expand the scope of work
    and provide a more comprehensive rehabilitation program than what was
    required by the lenders. At the conclusion of rehabilitation, nearly
    $3.2 million had been invested in the physical assets.
    Housing Choice Vouchers for Residents
        When the former public housing units converted to SDHC ownership,
    residents were provided with Federal Section 8 Housing Choice Vouchers.
        They could then use the vouchers at their existing units or take
    them with them as rental assistance to another rental home of their
    choice.
        This expanded the opportunities for affordable housing to hundreds
    of additional San Diego families and provided them with more choices.
        Approximately 50 percent of the residents chose to stay at their
    existing units.
        Vacancies in SDHC properties were filled with families who met the
    income eligibility established in the agreement with HUD.
    Local Action Amid Declining Federal Investment
        The public housing conversion emerged from a growing realization by
    the SDHC Board of Commissioners and executive leadership that SDHC's
    dependence upon the Federal Government's historic investment in
    construction and maintenance of public housing could not be sustained
    under the current Federal model.
        Federal public housing subsidies for operations and maintenance
    were based on a formula, were not keeping pace with need, and were
    counterproductive to good private sector management techniques. Across
    the Nation, fewer new public housing units were being developed despite
    a growing demand for workforce and family housing.
        ``I think one of the most important things is that it created
    public-private partnerships, gave the Housing Commission the ability to
    sustain even more affordable housing units and to serve more people, to
    serve more families. And today if you look at the environment around us
    where you see an economic downturn, foreclosures, families who are in
    greater need than they were before, you know it was a really smart
    thing to do,'' California State Assembly member Toni Atkins, the former
    Speaker of the California State Assembly and a former San Diego City
    Councilmember, said in 2012.
        On October 2, 2012, SDHC published a special multimedia digital
    report about the landmark public housing conversion and SDHC's Finance
    Plan, which is used today by other public housing authorities as a
    manual to emulate. The report, ``Creating Affordable Housing Through
    Public Housing Conversion,'' is posted on SDHC's website: http://
    www.sdhc.org/uploadedFiles/Media_Center/Digital_Reports/Public
    HousingConversionReport.pdf.
        In addition to SDHC's own particular type of public housing
    conversion, there is another landmark Federal program that provides
    additional public housing authorities with similar opportunities to
    transform or enhance their public housing:
    Rental Assistance Demonstration
        Nearly 4 years after SDHC's landmark public housing conversion
    agreement with HUD, the Federal Consolidated and Further Continuing
    Appropriations Act, 2012, was enacted on November 18, 2011, creating
    the Rental Assistance Demonstration (RAD) program.
        RAD allows public housing to be converted to long-term, Section 8
    Housing Choice Voucher project-based rental assistance contracts. This
    conversion under RAD enables properties to obtain private financing to
    perform maintenance that had been deferred.
        Although SDHC has not yet participated in RAD, we may utilize RAD
    in the future for our 189 remaining public housing units, and we
    support the public-private principles RAD is based upon.
                      providing federal rental assistance
    Section 8 Housing Choice Vouchers
        SDHC's largest program is Section 8 Housing Choice Voucher rental
    assistance.
        More than 15,000 low-income households in the city of San Diego,
    including formerly homeless San Diegans and chronically homeless
    Veterans, receive Federal Section 8 Housing Choice Voucher rental
    assistance from SDHC.
        These households include more than 37,000 men, women and children.
        Approximately 56 percent of these households are seniors or
    individuals with disabilities.
        In addition to assisting low-income households to obtain rental
    housing, SDHC's Housing Choice Voucher program invests millions of
    dollars in the local economy each year.
        In fiscal year 2016 (July 1, 2015--June 30, 2016), SDHC paid
    $143,377,584 to approximately 5,600 participating landlords in the city
    of San Diego, who are essential to providing affordable housing to low-
    income San Diegans.
        SDHC engages with private sector landlords to establish more
    affordable housing opportunities by providing Federal rental
    assistance.
        SDHC partners with HUD to provide the most vulnerable San Diegans
    with rental assistance to help them locate housing in the competitive,
    high-cost San Diego rental housing market.
        In addition, this program allows local agencies, such as SDHC, the
    flexibility to categorize Housing Choice Vouchers in ways that best
    serve their local communities, such as:
      --Project-Based Housing Vouchers: Federal Project-Based Housing
            Vouchers are awarded to specific affordable housing
            developments to provide rental assistance linked to their
            units. When a tenant moves, the rental housing voucher remains
            with the affordable housing unit so that another low-income or
            homeless San Diegan is able to move into the unit and receive
            rental assistance.
      --Sponsor-Based Housing Vouchers: SDHC awards Federal Sponsor-Based
            Housing Vouchers to nonprofit organizations, or ``sponsors,''
            that provide supportive services to homeless San Diegans.
            Sponsor-Based Housing Vouchers provide rental assistance that
            pays up to 100 percent of the tenant's rent, depending on their
            income level.
    Moving to Work
        The U.S. Government's creation of the ``Moving to Work'' program in
    1996 established a significant tool to provide affordable housing
    opportunities, combining the flexibility to foster innovation with
    continuing government oversight from HUD. Public housing authorities
    must submit their proposed new MTW programs to HUD for approval.
        MTW lessens the impact of the top-down approach of the public
    housing program because it provides flexibility and allows local
    agencies to determine the most effective programs for their
    communities.
        MTW has been especially significant in the expensive housing
    markets of California, including San Diego.
        SDHC is one of only 39 public housing agencies, out of 3,400
    nationwide, to receive the MTW designation from HUD, which allows
    flexibility to create innovative, cost-effective approaches to provide
    housing assistance to low-income families.
        I want to thank the members of this subcommittee for your efforts
    to extend the contracts of MTW agencies, such as SDHC, for 10 more
    years, through 2028, which was approved in the Consolidated
    Appropriations Act of fiscal year 2016 on December 18, 2015.
        This Congressional action also will expand the MTW program to an
    additional 100 public housing agencies across the country. I believe
    that the MTW program should eventually apply to all public housing
    agencies other than those identified by HUD as ``troubled'' to provide
    them with the structure and flexibility to design programs in their
    communities.
        In San Diego, the MTW program has allowed SDHC to encourage
    families and reward them for productive activities, as you will see in
    my comments about the SDHC Achievement Academy.
        SDHC's MTW initiatives provide: opportunities for Section 8 Housing
    Choice Voucher rental assistance participants and public housing
    residents to become more financially self-reliant; funding toward the
    creation and preservation of affordable housing for homeless San
    Diegans; and rental housing vouchers to address homelessness.
    SDHC Achievement Academy
        A significant component of SDHC's MTW initiatives is that we want
    to reward households for taking steps to move to work. The SDHC
    Achievement Academy is a critical MTW initiative to help low-income
    residents break the cycle of poverty and become more financially self-
    reliant.
        On October 4, 2010, SDHC opened the SDHC Achievement Academy, a
    state-of-the-art learning and resource center and computer lab at
    SDHC's headquarters in Downtown San Diego. The SDHC Achievement Academy
    provides programs that emphasize career planning, job skills and
    personal financial education--at no cost to Section 8 Housing Choice
    Voucher rental assistance participants and public housing residents.
        In fiscal year 2016 (July 1, 2015--June 30, 2016), 1,930
    participants received services at the SDHC Achievement Academy.
        The SDHC Achievement Academy's main program is Family Self-
    Sufficiency (FSS).
        Heidi, age 39, was a homeless, pregnant teen when she began
    receiving Federal rental assistance from SDHC in 1997. She began
    participating at the SDHC Achievement Academy in 2012 and enrolled in
    FSS.
        Working as a waitress, she was able to obtain an associate's degree
    in 2007. Two years later, she graduated from California State
    University, San Marcos with a bachelor's degree in criminology and
    justice studies. In spring of 2016, she earned her doctorate degree in
    sociology from the University of California, San Diego.
        ``There is absolutely no way that I would have had the opportunity
    to go to school if I didn't have my rent subsidized. I didn't have to
    work three jobs to support my family. I was able to take that time and
    go to school. I always felt like I had someone in my corner, someone
    that supported me, someone that wanted me to be successful, and I'm
    speaking specifically of FSS,'' Heidi said.
        Heidi is looking for work as a professor and plans to phase out of
    Federal rental assistance, making assistance available for another low-
    income family.
        SDHC utilized MTW flexibility to redesign the SDHC Achievement
    Academy's FSS, program, to provide enhanced opportunities for families
    to become more financially self-reliant.
        Currently, 327 individuals are participating in the SDHC
    Achievement Academy's FSS program.
        A voluntary, 2-year program, FSS provides a variety of courses,
    including: job training, career planning, and financial literacy
    education, such as budgeting, saving, establishing good credit, and
    income tax preparation.
        Participants are required to follow a career plan and obtain a job
    working at least 32 hours per week. FSS is available at no charge to
    the head of household receiving SDHC HCV rental assistance and public
    housing residents.
        SDHC Achievement Academy FSS participants are able to earn up to
    $10,000 in an interest-bearing escrow account based upon their
    educational and employment-related accomplishments. Funding for these
    financial incentives is provided by HUD. FSS program participants may
    use these funds as they wish when they complete the program.
    Path to Success
        With the flexibility provided by MTW, SDHC created the Path to
    Success initiative to encourage Housing Choice Voucher families to
    become more financially self-reliant.
        Under Path to Success, SDHC identifies Housing Choice Voucher
    rental assistance participants who are able to work (Work-Able).
        With approximately 2,800 Work-Able families now paying toward their
    rent for the first time, SDHC's goal is to expand the Housing Choice
    Voucher program to those families on the waiting list, if it is
    financially feasible.
        Providing rental assistance to families who are not working
    requires more Federal funds than assisting working families who
    contribute toward their rent.
    Work-Able Families:
      --Households with at least one adult who is under 55, not disabled,
            and not a full-time student ages 18-23.
      --Full-time students ages 18-23 are considered Work-Able if they are
            the spouse, head or co-head of the household.
      --Income and household circumstances are reviewed every 2 years
            instead of annually.
        SDHC sees Housing Choice Voucher participants as partners in
    utilizing limited Federal funds to help as many families in need as
    possible.
        Path to Success sets minimum monthly rent payment amounts for Work-
    Able families.
        New minimum monthly rent payment amounts were implemented for Work-
    Able families, effective July 1, 2015:
      --Households with one Work-Able person now pay a minimum rent of $300
            (up from $200); and
      --Households with two or more Work-Able individuals now pay a minimum
            rent of $500 (up from $350).
        When the Path to Success initiative was implemented on July 1,
    2013, the initial minimum monthly rent payment amounts were based on
    California's minimum wage standards--$8/hour at the time.
        SDHC determined what a Work-Able household could earn working 20
    hours a week at minimum wage, and then calculated minimum rent payment
    amounts that would be approximately 30 percent of that monthly figure.
        SDHC's Housing Choice Voucher program includes 6,587 Work-Able
    households. Of these, 2,814 pay minimum rents.
        Work-Able families pay either the minimum monthly rent payment
    amount or the rent payment amount based on the family's annual income,
    whichever is greater.
        Adjusted annual income is separated into income ranges. The lower
    edge of the range is used to calculate the family's rent payment.
    Example:
      --The monthly rent payment amount for any family with adjusted annual
            income between $20,000 and $24,999 will be calculated using
            $20,000 as their income.
      --It is possible that a family's monthly rent payment amount may
            decrease under Path to Success.
    Hardships
        Families may apply for a temporary hardship exemption from the
    minimum monthly rent payment amounts.
        If the exemption is approved, the household is required to
    participate in SDHC Achievement Academy work readiness programs for the
    duration of the hardship period.
    Elderly/Disabled Families:
        The Path to Success minimum rent payment amounts do not apply to
    Elderly/Disabled households:
      --Households where all adult family members are 55 or older,
            disabled, or a full-time student ages 18 to 23.
      --Income and household circumstances will be reviewed every 2 years
            instead of annually.
      --The minimum monthly rent payment amount for an Elderly/Disabled
            family is $0.
    Choice Communities
        In San Diego, one of the programs that helps to achieve economic
    integration through more economically diverse, balanced communities is
    SDHC's Choice Communities program (not the Federal Choice Communities
    program), an MTW initiative that began on January 1, 2010.
        SDHC's Choice Communities program helps Section 8 Housing Choice
    Voucher rental assistance participants move from high- and medium-
    poverty areas to low- poverty neighborhoods in the city of San Diego.
        Since the launch of the program, 290 low-income families in the
    city of San Diego have been able to move to areas with more options for
    transportation, schools, and employment opportunities.
        Leasing a three-bedroom home from a private landlord was possible
    for Maria and her two sons, ages 6 and 12, because of SDHC's Choice
    Communities program. A no-interest loan through the program helped
    Maria pay the security deposit for the rental home.
        ``I would not have been able to do that on my own because that's a
    lot of money for me as a single mom,'' said Maria, who works in
    customer service for a local hospital. Maria has received Federal HCV
    rental assistance for the last 6 years.
        The Choice Communities program:
      --Allows a higher monthly rent subsidy, or ``payment standard''
      --Provides no-interest loans of up to $1,450 for security deposits,
            to be paid to the property owner, with low monthly repayments
      --Provides additional resources, information and guidance to families
            interested in moving to one of the specified low-poverty Choice
            Communities
        Overall, 807 Housing Choice Voucher families live in Choice
    Communities, including families who lived in these neighborhoods before
    the Choice Communities program began or who are new to SDHC's Housing
    Choice Voucher program and chose to live in these communities.
        I believe that, as we move forward, many of the programmatic tools
    already exist to assist low- income families, as I have shown with the
    San Diego model for public housing conversion and SDHC's MTW
    initiatives. To help low-income families move out of poverty, it is
    essential for local agencies to be provided with the flexibility to
    choose the options that show the greatest success in their communities.
    As local agencies make these decisions, they are held accountable by
    HUD and local governing bodies, such as the SDHC Board of Commissioners
    and the Housing Authority of the City of San Diego.
                            addressing homelessness
        The flexibility to meet local needs is utterly essential to
    effective affordable housing strategies. Challenges are not the same in
    all cities and counties across the country. A specific challenge for
    affordable housing in San Diego is homelessness.
        The San Diego region ranks fourth in the Nation in homeless
    population, behind New York, Los Angeles, and Seattle, according to the
    Annual Homeless Assessment Report to Congress, published in November
    2015.
    Housing First Model
        The future of affordable housing includes providing housing
    opportunities for homeless seniors, Veterans, families, and
    individuals.
        SDHC is a driving force of the national Housing First model in the
    city of San Diego--to provide homeless individuals with housing as
    quickly as possible, with supportive services as needed.
        As an MTW agency, SDHC on July 1, 2010, became one of the first
    public housing authorities in the Nation to receive approval from HUD
    use Federal rental housing voucher funding to provide long-term housing
    for chronically homeless individuals.
        HUD also approved SDHC's request to utilize its MTW status to
    invest its Federal funds to preserve or build affordable housing for
    homeless San Diegans.
                            housing first--san diego
        SDHC is applying the power of these Federal resources to address
    homelessness through HOUSING FIRST--SAN DIEGO, SDHC's 3-year
    Homelessness Action Plan (2014-17), which was launched on November 12,
    2014.
        Award Development Funds--Up to $30 Million over 3 years (Up to $10
    million each year) to create permanent supportive housing that will
    remain affordable for 55 years.
       To date, SDHC has awarded $12 million in Federal, State, and City of
            San Diego funds administered by SDHC to four developments,
            which will provide a total 167 affordable housing units for
            homeless individuals.
        Commit up to 1,500 Federal Rental Housing Vouchers for Permanent
    Supportive Housing to provide housing to homeless individuals and
    families (Award up to 300 new housing vouchers each year to complement
    576 housing vouchers already awarded).
       To date, SDHC has awarded a total of 822 Federal rental housing
            vouchers.

        Renovate Hotel Churchill--72 Units of Permanent Supportive Housing:
    56 units for homeless Veterans; 8 units for transitional age youth ages
    18-25, such as youth aging out of foster care; and 8 units for adults
    exiting the corrections system who also need supportive services.
       The grand reopening of the historical Hotel Churchill was celebrated
            on Monday, September 19. SDHC worked with our nonprofit
            affiliate, Housing Development Partners, to rehabilitate Hotel
            Churchill. SDHC invested $9.2 million in MTW funds; $2.9
            million in HOME Investment Partnerships Program funds awarded
            by HUD to the City of San Diego and administered by SDHC; and
            $3.2 million in City of San Diego funds administered by SDHC
            toward the $20.6 million rehabilitation cost.

        Invest MTW Federal Funds to Acquire Property that sets aside 20
    percent of its units for permanent supportive housing for homeless San
    Diegans.
       SDHC invested $15 million in MTW Federal funds to purchase the 120-
            unit Village North Senior Garden Apartments. Twenty percent of
            the units--24 units--are set aside for homeless seniors.

        Dedicate SDHC-Owned Housing Units--25 for Homeless San Diegans.
       SDHC is one of the first public housing agencies in the Nation to
            commit affordable rental housing that it owns for this purpose.
       This is a rapid re-housing component of HOUSING FIRST--SAN DIEGO.
            Since the program began, 13 families have become financially
            self-reliant and are now able to pay full rent or have moved to
            another apartment. The program served 135 individuals,
            including 87 children and 13 Veterans.
        SDHC's multimedia digital report about HOUSING FIRST--SAN DIEGO was
    published on November 21, 2014, and is posted on SDHC's website:
    http://www.sdhc.org/uploadedFiles/Media_Center/Digital_Reports/SDHC%20
    Homelessness%20Action%20Plan.pdf.
        New initiatives for the second year of HOUSING FIRST--SAN DIEGO
    include:
      --The 1,000 Homeless Veterans Initiative.--Provide housing
            opportunities for 1,000 homeless Veterans in the city of San
            Diego within 1 year--March 2017.
        Nearly 330 homeless Veterans have secured housing through SDHC's
            The 1,000 Homeless Veterans Initiative, which has four program
            components:
        --Landlord Outreach--``Housing Our Heroes''
        --Rapid Re-housing Assistance
        --SDHC Federal Veterans Affairs Supportive Housing Vouchers
        --SDHC Federal Housing Vouchers with Supportive Services
        The Guardian Scholars Program at San Diego State University
    (SDSU)--A nationally unprecedented partnership between SDHC and SDSU to
    provide rental assistance for up to 100 students who have been homeless
    or at risk of homelessness.
        The Monarch School Project--Federal housing vouchers for 25
    families with students impacted by homelessness.
        News releases about these new initiatives are available on SDHC's
    website:
      --July 20, 2016: The 1,000 Homeless Veterans Initiative http://
            www.sdhc.org/uploadedFiles/Media_Center/News_Releases/
            NR%20Housing%20Our%20
            Heroes%20%20Progresss%20Report7.20.16.pdf.
      --December 3, 2015: The Guardian Scholars Program and The Monarch
            School Project http://www.sdhc.org/uploadedFiles/Media_Center/
            News_Releases/NR.
            SDHC-SDSU%20HousingFirstSanDiego.12.3.15.pdf.
                                   conclusion
        Creating more affordable housing opportunities for low-income
    families requires innovative solutions that foster public-private
    partnerships.
        As SDHC's experience demonstrates, converting public housing to
    Section 8 Housing Choice Voucher rental assistance is the type of
    ingenuity needed to maximize the benefit to low-income families, and to
    ensure that taxpayer funds are utilized efficiently.
        With Section 8 Housing Choice Voucher rental assistance, low-income
    families are able to choose the housing that meets their individual
    needs, empowering them to be active consumers instead of clients--an
    option that public housing does not provide. In addition, the local
    economy benefits from the infusion of Federal funds paid to private
    landlords, who are essential partners.
        The flexibility afforded by the MTW program enhances Section 8
    Housing Choice Voucher rental assistance to achieve additional
    beneficial results.
        As approaches toward affordable housing evolve in the United
    States, I encourage all of us to be constantly open to identifying a
    continuously changing variety of solutions and to recognize the
    importance of both the government and the private sector to meeting the
    housing needs of our unique communities.

        Senator Collins. Thank you very much for your testimony as
    well.
        Let me start with you, Mr. Gentry. The conversion of public
    housing at the San Diego Housing Commission was a long,
    multiyear effort, and I am sure at times that it was an
    extremely difficult one. I have a couple of questions for you.
        One, as you reflect on the experience, what was the biggest
    challenge and the greatest success?

                             MOVING TO WORK PROGRAM

        And second, how important was the Moving to Work program,
    which we have expanded, or was the Moving to Work program an
    important part of that conversion?
        Mr. Gentry. Ma'am, the biggest challenge was simply getting
    people to understand that we were not walking away from our
    responsibilities. In fact, we had a lot of criticism early on
    from people who you would have thought would have some of our
    best supporters that we were walking away from our
    responsibilities and did not want to serve poor people anymore.
    And the analogy I use for that is that people sometimes cannot
    differentiate between methodology and mission, and if the
    methodology changes, I think you have abandoned your mission.
        My belief is that methodologies are in constant flux,
    constant change, and we should be continuing trying to do
    things better as we move forward and that is, we are
    continually breaking the mold and doing things in better and
    different ways. It does not mean we are walking away from our
    mission.
        So I think simply getting folks to understand and support
    what we were doing throughout the community and also in this
    city frankly was our biggest problem. Beyond that, it was just
    a matter of working it out.
        In terms of Moving to Work--and San Diego is one of the
    original Moving to Work agencies--my predecessor had
    unfortunately let the Moving to Work program lapse over the
    years so that it was abeyance at the time that the public
    housing conversion was approved by HUD, which was in September
    of 2007.

                        DEMOLITION/DISPOSITION ACTIVITY

        The authorizing legislation was the demolition disposition
    part of the Housing Act of 1998. And in that regard, the
    conversion can be done by any agency whether they are moving to
    work or not.
        I will point out also, because the critics will hear the
    demo dispo word and think that we got rid of property or walked
    away from our responsibilities, the Housing Commission in San
    Diego did not demolish a thing. We have not disposed of a
    thing. We still have those 1,366 units in our inventory. It is
    just that they are operating on San Diego Housing Commission
    principles now rather than public housing principles.
        Senator Collins. Ms. Poethig, we know that the research
    tells us that the ZIP code in which one is raised is a likely
    predictor on how one is going to do in life. So it has a real
    impact on our children. You can go by public project housing in
    Washington, D.C. It is often dilapidated in high-poverty areas.
    The schools in those areas are not good.
        Is continued subsidization of public housing in
    neighborhoods like the ones I described just perpetuating
    problems and an ineffective use of Federal resources?
        There is an amazing study that was done by the Robert Wood
    Johnson Foundation that you may be familiar with that
    determined that the variation between neighborhoods can be so
    dramatic that in Richmond, Virginia, babies born within 5 miles
    of downtown Richmond face up to a 20-year difference in life
    expectancy.

                        PROJECT-BASED RENTAL ASSISTANCE

        Ms. Poethig. Madam Chairwoman, I share your concern about
    the public housing units that are in neighborhoods over 40
    percent concentrated poverty and that there have to be better
    alternatives, if there are better alternatives. And I am happy
    to submit more information for the record because I think we
    should draw upon the experience of the vouchering out of public
    housing in Chicago, the Robert Taylor homes in particular, that
    were vouchered out without a particular plan, and what happened
    was people actually resegregated into some of the very same
    communities. So vouchers did not necessarily promote the
    mobility of those families, and there were other concerns
    associated with rapid vouchering out that did not have an
    attendant plan.
        Senator Collins. Thank you.
        I have 5 seconds left, so I guess I will have to yield to
    my ranking member. And I will come back to you, Dr. Olsen, on
    the next round. Senator Reed.
        Senator Reed. Well, thank you very much, Madam Chairwoman.

                            HOUSING CHOICE VOUCHERS

        Ms. Poethig, again, without the basis of the kind of
    analysis that Dr. Olsen and Mr. Gentry and you have done, the
    perception is, particularly after 2007-2008 with the housing
    crisis, people would buy houses because you could do it. If you
    saw ``The Big Short,'' you could do it with lots of interesting
    approaches.
        Now there has been a huge shift into the rental market,
    driving the price up. And underlying the discussion about
    vouchers versus place-based support is the assumption that a
    voucher will get you a home. In fact, in some of these studies,
    the voucher will get you a home in a really great ZIP code.
    What is the reality? Does the voucher get you a home, or you
    have a voucher, but you do not have anyplace to live?
        Ms. Poethig. Thank you, Senator.
        So as you know, the Raj Chetty study, the study by Harvard
    economists, has this incredible result. But Dr. Chetty has also
    said that it is mathematically impossible to imagine that all
    the people living in public housing in highly concentrated
    areas of poverty could, in fact, find housing in areas of low
    poverty. So that is just at a macro level.
        Then within certain markets in certain communities, it is
    absolutely appropriate to be concerned about whether there is a
    supply of affordable rental housing available, particularly as
    we are going to be growing in the number of renters, even
    exceeding the number of homeowners in the next 15 years. And as
    that demand grows, it will put pressures on the supply that is
    not currently keeping up with demand. Currently we have 11.2
    severely cost-burdened households, 70 percent of which are
    extremely low-income. These are people without assistance. So
    we have a ready group of people that fall in and out of
    homelessness as a result of not having sufficient supply.
        Senator Reed. Dr. Olsen, your comments? Because, again, I
    think this is a critical question because there is some
    compelling logic but also the reality is will this result in
    higher cost to the Federal Government as rental prices go up.
    Will it result in homes as people who have a voucher but do not
    have a home?

                      HOUSING ASSISTANCE SUPPLY EXPERIMENT

        Dr. Olsen. I do not think we need to be subsidizing
    construction to get the number of units that we want. The
    private market will do that.
        But let me just tell you more specifically what would
    happen if you authorize more vouchers. We know this from the
    Experimental Housing Allowance Program, which operated an
    entitlement voucher program called the Housing Assistance
    Supply Experiment in two places. What happened in response to
    providing a lot of vouchers was that units that did not meet
    the standards were upgraded to meet them. So you had an
    increase in the supply of units meeting the standards, largely
    without additional units.
        The homeless are the only people who do not have housing,
    but we don't need additional units to house them, there are
    about 600,000 homeless a night. There are over 3 million vacant
    apartments every night. The reason homeless people are not in
    those vacant apartments is they do not have the ability to pay
    for them.

                         HOUSING CHOICE VOUCHER PROGRAM

        Senator Reed. But this discussion is touching upon public
    housing. Ms. Poethig suggested that to take the public housing
    off, as in a way San Diego did--take it out and give people
    vouchers in lieu of that, that is adding to a population
    already existing of homeless people. And those 3 million empty
    units exist because some of them are too expensive even with
    the most elaborate public subsidies. If we go ahead and go to a
    tenant-based voucher system, do we build in the law the
    guarantee that they must be housed and where they are housed?
        Dr. Olsen. I do not think we are anticipating tearing down
    all public housing over a very short time horizon. We are
    talking about a very gradual process of getting rid of the very
    worst units, like we have already done. We have already lost
    400,000 units from the peak, very gradually, 20,000 a year,
    over many years. The private market can easily accommodate the
    number of people who would go onto the market even if you tear
    down public housing units.

                         LOW INCOME HOUSING TAX CREDITS

        The other thing to know about the voucher program is that
    it leads to more additional units than subsidized construction
    programs like the tax credit. That may seem very
    counterintuitive, but the explanation for it is that lots of
    people who are served by all types of housing assistance are
    doubled up prior to getting housing assistance, such as young
    mothers with children living with their parents. About 25
    percent of the people in the voucher program were previously
    doubled up. Any housing program serves a certain number of
    people of this type.

                         HOUSING CHOICE VOUCHER PROGRAM

        Because the voucher program serves the poorest people,
    there are more people served by that program who are doubled
    up. And so it increases the demand for new units more. The
    empirical result is that additional voucher units increase the
    housing stock more than additional units subsidized under
    construction programs. These results are reported in a paper in
    the ``Journal of Political Economy.''
        Senator Reed. When was that?
        Dr. Olsen. ``Journal of Public Economy.'' Sorry.
        Senator Reed. When was that?
        Dr. Olsen. It was about 5 years ago. There is a reference
    to it, I think, in my written testimony, but if there is not, I
    will give it to you.
        Senator Reed. I would appreciate that. But I think what we
    are sensing--and again is that in these 5 years, there has been
    a tremendous shift into the rental market by college graduates
    who cannot afford homes, by people who choose to live in these.
    So I think that the data we are looking at right now and the
    trend that Ms. Poethig suggested are the increasing demand by
    relatively upscale individuals for housing is going to keep
    rental prices high and vouchers higher also.
        But thank you. I will have a second round.
        Dr. Olsen. Just to follow up on that, the other thing that
    is happening, yes, more people are renters, but units that were
    formerly owner-occupied have been shifted to the rental market.
    There is a shift both in the demand and supply side.
        Senator Reed. Thank you.
        Senator Collins. Senator Cassidy.
        Senator Cassidy. Folks, thank you.
        You all know so much more than me. So I am going to pose a
    bunch of questions just as an academic, and then ask each of
    you to reply as you think is pertinent.

                                EMERGENCY RELIEF

        One is very practical. The State I represent just had a
    huge flooding episode. Right now, it is the fourth worst
    natural disaster in the history of the United States, moving on
    way up to the third.
        Now, there have been some reports that this has
    particularly impacted, as you might guess--there are 85,000
    homes flooded, so assume three to four people per home. We have
    350,000 to 400,000 people displaced out of their home.
        I gather that those who have had the hardest time have been
    in subsidized housing, kind of what you just said, Dr. Olsen,
    but at large and acutely, that there is a sudden demand for
    rentals and prices go up, and folks with Section 8 have the
    least options. I do not have a solution. I am posing that
    because that is what we are grappling with. We would like your
    thoughts on that. Is it just that is the way life is?
        Dr. Olsen. Well, in the short run, the question is where
    should these people live. There were some vacancies to start
    with, but I am guessing not nearly enough to accommodate all of
    these people.
        What happened after Katrina was that a lot of people had to
    move out of the area. They moved to Houston. They moved to
    Dallas. They moved to Atlanta.
        Senator Cassidy. They moved to Baton Rouge.
        Dr. Olsen. In the first instance, Baton Rouge, the closest
    place.
        That may be an inevitable part of the solution. There are
    not enough units there. They have to have housing now. They
    cannot wait for a house to be built. So it may be that a part
    of the solution, given the numbers you have said, is some
    people are going to have to move elsewhere.
        Senator Cassidy. Solutions/results. Folks may not wish to
    be disrupted, but it just may be that is the result.
        Dr. Olsen. Right.
        Senator Cassidy. Does anybody else have a thought?
        Ms. Poethig. I would just add, I mean, that given the
    natural disaster, we do not have a flexible enough supply to be
    able to absorb the demand that happens after a natural
    disaster. As Dr. Olsen, Ed, pointed out, I think Houston and
    Baton Rouge and other communities ended up receiving many of
    the people who were displaced over time. So I acknowledge they
    have not necessarily all----
        Senator Cassidy. The chairwoman is going to cut me off, so
    I am going to cut you off first.

                         TENANT-BASED RENTAL ASSISTANCE

        Ms. Poethig, you had mentioned that sometimes when you shut
    down Robert Taylor, you end up with a similar concentration of
    poverty but elsewhere. So now is a set of questions that I can
    imagine a homeowner who understands that we are going to begin
    moving folks into neighborhoods of less poverty. What you just
    said implied that if they were moved into a neighborhood of
    less poverty, that neighborhood became impoverished with
    negative social indicators.
        So I am asking, what is the academic literature or the
    empiric experience show when you begin moving folks out of
    housing projects and/or with Section 8 housing into
    neighborhoods with less poverty? What is the impact of social
    indicators and property value upon the neighborhood into which
    they move? Does that make sense?
        Ms. Poethig. So I think one of the most important
    principles, if we were to consider this policy, is a policy of
    responsible relocation. That includes considerable supports for
    people as they make particular housing choices. And so that
    responsibility would include better information and ways in
    which they can move into neighborhoods fully equipped to be
    responsible residents in those particular communities.

      PROJECT-BASED RENTAL ASSISTANCE, AND LOW INCOME HOUSING TAX CREDITS

        There is research by George Galster that looks at voucher
    holders in comparison to place-based investments in low-poverty
    communities and finds, generally speaking that those place-
    based investments lead to more positive results.
        Senator Cassidy. Place-based means what?
        Ms. Poethig. It would mean public housing or PBRA, project-
    based rental assistance, in some cases tax credit properties,
    than dispersed voucher holders.

                               HOUSING SUBSIDIES

        Senator Cassidy. I am not quite sure I follow all of that.
    No offense, but there is just some lingo that you know that I
    do not.
        Mr. Gentry, you got an average neighborhood in San Diego
    has homes--you know, middle class neighborhood--the homes are
    $450,000.
        Yes, sir. So empirically when you all move folks into those
    types of neighborhoods, again middle class folks, even though
    the home is so expensive, what happened to the property value
    and social indicators in those? And again, you all know your
    technical language so much. If I can ask you just to kind of
    make it a little bit plainer English so I can comprehend.
        Mr. Gentry. Well, I will make it very plain. I think the
    problem is one of algebra, frankly.
        Senator Cassidy. Is what?
        Mr. Gentry. Algebra. You have a certain amount of money and
    you have a certain number of people you serve. We serve people
    in what I call the modest marketplace. We do not have the
    amount of subsidy to help people move into higher-income
    neighborhoods.
        Senator Cassidy. But in San Diego, higher income--again,
    your property values are so high, you do not have to be a
    wealthy person to have a house which is valued very highly.
        Mr. Gentry. However, in San Diego, there are wide varieties
    of variations in the value of those properties and the cost of
    those properties. So our Section 8 voucher holders tend to wind
    up fairly concentrated as well. If you know San Diego well,
    they tend to be south of Interstate 8. They tend to be east,
    southeast, and south down around the border. And we do not have
    a whole lot of voucher holders in La Jolla or Point Loma. We
    have got a few.

                        CHOICE NEIGHBORHOODS INITIATIVE

        If you notice in my paper, I do say that we have our own
    choice communities program where we have helped, but that has
    only served about--less than 300 families who have been able to
    move out of the nontraditional neighborhoods. And I will point
    out if everybody did, we would serve fewer families.
        So the tension--and ``tension'' I think is the applicable
    word here--is that if you spend more per family to live in
    higher-income neighborhoods, which is what the rent in those
    neighborhoods warrant, with the same cost of dollars, you serve
    fewer families. So where do you draw the balance?
        I think each community in the country is going to be
    different. I can tell you in Oakland, California and much of
    the Bay area, the Section 8 voucher program has pretty well
    stopped working because the value has gotten up so high and
    landlords who do not need the program to fill the properties do
    not participate that the Oakland Housing Authority has started
    project-basing most of its voucher supply or a good bit of it
    just in order to make the programs work and to provide
    resources for the residents.
        San Diego has not gotten to that point yet, although it
    could be on the horizon if we do not get more absolute supply
    into the marketplace over the next few years.

                         HOUSING CHOICE VOUCHER PROGRAM

        So I think in different parts of the country--you go to
    Oklahoma, Mississippi, and my home State of North Carolina, you
    still got good applicability and the voucher program works very
    well. But it is going to be different in different places. You
    are going to have marketplace dynamics you need to take into
    account. Somewhere within all this tension, you are going to
    find solutions, but they need to be community-based and city-
    based and locality-based, sir.
        Senator Cassidy. I yield back. I am sorry. Thank you for
    being forbearing.

                        PROJECT-BASED RENTAL ASSISTANCE

        Senator Collins. Thank you, Senator.
        Dr. Olsen, earlier we heard Mr. Gentry describe the public
    housing approach as a failed business model. Do you agree with
    that?
        Dr. Olsen. Yes, because as I say, the cost-effectiveness
    studies show it is very costly for the housing that you get and
    other disadvantages too in terms of the location. The housing
    authorities in the early years tried to get the projects in
    better neighborhoods, but local opposition prevented that. So
    most of the projects were built in very low-income
    neighborhoods. That is part of how we got to where we are
    today.
        But in any event, we are where we are today. As you said,
    we have a lot of projects in very poor areas, and they are
    often in very bad condition as well. And I think we should try
    to get away from that and give these people vouchers and let
    them try to spread out over the community.

                          PUBLIC HOUSING CAPITAL FUND

        Senator Collins. Ms. Poethig, Congress is now providing
    roughly 50 percent of the annual capital needs for the public
    housing. And that is clearly, from your perspective, part of
    the problem because it means that there are nearly 10,000
    public housing units that are at high risk of being lost each
    year because they are simply crumbling, and they are not safe,
    and they are not suitable for people to live in them.
        I know that your first preference is likely more funding,
    but putting that issue aside, do you believe that we should be
    going more in the direction of project-based rental assistance
    and Section 8 tenant vouchers?

                TENANT-BASED AND PROJECT-BASED RENTAL ASSISTANCE

        Ms. Poethig. So I believe that one of the efforts that we
    should build upon is the use of subsidy contracts. So this is
    the primary form in project-based rental assistance. And with
    project-basing vouchers, this has been a tool that others have
    used to enable development to happen because they enable
    developers to go the private marketplace and seek funding to
    build the units themselves with a hope that they are actually
    building in lower-poverty communities.
        So I do believe that the subsidy contracts are a very
    important tool, coupled with other supply tools that enable
    housing to be built for people with extremely low incomes. The
    tax credit does not work for people with extremely low incomes.
    It needs to be married to rental assistance.
        Senator Collins. Mr. Gentry, I really am impressed with
    what you were able to accomplish in San Diego. I imagine it was
    both difficult and at times controversial. I am wondering what
    happened, if you could walk us through more detail, such as is
    in your written statement. What happened to the public housing
    that you converted? Did it become project-based, tenant
    housing? Was it razed? What happened? Did tenants buy some of
    it at very low cost? What happened to it?
        Mr. Gentry. We still have the physical properties in our
    portfolio. And I will point out, if you go on our website, we
    have got every one of our properties on Google map. You can do
    a windshield survey of every one of them just at your desk.

                        HOUSING CHOICE VOUCHER PROGRAMS

        What we did, we promised HUD three things when HUD approved
    this in 2007. Number one is that we would not project-base any
    of the subsidies. We would allow these families to take the
    subsidy and walk if they wanted to and choose where they wanted
    to live. I was not in San Diego when that decision was made in
    2007, but I think it was a pretty gutsy decision to make for
    those properties.
        Now, it was made with the realization that our properties
    were better than much of the typical public housing stock, and
    I recognize that. And you will see that on that windshield
    survey. But still, that was a pretty gutsy decision.
        The second thing we promised HUD was that we would
    backfill--and this gets to your question. We would backfill.
    For every family that moved out, we would backfill with another
    family below 80 percent of median income, elderly below 50
    percent back into those units at a rent that the families could
    afford to pay, which was pegged at just about what a tax credit
    rent and just about what a Section 8 rent would be to a
    landlord in San Diego.
        Then third and the most exciting, we told HUD if they would
    give us the deed to those properties, we would convert those
    properties. We would convert the equity to debt, and we would
    create at least another 350 units of affordable housing. In
    2010 to 2014, we issued $95 million in debt on those
    properties. Then we purchased, either direct and outright or in
    partnership with private sector players, 810 units of
    affordable housing with debt paid for by those existing public
    housing properties.
        Now, the silver lining in the cloud of the economic
    downturn in California was that we were able to pick up
    properties at the depth of the recession. That helped. But we
    would have far exceeded the 350 goal we set with HUD
    regardless. And it was an exhilarating process, and it was a
    wonderful thing to help accomplish.
        But basically what we did was to release the value that was
    pent up fallow in the ground on those properties and to reuse
    it. And then we were able to glean from the existing
    marketplace in a downturn in a countercyclical way to reuse
    excess properties in a public sector way that are being well
    used now that prime values are way back up. So it was a
    wonderful process.
        Now, I know people will say that you could not replicate
    the San Diego model, say, in other more traditional housing
    authority markets. You mentioned Richmond, Virginia a while
    ago. I was the CEO down there from 1990 to 1998. A far
    different set of circumstances. You would not do in Richmond
    what we did in San Diego, but you would go through the same
    decision-making process to figure out what Richmond could do,
    needed to do if the Richmonders had the same authority to make
    their own decisions as we had in San Diego.
        Senator Collins. That is why you argue for more flexibility
    at the local level in your initial statement.
        Mr. Gentry. It is utterly essential.
        And I will point out that, too, if you look at the
    different programs, no supply-side program is going to get the
    cost down below the affordability level for any family below
    about 50, maybe 40 percent of median income. You get down into
    the extremely low families, let us say, 30 percent or less,
    they cannot pay enough rent to cover the cost of operations.
    You have got to have a subsidy to make the property operate in
    addition to producing it. And that is where a demand-side
    subsidy like Section 8, like the vouchers program or operating
    subsidy in public housing, is utterly essential. So if you have
    got a good balance and marriage of supply-side subsidies to
    produce the property and then demand-side to help the extremely
    poor afford to stay there, then you can make it work.
        And in my experience, there are only three kinds of
    subsidies that have ever worked. There is a supply-side subsidy
    that buys down the cost of the property. There is a demand-side
    subsidy that helps the consumer pay their way. And sometimes
    there is an internal subsidy where you get a range of incomes
    where the relatively higher-income folks pay more than the
    relatively lower-income. I have never seen anything that is not
    a variation or a combination of those three. And there is no
    magic. You have got to have one or some combination of those
    three to make any affordable housing property work.
        Senator Collins. Thank you.
        Senator Reed.

