[Congressional Record Volume 141, Number 22 (Friday, February 3, 1995)]
[Senate]
[Pages S2075-S2077]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


      THE FUTURE OF FEDERAL HOUSING POLICY AND HUD'S BUDGET CRISIS

  Mr. BOND. Mr. President, I rise today to discuss the future of 
Federal housing and community development policy and the financial and 
management crisis currently facing the U.S. Department of Housing and 
Urban Development.
  Last November, the American people declared their anger and 
frustration with inefficient, ineffective, and wasteful Government 
programs of the past and demanded change. This new Congress must 
deliver on that mandate, not with more promises and debates, but with 
specific action and workable solutions. I emphasize that this mandate 
has provided the House and Senate with a real opportunity to revitalize 
Federal housing policy; namely, to redirect Federal housing and 
community development policy from HUD micromanagement to a policy of 
consolidation based on State and local decisionmaking.
  I look forward to working with my colleagues, including my new 
ranking member, Senator Barbara Mikulski, our new chairman of the 
Banking Committee, Senator D'Amato, Senator Sarbanes, and the new 
chairman of the Housing Opportunities Subcommittee, Senator Mack, and 
my friends across the aisle, to find the appropriate reforms and 
meaningful approaches to address the many housing and community needs 
of this country.
  Primarily, I seek to sound an alert to my colleagues to the budgetary 
crisis at HUD and use this opportunity as a call to action. HUD has 
been likened to a massive bureaucratic and budgetary Titanic drifting 
inexorably on the shoals of spending reductions and a balanced budget 
amendment. We can't stop it, and we can't turn it around on a dime. No 
doubt some of our colleagues would just as soon fiddle with the deck 
chairs, and others would simply scuttle the vessel.
  Moreover, I share many of those concerns. Despite my reservations 
about the great difficulty of finding real and meaningful solutions to 
the budgetary and management crisis facing the Department of Housing 
and Urban Development, I accepted the responsibilities of chairman of 
the Senate VA-HUD Appropriations Subcommittee for the 104th Congress.
  In order to reach a better understanding of the HUD budgetary crisis, 
I 
[[Page S2076]] began on January 19, 1995, a series of three hearings on 
HUD management, program status, program reform, and HUD funding before 
the VA-HUD Appropriations Subcommittee. We have completed these three 
initial hearings and the subcommittee has heard compelling testimony 
from a number of sources, including HUD Secretary Cisneros, the 
National Academy of Public Administration, the General Accounting 
Office, Ms. Susan Gaffney, the HUD inspector general, the Congressional 
Budget Office, the FHA Commissioner, Nicolas Retsinas, as well as 
testimony from witnesses representing housing organizations, and State 
and local officials.
  I hope that these hearings will help both me and my colleagues in the 
weeks and months ahead to formulate, craft, and implement the changes--
in some cases profound changes--which are necessary to sustain the 
Department and to serve the needs of our communities.
  First, these hearings clarified that HUD programs as they currently 
stand cannot be sustained in this era of a freeze on discretionary 
spending. But if we are to preserve the billions of dollars of prior 
investment in the assisted housing inventory, and provide hope to 
millions of lower income families, senior citizens, the disabled, and 
the communities in which they reside, then we must chart a new course, 
and put steady and firm pressure at the helm.
  I believe it important that I highlight and share some of the key 
issues we have identified and discussed over the last several weeks.
  HUD, with an estimated $22 billion in annual outlays in fiscal year 
1994, is one of the largest Federal agencies in terms of domestic 
discretionary spending with almost 12 percent of the federalwide total.
  HUD is also one of the fastest growing Departments in terms of 
domestic discretionary spending, increasing at a rate of 9 percent per 
year.
  Moreover, HUD has amassed over $225 billion in unexpended budgetary 
authority, more than the entire Department of Defense and dwarfing all 
other Federal agencies. In fact, even were HUD abolished in fiscal year 
1995 and no additional budget authority appropriated, HUD's outlays--
actual dollars spent--for fiscal year 1996 would still go up.
  Finally, in addition to substantial evidence of organizational, 
management, and program deficiencies, HUD faces a thicket of complex 
problems of enormous magnitude, including: First, the need to minimize 
mortgage loan defaults and address the physical inadequacies of insured 
multifamily properties, an area of critical importance since HUD 
expects to lose some $10 billion in multifamily loan defaults over the 
next 6 years; second, the need to resolve the billions of dollars of 
backlogged housing rehabilitation needs, increased vacancy rates, and 
declining tenant incomes for public housing residents; and third, the 
need to address the spiraling costs of providing Federal housing 
subsidies to lower income families.
  Despite these problems, I emphasize that previously enacted 
limitations on discretionary spending do not allow any increase in 
current appropriations, even for inflation. In fact, the most recent 
analysis indicates that even with a hard freeze on overall 
discretionary spending, current budget caps will be breached by a total 
of $15 billion in budget authority and $11 billion in outlays over the 
next 3 fiscal years.
  Nevertheless, the notion of a hard freeze is totally incompatible 
with HUD's projection of program needs. The HUD budget baseline, for 
example, suggests that we will increase budget authority by almost $70 
billion and outlays by $26 billion over the next 5 fiscal years. The 
Department has indicated that the President's budget will reduce this 
increase down to an estimated $20 billion in budget authority and $13 
billion in outlays. I again stress that these funding requirements are 
still substantial increases over the current rates of spending. Not 
only are we in the dark on how the Department plans to make these 
reductions and meet these projections, but, if accepted, Congress must 
find this $20 billion in budget authority and $13 billion in outlays 
from other programs over the next 5 years.
