[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
         
         
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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.
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    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.
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    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.
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  --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.
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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\
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    \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.
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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.
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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    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\
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    \12\ 49 United States Code Section 521(b)(6)(A) is a misdemeanor 
statute for violations of certain FMCSA regulations.
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    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.
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    \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.
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    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.
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    \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.
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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.
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    \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.
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    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.
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    \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.
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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.
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    \23\ FAA Continues to Face Challenges in Ensuring Enough Fully 
Trained Controllers at Critical Facilities, (OIG Report Number AV-2016-
014), January 11, 2016.
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    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.
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    \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.
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              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.
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    \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.
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    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\
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    \28\ Continuous monitoring involves establishing processes and 
capabilities to provide near real-time security information to senior 
leaders.
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    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.
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    \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.
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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.
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    \31\ Departmental Cybersecurity Compendium Supplement to DOT Order 
1351.37, ``Departmental Cybersecurity Policy,'' Version 3.0, September 
2013.
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    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.
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    \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.
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    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\
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    \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.
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    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.
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    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 [email protected].


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\
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    \1\ Injury Facts 2016.
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    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\
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    \2\ Https://crashstats.nhtsa.dot.gov/Api/Public/Publication/812231.
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    3,179 people were killed in distraction related crashes \3\
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    \3\ Https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/
812260.
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    9,385 people were killed while unrestrained.\4\
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    \4\ Https://crashstats.nhtsa.dot.gov/Api/Public/Publication/812246.
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    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.
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    \5\ Http://www.ntsb.gov/news/events/Pages/2016_dte_RT_agenda.aspx.
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    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.''
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    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.
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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\
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    \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.
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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 

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    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 

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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 

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    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 

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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 

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    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 

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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 

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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 

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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 

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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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