                        PROJECT-BASED RENTAL ASSISTANCE

        Senator Reed. Thank you very much.
        Ms. Poethig, we are talking about basically three
    categories of housing: public housing, then project-based
    assistance housing, and individual vouchers. Focus for a moment
    on the project-based.
        In my view--and your comment would be appreciated--there
    are some external benefits to that beyond the housing,
    particularly with seniors where you have a certain community.
    You have access to medical care. You have access to
    transportation, which is much more efficient. And so when we
    evaluate these place-based vouchers, we have to add in these
    factors too I would assume. And also, it tends to make the
    project much more valuable. Is that accurate?
        Ms. Poethig. Thank you, Senator.
        As you know, housing is a very important platform,
    especially for older adults, and 50 percent of project-based
    rental assistance is actually serving older adults and people
    with disabilities. So that is an important part of the
    population that is benefiting from that particular platform.
        We have a growing body of evidence that not only
    demonstrates that it has benefits for the people living in the
    housing but also saves money, particularly to Medicare. So the
    particular study that I have been most persuaded by is
    something called SASH. It is a model in Vermont that has health
    coordinators operating on the platform of housing, nurse
    practitioners who are connecting them to healthcare services
    not only for the people in that housing but also serving people
    in rural communities as well. So the housing serves as a
    platform for other low-income people with healthcare needs in
    rural communities. And it is essentially creating a net savings
    to Medicare.
        So my concept is how--and this committee has shown such
    great leadership in the past in partnership with other
    committees--to imagine the partnerships to look at the
    convergence or the opportunities between thinking about housing
    as a platform, particularly for older adults, and the ways in
    which it could save resources and Medicare as a potential
    opportunity for investment.
        Senator Reed. One of the institutional issues around here
    is that we do housing, that somebody else does Medicare. So if
    we find savings--you know.
        Ms. Poethig. I know, yes.
        Senator Reed. That is our problem. Trust me, she will
    figure it out.
        [Laughter.]
        Senator Reed. I was very impressed with your comments, Mr.
    Gentry, about the locality issues being so critical. And as you
    point out, in San Diego, because of local forces, you are
    moving forward with your concepts. But up in Oakland, they have
    seen rents rise so high that the vouchers are just--yes, I have
    got a piece of paper, but I do not have a place to live. They
    are actually going back into the public housing issue. Is that
    more widespread than just Oakland?
        Mr. Gentry. Well, actually they are not going back into
    public housing. What they are doing is project-based----
        Senator Reed. Project-based.
        Mr. Gentry. But that is where the genius of the voucher is
    so useful. It is flexible. You can use it for project-basing.
    You can use it for sponsor-basing, meaning a third party tells
    you who you can issue the voucher to. Or you can use it as a
    classic finders keepers utilizing the marketplace. And you can
    vary it based on what the marketplace needs if you have the
    good sense and the courage to make your own decisions, then to
    be accountable for it.
        You can also use the voucher for special purposes. I will
    point out, there are a lot of nice things about living in San
    Diego, but one of San Diego's particular problems is the
    homelessness problem. We have got, not on a per capita basis
    but in whole numbers, the fourth worst problem in the country
    behind New York City, L.A., Seattle, and then us. You know, you
    are not going to freeze to death on the streets in the
    wintertime, such as the winter is in San Diego. And we have got
    a huge problem there.

                             MOVING TO WORK PROGRAM

        We have targeted much of our Section 8 product to dealing
    with the homeless, and we have put on the street--and I
    reference this in my testimony--2 years ago November a program
    called Housing First San Diego where we have a multi-pronged
    approach to dealing with the homelessness problem using the
    vouchers as a major part of our approach in two ways. One, the
    subsidy itself to help people live in the private marketplace,
    and secondly, where we have been able to realize efficiencies
    and savings, because we are a Moving to Work agency, we have
    invested that back in property on the supply side. We can take
    a demand-side subsidy, repurpose it, use it on a supply side
    too, as we need to, to accommodate our marketplace and our
    needs and problems.
        Two days ago, we dedicated the old Hotel Churchill, which
    is a 102-year-old hotel that we have rehabilitated in an
    historic preservation way. This housing is now housing 72
    formerly homeless folks in single-room residency fashion, 56 of
    whom are veterans. We would not have been able to do that
    without, number one, vouchers and, number two, the Moving to
    Work status. So I think it is the flexibility of the program
    and then the flexibility within that of our organization
    through the MTW program together are just huge in allowing us
    to solve San Diego problems in San Diego ways.
        Senator Reed. Thank you very much.
        Senator Collins. Thank you, Senator.
        It is my understanding that Senator Cassidy is going next,
    and then we will come to Senator Boozman.

                                VOUCHER PROGRAMS

        Senator Cassidy. Dr. Olsen, again, I am trying to follow
    what you all are saying. I thought I gathered what you said
    earlier that a voucher is more successful in expanding housing
    stock, if you will, the demand-side subsidy, than the supply-
    side subsidy.
        Dr. Olsen. That is what the study shows, yes.
        Senator Cassidy. But it does seem from what we have learned
    from San Diego in that comment is that if you are in a really
    high-value real estate, that you really do need a supply-side
    subsidy if you are going to make something affordable.
        Dr. Olsen. Yes. I do not agree with that. And actually the
    way the voucher program works is the subsidy is much higher in
    the most expensive market.
        Senator Cassidy. Well, let me ask because Mr. Gentry
    mentioned in Oakland and the Bay area that really the program
    is falling apart I gather because rents are so high. And then
    he mentioned his own place. There is a tension. Sure, we can
    move somebody up to a higher place, but then we serve fewer
    families sort of thing.
        Dr. Olsen. I do not understand that. The payment standard
    in different places is a percentile of the rent distribution.
    It is basically median rent. So in places where median rent is
    high, the subsidy is very large. The only sense I can make of
    it is the subsidy level is the same throughout an entire metro
    area. And so there can be parts of a metro area where the rents
    are so high that people with vouchers cannot live there. But I
    don't know whether that would apply to the entire Oakland area.
    The generosity of the voucher subsidy is much greater in San
    Diego and in Oakland than it is in Charlottesville, for
    example.
        Senator Cassidy. Mr. Gentry, any kind of comment?
        Mr. Gentry. Just that grand solutions do not always fit
    particular issues and problems, and there has to be a
    flexibility. In a country as big and large as this one is with
    all the variations from a Charlottesville--and I have lived in
    Virginia. Charlottesville is a wonderful place--the difference
    from a Charlottesville to a Chicago, to a San Diego are
    immense. And I think you have got to have some local
    flexibility, some local decision-making.
        And I think the thing I would disagree on is that it is not
    enough just to be able to help people pay their rent. You have
    got to also ensure that people in the future will be able to
    pay the rent, and that involves making the proper kinds of
    investments in properties. Just as it is typically to a
    family's benefit to become a homeowner at some time rather than
    a renter, at some point in time localities need to also make
    sure they own enough properties to guard against the kinds of
    problems that Oakland is running into.
        I will point out that from my understanding of the Oakland
    situation, it is not that the housing authority there is using
    the Section 8 subsidy on its own properties. It is using the
    subsidy to encourage private sector individuals to get involved
    but in a project-based, place-based way because that is what
    the local marketplace requires rather than a classic finders
    keepers.
        Senator Cassidy. Let me ask you one more thing. I once
    heard a criticism of Section 8 housing that it establishes a
    rather steep marginal tax rate. As someone earns more money,
    they get less for their voucher, and in a sense it pays them
    not to earn more money. You could add other such benefits, and
    somebody told me that in his State, the beginning job would
    have to be $55,000 plus medical benefits to account for
    everything someone could receive by not working but receiving
    all this.
        Ms. Poethig, I see you nodding your head. Do you mind
    commenting on that?
        Ms. Poethig. Certainly, and thank you, Senator.
        So HUD has commissioned a study, a rent reform study, that
    is looking at these issues related to having a different rent
    structure such that you would not create a disincentive for
    people to increase their----
        Senator Cassidy. Implicitly there currently is and they are
    trying to modify it.

                            JOBS PLUS DEMONSTRATION

        Ms. Poethig. They are trying to look at models for
    modification for doing that. We know in other important
    demonstrations, the Jobs Plus demonstration in particular that
    did create a different incentive, it did not essentially
    disincentivize someone to earn more. We saw a benefit not only
    to increase earnings for that particular person but also longer
    job retention. So we hope to see some of the same kinds of
    results in increasing self-sufficiency by modifying----
        Senator Cassidy. Let me go because I am almost out of time.
        Dr. Olsen.

                        SECTION 8 AND WORK DISINCENTIVES

        Dr. Olsen. If I could just comment on that, sir. Actually
    this is a feature of each of the major types of housing
    assistance. It is true in public housing, other HUD project-
    based assistance, and vouchers. The more you earn, the less the
    subsidy you get. You lose 30 cents for every additional dollar
    you earn.
        It is also a feature of other major welfare programs such
    as TANF and Food Stamps. The evidence indicates that these
    programs have work disincentive effects, just as you mentioned.
        Senator Cassidy. Okay. Well, I am out of time. I yield
    back. Maybe I am not out of time.
        [Laughter.]
        Senator Collins. Thank you.
        Senator Boozman.
        Senator Boozman. Thank you very much.

                              RETURN ON INVESTMENT

        Dr. Olsen, I think we would all agree that finding and
    identifying ways to provide flexibility and better return on
    investment for Federal dollars is certainly important when it
    comes to Federal programs, including those administered by HUD.
        What do you believe are the biggest problems to return on
    investment of Federal dollars, and where would be a much needed
    area to provide flexibility within existing programs?
        Dr. Olsen. I think that the biggest opportunities for
    getting more bang for the buck is to phase out project-based
    assistance, and my views on that are based on evidence on the
    cost-effectiveness of the major HUD programs of project-based
    assistance, public housing, the Section 8 New Construction
    program, and Section 236, compared with housing vouchers. So I
    think we need to work our way out of those programs and not
    commit money to additional programs of that type.

                                  HOMELESSNESS

        Senator Boozman. Thank you.
        Mr. Gentry, homelessness is neither a rural or urban issue.
    It is a national issue.
        What lessons can we learn from your experiences of the
    Housing First model when it comes to addressing the issue of
    homelessness in America?
        Mr. Gentry. The lesson I think is getting the proper
    balance among what are basically three types of homeless
    housing systems.
        One is emergency and shelter housing, which the Housing
    Commission does administer on behalf of the City of San Diego,
    and those are shelter beds for those in immediate need.
        Second is the need for some transitional housing, which
    typically also is a congregate setting where individuals and
    families can get some of their needs attended to while they are
    getting ready for living in the marketplace.
        The third, though--and this is what has drawn a lot of
    attention lately and I think what we are moving toward--is the
    Housing First model, which means you help people get a
    permanent structured live-in, a house, an apartment, whatever
    you want to call it where it is an individual family occupant,
    not congregate housing, and then using that as the basis for
    attending to the other problems which have helped to make them
    homeless.
        I would contend that there are basically three types of
    causes for homelessness as well.
        One is the intersection of mental health and substance
    abuse issues, which has particularly gotten troublesome over
    the years with the demise of some of the old large mental
    hospitals that used to be in existence in every State and
    pretty much are gone now. And I think there is a mental health
    crisis in this country.
        Second is that particularly with the economic downturn or
    the Great Recession, we saw families who had no other issue
    other than perhaps the lack of an extended family and short-
    term economic problems, and a rapid re-housing approach helped
    them, which is short-term assistance.
        And then you have a third one that is not always understood
    or talked about much, but it typically applies heavily for
    women and children. And that is domestic abuse and needing a
    place to land and to resettle there.
        So I think, again, there are no grand solutions, but I
    think if you look at a Housing First model as a basis which you
    want to get everybody to and then you go through some of the
    other intermediary steps and on occasion you get to recognizing
    there are different causes for different families and
    individuals, you can work out solutions.

                               HOW TO IMPROVE HUD

        Senator Boozman. Very good.
        Really for all of the panel, what I would like to know is
    if you had to assign a grade, if you had to critique HUD's
    efforts to reduce poverty through its housing policies, what
    would you say it would be? Dr. Olsen.
        Dr. Olsen. It would not be a high one, but I am mulling
    this over. I mean, on the one hand, you have the housing
    voucher program, which I think serves a lot of people and is a
    highly cost-effective program. So that is a big plus. But on
    the other hand, they administer programs that are highly cost-
    ineffective.
        Those programs are declining within HUD. The number of
    public housing units is going down. The number of units in
    privately owned HUD projects is going down. The low-income
    housing tax credit is the big growth part of the system. So in
    some sense, I suppose HUD's performance is improving. Let us
    put it that way.
        Senator Boozman. Yes, ma'am.
        Ms. Poethig. So I think I would agree. HUD's performance
    has been improving, but I think where it could really
    accelerate efforts are some of the administrative reforms that
    would enable the voucher program in particular to live up to
    expectations, which it is not currently doing if we imagine it
    as a mobility to opportunity strategy. So I think more can be
    done to ensure that it is offering true choice and opportunity.
        At the same time, I think there is more we can do to be
    flexible in terms of this concept that Mr. Gentry and I have
    been talking about, the subsidy contracts, being able to move
    them, make them more flexible to be matched to some other
    capital programs like the low-income housing tax credit to make
    sure that we have opportunities for extremely low-income
    households.
        My one worry is that there is discrimination against
    voucher holders in many, many markets, and the ability to
    protect them is a local policy and that is not evenly
    distributed across the country. And so we have not talked about
    that discrimination today, and I think that is a major factor
    that really dampens the success of the program if we imagine
    vouchering out.
        Senator Boozman. Thank you.
        Dr. Olsen. Could I just follow up?
        Mr. Gentry. I would say that HUD is almost never--I have
    got a lot of friends at HUD. So they can take this as they hear
    it.
        You never get much creativity out of HUD. It is not the
    nature of a bureaucracy to be creative or to change its way of
    doing business.
        But HUD does do what you all tell them to do. And I would
    commend you all for extending and expanding the Moving to Work
    program last December. That would never have happened waiting
    for HUD to make a decision. I will not get into that. But the
    fact that you all required them to do it I think was
    remarkable, and I think probably the creativity and the
    direction will come from here. It will not come from over
    there. And I would make every housing agency in the country,
    frankly, that was not troubled a Moving to Work agency, give
    them the ability make their own decisions and to be accountable
    for the results. I think you will see some differences out
    there.
        Senator Collins. Dr. Olsen, I know you wanted to jump in.
        Dr. Olsen. Thank you.
        Senator Collins. You are welcome.
        Dr. Olsen. So I just wanted to support something Erika just
    said. A very important initiative within the voucher program is
    the small area fair market rents initiative. Under the current
    program, the subsidy is the same no matter where you live in a
    metro area, whether it is the most expensive, the least
    expensive. So, of course, voucher recipients do not live in the
    most expensive.
        There is the recent study by Raj Chetty and others that
    estimates the advantages to children of growing up in a
    neighborhood with a lower poverty rate. I have read that study
    carefully, and it is a excellent study.
        What the small area fair market rents do is they lower the
    subsidy in the areas with the highest poverty rates and
    increase the subsidy in areas with the lowest. So they create a
    financial incentive for people to live in lower-poverty areas.
    This is actually in use in Dallas. It is part of the result of
    some litigation. HUD has proposed a regulation to expand it. If
    you want to get low-income children into lower-poverty
    neighborhoods, I think this is an excellent idea. It
    illustrates the flexibility of the voucher program for
    achieving the sorts of things you want to achieve.
        Senator Collins. Thank you very much.
        I want to thank all of our witnesses today. You greatly
    enhanced our understanding of the challenges that we face. We
    want to make sure that as we look at that 84 percent of HUD's
    budget, that we are serving as many vulnerable families as we
    possibly can. I think we have to look at new models and new
    ways and what is going on at the local level and at the State
    level to see if we can stretch those dollars further and get
    better results. That is why we wanted to have this oversight
    hearing today. We very much appreciate your being with us and
    sharing your views.
        The hearing record will remain open until next Friday,
    September 30th. So you may receive some additional questions
    for the record from members of the committee, including those
    who were unable to be with us today.

                              SUBCOMMITTEE RECESS

        I want to thank the staff also for their hard work on this
    issue. I know I learned a great deal from this hearing.
        I want to thank the ranking member also for his usual
    thorough and excellent participation. And thank you, Senator
    Boozman, for joining us and Senator Cassidy and Senator Daines
    who were here earlier.
        This hearing is now adjourned.
        [Whereupon, at 11:55 a.m., Wednesday, September 21, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

                  MATERIAL SUBMITTED SUBSEQUENT TO THE HEARING

        [Clerk's Note.--The following outside witness testimonies
    were received subsequent to the hearing for inclusion in the
    record.]
           Prepared Statement of the Affordable Rental Housing ACTION
        On behalf of the Affordable Rental Housing ACTION (A Call To Invest
    in Our Neighborhoods) Campaign--a national, grassroots coalition of
    over 1,300 organizations and businesses dedicated to creating and
    preserving affordable homes for low-income families using the Low-
    Income Housing Tax Credit (Housing Credit)--we appreciate the
    opportunity to submit comments to the Senate Appropriations
    Subcommittee on Transportation, Housing and Urban Development, and
    Related Agencies on the occasion of its hearing on Housing Vulnerable
    Families and Individuals. A full list of ACTION Campaign members is
    attached.
                a proven tool to address a vast and growing need
        The Housing Credit is our Nation's most successful tool for
    encouraging private investment in the production and preservation of
    affordable rental housing. Since 1986, the Housing Credit has financed
    nearly 3 million apartments, providing roughly 6.7 million low-income
    families, seniors, veterans, people with disabilities, and other
    vulnerable populations with access to homes they can afford.
        Though the Housing Credit has provided affordable homes for
    millions of low-income households, the unmet need for affordable rental
    housing continues to far outstrip the available resources. An
    unprecedented 11.4 million renter households--more than one in four of
    all renters in the U.S.--spend more than half of their monthly income
    on rent, leaving too little for other expenses like food, medical bills
    and transportation.
        Meanwhile, we continue to lose affordable housing from our Nation's
    stock. Nearly 13 percent of the Nation's supply of low-income housing
    has been permanently lost over the past 15 years. Over the next decade,
    the demand for affordable housing will become even greater as 400,000
    new households enter the rental housing market each year, many of whom
    will be low-income. According to a recent study by Harvard University's
    Joint Center for Housing Studies and Enterprise Community Partners, the
    number of renter households who pay more than half of their income
    towards rent could grow to nearly 15 million by 2025.
                       a model public-private partnership
        For 30 years, the Housing Credit has been a model public-private
    partnership program, bringing to bear market forces, State-level
    administration and more than $100 billion in private sector resources.
    Under the program, private sector investors provide upfront equity
    capital into a property in exchange for a credit against their tax
    liability in future years. Credits can be claimed only after properties
    are built and occupied by income-eligible residents at affordable
    rents. This unique structure transfers the real estate risk from the
    taxpayer to the private sector investor.
        The Housing Credit also benefits from State-level administration,
    which reflects local priorities. Each State determines how to allocate
    Housing Credits to respond to specific local needs, directing resources
    where they are needed most. State allocating agencies also oversee a
    rigorous approval process for these developments and monitor properties
    for compliance with program rules after their completion.
        Each State is required by the tax code to provide only enough
    subsidy to ensure financial feasibility, and underwrite Housing Credit
    properties at three different stages of the development process to
    ensure they provide no more Housing Credit than necessary to each
    development.
                      accountability through the tax code
        In the rare event that a property falls out of compliance anytime
    during the first 15 years after it is placed in service, the Internal
    Revenue Service is able to recapture tax credits from the investor.
    Therefore, it is in the interest of the private sector investors to
    ensure that properties adhere to all program rules, including income
    eligibility, rent limits and high quality standards. This rigorous
    private sector oversight is a hallmark of the program, and has
    contributed to its unparalleled record of achievement. In fact, only
    0.62 percent of all properties during the Housing Credit's 30-year
    history have gone into foreclosure, a record far better than any other
    real estate class.
                     incentive to address a market failure
        Developing new affordable homes for the growing population of cost-
    burdened low-income renters is not feasible without the Housing Credit,
    since the rents that low-income households can afford are not high
    enough to cover the costs of building and maintaining properties.
    According to Harvard University's Joint Center for Housing Studies
    (JCHS), to develop new apartments affordable to renter households
    working full-time and earning the minimum wage without the Housing
    Credit, construction costs would have to be reduced by 72 percent of
    the current construction cost average--making the homes either
    substandard or financially infeasible.
                      complement to other housing programs
        Congress designed the Housing Credit as a project-based capital
    funding source for the production and preservation of affordable
    housing. As such, the Credit plays a different role in the effort to
    meet the Nation's affordable housing needs than tenant-based rental
    assistance programs, such as the Housing Choice Voucher (voucher)
    program, play. The Housing Credit increases the supply of affordable
    housing, while vouchers make existing housing more affordable to low-
    income households.
        Vouchers alone cannot address several challenges for affordable
    rental housing, including recapitalizing and preserving aging
    properties, revitalizing low-income communities, expanding supply in
    tight markets, producing housing for households with special needs, and
    building housing near areas experiencing job growth. Furthermore,
    absent the Housing Credit program, the cost of vouchers would almost
    certainly rise significantly, as voucher holders living in Housing
    Credit properties would instead need to find market-rate apartments.
        Conversely, without rental assistance, it can be very difficult to
    provide even Housing Credit housing at rents affordable to the lowest-
    income households. In practice, the Housing Credit and vouchers
    complement each other, and are often used together to meet the needs of
    extremely low-income households.
        In addition, the Housing Credit is a central component of HUD's
    Rental Assistance Demonstration (RAD), a public housing revitalization
    initiative that Congress has recently expanded threefold from its
    original authorization. To date, the Housing Credit has provided
    approximately 40 percent of the financing being used to recapitalize
    over 180,000 units of public housing under RAD, underscoring the
    importance of the Housing Credit in preserving federally assisted
    properties for the long term in the absence of sufficient Federal
    appropriations for public housing.
             support the affordable housing credit improvement act
        Though the need for Housing Credit-financed housing has long vastly
    exceeded its supply, Congress has not increased Housing Credit
    authority in 16 years. To make a meaningful dent in the affordable
    housing supply gap, we urge Congress to pass the Affordable Housing
    Credit Improvement Act, sponsored by Senator Maria Cantwell (D-WA) and
    Senate Finance Committee Chairman Orrin Hatch (R-UT), which would
    increase Housing Credit authority by 50 percent. While the bill is not
    under the jurisdiction of this Subcommittee, we encourage all
    Subcommittee members to join Subcommittee Chairwoman Susan Collins (R-
    ME), Subcommittee member Senator Bill Cassidy (R-LA), and full
    Committee members Senators Patrick Leahy (D-VT), Lisa Murkowski (R-AK),
    and Jeff Merkley (D-OR) as cosponsors of the bill.
        For the millions of families paying more than half of their income
    towards housing--choosing between paying the rent or their medical
    bills, making repairs to their cars, or enrolling in job training
    classes--protecting and expanding the Housing Credit is critical.

        [This statement was submitted by Barbara Thompson, Executive
    Director, National Council of State Housing Agencies, ACTION Co-Chair,
    and Scott Hoekman, Senior Vice President & Chief Credit Officer,
    Enterprise Community Partners, ACTION Co-Chair.]

                            ACTION Campaign Members

          Co-Chairs

    National Council of State Housing Agencies
    Enterprise Community Partners

          Steering Committee Members

    Affordable Housing Tax Credit Coalition
    Council of Affordable and Rural Housing
    Council of Large Public Housing Authorities
    Corporation for Supportive Housing (CSH)
    Housing Advisory Group
    Housing Partnership Network
    LeadingAge
    Local Initiatives Support Corporation
    National Assoc. of Affordable Housing Lenders
    National Assoc. of Home Builders
    National Assoc. of Housing & Redevelopment Officials
    National Assoc. of Realtors
    National Assoc. of State & Local Equity Funds
    National Equity Fund
    National Housing and Rehabilitation Association
    National Housing Conference
    National Housing Trust
    National Low Income Housing Coalition
    National Multifamily Housing Council
    Stewards of Affordable Housing for the Future
    Volunteers of America

          National/Regional

    Affordable Housing Investors Council
    Alliant Capital
    Apartment Realty Advisors (ARA)
    Balfour Beatty Construction
    Ballard Spahr, LLP
    Berkadia
    Bryan Cave, LLP
    Center for American Progress Action Fund
    Centerline Capital Group
    Certified Commercial Investment Member Association
    Cinnaire
    City Real Estate Advisors
    CohnReznick
    The Community Builders, Inc.
    Council of Independent State Housing Associations
    Council of State Community Development Agencies
    Equity Residential
    Federation of Appalachian Housing Enterprises, Inc.
    Habitat for Humanity International
    Holland & Knight
    Housing Assistance Council
    Liz Bramlet Consulting
    Klein Hornig LLP
    Housing Trust of America
    Hudson Housing Capital
    Institute of Real Estate Management
    Low Income Investment Fund
    McGladrey LLP
    Mercy Housing, Inc.
    Meridian Investments
    Michaels Development Company
    Midwest Housing Equity Group, Inc.
    Mortgage Bankers Association
    National Affordable Housing Management Association
    National Alliance of Comm. Econ. Dev. Associations
    National Apartment Association
    National Assoc. of Local Housing Finance Agencies
    National Assoc. for County Community Economic Dev.
    National Community Development Association
    National Council on Agricultural Life and Labor
    National Development Council
    National Foundation of Affordable Housing Solutions
    National Housing Law Project
    National Leased Housing Association
    National NeighborWorks Association
    National Resources Defense Council
    National Trust Community Investment Corporation
    NDC Corporate Equity Fund, LP.
    The NHP Foundation
    Nixon Peabody LLP
    Novogradac & Company LLP
    Pacific West Communities, Inc.
    PIRHL
    PNC Real Estate
    Preservation Management Inc.
    Prudential Affordable Mortgage Company
    Rabobank
    RBC Capital Markets--Tax Credit Equity Group
    Recap Real Estate Advisors
    Reno & Cavanaugh, PLLC
    Pillsbury Winthrop Shaw Pittman, LLC
    Selfhelp Community Services
    Smart Growth America
    Southeastern Affordable Housing Management Assoc.
    Squire Sanders
    TAG Associates, Inc.
    Tax Credit Group of Marcus & Millichap
    TCAM Asset Management
    Urban Institute
    U.S. Green Building Council
    U.S. Vets Initiative
    Vitus Group
    WNC & Associates, Inc.
    The Woda Group, LLC

          Alabama

    Alabama Council for Affordable Rural Housing
    Arbour Valley Development
    Arlington Properties, Inc.
    The Bennett Group
    City of Mobile Community Planning and Development
    Development Services Inc.
    Drake Law Firm
    Highland Commercial Mortgage, LLC
    Ledic Realty Company
    Lighthouse CDC
    Morrow Companies
    Opelika Housing Authority
    RSM US, LLP
    South East Alabama Self-Help Association, Inc.
    Tidwell Group, LLC

          Alaska

    Alaska Coalition on Housing and Homelessness
    Catholic Social Services
    Cook Inlet Housing Authority
    The Easter Group
    The Leeshore Center
    Love INC of the Kinai Penninsula
    NeighborWorks Alaska
    Sitka Community Development Corporation
    Statewide Independent Living Council of Alaska
    United Way of Anchorage

          Arizona

    A New Leaf, Inc.
    Arizona Housing Alliance
    Capitol Mall Association
    Chicanos Por La Causa
    City of Yuma
    Comite de Bien Estar
    Corporate Social Responsibility
    Foundation for Senior Living
    Guadalupe Community Development Corp.
    Law Offices of William D. Black
    Milestone Housing Development Corp.
    Morton Consultant Services
    Native American Connections
    Pima County CDNC
    PPEP Microbusiness & Housing Development Corp.
    Surrano Law Offices
    Tonalea Chapter
    UMOM New Day Centers
    WESCAP Investments, Inc.

          Arkansas

    Affordable Housing Association of Arkansas
    Arkansas Coalition of Housing and Neighborhood-Growth for Empowerment
    (ACHANGE)
    Arkansas NAHRO
    Boys, Girls, Adults Community Development Center
    Des Arc Housing Authority
    Housing Authority of Hot Springs
    Housing Authority of Star City
    Jonesboro Housing Authority
    Judsonia Housing Authority
    Mississippi County Public Facilities Board
    Northwest Regional Housing Authority
    PDC Companies
    RichSmith Development, LLC
    Siloam Springs Housing Authority
    Texarkana Arkansas Housing Authority
    White River Regional Housing Authority

          California

    A Community of Friends
    Affirmed Housing Group
    Affordable Housing Associates
    AMCAL Multi-Housing, Inc.
    Beacon Communities
    Bear River Tribe
    Belle Haven Community Foundation
    Bocarsly Emden Cowan Esmail & Arndt, LLP
    BRIDGE Housing
    Burbank Housing Development Corporation
    Cabrillo Economic Development Corporation
    California Coalition for Rural Housing
    California Council of Affordable Housing
    California Dept. Housing & Community Development
    California Housing Consortium
    Candeur Group, LLC
    Century Housing Corporation
    California Housing Partnership Corporation
    Casa de Redwood
    Charities Housing
    Chelsea Investment Corporation
    Chinatown Community Development Center
    City of Oxnard Affordable Housing & Rehab Division
    Clark Realty Management
    Community Build
    Community Economics, Inc.
    Community Housing Assistance Program, Inc.
    Community Housing Improvement Program [CHIP]
    Community HousingWorks
    Community Revitalization and Development Corp.
    County of San Bernardino
    Curtom Building & Development
    Desert Manna
    EAH Housing (also listed in Hawaii)
    East Bay Asian Local Development Corporation
    East Bay Center for the Performing Arts
    East LA Community Corporation
    East Oakland Community Development Corporation
    Eden Housing, Inc.
    Episcopal Community Services of San Francisco
    Fresno Economic Opportunities Commission
    Gar-Mar Associates
    Habitat for Humanity of Greater Los Angeles
    Highridge Costa Housing Partners, LLC
    Housing Authority of San Luis Obispo [HASLO]
    Housing Authority of the County of Monterey
    Housing Authority of the County of Santa Barbara
    Housing Authority of the County of Tulare
    Housing California
    Housing On Merit
    Housing Resource Connection
    Hunt Companies, Inc.
    Innovative Housing Opportunities
    Jamboree Housing Corporation
    The Kennedy Commission
    LifeSTEPS
    Laurin Associates
    LeadingAge California
    LINC Housing
    Little Tokyo Service Center CDC
    M.E. Shay & Co.
    Mentis Mental Health Services
    Merritt Community Capital Corporation
    Meta Housing Corporation
    MidPen Housing Corp.
    Mutual Housing California
    Napa Emergency Women's Services
    National Community Renaissance
    National CORE
    Neighborhood Partnership Housing Services
    NeighborWorks Orange County
    Non-Profit Housing Association of Northern California
    Opportune Companies
    Pacific Meadows Senior Housing
    Palm Communities
    PAH Community
    PAHC Management & Services Corporation
    PATH Ventures
    People Self Help Housing
    Peterson & Associates Affordable Housing Connections
    Related California
    Resources for Community Development
    Retirement Housing Foundation
    Riverside Charitable
    Rural Community Assistance Corporation (RCAC)
    Sacramento Housing Alliance
    San Diego Housing Federation
    San Fernando Valley Homeless Coalition
    Self-Help Enterprises
    Southern California Association of Non-Profit Housing
    SRO Housing Corporation
    Sun Country Builders
    Thomas Safran & Associates
    TJ Bly Company, LLC
    TOWNSPEOPLE
    Transition House
    TWG Architects, Inc.
    Urban Housing Communities, LLC
    The Vecino Group
    Wakeland Housing and Development Corporation
    Wasatch Advantage Group, LLC
    The Watershed Center
    Western Community Housing, Inc.
    Women Organizing Resources, Knowledge and Service
    Yolo County Housing

          Colorado

    Adams County Housing Authority
    Archway Housing & Services
    Aurora Housing Authority
    The Burgwyn Co., LLC
    CARE Housing Services
    Cathedral Development Group, Inc.
    Community Resources and Housing Development Corp.
    Community Restoration Partners, LLC
    Element Properties
    Fort Collins Housing Authority
    Funding Partners
    Grand Junction Housing Authority
    Homeward 2020
    Housing Colorado
    Julesburg Housing Authority
    Loveland Housing Authority
    Medici Communities, LLC
    Metro West Housing Solutions
    Monroe Group Ltd.
    RCH Jones Consulting
    Rocky Mountain Communities
    Ross Management Group
    S.B. Clark Companies
    San Miguel Regional Housing Authority
    SERVE 6.8
    South Metro Housing Options
    Steele Properties, LLC
    Urban Land Conservancy
    Urban Residential Partners
    Vos Consulting
    Wolf Family I, Inc.
    Zocalo Community Development

          Connecticut

    The Carabetta Companies
    Connecticut Housing Coalition
    Housing Authority of New Haven
    Mutual Housing Assoc. of Southwestern Connecticut
    New Neighborhoods, Inc.
    Norwalk Housing Authority
    Urban Initiatives
    Vesta Corporation

          Delaware

    Delaware Community Investment Corporation
    Delaware Housing Coalition
    Delaware Valley Development Company
    Leon N. Weiner & Associates, Inc.
    NCALL Research, Inc.
    Woodlawn Trustees, Inc.

          District of Columbia

    Affordable Housing Developers Council
    Audubon Enterprises
    Coalition for Nonprofit Housing & Community Dev.
    CSG Urban Partners
    Housing Assoc. of Nonprofit Developers
    Institute for Responsible Housing Preservation
    Jubilee Housing, Inc.
    Manna Inc.
    Montgomery Housing Partnership
    Somerset Development Company
    Transitional Housing Corporation

          Florida

    Ability Housing
    Agorazo Development, Inc.
    AmeriNational
    Arrington Financial Capital, LLC
    The Auburn Group
    Beneficial Communities
    Biscayne Housing Group
    Blue Sky Communities, LLC
    Broad and Cassel
    Carlisle Development Group
    Carrfour Supportive Housing
    Centennial Management
    Coalition of Affordable Housing Providers
    Community Realty Agency & Information Group
    Delray Beach Housing Authority
    Dukes Construction Company
    Florida Alliance of CDCs
    Florida Council for Affordable and Rural Housing
    Florida Supportive Housing Coalition
    Fort Lauderdale Community Center
    The Gatehouse Group, Inc.
    Global Development Initiatives, LLC
    Green Mills
    Housing Authority of Pompano Beach
    Housing Finance Authority of Palm Beach County
    Housing Trust Group, LLC
    Innerprise
    JPM Development, LLC
    Kipling Capital, LP
    Kiss & Company, Inc.
    Landmark Companies, Inc.
    Lee County Housing Finance Authority
    MCJ Associates, LLC
    Norfolk, LLC
    Norstar Development USA
    The NRP Group
    The NuRock Companies
    Orange State Construction, Inc.
    Palm Beach County Housing Authority
    Picerne Development Corp of Florida
    Pinellas County Housing Authority
    Pinnacle Housing Group, LLC
    Raymond James Tax Credit Funds, Inc.
    Related Urban
    The Richman Group of Florida, Inc.
    Roundstone Development, LLC
    Royal American
    Soho Advisory Partners LLC
    South Florida Community Development Corporation
    Southport Financial Services, Inc.
    SPECTRA
    Tacolcy Economic Development Corp.
    Tampa Housing Authority
    Vestcor Development Corp, Inc.
    Victory Fields, LLC
    Wendover Housing Partners, Inc.
    West Palm Beach Housing Authority

          Georgia

    Affordable Housing America, Inc.
    Alliance Fund Advisors
    Alliance Fund Management
    Ambling Management Company
    American Covenant Senior Housing Foundation, Inc.
    Athens Land Trust
    Atlanta Neighborhood Development Partnership
    The Benoit Group
    The Braden Group
    Charis Community Housing, Inc.
    Coleman Talley LLP
    Cordele Housing Authority
    Delmar Realty Advisors
    Georgia Affordable Housing Coalition
    The Integral Group
    Invest Atlanta
    JBH Financial Brokerage & Associates LLC
    Landbridge Development, LLC
    Mansermar Inc.
    Marietta Housing Authority
    Mize & Mize
    ORION Real Estate Services, Inc.
    Paces Foundation
    Partnership Housing Affordable to Society Everywhere
    Pittsburgh Community Improvement Association, Inc.
    Project Interconnections, Inc.
    Purpose Built Communities
    Rea Ventures Group, LLC
    Resource Housing Group
    Sprague and Rosenberger
    State Tax Credit Exchange
    SUMMECH CDC
    Tapestry Development Group
    TBG Residential
    Triumph Management Group, LLC

          Hawaii

    EAH Housing (also listed in California)
    Hawaii Housing Finance, LLC
    Hawaii Workforce Development Council
    Housing Hawaii
    Management Specialists Co.

          Idaho

    Community Council of Idaho, Inc.
    Community Development Incorporated
    HOPE Development, LLC
    The Housing Company
    New Beginnings Housing, LLC
    Northwest Associates
    Northwest Real Estate Capital Corp.
    The Pacific Companies
    Somerset Pacific
    Thomas Development Co.

