[House Report 104-437]
[From the U.S. Government Publishing Office]




                           [COMMITTEE PRINT]

                                             deg.Union Calendar No. 212

        104th Congress, 1st Session -  -  -  -  -  -  -  -  -  - House 
Report 104-437

 
  THE FEDERAL TAKEOVER OF THE CHICAGO HOUSING AUTHORITY--HUD NEEDS TO 
                    DETERMINE LONG-TERM IMPLICATIONS

                               __________

                              FIFTH REPORT

                                 by the

                        COMMITTEE ON GOVERNMENT
                          REFORM AND OVERSIGHT


                             together with


                            ADDITIONAL VIEWS

                                     


                                     


 December 21, 1995.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed
              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

     WILLIAM F. CLINGER, Jr., 
      Pennsylvania, Chairman
                                     BENJAMIN A. GILMAN, New York
                                     DAN BURTON, Indiana
                                     J. DENNIS HASTERT, Illinois
                                     CONSTANCE A. MORELLA, Maryland
                                     CHRISTOPHER SHAYS, Connecticut
                                     STEVEN SCHIFF, New Mexico
                                     ILEANA ROS-LEHTINEN, Florida
                                     WILLIAM H. ZELIFF, Jr., New 
                                     Hampshire
                                     JOHN M. McHUGH, New York
                                     STEPHEN HORN, California
                                     JOHN L. MICA, Florida
                                     PETER BLUTE, Massachusetts
                                     THOMAS M. DAVIS, Virginia
                                     DAVID M. McINTOSH, Indiana
                                     JON D. FOX, Pennsylvania
                                     RANDY TATE, Washington
                                     DICK CHRYSLER, Michigan
                                     GIL GUTKNECHT, Minnesota
                                     MARK E. SOUDER, Indiana
                                     WILLIAM J. MARTINI, New Jersey
                                     JOE SCARBOROUGH, Florida
                                     JOHN B. SHADEGG, Arizona
                                     MICHAEL PATRICK FLANAGAN, Illinois
                                     CHARLES F. BASS, New Hampshire
                                     STEVEN C. LaTOURETTE, Ohio
                                     MARSHALL ``MARK'' SANFORD, South 
                                     Carolina
CARDISS COLLINS, Illinois            ROBERT L. EHRLICH, Jr., Maryland
HENRY A. WAXMAN, California
TOM LANTOS, California
ROBERT E. WISE, Jr., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
JOHN M. SPRATT, Jr., South Carolina
LOUISE McINTOSH SLAUGHTER, New York
PAUL E. KANJORSKI, Pennsylvania
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
KAREN L. THURMAN, Florida
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin
GENE TAYLOR, Mississippi
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JAMES P. MORAN, Virginia
GENE GREEN, Texas
CARRIE P. MEEK, Florida
CHAKA FATTAH, Pennsylvania
BILL BREWSTER, Oklahoma
TIM HOLDEN, Pennsylvania
            ------
BERNARD SANDERS, Vermont (Independent)

  James L. Clarke, Staff Director
    Kevin Sabo, General Counsel
     Judith McCoy, Chief Clerk
Bud Myers, Minority Staff Director
_________________________________________________________________

    Subcommittee on Human Resources and Intergovernmental Relations

 CHRISTOPHER SHAYS, Connecticut, 
             Chairman
                                     MARK E. SOUDER, Indiana
                                     STEVEN SCHIFF, New Mexico
                                     CONSTANCE A. MORELLA, Maryland
                                     THOMAS M. DAVIS, Virginia
                                     DICK CHRYSLER, Michigan
                                     WILLIAM J. MARTINI, New Jersey
                                     JOE SCARBOROUGH, Florida
                                     MARSHALL ``MARK'' SANFORD, South 
EDOLPHUS TOWNS, New York             Carolina
TOM LANTOS, California
BERNARD SANDERS, Vermont (Ind.)
THOMAS M. BARRETT, Wisconsin
GENE GREEN, Texas
CHAKA FATTAH, Pennsylvania
HENRY A. WAXMAN, California