  I want to make it clear about the extent of the HUD problems and the 
costs associated with these problems. Resolving them is a particularly 
difficult task since HUD has grown from an agency with some 50 programs 
in 1980 to an agency with the responsibility for over 200 programs 
currently. Therefore, I will address two broad categories of programs 
with which we are all familiar--the public housing program and the 
section 8 program. While I describe these programs in the singular, I 
remind my colleagues that there are many subsets of programs within 
each program.
  Public housing: As for the public housing program, there are 
currently some 13,200 public housing developments, administered by 
3,200 PHA's. These developments contain some 1.4 million units, with 92 
percent occupancy as of 1991, providing shelter for more than 3.4 
million low-income, public housing residents, 40 percent of whom are 
elderly or disabled.
  Public housing has become, in general, housing of last resort; the 
assisted housing stock that tends to warehouse the poorest of the poor. 
In particular, median income in public housing is approximately 16 
percent of the local area median income, down from 33 percent in 1980. 
The average income of nonelderly public housing residents is less than 
$7,000.
  Operating subsides continue to cost about $2.7 billion per year. Yet, 
much of this stock is in physical distress and aging, with 
modernization needs that exceed $20 billion. Moreover, many of the 
older public housing developments are in neighborhoods that are 
distressed. Nearly all 700,000 nonelderly public housing households 
live in areas that are characterized by extreme poverty and high crime 
rates. Nevertheless, the public housing program continues to stagnate, 
strangled by bureaucratic redtape and unworkable legislative mandates.
  Section 8: The Section 8 Rental Assistance Program is a microcosm of 
the budgetary crisis facing the Department. About 2.8 million lower 
income families receive assistance under the section 8 program. To be 
blunt, HUD estimates that by fiscal year 1996 the total cost of 
renewing section 8 tenant-based assistance known as vouchers and 
certificates will exceed $9.5 billion in budget authority, whereas the 
current appropriation is less than $3.3 billion. This budget estimate 
assumes a HUD shortening of contract term renewals from a traditional 5 
year period to a 3-year contract term. By the year 2000, the annual 
cost of these section 8 contract renewals would approach $20 billion in 
budget authority. In the current fiscal climate, the Federal budget 
cannot begin to meet these renewal commitments; thus threatening 
hundreds of thousands of families currently receiving assistance with 
eviction or dramatic rent increases.
  The cost of section 8 project-based assistance similarly is reaching 
crisis proportions. Some 940,000 units were developed under the section 
8 new construction and substantial rehabilitation contracts of the 
1970's and 1980's. Most of these units have been financed with section 
8 project-based contracts that exceed the local fair market rents or 
the rents of comparable units, and in many cases these contracts 
represent 140 percent or more of the fair market rent. The budget 
authority for these contracts was appropriated to cover contract costs 
for 20- to 40-year periods, and many of these section 8 project-based 
contracts are now starting to come up for renewal.
  These section 8 project-based contracts represent another hard 
decision and another high cost for the Government. However, these 
projects continue to house poor families, with some 47 percent of the 
units occupied by the elderly. Many of these projects are insured by 
the Department or financed with direct loans by the Department. 
Estimates show that approximately 390,000 of these projects, or 41 
percent are insured or held by the Department. Another 240,000, or 25 
percent, constitute section 202 elderly and disabled projects. The 
majority of the remaining one-third of the inventory are projects 
financed by State housing finance agencies.
  Finally, there is the issue of the prepayment program first initiated 
in the 1987 Housing Act and permanently authorized as part of the 1990 
National Affordable Housing Act where Congress 
[[Page S2077]] authorized incentives for certain owners of HUD-insured 
projects not to prepay their mortgages and keep their units affordable 
for low-income tenants. Owners of some 400,000 rental units are, or 
soon will be, eligible to apply for these financial incentives, 
including equity take-out loans. In these cases, the Government will 
pay increased section 8 assistance to owners to cover the cost of the 
incentives. The HUD IG Susan Gaffney recently identified this program 
as a ``rip-off'' to the American taxpayer. In fact, the costs for these 
additional subsidies will run into the billions of dollars.
  As I have indicated these are issues that require congressional 
attention and responsible action. It took decades of neglect, through 
many Congresses and several administrations, both Democratic and 
Republican, to create a problem of this enormous magnitude and 
complexity. HUD cannot be fixed overnight, or by simply passing a law 
with the word ``reform'' in its title. I stress that we need to 
redirect Federal housing and community development policy from Federal 
micromanagement to the consolidation of programs with an emphasis on 
State and local decisionmaking.
  We need to get away from the one-size-fits-all mentality and provide 
flexibility at the State and local level--we need to do this by making 
housing more affordable through approaches such as public-private 
partnerships, employment incentives for low-income families, mixed 
income projects, and the demolition of substandard housing where the 
demolition makes sense.
  Mr. President, I raise these issues now because it is important that 
all of my colleagues and those in the administration and those who are 
concerned about housing focus on the difficult problems we face and 
help us develop the drastic solutions that we need to continue our 
commitment to housing, yet to do so without bankrupting the budget or 
taking away from other very needed programs.
  Mr. President, I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mrs. HUTCHISON. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Under the previous order, the Senator from Texas is recognized to 
speak for up to 10 minutes.


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