          Illinois

    Affordable Housing Investment Brokerage
    Applegate & Thorne-Thomsen, PC
    Bickerdike Redevelopment Corporation
    Brinshore Development, LLC
    Chicago Community Development Corporation
    Chicago Rehab Network
    City of Chicago
    Consecra Housing Network
    Cook County Housing Authority
    FLS Group, LLC
    Full Circle Communities, Inc.
    General Capital Management Inc.
    Hooker DeJong Architects, Inc.
    Housing Action Illinois
    Housing Authority of the County of DeKalb
    Illinois Housing Council
    JP Morgan
    Laborers' Home Development Corp.
    Lake County Housing Authority
    Lightengale Group
    Madison County Housing Authority
    MB Financial Bank
    Metroplex, Inc.
    North Chicago Housing Authority
    Peoria Citizens Committee for Economic Opportunity, Inc.
    Perry Group, Ltd.
    Pike County Housing Authority
    The Renaissance Companies
    The Resurrection Project
    SE Clark & Assoc. Inc.
    Springfield Housing Authority
    Valerie S. Kretchmer Associates, Inc.
    Winnebago County Housing Authority

          Indiana

    Affordable Housing Association of Indiana
    Affordable Housing Corporation
    Biggs TC Development, LLC
    Bingham Greenebaum Doll LLP
    Brown County Career Resource Center
    Community Action of Greater Indianapolis, Inc.
    Dauby, O'Connor & Zaleski, LLC
    The Englewood Group
    Fort Wayne Housing Authority
    God's Helping Hand
    Hamilton County Area Neighborhood Development, Inc.
    Herman & Kittle Properties, Inc.
    IAB Financial Bank
    Indiana Affordable Housing Council
    Indiana Association for Community Economic
    Development
    Indiana Health Centers Inc.
    KCG Development
    Keller Development, Inc.
    Milestone Ventures, Inc.
    Neighborhood Development Associates, LLC
    New Albany Housing Authority
    New Generation Management, Inc.
    NSP Consultants, LLC
    Paragus, LLC
    Pedcor Companies
    Pioneer Development Services, Inc.
    TWG Development
    Valenti Development, LLC
    Westside Community Development Corp.
    Wooden McLaughlin

          Iowa

    Affordable Housing Network, Inc.
    Anawim Housing
    AEGON USA Realty Advisors, LLC
    Barnes Realty
    Burns & Burns, LC
    Community Housing Initiatives, Inc.
    Fort Madison Housing Authority
    J. Development Company
    Hatch Development Group
    Home Builders Association of Iowa
    Perennial Property Management
    Polk County Housing Trust Fund
    Simonson & Associates Architects, LLC

          Kansas

    10up
    Cohen-Esrey Real Estate Services, LLC
    Homestead Affordable Housing, Inc.
    Housing Opportunities, Inc.
    JC Builders, Inc.
    Kansas City Equity Fund, LLC (also listed in Missouri)
    Kansas Housing Resources Corporation
    Kim Wilson Holding Inc.
    Marsh & Company, P.A.
    Mennonite Housing Rehabilitation Services, Inc.
    Overland Property Group, LLC
    Prairie Fire Development Group (also listed in Missouri)
    Topeka Housing Authority
    Vintage Construction, LLC

          Kentucky

    AU Associates, Inc.
    FAHE Capital Corporation
    Family Scholar House
    First World Architects Studio
    Homeless and Housing Coalition of Kentucky
    HOPE of Kentucky, LLC
    Housing Partnership, Inc.
    Kentucky Housing Corporation
    KY Senior Citizens Apartments
    LDG Development, LLC
    Lexington Community Land Trust
    Marian Development Group, LLC

          Louisiana

    Bauer Compliance & Consulting
    Brownstone Affordable Housing Ltd.
    Centerpointe Regional Housing Development, LLC
    Fitness & Praise Youth Development, Inc.
    Greater New Orleans Housing Alliance
    Gulf Coast Housing Partnership
    Harmony Neighborhood Development
    Houma Terrebonne Housing Authority
    Housing Authority of the City of Shreveport
    Louisiana Assoc. of Affordable Housing Providers
    Louisiana Community Reinvestment Coalition
    Louisiana Housing Council
    Mt. Pleasant Community Development Corporation, Inc.
    Neville Development
    Providence Community Housing
    Rural Rental Housing Assoc. of Louisiana, Inc.
    Standard Enterprises, Inc.
    Statewide Louisiana Community Reinvestment Coalition

          Maine

    Auburn Housing Authority
    Avesta Housing
    Coastal Enterprises, Inc.
    Community Housing of Maine
    Developers Collaborative
    Freeport Housing Trust
    Maine Affordable Housing Coalition
    Maine Workforce Housing, LLC
    Northern New England Housing Investment Fund
    Penquis Housing, Inc.
    Portland Housing Development Corporation
    South Portland Housing Authority
    Westbrook Housing
    The Wishcamper Companies, Inc.

          Maryland

    Bocarsly Emden Cowan Esmail & Arndt, LLP
    Chesapeake Community Advisors, Inc.
    Comprehensive Hsg. Assistance, Inc. (CHAI) Baltimore
    Enterprise Homes
    Garrett County Community Action Committee
    Green Street Housing
    Homes for America
    The House of Easterling
    Housing Assoc. of Nonprofit Developers
    Howard County Housing
    HTA Development, LLC
    Maryland Affordable Housing Coalition
    Maryland Asset Building and Cmty. Development Net.
    Maryland Association of Housing and Development Agencies
    Montgomery Housing Partnership
    NeighborWorks Capital
    Riverside Advisors LLC
    Roots of Mankind Corp.
    The Shelter Group
    T.M. Associates, Inc.
    Victory Housing, Inc.
    WBC Community Development Corporation

          Massachusetts

    Alliance of Cambridge Tenants
    Asian Community Development Corporation
    B'nai B'rith Housing
    Beacon Hill Capital LLC
    Boston Capital
    Boston Financial Investment Management
    Boston Housing Authority Resident Advisory Board
    Candeur Group
    Capstone Communities LLC
    Carlisle Tax Credit Advisors
    Citizens' Housing and Planning Association
    Clocktower Tax Credit Investments, LLC
    Codman Square Neighborhood Development Corp.
    Community Economic Development Assistance Corp.
    Connolly and Partners, LLC
    David Koven Consulting
    Dorchester Bay Economic Development Corporation
    Edwards Wildman Palmer LLP
    First Financial Management Corporation
    Housing Corporation of Arlington
    Homeowners Rehab, Inc.
    Housing Management Resources
    Jamaica Plain Neighborhood Development Corporation
    Jewish Alliance for Law and Social Action
    Kevin P. Martin & Associates, PC
    KPM
    Madison Park Development Corporation
    Massachusetts Assoc. of Community Dev. Corporations
    Massachusetts Housing Investment Corporation
    Michel Associates
    NeighborWorks Southern Mass
    New England Housing Network
    North Shore Community Development Coalition
    Norwood Housing Authority
    Peabody Properties, Inc.
    Preservation of Affordable Housing, Inc.
    Strategic Tax Credit Investments, LLC
    Tenants' Development Corporation
    VIET-AID
    WinnDevelopment
    Women's Inst. for Housing & Economic Development

          Michigan

    Community Economic Development Assoc. of Michigan
    Disability Advocates of Kent County
    Ginosko Development Company
    Housing Resources, Inc.
    Inner City Christian Federation
    Kalamazoo Eastside Neighborhood Association
    Lapeer Housing Commission
    Livonia Housing Commission
    Michigan Community Action
    Michigan Disability Housing Work Group
    Michigan Housing Council
    MORC Home Care
    Neighborhood Service Organization
    Occupancy Solutions, LLC
    Ojibway Development, LLC
    Plante Moran
    Werth Development LLC
    Ypsilanti Housing Commission

          Minnesota

    13th Ave
    Aeon
    Alliance Housing Inc.
    Artspace Projects, Inc.
    Augusta Ventures, LLC
    Aurora St. Anthony Neighborhood Development Corp.
    Avenues for Homeless Youth
    Center City Housing Corp.
    CommonBond Communities
    Diversified Equities Corporation
    D.W. Jones, Inc.
    Dominium Development and Acquisitions, LLC
    Greater Minnesota Housing Fund
    Hope Community Inc.
    Housing Preservation Project
    Mahoney Ulbrich Christensen Russ P.A.
    MetroPlains, LLC
    The Metropolitan Consortium of Cmty. Developers
    Midwest Minnesota CDC
    Minnesota Housing Partnership
    One Roof Community Housing
    Podawiltz Development Corporation
    Project for Pride in Living
    Real Estate Equities, Inc.
    Sand Companies, Inc.
    The Schuett Companies
    SCI Associates, LLC
    Southwest Minnesota Housing Partnership
    Three Rivers Community Action
    Urban Homeworks

          Mississippi

    Adams Construction
    Greater Greenville Housing
    Hope Enterprise Corporation
    Hughes Spellings
    Lenton Development
    Mercy Housing and Human Development
    Mid-South Housing Foundation
    Mississippi Assoc. of Affordable Housing Providers
    The Park Companies
    Rosedale Corporation
    Ross & Yerger
    SECDE Ventures, LLC
    South MS Housing & Development Corporation
    Tunica County CDC
    Winters Construction, LLC

          Missouri

    Affordable Equity Partners
    Affordable Housing Commission
    Boonville Housing Authority
    Brunswick Housing Authority
    Builders Development Corporation
    Hamilton Properties Corporation
    Hannibal Housing Authority
    Housing Authority of Joplin, MO
    Housing Authority of the City of Jefferson
    Independence Housing Authority
    Ivanhoe Neighborhood Council
    Kansas City Equity Fund, LLC (also listed in Kansas)
    Lee's Summit Housing Authority
    Marceline Housing Authority
    MarksNelson, LLC
    McCormack Baron Salazar
    Missouri Workforce Housing Association
    Peter & Paul Community Services
    Prairie Fire Development Group (also listed in Kansas)
    Slezak House
    St. Louis Equity Fund, Inc.
    RubinBrown LLP
    Travois, Inc.
    Twain Financial Partners
    Wilhoit Properties Inc.
    Zimmerman Properties, LLC

          Montana

    Bullhook Community Health Center GL Development LLC
    Great Falls Housing Authority
    Housing Authority of Billings
    Housing Solutions, LLC
    Lee and Co, PC
    Missoula Housing Authority
    Mountain Plains Equity Corporation
    Summit Management Group, Inc.
    Rocky Mountain Development Council

          Nebraska

    Cairo Housing Authority
    Cambridge Housing Authority
    Cirrus House Inc.
    Columbus Housing Authority
    Cornerstone Associates, LLC
    Excel Development Group
    Fremont Housing Authority
    Holy Name Housing Corporation
    Horizon Bank
    Housing Partners of Western Nebraska
    Lincoln Housing Authority
    McCook Housing Agency
    Nebraska City Area Economic Development Corp.
    Nebraska Housing Developers Association
    North Omaha Foundation
    Oakland Housing Authority
    Omaha Economic Development Corp.
    Omaha Housing Authority
    Ord Housing Authority
    RMR Group
    Schuyler Housing Agency
    Seldin Company
    Sunrise View Housing Authority
    Urban Housing Partners, LLC

          Nevada

    Clark County Cmty. Resources Management Division
    George Gekakis, Inc.
    Mueller, Hinds, & Associates, CHTD
    Neighborhood Housing Services of Southern Nevada
    Nevada Council of Affordable and Rural Housing
    Nevada HAND
    Nevada Rural Housing Authority
    Silver Sage Manor, Inc.
    Silver State Housing

          New Hampshire

    AHEAD, Inc.
    CATCH Neighborhood Housing
    Concord Coalition to End Homelessness
    Families in Transition
    Housing Action NH
    Laconia Area Community Land Trust
    NeighborWorks of Greater Manchester
    New Hampshire Public Health Association
    Newmarket Housing Authority
    NH Coalition to End Homelessness
    NH Community Loan Fund
    Tri-County CAP
    USIS, LLC

          New Jersey

    Advocates for Peace & Social Justice
    Alliance for Betterment of Citizens with Disabilities
    Diocesan Housing Services Corporation of the Diocese
    of Camden
    Hoboken Housing Authority
    Housing and Community Development Network of NJ
    Housing Authority of Gloucester County
    The Ingerman Group
    Jewish Community Housing Corp. of Metropolitan NJ
    MaGrann Associates
    MEND, Inc.
    Mercer Alliance to End Homelessness
    The Metro Company
    Monarch Housing Associates
    New Community Corporation
    New Jersey Apartment Association
    New Jersey Community Development Corporation
    New Jersey Housing and Mortgage Finance Agency
    North Haledon Affordable Housing
    Project Freedom, Inc.
    PV Community Development Corporation
    Tabor House
    The Michaels Organization
    Valley National Bank

          New Mexico

    City of Las Cruces
    Housing Trust of Santa Fe
    JL Gray Company
    New Mexico Coalition to End Homelessness
    YES Housing, Inc.
    Santa Fe Civic Housing Authority
    Sawmill Community Land Trust
    Tierra del Sol Housing Corporation

          New York

    3D Development Group, LLC
    42 Equity Partners, LLC
    Arbor Housing Development
    Asian Americans for Equality
    Association for Energy Affordability Inc.
    Belmont Housing Resources for WNY, Inc.
    Benchmark Title Agency, LLC
    Berkley Point
    Blueprint Properties
    The Bridge
    Broadway-Filmore NHS
    Central New York Citizens in Action, Inc.
    Citizens Against Recidivism, Inc.
    Community Access Inc.
    Community Action Organization of Erie County, Inc.
    Community Development Corp. of Long Island, Inc.
    Community Development Trust
    Community League of the Heights
    Conifer Realty, LLC
    Curtis + Ginsberg Architects LLP
    East Hampton Housing Authority
    Edgemere Development
    Evergreen Health Services
    Ewing Planning Services
    First Sterling
    Forsyth Street Advisors LLC
    Fecteau PLLC
    Fordham Bedford Housing Corporation
    Geneva Housing Authority
    Greater Rochester Housing Partnership
    HANAC, Inc.
    Harlem Congregations for Community Improvement Inc.
    Hour Children
    Housing Visions
    The Hudson Companies, Inc.
    Humand Development Services of Westchester
    Ibero-American Development Corporation
    The Institute for Human Services, Inc.
    Ithaca Housing Authority
    Ithaca Neighborhood Housing Services
    Lemle & Wolff, Inc.
    Lott Community Development Corporation
    Lower East Side Coalition Housing Development, Inc.
    Neighborhood Housing Services of New York City
    Neighborhood Preservation Coalition of New York State
    New Destiny Housing Corporation
    New York Housing Conference
    New York State Association for Affordable Housing
    Northeast Brooklyn Housing Development Corporation
    Ocean Bay Community Development Corporation
    Oxford Consulting Inc.
    PathStone
    Property Resources Corporation
    Providence Housing Development Corp.
    R4 Capital, LLC
    Regan Development Corporation
    Rochester's Cornerstone Group, Ltd.
    Royal Realty Development, Inc.
    Rural Ulster Preservation Company
    RUPCO
    SFDS Development Corp.
    Sobro
    Southern Tier Environments for Living
    Supportive Housing Network of New York
    Tenderloin Neighborhood Development Corporation
    Transamerica Equities, LLC
    Triboro Real Estate Development, Inc.
    Urbecon LLC
    West Harlem Group Assistance, Inc.
    White Plains Housing Authority

          North Carolina

    The Affordable Housing Group of North Carolina, Inc.
    Affordable Housing Management, Inc.
    Blue 22 Development
    Brock Ventures, Inc.
    CAHEC
    Carolina Bank
    Carolinas Council of Affordable Housing
    Charlotte Mecklenburg Housing Partnership
    Community Investment Corporation of the Carolinas
    Community Management Corporation
    DHIC, Inc.
    Dixon Hughes Goodman LLP
    Eagan Partners, LLC
    East Carolina Community Development, Inc.
    The Housing Assistance Corporation
    KRP Investments, LLC
    North Carolina Housing Coalition
    Partners Ending Homelessness
    Partnership Property Management
    Pressly Development Company, Inc.
    Reliance Housing Foundation
    United Developers, Inc.
    Weaver-Kirkland Housing, LLC
    Weaver Cooke Construction
    William S. Robinson & Associates, Inc.
    Wilson Community Improvement Association [WCIA]
    Workforce Homestead, Inc.

          North Dakota

    Beyond Shelter, Inc.
    Fargo Housing & Redevelopment Authority
    Grand Forks Housing Authority
    Lutheran Social Services of North Dakota
    North Dakota Coalition for the Homeless
    Turtle Mountain Housing Authority

          Ohio

    The ABCD, Inc.
    ABCAP
    Affordable Housing Partners, Inc.
    Arch City Development
    Bethel Development
    Burten, Bell, Carr Development, Inc.
    CDA Flaherty Consulting
    Center for Closing the Health Gap
    Clark, Schaefer, Hackett & Co.
    Cleveland City Council
    Cleveland Housing Network
    Cleveland Neighborhood Progress
    Cleveland State University
    Coalition on Homelessness and Housing in Ohio
    Columbus Housing Partnership
    Community Action Commission of Fayette County
    Community Action Organization of Delaware, Madison,
    and Union Counties, Inc.
    Cornerstone Corporation for Shared Equity
    Detroit Shoreway Community Development Org.
    EDEN, Inc.
    Episcopal Retirement Homes Affordable Living
    Fairfield Homes, Inc.
    Famicos Foundation
    Friendship New Vision, Inc.
    GL Housing Group
    Grey Area Consultants, LLC
    Housing Services Alliance
    James A. Saad, LLC
    Jones Walker LLP
    Karen A Graham Consulting, LLC
    Karen H. Bauernschmidt Co., LPA
    LIHTC Working Group
    Miller-Valentine Group
    Mt. Auburn Good Housing Foundation
    MV Residential Development LLC
    National Affordable Housing Trust
    National Church Residences
    Neighborhood Development Services
    Neighborhood Housing Services of Greater Cleveland
    Ohio Capital Corporation for Housing
    Ohio CDC Association
    Ohio Housing Council
    Ohio Housing Finance Agency
    Rental Partnerships
    Royal Bank of Canada
    Settlement Star Services, LLC
    Slavic Village Development
    Star Title Agency, LLC
    Toledo Fair Housing Center
    The Uptown Association, Inc.
    United Way of Greater Cincinnati
    The Wallick Companies
    WSOS Community Action Commission

          Oklahoma

    Belmont Development Company, LLC
    Blackledge Architects
    Catholic Charities of the Archdiocese of Oklahoma City
    C.H.A.R.M.E.D.
    City Care, Inc.
    CMA Strategies
    Dobson Mortgage Corp.
    Elk City Housing Authority
    Liberty Realty Capital Group
    LIFE Senior Services
    LW Development, LLC
    Metro First Realty
    Mountain View Housing Authority
    Oklahoma City Metro Assoc. of REALTORS
    Oklahoma Coalition for Affordable Housing
    Oklahoma Housing Finance Agency
    Oklahoma Investment Realty, Inc.
    ORO Development Corporation
    Progressive Independence
    REI Oklahoma
    Resco Enterprises, LLC
    Spradling, Kennedy & McPhail, LLP
    Sunview Homes

          Oregon

    Bienestar Oregon
    CASA of Oregon
    Cascade Management
    Grounded Solutions Network
    Housing Authority of Jackson County
    Housing Authority of Yamhill County
    Lincoln Community Land Trust
    Mid-Columbia Housing Authority
    Network for Oregon Affordable Housing
    Northwest Housing Alternatives
    Oregon Opportunity Network
    REACH Community Development, Inc.
    ROSE Community Development Corporation
    United Fund Advisors
    West Valley Housing Authority

          Pennsylvania

    Allentown Housing Authority
    A.M. Rodriguez Associates, Inc.
    BCM Affordable Housing
    Community Action Commission
    Community Action Committee of the Lehigh Valley, Inc.
    Community First Fund
    Cornerstone Community Partners
    Fayette County Community Action Agency, Inc.
    Franklin County Housing Authority
    HDC MidAtlantic
    The Hickman
    Housing Alliance of Pennsylvania
    Housing Authority of the City of Erie
    Housing Authority of the County of Beaver
    Housing Development Corporation MidAtlantic
    Kelly & Close Engineers
    NCCDC
    New Kensington CDC
    Pathways to Housing PA
    Pennrose Properties
    Pennsylvania Association of Housing & Redevelopment Agencies
    Pennsylvania Developers Council
    Pennsylvania Housing Finance Agency
    Philadelphia Association of CDCs
    Philadelphia Housing Authority
    Presbyterian Senior Living
    Quality Community Health Care, Inc.
    Ralph A. Falbo, Inc.
    The Reinvestment Fund
    S&A Homes
    SEDA-COG Housing Development Corp.
    United Neighborhood Centers
    United Neighborhood Community Development Corporation
    West Market Management
    WRT Design
    York Housing Authority

          Puerto Rico

    Advancer Local Development
    ERS Consulting Group, LLC
    Fernando L Sumaza & Company
    La Fundacion del Perpetuo Socorro
    One Stop Career Center of Puerto Rico, Inc.

          Rhode Island

    Amos House
    Barbara Sokoloff Associates
    Church Community Housing Corp.
    Coventry Housing Authority
    Dimeo Properties
    EastBay Community Development Corp.
    House of Hope CDC
    HOUSING ACTION Coalition of Rhode Island
    NeighborWorks Blackstone River Valley
    Newport Housing Authority
    Olneyville Housing Corporation
    Omni Development Corporation
    Pawtucket Central Falls Development
    Property Advisory Group
    Rhode Island Housing
    Roger Williams University
    SWAP Inc.
    Valley Affordable Housing Corp.

          South Carolina

    AMCS Inc.
    Connelly Builders, Inc.
    CPR Partners
    Credit Capital, LLC
    Douglas Development
    Howell Linkous and Nettles, LLC
    Humanities Foundation
    Landmark Property Management
    SC Community Loan Fund
    Southern Development Management Company Inc.

          South Dakota

    Aberdeen Housing Authority
    Dakota Nation Community Development Corporation
    Dakota Resources
    Development for the Disabled Inc.
    GROW South Dakota
    Lloyd Companies
    Murray Properties, LLC
    NeighborWorks Dakota Homes Resources
    Oti Kaga, Inc.

          Tennessee

    Alco Management, Inc.
    Bluff City Community Development Corporation
    Elmington Property Management
    Good Neighbor Foundation
    Huber & Lamb Appraisal Group
    Jackson Housing Authority
    Knoxville's Community Development Corporation
    Lexington Housing Authority
    LHP Development, LLC
    Metropolitan Development & Housing Agency
    Pennrose Properties
    Volunteer Management and Development Company

          Texas

    Alden Torch Financial, LLC
    Anderson Development & Construction, LLC
    Anson Housing Authority
    Austin Community Design & Development Center
    Banyan Residential
    B.E. Boyd Consultant Group
    Builders of Hope CDC
    Call to Action_Homeless Veterans
    Center for Faith & Health Initiatives
    Conine Residential Group
    Crowell Housing Authority
    Delphi Affordable Housing Group, Inc.
    Edinburg Housing Authority
    Flores Residential, LLC
    Fort Worth Housing Authority
    Foundation Communities
    Georgetown Housing Authority
    Granger Housing Authority
    Greenville Housing Authority
    Gregory Housing Authority
    Hidalgo County Housing Authority
    Housing Authority of El Paso
    Housing Authority of the City of Alamo
    Housing Lab by BETCO
    Joe Lopez Law Firm
    Levelland Housing Authority
    Lockhart Housing Authority
    Locke Lord LLP
    Maupin Development
    MWS Real Estate Services
    Mount Pleasant Housing Authority
    Nortex Housing Finance Commission
    Red Stone Equity Partners
    Robert T. Pittenger CPA, PC
    Rogers Housing Authority
    Rural Rental Housing Assoc. of Texas, Inc.
    San Antonio Alternative Housing Corporation
    San Antonio Housing Authority
    Spearman Housing Authority
    StoneLeaf Companies
    Texas Affiliation of Affordable Housing Providers
    Texas NAHRO
    UAH Property Management, Inc.

          Utah

    Adams Construction & Management
    Community Development Corp. of Utah
    Crossroads Urban Center, LLC
    Davis Community Housing Authority
    Horizon Development and Management
    Housing Authority of Salt Lake City
    Housing Authority of the County of Salt Lake
    Housing Authority of Utah County
    Housing Management and Development Corporation
    Mountainlands Community Housing Trust
    Neighborhood Nonprofit Housing Corporation
    NeighborWorks Salt Lake
    Self-Help Homes
    Taylor Springs Apartments
    Tooele County Housing Authority
    TURN Community Services, Inc.
    Utah Community Reinvestment Corporation
    Utah Housing Corporation
    Utah NAHRO
    Utah Nonprofit Housing Corp.
    Valley Behavioral Health
    Weber Housing Authority

          Vermont

    Addison County Community Trust, Inc.
    Burlington Associates
    Cathedral Square Corporation
    Central Vermont Community Land Trust
    Champlain Housing Trust
    Disability Rights Vermont
    Housing Trust of Rutland County, Inc.
    Housing Vermont
    Lamoille Housing Partnership
    Vermont Affordable Housing Coalition
    Vermont Center for Independent Living
    Vermont Housing and Conservation Board
    Vermont Housing Finance Agency
    Vermont State Housing Authority

          Virginia

    AHC, Inc.
    Alexandria Housing Development Corporation
    Alexandria Redevelopment and Housing Authority
    Alliance for Housing Solutions
    Arlington Partnership for Affordable Housing
    Better Housing Coalition
    Chesapeake RHA
    Community Housing Partners
    Hampton Redevelopment and Housing Authority
    Harrisonburg Redevelopment and Housing Authority
    The Haven, Inc.
    Hopewell Redevelopment and Housing Authority
    Housing Assoc. of Nonprofit Developers
    Linden Capital LLC
    MichiHamlett Attorneys at Law
    Newport News Redevelopment & Housing Authority
    NJR Real Estate Consulting Services, LLC
    Norfolk Redevelopment and Housing Authority
    Northern Virginia Affordable Housing Alliance
    Restoration of Petersburg Community Dev. Corp.
    Southside Outreach Group, Inc.
    Virginia Coalition to End Homelessness
    Virginia Community Development Corporation
    Virginia Housing Coalition
    Virginia Housing Development Authority
    Virginia LISC
    Virginia One Development
    Virginia Supportive Housing
    Wesley Housing Development Corp. of Northern Virginia

          Washington

    Ally Community Development
    American Capital Group
    Barrientos LLC
    Beacon Development Group
    Bellingham/Whatcom County Housing Authorities
    Bellwether Housing
    Betsy Lieberman Consulting LLC
    Bremerton Housing Authority
    Campion Advocacy Fund
    Capitol Hill Housing Foundation
    Cascade Affordable Housing
    Catholic Charities Housing Services Diocese of Yakima
    City of Seattle Office of Housing
    Columbia Gorge Housing Authority
    Colville Indian Housing Authority
    Community Center for Education Results
    Community Frameworks
    Compass Health
    Compass Housing Alliance
    Downtown Emergency Service Center (DESC)
    El Centro de la Raza
    Enterprise Community Partners Pacific Northwest
    Homestead CLT
    HomeStreet Bank
    Housing Authority of Grant County
    Housing Authority of Kennewick
    Housing Consortium of Everett & Snohomish County
    Housing Dev. Consortium of Seattle-King County
    Housing Hope
    Housing Kitsap
    Impact Capital
    InterIm Community Development Association
    Imagine Housing
    King County Housing Authority
    LeadingAge Washington
    Longview Housing Authority
    Low Income Housing Institute
    Makah Tribe
    Mark Flynn Consulting, LLC
    Mayor of Seattle Ed Murray
    McLoughlin & Associates
    Mercy Housing Northwest
    Northwest Youth Services
    Office of Rural and Farmworker Housing
    OPAL Community Land Trust
    Pacifica Law Group, LLP
    Parkview Services
    Paul Schissler Associates
    Plymouth Housing Group
    Rafn Company
    Renton Housing Authority
    Seattle Chinatown International District Preservation
    and Development Authority (SCIDpda)
    The Seattle Foundation
    Seattle Housing Authority
    Seattle/King County Coalition on Homelessness
    SEC Affordable Housing
    Security Properties
    Senior Services
    Senior Services of Snohomish County
    Shelter Resources, Inc.
    SMR Architects
    Solid Ground
    Spokane Community Housing Association
    Spokane Housing Ventures
    Spokane Low Income Housing Consortium
    Spokane Neighborhood Action Partners (SNAP)
    The Summit Group
    Tacoma Housing Authority
    TPC Affordable Housing Consortium
    United Marketing, Inc.
    Upper Valley MEND
    Walla Walla Housing Authority
    Washington Community Reinvestment Association
    The Washington Low Income Housing Alliance
    Washington State Housing Finance Commission
    Watson & McDonell
    Yesler Community Collaborative
    YMCA of the Inland Northwest
    YWCA Seattle
    King

    Snohomish

          West Virginia

    Central Appalachia Empowerment Zone of West Virginia
    Chaplin Construction, Inc.
    Coalfield Development Corporation
    CommunityWorks in West Virginia, Inc.
    Innovation, LLC
    Keyser Housing Authority
    Recovery Point of Charleston
    RedClay Development of West Virginia
    Religious Coalition for Community Renewal
    Vandalia Heritage Foundation
    West Virginia Community Builders, LLC

          Wisconsin

    Astar Capital Management
    Baker Tilly Virchow Krause, LLP
    Bear Development
    Cardinal Capital Management
    Center for Resilient Cities
    Community First Inc.
    Elizabeth Moreland Consulting, Inc.
    Gorman & Company
    Hirsch Group, LLC
    Horizon Development Group, Inc.
    Inner City Redevelopment Corporation
    Journey House
    Layton Boulevard West Neighbors, Inc.
    Oshkosh Housing Authority
    Riverworks Development Corporation
    Salous Inc.
    SVA Certified Public Accountants, S.C.
    The TheoPRO Group
    Wisconsin Council for Affordable and Rural Housing
    Wisconsin Housing Preservation Corp.

          Wyoming

    Volunteers of America Northern Rockies
    Wyoming Housing Network

                                     ______

     Prepared Statement of Diane Yentel, President and CEO of the National
                          Low Income Housing Coalition
        On behalf of the National Low Income Housing Coalition (NLIHC), I
    want to thank this committee for the opportunity to submit a statement
    for the record regarding the hearing, ``Housing Vulnerable Families and
    Individuals: Is There a Better Way?'' Given the growing affordable
    housing crisis--especially among families with extremely low-incomes--I
    applaud members of this committee for looking seriously at reforms to
    reduce costs and serve more families in need. Bold action to improve
    and expand current Federal housing programs is clearly needed.
        NLIHC is dedicated solely to achieving socially just public policy
    that assures people with the lowest incomes in the United States have
    affordable and decent homes. Our members include State and local
    housing coalitions, residents of public and assisted housing, nonprofit
    housing providers, homeless service providers, fair housing
    organizations, researchers, public housing agencies, private developers
    and property owners, local and State government agencies, faith-based
    organizations, and concerned citizens. While our members include the
    spectrum of housing interests, we do not represent any segment of the
    housing industry. Rather, we focus on what is in the best interests of
    people who receive and those who are in need of Federal housing
    assistance, especially extremely low-income people.
                           no silver-bullet solution
        Today, the affordable housing crisis continues to reach new
    heights. Rents are rising, wages are flat, and more people are renting
    their homes than ever before. Yet, the supply of affordable housing has
    not kept pace. As a result, record-breaking numbers of families cannot
    afford a decent place to call home. Every State and every community is
    impacted.
        The greatest need for affordable housing is primarily concentrated
    among extremely low-income renters who earn no more than 30 percent of
    their area median income (AMI). NLIHC's recent report, The Gap: The
    Affordable Housing Gap Analysis 2016, found that there is a shortage of
    7.2 million affordable and available rental homes for the Nation's 10.4
    million extremely low-income renters. This means that just three out of
    10 extremely low-income families are able to find an affordable place
    to call home. As a result, three out of four extremely low-income
    families are severely cost-burdened, spending more than half of their
    income on rent and utilities. These families are often forced to make
    difficult choices between paying rent and buying groceries or visiting
    their doctor. In worst cases, they become homeless.
        Moreover, NLIHC's Out of Reach report shows the difference between
    wages and the price of housing in every State and county. It also
    estimates the hourly wage that a full-time worker needs to earn in
    order to afford a modest, two-bedroom apartment. In 2016, the national
    Housing Wage was $20.30 per hour. A minimum wage worker would need to
    work 112 hours a week--or 2.8 full-time jobs--just to afford their
    apartment. While the housing wage changes from State to State and
    county to county, there is no jurisdiction where a full-time worker
    earning the prevailing minimum wage can afford a modest, two-bedroom
    apartment.
        Housing challenges differ from community to community; there is no
    silver bullet solution. Congress and the administration must use every
    tool available to solve the problem. A comprehensive set of solutions
    to end housing insecurity in America includes: preserving and
    rehabilitating our Nation's existing affordable housing stock;
    increasing investment in the production of affordable housing for the
    lowest-income people; and expanding rental assistance.
                        the importance of public housing
        Public housing is home to more than 1.1 million households and
    plays a critical role in providing safe, decent housing to families
    with the greatest needs. The preservation of this important community
    asset must be a part of any strategy to end housing insecurity.
        Research shows that the vast majority of the more than 2 million
    people who live in public housing are satisfied overall with their
    homes, even though they rightfully push for solutions to maintenance
    and management issues. Most residents do not want to see public housing
    end; they want to see it improved and expanded.
        In fact, far more people are trying to get into public housing than
    leave it. In NLIHC's forthcoming report, we found that the average
    waitlist for public housing is about 9 months. Among the largest public
    housing authorities (PHAs), the waitlist is longer than 2 years. In
    many cities, the waiting list is so long that has been closed for
    years.
        Converting public housing into housing vouchers would result in a
    significant loss to the Federal Government and local communities. The
    Federal Government has already invested significant resources to
    develop, maintain, and operate public housing. Communities will lose an
    important asset--and the Federal Government will lose all of this
    investment--if Congress were to eliminate public housing.
                       section 8 housing choice vouchers
        Housing Choice Vouchers (HCV) are a proven tool in reducing
    homelessness and housing insecurity, as well as helping families climb
    the economic ladder. Housing vouchers help people with the lowest
    incomes afford housing in the private housing market by paying
    landlords the difference between what a household can afford to pay in
    rent and the rent itself, up to a reasonable amount. Administered by
    the U.S. Department of Housing and Urban Development (HUD), housing
    vouchers comprise the agency's largest rental assistance program,
    assisting more than 2.2 million households.
        Groundbreaking research by Harvard economist Raj Chetty offers
    persuasive evidence on the impact of housing vouchers on upward
    mobility. Using new tax data, Chetty and his colleagues assessed the
    longer-term outcomes for children who moved at a younger age as part of
    the HUD's Moving to Opportunity demonstration. Chetty's study found
    that children who were younger than 13 when their family moved to a
    lower-poverty neighborhood saw adult earnings increased by
    approximately 31 percent. Children who were younger than 13 when they
    moved also lived in better neighborhoods as adults and were less likely
    to be single parents.
        Given the voucher program's effectiveness, Congress should not only
    expand housing vouchers to more families in need, but also work towards
    improving the program's effectiveness in serving low-income families.
    While housing vouchers offer families the prospect of moving to areas
    of opportunity, barriers to mobility prevent many from doing so. Many
    private-sector landlords refuse to accept housing vouchers--whether
    because of the administrative costs, because vouchers do not cover the
    full cost of rent in high-cost areas, or outright discrimination. In
    cases where the utility of housing vouchers is limited, public housing
    plays a critical role in addressing the housing needs of low-income
    families.
    Converting Project-Based Rental Assistance to Vouchers Would Increase,
            Not Alleviate, the Affordable Housing Crisis
        Due to the low budget caps required by the Budget Control Act, this
    Committee faces a very difficult task of finding the resources
    necessary just to maintain current rental assistance contracts and
    program levels. Since 2011, spending caps have only made it more
    difficult for extremely low-income seniors, people with disabilities,
    families with children, and people experiencing homelessness to access
    safe, decent, and affordable housing.
        For that reason, the Campaign for Housing and Community Development
    Funding (CHCDF), a coalition led by NLIHC with the support of 75
    national and regional organizations, has worked to work to help lift
    the low spending caps, prevent across-the-board sequestration cuts, and
    ensure the highest allocation of resources possible to support
    affordable housing and community development.
        NLIHC also serves on the Steering Committee of NDD United, a
    coalition that works across industry sectors--from housing and
    infrastructure to education and the environment to healthcare and
    public safety--to advocate for non-defense discretionary spending,
    including funding for the U.S. Department of Housing and Urban
    Development (HUD) and Agriculture (USDA) Rural Housing Service.
        Even within these budget constraints, we encourage this Committee
    to prioritize protecting and preserving existing affordable housing
    resources, like public housing.
        While expanding housing vouchers to many more families is an
    important part of the solution, it alone cannot fully address the scope
    of the housing crisis. Additional tools are necessary to address other
    challenges, including the need to recapitalize and preserve aging
    properties, revitalize distressed communities, provide housing options
    for low-income families in tight or gentrifying markets and produce
    accessible housing for families with disabilities and special needs.
    Addressing these gaps in the rental housing market requires an
    investment in bricks and mortar--through the expansion and improvement
    of the Low-Income Housing Tax Credit (Housing Credit), national Housing
    Trust Fund (HTF), and HOME Investment Partnerships (HOME) program--as
    well as the preservation of public housing and the existing affordable
    housing stock.
                             policy recommendations
        To reduce costs and improve program delivery, NLIHC recommends
    consolidating PHA's administration of housing vouchers, funding a
    mobility counseling pilot program, and encouraging HUD to adopt small
    area fair market rents (SAFMRs) with tenant protections.
                Consolidate PHA's Administration of Housing Vouchers
        Currently, 2,400 PHAs administer the Nation's two million housing
    vouchers. Of these agencies, 58 percent administer fewer than 400
    vouchers. These small housing agencies exist in rural, suburban, and
    urban markets. There are 558 housing agencies administering vouchers in
    the Nation's 49 most populated metro areas.
        Consolidation of the administration of vouchers would result in
    administrative cost savings, bring significant benefits to families
    with housing vouchers and those in need of housing vouchers, and reduce
    HUD's oversight costs.
        According to HUD's Housing Choice Voucher Program Administrative
    Fee Study, issued in April 2015, large housing voucher programs have
    lower costs than smaller programs. Cost estimates for the 130 small
    housing voucher programs studied show an inverse pattern of costs per
    unit, decreasing steadily with the increase in the number of vouchers
    under lease.
        Under the current system of multiple housing authorities in a
    single housing market, a household seeking a voucher has to apply to
    several different agencies to maximize their chances of successfully
    competing for a voucher. For example, an eligible household in the
    Washington, D.C. housing market would have to submit separate
    applications to the District of Columbia Housing Authority, the Housing
    Opportunities Commission of Montgomery County, the Housing Authority of
    Prince George's County, the Alexandria Housing and Redevelopment
    Authority, the Fairfax County Redevelopment and Housing Authority, and
    the Arlington County Department of Human Services, not to mention
    additional housing agencies in outer ring suburbs from which people
    commute to and from jobs in the D.C. metro area.
        It is obvious how time consuming and frustrating this would be for
    families seeking a housing voucher. It is also costly for a housing
    authority to process an application--a cost that is compounded when
    several housing authorities are processing applications from the same
    household. Under the current system, it is impossible to know what the
    true demand for vouchers is because the same household can be on
    multiple waiting lists.
        Even if a household is lucky enough to rise to the top of a waiting
    list and receive a housing voucher, they may face significant barriers
    in using the voucher. Housing markets do not recognize jurisdictional
    boundaries. If a new voucher holder received their voucher in one
    jurisdiction, but found their preferred housing in the next
    jurisdiction, the household would have to go through the cumbersome
    process of ``porting'' their voucher from one administering agency to
    another.
        This process can reduce significantly the chances of successfully
    executing a lease and moving to the new home.
        Consolidation of an area's vouchers into a single administering
    entity with a single waiting list, either with a new entity or one of
    the existing housing agencies, would significantly streamline the
    voucher process for households, the administering agencies, and the
    landlords on whose participation the program's success depends.
        Regional administration of vouchers would also result in providing
    voucher holders with greater choice in where they can use their
    vouchers. Federal policy changes to require the consolidation of
    voucher administration would provide people more freedom to choose
    where they want to live with a voucher, including moving to low-poverty
    neighborhoods.
        One example of a consolidated housing agency is the Southern Nevada
    Regional Housing Authority (SNRHA), which is the successor to the
    Housing Authorities of Las Vegas, North Las Vegas, and Clark County.
    According to the SNRHA's website, ``Now, all of that expertise is under
    one roof and we hope to serve you much more efficiently.'' The SNRHA
    administers 10,094 housing choice vouchers.
        The statute currently permits voucher administration consortia, but
    many housing authorities are reluctant to give up their authority.
    Congress should enact legislation that provides incentives--or
    preferably mandates--for consolidation and regional administration.
                Fund a Mobility Counseling Pilot Program Proposed by the
                        Administration
        Congress should support funding for a mobility counseling pilot
    program that was proposed in the President's fiscal year 2017 budget
    request. Through this 3-year demonstration, HUD and PHAs will be able
    to develop new models for improving voucher mobility. Under the
    demonstration, PHAs in about 10 regions would provide counseling to
    help HUD-assisted families move to areas of opportunity. PHAs could use
    demonstration funds to improve collaboration between agencies and align
    policies and administrative systems. Funds could also be used to better
    recruit landlords and other activities that promote greater voucher
    mobility and housing choice. The proposal also includes a research
    component to study what strategies proved most cost-effective.
        The Senate's fiscal year 2017 Transportation-HUD (THUD) spending
    bill includes $11 million to fund the demonstration and an additional
    $3 million for evaluation. The House THUD bill does not include similar
    funding.
                Encourage HUD to Adopt Small Area Fair Market Rents
                        (SAFMRs) With Tenant Protections
        For several years, NLIHC has advocated for SAFMRs as one means to
    help expand affordable housing choice for voucher households. SAFMRs
    have the potential to augment the value of a voucher and thus enhance
    the ability of a household to use their voucher in more neighborhoods,
    particularly areas of higher opportunity.
        SAFMRs reflect rents based on U.S. Postal ZIP Codes, while
    traditional FMRs reflect a single rent standard for an entire
    metropolitan region. By providing voucher payment standards that are
    more in line with neighborhood-scale rental markets, SAFMRs aim to
    provide relatively higher subsidies in neighborhoods with higher rents
    and greater opportunities and lower subsidies in neighborhoods with
    lower rents and higher concentrations of voucher holders.
        HUD recently issued a proposed rule that would use a formula to
    select a limited number of metropolitan areas that would be required to
    use SAFMRs. While NLIHC supports changes to the voucher regulations
    that enable households to use vouchers in areas of higher opportunity,
    HUD must ensure that the final rule prevents adverse impacts on
    households currently relying on vouchers.
        We are concerned about the potential harm that a transition to
    SAFMRs could cause voucher holders currently living in low-cost ZIP
    codes where the SAFMR is likely to be lower than the metropolitan FMR.
    This could result in a lower voucher payment standard, one that is
    below current rents to which landlords are accustomed. If a landlord
    does not lower the rent when the voucher payment standard declines--
    which is likely--residents would have to pay more for rent and may
    become cost-burdened or severely cost-burdened.
        Analysis by the National Housing Law Project reveals that if
    current voucher households are not held harmless, 78 percent (435,000
    households) would likely suffer the impact of reduced payment standards
    in the 31 areas that meet HUD's SAFMR criteria. Consequently, we
    recommend that the final rule categorically exempt current voucher
    households from any reduction in the payment standard as a result of
    the transition to SAFMRs.
        Moreover, we concerned many landlords may stop accepting vouchers
    where payment standards in low-rent neighborhoods decline sharply,
    adversely impacting households currently relying on vouchers as well as
    future voucher recipients. In some tight rental markets, landlords may
    be able to obtain the rents they want without vouchers and without
    having to comply with voucher program requirements. This is
    particularly true in gentrifying areas.
        In order to prevent landlords from exiting the voucher program and
    thereby reduce the stock available to future and current voucher
    households, NLIHC recommended to HUD that its final rule incrementally
    limit how far SAFMRs could fall below current metropolitan FMRs. NLIHC
    proposed that for the first year of implementation, SAFMRs be set no
    lower than 95 percent of the metropolitan FMR, no lower than 90 percent
    the second year, and so on in 5 percent increments.
        We also believe that HUD's proposed rule does not account for tight
    rental markets. Several of the metropolitan areas on the list of 31
    that would be required to comply have very low vacancy rates, little
    rental turnover, high and rapidly rising rents, and low growth in the
    rental stock. As a result, there is little or no opportunity for
    mobility for renters in general and for voucher households in
    particular. Voucher households often have to return their vouchers
    unused because they cannot find a place to rent. In higher opportunity
    neighborhoods where vacancies are scarce, voucher households encounter
    strong competition from those without vouchers. Therefore, NLIHC
    recommends that any metropolitan area with a vacancy rate of 5 percent
    or less not be required to comply with the SAFMR rule.
             an alternative approach to increase needed investments
        While Federal investments in housing have a proven track record of
    reducing homelessness and housing insecurity, these investments are
    sorely underfunded. As a result, just one in four families that are
    eligible for housing assistance get the help they need. For our Nation
    to fully address the affordable housing crisis, we must identify and
    allocate resources to increase investment in proven solutions.
        Congress can make the investments needed to end homelessness and
    housing insecurity without adding costs to the Federal Government
    through reform of the Mortgage Interest Deduction. Each year, the
    Federal Government spends more to subsidize the homes of 7 million
    high-income households through the Mortgage Interest Deduction--most of
    whom would be stably housed without the government's support--than it
    does to assist the poorest 55 million families. In fact, $8 out of
    every $10 under the Mortgage Interest Deduction goes to families making
    more than $100,000 a year; $4 out of every $10 goes to families making
    more than $200,000.
        Specifically, Congress should reduce the size of a mortgage
    eligible for the tax break from $1 million to the first $500,000--
    impacting fewer than 5 percent of mortgage holders nationally--convert
    the deduction into a nonrefundable capped credit and reinvest the
    significant savings into programs that serve families with the
    greatest, clearest housing needs. These changes would result in 15
    million low-income homeowners who currently get no benefit from the
    Mortgage Interest Deduction to receive a much-needed tax break, as well
    as $220 billion in savings over 10 years to be reinvested in effective
    housing programs, including Housing Choice Vouchers, public housing,
    and the national Housing Trust Fund (HTF).
        The HTF is a dedicated, targeted resource that provides States with
    revenue to build, preserve, and rehabilitate housing that is affordable
    for extremely and very low-income households. This year, the HTF
    provided its first $174 million in allocations to States. NLIHC and our
    State and local partners look forward to working with Congress to
    expand the HTF, including though housing finance reform and reform of
    the Mortgage Interest Deduction.
        Thank you again for this opportunity for NLIHC to share our views
    on how to improve the way we provide and administer affordable housing
    in our country. If you have additional questions, please contact Public
    Policy Director Sarah Mickelson at smickelson@nlihc.org.