                               Ex Officio

                                     WILLIAM F. CLINGER, Jr., 
CARDISS COLLINS, Illinois            Pennsylvania
 Lawrence Halloran, Staff Director
Demi Greatorex, Professional Staff 
              Member
        Thomas Costa, Clerk
     Cheryl Phelps, Minority 
        Professional Staff

                                  (ii)
                         LETTER OF TRANSMITTAL

                              ----------                              

                                  House of Representatives,
                                 Washington, DC, December 21, 1995.
Hon. Newt Gingrich,
Speaker of the House of Representatives,
Washington, DC.
    Dear Mr. Speaker: By direction of the Committee on 
Government Reform and Oversight, I submit herewith the 
committee's fifth report to the 104th Congress.

                                   William F. Clinger, Jr.,
                                                          Chairman.

                                 (iii)

                                     

                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Summary..........................................................1
 II. Background.......................................................3
III. Findings.........................................................7
 IV. Recommendations.................................................11

                                 VIEWS

Additional views of Hon. Cardiss Collins, Hon. Edolphus Towns, 
  Hon. Henry A. Waxman, Hon. Louise McIntosh Slaughter, Hon. 
  Barbara-Rose Collins, Hon. James P. Moran, Hon. Carrie P. Meek, 
  Hon. Chaka Fattah..............................................    15
Additional views of Hon. Christopher Shays.......................    18

                                  (v)

  
                                                 Union Calendar No. 212
104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-437
_______________________________________________________________________

  THE FEDERAL TAKEOVER OF THE CHICAGO HOUSING AUTHORITY--HUD NEEDS TO 
                    DETERMINE LONG-TERM IMPLICATIONS

                                _______


 December 21, 1995.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

_______________________________________________________________________


  Mr. Clinger, from the Committee on Government Reform and Oversight, 
                        submitted the following

                              FIFTH REPORT

    On December 14, 1995, the Committee on Government Reform 
and Oversight approved and adopted a report entitled ``The 
Federal Takeover of the Chicago Housing Authority--HUD Needs To 
Determine Long-Term Implications.'' The chairman was directed 
to transmit a copy to the Speaker of the House.

                           I. SUMMARY

    The Federal takeover of the Chicago Housing Authority (CHA) 
by the Department of Housing and Urban Development (HUD) on May 
30, 1995, was an unprecedented model for intervention at a 
troubled public housing agency.\1\ Although HUD has authority 
to intervene in troubled housing agency operations at any time, 
HUD maintains the takeover was precipitated by the resignation 
of the CHA Board of Commissioners, and was supported by Chicago 
Mayor Richard Daley. HUD has intervened in the operation of 
troubled housing agencies in the past. However, HUD has never 
assumed responsibility for the day-to-day operations of a 
housing agency the size of CHA.\2\
    \1\ 42 U.S.C. 1437d(j); 24 CFR 901.215: ``(b) Upon determining that 
a substantial default exists under 901.200, the Department may initiate 
any interventions deemed necessary to maintain decent, safe and 
sanitary dwellings for residents. Such interventions may include: (1) 
Providing technical assistance for existing PHA management staff; (2) 
Selecting or participating in the selection of an alternate entity to 
provide technical assistance or other services up to and including 
contract management of all or for any part of the public housing 
developments administered by a PHA; or (3) Assuming possession and 
operational responsibility for all or for any part of the public 
housing administered by the PHA.''
    \2\ The Federal Takeover of the Chicago Housing Authority: 
Oversight Hearing Before the Subcomm. on Human Resources of the House 
Comm. on Government Reform and Oversight, HRIR Hearing of 9/5/95. 
(Testimony of Henry Cisneros, Secretary, HUD.) (Original transcript pp. 
28-31, in subcommittee files.)
---------------------------------------------------------------------------
    HUD's ability to carry out the CHA takeover effectively has 
immediate impact on the people of Chicago and broad 
implications for the 86 other housing agencies presently listed 
as ``troubled'' by HUD. If the takeover sets CHA on a course 
for recovery, HUD's assumption of control of CHA operations may 
be validated as an acceptable model of intervention at troubled 
housing agencies. Nonetheless, HUD has not articulated a long 
term plan to reform CHA and to extricate itself from CHA 
management.
    Presently, clear statutory and regulatory standards for HUD 
intervention at troubled housing agencies do not exist. 
Consequently, it is unclear as to whether HUD may be called 
upon to take over management of other public housing agencies 
in the future--a task which may prove beyond HUD's resources 
and management capacity.\3\
    \3\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director of Housing and Community Development Issues, 
General Accounting Office, pp. 2-3, in subcommittee files.)
---------------------------------------------------------------------------

Findings:

    1. HUD's takeover of CHA was a necessary response to the 
resignation of the CHA Board of Commissioners.
    2. HUD implemented a 120 day-plan to stabilize CHA 
finances, management, security and physical inventory.
    3. Three months following the takeover, HUD lacked a long 
term strategy for reforming CHA, and extricating itself from 
CHA management.
    4. HUD's presence at CHA will be required beyond January 1, 
1996.
    5. HUD lacks clear statutory or regulatory standards to 
trigger intervention at troubled housing agencies.
    6. HUD does not have the staff resources necessary to run 
several troubled housing agencies at once.
    7. The Resident Management Corporation at 1230 North 
Burling, Cabrini Green, Chicago has improved living conditions 
and economic opportunities for public housing residents.

Recommendations:

    1. HUD should promptly secure strong, long term leadership 
at CHA.
    2. HUD, and new CHA management, should develop a long term 
strategy for the recovery of CHA.
    3. HUD should maintain a clear distinction between its 
actions as a Federal agency and its actions as CHA manager.
    4. HUD's takeover of CHA should be evaluated as a pilot 
program to determine the effectiveness of direct HUD 
intervention at other troubled housing agencies.
    5. Clear statutory or regulatory standards should be 
established for HUD intervention at troubled housing agencies.
    6. HUD should do more to support viable Resident Management 
Corporations, particularly those operating in troubled public 
housing developments.