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2017

                                  ----------

                          WEDNESDAY, NOVEMBER 16, 2016

                                           U.S. Senate,
               Subcommittee on the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:20 p.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Susan Collins, (chairman)
    presiding.
        Present: Senators Collins, Cassidy, Daines, Reed, and
    Murphy.

              The Automated and Self-Driving Vehicle Revolution:
                        What is the Role of Government?

                 OPENING STATEMENT OF SENATOR SUSAN M. COLLINS

        Senator Collins. This hearing will come to order.
        Good afternoon. I'm pleased to be joined today by our
    ranking member, Senator Jack Reed, and by Senator Cassidy and
    others who will be joining us, as we hold this hearing to
    examine the role of government in enhancing roadway safety
    through the careful deployment of automated and self-driving
    vehicles, which could revolutionize our transportation system.
        I also welcome our panel of witnesses. We are joined today
    by Mark Rosekind, the Administrator of the National Highway
    Traffic Safety Administration; Deborah Hersman, the President
    and CEO of the National Safety Council; Paul Brubaker, the
    President and CEO of the Alliance for Transportation
    Innovation; and Dr. Nidhi Kalra, the Senior Information
    Scientist at the RAND Corporation. I look forward to hearing
    from each of you.
        The potential of the new technology that we're examining
    today is exciting, cars that drive themselves and avoid
    accidents, seniors and disabled individuals able to retain or
    gain their ability to get around town. At first, it sounds like
    science fiction or an advance far, far off into the future. But
    this technology is being tested and perfected right now, and it
    could save thousands of lives.
        According to the most recent statistics from the National
    Highway Traffic Safety Administration, more than 35,000 lives
    were lost in crashes on U.S. roadways in the year 2015.
    Preliminary estimates indicate a 10 percent increase in the
    first half of 2016. It is important to highlight that 94
    percent of these crashes are the result of human factors or,
    simply put, driver error such as distracted driving--sometimes
    caused by hands-free technology--impaired driving, and
    speeding. These crashes are preventable, and we should be doing
    everything we can to eliminate them.
        The testing and safe deployment of automated vehicle
    technologies has the potential to reduce substantially the
    number of driver-related crashes and fatalities. Let me
    emphasize that point: if this technology were to be perfected,
    automated vehicles could eliminate many of the crashes on our
    Nation's roadways and save thousands of lives each year.
        While fully self-driving autonomous vehicles are still
    years away from being available to the general public, many new
    vehicles already have driver-assisted features such as
    automatic emergency breaking, rearview cameras, my personal
    favorite, and lane-keep assist systems. These technologies are
    already making a difference, saving lives and reducing
    injuries.
        In addition to improving safety, self-driving vehicles can
    provide mobility options to our seniors and disabled people,
    particularly those living in rural communities like my State of
    Maine, where many of our older drivers currently do not have an
    easy way to get to the doctor or to the grocery store. Public
    transportation is nonexistent in much of Maine, and taxi
    service is very limited in rural areas. Seniors who can no
    longer drive often have very few options.
        A self-driving car, or even one with limited automated
    features, could help seniors feel more secure driving at night
    and could help those who currently must rely on others to get
    around, to maintain their independence. A recent survey of
    drivers over the age of 50 showed that almost 80 percent of
    those who plan to buy a car within the next 2 years will be
    seeking automated features such as blind spot warning, crash
    mitigation, and lane departure warning systems. Yet many
    consumers remain wary of purchasing a fully autonomous vehicle
    anytime soon. I know that the RAND Corporation has done a lot
    of work in the area of the potential benefits of automated
    technologies for our seniors.
        To help accelerate the safe testing and development of
    autonomous vehicles, the Department of Transportation released
    its ``Federal Automated Vehicles Policy'' on September 20th,
    which includes vehicle performance guidance, model state
    policy, an assessment of current regulatory tools, and a
    discussion of future regulatory tools that Congress may want to
    consider.
        While this was an important first step, it is clear that
    the DOT's guidance document needs further refinement to help
    ensure that automakers are able to bring the safety and
    mobility benefits of autonomous vehicles into the marketplace
    without unnecessary government regulations. I am particularly
    interested in hearing from our witnesses today on what
    improvements can be made to these guidelines.
        Automobile manufacturers face a number of roadblocks
    integrating autonomous vehicles onto our Nation's highways.
    Some have called on the Administration to put the brakes on
    autonomous vehicle deployment by imposing onerous requirements
    through a rulemaking process which could take several years to
    finalize, and my fear is that that would stifle innovation in
    the meantime.
        We must recognize that automated vehicle technology is
    advancing faster than government agencies can act, and in this
    instance impeding the advancement of technology may prevent us
    from saving lives. On the other hand, we also know that there
    have been some problems with the automated technology that has
    increased the incidence of distracted driving and perhaps led
    to additional accidents. The Department's guidance provides a
    more effective voluntary 15-point safety assessment that
    incentivizes automakers to certify that they have addressed all
    relevant issues ranging from cybersecurity to human-machine
    interface to ethical considerations.
        Another challenge facing autonomous vehicles is the vast
    number of State and local governments that are seeking to
    regulate this technology. Unlike vehicle safety, which is
    governed by Federal law, the safety and licensing of drivers
    are under the jurisdiction of State governments. While the
    Department's guidance deters States from interfering with
    Federal vehicle safety standards, one topic we will explore is
    whether or not DOT's approach also has the effect of
    encouraging State governments to set prohibitive requirements
    related to testing, licensing, and registration for automated
    vehicle testing.
        Given the public's keen interest in self-driving and
    automated vehicles, it is important for State governments to
    take a balanced approach in allowing the research, development,
    safe testing, and deployment of such vehicles. However, I would
    note that one serious accident, such as occurred in Florida,
    can cause great mistrust of this new technology, and that could
    lead to greater State restrictions on testing and deployment.
    It is particularly important that DOT work with automotive
    manufacturers, suppliers, and technology companies, as well as
    with the commercial end users of automated vehicles, to ensure
    that they are operating with an abundance of caution to avoid
    excessive government intervention that could interfere with the
    timely development of technologies that truly could save
    thousands of lives.
        [The statement follows:]
                 Prepared Statement of Senator Susan M. Collins
        I am pleased to be joined today by our Ranking Member, Senator Jack
    Reed, as we hold this hearing to examine the role of government in
    enhancing roadway safety through the careful deployment of automated
    and self-driving vehicles, which could revolutionize our transportation
    system.
        I also welcome our panel of witnesses. We are joined today by Mark
    Rosekind, Administrator of the National Highway Traffic Safety
    Administration; Deborah Hersman, President and C.E.O. of the National
    Safety Council; Paul Brubaker, President and C.E.O. of the Alliance for
    Transportation Innovation; and Dr. Nidhi Kalra, Senior Information
    Scientist at the RAND Corporation. I look forward to hearing from each
    of you.
        The potential of this new technology is exciting. Cars that drive
    themselves and avoid accidents. Seniors and disabled individuals able
    to retain or gain their ability to get around town. At first, it sounds
    like science fiction or an advance far off in the future. But this
    technology is being tested and perfected right now, and it could save
    thousands of lives.
        According to the most recent statistics from the National Highway
    Traffic Safety Administration, more than 35,000 lives were lost in
    crashes on U.S. roadways in 2015, and preliminary estimates indicate a
    10 percent increase in the first half of 2016. It is important to
    highlight that 94 percent of roadway crashes are the result of human
    factors, or simply put, driver error, such as distracted driving--
    sometimes caused by hands-free technology, impaired driving, and
    speeding. These crashes are preventable, and we should do everything we
    can to eliminate them.
        The testing and safe deployment of automated vehicle technologies
    have the potential to reduce substantially the number of driver-related
    crashes and fatalities. Let me emphasize that point: if the technology
    were perfected, automated vehicles could eliminate many of the crashes
    on our Nation's roadways and save thousands of lives every year.
        While fully self-driving autonomous vehicles are still years away
    from being available to the general public, many new vehicles already
    have driver-assist features such as automatic emergency breaking,
    rearview cameras, and lane-keep assist systems. These technologies are
    already saving lives and reducing injuries on our roadways.
        In addition to improving safety, self-driving vehicles can provide
    mobility options to our seniors and disabled populations, particularly
    those living in rural communities like my State of Maine, where many of
    our older drivers currently do not have an easy way to get to the
    doctor or to the grocery store. Public transportation is nonexistent in
    much of Maine, and taxi service is very limited in rural areas. Seniors
    who can no longer drive often have very few options.
        A self-driving car, or even one with limited automated features,
    could help seniors feel more comfortable driving at night and could
    help those who currently must rely on others to get around to maintain
    their independence. A recent survey of drivers over the age of 50
    showed that almost 80 percent of those who plan to buy a car within the
    next 2 years will be seeking automated features such as blind spot
    warning, crash mitigation, and lane departure warning systems. Yet many
    consumers remain wary of purchasing a fully autonomous vehicle anytime
    soon. I know Dr. Kalra will provide us with more insight on the
    potential benefits of automated technologies for our seniors.
        To help accelerate the safe testing and deployment of autonomous
    vehicles, the Department of Transportation released its ``Federal
    Automated Vehicles Policy'' on September 20th, which includes vehicle
    performance guidance, model State policy, an assessment of current
    regulatory tools, and a discussion of future regulatory tools for
    Congressional consideration.
        While this was an important first step, it is clear that D.O.T.'s
    guidance document needs further refinement to help ensure that
    automakers are able to bring the safety and mobility benefits of
    autonomous vehicles into the marketplace without unnecessary government
    regulations. I am particularly interested in hearing from all of our
    witnesses today on what improvements can be made to these guidelines.
        Automobile manufacturers face a number of roadblocks integrating
    autonomous vehicles onto our Nation's roadways. Some have called on the
    Administration to put the brakes on autonomous vehicle deployment by
    imposing onerous requirements through a rulemaking process, which could
    take several years to finalize, stifling innovation in the meantime.
        We must recognize that automated vehicle technology is advancing
    faster than government agencies can act, and in this instance, impeding
    the advancement of technology may prevent us from saving lives. The
    Department's guidance provides a more effective voluntary 15-point
    ``safety assessment'' that incentivizes automakers to certify they have
    addressed all relevant issues ranging from cybersecurity, to human-
    machine interface, to ethical considerations.
        Another challenge facing autonomous vehicles is the vast number of
    State and local governments that are seeking to regulate this
    technology. Unlike vehicle safety, which is governed by Federal law,
    the safety and licensing of drivers are under the jurisdiction of State
    governments. While the Department's guidance deters States from
    interfering with Federal vehicle safety standards, one topic we will
    explore is whether or not D.O.T.'s approach also has the effect of
    encouraging State and local governments to set prohibitive requirements
    related to testing, licensing, and registration for automated vehicle
    testing.
        Given the public's keen interest in automated and self-driving
    vehicles, it is important for State and local governments to take a
    balanced approach in allowing the research, development, safe testing,
    and deployment of automated vehicles. However, one serious accident,
    such as occurred in Florida, can cause mistrust of this new technology,
    and that could lead to greater local restrictions on testing and
    deployment. It is particularly important that D.O.T. work with
    automotive manufacturers, suppliers, and technology companies, as well
    as the commercial end users of automated vehicles, to ensure they are
    operating with an abundance of caution to avoid excessive government
    intervention.
        With that, let me call upon my colleague and friend Senator Reed,
    the ranking member, for his opening statement.
        Senator Collins. With that, let me call upon my colleague
    and friend from Rhode Island, Senator Reed, the ranking member,
    for his opening statement.

                         STATEMENT OF SENATOR JACK REED

        Senator Reed. Thank you very much, Chairman Collins, for
    your leadership on so many issues, but particularly for holding
    this very important hearing on the future of self-driving
    vehicles. Let me join you in welcoming our witnesses. Thank you
    for your service and your expertise.
        Automated and self-driving vehicles are not yet common on
    our roads, but autonomous driving and safety features such as
    automatic emergency brakes and parking assist have been
    introduced gradually over the last several years. Manufacturers
    and innovators are now poised to take transformative leaps in
    the development, integration, and adoption of these
    technologies, and what was once novel is at the brink of
    becoming commonplace.
        As with any change, it brings opportunity as well as risk
    and anxiety. Particularly for the millions of Americans who
    earn a living as American commercial drivers, that is a
    significant issue that we should address. What remains
    unanswered is how this transportation revolution will evolve
    and what steps regulators and industry should take to foster
    and harness the positive aspects of this new technology.
        Today auto manufacturers, ride sharing companies, and other
    investors are funding research and development on driverless
    vehicles. They are also launching pilot programs to gather data
    and introduce consumers to different forms of the technology.
    Uber is allowing customers in Pittsburgh to share rides in
    self-driving cars. Otto, which is a self-driving bus and truck
    company owned by Uber, autonomously delivered commercial goods
    just last month. Tesla is collecting millions of miles of data
    from its semi-autonomous vehicles and announced that it will
    potentially make a full autonomous vehicle starting next year.
    Google has been designing and testing cars with no human driver
    for several years in California. And GM and Lyft have partnered
    to build an autonomous fleet that will be available for ride
    sharing.
        These companies are all using different strategies to
    achieve seemingly different goals. Some seek to provide
    efficient, accessible, and cost-effective transportation
    similar to Transit. Others want to improve freight
    transportation through fleets of autonomous trucks that can
    save gas and operator on the clock. What is clear is that
    technology is fundamentally changing vehicles as we know them.
        This innovation has the potential to dramatically improve
    highway safety, as well as expand mobility access for thousands
    of people, as the Chairman spoke about, seniors particularly.
    And it also has safety features which, as the Chairman
    commented on, are significant. In 2015, more than 35,000 people
    died in crashes on the Nation's highways. The number represents
    an 8 percent increase from the previous year and marked the
    deadliest year on record since 2008. These vehicles might help
    immensely in that regard. NHTSA (National Highway Traffic
    Safety Administration) found that 94 percent of those deaths
    were the result of human error, so autonomous vehicles could be
    a real game changer in this regard.
        We have a responsibility to fulfill this technology's
    promise and foster American innovation. But we also must be
    cognizant of the consequences of these technologies for the
    shifts in the American economy and effects on the American
    worker. Self-driving cars and trucks will certainly demand new
    kinds of jobs and skills, but these jobs may be in different
    sectors of the economy. For millions of Americans, particularly
    those without a college degree or advanced training, driving a
    bus, a cab, or a truck can provide a decent income. In fact,
    for many, it is the ticket to the middle class.
        In the latest year of data available from the Bureau of
    Labor Statistics, there are more than 4 million workers in the
    United States employed as drivers of trucks, taxis, chauffeurs
    or delivery vehicles. All of these are potentially in a space
    where they could be replaced by an autonomous vehicle. So we
    have to make sure that this technology not only enables better
    productivity but that it doesn't disqualify millions,
    literally, of Americans from good, solid jobs.
        We need to think through this policy very thoughtfully.
    This is a broader conversation not involving just the
    technologies but the Department of Labor, policymakers from a
    huge swath of the government, so that we get it right, and we
    get it right for the American workers as well as for the
    technology interest.
        Our regulatory agencies--and the Chairman has made the
    point that it's not just Federal but its State and local--have
    to be harmonized. We have to do this thoughtfully, and that is
    why, again, I commend the Chairman for calling this hearing
    today.
        NHTSA--thank you--recently released a guidance document for
    comment with the intent of promoting technological advancement
    and preventing a patchwork of State regulations. So thank you,
    Administrator Rosekind, for that work.
        There are many questions. When will NHTSA initiate a formal
    rulemaking on self-driving vehicles? When and how will the
    Federal motor vehicle safety standards be updated? How much
    data does NHTSA want to collect from industry and consumers,
    and how will it protect that data from cyber threats?
        We know industry will continue to innovate, deploy, and
    develop these technologies at a faster pace than government can
    respond, and this will present a challenge. We have to
    recognize this up front.
        But again, let me thank you, all of our witnesses for
    participating in our hearing today. I apologize for my Rhode
    Island accent. Other than that, I look forward to the
    testimony. Thank you.
        Senator Collins. Thank you very much, Senator Reed.
        I am going to put all of the witnesses' impressive bios
    into the record so that we can proceed with the testimony since
    I mentioned all of you in my opening statement.
        We will start with the Administrator of the National
    Highway Traffic Safety Administration, known as NHTSA, the
    Honorable Mark Rosekind.
    STATEMENT OF THE HON. MARK ROSEKIND, ADMINISTRATOR,
                NATIONAL HIGHWAY TRAFFIC SAFETY
                ADMINISTRATION
        Mr. Rosekind. Thank you, Chairman Collins, Ranking Member
    Reed, other members of the committee. I really appreciate you
    holding this hearing today and for the opportunity to testify.
        At NHTSA, our mission is to save lives on America's
    roadways. For 50 years, we have carried out that mission by
    writing and enforcing strong regulations to make vehicles
    safer, fighting against drunk-driving, building a national
    consensus about seatbelt use, and so many other efforts that
    have saved hundreds of thousands of lives on America's roads.
        But we have far more work to do, and that work can be
    measured by some alarming numbers that all of you cited
    already. In 2015, we lost 35,092 people on our public roads. At
    NHTSA, we know those are not just numbers. Those are mothers
    and fathers, brothers and sisters, colleagues, co-workers,
    friends. And the problem is that it's all getting worse.
        Last month we announced that roadway fatalities in the
    first half of this year are up over 10 percent, and it is
    against this backdrop that the Department of Transportation,
    under the leadership of Secretary Anthony Foxx, has been
    working so hard on our efforts to accelerate the safe
    deployment of automated vehicle technologies, because while
    automated vehicles carry enormous potential to transform
    mobility and reshape our transportation system, it is truly
    their awesome potential to revolutionize roadway safety that
    has all of us so motivated.
        And there is one more number that helps us explain why, and
    that number is 94. That's the percentage of crashes that can be
    tied back to human choice or error. That's a choice to speed or
    drive drunk, send a text message from behind the wheel, or
    misjudge the stopping distance. That 94 percent represents the
    untold potential of automated vehicle technologies.
        We envision a future where advanced technologies not only
    help reduce crashes but a world with fully self-driving cars
    that hold the potential to eliminate traffic fatalities
    altogether.
        The Federal Automated Vehicles Policy, which the Department
    issued on September 20th, is the world's first comprehensive
    government action to guide the safe and efficient development
    and deployment of these technologies.
        The policy covers four areas: one, vehicle performance
    guidance for automakers, tech companies, researchers, and other
    developers, testers, and deployers of automated vehicle
    technologies; two, a model state policy to build a consistent
    national framework for the testing and operation of automated
    vehicles; three, an exploration of the use of our current
    regulatory tools that can be used to advance these
    technologies; and four, a discussion of possible new tools that
    the Federal Government may need to promote the safe deployment
    of advanced technologies as the industry continues to develop.
        I'd like to share just for a few moments a little bit about
    our approach.
        For 50 years, our traditional approach at NHTSA has largely
    been reactive. NHTSA prescribes safety standards and then
    responds to problems as they arise. A traditional method of
    regulating these new technologies would be to engage solely in
    the rulemaking process, writing new regulations that prescribe
    specific standards and typically take years to take effect. Our
    view is that approach would be slow, it would stymie innovation
    and would stall the introduction of these technologies.
        Our policy takes a very different path, built on proactive
    safety which will better serve both safety and innovation. This
    policy allows us to work with automakers and developers on the
    front end, to ensure there are sound approaches to safety
    throughout the entire development process. This is a new
    approach, and it's going to take some adjustment for everyone
    involved.
        But we are confident that it will help us accomplish two
    goals: first, to make sure that new technologies are deployed
    safely; and second, to make sure that we don't get in the way
    of innovation. Our approach is non-prescriptive. It does not
    tell developers how they must provide safety but instead it
    builds a transparent and proactive approach to ensure that they
    are properly addressing the critical safety areas.
        But that future is not without threats. As President Obama
    wrote when announcing the policy, quote, ``The quickest way to
    slam the brakes on innovation is for the public to lose
    confidence in the safety of new technologies. Both government
    and industry have a responsibility to make sure that doesn't
    happen.''
        It is our view that the best way that we can build that
    public confidence is by working together, showing the public
    that the government is on the side of innovation, and that the
    industry is on the side of safety.
        I submit the balance of my statement for the record, and I
    look forward to taking your questions. Thank you.
        [The statement follows:]
                    Prepared Statement of Hon. Mark Rosekind
        Chairman Collins, Ranking Member Reed, and Members of the
    Committee: Thank you for holding this hearing and inviting me to
    testify. My name is Mark Rosekind, and I am the Administrator of the
    National Highway Traffic Safety Administration, or NHTSA.
        At NHTSA, our mission is to save lives on America's roadways. For
    50 years, we have carried out that mission by writing and enforcing
    strong regulations to make vehicles safer, fighting against drunk
    driving, building a national consensus about seatbelt use, and so many
    other efforts that have saved hundreds of thousands of Americans.
        But we have far more work to do. And that work can be measured by
    some alarming numbers.
        In 2015, we lost 35,092 people on our public roads. At NHTSA, we
    know that is not just a number. Every one of those is a mother or
    father, a son or daughter, a coworker, a friend. In the United States,
    we lose the equivalent of a fully-loaded 747 on our roadways every
    single week.
        And the problem is getting worse. Last month we announced that
    roadway fatalities in the first half of this year are up over 10
    percent.
        It is against this backdrop that the Department of Transportation,
    under the leadership of Secretary Anthony Foxx, has been working so
    hard on our efforts to accelerate the safe deployment of automated
    vehicle technologies.
        Because while automated vehicles carry enormous potential to
    transform mobility, reshape our transportation system and transform our
    economy, it is their awesome potential to revolutionize roadway safety
    that has us so motivated.
        And there is one more number that helps explain why. That number is
    94. That is the percentage of crashes that can be tied back to a human
    choice or error. That's a choice to speed or drive drunk, to send a
    text message from behind the wheel or misjudge the stopping distance.
        And that 94 percent figure represents the untold potential of
    automated vehicle technologies. We envision a future where advanced
    technologies not only help reduce crashes, but also make possible a
    world in which fully self-driving cars hold the potential to eliminate
    traffic fatalities altogether.
        The Department of Transportation views this moment as the cusp of a
    new technological revolution that may transform roadway safety forever.
        The Federal Automated Vehicles Policy, which the Department and
    NHTSA issued in mid-September, is the world's first comprehensive
    government action to guide the safe and efficient development and
    deployment of these technologies. Today, I will discuss that Policy,
    how we developed it, and where we are going next.
        In January of this year, Secretary Foxx made two important
    announcements.
        First, he announced that President Obama was making a $3.9 billion
    budget request for automated vehicles research. This is a major
    commitment from the Administration to advance this technology, and DOT
    continues to strongly support this request.
        Second, he directed NHTSA to write a new policy covering four
    areas: One, vehicle performance guidance for automakers, tech
    companies, researchers and other developers and testers of automated
    vehicle technologies. Two, a model State policy to build a consistent
    national framework for the testing and operation of automated vehicles.
    Three, an exploration of the use of our current regulatory tools that
    can be used to advance these technologies. And four, a discussion of
    possible new tools that the Federal Government may need to promote the
    safe deployment of advanced technologies as the industry continues to
    develop.
        Over the subsequent 9 months, NHTSA hit the road, traveling to
    discuss automated vehicles with industry, academics, State governments,
    safety and mobility advocates, and the public. This Policy is the
    product of that significant input.
        Before discussing the individual components, I would like to share
    a few thoughts about our approach.
        First it is important to understand our traditional approach to
    regulating motor vehicles. For 50 years, our approach has largely been
    reactive. NHTSA has prescribed safety standards, and then responded to
    problems as they arise.
        A traditional approach to regulating these new technologies would
    be to engage solely in rulemaking process, writing new regulations that
    prescribe specific standards. Our view is that approach would stymie
    innovation and stall the introduction of these technologies.
        It would also be a long process. Rulemakings, and the research
    necessary to support them, take years, meaning that any rule we might
    offer today would likely be woefully out-of-date by the time it took
    effect, given the pace of technological development in this space. Let
    me be clear that using the notice-and-comment rulemaking process to
    establish new standards will absolutely play an important role as this
    technology matures and is adopted. But it is not the only tool in our
    bag, and we have created an innovative approach that will better serve
    both safety and innovation in the immediate term.
        Our Policy represents a continuation of the new proactive safety
    approach that we have built at NHTSA under the leadership of Secretary
    Foxx. This Policy allows NHTSA to work with automakers and developers
    on the front end, to ensure that sound approaches to safety are
    followed throughout the entire design and development process. This is
    a new approach, and it's going to take some adjustment for everyone
    involved. But we are confident that it will help us accomplish two
    goals: first, to make sure that new technologies are deployed safely;
    and second, to make sure we don't get in the way of innovation.
        As the Federal regulator with the responsibility of ensuring
    vehicles are as safe as they can possibly be, we play an important role
    on behalf of the American public to ensure that vehicle technologies do
    not present safety threats.
        At the same time, we recognize the great lifesaving potential of
    these new technologies, and want to do everything we can to make sure
    that potential is fully realized and that they are deployed as quickly
    as possible to save as many lives as we can.
        Some people have talked about safety and vehicle automation as on
    the opposite ends of a spectrum, as if there were a trade-off between
    safety and innovation. But at the Department of Transportation, we view
    our role as promoting safety innovation. Our Policy is designed to
    promote the safe and expeditious deployment of new technologies that
    have the potential to reduce crashes and save lives.
        Our approach is not prescriptive. It does not tell developers how
    they must provide safety, but instead it builds a transparent and
    proactive approach to ensure that they are properly addressing the
    critical safety areas.
        Finally, I want to be clear that while this Policy establishes an
    important framework for the development and deployment of automated
    vehicles, it is not the final word. In our view, this Policy is the
    right tool at the right time. It answers a call from industry, State
    and local governments, safety and mobility advocates and many others to
    lay a clear path forward for the safe deployment of automated vehicles
    and technologies.
        But we intend this Policy to evolve over time. That evolution will
    be based on comments we receive from the public, our own experience in
    implementing it over the coming months and years, and, perhaps most
    importantly, based on the rapid evolution of the technology itself. We
    have designed this Policy to be nimble and flexible, to allow us to
    stay at the leading edge of this revolution.
        Before I discuss each component of the Policy, allow me to say a
    few words on definitions.
        First, it is important to note that with this Policy, we are
    officially adopting the SAE International levels of automation, ranging
    from zero to five. The primary focus of the Policy overall is on what
    we refer to as ``highly automated vehicles'', or HAVs. Those are
    vehicles at levels three through five on the SAE level scale, or
    vehicles that--at least in some circumstances--take over full control
    of the driving task. A portion of the first section of the Policy also
    applies to Level 2 vehicle systems, which include advanced driver-
    assistance systems already on the road today.
        The Policy covers all automated vehicles that are designed to
    operate on public roads. That includes personal light vehicles, as well
    as heavy trucks. It even includes vehicles that might be designed to
    not carry passengers at all.
        Finally, I note that most of the Policy is effective immediately.
    We expect that developers and manufacturers of AV technologies will use
    the Policy to guide their safety approach. Some portions of the
    Policy--notably the Safety Assessment Letter in the Vehicle Performance
    Guidance--will become effective following a Paperwork Reduction Act
    process that we expect to be completed within the next few months.`
    Vehicle Performance Guidance for Automated Vehicles
        The first section is the Vehicle Performance Guidance for Automated
    Vehicles. This is guidance for manufacturers, developers and other
    organizations involved in the development of automated vehicles. The
    heart of the Guidance is a 15 point ``Safety Assessment'' that spells
    out the critical safety areas that developers should address for the
    safe design, development, testing and deployment of highly automated
    vehicles prior to the sale or operation of such vehicles on public
    roads.
        The Safety Assessment covers areas such as the operational design
    domain--essentially the where and when an AV is designed to operate
    automatically--fallback conditions, cybersecurity, privacy, and the
    human-machine interface.
        We identified these areas through our extensive consultations with
    industry, academia and advocates as the critical safety issues that
    must be addressed to ensure that automated technologies are safe.
        Critically, the Guidance does not specify how AV developers are
    intended to address the areas. Instead, the Guidance asks developers to
    document their own processes and then provide NHTSA with a Safety
    Assessment letter in which they explain their approach. This process is
    expected to yield a variety of different approaches for every one of
    the areas. That is intentional, and is one of the ways that we are
    preserving and promoting the innovation process. Government does not
    have all the answers, and our view is that the more approaches that
    innovators take to solving these problems, the more likely we are to
    find the best way.
    Model State Policy
        The second section is the Model State Policy. For the last 50
    years, there has been a fairly clear division of responsibility between
    the Federal Government and the States for the oversight and regulation
    of motor vehicles. Generally speaking, it has been the Federal
    Government's responsibility to regulate motor vehicles and equipment
    safety, while the States have regulated drivers and traffic laws.
        That division of responsibility may be less clear in a highly
    automated vehicle world where increasingly the vehicle's automated
    systems become the driver.
        The Model State Policy delineates the Federal and State roles for
    the regulation of these vehicles, and it outlines the approach we
    recommend to States as they consider the regulation of testing and
    operation of automated vehicles on their public roads. Our goal is to
    build a consistent national framework for the development and
    deployment of automated vehicles, so that users can take their vehicles
    across State lines as they can today, and so that developers are
    building toward a single set of standards, rather than 50.
        The Model State Policy confirms that States retain their
    traditional responsibilities for vehicle licensing and registration,
    traffic laws and enforcement, and motor vehicle insurance and liability
    regimes. At the same time, the Policy reaffirms that the Federal
    Government will continue to be responsible for the oversight of vehicle
    safety and design, including automated features.
        The Policy was developed in close coordination with the American
    Association of Motor Vehicle Administrators (AAMVA), individual States
    and other stakeholders. It suggests recommended areas for States to
    consider in the development of their own regulations, including testing
    regimes and registration. It also identifies a number of areas that
    need to be further discussed and developed, including how law
    enforcement will interact with highly automated vehicles, and the
    development of a consistent approach to insurance and liability
    challenges. We also note in the Policy that States do not have to take
    any action at all.
    NHTSA's Current Regulatory Tools
        The third section addresses NHTSA's Current Regulatory Tools. This
    section discusses how NHTSA will use the tools currently at its
    disposal to promote and expedite the safe development and deployment of
    highly automated vehicles.
        The first of those tools discussed is our interpretation authority.
    The current Federal Motor Vehicle Safety Standards generally do not
    contemplate automated vehicle technologies. Therefore, it can sometimes
    be unclear how those standards apply to advanced technologies. In this
    section, we lay out the process by which developers of AV technologies
    can submit interpretation requests to the agency to determine whether
    and how their technologies conform with the standards. The agency also
    commits to a greatly expedited process for reviewing these
    interpretation requests. On simple safety-related interpretation
    requests, we commit to providing answers within 60 days. Compared to
    historical norms, that is lightning speed.
        The second tool discussed is our exemption authority. Congress has
    granted NHTSA the authority to provide exemptions to manufacturers to
    deploy vehicles that do not conform to the Federal Motor Vehicle Safety
    Standards. While these exemptions are admittedly limited--to 2,500
    vehicles for each of 2 years--the Agency views this tool as an
    important way of enabling a manufacturer to put a test fleet on the
    road to gather critical safety data and improve its technologies. The
    Policy similarly commits to an expedited process on simple safety-
    related exemptions, providing an answer within 6 months from the
    application.
        The Agency's broadest power is its ability to write new safety
    standards. While this tool tends to take the longest amount of time--
    usually a period of years--it is the method that will ultimately allow
    for the large-scale deployment of nontraditional vehicle designs and
    equipment under consistent, broadly applicable standards. In addition,
    to the extent that performance-based standards are adopted, this tool
    has the potential to allow for technological innovation while
    maintaining safety.
        In this section, we also highlight that the Agency retains its
    broad defects and enforcement authority. We use that authority to
    investigate any unreasonable risks to safety, and to recall unsafe
    vehicles from the road. The same day NHTSA issued the Policy, we also
    issued an Enforcement Guidance Bulletin that makes clear that the
    Agency's traditional enforcement authorities extend to advanced vehicle
    technologies.
    Modern Regulatory Tools
        The fourth and final section of the Policy discusses Modern
    Regulatory Tools, identifying 12 potential new tools, authorities and
    resources that could aid the safe deployment of new lifesaving
    technologies and enable the Agency to be more nimble and flexible.
        Today's governing statutes and regulations were developed before
    highly automated vehicles were even a remote notion. For that reason,
    current authorities and tools alone may not be sufficient to ensure
    that highly automated vehicles are introduced safely, and to realize
    their full safety promise. This challenge requires NHTSA to examine
    whether the ways in which the Agency has addressed safety for the last
    several decades should be expanded and supplemented.
        The new tools identified in this section include premarket
    approval, expanded exemption authority, imminent hazard authority, new
    research and hiring tools, and others that may better equip the Agency
    in the future as more technologies move from the lab to the road. These
    tools are offered for consideration by policymakers, industry,
    advocates and the public as we move forward.
        One thing we know for certain is that the agency will need
    additional resources as this technology develops and is adopted. I have
    great confidence in the NHTSA team's expertise and ability. But it is
    undeniable that as more automakers move technology from the lab to the
    test track to the road, we will need to make sure our Agency is
    properly resourced to maintain pace.
        We continue to support the President's budget request for more
    research dollars, and are committed to working with you in the coming
    months and years to identify what resources--both in personnel and
    research funding--will be necessary to achieve our mission.
    Next Steps
        Finally, with respect to the Policy, I would like to highlight once
    again that we fully intend this Policy to be the first iteration of
    many to come. The Policy is effective now, and will continue to evolve
    based on feedback and our experience implementing it, and, most
    importantly, to keep pace with innovation. To that end, each section of
    the Policy highlights a series of next steps that we will take to
    implement and improve the Policy over time.
        The first is our solicitation of public input. We are doing that
    through an open comment period that is open now through November 22nd.
    NHTSA is also hosting a series of public workshops that began earlier
    this month on different sections of the Policy. I will note here that
    the full Policy, additional materials, and the portal for public
    comments can be found at www.nhtsa.gov/AV.
        Over the coming months we will be engaging experts to review the
    Policy, issuing further guidance on the Safety Assessment letter, and
    engaging stakeholders across the spectrum to help flesh out other areas
    of the Policy. For example, we will work with law enforcement
    organizations to further the conversation about how AVs will interact
    with the police, and work with industry to build the framework for the
    data sharing discussed in the Vehicle Performance Guidance. We are also
    engaged with other operating modes throughout the Department of
    Transportation, recognizing the roles and responsibilities they play
    with respect to public transit, commercial freight operations, and the
    highway system on which automated vehicles will operate.
        We do not pretend to have answered every question in this Policy,
    and we will continue the conversation with the public about the best
    ways to develop and improve our Policy as we learn more. To that end,
    the Department of Transportation has committed to reviewing and
    updating the Policy annually.
        As I conclude, I want to say a few words about the importance of
    the present moment in history. We have an industry that is rapidly
    developing innovative new technologies. And we have a government that
    is inspired and excited about the future of this technology.
        But that future is not without threats. Bad actors or bad incidents
    could threaten to derail our collective efforts.
        I want to close with the words President Obama used when he
    announced our new Policy in an op-ed in the Pittsburgh Post-Gazette. He
    wrote, ``There are always those who argue that government should stay
    out of free enterprise entirely, but I think most Americans would agree
    we still need rules to keep our air and water clean, and our food and
    medicine safe. That's the general principle here. What's more, the
    quickest way to slam the brakes on innovation is for the public to lose
    confidence in the safety of new technologies. Both government and
    industry have a responsibility to make sure that doesn't happen.''
        It is our strong view that the best way we can build that public
    confidence is by working together, showing the public that the
    government is on the side of innovation and the industry is on the side
    of safety. We encourage you to join with us as we continue to develop
    this Policy and show the American public that their safety is the
    highest priority for all of us.
        Thank you.