                         II. BACKGROUND

    On May 30, 1995, the Department of Housing and Urban 
Development (HUD) assumed control over the day to day 
operations of the ``troubled'' Chicago Housing Authority 
(CHA).\4\ Executed in the wake of the resignation of CHA's 
Board of Commissioners \5\ on May 26, 1995, the takeover was an 
unprecedented HUD action.\6\ A declared breach of contract 
between CHA and HUD signed by HUD Secretary Henry Cisneros on 
June 2, 1995, made the takeover legally effective. Both the 
Mayor of the City of Chicago, Richard Daley, and HUD view their 
relationship with respect to CHA as a partnership.\7\
    \4\ As used in this report, the following definitions apply:
    Troubled public housing: Public housing authorities unable to meet 
minimal performance standard, as reflected in their Public Housing 
Management Assessment Program (PHMAP) score, are categorized as 
troubled by HUD. Housing authorities identified as troubled enter into 
a Memorandum of Agreement with HUD which sets forth targets, 
strategies, incentives and sanctions for improving management 
performance. If HUD finds a PHA unable to improve its performance, the 
Department may solicit proposals from private managers or other PHA's 
for the management of the troubled PHA's public housing programs. The 
Department may also petition the appropriate state or federal court to 
appoint a receiver for the troubled PHA, or assume operation of the PHA 
itself. While HUD has pursued receivers and private management in the 
past for large troubled agencies, it is rare that HUD declares a breach 
in the Annual Contributions Contract (ACC) and assumes direct control 
of a housing agency. CHA is the largest housing authority to have ever 
been taken over by the Department. CHA remained on HUD's troubled list 
for sixteen years prior to the 1995 takeover. As of January 1995, HUD 
had identified 90 PHA's in the nation as troubled. These 90 PHA's were 
responsible for 17% of the public housing stock.
    Public Housing Management Assessment Program (PHMAP): The PHMAP 
assesses PHAs on indicators such as vacancy rates, use of modernization 
funds and housing conditions on an annual basis. There are 11 
indicators. PHAs receiving a score below 60 on their PHMAP are 
classified as ``troubled''.
    Receivership: Court appointed receivers, such as David Gilmore, 
receiver of the D.C. Housing Authority, assume control of a housing 
agency by order of a court. Receivers then carry out the management and 
recovery of housing agencies under the direction of the judge. As a 
receiver's actions are a function of court order, they often enjoy the 
political immunity and regulatory latitude necessary to carry out 
dramatic reform at troubled housing agencies.
    \5\ Resolution 95-CHA-209, Chicago Housing Authority, 1995. The 
resolution became effective May 30, 1995 at 5:00 p.m. (CST). (In 
subcommittee files.)
    \6\ HRIR Hearing of 9/5/95. (Prepared written statement of Jeffrey 
Lines, President, TAG Associates, p. 4, in subcommittee files.) HUD 
rarely assumes control of the operations of a public housing agency and 
has never assumed the operation of an agency comparable to the size and 
scale of CHA.
    \7\ Chicago Public Housing, 1995: Hearing on the federal takeover 
of the Chicago Housing Authority Before the Subcomm. on Housing and 
Community Opportunity of the House Comm. on Banking and Financial 
Services, 104th Cong., 1st Sess. p. 77. (1995) (``Banking Hearing of 6/
7/95'') (Statement of Henry Cisneros, Secretary, HUD).
---------------------------------------------------------------------------
    CHA is the Nation's third largest public housing authority 
(PHA), surpassed in size only by those of Puerto Rico and New 
York City. CHA, created in 1937 by a resolution of the City of 
Chicago pursuant to the Housing Authorities Act of the State of 
Illinois,\8\ administers over 55,000 public and assisted 
housing units serving over 150,000 residents. Funding for CHA 
programs and administration is provided by the Department of 
Housing and Urban Development in accordance with the Annual 
Contributions Contract (ACC).\9\ CHA has been on HUD's list of 
``troubled'' housing agencies since 1979, when the list was 
first created, due to the housing authority's inability to 
achieve a passing score on the Public Housing Management 
Assessment Program (PHMAP).\10\ CHA is plagued by a poorly 
conceived and distressed housing stock, an acutely poor 
resident population and a historically mismanaged 
administrative bureaucracy.\11\
    \8\ 310 ILS 10/1. et. seq.
    \9\ The Annual Contributions Contract (ACC) sets out the terms and 
conditions under which HUD provides funding to public housing agencies 
to develop and operate public housing. Funding provided to a housing 
agency is based on HUD's Performance Funding System (PFS).
    \10\ HUD-funded public housing agencies are subject to an annual 
Public Housing Management Assessment Program (PHMAP) which assesses 
public housing agencies on indicators such as vacancy rates, use of 
modernization funds, and housing conditions. Housing agencies which 
fail to maintain a PHMAP above 60 are placed on the ``troubled'' list 
and must enter into a Memorandum of Agreement with HUD which sets forth 
strategies, targets, incentives and sanctions for improving management 
performance.
    \11\ HRIR Hearing of 9/5/95. (Prepared written statement of Henry 
Cisneros, Secretary, HUD, pp. 1-2, in subcommittee files.)
---------------------------------------------------------------------------
    A report issued by former United States Attorney Anton 
Valukas in June 1994, exposed $15.3 million in misappropriated 
CHA pension assets, $4.3 million in misappropriated health 
insurance payments, $200,000 in improper insurance commissions 
and millions of dollars lost through fraudulent actions by 
outside vendors and CHA personnel.\12\ It was estimated that 
the financial losses discovered during the Valukas 
investigation totaled more than $26 million.\13\
    \12\ Anton Valukas, former U.S. Attorney, and the law firm of 
Jenner & Block were retained by the Chicago Housing Authority (CHA) to 
make two reports which were subsequently turned over to the United 
States Attorney's Office. The CHA Board of Commissioners asked the law 
firm for a report on various allegations of wrongdoing in the operation 
of the CHA's Retirement Plan, Pre-Tax Savings Plan and other insurance 
matters. The CHA Oversight Committee also secured Jenner & Block as a 
special counsel for an investigation of fraud and irregularities by 
outside vendors providing goods and services to CHA. This second 
investigation was broadened to include inquiries into wrongdoing by 
certain CHA Police Department Personnel.
    \13\ According to an overview of the investigation of the Chicago 
Housing Authority by the CHA Oversight Committee and Jenner & Block 
provided to the subcommittee by HUD. (In subcommittee files.)
---------------------------------------------------------------------------
    Additionally, evidence of fraud and mismanagement has been 
unearthed in the past by the HUD Inspector General and CHA 
Inspector General in other departments at CHA.\14\ The Section 
8 program \15\ operated by CHA was particularly troubled and 
became the focus of efforts by HUD detailees sent to CHA six 
months prior to the takeover. These weaknesses in CHA's 
bureaucracy are largely attributable to the housing authority's 
highly centralized administration.\16\
    \14\ Office of the Inspector General, Department of Housing and 
Urban Development, Chicago Housing Authority Maintenance Operations, 
94-CH-201-1013, (1994). The CHA Inspector General issued a separate 
report pointing to a lack of oversight enforcement in CHA's management 
of Section 8 programs.
    \15\ In addition to funding public housing, HUD provides rental 
subsidies to owners of private units renting to qualified low-income 
residents pursuant to Section 8 of the United States Housing Act of 
1937, as amended. Through Section 8, HUD pays housing unit owners, 
either for-profit or non-profit, the difference between the fair market 
rent for the dwelling and a percentage of the tenant's income. Public 
Housing Agencies may assume responsibility for administering some 
portions of Section 8, particularly the certificates and vouchers 
programs, and are compensated by HUD for incurred operating and 
administrative costs.
    \16\ TAG Associates, Review of the Organization, Management 
Operations and Public Housing Portfolio of the Chicago Housing 
Authority (1994). (In subcommittee files.)
---------------------------------------------------------------------------
    Another difficulty afflicting CHA is its dilapidated 
housing stock. The CHA landscape is marred by concentrations of 
deteriorated high-rise buildings, dubbed by one Washington Post 
reporter as ``high-rises to hell,'' \17\ which represent 
serious challenges to the housing authority's recovery. The 
vertical structures are clustered together on large plots of 
vacant land isolated from economic activity. Gang and criminal 
activity flourish in the high-rise configurations and residents 