        Senator Collins. Thank you very much.
        Ms. Hersman.
    STATEMENT OF HON. DEBORAH HERSMAN, PRESIDENT AND CEO,
                NATIONAL SAFETY COUNCIL
        Ms. Hersman. Chairman Collins, Senator Reed, thank you for
    having me today. I'd like to acknowledge my board chair, Mr.
    John Surma, who is here with me in the audience today.
        Today we have millions of drivers behind the wheel, we
    spend millions of dollars on education and enforcement
    campaigns, but we still lose tens of thousands of people on our
    roadways and experience billions of dollars in economic losses
    as a result of highway crashes. In spite of safer vehicle
    designs and record-setting seatbelt use rates across the
    Nation, operating a motor vehicle remains one of the deadliest
    things that we do every day.
        Compared to other high-income countries, the United States'
    death rate is more than double our counterparts, and it's not
    because we don't have automated vehicles. It's because we
    aren't willing to do the hard things that we know will save
    lives.
        Three to five thousand lives per year would be saved if
    everyone buckled up. Ten thousand lives would be saved if
    nobody drove drunk. Just three technologies that are available
    on cars today--automatic emergency braking, lane departure
    warning, and blind spot detection--if these were all standard
    equipment on cars, 10,000 lives could be saved.
        The AV policy begins an important discussion, and we
    applaud NHTSA and DOT for issuing it. Federal leadership on
    motor vehicle safety is necessary because we can only have one
    level of safety when it comes to our stakeholders and our
    constituents. Your constituents need to be confident that
    vehicles are safe regardless of where they reside.
    Manufacturers need certainty in order to invest in design and
    production, and States do not possess the expertise or the
    resources to replicate design, testing, and reporting programs.
        Further, a patchwork of requirements will result in
    confusion for consumers and increased costs for manufacturers
    and operators attempting to comply with myriad requirements.
        Finally, the absence of a safe, workable standard will
    drive development and testing and deployment overseas,
    resulting in the flight of innovation from the United States
    and the jobs that accompany it to locations outside of our
    borders.
        NSC fully believes that automated vehicles have the
    potential to save lives and prevent injuries, but here are
    several key issues that we recommend that policymakers
    consider.
        Delayed integration into the fleet. It will be a long time
    before highly automated vehicles replace our current fleet. How
    do we ensure rapid acceptance and adoption of lifesaving
    technologies that are available today? Electronic stability
    control paints the picture of the headwinds that we're facing.
        DSRC--also known as V2V, V2I, and V2X--complementary
    technology must be taken into account. We need a belt-and-
    suspenders approach when it comes to highway safety.
        Data sharing in a post-crash event. My experience at the
    NTSB taught me that we must rely on the data for truths. If you
    can't access it, you won't learn the lessons.
        De-identified data. The automotive industry must figure out
    how to balance privacy and proprietary concerns against the
    predictive value of big data. Too many lives are at stake.
    Cooperation will help us unravel unintended consequences and
    identify new failure modes.
        Consumer education. Today, 40 percent of consumers are
    startled by the way that their car has behaved. We will not
    realize the full benefit of technology if we don't keep human
    beings in the loop.
        Lack of common taxonomy and standards. Today, manufacturers
    have multiple names and different performance expectations for
    similar systems. Shouldn't all AEB systems prevent collisions?
        NHTSA resources. We cannot ask NHTSA to do more with less.
    Automated vehicles will require more evaluation, more testing,
    and more expertise than NHTSA possesses today.
        Although we can imagine a future with automated vehicles,
    the transition from Level 1 to Level 5 will be messy as we deal
    with predictable human-machine issues. We cannot afford to
    ignore the carnage on our roadways that is a national epidemic.
    Efforts like Road to Zero will decrease fatalities today,
    tomorrow, and in the future if we embrace proven counter-
    measures and accelerate deployment of effective ADAS
    technologies and highly automated vehicles.
        The National Safety Council appreciates the committee's
    leadership. If safety for the traveling public is the ultimate
    goal, advanced technology provides the most promising
    opportunity to achieve that outcome and will go a long way
    toward eliminating preventable deaths in our lifetime. Thank
    you.
        [The statement follows:]
                Prepared Statement of Hon. Deborah A.P. Hersman
        Chairman Collins, Ranking Member Reed and other members of the
    subcommittee, thank you for inviting me to testify before you today.
    The National Safety Council (NSC) is a 100-year-old nonprofit with a
    vision to end preventable deaths in our lifetime at work, in homes and
    communities and on the road through leadership, research, education and
    advocacy. Our more than 13,500 member companies represent employees at
    more than 50,000 U.S. worksites. For decades we have advocated for
    safer cars, safer drivers and a more forgiving environment in and
    around vehicles. We have led large scale public education campaigns on
    the importance of seatbelts and airbags, eliminating distracted
    driving, and helping consumers understand the technologies in their
    vehicles to reduce deaths and injuries on our roadways. We also educate
    close to 1.3 million drivers a year in Defensive Driving courses.
       national highway traffic safety administration automated vehicles
                                     policy
        The rapid pace of technological advancement means that regulators
    are hard-pressed to keep ahead of industry as manufacturers offer
    systems unheard of just a decade ago. However, NSC believes there are
    appropriate and necessary roles for both innovation by manufacturers
    and regulation by officials charged with ensuring public safety. The
    NHTSA (National Highway Traffic Safety Administration) Federal
    Automated Vehicles Policy (AV policy) is a step in the right direction.
    It provides a framework in which manufacturers can work and States can
    establish appropriate enforcement and oversight, while underscoring
    NHTSA safety authority and recognizing the need for additional tools to
    keep pace in this fast-moving environment. It also provides guidance
    for more uniform Federal oversight rather than a potential patchwork of
    regulations by the States.
        Federal leadership on motor vehicle safety is necessary because
    there should only be ONE LEVEL OF SAFETY. Consumers need confidence in
    vehicles regardless of where they reside; manufacturers need certainty
    in order to invest in design and production, and States do not possess
    the expertise and the resources to replicate design, testing and
    reporting programs. Further, a patchwork of requirements will result in
    confusion for consumers and increased cost for manufacturers and
    operators attempting to comply with a myriad of requirements. Finally,
    the absence of a safe, workable standard will drive development,
    testing and deployment overseas, resulting in the flight of innovation
    and the jobs that accompany it to locations outside of the U.S.
                the lifesaving potential of advanced technology
        NSC believes advanced vehicle technology, up to and including fully
    automated vehicles, can provide many benefits to society. The most
    important contribution will be the potential to greatly reduce the
    number of fatal crashes on our roadways, which are increasing. Every
    day we lose approximately 100 people in motor vehicles crashes, and
    every year more than 4 million people are injured. Beyond the human
    toll, these deaths and injuries cost society over $379 billion,
    including productivity losses, medical expenses, motor vehicle property
    damages and employer costs.\1\
    ---------------------------------------------------------------------------
        \1\ Injury Facts 2016.
    ---------------------------------------------------------------------------
        NSC data reveal that the 19,100 roadway fatalities during the first
    6 months of 2016 are 9 percent higher than the same period last year
    and 18 percent higher than the same period 2 years ago. If we are to
    make a meaningful change in this trend, there must be a sense of
    urgency coupled with large, near term gains to save lives on our
    roadways.

                        Motor Vehicle Deaths on the Rise

    Source: NSC analysis of National Center for Health Statistics (NCHS)
    mortality data and NSC estimate for 2016.

        While the absolute numbers of fatalities change from year to year,
    many of the same behavioral problems remain persistent and have been
    represented in the data for decades. For example, in 2014:
        9,967 people were killed in alcohol-impaired driving crashes \2\
    ---------------------------------------------------------------------------
        \2\ Https://crashstats.nhtsa.dot.gov/Api/Public/Publication/812231.
    ---------------------------------------------------------------------------
        3,179 people were killed in distraction related crashes \3\
    ---------------------------------------------------------------------------
        \3\ Https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/
    812260.
    ---------------------------------------------------------------------------
        9,385 people were killed while unrestrained.\4\
    ---------------------------------------------------------------------------
        \4\ Https://crashstats.nhtsa.dot.gov/Api/Public/Publication/812246.
    ---------------------------------------------------------------------------
        NHTSA estimates that 94 percent of all fatal crashes have an
    element of human error. Therefore, if we are to eliminate or reduce the
    number of fatalities on our roadways, advances in vehicle technology
    must be part of the solution. However, it will likely be decades before
    we have meaningful fleet penetration of fully automated vehicles.
        Last month, the NSC and the National Transportation Safety Board
    (NTSB) hosted a full day event with dozens of expert panelists focused
    on Reaching Zero Crashes: A dialogue on the Role of Advanced Driver
    Assistance Systems (ADAS).\5\ While there is a great deal of excitement
    about highly automated vehicles (HAVs), automated vehicles and their
    potential to save lives, it is important to recognize that many legacy
    technologies represent the building blocks for fully automated
    vehicles. Greater consumer acceptance of the dozens of safety
    technologies that are available today would lead to more rapid adoption
    of them, saving lives and preventing injuries.
    ---------------------------------------------------------------------------
        \5\ Http://www.ntsb.gov/news/events/Pages/2016_dte_RT_agenda.aspx.
    ---------------------------------------------------------------------------
        As an example, Electronic Stability Control (ESC) is a technology
    that uses automatic computer controlled braking of individual wheels to
    help the driver maintain control in risky driving scenarios. ESC
    primarily mitigates single vehicle, loss of control crashes in which
    drivers would run off the road. For passenger cars as well as light
    trucks and vans, it is estimated that ESC systems have saved more than
    4,100 lives during the 5-year period from 2010 to 2014, but
    incorporation into vehicles on the road remains slow.\6\ The following
    charts from the Highway Data Loss Institute (HDLI) reveal how slowly
    ADAS technologies are achieving penetration in the U.S. fleet due to
    normal turnover of inventory--with the average age of cars in the U.S.
    fleet being 11.5 years old.\7\ Electronic stability control has been
    available for decades and was mandated on all new passenger cars by the
    2012 model year, but in 2015 only 40 percent of registered vehicles
    were equipped with ESC. Despite a clear life-saving benefit, full fleet
    penetration of this technology is not predicted until the 2040s.\8\
    ---------------------------------------------------------------------------
        \6\ Https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/
    812277.
        \7\ Http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/
    publications/national_transportation_
    statistics/html/table_01_26.html_mfd.
        \8\ Http://www.ntsb.gov/news/events/Documents/
    2016_dte_RT_p1_p3_moore.pdf.
    ---------------------------------------------------------------------------

       New Vehicle Series With Electronic Stability Control by Model Year
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: HLDI.

     Registered Vehicles With Electronic Stability Control by Calendar Year
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: HLDI.

          Registered Vehicles With Available ESC, Actual and Predicted
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: HLDI.

        ADAS already operate on the roadways today, but more could be done
    to encourage greater fleet penetration. Features like lane departure
    warning systems, blind spot monitoring, adaptive cruise control and
    others help to prevent or mitigate crashes. The cost of these
    technologies is declining and their impact is measurable. According to
    the Insurance Institute for Highway Safety (IIHS), if four current
    technologies--forward collision warning/mitigation, lane departure
    warning/prevention, side view assist/blind spot monitoring, and
    adaptive headlights--were deployed in all passenger vehicles, they
    could prevent or mitigate as many as 1.86 million crashes and save more
    than 10,000 lives per year.\9\ However, front crash prevention,
    commonly referred to as automatic emergency braking, which was an
    option in about half new 2015 model year cars, was in only 8 percent of
    registered cars in 2015.\10\
    ---------------------------------------------------------------------------
        \9\ Http://dx.doi.org/10.1016/j.aap.2010.10.020.
        \10\ Http://www.ntsb.gov/news/events/Documents/
    2016_dte_RT_p1_p3_moore.pdf.
    ---------------------------------------------------------------------------

     Crashes Relevant to 4 Crash Avoidance Systems FARS and GES, 2004-2008
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Source: Insurance Institute for Highway Safety.

        Similar conclusions were reached in a July 2016, Carnegie Mellon
    study which stated that just three technologies--forward collision
    warning, lane departure warning and blind spot monitoring--could have
    prevented or reduced as many as 1.3 million crashes annually and over
    10,000 fatal crashes.\11\ This study further found that almost one
    quarter of all crashes could be affected by these crash avoidance
    systems, but only 2 percent of 2013 model year cars included these
    systems as standard.
    ---------------------------------------------------------------------------
        \11\ Http://dx.doi.org/10.1016/j.aap.2016.06.017.
    ---------------------------------------------------------------------------
        While many of these technologies are available on higher value cars
    or as part of an upgraded technology package today, they are not
    standard equipment on all makes and models. Safety should not be just
    for those who can afford it, especially for technologies that will
    result in thousands of lives saved every year. The Carnegie Mellon
    study estimated that if all light-duty vehicles were equipped with the
    three technologies, they would provide a lower bound annual benefit of
    about $18 billion. With 2015 pricing, it would cost about $13 billion
    to equip all light-duty vehicles with the three technologies, resulting
    in an annual net benefit of about $4 billion or a $20 per vehicle net
    benefit. By assuming all relevant crashes are avoided, the total upper
    bound annual net benefit from all three technologies combined is about
    $202 billion or an $861 per vehicle net benefit, at current technology
    costs.
        NSC recognizes and applauds the voluntary commitment made earlier
    this year by 20 automakers to include automatic emergency braking (AEB)
    on all vehicles sold in the U.S. by 2022. Toyota has already committed
    to beat this date by several years. Given the slow turnover of the
    fleet, we encourage other manufacturers to view the 2022 date as a
    finish line rather than a starting point and accelerate the roll out of
    AEB and other lifesaving technologies.
        Whether mandated or optional, in many cases these systems can
    perform driving tasks more predictably, more conservatively and more
    safely than a human driver, and may act without driver input if a
    driver is distracted, impaired or incapacitated. However, because there
    are no minimum standards for many of these technologies, legitimate
    questions about their effectiveness remain. The line between ADAS and
    highly automated vehicles may be blurred, as we have progressed far
    down the path of advanced features with few questions and widespread
    acceptance of semi-automated features.
                      dedicated short range communication
        Another component of ADAS and automated vehicle systems is
    dedicated short range communication (DSRC), which would allow vehicles
    to communicate over dedicated spectrum bands with each other,
    pedestrians, and infrastructure to prevent collisions. This technology,
    often referred to as V2V (vehicle-to-vehicle), V2I (vehicle-to-
    infrastructure), V2P (vehicle-to-pedestrian), or V2X (vehicle-to-
    everything), is pending a rulemaking decision by NHTSA to establish
    performance standards. NSC encourages NHTSA to release this standard
    soon so that implementation of V2X can be more widespread.
        DSRC can create redundant safety systems in motor vehicles. In
    other modes of transportation, fail-safe designs can support operator
    error, but in highway vehicles that task has fallen solely on drivers.
    DSRC would allow a vehicle to communicate with a red light to
    compensate for a fatigued driver, stop a car to prevent a collision
    with a pedestrian if a driver fails to detect him or her, and prevent
    or mitigate collisions between vehicles equipped with DSRC. DSRC has
    been deployed by some manufacturers, but NSC believes it is an
    important option in a safe systems approach to the design of HAVs and
    anticipates it will be more widely deployed if there is more regulatory
    certainty.
                             education and training
        One component in the AV policy that should be a requirement moving
    forward is the incorporation of driver education and training about new
    safety technologies. With nearly 17.4 million new passenger cars and
    trucks sold in 2015,\12\ understanding the technology on these vehicles
    is necessary, yet a University of Iowa survey found that 40 percent of
    respondents reported they had experienced a situation in which their
    vehicle acted in an unexpected way.\13\ When this occurs in a real-life
    driving situation, among multiple drivers, it can lead to disastrous
    outcomes.
    ---------------------------------------------------------------------------
        \12\ Http://www.autoalliance.org/auto-marketplace/sales-data.
        \13\ University of Iowa. National Consumer Survey of Driving Safety
    Technologies. July 30, 2015. Accessible at http://ppc.uiowa.edu/sites/
    default/files/national_consumer_survey_
    technical_report_final_8.7.15.pdf.
    ---------------------------------------------------------------------------
        The National Safety Council and our research partners at the
    University of Iowa are focused on educating consumers about in-vehicle
    safety technology through our MyCarDoesWhat campaign.\14\ This brand
    agnostic education campaign informs drivers about how safety
    technologies work, how to best interact with them, and how to identify
    situations when the technology may not perform optimally and should not
    be relied upon. Because of the need for continued human involvement in
    the operation of many of these features, the campaign tagline is You
    are your car's best safety feature.
    ---------------------------------------------------------------------------
        \14\ www.mycardoeswhat.org.
    ---------------------------------------------------------------------------
        Visitors to MyCarDoesWhat.org realize improvement in general
    knowledge and accurate comprehension of vehicle safety features.
    Drivers cannot effectively use these life-saving technologies if they
    do not understand both their functions and limitations. The AV policy
    proposes that this education be delivered in multiple ways, including
    computer based, hands-on and virtual reality training, and other
    innovative approaches. The MyCarDoesWhat education campaign follows
    that approach, and is developing virtual reality modules for release
    early next year. Further, we recommend ongoing evaluation to determine
    the effectiveness of the various messages, methods of delivery and
    media so they can be improved over time.
               standardized nomenclature and performance outcomes
        Another way to reduce consumer confusion is to standardize the
    nomenclature or taxonomy for advanced technologies. NSC, the State of
    California, and Consumer Reports have recommended that, at the very
    least, systems that are not completely automated or Level 5 should not
    be described as such. ADAS, with emphasis on driver assist, represents
    the vehicles being sold today and requires drivers to remain fully
    engaged in the driving task. That fact is often lost in marketing,
    media reports and consumer expectations. Labeling a motor vehicle as
    ``autonomous'' today, or even using terms such as ``autopilot'', only
    confuses consumers and can contribute to losses of situational
    awareness around the driving task.
        By establishing standard nomenclature and establishing clear
    performance outcomes, consumers will better understand what they should
    expect from these technologies. For example, vehicles marketed as
    having AEB will not necessarily come to a complete stop before a
    collision.\15\ Some AEB systems only operate at higher speeds, and some
    are designed to slow rather than stop prior to a collision. These
    nuances may not be easily understood by consumers. IIHS reports that
    systems with a warning only, but no automatic corrective action, reduce
    frontal crash rates by about 25 percent, but vehicles with automatic
    braking reduce crashes by more than 40 percent. Vehicles with a warning
    and automatic braking reduce crash rates by about 50 percent.
    Establishing a standardized, results-based, understandable definition
    of AEB and other ADAS technologies would benefit consumers,
    manufacturers, and dealers, as well as organizations that evaluate
    vehicles for their safety benefits.
    ---------------------------------------------------------------------------
        \15\ Http://www.nsc.org/learn/safety-knowledge/Pages/Driver-Assist-
    Technologies.aspx.
    ---------------------------------------------------------------------------
        Finally, the New Car Assessment Program (NCAP) program has operated
    for nearly 40 years with a goal of testing vehicle safety systems and
    educating consumers about them. Practically, it has created a mechanism
    to allow consumers to evaluate vehicles on safety systems. NSC supports
    NCAP and believes it is an important program to improve the safety of
    the motor vehicle fleet. Standardized nomenclature and performance
    outcomes will ensure NCAP can more effectively compare vehicle safety
    systems between manufacturers, and even between a manufacturer's own
    models.
                          data protection and sharing
        The National Safety Council is very bullish on ADAS, and eventually
    fully automated vehicles, because we know when implemented safely and
    properly, they will help us realize huge gains in reducing roadway
    fatalities. But a minimum requirement, if we are to realize the life-
    saving benefits, will be ensuring that we have reliable event data
    recorders that produce data in a standardized format that is
    downloadable for investigators, law enforcement, State highway safety
    offices, insurers and other relevant stakeholders. Following a crash,
    we must be able to answer simple questions like whether the vehicle
    systems or the human driver had control of the car, if and how the
    vehicle was communicating with the driver, and if all systems were
    working as designed.
        The AV policy details the importance of data collection as these
    technologies begin to be tested in real-world scenarios. Understanding
    the circumstances and causes surrounding malfunctions, including at
    lower levels of automation, will help make this technology stronger and
    safer, and ensure failures are less likely to occur as technology
    evolves. This will be especially important in assuring consumers of the
    reliability of ADAS and automated technology. As the former Chairman of
    the NTSB, I believe that minimum parameters should be set for data
    preservation, standardization of formats, ease of access for post-crash
    evaluation, and establishment of privacy protections early in the
    process. Data-sharing programs require greater maturity and a strong
    safety culture committed to continuous improvement.
        Event data recorders (EDRs) are widely used throughout the
    automotive industry in vehicles of all shapes and sizes, yielding
    valuable data in crash reconstruction efforts. Similar devices are used
    in other modes of transportation as well. Amtrak utilizes event data
    recorders that automatically transmit data from locomotive recorders to
    a control center when an event occurs. In the aviation industry, crash-
    hardened ``black box'' data recorders store thousands of parameters of
    data. Much of this information is collected after normal flights and
    analyzed by the operator to learn about and improve operations, and in
    the case of an incident, the data is invaluable to investigators to
    determine what occurred. The same could be true for motor vehicles.
        Missing from the policy, however, is clarification on whether
    lower-level systems (below Level 3) should be subject to the same data
    collection guidelines. The current event data recorder standards do not
    require the majority of Levels 1 and 2 safety systems' sensors be
    tracked.\16\ This lack of information limits real world data
    availability that could guide the future development of these
    technologies to make them safer. Currently, there is no easy way for
    manufacturers, law enforcement, investigators or vehicle owners to
    understand whether deployed systems were active during a crash, whether
    they malfunctioned, or whether they helped mitigate damage or injury or
    returned the car to a safe state in event of a malfunction.
    ---------------------------------------------------------------------------
        \16\ 49 CFR 563.
    ---------------------------------------------------------------------------
        Information sharing is included in the AV policy. However, the
    policy fails to mention the public health argument for collecting data
    from electronic devices in the car in the event of a crash. Acquiring
    an understanding of what happens when systems perform as intended, fail
    as expected, or fail in unexpected ways will yield valuable information
    for manufacturers--some of whom have common suppliers. Further, in-
    service data, as well as near miss and post-crash information sharing,
    can help civil engineers and planners design better and safer roadways,
    as well as help safety and health professionals design better
    interventions to discourage risky driving or affect the behaviors of
    other roadway users.
        De-identified data sharing has been in existence in the aviation
    industry for many years and proven highly successful. The Aviation
    Safety Information Analysis and Sharing (ASIAS) system allows for
    sharing of de-identified data across the aviation industry, making it
    possible for the industry to identify trends and act on them. Analysis
    of de-identified data will provide windows in to leading indicators in
    the motor vehicle industry. Leading indicators are ``proactive,
    preventative and predictive measures that monitor and provide current
    information about the effective performance, activities and processes
    of a . . . system that drive the identification and eliminate or
    control of risks.'' \17\ The NSC Campbell Institute, a leader in
    workplace safety, health and sustainability, states that tracking
    leading indicators allows world-class safety organizations to make
    further improvements to their safety records.\18\
    ---------------------------------------------------------------------------
        \17\ Http://www.thecampbellinstitute.org/file/
    download.php?id=20130925358263a8956de938e7c00
    a2bbbb8413d.
        \18\ Http://www.thecampbellinstitute.org/file/
    download.php?id=2015092336b107f72d10a379134
    af9249d3457ab.
    ---------------------------------------------------------------------------
        The AV policy also suggests that auto manufacturers use EDRs to
    gain a better understanding of how human operators engage with advanced
    technology. This knowledge will allow manufacturers to be nimbler and
    make adjustments in near real time for some systems based on what is
    actually occurring in the driver's seat, rather than making changes
    based on assumptions and estimations that must be accommodated in a
    later model year. Collecting and sharing de-identified data about near
    misses and other relevant problems could also help by aggregating
    useful information for the automotive industry, allowing them to take
    proactive steps based on leading indicators rather than waiting for a
    crash or a series of crashes to occur. Finally, this data would be
    useful to researchers and the safety community in analyzing the safety
    benefits--and potential drawbacks--of these technologies as they
    continue to mature.
        While there are competing priorities regarding protecting personal
    privacy and proprietary systems or designs, NSC believes that safety
    should be the ultimate priority, and that other concerns need to be
    accommodated to prioritize safety. NHTSA should facilitate data sharing
    as widely as possible and require that manufacturers provide
    accessible, standardized data to law enforcement, State highway safety
    offices, investigators, insurers, and/or other relevant stakeholders.
                 american national standards institute standard
        As important as it is for the average consumer to know and
    understand the ADAS and automated technology, there is also work to be
    done on this issue as it relates to the technology and its rollout to
    commercial fleets. As such, NSC is taking a leading role working with
    the American Society of Safety Engineers (ASSE) and a wide array of
    experts in the automotive industry, technology sector, academia and
    fleet management, to develop an ANSI (American National Standards
    Institute) standard to address policies, procedures and management
    processes that will assist in the control of risks and exposures
    associated with the operation of autonomous fleet vehicles on public
    thoroughfares.
    national highway traffic safety administration resources and oversight
                      in the midst of changing technology
        In response to reports of repeated incidents of unintended
    acceleration in Toyota vehicles in 2009-2010, the National Research
    Council Transportation Research Board conducted an investigation into
    whether NHTSA (National Highway Traffic Safety Administration) had
    reached the correct conclusion in its own investigation, as well as to
    produce advice on how to best handle future issues involving the safe
    performance of vehicle electronics. This research resulted in a report,
    released on January 18, 2012.\19\
    ---------------------------------------------------------------------------
        \19\ Http://www8.nationalacademies.org/onpinews/
    newsitem.aspx?RecordID=13342.
    ---------------------------------------------------------------------------
        The Research Council found that while NHTSA's decision to close its
    investigation was justified, it was ``troubling that NHTSA could not
    convincingly address public concerns about the safety of automotive
    electronics.'' More specifically, the Research Council stated that ``to
    respond effectively and confidently to claims of defects in the more
    complex electronic systems . . .  NHTSA will require additional
    specialized technical expertise.'' While they acknowledged it was
    unrealistic to expect NHTSA to hire and maintain these specialized
    personnel in a constantly evolving field, they made a specific
    recommendation that NHTSA establish a standing technical advisory panel
    with members representing a wide array of technical expertise central
    to the design, development, and safety assurance of automotive
    electronics systems.
        With technology advancing as quickly as it is, it is difficult to
    keep up with advances without appropriate resources. Last year, NSC
    supported the administration's NHTSA funding request of $1.1813
    billion, which included $200 million for the Autonomous Vehicle
    Development program. We encourage this Committee and Congress to fully
    fund NHTSA, including requested investments in programs that will
    support the development of ADAS and HAVs. We also recommend that NHTSA
    consider how to best take advantage of existing knowledge by
    establishing an advisory committee or similar mechanism to engage
    experts in the field of advanced technology and automotive electronic
    systems.
                                  road to zero
        On October 5, NSC, NHSTA, the Federal Highway Administration
    (FHWA), and the Federal Motor Carrier Safety Administration (FMCSA)
    announced the Road to Zero (RTZ) Coalition. RTZ is a partnership
    initiative focused on dramatic reductions in roadway fatalities. Over
    80 public and private organizations attended the announcement to learn
    more about committing to a shared vision of zero fatalities on our
    roadways. The first meeting of the coalition will be on December 15.
        The purpose of the Road to Zero Coalition is to (1) encourage and
    facilitate widespread implementation of countermeasures to reduce motor
    vehicle crash deaths in the near term; (2) develop a scenario-based
    vision for zero U.S. traffic deaths in the future; and (3) provide a
    roadmap for policymakers and stakeholders to eliminate traffic deaths.
        NSC is joined on the Steering Group for the Road to Zero Coalition
    by the following organizations: Advocates for Highway and Auto Safety,
    American Association of Motor Vehicle Administrators (AAMVA), American
    Association of State Highway and Transportation Officials (AASHTO),
    Commercial Vehicle Safety Alliance (CVSA), Governors Highway Safety
    Association (GHSA), Institute of Transportation Engineers (ITE),
    Insurance Institute for Highway Safety (IIHS), Intelligent Car
    Coalition, International Association of Chiefs of Police (IACP),
    Mothers Against Drunk Driving (MADD), National Association of State
    Emergency Medical Services Officials (NASEMSO), National Association of
    City Transportation Officials (NACTO), National Association of County
    Engineers (NACE), and the Vision Zero Network.
        On behalf of the Coalition, the NSC will administer a grant program
    to support national non-profit organizations committed to roadway
    safety programs that address the overlaps and gaps between roadway
    users, vehicles and infrastructure. In addition, the Coalition will
    look at engaging others in near term solutions and countermeasures to
    reduce the death toll on our roadways. Finally, we will also provide
    critical input for the development of a future community scenario with
    zero traffic fatalities--an effort to look at the measures, programs
    and technologies will be necessary to reach zero highway fatalities in
    30 years and work back from there. NHTSA, FHWA, FMCSA, and NSC are
    sponsoring the development of the scenario-based vision for zero
    traffic deaths in the U.S. in a 30-year timeframe, and the RAND
    Corporation has been retained to produce the scenario over the next 12-
    18 months. I look forward to briefing this Committee and others in
    Congress on the results of these activities and the efforts of the
    Coalition to reach zero deaths on our roadways.
                                   conclusion
        Today, we have millions of drivers behind the wheel, spend millions
    of dollars on education and enforcement campaigns, and still recognize
    billions in economic loses as a result of crashes. In spite of safer
    vehicle designs and record-setting seat belt use rates across the
    Nation, operating a motor vehicle remains one of the deadliest things
    we do on a daily basis.
        NSC believes fully automated vehicles have the potential to save
    lives and prevent injuries, but--as outlined above--there are several
    key issues that policymakers must address. The AV policy begins this
    discussion, and we applaud NHTSA and DOT for issuing it.
        It will be a long time before HAVs replace our current fleet. The
    transition will likely be messy as we deal with a complex and ever-
    changing Human-Machine interface. There will be an evolution of the
    existing technologies and perhaps a revolution when it comes to new and
    different technologies. We need to be prepared for unanticipated
    consequences and new failure modes.
        Although we can imagine a future with automated vehicles, it will
    be a long and winding road to get to the destination of zero fatalities
    as a result of HAVs. We cannot afford to ignore the carnage on our
    highways that is a national epidemic today. The U.S. trails other
    industrialized countries in addressing highway deaths. Efforts like
    Road to Zero will decrease fatalities today, tomorrow, and in the
    future if we embrace proven countermeasures and accelerate deployment
    of effective ADAS technologies.
        NSC appreciates this Committee's leadership on vehicle technology
    and safe roadway transportation. If safety for the traveling public is
    the ultimate goal, advanced technology provides the most promising
    opportunity to achieve that outcome, and will go a long way toward
    reaching the goal of eliminating preventable deaths in our lifetime.

        Senator Collins. Thank you very much, Ms. Hersman.
        Mr. Brubaker.
    STATEMENT OF HON. PAUL BRUBAKER, PRESIDENT AND CEO, THE
                ALLIANCE FOR TRANSPORTATION INNOVATION
        Mr. Brubaker. Chairman Collins, Ranking Member Reed, and
    members of the subcommittee, on behalf of the Alliance for
    Transportation Innovation, I would like to thank you for the
    opportunity to share our views on the role of government in
    integrating autonomous vehicles onto our Nation's roads.
        The safety and social benefits that can be achieved by
    replacing human drivers with modern sensors and computers are
    too profound not to be encouraged through government policy.
    Yet regulation has failed to keep pace with innovation, and we
    see evidence of a significant gap in understanding of these
    technologies within all levels of government. It's a gap that
    must be bridged so regulators can better understand when it's
    best to lead, follow, or move out of the way.
        We believe the Administration's recently released AV policy
    is a good first step in opening communication channels that can
    help to bridge this gap. We will formally be commenting on this
    policy by the end of the week.
        But despite this disconnect industry and innovators are
    still working hard to integrate the development and deployment
    of autonomous systems and are investing billions of dollars
    with safety top of mind. These technologies are already being
    tested on our roads. In fact, just 3 weeks ago we saw the first
    commercial delivery of a truckload of beer delivered by a self-
    driving tractor trailer. Shortly, some in the auto industry
    will be prepared to offer full self-driving capability to the
    public, and government leaders must ensure that our current
    regulatory approaches do not constrain the development of these
    technologies. Lives depend on it.
        To put a fine point on the subject, human drivers are
    simply killers. Errors in human judgment while at the controls
    of motor vehicles account for more than 90 percent of the car
    crashes that last year killed over 34,000 people in the United
    States and claimed 1.3 million lives around the globe.
        Computers don't get tired. They don't text. They don't
    drink and drive, and they don't get road rage. Networks,
    sensors, maps, computing, artificial intelligence, machine
    learning, and vehicle controls work in concert to detect
    objects, analyze probabilities, consider options, make
    decisions, and take actions, all at the speed of light, and all
    with significantly greater reliability and efficiency than
    humans.
        This capability is improving rapidly, and government needs
    to keep pace or risk undermining the promise of tomorrow by
    applying the regulations of yesteryear. Government cannot
    simply allow itself to be the obstacle to saving lives.
        We hear a lot about these 34,000 fatal crashes and the fact
    that 94 percent of them are caused by human error. But the
    problem with statistics is they numb us with the fact that
    we're talking about people, individual parents, siblings, sons
    and daughters who are suddenly and cruelly taken away from us.
    Sons like Leo Vagias--and his father Teddy is right here behind
    me--and his best friend Sam Cali were killed in a very
    preventable car crash just this past June in New Jersey in a
    scenario that gets repeated too often and claims 96 lives a
    day. It needs to stop, and we have a collective obligation--
    industry, government, and citizens--to accelerate the
    development, testing and deployment of life-saving self-driving
    technologies.
        But this journey to self-driving is complex, and
    integrating these technologies onto our Nation's highways will
    require unprecedented coordination and cooperation among
    industry, government, and citizens. We must win over a
    skeptical public by demonstrating that the underlying
    technologies are effective, safe and secure, and because these
    vehicles are going to operate on our public roadways, we've got
    to ensure that government encourages their safe and responsible
    deployment. Legal liability insurance issues must be addressed,
    and economic impacts and potential social disruption must be
    understood.
        Given these complexities, ATI21.org believes that only
    executive leadership with Congress on this issue will provide
    the necessary national vision, goals, and direction required
    across all sectors of our economy. That is why we recently
    published our National Strategic Framework to Accelerate Life-
    Saving Self-Driving Vehicles. We designed this document to
    develop a pathway to successful integration of autonomous
    vehicles into America's transportation system.
        [The document link follows:]

        Http://www.ati21.org/wp-content/uploads/2016/10/Final-ATI-Strategy-
    Document.pdf.

        One area of emphasis in that framework is data. We believe
    that data is the key to speeding the safe deployment of these
    technologies. That's why we're recommending the creation of a
    National Self-Driving Data Repository. We envision that this is
    a highly secured, trusted, opt-in data repository with a number
    of positive incentives that can be leveraged in a way to
    encourage participation, incentives like indemnification, and
    rapid regulatory approvals. Such a repository will help us
    better understand the level of safety and performance, as well
    as enable us to identify real and emerging potential issues,
    and inform regulators, industry and the public based on near
    real-time data.
        We have shared this national framework with the
    subcommittee and with the Trump transition team, and we're
    available to discuss this in detail.
        [The article link follows:]

        Https://www.washingtonpost.com/local/trafficandcommuting/the-next-
    president-should-make-driverless-cars-a-white-house-priority-group-
    says/2016/10/20/6c548212-9636-11e6-bc79-
    af1cd3d2984b_story.html?utm_term=.3299c046b7aa.