live in perpetual fear of violence. At the time of the Federal 
takeover, deferred maintenance of CHA properties had rendered 
58% of the units unsuitable for human habitation by Federal 
standards, although CHA's occupancy rate was 85%.\18\
    \17\ Banking Hearing on 6/7/95. p. 207. (Statement of Susan 
Gaffney, Inspector General, HUD)
    \18\ HUD Memo Hits ``Mismanaged CHA'', ChicagoTribune, June 7, 
1995. (In subcommittee files)
---------------------------------------------------------------------------
    The socio-economic status of the resident population of CHA 
also creates particular challenges for the housing authority. 
Eleven of the 15 poorest neighborhoods in the Nation are 
located in CHA communities.\19\ The average income of a CHA 
resident is only $4,665, while the national average for public 
housing tenants is over $6,000.\20\ This contributes to low 
rent revenues and severe social problems. Ninety-five percent 
of CHA residents are African American, a phenomenon 
attributable to the segregated housing policies pursued by the 
Chicago Housing Authority in the 1950s and 1960s.\21\ Nearly 
50% of the CHA population is under the age of 15.\22\
    \19\ HRIR Hearing of 9/5/95. (Prepared written statement of Henry 
Cisneros, Secretary, HUD, p. 2, in subcommittee files.)
    \20\ According to information provided by HUD staff at CHA. (In 
subcommittee files.)
    \21\ In 1969, a federal court ruled that CHA and HUD were 
responsible for creating racially segregated public housing in the City 
of Chicago. Gautreaux v. CHA (296 F. Supp. 907 (1969))
    \22\ See Supra note 19.
---------------------------------------------------------------------------
    On June 1, 1995, Congresswoman Cardiss Collins, Ranking 
Member of the Government Reform and Oversight Committee, 
submitted a request to Committee Chairman William F. Clinger 
that hearings be conducted in Chicago on the role of HUD in the 
operation of the Chicago Housing Authority. Subsequent to this 
letter, the Subcommittee on Human Resources and 
Intergovernmental Relations (the Subcommittee) began an 
investigation into the Federal takeover at CHA.
    On July 11, 1995, the Subcommittee submitted an inquiry and 
document request to HUD requesting certain information 
concerning CHA's demolition and redevelopment initiatives, 
HUD's efforts to reform CHA administration and CHA budget 
reconciliation for FY95. HUD responded to this request on 
August 1, 1995. Former CHA Executive Vince Lane, Mayor Richard 
Daley, CHA residents, former CHA staff, local housing and 
community development experts and others were also interviewed 
by Subcommittee staff in preparation for the hearing.
    Assistant Secretary Joseph Shuldiner and additional HUD 
staff met with Subcommittee and Member staff on August 21, 
1995, to discuss HUD actions at CHA since the takeover. On 
August 25, 1995, majority and minority staff conducted on-site 
investigations and interviews in the City of Chicago. On August 
28, 1995, the Subcommittee requested additional information and 
documents from HUD's Office of General Counsel with respect to 
legal issues involved in the CHA takeover. The Office of 
General Counsel met with Subcommittee staff the next day to 
provide a response to the requests and answer staff questions.
    On September 5, 1995, the Subcommittee held a hearing in 
Chicago to investigate the Federal takeover of the Chicago 
Housing Authority. The hearing focused on HUD's progress at CHA 
since the May 30 takeover, the department's short and long term 
strategies for reforming CHA and HUD's plans for installing new 
leadership and management at the housing authority.
    The Honorable Henry Cisneros, Secretary of the Department 
of Housing and Urban Development, testified on behalf of HUD. 
Joining him were Joseph Shuldiner, Assistant Secretary for 
Public and Indian Housing \23\ and Kevin Marchman, Deputy 
Assistant Secretary for Distressed and Troubled Housing.\24\
    \23\ On October 16, 1995, Joseph Shuldiner left HUD to become the 
Executive Director of CHA.
    \24\ At the time of the hearing Kevin Marchman was Deputy Assistant 
Secretary of the Office of Distressed and Troubled Housing and served 
as the Interim Executive Director at CHA. Upon the departure of Joseph 
Shuldiner from HUD, Marchman was nominated for the vacated Assistant 
Secretary of Public and Indian Housing post and is currently acting in 
that capacity.
---------------------------------------------------------------------------
    The subcommittee also heard testimony from panels of 
tenants, public housing management experts and city and private 
sector representatives. The tenant panel consisted of Artensia 
Randolph, President of the Central Advisory Committee, Hattie 
Calvin, President of the Cabrini Green Leadership Advisory 
Council, and Cora Moore, 1230 North Burling, Cabrini Green, 
Resident Management Corporation. Jeffrey Lines, Kansas City 
Receiver and President, TAG Associates, and Judy England-
Joseph, Director, Housing and Community Development Issues, 
U.S. General Accounting Office testified with respect to CHA 
management. Testifying on city and private sector partnerships 
were: Rosanna Marquez, Director of Programs, City of Chicago, 
Chief George Murray, Chief of the CHA Police Department and 
William Wallace, Managing Director, Housing Technology 
Corporation.
    During the hearing, the subcommittee requested that HUD 
submit a list of non-budgetary statutory reforms that would 
assist in the recovery of CHA and other troubled housing 
agencies. On September 25, 1995, HUD provided the Subcommittee 
with the requested list.\25\ The Subcommittee in turn referred 
the list to the House Banking and Financial Services 
Subcommittee on Housing and Community Opportunities.
    \25\ The four non-budgetary reform proposals submitted by HUD to 
the Subcommittee included: (1) Continuation of the repeal of the one-
for-one rule and provision allowing the use of modernization funds for 
replacement housing included in the 1995 rescissions bill; (2) 
additional powers for HUD and/or court ordered receivers in the 
takeover of troubled housing agencies; (3) enactment of HUD proposals 
that would require takeover or receivership action at troubled housing 
agencies that fail to achieve satisfactory improvement after a year; 
and (4) additional statutory authority to discontinue the employment of 
excessively expensive, overly dense concentrations of very low-income 
families where tenant-based assistance could provide a better living 
environment at a lower cost. (In subcommittee files.)
---------------------------------------------------------------------------
    Additional information was requested by the Subcommittee on 
September 11, 1995, including information regarding HUD-funded 
consultants involved in the CHA recovery. HUD's response to the 
request included a statement indicating that the department did 
not directly hire any consultants for CHA. Rather, consultants 
for CHA's recovery were secured by the National Association of 
Housing and Redevlopment Officials (NAHRO) in accordance with 
an agreement in place between HUD and NAHRO. The agreement 
directs NAHRO to assemble recovery teams for individual 
troubled housing agency sites, including Chicago. The 
management of these consultants was brought into question when 
conflicting accounts of the length of a contract awarded to one 
housing consultant, Rick White, were provided to the 
Subcommittee staff.\26\ The Subcommittee again wrote HUD on 
October 4, 1995, inquiring about Mr. White's consulting 
contract. A response was provided October 31, 1995 stating the 
contract in question had been temporarily extended by NAHRO, 
thereby creating some confusion as to the contract's exact 
terms. Following that contract's expiration, CHA contracted 
with Mr. White directly.
    \26\ The oral account provided by Mr. White during a meeting with 
CHA, HUD and subcommittee staff on August 25, 1995 with respect to the 
length of White's consulting contract with NAHRO conflicted with the 
written response provided to the subcommittee on September 29, 1995.
---------------------------------------------------------------------------
    On October 10, 1995, the Subcommittee received a letter 
from an individual writing on behalf of the 1230 North Burling 
Resident Management Corporation (RMC) claiming that CHA was not 
adequately compensating the RMC at 1230 North Burling, Cabrini 
Green at CHA. The Subcommittee also inquired by letter of 
October 20, 1995, as to the status of the funding allocations 
and management contract between CHA and 1230 North Burling RMC. 
HUD responded to the Subcommittee on November 7, 1995, and is 
reportedly pursuing corrective action with respect to the 
funding of the RMC.\27\
    \27\ HUD's Management of Public Housing Resident Programs: 
Oversight Hearing Before the Subcomm. on Human Resources of the House 
Government Reform and Oversight Comm. (Resident Hearing of 11/9/95.) 
(Prepared written statement of Kevin Marchman, Acting Assistant 
Secretary of Public and Indian Housing, HUD, p. 6, in subcommittee 
files.)
---------------------------------------------------------------------------