        The convergence of technology and transportation has the
    potential to dramatically improve the safe and efficient
    movement of people and goods. Over the next few years the Trump
    Administration and Congress will have an unprecedented
    opportunity to lead a cooperative effort between industry,
    government, and the public that holds the promise of saving
    lives. We look forward to working with you to advance this
    agenda. Thank you.
        [The statement follows:]
                  Prepared Statement of Hon. Paul R. Brubaker
        Chairman Collins, Ranking Member Reed, and Members of the
    Subcommittee, on behalf of the Alliance for Transportation Innovation
    (ATI21.org), I would like to thank you for the opportunity to share our
    views on integrating autonomous vehicles onto our Nation's roads.
        ATI21.org is a not-for-profit created to accelerate the deployment
    of technologies and innovation that can dramatically improve the safe
    and efficient movement of people and goods. Our members are
    associations, companies, and government and academic entities, as well
    as individuals who are dedicated to our mission.
        The need to accelerate the path to self-driving is not only
    critical to our country's economic future, but also our technological
    standing in the world. The potential safety and social benefits are
    enormous, and we are on the cusp of reliably and safely replacing human
    drivers with technology enabled mobility platforms--self-driving
    vehicles--that will transform how we move people and goods.
        Accelerating development and deployment of self-driving vehicles
    holds the promise of saving tens of thousands of lives every year,
    reducing crash-related injuries, and fundamentally transforming
    personal mobility. As soon as we achieve full self-driving, distracted
    and drunk driving will no longer claim lives; adult children will not
    have to have the conversation with aging parents about taking away
    their car keys; the poor will have access to much more convenient and
    affordable transportation; and the physically and developmentally
    disabled, including my soon to be adult son on the autism spectrum,
    will have access to transportation options. There is no doubt that
    safe, affordable, accessible, and convenient transportation is critical
    for everyone's quality of life.
        While the technologies to enable self-driving are being rapidly
    developed, the desire to get these capabilities to market are
    highlighting profound shortcomings in our national approach to
    regulation. Specifically, the regulatory process is simply not keeping
    up with the pace of innovation. While this is not unique to self-
    driving, the rapid development of autonomous vehicles presents us with
    an opportunity to revisit our regulatory approach and offer reforms
    that are more suitable to the digital age. It is imperative. In this
    case the cost of delay is measured in lost members of our families, of
    pain and suffering, and the denial of economic, health and social
    opportunity for the elderly, disabled and the impoverished.
        That said, in the Obama Administration, Transportation Secretary
    Anthony Foxx and Administrator Mark Rosekind of the National Highway
    Traffic Safety Administration (NHTSA) get it. It is clear that the
    administration has a profound understanding of the critical
    technologies that have rapidly developed during the President's tenure
    and have laid the groundwork for the next administration to propel us
    into the self-driving future. The path will not be easy. There are
    considerable and complex cultural and regulatory barriers that must be
    overcome, and industry, researchers, the public, and government at all
    levels will need to engage and collaborate.
        In late September the Department of Transportation issued its much
    anticipated autonomous vehicle (AV) policy guidance in what we believe
    represented a well-intentioned and thoughtful first-step toward
    ensuring that the Department, and NHTSA specifically, is heading toward
    a more responsive regulatory approach that is more suitable for
    accelerating the safe deployment of highly autonomous vehicles on our
    Nation's roads.
        While these initial guidelines are not perfect, ATI21.org believes
    the Department of Transportation should be commended for recognizing a
    number of critical issues that must become priorities for industry and
    government to safely deploy autonomous vehicles. We also commend the
    Department for its clear willingness to engage with both the
    traditional auto industry and technology sectors. We believe such an
    open and productive dialogue with all interested parties is the first
    step to evolving toward a much more responsive and effective regulatory
    framework than the existing model.
        Specifically, there are several positive provisions included in
    this initial version of the AV policy. First, the Department's 15-point
    safety assessment covers all the major key areas that are critical to
    the safe design of highly autonomous vehicles. Second, the Department
    rightfully asserted its appropriate and exclusive role as the Nation's
    vehicle safety regulator and offered a model policy that can help guide
    States in formulating appropriate regulatory frameworks. Lastly, the
    Department was quite clear that it intended this process to be
    iterative and recognized the need to evolve and even adopt new
    regulatory models that could keep pace with the innovation cycle. We
    believe these are all excellent first steps in developing an
    appropriate regulatory framework.
        There are however two sections of the AV Policy document that gave
    us pause. Specifically, the section on the use of existing regulatory
    tools and the examples given as possible future regulatory approaches
    is no better and potentially worse than the existing tools.
        Although the policy includes language about revising and
    streamlining processes related to interpretations and waivers, we
    believe the underlying Federal Motor Vehicle Safety Standards (FMVSS),
    while arguably effective for traditional motor vehicle design approval,
    will prove to be an unworkable foundation for accelerating the design
    and deployment of highly autonomous vehicles. As was highlighted in the
    March 2016 report by the Volpe National Transportation Research Center,
    there are considerable challenges in applying these standards to SAE
    level 4 and 5 autonomous vehicles.\1,\\2\ For example, the FMVSS makes
    more than 250 individual references to human drivers, and eliminating
    traditional design features such as steering wheels and pedals, which
    can be anticipated in level 4 and 5 vehicles, would violate roughly a
    third of the standards and half of the Series 100 crash avoidance
    requirements.
    ---------------------------------------------------------------------------
        \1\ John A. Volpe National Transportation Systems Center, Review of
    Federal Motor Vehicle Safety Standards (FMVSS) for Automated Vehicles,
    Preliminary Report-March 2016, prepared for the Intelligent
    Transportation Systems Joint Program Office, NHTSA.
        \2\ Levels of driving automation are defined in the SAE
    International Standard J3016. It identifies six levels of driving
    automation from ``no automation'' (0) to ``full automation'' (5), with
    level 4 being ``high'' and Level 5 being ``full.''
    ---------------------------------------------------------------------------
        While we commend the Department for beginning what we believe is a
    long overdue conversation on the need to create a much more responsive
    and timely regulatory approach, we believe the examples offered such as
    pre-approval of designs based on the FAA model or the FDA medical
    device approach are neither particularly efficient nor applicable or
    fitting.
        Data is the key to reforming the regulatory process in a manner
    that will allow the creation of a regulatory approach that is rapid,
    efficient, and effective. Specifically, a central repository for
    collecting, storing, and analyzing all operational and testing data
    from across the industry is necessary to create a responsive regulatory
    environment. Neither the NHTSA nor any existing industry group is
    positioned to perform this task. Consequently, we are recommending the
    establishment of an independent, federally chartered organization to
    securely and confidentially collect and analyze all operational and
    test data from across industry that will include simulation data. By
    collecting real-time data and applying modern analytical methods, we
    are confident that, if properly established, this organization can
    rapidly inform industry and NHTSA of real and potential issues. We
    recommend that this effort be funded from existing dollars. We would be
    happy to consult with the Subcommittee on the specific details of this
    recommendation.
        The second area we would like to highlight in our testimony this
    morning is our call for a National Strategic Framework to Advance Life-
    Saving Self-Driving Vehicles. We created this document calling for
    presidential level leadership on self-driving.
        Accelerating the path to self-driving is an enormously complex
    undertaking that will go beyond the responsibility of the U.S.
    Department of Transportation. While there are major roles and policy
    levers that both the Federal Government as a whole and U.S. Department
    of Transportation can take to accelerate deployment and ensure that
    only safe vehicles make it to market, it is critical that all levels of
    government work together, that industry and the research community
    continues to drive innovation and has a path to market, and perhaps
    most importantly that citizens are informed, engaged and welcoming of
    what will prove to be a major cultural shift.
        Not unlike past transitions to transportation-related innovation,
    success will depend on high levels of cooperation and engagement across
    government, industry, and the public. This was true of steamships,
    railroads, motor vehicles and aviation. The disruptive transition to
    self-driving will require similar coordination, cooperation, and
    support.
        As is true with all disruptive innovation throughout history, we
    can expect to experience both positive and negative effects as we begin
    integrating autonomous vehicles onto the Nation's roads. It is critical
    that we thoughtfully consider the obvious consequences, both good and
    bad, that will undoubtedly arise from our transition from what we refer
    to as the ``crash economy'' to a new mobility paradigm.
        As I mentioned earlier, the major reason for making this transition
    is to save lives and reduce injuries. Last year, over 35,000 Americans
    died in car crashes. This year that number is expected to climb and may
    exceed 40,000. Millions more are injured including many with life-
    changing debilitating injuries. We know that crashes cost the U.S.
    economy almost $1 trillion annually. Let us be clear, we would not
    tolerate such cost and carnage in any other mode of transportation, and
    now, the tools are arriving to make these tragedies preventable.
        Autonomous features and ultimately self-driving vehicles hold
    promise to dramatically reduce fatalities and injuries as NHTSA
    estimates that more than 94 percent of these crashes are the result of
    human error. We simply should not allow more than 90 of our fellow
    citizens to die every day when we can create the conditions to prevent
    it. The sooner we fully integrate autonomous vehicles onto our
    highways, the sooner we will realize a dramatic reduction in the number
    of preventable fatalities and injuries.
        Getting this transition right will not be easy. Moving from the
    crash economy to a dramatically safer, accessible, affordable, and
    convenient mobility paradigm is a complex undertaking requiring
    unprecedented cooperation and coordination among industry,
    associations, and research and government institutions at all levels.
        We believe such an effort will require presidential leadership and
    that the incoming administration and Congress should work in concert to
    create the conditions necessary to accelerate the development, testing,
    and deployment of these capabilities as well as proactively address
    some of the anticipated consequences of transition.
        At ATI21.org, we announced the publication of our initial framework
    for accelerating the deployment of self-driving vehicles last month.
    The framework is not a prescriptive list of recommended actions but
    rather an outline of key challenges areas that must be addressed in
    order to accelerate the integration of autonomous vehicles on our
    Nation's highways.
        Between now and Inauguration Day, we will be soliciting reaction to
    the challenge areas and hosting a series of expert panels to explore
    and produce recommendations on each challenge area. We intend to update
    the framework based on panel input and host a final review and input
    session for the entire document on January 4th with the Consumer
    Technology Association in advance of the Consumer Electronics Show.
        In short, ATI21.org is calling for a National Strategy to Advance
    Self-Driving (NSAS) and urging the next president to issue an executive
    order that would describe the challenges and create a Program
    Management Office (PMO) within the Office of Science and Technology
    Policy (OSTP). We recommend funding the activity as a government-wide
    technology initiative through existing Office of Management and Budget
    (OMB) authority under a provision in the Clinger-Cohen Act. The PMO
    would operate under a 4-year charter to collaborate with relevant
    stakeholders, assemble experts, develop outcome-focused and actionable
    strategies, and identify funding streams to address each of the
    challenge areas.
        We have identified the following challenge areas:
      --Earning public trust
      --Increasing confidence in self-driving technology
      --Ensuring robust cybersecurity
      --Developing standards and regulations that encourage self-driving
      --Creating the legal, liability, and insurance framework for
            accelerating the deployment of self-driving vehicles
      --Adopting reasonable data and privacy policies
      --Accelerating the transition to a fully self-driving fleet
      --Understanding and planning for economic disruption and labor
            transition
        As we say in the framework, accelerating the path to self-driving
    will not be easy. The incoming president by leading us though this
    ambitious effort early in the new term can ensure dramatic progress
    toward creating a new mobility paradigm that will create safe,
    convenient, resilient, and accessible transportation options to all
    Americans regardless of their ability, age, or economic condition.
    ATI21.org believes this is a transportation legacy that we can be proud
    to leave to future generations.
        In the coming months, we look forward to working with the
    Subcommittee and Congress to work on creating the conditions necessary
    to speed integration of autonomous vehicles on the Nation's highways.
        Thank you. I look forward to answering your questions.

        Senator Collins. Thank you.
        Dr. Kalra.

    STATEMENT OF DR. NIDHI KALRA, CO-DIRECTOR, RAND CENTER
                FOR DECISION MAKING UNDER UNCERTAINTY

        Dr. Kalra. Chairman Collins, Ranking Member Reed, members
    of the subcommittee, thank you for the opportunity to testify
    today on the future of autonomous vehicles.
        My name is Nidhi Kalra, and I'm an Information Scientist at
    the RAND Corporation. RAND is a non-profit, non-partisan
    research institution committed to improving public policy
    through objective research and analysis. I have a Ph.D. in
    robotics and have been studying autonomous vehicles for 10
    years. And in the interest of full disclosure, my spouse is the
    co-founder of an autonomous vehicle start-up in Silicon Valley,
    though his work has no bearing on my testimony, or vice-versa.
        Now, there are three issues I'd like to discuss today, the
    safety of autonomous vehicles, their benefits for mobility, and
    the urgency of addressing distortions in the transportation
    market so we can harness their benefits and mitigate their
    drawbacks.
        So first let's talk about safety. Will autonomous vehicles
    be safe before they're allowed on the road for consumer use? We
    may not know. Real-world driving is currently the only method
    of demonstrating their safety. But suppose a fleet of
    autonomous vehicles has a 20 percent lower fatality rate than
    human drivers. They would have to be driven 5 billion miles to
    prove it, and a fleet of test vehicles, 100 test vehicles would
    have to be driven 225 years to cover this distance. It's
    impossible if we ever want them on the road for consumer use.
        But now let's consider two things. First, Americans as a
    whole drive more than this every day. We drive 8 billion miles
    every day. So once autonomous vehicles are widely deployed for
    consumer use, we may know very quickly how safe they are. And
    consider that autonomous vehicles will improve over time. So
    when a human driver makes a mistake, only that person, at best,
    is able to learn from the experience, but that's not with
    autonomous vehicles. When one vehicle makes a mistake or has an
    experience on the road, that information can be used to improve
    the entire fleet.
        So experience may be one of the most important tools for
    both demonstrating and improving autonomous vehicle safety. So
    I think an important question is how do we enable autonomous
    vehicles to get experience while mitigating the safety risks
    they pose? And I suggest two things--strategic pilot studies
    and data sharing--that can help.
        Pilot studies could start with real-world testing in lower-
    risk conditions like operating vehicles in well-maintained
    areas and at low speeds, and then could be expanded as safety
    is demonstrated.
        As for data sharing, developers are already using the
    experiences of one vehicle to improve their fleet, but data
    sharing across the industry could mean that the experiences of
    every vehicle can improve the entire industry.
        Second, let's talk about mobility. Autonomous vehicles
    could improve mobility for millions of Americans who are
    elderly, young, have disabilities, or live in poverty. But
    policies may be needed to make them affordable, available, and
    accessible. Policymakers can incentivize developers to bring
    these technologies to those markets sooner than they might
    otherwise, or to integrate them with transit and para-transit.
    Policymakers may need to work with developers to help make sure
    they're accessible, meaning that they comply with ADA
    guidelines and use different forms of payment, for example.
        And while the cost of shared autonomous vehicles is
    expected to be low, policymakers could extend transit and para-
    transit reduced fares to these other technologies to make them
    all the more affordable for these vulnerable populations.
        Third, let's talk about market distortions. Autonomous
    vehicles could also significantly affect traffic congestion,
    energy pollution and land use, maybe for the better, but maybe
    for the worse. So to harness their benefits and mitigate their
    drawbacks, policymakers should address the existing distortions
    in the transportation market that lead to undesirable outcomes
    and subsidize desirable outcomes.
        Now, there are many policy options to address distortions,
    like strengthening the auto insurance market to encourage
    safety, implementing congestion pricing to reduce congestion,
    and offering rebates for fuel-efficient vehicles to reduce
    pollution.
        Now, I can't today give each policy the discussion it
    warrants, but now is the time to address these distortions,
    because autonomous vehicles could improve our transportation
    system tremendously if the right market signals are in place.
    And there is currently a window of opportunity to send those
    new market signals because consumer expectations about
    autonomous vehicle performance and cost aren't yet set.
        So, let me conclude. In the 1990s, we couldn't forecast the
    impact that the Internet has now had. Similarly, today we can't
    forecast the impact that autonomous vehicles will have on our
    future, but we can shape that future, and I would like to leave
    you with two recommendations.
        First, as I noted, widespread experience may be the key to
    figuring out both how safe autonomous vehicles are and how they
    get better. So it's important to get them that experience as
    safely as possible.
        And second, correcting market distortions will be critical
    to encouraging better outcomes for our transportation system
    and for our society.
        Chairman Collins, Ranking Member Reed, and members of the
    subcommittee, thank you for allowing me to appear before you
    today, and I look forward to your questions.
        [The statement follows:]
                     Prepared Statement of Dr. Nidhi Kalra
        Chairman Collins, Ranking Member Reed, and distinguished members of
    the subcommittee, my name is Nidhi Kalra of the RAND Corporation.\1\
    Thank you for the opportunity to testify on important emerging
    opportunities and risks related to autonomous vehicles. Autonomous
    vehicles have the potential to change transportation profoundly, in the
    United States and around the world. There is much opportunity for
    improvement, but also potential for added risks and harms. How
    autonomous vehicles ultimately shape our future is not foretold; it
    depends on many technology and policy choices we make today.
    ---------------------------------------------------------------------------
        \1\ The RAND Corporation is a research organization that develops
    solutions to public policy challenges to help make communities
    throughout the world safer and more secure, healthier and more
    prosperous. RAND is nonprofit, nonpartisan, and committed to the public
    interest.
    ---------------------------------------------------------------------------
        Today, I would like to discuss three important questions about the
    future of autonomous vehicles and how policies can shape it. First,
    will autonomous vehicles be safe before they are allowed on the road
    for consumer use? Second, how can autonomous vehicles improve mobility
    for Americans who currently may have limited mobility? Third, what
    mechanisms can help realize the benefits and mitigate the drawbacks of
    autonomous vehicles? I will focus most of my remarks on fully
    autonomous vehicles--those that can operate without a human driver some
    or all of the time--rather than on vehicles that require continuous
    human oversight.
     will autonomous vehicles be safe before they are allowed on the road
                               for consumer use?
        In the United States, roughly 32,000 people are killed and more
    than 2 million are injured in motor vehicle crashes every year.\2\
    Although safety has generally improved over the past several decades,
    2015 saw 35,000 road fatalities, the largest increase in fatalities in
    this country in more than 50 years. This occurred partly because
    Americans drove more and partly because they drove worse.
    ---------------------------------------------------------------------------
        \2\ Bureau of Transportation Statistics, Motor Vehicle Safety Data,
    Table 2-17, Washington, D.C.: Research and Innovative Technology
    Administration, U.S. Department of Transportation, 2015.
    ---------------------------------------------------------------------------
        U.S. motor vehicle crashes as a whole can pose enormous economic
    and social costs--more than $800 billion in a single year.\3\ And more
    than 90 percent of crashes are caused by human errors,\4\ such as
    driving too fast and misjudging other drivers' behaviors, as well as
    alcohol impairment, distraction, and fatigue.
    ---------------------------------------------------------------------------
        \3\ Lawrence Blincoe, Ted R. Miller, Eduard Zaloshnja, and Bruce A.
    Lawrence, The Economic and Societal Impact of Motor Vehicle Crashes
    2010 (Revised), Washington, D.C.: National Highway Traffic Safety
    Administration, DOT HS 812 013, 2014, revised May 2015.
        \4\ National Highway Traffic Safety Administration, Traffic Safety
    Facts, A Brief Statistical Summary: Critical Reasons for Crashes
    Investigated in the National Motor Vehicle Crash Causation Survey,
    Washington, D.C.: National Center for Statistics and Analysis, U.S.
    Department of Transportation, DOT HS 812 115, February 2015.
    ---------------------------------------------------------------------------
    Autonomous Vehicles Present Benefits and Risks to Safety
        Autonomous vehicles have the potential to significantly mitigate
    this public safety crisis by eliminating many of the mistakes that
    human drivers routinely make.\5\ To begin with, autonomous vehicles are
    never drunk, distracted, or tired; these factors are involved in 41
    percent, 10 percent, and 2.5 percent, respectively, of all fatal
    crashes.\6\ Autonomous vehicles could perform better than human drivers
    because of better perception (e.g., no blind spots), better
    decisionmaking (e.g., more-accurate planning of complex driving
    maneuvers), and better execution (e.g., faster and more-precise control
    of steering, brakes, and acceleration).
    ---------------------------------------------------------------------------
        \5\ James M. Anderson, Nidhi Kalra, Karlyn D. Stanley, Paul
    Sorensen, Constantine Samaras, and Oluwatobi A. Oluwatola, Autonomous
    Vehicle Technology: A Guide for Policymakers, Santa Monica, Calif.:
    RAND Corporation, RR-433-2-RC, 2014; and Daniel J. Fagnant and Kara
    Kockelman, ``Preparing a Nation for Autonomous Vehicles: Opportunities,
    Barriers and Policy Recommendations,'' Transportation Research Part A:
    Policy and Practice, Vol. 77, July 2015, pp. 167-181.
        \6\ National Highway Traffic Safety Administration, Traffic Safety
    Facts: Crash Stats, Washington, D.C.: National Center for Statistics
    and Analysis, DOT HS 811 449, March 2011; Bureau of Transportation
    Statistics, Occupant and Non-Motorist Fatalities in Crashes by Number
    of Vehicles and Alcohol Involvement (Updated July 2014), Table 2-20,
    Washington, D.C.: U.S. Department of Transportation, 2014; and U.S.
    Department of Transportation, Fact Sheet: Enhanced Mobility of Seniors
    and Individuals with Disabilities Section 5310, Washington D.C., 2015.
    This does not mean that 53.5 percent of all fatal crashes are caused by
    these factors because a crash may involve, but not be strictly caused
    by, one of these factors, and because more than one of these factors
    may be involved in a single crash.
    ---------------------------------------------------------------------------
        However, autonomous vehicles might not eliminate all crashes. For
    instance, inclement weather and complex driving environments pose
    challenges for autonomous vehicles, as well as for human drivers, and
    autonomous vehicles might perform worse than human drivers in some
    cases.\7\ There is also the potential for autonomous vehicles to pose
    new and serious crash risks--for example, crashes resulting from cyber
    attacks.\8\ Clearly, autonomous vehicles present both enormous
    potential benefits and potential risks to transportation safety.
    ---------------------------------------------------------------------------
        \7\ Lee Gomes, Hidden Obstacles for Google's Self-Driving Cars:
    Impressive Progress Hides Major Limitations of Google's Quest for
    Automated Driving, Massachusetts Institute of Technology, August 28,
    2014.
        \8\ Anderson et al., 2014.
    ---------------------------------------------------------------------------
        When the National Highway Traffic Safety Administration released
    much-anticipated guidelines intended to outline best practices for
    autonomous vehicle safety, many looked to that guidance to answer the
    key question: Will autonomous vehicles be safe? I believe the answer is
    ``maybe.'' Answering the question requires considering two issues.
    First, how should autonomous vehicle safety be measured, and second,
    what threshold of safety should be required before autonomous vehicles
    are made publicly available? In essence, what test do autonomous
    vehicles have to take and what constitutes a passing grade? Both are
    genuinely open questions, so it is understandable that Federal
    guidelines have not yet answered them.
    There Is No Proven, Feasible Way to Determine Autonomous Vehicle Safety
        There are no road tests that could demonstrate how safe an
    autonomous vehicle is--there are too many conditions and scenarios to
    test them all. (A road test that a person takes at the Department of
    Motor Vehicles also does not prove that he or she will be a good
    driver; rather, the road test determines whether the person can perform
    a specific set of driving skills under regular traffic situations.
    While this type of evidence is viewed as adequate for licensing human
    drivers, it is not generally viewed as adequate for robot drivers.)
        A logical alternative is to test-drive autonomous vehicles
    extensively in real traffic and observe their performance before making
    them commercially available. Although this is a helpful first step, it
    is not sufficient to prove safety. Even though the number of crashes,
    injuries, and fatalities from human drivers is high, the rate of these
    failures is low in comparison with the number of miles that people
    drive. Americans drive nearly 3 trillion miles every year.\9\ The
    35,092 fatalities and 2.44 million injuries in 2015 correspond to a
    failure rate of 1.12 fatalities and 78 injuries per 100 million miles
    driven. Given that current traffic fatalities and injuries are rare
    events compared with vehicle miles traveled, fully autonomous vehicles
    would have to be driven hundreds of millions of miles and sometimes
    hundreds of billions of miles to demonstrate their reliability in terms
    of fatalities and injuries. Under even aggressive testing assumptions,
    existing fleets would take tens and sometimes hundreds of years to
    drive these miles--an impossible proposition if the aim is to
    demonstrate their performance prior to releasing them on the roads for
    consumer use.\10\ And, in the meantime, human drivers would continue to
    cause avoidable crashes and enormous harms to people and property.
    ---------------------------------------------------------------------------
        \9\ Bureau of Transportation Statistics, 2015.
        \10\ Nidhi Kalra and Susan M. Paddock, Driving to Safety: How Many
    Miles of Driving Would It Take to Demonstrate Autonomous Vehicle
    Reliability? Santa Monica, Calif.: RAND Corporation, RR-1478-RC, 2016.
    ---------------------------------------------------------------------------
        Developers of this technology and third-party testers need to
    develop innovative methods of demonstrating safety and reliability.
    These methods may include but are not limited to accelerated
    testing,\11\ virtual testing and simulations,\12\ mathematical modeling
    and analysis,\13\ scenario and behavior testing,\14\ and pilot
    studies,\15\ as well as extensive focused testing of hardware and
    software systems. This is a rapidly growing area of research and
    development. There are promising ideas but no demonstrated and accepted
    methods of proving safety. In sum, no one yet knows how autonomous
    vehicles should be tested. It is therefore reasonable that the current
    Federal guidelines have not specified a test either.
    ---------------------------------------------------------------------------
        \11\ Wayne B. Nelson, Accelerated Testing: Statistical Models, Test
    Plans, and Data Analysis, Hoboken, N.J.: John Wiley & Sons, 2009.
        \12\ Suren Chen and Feng Chen, ``Simulation-Based Assessment of
    Vehicle Safety Behavior under Hazardous Driving Conditions,'' Journal
    of Transportation Engineering, Vol. 136, No. 4, 2010, pp. 304-315;
    Siddartha Khastgir, Stewart A. Birrell, Gunwant Dhadyalla, and Paul A.
    Jennings, ``Development of a Drive-In Driver-in-the-Loop Fully
    Immersive Driving Simulator for Virtual Validation of Automotive
    Systems,'' paper presented at IEEE 81st Vehicular Technology
    Conference, Glasgow, Scotland, May 11-14, 2015; and Stephanie Olivares,
    Nikolaus Rebernik, Arno Eichberger, and Ernst Stadlober, ``Virtual
    Stochastic Testing of Advanced Driver Assistance Systems,'' in Tim
    Schulze, Beate Muller, and Gereon Meyer, eds., Advanced Microsystems
    for Automotive Applications 2015: Smart Systems for Green and Automated
    Driving, New York: Springer, 2015.
        \13\ Khashayar Hojjati-Emami, Balbir Dhillon, and Kouroush Jenab,
    ``Reliability Prediction for the Vehicles Equipped with Advanced Driver
    Assistance Systems (ADAS) and Passive Safety Systems (PSS),''
    International Journal of Industrial Engineering Computations, Vol. 3,
    No. 5, 2012, pp. 731-1742; and R. Kianfar, P. Falcone, and J.
    Fredriksson, ``Safety Verification of Automated Driving Systems,'' IEEE
    Intelligent Transportation Systems Magazine, Vol. 5, No. 4, Winter
    2013, pp. 73-186.
        \14\ California Department of Motor Vehicles, Express Terms Title
    13, Division 1, Chapter 1 Article 3.7--Autonomous Vehicles, 2015; and
    Michael Sivak, and Brandon Schoettle, Should We Require Licensing Tests
    and Graduated Licensing for Self-Driving Vehicles? University of
    Michigan: Transportation Research Institute, Technical Report UMTRI-
    2015-33, 2015.
        \15\ ANWB, Experiments on Autonomous and Automated Driving: An
    Overview 2015, 2015.
    ---------------------------------------------------------------------------
    There Is No Consensus on How Safe Autonomous Vehicles Should Be
        The second issue of how safe autonomous vehicles should be is worth
    considering, even if their degree of safety cannot yet be fully proven.
    Some will insist that anything short of totally eliminating risk is a
    safety compromise. They might feel that it is acceptable if humans make
    mistakes, but not if machines do. But, again, waiting for autonomous
    vehicles to operate perfectly misses opportunities to save lives
    because it leaves far-from-perfect human drivers behind the wheel.
        It seems sensible that autonomous vehicles should be allowed on
    America's roads when they are judged safer than the average human
    driver, allowing more lives to be saved and sooner while still ensuring
    that autonomous vehicles do not create new risks. An argument can be
    made that autonomous vehicles could be allowed even when they are not
    as safe as average human drivers if developers can use early deployment
    as a way to rapidly improve the vehicles. The vehicles could become at
    least as good as the average human sooner than they would otherwise,
    and thus save more lives overall.
        The lack of consensus on this point is not a failure of sound
    thinking. It is not a failure at all, but rather a genuine expression
    of Americans' different values and beliefs when it comes to humans
    versus machines. It is therefore reasonable that the Federal guidelines
    also do not draw a line in the sand.
        While these are difficult decisions, our differences in values and
    beliefs can be informed by thinking not only about safety today but
    also about the arc of safety in the coming decades. Our discourse on
    the question of how safe the vehicles need to be focuses on the safety
    of autonomous vehicles at the time that they are first introduced for
    consumer use. But this thinking should be expanded to consider the
    evolution of autonomous vehicle safety over time, not just at the start
    of vehicle deployment. When a human driver makes a mistake on the road,
    typically only that individual can learn from that experience to
    improve his or her driving habits. The other drivers on the road are
    largely unaffected. This is not the case with autonomous vehicles,
    which can use experience and learning to improve performance, not just
    of the individual vehicle but of the entire fleet. This is because,
    when an algorithm or software is updated and improved for one vehicle,
    it can be updated for all vehicles. For this reason, experience may be
    one of the most important tools for improving autonomous vehicle safety
    and, by extension, transportation safety.
    Policymakers Can Promote Autonomous Vehicle Safety
        This raises an important question: How do we enable autonomous
    vehicles to improve as quickly as possible while lowering the risks
    they pose? There are several tactics policymakers could consider to
    accelerate autonomous vehicles' improvement.
        A first step is to conduct real-world but lower-risk pilot studies
    of autonomous vehicles. Risk can be lowered first by operating
    autonomous vehicles in conditions in which crashes are less likely.
    This can include limiting autonomous vehicle pilots to areas with less-
    complex terrain, to routes that are well maintained and easier to
    navigate, to nondangerous weather conditions, or to some combination of
    these controls. It can also include educating communities about safe
    behavior in and around autonomous vehicles. Furthermore, risk can be
    lowered by designing and operating vehicles so that when crashes occur,
    the consequences of the crash to passengers and bystanders are fewer.
    This could be accomplished by limiting vehicle speed, ensuring that all
    pilot-study passengers wear seatbelts, and so forth. These
    strategically limited pilot studies can then be expanded as safe
    operation of autonomous vehicles is demonstrated.
        A second consideration is the role of sharing driving data across
    the industry and with policymakers. Autonomous vehicle developers
    already use the experiences of a single vehicle to improve the safety
    of their individual fleets. This improvement could occur even faster if
    the experiences of each vehicle in each fleet could be used across all
    developers to improve the entire industry. There are certainly
    nontrivial concerns about protecting trade secrets, but these concerns
    could be addressed and must be balanced with the societal need for safe
    autonomous vehicle technology.
        In sum, it may not be possible to know what the safety risk of
    autonomous vehicles is, and Americans may not agree on what it should
    be. All the same, there are ways of lowering that risk that deserve
    careful consideration.
        how can autonomous vehicles improve mobility for americans who
                      currently may have limited mobility?
        For almost all Americans, the ability to get around is essential
    for living a rich, productive, and healthy life: being able to get to a
    place of work, to visit friends and family, to access healthcare and
    other services, to participate in civic activities, and to be connected
    to the external world in all other ways. Even with the increasing
    ability to interact and transact online, the importance of mobility in
    today's world remains vital. Despite its importance, many Americans
    have limited, and sometimes very limited, mobility as a result of
    advanced age, disabilities, or lack of means. Whatever the reason,
    limited mobility has significant negative consequences. Autonomous
    vehicles could help.
    Autonomous Vehicles Could Help Many Older Americans Who Face Limited or
            Declining Mobility
        The experiences of older Americans, especially those over 75, are
    emblematic of the challenges of limited mobility. The number of
    Americans 65 and older will increase from 48 million in 2015 (15
    percent of today's population) to 74 million in 2030 (23 percent of the
    population). The number of Americans 75 and older will increase from 20
    million in 2014 (6 percent of today's population) to 35 million in 2030
    (10 percent of the population.) \16\ Older Americans are living longer
    and working longer than ever before. The labor force participation of
    those over 65 is expected to be 21.7 percent in 2024, up from 12.4
    percent in 1994.\17\
    ---------------------------------------------------------------------------
        \16\ U.S. Census Bureau, Projections of the Population by Sex and
    Age for the United States: 2015 to 2060 (NP2014-T9), spreadsheet,
    December 2014. As of November 8, 2016: http://www.census.gov/
    population/projections/files/summary/NP2014-T9.xls.
        \17\ Bureau of Labor Statistics, ``Civilian Labor Force
    Participation Rate by Age, Gender, Race, and Ethnicity,'' web page,
    December 2015. As of November 8, 2016: http://www.bls.gov/emp/
    ep_table_303.htm.
    ---------------------------------------------------------------------------
        Driving is important to their quality of life. Of adults over 65,
    80 percent live in car-dependent areas and 90 percent say they intend
    to age in place.\18\ Eighty-five percent of adults aged 65 to 84 hold
    licenses, and almost 60 percent of adults over 85 hold licenses.\19\
    ---------------------------------------------------------------------------
        \18\ David Dudley, ``The Driverless Car Is (Almost) Here,'' AARP
    The Magazine, December 2014/January 2015. As of November 8, 2016:
    http://www.aarp.org/home-family/personal-technology/info-2014/google-
    self-driving-car.html.
        \19\ Policy and Governmental Affairs Office of Highway Police
    Information, ``Distribution of Licensed Drivers--2014 By Sex and
    Percentage in Each Age Group and Relation to Population,'' web page,
    U.S. Department of Transportation, September 2014. As of November 8,
    2016: https://www.fhwa.dot.gov/policyinformation/statistics/2014/
    dl20.cfm.
    ---------------------------------------------------------------------------
        Driving is risky for many older Americans. A recent study found
    that, when compared with drivers aged 55 to 64, drivers over 75 were
    more than 2.5 times as likely to die in a car crash, and drivers over
    85 were almost four times as likely.\20\ This is due both to increased
    likelihood of getting into crashes and greater vulnerability to
    injuries.
    ---------------------------------------------------------------------------
        \20\ AAA Foundation for Traffic Safety, ``Drivers Over 65 Almost
    Twice as Likely as Middle-Aged Drivers to Die in Car Crashes, According
    to AAA Foundation Study,'' February 18, 2004. As of November 8, 2016:
    https://www.aaafoundation.org/sites/default/files/DriversOver65.pdf.
    ---------------------------------------------------------------------------
        But giving up driving has risks as well. Driving cessation almost
    doubles the risk of increased depressive symptoms and is correlated
    with (though not strictly a cause of) cognitive, social, and physical
    declines and higher rates of entry into long-term care.\21\
    ---------------------------------------------------------------------------
        \21\ Stanford Chihuri, Thelma J. Mielenz, Charles J. DiMaggio,
    Marian E. Betz, Carolyn DiGuiseppi, Vanya C. Jones, and Guohua Li,
    ``Driving Cessation and Health Outcomes in Older Adults,'' American
    Geriatric Society, Vol. 64, 2016, pp. 332-341.
    ---------------------------------------------------------------------------
        Geography can further affect mobility. Approximately 18 percent of
    the rural population is 65 years or older, compared with 13.5 percent
    in non-rural areas.\22\ Compared with their counterparts in urban
    areas, older adults in rural areas must take longer trips for
    healthcare and other services and have fewer alternatives to
    driving.\23\
    ---------------------------------------------------------------------------
        \22\ U.S. Census Bureau, ``Percent of the Total Population Who Are
    65 Years and Over--United States--Urban/Rural and Inside/Outside
    Metropolitan and Micropolitan Area,'' American FactFinder, 2014. As of
    November 8, 2016: http://factfinder.census.gov/bkmk/table/1.0/en/ACS/
    14_5YR/GCT0103.US26
        \23\ J. E. Burkhardt, A. T. McGavock, C. A. Nelson, and C. G. B.
    Mitchel, Improving Public Transit Options for Older Persons Transit
    Cooperative Research Program, Washington D.C.: Transport Research
    Board, 2002.
    ---------------------------------------------------------------------------
        Autonomous vehicles offer a promising solution. Fully automated
    vehicles that do not require human intervention would allow many older
    adults to travel by car, without having to drive. It could increase
    their mobility, with all of the associated social and economic
    benefits, while mitigating much of the safety risk. This, in turn, may
    allow more people to age in place, remaining in their homes for much
    longer than they might otherwise be able to.
    Autonomous Vehicles Could Improve Mobility for Many Others
        Older adults are just one group of Americans that could benefit
    from increased mobility from autonomous vehicles. Many people with
    disabilities, young people, and people living in poverty face mobility
    challenges that could be alleviated by autonomous vehicles.
        In 2010, 56.7 million individuals (18.7 percent of the population)
    identified as having a disability.\24\ Only 65 percent of individuals
    with disabilities drive, compared with 88 percent of individuals
    without disabilities.\25\ In spite of the Americans with Disabilities
    Act, which mandates that transit authorities operating a fixed route
    system provide paratransit or a comparable service to individuals with
    a disability,\26\ individuals with disabilities often have limited
    mobility because of a lack of availability or access to services. One
    survey showed that 12 percent of persons with disabilities reported
    having a harder time obtaining the transportation they need to be
    independent, compared with 3 percent of others, the top two reasons
    being no or limited public transportation (33 percent) and not having a
    car (26 percent).\27\
    ---------------------------------------------------------------------------
        \24\ Matthew W. Brault, Americans with Disabilities: 2010, U.S.
    Census Bureau, July 2012.
        \25\ U.S. Department of Transportation, Freedom to Travel,
    Washington D.C.: Bureau of Transportation Statistics, 2003.
        \26\ U.S. Department of Justice, Information and Technical
    Assistance on the Americans with Disabilities Act, 2016.
        \27\ U.S. Department of Transportation, 2003.
    ---------------------------------------------------------------------------
        There are also 25 million young Americans between the ages of 12
    and 17 who have mobility needs but are not yet old enough to drive or
    are novice drivers.\28\ Getting to school and academic enrichment
    opportunities, social and extracurricular activities, and even first
    jobs can be a challenge. Many depend on buses (principally to school)
    or their parents--or forgo travel. For many working parents, there is a
    trade-off between supporting their own and their children's mobility
    needs.
    ---------------------------------------------------------------------------
        \28\ Federal Interagency Forum on Child and Family Statistics,
    ``POP1 Child Population: Number of Children (in millions) Ages 0-17 in
    the United States by Age, 1950-2015 and Projected 2016-2050,'' 2016. As
    of November 8, 2016: http://www.childstats.gov/americaschildren/tables/
    pop1.asp.
    ---------------------------------------------------------------------------
        Americans living in poverty also face mobility challenges. About
    43.1 million people (13.3 percent of the population) live in
    poverty.\29\ This includes older adults and many individuals with
    disabilities. In 2014, 10 percent of older adults and 28.5 percent of
    individuals with a disability had a yearly income below the poverty
    line.\30\
    ---------------------------------------------------------------------------
        \29\ Bernadette D. Proctor, Jessica L. Semega, and Melissa A.
    Kollar, Income and Poverty in the United States: 2015, U.S. Census
    Bureau, September 2016. As of November 8, 2016: http://www.census.gov/
    library/publications/2016/demo/p60-256.html.
        \30\ C. DeNavas-Walt and B. D. Proctor, Income and Poverty in the
    United States: 2014, Washington D.C.: U.S. Census Bureau, 2015.
    ---------------------------------------------------------------------------
        About 24 percent of households below the poverty line do not own a
    vehicle, compared with just 2 percent of households with incomes over
    $100,000. Individuals living in poverty are about three times as likely
    to take transit and 1.5 times more likely to walk.\31\ While these are
    desirable ways to get around for environmental and physical health
    reasons, they can take much more time and limit travel to destinations
    that are accessible by these modes. This is important because research
    shows that access to efficient transportation is important for escaping
    poverty (via access to education, training, and work) and achieving
    upward economic mobility.\32\ In sum, there are millions of Americans
    with limited mobility, and autonomous vehicles could help them.
    ---------------------------------------------------------------------------
        \31\ Federal Highway Administration, ``Mobility Challenges for
    Households in Poverty: 2009 National Household Travel Survey,'' FHWA
    NHTS Brief, 2014.
        \32\ Raj Chetty and Nathaniel Hendren, ``The Impacts of
    Neighborhoods on Intergenerational Mobility: Childhood Exposure Effects
    and County-Level Estimates,'' Harvard University, 2015.
    ---------------------------------------------------------------------------
    Affordability, Availability, and Accessibility Are Keys to Realizing
            These Benefits
        Simply bringing autonomous vehicles to market might not fully solve
    the mobility challenges Americans face. Autonomous vehicles, like other
    transportation options, must also be affordable, available, and
    accessible. Fortunately, autonomous vehicles may have advantages over
    conventional transit, taxi, or vehicle-sharing services.
        For many older adults, individuals with disabilities, and other
    people living below the poverty line, the costs of a personally owned
    vehicle are prohibitive. The costs of a privately owned autonomous
    vehicle are expected to be much higher, particularly initially. Shared
    autonomous vehicles will be the key to affordability. Shared vehicles
    are vehicles that are not personally owned but instead are available
    for many people to use, either on demand or through a reservation
    system, and are typically pay-per-use. Some estimates suggest that the
    per-mile cost of using a shared autonomous vehicle service could be 30
    percent to 90 percent less than owning a conventional vehicle or using
    conventional taxis, depending on the nature of the service.\33\ In
    other words, the per-trip costs could be comparable to transit, but
    with greater convenience and speed.
    ---------------------------------------------------------------------------
        \33\ Lawrence D. Burnes, William C. Jordan, and Bonnie A.
    Scarborough, Transforming Personal Mobility, The Earth Institute,
    Columbia University, January 27, 2013; and Tasha Keeney, ``What If Uber
    Were to Adopt Shared Autonomous Vehicles (SAVs)?'' ARK Invest, June 22,
    2015.
    ---------------------------------------------------------------------------
        Second, shared autonomous vehicles must be available where people
    live. Car-sharing vehicles and taxis are not readily available in most
    small towns and rural communities because there are too few people to
    support the services. Furthermore, those who live in poor urban areas
    are another underserved segment in today's mobility market. Transit may
    not offer complete solutions, and taxis have historically been scarce
    because of the low demand compared to wealthier urban areas.\34\ The
    lower cost of shared autonomous vehicles may increase the availability
    in underserved regions where other transportation solutions are
    limited.
    ---------------------------------------------------------------------------
        \34\ Mark W. Frankena and Paul A. Pautler, An Economic Analysis of
    Taxicab Regulation, Bureau of Economics, No. 1103, May 1984; Nelson
    Nygaard, Boston Taxi Consultant Report, 2013; and Hara Associates Inc.,
    Best Practices Studies of Taxi Regulation: Taxi User Surveys, prepared
    for San Francisco Municipal Transportation Agency, 2013. Today's ride
    share services may be helping provide better service in these
    underserved populations (see the Uber-funded study by Rosanna Smart,
    Brad Rowe, Angela Hawken, Mark Kleiman, Nate Mladenovic, Peter Gehred,
    and Clarissa Manning, Faster and Cheaper: How Ride-Sourcing Fills a Gap
    in Low-Income Los Angeles Neighborhoods, BOTEC Analysis Corporation,
    July 2015).
    ---------------------------------------------------------------------------
        Third, shared autonomous vehicles need to be accessible. This
    includes vehicle design, websites, and technology interfaces that are
    consistent with Americans with Disabilities Act and other accessibility
    standards and guidelines. It also includes implementing diverse payment
    systems that do not require smart phones or credit cards. Meeting these
    design goals can be expensive. For example, the National Highway
    Traffic Safety Administration estimates that the cost of a new vehicle
    with adaptive equipment (e.g., mechanical hand controls, power transfer
    seats, and lifts and ramps) can be $20,000-$80,000.\35\ The cost for
    accessible autonomous vehicles may be lower because the vehicle only
    needs to be modified for passenger use; it does not need to be modified
    to enable driving.
    ---------------------------------------------------------------------------
        \35\ National Highway Traffic Safety Administration, Adapting Motor
    Vehicles for People with Disabilities, June 2015.
    ---------------------------------------------------------------------------
    Policymakers Can Promote Affordability, Availability, and Accessibility
        All of this suggests that autonomous vehicles may increase mobility
    for historically underserved populations in a way that is more
    affordable, available, and accessible than existing transportation
    options. However, there is a clear and essential role for sound policy
    in realizing these benefits.
        First, policymakers can create incentives for manufacturers to
    prioritize these markets and reach them sooner than they might
    otherwise. Incentives can include cost-sharing programs, subsidies, or
    other financial levers. They can also include partnerships to integrate
    both public and private shared autonomous vehicles into existing
    transit and paratransit services so that they are complementary rather
    than competing. This may involve making payment seamless across modes,
    providing transfer benefits across modes, and integrating scheduling.
    Private ride-share services are already working with transit agencies
    to provide connections to existing transit services, but primarily in
    urban areas.
        Second, policymakers may need to incentivize technology developers
    to ensure that accessibility for diverse populations is a priority when
    designing these vehicles. This includes facilitating collaboration
    between developers, healthcare providers, independent living centers
    and other facilities, and, most importantly, the users themselves.
    Participatory design will be key.
        Third, while the cost of shared autonomous vehicles is expected to
    be lower than many alternatives, public assistance may still be
    warranted. In many regions, seniors and individuals with disabilities
    ride transit at a discounted rate or even for free. Policies would be
    needed to extend these discounts to shared autonomous vehicle services.
        In sum, autonomous vehicles present an enormous opportunity to
    improve mobility for millions of Americans who are currently
    underserved by our existing transportation system. The social, health,
    and economic benefits could be enormous. Policymakers can play an
    important and distinct role in prioritizing and enabling the technology
    so that autonomous vehicles can help democratize America's
    transportation system.
        what mechanisms can help realize the benefits and mitigate the
                       drawbacks of autonomous vehicles?
        In addition to transforming safety and mobility, autonomous
    vehicles may also shape other areas of transportation, including
    congestion, energy and pollution, and land use. Some potential impacts
    will be positive while others will be negative. All of the impacts are
    complex and difficult to predict, but despite the uncertainty,
    policymakers can help nudge the free market in the right direction.
    The Impacts of Autonomous Vehicles on Congestion
        Congestion has enormous societal costs. Travel delays resulting
    from traffic congestion caused drivers to waste more than 3 billion
    gallons of fuel and kept travelers stuck in their cars for nearly 7
    billion extra hours--42 hours per rush-hour commuter.\36\ The total
    cost to the United States was $960 per commuter, or $160 billion for
    the Nation as a whole.
    ---------------------------------------------------------------------------
        \36\ David L. Schrank, Bill Eisele, and Timothy J. Lomax, The 2015
    Urban Mobility Scorecard, College Station, Tex.: Texas A&M
    Transportation Institute, 2015.
    ---------------------------------------------------------------------------
        Even if autonomous vehicles had no impact on the incidence of
    congestion, they could reduce the cost of congestion. If individuals
    can work in their cars, the cost of the time spent in traffic could be
    reduced substantially, even if the time itself is not reduced.
        Nevertheless, the potential impact of autonomous vehicles on
    traffic congestion itself could be substantial but is uncertain.
    Traffic congestion could be significantly reduced because more vehicles
    can fit on a given stretch of roadway if they are autonomous. In the
    near term, autonomous vehicle platooning (where cars drive close
    together to reduce air resistance and increase fuel economy) can enable
    greater throughput; in the longer term, if a large number of vehicles
    are autonomous, lanes could be made narrower, creating more usable road
    space. If autonomous vehicles are much safer, they could significantly
    reduce crashes, which are a major source of congestion. Shared
    autonomous vehicles could provide better connections to main transit
    lines, leading to increases in use.\37\
    ---------------------------------------------------------------------------
        \37\ Johanna Zmud, Jason Wagner, Richard T. Baker, Ginger Goodin,
    Maarit Moran, Nidhi Kalra, and Dan Fagnant, Policy and Planning Actions
    to Internalize Societal Impacts of CV and AV Systems in Market
    Decisions, interim deliverable to the National Cooperative Highway
    Research Program, Transportation Research Board of the National
    Academies of Sciences, Engineering, and Medicine, May 2016.
    ---------------------------------------------------------------------------
        However, there is a flip side. Because autonomous vehicles will
    lower the costs of driving by car--by enabling productivity in the
    vehicle, reducing fuel costs through greater fuel economy, avoiding
    parking fees, and lowering insurance costs through greater safety--they
    could also increase the amount of driving. Improvements in mobility for
    underserved populations would also add to the amount of driving. If
    people can do the same things from the comfort of their own cars, fewer
    people might take public transit.\38\
    ---------------------------------------------------------------------------
        \38\ Zmud et al., 2016; Anderson et al., 2014.
    ---------------------------------------------------------------------------
        Accurately predicting the net effect on transportation demand is
    impossible because of the disruptive nature of autonomous vehicles.
    Just as we could not predict in 1990 how the Internet would change how
    and how much we would communicate 20 years later, we cannot confidently
    predict today how autonomous vehicles will change how and how much we
    will travel 20 years from now.
    The Impacts of Autonomous Vehicles on Energy
        Autonomous vehicles could increase fuel efficiency, but the net
    effect is unclear because they may increase travel demand, which could
    negate those gains. To the extent that fossil fuels remain the primary
    source of transportation energy, this would have knock-on effects in
    foreign oil dependence, air pollution, and greenhouse gas emissions.
        The way people operate and maintain vehicles is inefficient.
    Aggressive driving alone can drop fuel economy by 25 percent, and not
    using cruise control on highways can drop it another 7 percent.\39\
    Autonomous vehicles can avoid these behaviors and thus reduce fuel
    consumption. Adding to this, even relatively simple levels of
    automation can enable platooning.
    ---------------------------------------------------------------------------
        \39\ Michael Sivak and Brandon Schoettle, ``Eco-Driving: Strategic,
    Tactical, and Operational Decisions of the Driver That Influence
    Vehicle Fuel Economy,'' Transport Policy, Vol. 22, July 2012, pp. 96-
    99.
    ---------------------------------------------------------------------------
        In the longer term, if autonomous vehicles that crash less are
    widely used, they could be built lighter, which will further reduce
    fuel consumption and emissions. Less obviously, fully autonomous
    vehicles might be able to jump-start alternative transportation fuels.
    One of the key obstacles to both plug-in electric and hydrogen fuel
    cells, which have zero tailpipe emissions and can use renewable energy,
    is the lack of refueling or charging infrastructure. This becomes much
    less of a problem if cars can drive themselves to refueling or
    recharging stations because far fewer stations are needed.\40\ One
    recent study showed that electric shared autonomous vehicles could
    reduce greenhouse gas emissions in 2030 by 87-94 percent relative to
    current conventional vehicles and 63-82 percent below projected model
    year 2030 hybrid vehicles because of decreases in future carbon
    intensity of electricity, ``right sizing'' of vehicles, and higher
    miles traveled per vehicle.\41\
    ---------------------------------------------------------------------------
        \40\ Anderson et al., 2014.
        \41\ Jeffery B. Greenblatt and Samveg Saxena, ``Autonomous Taxis
    Could Greatly Reduce Greenhouse-Gas Emissions of U.S. Light-Duty
    Vehicles,'' Nature Climate Change, Vol. 5, No. 9, 2015, pp. 860-863.
    ---------------------------------------------------------------------------
        On the other hand, passengers may prefer larger autonomous vehicles
    to allow them to take better advantage of the opportunity to do things
    other than driving, resulting in lower fuel economy and greater
    emissions.\42\ And, of course, they may drive more.
    ---------------------------------------------------------------------------
        \42\ Anderson et al., 2014.
    ---------------------------------------------------------------------------
    The Impacts of Autonomous Vehicles on Land Use
        Automobile use has influenced the form and extent of land
    development in the United States, leading in large part to sprawl (that
    is, low-density, inefficient land-use patterns).\43\ The land allocated
    to automobile infrastructure poses a cost to society: It could
    otherwise be used for farms, open space, homes, businesses, and other
    facilities, with associated environmental, economic, and public health
    effects.\44\
    ---------------------------------------------------------------------------
        \43\ Robert Burchell, George Lowenstein, William R. Dolphin,
    Catherine C. Galley, Anthony Downs, Samuel Seskin Katherine Gray Still,
    and Terry Moore, Costs of Sprawl-2000 TRCP Report 74, Federal Transit
    Administration, 2002.
        \44\ M. A. Delucchi and J. J. Murphy, ``How Large Are Tax Subsidies
    to Motor-Vehicle Users in the U.S.?'' Transport Policy, Vol. 15, 2008,
    pp. 196-208.
    ---------------------------------------------------------------------------
        Autonomous vehicles may affect land use in two opposite ways, and
    both could take place. Commute time and distance are among the key
    factors households consider in deciding where to live. While areas
    father away from central business districts offer many benefits,
    particularly in housing size and cost, a longer commute may be too
    costly, both in terms of travel and time costs. However, given the
    ability to engage in other activities while in an autonomous vehicle,
    the opportunity cost of transportation declines. This could increase
    the willingness of households to locate farther away from the urban
    core, increasing urban sprawl.\45\
    ---------------------------------------------------------------------------
        \45\ Anderson et al., 2014.
    ---------------------------------------------------------------------------
        On the other hand, autonomous vehicles could also lead to greater
    density in core urban areas. Driving remains the dominant mode of
    passenger travel in the United States, even in large cities with good
    transit options, but the typical automobile is parked for about 95
    percent of its lifetime.\46\ As of a decade ago, the total area devoted
    to parking spaces in major central business districts was, on average,
    about 31 percent of the district area.\47\ The emergence of autonomous
    vehicles could sharply reduce the amount of parking needed in core
    urban areas in several ways. First, after dropping off its passenger or
    passengers in a downtown location, an autonomous vehicle could pilot
    itself to a remote lot in a peripheral area, reducing the amount of
    parking needed in the densest urban areas where land values are
    highest. Second, as described earlier, autonomous vehicle technology
    might lead to a new model for urban mobility in the form of driverless
    taxis. Under such a system, autonomous vehicles would not need to park
    after every trip; rather, after dropping off one passenger, they would
    simply travel to pick up the next passenger. Third, the convenience and
    low cost of such a system might induce many urban dwellers to forgo car
    ownership, or at least to reduce the number of cars owned. Thus,
    driverless taxis could reduce the number of parking spaces needed in
    residential buildings, as well as at commercial centers.\48\ These
    effects, emphasizing the service character of transportation, could
    free up substantial amounts of space in urban areas for other valuable
    uses: homes, businesses, parks, hospitals, and so on.
    ---------------------------------------------------------------------------
        \46\ Donald C. Shoup, The High Cost of Free Parking, Chicago:
    Planner's Press, 2005.
        \47\ Shoup, 2005.
        \48\ Zmud et al., 2016.
    ---------------------------------------------------------------------------
    Driving Externalities May Prevent the Benefits from Being Realized
        While the effects of autonomous vehicles are complex, some outcomes
    are clear wins. If safe autonomous vehicles are developed and used
    widely and responsibly, the current public safety crisis in the U.S.
    transportation system could be mitigated. If safe and usable autonomous
    vehicles are developed, mobility could increase for millions of
    Americans who currently have limited mobility. In addition, if the
    potential increase in transportation demand created by autonomous
    vehicles were mitigated or decoupled from fossil fuels, there could be
    enormous energy security, public health, and environmental benefits.
    Related to this, if shared autonomous vehicles are widely available and
    widely used, this could reduce private vehicle ownership and the need
    for road infrastructure, allowing repurposing of land to more
    economically productive uses.\49\
    ---------------------------------------------------------------------------
        \49\ Zmud et al., 2016.
    ---------------------------------------------------------------------------
        Yet these outcomes may not actually be realized because many
    benefits accrue to society rather than to either the producers or
    consumers of autonomous vehicles. Consumers may be unwilling to pay for
    expensive technology if much of the benefits go to others, and
    consequently, producers may be less willing to develop them. Thus,
    there is less incentive for producers and consumers to take actions
    that would achieve beneficial outcomes.\50\
    ---------------------------------------------------------------------------
        \50\ Zmud et al., 2016.
    ---------------------------------------------------------------------------
        Safety is a good example of this phenomenon, with significant
    consequences for autonomous vehicles. When an individual drives
    unsafely or operates an unsafe vehicle, he not only puts his own well-
    being at risk but also the well-being of all other road users around
    him, including pedestrians and bicyclists. However, in our current
    transportation and legal system, an individual is responsible for only
    a fraction of the full cost of being unsafe. In many States, motorists
    are required to carry only $30,000 (or less) worth of liability
    insurance--far less than is necessary to compensate someone for a
    serious injury, much less a loss of life. This leaves a huge gap
    between the harms that are regularly inflicted by drivers and the
    amount available for legal recovery. In essence, society subsidizes
    dangerous vehicles and driving behavior, creating less incentive for
    safer vehicles and behaviors.
        Economists call this an externality. An externality is an effect
    that one party imposes on another party without compensating them for
    the effect if it is negative or charging them for it if it is
    positive.\51\ The free market does not allocate resources well in the
    presence of externalities because the true costs and benefits of
    actions are distorted.
    ---------------------------------------------------------------------------
        \51\ James M. Buchanan and Wm. Craig Stubblewine, ``Externality,''
    Economica, Vol. 29, No. 116, 1962, pp. 371-84.
    ---------------------------------------------------------------------------
        Consider how the safety externality dampens the market for safe
    vehicles, including safe autonomous vehicles. First, buyers' incentive
    to purchase safe autonomous vehicles (which we can expect to be
    expensive, at least at first) is less than it would be if full social
    benefits of safe vehicles were reflected in a lower price tag. Second,
    and related, auto manufactures' incentives to create as-safe-as-
    possible autonomous vehicles are less than they should be, because
    safety is undervalued in the marketplace.\52\ The result is that very
    safe autonomous vehicles could be technologically feasible, but fewer
    firms will develop them and fewer individuals will buy them because
    many of their benefits accrue to the public rather than the purchaser.
    ---------------------------------------------------------------------------
        \52\ This externality explains, in part, why there is little market
    for vehicles that are designed to better protect individuals outside of
    the vehicle in the event of a crash. The technology exists, but the
    societal benefit of protecting others does not reach the buyer in the
    form of a relatively lower-priced vehicle.
    ---------------------------------------------------------------------------
        Safety is just one externality. Many of the benefits and the costs
    of autonomous vehicles (and vehicles in general) are external. If a
    buyer's car is energy efficient, it helps the buyer somewhat, but most
    of the benefits go to other people (e.g., the people who breathe the
    air in the area where that vehicle is driven). Those costs (e.g., of
    poor air quality) are real and are borne by society. If the benefits of
    reducing pollution are not factored into the buyer's cost of the
    vehicle, there is little incentive for them to buy it, particularly if
    the vehicle is more expensive than less-efficient alternatives.
    Policymakers Can Promote Beneficial Outcomes by Internalizing
            Externalities
        So, how can we solve the externality problem? The key is to use
    policy tools to ``internalize'' externalities so that market prices
    reflect the true costs and benefits of private-sector actions. This can
    be done with subsidies, user fees, mandates, and privileges to ensure
    that producers and consumers of autonomous vehicles receive the benefit
    from (and are thus incentivized toward) making choices that benefit
    society.
        As just one example, when a driver uses a busy road, he adds to
    congestion that other travelers experience, but he does not have to pay
    for the cost of that extra congestion--the lost productivity of others
    as they sit in traffic, the delay in goods movement, and the local
    increase in pollution. But congestion is a problem that could be
    solved. Nearly all passenger vehicles in this country have space for at
    least four people, but on average, there are just 1.67 passengers.\53\
    Those unused seats are extra, already-built transportation capacity.
    But that capacity is not used because, in large part, the costs of
    carpooling are internal (the driver bears the cost of the effort and
    hassle) but the benefits of carpooling remain external (the driver does
    not benefit from reducing society's congestion). High-occupancy-vehicle
    (HOV) lanes are one partial remedy: They help internalize the positive
    externalities of carpooling by enabling carpoolers to themselves bypass
    congestion and get to their destinations faster.
    ---------------------------------------------------------------------------
        \53\ Federal Highway Administration, Summary of Travel Trends: 2009
    National Household Travel Survey, June 2011. As of November 8, 2016:
    http://nhts.ornl.gov/2009/pub/stt.pdf.
    ---------------------------------------------------------------------------
        There are many policy options to internalize not only the
    congestion externality but also the other driving externalities related
    to safety, pollution, oil dependence, and mobility. These include
    creating insurance requirements that strengthen the market for road
    safety, offering transit incentives that reduce congestion, and
    offering rebates for using fuel-efficient vehicles, among others. Each
    option has a long history of research and discussion, and these and
    other options have been implemented to varying degrees.
        It is not possible today to give each policy the discussion it
    warrants. Nevertheless, now is the time to revisit the impact of
    driving externalities and the policies to internalize them, because
    autonomous vehicles could improve our transportation system
    tremendously, provided the right market signals are in place. In other
    words, because so many of the benefits and costs of autonomous vehicles
    would accrue to people other than the buyer, internalizing
    externalities is a key step to ensuring that society minimizes their
    disadvantages and maximizes their benefits.
        There is also a current window of opportunity to send those new
    market signals because consumer expectations about autonomous vehicle
    costs, performance, and other characteristics are not yet set. For
    instance, congestion pricing requires drivers to pay a fee to travel
    during peak rush hour, because driving during rush hour imposes higher
    congestion costs on everyone than driving at other times does. Although
    congestion pricing is widely recognized as an effective means of
    internalizing the cost of congestion and thereby reducing congestion,
    it has been difficult to implement, partly because drivers are
    unaccustomed to paying different prices based on when they travel.
    However, today, many private ride-sharing companies charge an extra fee
    for their services during rush hour, analogous to congestion pricing.
    Because these services are new and the reasons for the charge are
    understandable to consumers (greater demand for a limited supply of
    goods), these fees have been generally acceptable. Similarly, consumers
    may be more amenable to new policies that internalize the externalities
    of driving now, before autonomous vehicles are available, rather than
    later, once expectations about autonomous vehicles are set. Of course,
    these policies must apply to all auto travel, not just autonomous
    vehicle travel, for the market signals to be clear.
        In sum, it is not possible to fully predict what a future with
    autonomous vehicles will look like. However, by using the current
    window of opportunity to internalize the externalities of driving, it
    is possible to send the right market signals, paving the way for a
    future transportation system that maximizes the potential advantages
    while minimizing the potential disadvantages. This is an exciting
    future of increased mobility and economic growth and greater
    transportation safety, efficiency, equity, and sustainability.

        [Conflict of Interest Statement: Nidhi Kalra's spouse, David
    Ferguson, is co-founder and president of Nuro, an autonomous vehicle
    startup. He previously served as a principal engineer for Google's
    driverless car project. This written testimony was carefully reviewed
    by subject-matter experts within the RAND Corporation; the research
    quality assurance team for the RAND Justice, Infrastructure, and
    Environment division; and the RAND Office of Congressional Relations.
    However, the opinions and conclusions expressed in this testimony are
    the author's alone and should not be interpreted as representing those
    of the RAND Corporation or any of the sponsors of its research.]

        Senator Collins. Thank you very much for your testimony,
    and I am going to start my questions with you.

                              MOBILITY FOR SENIORS

        As a senator representing a State with the oldest median
    age in the country, I can see tremendous potential for seniors
    whose vision has diminished to the point where they no longer
    can safely drive being able to use these autonomous vehicles so
    that they can maintain a measure of independence and not be
    dependent on others. So I see that, in addition to the safety
    benefits, and really the two are linked, as being a tremendous
    advantage.
        Another advantage which I wondered whether you had analyzed
    at all is whether there would be an impact on the insurance
    market and the rates that individuals would pay for insurance
    if they are driving cars with either limited safety features
    that have been added to it or are fully autonomous.
        Dr. Kalra. I appreciate the note about seniors. My
    grandparents are in that same boat, so I understand that very
    clearly.
        In terms of insurance, yes, in the long run we might expect
    insurance rates to go down because fewer crashes mean lower
    costs for personal injury and damage, and eventually they may
    be needed for declining auto insurance. But in the short run,
    it's actually hard to say what the effect of insurance is going
    to be, for a few reasons.
        First, it may take many years or many decades for the fleet
    to become largely autonomous, so the risks may not change as
    quickly as we anticipate.
        Second, because at least for some types of autonomous
    vehicles there's going to be shared control between the human
    and the machine, there may be over-reliance on the technology,
    which is one of the things we've seen with Tesla. So it may not
    necessarily translate into lower crashes or crash rates. That
    remains to be seen.
        And third, the car repair costs for a crash could actually
    increase, because right now if I rear-end someone, it's a few
    hundred dollars to bang out that bumper, but in the future it
    could be much more expensive.
        Now, there's a different issue with people who are insured
    at the minimum insurance rate, but that's a little more
    complicated. We can go there if you want to.
        Senator Collins. Thank you.

                         EXISTING VEHICLE TECHNOLOGIES

        Administrator, we heard Ms. Hersman say that three
    technologies, if they were mandated, could save some 10,000
    lives. Now, whenever the Federal Government mandates, there is
    obviously cost involved. But I am curious whether NHTSA has
    considered mandating proven safety technologies that are
    available right now on new vehicles as they're manufactured. I
    should make that clear.
        Mr. Rosekind. In fact, I think as soon as anybody says to
    any of you ``We need to regulate to get safety,'' the first
    thing you need to ask is what are we going to regulate? Because
    for regulation we need performance criteria, testing, we need
    to know that there's enough penetration that we have sufficient
    data, cost/benefit analyses, et cetera.
        I say that because the last technologies that we have seen
    come through rulemaking are things like electronic stability
    control, that rear visibility camera that you like so much,
    advanced air bags. Those took 6, 8, and 10 years to actually
    get through the regulatory process. That's really important
    because in these new technologies, by the time those rules
    would come out it would be irrelevant for the new technology
    that would have evolved.
        And I say that because, quickly, in September of 2015 we
    actually challenged the auto industry: how do you take
    automatic emergency braking and make it standard on all
    vehicles? This is called democratizing safety. So it's not just
    on high-end or an option. Basically what they did was in March
    come back, and 20 automakers are going to make AEB standard by
    2022 on all vehicles in our country. That will beat regulation
    by 3 or 4 years. We can count the lives saved.
        So there are ways to do this besides regulation, and I
    think we have to use the right tool. For the moment, this
    policy is the right tool at the right time.

                    STATE REGULATIONS OF AUTOMATED VEHICLES

        Senator Collins. Well, let me ask you the other side of
    that coin. The guidance the Department has put out said a 15-
    point safety assessment is voluntary, but as you're well aware,
    States like California are already proposing to make it
    mandatory for companies that want to test or deploy automated
    vehicles. What can you do, what can NHTSA do to ensure that
    States do not arbitrarily mandate various aspects of your
    guidance document, thereby creating a patchwork of ever-
    changing State laws that would stymie innovation and the
    deployment of these vehicles?
        Mr. Rosekind. Really, a huge part of including that piece,
    the model state policy, was to differentiate the Federal versus
    State roles. In fact, directly to your point, we make it
    absolutely clear that States actually have to do nothing in
    this area. They can actually support the advancement of these
    safety technologies with no policy or regulations. If they
    choose to, we identify some areas where they can move forward.
    Everyone on the State level that we've interacted with is
    absolutely interested in seeing a consistent framework and
    trying to avoid the patchwork. This is an area I think we need
    to watch and see it develop.
        And California, as you mentioned, if you look at their
    early, sort of recommended policies, they've changed
    dramatically in their latest proposals because they waited for
    this policy.
        So I think everybody is seeing an effort and an interest
    right now in trying to prevent that patchwork, and we're going
    to have to wait and see how it actually develops.
        Senator Collins. But should the States even be involved in
    this area, or should it be left up to the Federal Government so
    that there is a nationwide standard and approach?
        Mr. Rosekind. In the policy we make that explicit, here's
    what the Federal Government is concerned about, standards for
    the vehicles, defects, et cetera, and the States, they still
    stay responsible and they don't have to do anything. We make
    that explicit.
        Senator Collins. You do, but if California is moving
    forward to implement your guidance and make it mandatory, isn't
    that contrary to the goal of your guidance?
        Mr. Rosekind. Two things. One is we are explicit in there
    saying that this policy was not intended to codify, and at the
    same time I think right now California has not actually put
    their regulations out. They've put a proposal out. They've
    talked about other aspects, that they want to evaluate it, and
    they're even questioning the language that's being used, and
    that's what I'm saying. I don't think we even know what their
    final stance is going to be, because they have continually
    emphasized the need for consistent framework.
        Senator Collins. Senator Reed.

                                 CYBERSECURITY

        Senator Reed. Well, thank you, Chairman, very much.
        I agree with Mr. Brubaker; computers don't get tired, they
    don't get road rage, but they open a whole new dimension of
    cyber security which we have to deal with. I know,
    Administrator, the FAVP encourages information sharing on cyber
    security, but we've seen incidents in which systems have been
    hacked recently, vulnerabilities in automobiles, GPS systems,
    insurance plugins have been used.
        So can you give us an idea of what you're doing in terms of
    ensuring that we can reassure the public that these vehicles
    will not be subject to cyber attacks?
        Mr. Rosekind. Thank you for emphasizing this issue because,
    as you've heard from pretty much everybody, without public
    confidence in these vehicles, it's just not going to happen.
        So specifically to cyber security, NHTSA has actually been
    on this for many years. In 2012 we formalized that with a
    group, an office within the agency. Just recently we have had a
    roundtable with 300 people, pulling them together. We had an
    intra-government meeting after that, which has resulted in
    everything from urging and supporting an agency, Auto ISAC,
    Information Sharing and Analysis Center, within the industry.
    The industry has come out with their own best practices. Just a
    few weeks ago, NHTSA came out with its own cyber security best
    practices. Just yesterday the Department of Homeland Security
    actually highlighted our cyber security best practices, a model
    for other industries to go after.
        So the good news is all of this has been done before an
    incident has actually occurred within the auto industry. One
    that everybody knows about, about a year ago in July Wired
    Magazine, that was planned. That was a researcher demonstrating
    it could be done. I'd point out that even with the authorities
    and tools we had, within 3 days the defect was called and 1.4
    million vehicles basically were already under remedy at that
    point.
        So I would just say it's a constant vulnerability. It
    clearly is a threat that needs to be addressed. But for the
    moment there's a lot of action going on in that arena.
        Senator Reed. Let me just quickly follow up with Ms.
    Hersman, and thank you. How do you think outside expertise
    could assist in combatting these cyber threats and regulating
    advanced technologies like HAVs?
        Ms. Hersman. I think there's a tremendous opportunity to
    call on experts, just like this committee does. Things change
    very quickly, and when it comes to technology, we certainly
    can't expect NHTSA to always stay on the cutting edge.
    Potentially having advisory groups, organizations that will
    assist them in evaluating new cutting-edge technology is an
    opportunity that they should consider and take advantage of
    going forward. We're going to ask so much of this agency when
    it comes to looking at the evolution of technology that we need
    to support them and give them opportunities to get the best and
    the brightest to weigh in on it.
        Senator Reed. Thank you very much.

                                IMPACT ON LABOR

        Dr. Kalra, I seem to be emphasizing the potential
    challenges rather than the golden opportunities, but we should
    do that. And one of them, as I mentioned in my statement, is
    employment, roughly 3 to 4 million jobs that are good jobs.
    You've done some work, I believe, on this. You made some
    comments in your discussion.
        Can you just comment upon the implications of the labor
    market, both positive and negative, for these vehicles?
        Dr. Kalra. Absolutely. So you're absolutely right that
    there are millions of Americans who make their living behind
    the wheel, and there's no question that autonomous vehicles do
    threaten those jobs. I think we have to stare that back in the
    face. The question is what to do about it.
        This transition to full autonomy is going to take time, so
    time can be an advantage in this respect in that we are ahead
    of the curve. We can start thinking now about how to develop an
    alternative job market, where that's possible. We also know
    that freight may be one of the areas that is first hit because
    of the private nature of the industry and because we're talking
    about goods movement rather than people movement. So the
    technology may make its way there faster. One aspect of that is
    that many freight experts project a lack of supply of drivers
    in the future, so there may be a little cushion in there.
        In terms of on the flip side, autonomous vehicles will
    create new kinds of jobs or increase the technical nature of
    existing jobs. An auto body shop is not going to look the same
    as it does today. So we need to prepare our young people
    especially, people in community colleges, for those high-tech
    jobs.
        The broader issue is that autonomous vehicles could and, I
    believe, will democratize transportation and give mobility to
    people who currently don't have it. Important to that is
    physical mobility. Being able to get around is one of the most
    important things to help people out of poverty, getting them
    access to training, getting them to jobs. The unfortunate part
    is people who have the least access to transportation often are
    the ones who struggle to get jobs, people who are in poverty
    who can't afford their cars.
        So there's two sides of this coin. I think we need to do
    everything we can to bring mobility to people who are currently
    underserved by our transportation system, while providing
    cushion to people who will be negatively affected.
        Senator Reed. Your comments seem to be there has to be a
    conscious, deliberate planning process because this is coming.
        Dr. Kalra. That is right.
        Senator Reed. And your best guess at when we'll see, for
    example, significant autonomy in freight delivery? Is it 5
    years? 10 years? Too far to guess?
        Dr. Kalra. I can only guess. I would be surprised if we
    don't have it in 10 years. I would be surprised if we do have
    it in the next two to three.
        Senator Reed. Okay. Anybody else want to take a wild guess,
    like the lottery?
        Senator Reed. Okay. Thank you, Madam Chairman.
        Senator Collins. Thank you, Senator.
        Senator Daines.

                                 DATA SECURITY

        Senator Daines. Thank you, Madam Chair and Ranking Member
    Reed. And thank you for testifying here today. This is a topic
    that covers many issues I care deeply about. As a 5th
    generation Montanan, we have a lot of open space, a lot of
    roadways. In fact, we just wrapped up the election season, and
    one of the candidates running for governor traveled 64,000
    miles during the course of the campaign on the roads. So that
    kind of puts in perspective that we're not as big as Texas or
    Alaska or California, but we have to drive a lot more. So I
    care very much about what you're talking about, saving lives,
    to improve passenger and freight mobility, very important for
    us in a State that requires moving our products, ag products
    particularly, around the world.
        I'm very excited about these new technologies. I spent 12
    years in the cloud computing business, executive capacity,
    before I came to politics.
        So I wanted to follow up on Senator Reed's question on the
    cyber piece here, Mr. Rosekind. You said in your testimony that
    the quickest way to slam the brakes on innovation is for the
    public to lose confidence. I think that's well said. I was a
    private employee for 28 years, and the best was when I didn't
    have my information compromised, until I became a Federal
    employee. Then I got the letter from OPM. Thank you, Federal
    Government here. I never had that issue in the private sector.
        Mr. Rosekind. I got that letter, too.
        Senator Daines. Many of us did. I'm sure if we polled the
    audience here, there would be a lot of hands going up. Clearly,
    we want to make sure we're protecting privacy and hardening our
    systems.
        Many consumers no longer have confidence in the government.
    I appreciate the fact that you're bringing some advisory groups
    in to bring that perspective. Going fast, at the speed of
    business out there, sometimes I think government needs to.
        How is NHTSA gaining the public's confidence with this
    latest guidance that you're looking at here as it relates to
    cybersecurity?
        Mr. Rosekind. I think in the policy, one of the ways
    actually that we're trying to do that is through the innovation
    approach. I think, just like when people talk about regulation,
    when you talk about cyber security, if someone were to say
    regulate that, as you know, the speed that this stuff is
    changing, by the time you get through a 6- to 10-year
    regulation it's not going to be relevant anymore.
        So, one of the 15 safety assessment items is cyber
    security. Everybody has to tell us how they're addressing that
    particular issue, and our intent here is to see as many
    different forms of innovation coming to us as we can, and the
    data will drive the safest and best way to protect these
    systems. In fact, at some point, if there are best practices,
    it should be based on that data. In the future if there's
    rulemaking, it should probably be based as a foundation on
    whatever those best practices were.
        Senator Daines. I know industry has been working
    collaboratively to address cyber and published some best
    practices in July. How did NHTSA's guidance incorporate their
    experiences and expertise?
        Mr. Rosekind. We had a lot of interaction with them. We
    knew what was coming. In fact, I would highlight not just this
    policy but our own best practices came out just a few weeks
    ago, and they complement exactly what we know the industry was
    doing.
        Senator Daines. So I guess my understanding is they didn't
    go through a notice and comment process before being issued.
    Afterwards DOT solicited comments, and I think they're due next
    week. So my question, I guess, is why wasn't there more
    consultation with industry before the guidance was issued?
        Mr. Rosekind. Well, let's keep them separated. The best
    practices came out a few weeks ago, and the policy came out
    September 20th. We actually have an extensive amount of open
    time. So the policy is under a 60-day comment period right now.
    That closes November 22nd. And what was already identified in
    here is 23 next steps. So we actually have a whole new set of
    public meetings that are coming up to talk about all the
    different elements. We just did that last week. We had a
    meeting on the letter, which includes the cyber security part.
    So there's all kinds of other opportunity for people to add
    input.
        Senator Daines. And that's helpful, and I know Senator
    Collins was talking with us a bit about some of this guidance,
    which becomes quasi-regulation. You touched on the time
    required to go through the formal rulemaking process, and the
    guidance allows you to be more nimble, but it may not always be
    as transparent. I think that's one of the political concerns we
    hear.

                               RULEMAKING PROCESS

        Should voluntary guidance policies be used to expedite the
    rulemaking process or Federal enforcement action?
        Mr. Rosekind. I think what we're trying to do is continue
    our enforcement and regulatory tools. We have those
    authorities. We're not giving any of them up. All we've done is
    try and complement those with the way to support innovation at
    this time. It is absolutely possible, if you come in with the
    right data, that we will use that data to create best practices
    and rulemaking. We actually identify potential rulemaking in
    here as well. So that is just one more tool that's being
    included to deal with this fast-paced technology.
        Senator Daines. Thank you. I'm running out of time.

                             DRIVING IN RURAL AREAS

        Dr. Kalra, a question. You discussed lowering the risk to
    pilot programs and raised questions about the ability of this
    technology to function better than humans in complex
    conditions. I come from a State that has a lot of rural roads.
    Fifty-four percent of automobile fatalities occur on rural
    roads despite the fact that just 19 percent of Americans live
    in rural areas.
        How do you incorporate issues like we have in Montana of
    unmapped roads, gravel, snow, wildlife, where 95 percent of the
    roads are rural? As we know, accidents often happen when things
    we don't anticipate occur. How do we lower the risk of these
    technologies in rural settings?
        Dr. Kalra. By testing them in those environments. And I'll
    point to the University of Michigan's testing center for
    autonomous vehicles, where they are committed to testing on
    different kinds of road surfaces, in different kinds of weather
    conditions. We need to get autonomous vehicles not only in
    sunny Southern California but also in Montana, and I think that
    has to be a priority.
        Senator Daines. The sun shines a lot in Montana, but we
    also have ice and big elk out there at times.
        Dr. Kalra. I'm from North Dakota. I know that ice.
        Senator Daines. Oh, you do understand that.
        Dr. Kalra. I do.
        Senator Daines. You might understand ice better than I
    understand it, I think.
        Anyway, thank you. I'm out of time.

                              CYBERSECURITY RISKS

        Senator Collins. Thank you for raising that very important
    issue, which is one that concerns me as well.
        Mr. Brubaker, both of my colleagues have brought up the
    cyber security issue, which is also of great concern to me as
    we've seen we have rogue States and terrorist groups that seem
    to be able to hack into virtually any database. What is the
    industry doing to address the cyber security risks of
    autonomous vehicles, and do you think that there's more that
    NHTSA could do to proactively address such a risk?
        Mr. Brubaker. Yes, I do. The one thing I would caution is
    you want to be very careful in regulating cyber security and
    establishing cyber rules because you tend to lock in a solution
    that's relevant for that time period, but it's not timeless.
        But to answer your specific question about what NHTSA can
    do, I would actually start by going across the river to the
    five-sided building and start talking to the people who have
    been doing embedded system cyber security for years who are
    really good at it. One of the key elements of the third offset
    strategy the Department is pursuing right now--and I know both
    you and the ranking member have a strong defense background, so
    you would get this--is really focusing in on automation and
    robotics, advanced robotics. So they're doing the kind of cyber
    security strategy and employing the kind of tactics that you
    need to really lock down these embedded systems, and they've
    been doing it pretty successfully for years.
        So I think the one thing that we could do is look across
    the river, look to the IC, the intelligence community, for
    lessons learned on how they do encryption, how they do
    authentication. I know that the industry has issued its best
    practices but, frankly, when I look at it, I think it's a lot
    of reinventing the wheel, a lot of things that have already
    been done.
        I would also say, again, the caution on the regulatory
    piece is we've had the Federal Information Security Management
    Act, FISMA, for a number of years, but it didn't prevent the
    OPM hack. So you can issue the regulations, and you can comply
    with those regulations, and you can go down a cyber security
    checklist, but unless it's substantive, and unless it's moving,
    because it's a constant game with the adversaries, and you need
    to understand their motives and what they're about and do the
    risk assessment accordingly and structure your systems from the
    ground up.
        The one area that I think industry has really got to pay
    very close attention to is supply chain integrity, where
    they're securing the components, they know where those
    components come from, they have visibility end to end, and
    there are a handful of companies out there who are focused on
    it, automakers that are focused on it. But by and large, the
    industry is having a very difficult time adjusting its culture
    to harden its systems.
        Senator Collins. Thank you.

                               DISTRACTED DRIVING

        Ms. Hersman, yesterday's New York Times quoted you in the
    area of distracted driving, and you pointed out that new
    technologies that are intended to allow the driver to keep his
    or her hands on the wheel may actually be preventing the driver
    from paying attention to his or her driving environment, and
    the article quotes you as saying it's the cognitive workload on
    your brain that's the problem.
        Are you concerned that automated and self-driving
    vehicles--well, self-driving vehicles are not a problem if we
    really get to that stage. But the semi-automated, if you will--
    you have your scale for the degree of automation--are going to
    produce even more distracted drivers and thus more crashes?
        Ms. Hersman. I would say there are always unintended
    consequences when we introduce new things. We do know that
    people are very distracted today. People are addicted to their
    devices that they bring into the car with them. The challenge
    with moving to things like hands-free is that people think that
    the distraction is in their hands, but the distraction is
    really in your brain. We would have outlawed stick-shift cars a
    long time ago if it was our hands that were the problem.
        So when we look at automating vehicles further, what that
    does is potentially has the human being stepping back a little
    bit, and human beings typically are not good monitors. When
    everything works according to plan 99 times out of 100, it's
    hard for the human being to pay attention 100 percent of the
    time. In aviation we call this over-reliance on automation. We
    saw pilots' skills deteriorate as airplanes performed more
    functions for the pilot.
        One of the challenges is how do you compel the human being
    to pay attention so that when they need to take over or when
    they need to intervene, they're ready and they're prepared to
    do so? If you could text, if you could read the newspaper, if
    you could do other things, 99 percent of the time it might work
    well. It's that one time that you need to intervene that you're
    not prepared to, and we haven't even touched on impaired
    drivers and drivers who might be sleeping, who might be
    fatigued or not paying attention.
        So there definitely are some risks and some tradeoffs. I
    think a number of the panelists have touched on these. That's
    why we talk about the messy transition between Level 1 and
    Level 5 and having to keep that human in the loop, how can you
    compel them when they need to be engaged to do it.
        Senator Collins. Thank you.

                        LESSONS FROM VOLVO DEMONSTRATION

        Administrator, last month the world's first shipment by a
    self-driving truck was made by an auto Volvo truck. I watched
    the video of that. There was a professional driver on board
    but, in fact, the truck was driving itself 120 miles along
    Interstate 25, and it was operating fully autonomously without
    that driver's assistance. It was very exciting to watch, but
    I'll have to admit to you it also made me a bit nervous as I
    watched it.
        Are there any lessons from that test that NHTSA has learned
    so far, and would it have any effect on where you're going with
    your future guidance?
        Mr. Rosekind. Absolutely. Let me just add a little bit to
    that confidence. That was actually at 2:00 a.m. in the morning
    with a patrol car behind them, so there was a lot more
    protection there than just what you see in the video, which was
    very promotional.
        Having said that, there is a lot of lessons learned, and
    part of the reason to have the policy out is so that people are
    basically handling all these safety issues before they're ever
    out testing or deploying these kinds of things. That's part of
    what we're trying to do, is be proactive instead of reactive,
    wait for something bad to happen and then react to it. We'd
    rather deal with all of these issues, not just with that truck
    example but what's going on in Pittsburgh. You cited all of the
    exciting things that are happening, but we really need to make
    sure that safety is being addressed, at least for these 15
    items, before these things get tested or deployed on the road.
        Senator Collins. Senator Reed. Thank you.

                                IMPACT ON LABOR

        Senator Reed. Thank you very much, Ms. Chairman.
        Mr. Brubaker, you in your testimony note also this
    potential labor shift and that we have to be prepared to
    respond to it. Could you just give us your advice or your
    thoughts on the type of coordination at the Federal level we
    have to take to anticipate this and deal with it?
        Mr. Brubaker. Sure, absolutely. I want to commend the
    subcommittee for the language that they put in the report
    language last year asking the Secretary to devote funds to TRB
    (Transportation Research Board) to study the economic impacts
    of these self-driving technologies because, as we all know,
    there will be displacement, and we really need to understand it
    and get proactive.
        So it's going to involve a number of different Federal
    agencies. I mean, the obvious one is the Department of Labor.
    They would be best poised to kind of understand where the
    shifts are. But I think even to the point where you're
    identifying the most vulnerable professions would be very, very
    helpful. And then even to the point where if people wanted to
    volunteer proactively for retraining and job placement in
    needed skill areas, we could coordinate that, and it's one of
    the areas that we lay out in our framework. It's the eighth
    area where we really need to be mindful of it and very
    sensitive.
        I mean, I grew up in Youngstown, Ohio, and I saw what
    happens when people don't--and how they vote later--when people
    aren't treated with respect.
        Senator Reed. That's exactly right. I was in Niles a few
    months ago, right outside of Youngstown.
        Mr. Brubaker. Near my hometown.
        Senator Reed. So I get it. We have to be very, very
    conscious of this.

            NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION GUIDANCE

        Doctor, you and RAND published a guide on this technology
    in 2014. As you look at NHTSA's guidance, do you think they're
    addressing policy areas that need to be addressed at the
    Federal level? I have harped on employment and cyber security.
    Are there other issues?
        Dr. Kalra. Can I ask, do you mean for NHTSA in particular,
    or the Federal Government in general?
        Senator Reed. NHTSA in particular, and then go big.
        Dr. Kalra. Okay. For NHTSA, I think they need to continue
    the course that they're going on. Their guidance is admirable.
    It threads the needle well on how do you provide guidance and a
    framework for safety while allowing innovation to occur. But
    one of those items is, for example, ethics, and it asks
    developers to say how will the car handle ethical issues. Even
    if the reporting is done, it's not clear that reporting will
    lead to safety. So there's a gap there because even though one
    can follow the guidelines, that doesn't mean autonomous
    vehicles will be safe, and that's because no one really knows
    how to prove safety in advance of getting these vehicles on the
    road.
        So I think continuing in that direction is important.
        For the Federal Government more broadly, in addition to the
    economic issues, I just want to reiterate that there are market
    distortions. I know this is wonky, this is what RAND does, but
    there are market distortions in our transportation system that
    mean that we don't take full advantage of the opportunity for
    cost savings.
        I'll be very specific. When we have pollution, whether it's
    factory pollution or automotive pollution, that's a real cost
    to our society. It is paid in healthcare. It is paid. It's not
    an invisible cost; it's a real cost. The question is who pays
    for it? So as long as the market does not take into account the
    costs that we all bear for some of these activities, there
    isn't an incentive, a market incentive to reduce them.
        So I think that is something that often gets overlooked as
    we talk about the safety of autonomous vehicles, which is
    understandable. But I would encourage us, if we want this
    future of sustainability and efficiency and mobility for
    everyone, to look at the other things in our transportation
    market that are preventing us already from achieving those
    goals.
        Senator Reed. Thank you.
        Ms. Hersman, in terms of NHTSA's guidance, do you think it
    effectively addresses safety concerns from your perspective?
        Ms. Hersman. I would say it's a good first step, and I
    think we can see the challenge that exists of not having
    anything and having a vacuum, and then the States are stepping
    in, there's a patchwork system. But I think we're also so in
    the early days here. There's so much that we don't know. If
    they were to put out regulations right now, they probably
    wouldn't be the right ones.
        So I think when we look at the balance between the Wild
    West of doing nothing and saying nothing on this and letting
    everyone do whatever they want versus locking everything down
    with prescriptive regulations going into the future, I think
    they've really tried to achieve a fine balance there. I think
    there's more work to be done, absolutely. But I think this
    gives people something to react to. It gives us a framework to
    start from.
        I do want to go back to the issue of workplace. We're a
    safety organization, so we track deaths and injuries. The
    transportation industry is one of the most dangerous when it
    comes to workers' health and their injuries and deaths. They're
    just behind the construction industry for absolute numbers of
    fatalities, and just behind agriculture and mining for the
    rates. So it's a very dangerous job. Forty percent of workplace
    fatalities are motor vehicle crash related.
        So those folks, we want to make them safer too. So if we
    can have that path to figure out how to take care of them over
    the long run, I think this will be good for them as far as
    their safety.

                               ROLE OF GOVERNMENT

        Senator Reed. There are so many opportunities for safety,
    for improved productivity, for better health effects. But then
    there's the other side of the equation of what about the
    drivers that have done a good job, the defined pension, et
    cetera, and suddenly there's an autonomous vehicles and thank
    you very much for your service. We have to deal with that.
        And that goes to the question of there are some people that
    might prefer the Wild West, let the chips fall where they may
    and this will work itself out. But that goes to, Mr. Rosekind,
    the agency has to have a role here.
        So can you just give us a sense of what that role is going
    forward as you deal with a very sophisticated industry that is
    conscious of these issues, the safety advocates of the cyber
    dimensions? Can you just give us assurance that it won't be the
    Wild West but it will be innovative and based on good
    experience?
        Mr. Rosekind. You've just heard from pretty much everybody
    on the panel what a challenging arena to address. How do you
    make sure you don't clamp it down, all this great American
    entrepreneurial spirit that could save lives and make life so
    much better for everybody? Henry Claypool is over there. We
    talk about the elderly. He's representing the disabled
    community. Never had driver's licenses; don't need them.
    Autonomous vehicles can do it. We're just talking about great
    entrepreneurship and innovation being tremendous and not
    wanting the Wild, Wild West. That's why it's the right tool at
    the right time.
        The policy is intended, we hope, to be literally as
    innovative for the government as it is for the technology
    companies. This is a first step. In fact, in there we make a
    commitment that in a year, with all of the different 23 next
    steps that are going on, on an annual basis this policy will be
    reviewed and updated. We can't do that with regulation in any
    kind of effective way.
        So we're trying to strike for a very first effort that
    right balance, to support innovation and safety. People think
    they're at the opposite ends. We're trying to support that
    middle ground, safety and innovation, because we're talking
    about 32,092 lives, and we could save all of them. Autonomous
    vehicles should play a critical role in us getting there.
        Senator Reed. Thank you.
        Thank you, Madam Chairman.

                             ENERGY AND ENVIRONMENT

        Senator Collins. Thank you and I appreciate very much you
    bringing up the employment impact, which is certainly something
    for us all to think about as well.
        I just have a couple more questions. One, Dr. Kalra, do you
    see any energy consumption and environmental benefits from the
    deployment of autonomous vehicles?
        Dr. Kalra. Absolutely. There are tremendous benefits and
    risks. But the benefits include, for example, if we have a
    large number of autonomous vehicles, we can increase the
    throughput of vehicles on our roads, reduce congestion, because
    a lot of congestion is actually caused by crashes. So there's a
    reduction in congestion, which immediately translates into a
    reduction in fuel consumption.
        But if we think big, one of the biggest challenges we have
    in getting real alternative fuels, like hydrogen, into our
    transportation system is the infrastructure problem, meaning
    the distribution problem of how many hydrogen stations do you
    need. And if an autonomous vehicle, fully autonomous, can drive
    itself to a hydrogen station in the future, gas up at 2:00 in
    the morning, or maybe there are long lines but no one cares
    because there's no one in there, autonomous vehicles could
    actually make possible transportation fuels that right now are
    struggling to get off the ground because of these logistical
    issues.
        So the opportunities, dare I say it, are limitless for
    improvement. But again, the market signals should also be in
    play.
        Senator Collins. Thank you.

                             ETHICAL CONSIDERATIONS

        I have one final question that I wanted to ask each of you,
    and that is as I have gotten more involved in this fascinating
    issue, there is a question that keeps occurring to me, and that
    is the ethical considerations that a human driver makes when
    faced with two unpalatable choices. I wonder how do you teach a
    fully autonomous vehicle judgment, the kind of judgment that
    that professional truck driver has because of his or her many
    years of experience.
        I was thinking--and we've all been in these kinds of
    situations where you have to make a split-second judgment on
    whether you're going to swerve around a vehicle that suddenly
    stopped or has spun on an icy road and risk going off the road
    and hitting a tree, perhaps killing yourself and your
    passengers, or a pedestrian or a bicyclist has darted in front
    of you in the road, and yet if you slam on the brakes you're
    going to be back-ended.
        I mean, driving is not a simple task. It requires complex
    judgments all the time. So how does a self-driving vehicle make
    those kinds of judgments?
        We'll start with the Administrator, and I'd like to go
    right down the line.
        Mr. Rosekind. I am going to use that to address two things.
    You've just raised a great example of all the unknowns that are
    out there still related to autonomous vehicles, and the
    questions you've just raised--and there are many, many more
    related to ethics--there are no answers right now. But we are
    taking hands off the wheel, human hands, and putting them into
    the hands of a coder, because that car will be programmed to
    make decisions, basically.
        So I think that's why, for example, people have questioned
    us--it's part of our 15-item assessment. We put ethics in
    there, and people have questions. When you think about when
    people are really going to accept these and have confidence,
    and we know the ethics are going to be an issue people are
    going to ask about, there are no answers right now. That's why
    it's in there for us to really look at the innovation of what
    people bring to this.
        But let me just add one element to that that nobody is
    really talking about. I've been fortunate over about the last
    decade to get to know Captain Gene Cernan, the Apollo 17
    astronaut, the last man who walked on the moon. One of my
    favorite sayings at safety meetings with him is, you know, I'm
    never going to live long enough to make all the mistakes that
    could kill me, right? So why does he go to safety meetings? For
    just that reason.
        So think about how all of us learned to drive a vehicle.
    Our experience is those ethical decisions we're going to make
    are based on our personal experience. Now, with autonomous
    vehicles, if we collect all of this information and share those
    cases where somebody died in some unique edge or corner case,
    if that information were shared, no other person should ever
    lose their life in that same situation because that information
    gets shared with the entire fleet, with every vehicle that's
    out there. That's the future that we could look toward,
    including in these ethical issues. We get to make decisions at
    some point that we could share and make sure that everybody
    basically is allowed the same opportunity to be safe.
        Senator Collins. Thank you.
        Ms. Hersman.
        Ms. Hersman. I would probably fall back on the 10 years
    that I spent at the NTSB and say that we've got to take care of
    the data. That means we've got to learn from the data. It's got
    to be accessible. We have to have standardized, accessible
    formats.
        If you think about black boxes on airplanes, that's how we
    learn. We know what happened. When it comes to autonomous
    vehicles, or even something that's in-between, in order to
    understand those decisions or those outcomes that you talked
    about, who was in charge? The car, the human, or some
    combination of the two?
        We've got to share that data. When we talk about mistakes
    that occurred or close calls or things that happened, if we
    don't have all manufacturers willing to share those lessons
    learned, we're going to have to have each provider learn the
    lesson anew every time. So we've got to look at this
    holistically and say there will be failures. Will there be
    deaths? Absolutely, as this technology rolls out. Will there be
    things that happen that we don't expect? I can't tell you how
    many investigations we went into and people said this was never
    supposed to happen. This scenario was 10 to the minus 9th. It
    was never going to occur, and it did.
        So things will happen, but that data to me is incredibly
    important to how this rolls out and to maintain that confidence
    going forward. We've got to learn.
        Senator Collins. Thank you.
        Mr. Brubaker.
        Mr. Brubaker. Yes. So these ethical issues when they get
    raised cause me to lose the rest of my hair here. Part of the
    issue is we're all thinking about this in a human context.
    We're all sort of applying that judgment that we have to make,
    and what we're not cognizant of or what we're really not
    thinking through is that the level of situational awareness
    that these vehicles are going to have far exceeds that of a
    human. You're talking about redundant sensors. You're talking
    about the ability to see far beyond what a human eye can see
    and have this 360-degree, 24/7 situational awareness.
        The data is important. I agree with the two prior speakers.
    But the thing that we have to remember is that this is all
    about artificial intelligence. This is about instantly
    assessing the situation, constantly assessing it, calculating
    probabilities and reducing the risk of being in an emergent
    situation where you've got to make two really unpalatable
    choices.
        So my whole view on this, and this is from having lots and
    lots of conversations with people in the AI world and people
    who are looking at this and building the sensor suites and
    mashing up this technology, that those ethical considerations
    are--I don't want to call them a red herring, but in many cases
    the whole notion is to create the kind of technology that will
    avoid those emerging situations in the first place.
        Senator Collins. Thank you.
        Dr. Kalra.
        Dr. Kalra. I agree with the other speakers in almost every
    regard. I do want to say that when we raise these vivid
    examples of swerve or do this, people don't actually make
    ethical judgments when they decide what to do. They make snap
    judgments. They don't have time. They barely react. It's just a
    knee-jerk thing that you do without thinking about the
    consequences. The ethical things that we do when we drive, or
    the unethical things, are driving when we're intoxicated, or
    texting while we drive, and autonomous vehicles won't make
    those kinds of ethical mistakes.
        But the ethical judgments that autonomous vehicles will
    have to make I don't believe are the pedestrian versus the
    driver but really about how the autonomous vehicle distributes
    risk on the road at every moment of driving. The example I'll
    give is when I'm driving and there's a bicyclist next to me,
    I'll drive in the middle of the lane because I want to
    distribute the risk differently between the bicycle, myself,
    and the other people who might be on the road. Autonomous
    vehicles will have to make those judgments, and I think
    attention needs to be placed on how do autonomous vehicles
    ethically distribute regular risk on the road rather than in
    the sort of imminent crash cases, and there's no answers to
    this because even ethicists don't have the thing that's the
    right thing to do. But I would urge us to put our attention on
    those everyday kinds of ethical problems.
        Senator Collins. Thank you very much.
        Senator Reed, do you have anything else?
        Senator Reed. No.
        Senator Collins. I want to thank you all for testifying
    today. This was a superb panel.
        This technology is so fascinating and moving so quickly,
    and the fact that it could substantially reduce or perhaps one
    day even eliminate the 94 percent of crashes that are
    attributable to human error is truly an astonishing fact, and
    that's one fact that prompted me to call this hearing.
        I appreciate your advancing our understanding of the
    issues, the technology, and the policy considerations that we
    will have to face.

                             CONCLUSION OF HEARINGS

        The hearing record will remain open until next Wednesday,
    November 23rd, 2016. There may be additional questions
    submitted by us or by our colleagues for the record. We very
    much appreciate your cooperation, and we look forward to
    continue to working with you.
        This hearing is now adjourned.
        [Whereupon, at 3:53 p.m., Wednesday, November 16, the
    hearings were concluded, and the subcommittee was recessed, to
    reconvene subject to the call of the Chair.]

                  MATERIAL SUBMITTED SUBSEQUENT TO THE HEARING

        [Clerk's Note.--The following outside witness testimonies
    were received subsequent to the hearing for inclusion in the
    record.]
    Prepared Statement of John Bozzella, President and CEO, Association of
                               Global Automakers
        On behalf of the Association of Global Automakers (``Global
    Automakers''), I am pleased to provide the following statement for the
    record of the Senate Committee on Appropriations Subcommittee on
    Transportation, Housing and Urban Development, and Related Agencies
    hearing entitled ``The Automated & Self-Driving Vehicle Revolution:
    What Is the Role of Government?'' Global Automakers represents
    international automobile manufacturers that design, build, and sell
    cars and light trucks in the United States. These companies have
    invested $52 billion in U.S.-based facilities, directly employ more
    than 100,000 Americans, and sell 47 percent of all new vehicles
    purchased annually in the country. Combined, our members operate more
    than 300 production, design, R&D, sales, finance and other facilities
    across the United States.
        The automotive industry is in the midst of an unprecedented wave of
    technological innovation that is redefining how we think about
    transportation. Advancements in connected and automated vehicle
    technology promise to enhance mobility, help save lives, improve
    transportation efficiency, and reduce fuel consumption and associated
    emissions. Over the past several decades, our members have made
    tremendous strides in safety by improving vehicle crashworthiness;
    today, automakers are deploying crash avoidance technologies to help
    prevent crashes from occurring altogether. Our members are at the
    forefront of this innovation, as they have made, and continue to make,
    substantial investments in the research and development of automated
    vehicle systems and other advanced automotive technologies.
        With the introduction of advanced sensors such as cameras and
    radar, a number of vehicles on the road today already provide automated
    functionality through advanced crash-avoidance and convenience features
    like automatic emergency braking, lane keeping assist, and adaptive
    cruise control. These systems, which are foundational to the
    development of more highly automated systems, are designed to provide
    support to the driver only in certain situations. As these systems
    become more advanced, a vehicle's capability to operate without active
    control by the driver will increase.
        The next breakthrough in vehicle safety, and a critical technology
    for realizing the benefits of automated driving, is Dedicated Short
    Range Communications (DSRC) connected car technology. This technology
    supports vehicle to vehicle communications (V2V) allowing cars to have
    greater 360-degree situational awareness. Through DSRC, vehicles can
    speak to each other and to surrounding infrastructure at the rate of
    ten times per second to avoid crashes and improve mobility. This
    technology is on the road today; pilot projects and deployments around
    the country are using DSRC supported applications to demonstrate the
    value of connected mobility to the traveling public. Soon, and
    increasingly into the future, we will share our roads with automated
    vehicles; V2V has the ability to connect all vehicles, regardless of
    mode or level of automation.
        While we are indeed at the cusp of a transportation revolution
    through connected automation, these transformations are not inevitable
    nor accidental. Public policy can either spur investment and
    innovation, or hinder them, depending on which policy choices are made.
    Effective public policy on connected and automated vehicles should have
    two components. First, it should be flexible and provide room for
    innovators to develop, test and sell new technologies. Overly
    prescriptive and rigid regulation would slow and limit innovation.
    Second, manufacturers should be able to build vehicles and systems that
    can be sold in all fifty States. A patchwork of inconsistent laws and
    regulation would be unworkable.
        The National Highway Traffic Safety Administration (NHTSA) Federal
    Automated Vehicle Policy, released in September 2016, provides a policy
    framework that is more flexible and nimble than the formal rulemaking
    process, and recognizes that technology can advance more rapidly than
    regulation. Last month, NHTSA issued its Cybersecurity Best Practices
    for Modern Vehicles to complement the important efforts already
    underway within the Automotive Information Sharing and Analysis Center
    (Auto-ISAC) to develop industry-led best practices to enhance vehicle
    cybersecurity as systems become more electronic and connected. Issues
    of consumer privacy have also been addressed through the automakers'
    consumer privacy protection principles. These actions, by Federal
    regulators and industry, help spur the development of live-saving
    technologies and ensure that the public has confidence in them.
        The NHTSA's Federal Automated Vehicle Policy is intended to address
    a number of key policy questions and is a positive first step to
    demonstrate Federal leadership. The Policy is divided into four main
    sections. First, the Vehicle Performance Guidance for Automated
    Vehicles outlines recommended practices for the safe pre-deployment
    design, development and testing of highly automated vehicle systems
    prior to the sale or operation on public roads. The Guidance was
    designed to be flexible and dynamic; it is intended by NHTSA to
    highlight important areas that manufacturers should consider and
    address as they design and test their systems. The Guidance provides
    for a ``Safety Assessment Letter,'' a voluntary tool by which
    developers would communicate to the agency how it addresses fifteen key
    safety areas in designing their vehicles and systems. NHTSA is in the
    midst of developing a template for the Letter, and we believe NHTSA
    should establish a clearly defined and practicable approach that does
    not create an undue administrative burden that could slow innovation.
    It is also our expectation that NHTSA will not use the Guidance and the
    Safety Assessment Letter as a mechanism for ``premarket approval'' (or
    ``premarket disapproval'') of automated vehicle technology, as this
    would extend beyond the agency's current authority.
        Second, the agency has developed a Model State Policy which seeks
    to provide guidance to the States in order to help support a more
    uniform nationwide approach to automated vehicle policy. While the
    Policy cannot in itself preempt State action, it does set a clear
    marker in defining the roles of State government in addressing issues
    related to vehicle automation. We support the strong statements in the
    Policy that affirm that ``[t]he shared objective is to ensure the
    establishment of a consistent national framework rather than a
    patchwork of incompatible laws,'' and that ``[the] Guidance is not
    intended for States to codify as legal requirements for the
    development, design, manufacture, testing, and operation of automated
    vehicles.''
        However, despite the guidance in the Model State Policy, several
    States are in the process of establishing their own regulatory programs
    for automated vehicles. In some instances, State departments of motor
    vehicles would assume the responsibility of determining whether a
    particular automated vehicle or system is safe and thus may be sold or
    operated in the State. Such State-by-State regulations would present a
    significant obstacle to the future testing and deployment of automated
    vehicles. While the Model State Policy clearly delineates the Federal
    roles and States' roles, it does not clearly limit or prevent State
    regulation of automated vehicle design and performance.
        Additionally, we have some concerns with certain recommendations in
    the Model State Policy that encourage States to regulate automated
    vehicle test programs. Already, we have seen State proposals to require
    manufacturers to obtain an ordinance authorizing testing from each
    local jurisdiction in which testing will be conducted. However, Federal
    law authorizes original manufacturers to conduct on-road test programs
    and authorizes NHTSA to regulate test programs. Allowing a patchwork of
    State and local test requirements for automated vehicle testing would
    significantly obstruct the development of these vehicles. We are open
    to working with NHTSA and Congress to ensure there is a path forward
    for automated vehicle deployment without unnecessary obstacles at the
    State level.
        Third, the Federal Policy provides a useful description of the
    agency's current regulatory tools, which includes issuance of safety
    standards, interpretations of the meaning and application of standards,
    and exemptions from standards, as well as the agency's ability to take
    enforcement action regarding safety related defects. Each of these
    tools could have a valuable application in facilitating and regulating
    the entry of automated vehicles into U.S. commerce. At the same time,
    we must consider the long-term efficacy of these tools in determining
    whether other regulatory and non-regulatory policies may be appropriate
    and necessary in the future. It is important that any action be data
    driven and technology neutral.
        Finally, the agency discusses the potential new tools and
    authorities that may be necessary in addressing the challenges and
    opportunities involved in facilitating the deployment of automated
    vehicles. We agree with NHTSA's assessment that new authorities could
    assist the agency in facilitating the development and introduction of
    automated technology. However, imprudent legislation in this area could
    have the opposite effect and delay technology development. For example,
    we see no basis at all for any change to the self-certification system
    for vehicles. The Federal Policy's discussion of the Federal Aviation
    Administration (FAA) process of ``premarket approval'' is not practical
    given the structural differences between the automotive industry and
    aviation sector, and implementation of such an approach could
    significantly slow innovation. Similarly, the Safety Assessment Letter
    should not be used as a means to prohibit testing or deployment of
    technology without adequate data to support an unreasonable safety
    risk.
        We believe that NHTSA's Federal Automated Vehicle Policy is an
    important first step in the development of a flexible and nimble
    approach that can adapt to the pace of technology. However, the
    document requires further clarification and refinement to achieve these
    goals. Global Automakers is currently preparing comments on the NHTSA
    guidance and will provide a copy to the Committee upon submission to
    NHTSA. Additionally, we agree with NHTSA that the agency should update
    its Federal Automated Vehicle Policy and regularly review the Policy,
    as it is designed to never be frozen or final. Global Automakers and
    its members remain committed to working with Federal, State, and local
    governments to ensure there is a flexible, consistent framework for
    automated vehicle technologies so consumers can fully realize the
    benefits as quickly as possible.
        In addition, the Federal Government must move expeditiously to
    establish a framework for the deployment V2V communications through
    DSRC connectivity. NHTSA is developing a new vehicle safety standard
    that would require vehicles to be equipped with DSRC technology. Global
    Automakers looks forward to the release of the proposed rule, and will
    continue to work with the Federal Communications Commission to ensure
    that the 5.9 GHz Safety Spectrum remains free from harmful interference
    to support DSRC technology.
        The automobile industry continues to provide innovative
    technologies with demonstrable safety, mobility, and environmental
    benefits. To achieve these benefits, there must be close collaboration
    and coordination among and between government, industry, academia, and
    other stakeholders. Global Automakers and our member companies believe
    that connected and automated vehicles represent the next giant leap
    towards our shared long-term goal of safer and cleaner, and more
    efficient vehicle transportation.
                                     ______

    Prepared Statement of Property Casualty Insurers Association of America
        There are public perceptions that auto accidents and insurance
    costs are decreasing. In fact, our roads are becoming increasingly
    dangerous and auto repair and medical costs are increasing. According
    to the National Highway Transportation Safety Administration (NHTSA),
    17,775 people died on our Nation's roads in the first half of 2016.
    Traffic deaths are increasing at the fastest rate in 50 years, with a
    10.4 percent increase in the first 6 months of this year. Even adjusted
    for the increase in vehicle miles traveled (VMT), the fatality rate
    increased 6.6 percent to 1.12 per 100 million VMT. Non-fatal injuries
    are on the rise as well, increasing 28 percent since 2009, according to
    the National Safety Council. Someday, self-driving cars may reduce the
    number of accidents and deaths. However, the potential of automated
    vehicle technology stands in sharp contrast to what is happening on our
    roads today.
        The Property Casualty Insurers Association of America (PCI) is
    composed of nearly 1,000 member companies, representing the broadest
    cross section of insurers of any national trade association. PCI
    members write $202 billion in annual premium, 35 percent of the
    Nation's property casualty insurance. That figure includes over $97
    billion, or 42 percent, of the auto insurance premium written in the
    United States. PCI's analysis has found that since 2013, auto claims
    frequency has increased nearly 5 percent, increasing the overall cost
    of claims by more than 18 percent. PCI has analyzed the recent increase
    in auto insurance claim frequency and found strong correlations with
    traffic congestion and distracted driving, weaker correlations from
    increasing populations of novice and older drivers, and some
    correlation with liberalized marijuana laws.
        While it is important to prepare for the automated vehicle of the
    future, we urge policymakers to continue to focus on the auto safety
    challenges that face us today, such as distracted and impaired driving.
    H.R. 22, the FAST Act, provides for increased public awareness,
    improved enforcement, and establishing an enforceable impairment
    standard for drivers under the influence of marijuana. These provisions
    are critical to reducing accidents, injuries and deaths on our Nation's
    roads. The importance of addressing these issues was also the subject
    of a bipartisan letter from 23 members of Congress to Transportation
    Secretary Foxx urging prompt implementation of these FAST Act
    provisions.
        [The bipartisan letter is attached.]
        NHTSA recently unveiled its ``Federal Automated Vehicle Policy,''
    which is intended to provide guidance for States on the testing and
    deployment of highly automated vehicles (HAVs). While mentions of
    insurance are few, the new policy raises issues that are important to
    the automobile insurance market as it seeks to adapt and develop new
    products to meet consumer needs.
       recognition of state regulation of insurance and liability issues
        NHTSA's policy identifies the following as Federal
    responsibilities: setting and enforcing safety standards for motor
    vehicles, recalls, promoting public awareness and providing guidance
    for the States. NHTSA's policy also recognizes that it is the State's
    role to license drivers and vehicles, enforce traffic laws, regulate
    motor vehicle insurance, and legislate regarding tort and criminal
    liability issues pertaining to automated vehicles. PCI shares the view
    that the States should continue to have primacy on motor vehicle
    insurance and liability issues as they do today, and we support NHTSA's
    recognition of that role.
        NHTSA's policy also repeats the recommendation from its 2013
    guidance that entities testing automated technology should provide
    proof of financial responsibility coverage of at least $5 million. PCI
    has not taken a position on this coverage requirement. However, as HAVs
    are deployed for public use, States will need to consider what, if any,
    changes need to be made to existing State motor vehicle financial
    responsibility laws.
                           data collection and access
        As policymakers consider what data should be collected and retained
    by automated vehicles, it is essential that insurers have reasonable
    access to the data for providing customer service for claims handling
    and underwriting purposes. In many auto accidents, apportionment of
    liability is likely to hinge upon whether or not a human driver or the
    vehicle itself was in control and what actions either the driver or the
    vehicle took or did not take immediately prior to the loss event.
    Access to data for insurers will speed claims handling and potentially
    avoid disputes that could delay compensation to accident victims.
    Access to historical anonymized data on the different automated vehicle
    systems will also be important to help insurers innovate and develop
    new insurance products as the nature of the risk changes.
                                   conclusion
        Automated driving technology holds great promise for the future.
    Implementing clear policies on the Federal and State roles in
    regulating automated vehicle technology and ensuring that insurers have
    access to vehicle data on reasonable terms to efficiently handle
    claims, develop products and underwrite are essential to that future.
    However, policymakers must not lose sight of the auto safety issues
    that face us today. We look forward to working with policymakers at the
    Federal and State level to reduce accidents on our roads today and in
    the future.

                                   Attachment

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page

    Affordable Rental Housing ACTION, Prepared Statement of the......   179

    Bozzella, John, President and CEO, Association of Global
      Automakers, Prepared Statement of..............................   252
    Brubaker, Hon. Paul, President and CEO, The Alliance for
      Transportation Innovation......................................   220
        Prepared Statement of........................................   222

    Capito, Senator Shelley Moore, U.S. Senator From West Virginia,
      Questions Submitted by.........................................    62
    Castro, Hon. Julian, Office of the Secretary, Department of
      Housing and Urban Development..................................     1
        Prepared Statement of........................................     8
        Summary Statement of.........................................     6
    Collins, Senator Susan M., U.S. Senator From Maine:
        Opening Statements of

        Prepared Statements of

        Questions Submitted by

    Daines, Senator Steve, U.S. Senator From Montana, Questions
      Submitted by...................................................   114

    Foxx, Hon. Anthony, Office of the Secretary, Department of
      Transportation.................................................    67
        Prepared Statement of........................................    75
        Summary Statement of.........................................    73

    Gentry, Richard, President and CEO, San Diego Housing Commission.   153
        Prepared Statement of........................................   154
    Graham, Senator Lindsey, U.S. Senator From South Carolina,
      Questions Submitted by.........................................   125

    Hersman, Hon. Deborah, President and CEO, National Safety Council   210
        Prepared Statement of........................................   212

    Kalra, Dr. Nidhi, Co-Director, Rand Center for Decision Making
      Under Uncertainty..............................................   225
        Prepared Statement of........................................   227

    Montoya, Hon. David A., Inspector General, Department of Housing
      and Urban Development..........................................    33
        Prepared Statement of........................................    34
    Murphy, Senator Christopher, U.S. Senator From Connecticut,
      Questions Submitted by.........................................    65
    Murray, Senator Patty, U.S. Senator From Washington, Questions
      Submitted by...................................................   120

    Olsen, Dr. Edgar, Ph.D., University of Virginia Professor of
      Economics and Public Policy....................................   134
        Prepared Statement of........................................   135

    Poethig, Erika, Fellow and Director of Urban Policy Initiatives,
      The Urban Institute............................................   144
        Prepared Statement of........................................   145
    Property Casualty Insurers Association of America, Prepared
      Statement of...................................................   254

    Reed, Senator Jack, U.S. Senator From Rhode Island:
        Questions Submitted by.......................................   118
        Statements of

    Rosekind, Hon. Mark, Administrator, National Highway Traffic
      Safety Administration..........................................   204
        Prepared Statement of........................................   206

    Schatz, Senator Brain, U.S. Senator From Hawaii, Questions
      Submitted by

    Scovel, Hon. Calvin III, Inspector General, Department of
      Transportation.................................................    95
        Prepared Statement of........................................    97

    Yentel, Diane, President and CEO of the National Low Income
      Housing Coalition, Prepared Statement of.......................   193

                               SUBJECT INDEX

                                  ----------

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

      Housing Vulnerable Families and Individuals: Is There a Better Way?

                                                                       Page

    ACTION Campaign Members..........................................   181
    Accountability Through the Tax Code..............................   179
    Addressing Homelessness..........................................   161
    An Alternative Approach to Increase Needed Investments...........   197
    Choice Neighborhoods Initiative..................................   168
    Complement to Other Housing Programs.............................   180
    Demolition/Disposition Activity..................................   163
    Emergency Relief.................................................   166
    Homelessness.....................................................   175
    Housing:
        Assistance Supply Experiment.................................   165
        Choice Voucher Program

        First--San Diego.............................................   161
        Subsidies....................................................   167
    How to Improve HUD...............................................   176
    Importance of Public Housing.....................................   194
    Incentive to Address a Market Failure............................   180
    Jobs Plus Demonstration..........................................   174
    Low Income Housing Tax Credits...................................   165
    Model Public-Private Partnership, A..............................   179
    Moving to Work Program

    No Silver-Bullet Solution........................................   193
    Overview of Current System.......................................   136
    Policy Recommendations...........................................   195
    Private Market Alone Cannot Supply Affordable Housing............   148
    Project-Based Rental Assistance

        And Low Income Housing Tax Credits...........................   167
    Proven Tool to Address a Vast and Growing Need, A................   179
    Providing Federal Rental Assistance..............................   158
    Public Housing:
        Capital Fund.................................................   169
        Conversion--The San Diego Model..............................   156
    Return on Investment.............................................   175
    Section 8:
        Housing Choice Vouchers......................................   194
        And Work Disincentives.......................................   174
    Support the Affordable Housing Credit Improvement Act............   180
    Tenant-Based Rental Assistance

    Voucher Programs.................................................   173

                            Office of the Secretary

    Additional Committee Questions...................................    59
    Administering Programs Directed Toward Victims of Disasters......    47
    Assisted Housing and Criminal Justice Reform.....................    64
    Church Street South Project......................................    25
    Community:
        Development Block Grant

        Planning and Development Programs............................    50
    Compliance with:
        FHA Underwriting Standards...................................    56
        The Improper Payments Elimination and Recovery Act of 2010...    51
    ConnectHome......................................................    62
    Departmental Enforcement.........................................    52
    FHA

    Fair Market Rent.................................................    63
        Calculations.................................................    22
    Family:
        Self-Sufficiency Program.....................................    32
        Unification Program-Family Self Sufficiency Demonstration....    63
    Federal Programs for Homeless Veterans...........................    19
    Fiscal Year 2017:
        HUD Budget...................................................     8
        Request......................................................    35
    Funding for VASH Vouchers........................................    17
    GAO..............................................................    60
    Goal:
        1: Strengthen the Nation's Housing Market to Bolster the
          Economy and Protect Consumers..............................    10
        2: Meet the Need for Quality, Affordable Rental Homes........    10
        3: Use Housing as a Platform for Improving Quality of Life...    12
        4: Build Strong, Resilient and Inclusive Communities.........    13
        5: Achieving Operational Excellence..........................    16
    HUD:
        Information Technology Systems...............................    58
        Performance and Management Challenges........................    38
    High Income Households in Public Housing

    Homelessness.....................................................    27
    Housing:
        Inspections of Section 8 Vouchers............................    55
        Trust Fund...................................................    61
        Vouchers for the Homeless....................................    21
    Lead Paint Inspections...........................................    20
    Local:
        Building Codes...............................................    56
        Housing Policy Grants-Affordable Housing.....................    65
        Rent Costs...................................................    28
    Moving to Work...................................................    29
    National Housing Trust Fund......................................    22
    OIG Program Divisions............................................    36
    Office of Inspector General--Semi-Annual Report to Congress......    24
    Physical Inspections of HUD Assisted Properties..................    18
    REAC Inspection Process..........................................    26
    Rental Assistance Demonstration..................................    59
    Section 811 Supportive Housing...................................    26
    United States Interagency Council on Homelessness................    31
    Updating Standards for Lead Paint................................    20
    Waste, Fraud and Abuse in HUD Programs...........................    57
    Youth:
        Exiting Foster Care..........................................    30
        Homelessness.................................................    32

                          DEPARTMENT OF TRANSPORTATION

                            Office of the Secretary

    Additional:
        Committee Questions..........................................   111
        Resources....................................................   109
    Addressing New and Longstanding Safety Challenges................    97
    Advances Public and Private Sector Collaboration to Accelerate
      Cost-Competitive, Low-Carbon Technologies and Intelligent
      Transportation Systems.........................................    76
    Air Traffic Controller Staffing..................................    81
    Airport:
        Certification................................................    90
        Reconstruction Project.......................................    82
    Amtrak:
        Investments and Positive Train Control.......................    84
        Service......................................................    94
    Autonomous Vehicles..............................................    80
    Continuing Diligent Stewardship Over Dot's Critical Investments..   100
    Contract Weather Observers.......................................    91
    Criminal Violations..............................................   108
    Cybersecurity....................................................   105
        NextGen......................................................   106
    Enhancing:
        DOT's IT Security And Preparedness...........................   103
        Surface Transportation.......................................    75
    Ensures Transportation Safety Keeps Pace With Changing Technology
      and Organizational Needs.......................................    76
    Hazardous Materials..............................................   107
    Highway Safety...................................................   116
    Investing in Clean, 21st Century Surface Transportation Options
      that Reflect America's Changing Demographics and Provide Access
      to Opportunity.................................................    76
    Invests in 21st Century Government and Project Delivery..........    77
    Maritime Training Vessels........................................    92
    NextGen Modernization............................................    82
    Passenger Facility Charges.......................................    83
    Pedestrian Safety................................................    87
    Preparing for Reauthorization of the FAA.........................    77
    Sexual Assault and Sexual Harassment

    Short Line Rail..................................................    86
    Smart City Challenge.............................................    86
    Speed Limiters...................................................    81
    Tiger............................................................    89
    Transporting Hazardous Materials.................................    92

               The Automated and Self-Driving Vehicle Revolution:
                        What is the Role of Government?

    American National Standards Institute Standard...................   219
    Crashes Relevant to 4 Crash Avoidance Systems FARS and GES, 2004-
      2008...........................................................   215
    Cybersecurity....................................................   239
        Risks........................................................   243
    Data:
        Protection and Sharing.......................................   217
        Security.....................................................   241
    Dedicated Short Range Communication..............................   216
    Distracted Driving...............................................   244
    Driving in Rural Areas...........................................   243
    Education and Training...........................................   216
    Energy and Environment...........................................   248
    Ethical Considerations...........................................   249
    Existing Vehicle Technologies....................................   238
    How Can Autonomous Vehicles Improve Mobility for Americans Who
      Currently May Have Limited Mobility?...........................   230
    Impact on Labor

    Lessons from Volvo Demonstration.................................   245
    Lifesaving Potential of Advanced Technology......................   212
    Mobility for Seniors.............................................   237
    Motor Vehicle Deaths on the Rise.................................   213
    National Highway Traffic Safety Administration:
        Automated Vehicles Policy....................................   212
        Guidance.....................................................   246
        Resources and Oversight in the Midst of Changing Technology..   219
    New Vehicle Series With Electronic Stability Control by Model
      Year...........................................................   214
    Registered Vehicles With:
        Available ESC, Actual and Predicted..........................   215
        Electronic Stability Control by Calendar Year................   214
    Road to Zero.....................................................   219
    Role of Government...............................................   247
    Rulemaking Process...............................................   243
    Standardized Nomenclature and Performance Outcomes...............   217
    State Regulations of Automated Vehicles..........................   238
    What Mechanisms Can Help Realize the Benefits and Mitigate the
      Drawbacks of Autonomous Vehicles?..............................   233
    Will Autonomous Vehicles Be Safe Before They Are Allowed on the
      Road for Consumer Use?.........................................   227

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