                         III. FINDINGS

1. HUD's takeover of CHA was a necessary response to the resignation of 
        the CHA Board of Commissioners.

    During the September 5 hearing, Chairman Shays concluded 
that HUD's takeover of CHA operations was necessary given the 
magnitude and severity of the problems faced by the housing 
authority and its residents. Members also noted the significant 
investment of Federal funds the mismanagement of CHA had placed 
in jeopardy. However, earlier intervention on the part of HUD 
may have spared CHA years of deferred maintenance, 
administrative waste and the deterioration of social conditions 
within the public housing developments.\28\
    \28\ CHA was first placed on HUD's list of troubled housing 
agencies when the list was created in 1979 where it has remained since 
that time. In July 1987, HUD's Deputy Assistant Secretary of Public and 
Indian Housing made a recommendation that CHA be placed under private 
management. The recommendation was not adopted. Public Housing: Chicago 
Public Housing Authority Takes Steps to Address Long Standing Problems. 
(GAO/RCED-89-100, June 8, 1995.)
---------------------------------------------------------------------------
    GAO concurred that the takeover was necessary stating:
    Because of the circumstances HUD faced in May 1995 HUD's 
decision to take control of CHA with its own staff, on balance, 
appears to have been the best option available. The immediate 
need for leadership prevented HUD from taking the time to 
exercise other options, such as contracting with private 
management. Nevertheless, private management and receivership 
are still viable options for developing long term solutions to 
CHA's problems.\29\
    \29\ HRIR Hearing of 9/5/95, (Prepared written statement of Judy 
England-Joseph, Director of Housing and Community Development Issues, 
General Accounting Office, p. 4, in subcommittee files.)
---------------------------------------------------------------------------
    Still, HUD clearly has had a long-standing option to 
declare CHA in default of its ACC and place the housing 
authority under HUD management, private management, the 
management of an alternative housing agency or a court 
appointed receiver. CHA has been on HUD's list of troubled 
housing agencies since 1979.
2. HUD implemented a 120 day-plan to stabilize CHA finances, 
        management, security and physical inventory.
    HUD submitted to the Subcommittee a 120 day stabilization 
plan for CHA that outlined six specific objectives and goals 
and provided timeliness and performance measures.\30\ The six 
objectives and goals are as follows:
    \30\ HRIR Hearing of 9/5/95. (Prepared written statement of Henry 
Cisneros, Secretary, HUD, p. 4, in subcommittee files.) (A copy of the 
120 day plan is in the subcommittee files.)
---------------------------------------------------------------------------
          Security and Safety: Increase the level of safety in 
        and around Chicago's public housing developments and 
        develop community policing plans.
          Resident Services: Increase resident participation in 
        the decisions affecting their lives.
          Housing Operations: Improve the effectiveness of 
        CHA's maintenance program and improving the appearance 
        of CHA buildings and open spaces.
          Administration and Financial Management: Replace the 
        existing CHA administrative structure and create a new 
        structure which will provide field support for field 
        management, manage CHA assets and resources, and 
        restore confidence and integrity at CHA.
          Building Community Involvement: Increase the 
        community's involvement with CHA's programs.
          Redevelopment: Demolish certain high-rise buildings 
        and replacing them with less dense dwellings that 
        create better living conditions and opportunities for 
        low-income families.
3. Three months following the takeover, HUD lacked a long term strategy 
        for reforming CHA and extricating itself from CHA management.
    Protracted problems stemming from CHA's administrative 
structure, physical housing stock and social environment must 
be resolved to implement an effective recovery at CHA. Short 
term solutions, such as HUD's 120 day plan, will not likely 
result in the long term correction of these problems. A long 
term recovery strategy for CHA is necessary. HUD was unable to 
provide the Subcommittee with a long term strategy at the time 
of the hearing. HUD also lacked a plan for extracting itself 
from the daily operations of CHA.
    Long term plans for the recovery of CHA should address, 
among other things, the following matters:
          CHA's Housing Stock: CHA's housing stock is 
        distressed due to deferred maintenance and poorly 
        conceived architecture. This contributes to the 
        widespread blight of CHA developments and must be 
        addressed through rehabilitation, redevelopment and 
        proper building management. Demolition of certain CHA 
        structures may be necessary to CHA's long term 
        recovery.\31\
    \31\ See Supra note 16.
---------------------------------------------------------------------------
          Social Conditions at CHA: CHA developments are 
        occupied by densely populated, poverty-impacted 
        communities. High concentrations of broken families, 
        unemployment, gang activity and substance abuse create 
        social instability in CHA developments.\32\ These 
        problems were compounded by CHA's abandonment of 
        fundamental public housing regulations, such as tenant 
        eviction and screening, prior to the HUD takeover.\33\
    \32\ Ibid.
    \33\ Abandonment of tenant eviction and screening regulations were 
described to Subcommittee staff during interviews conducted prior to 
the hearing.
---------------------------------------------------------------------------
          CHA's Bureaucracy: The centralized bureaucracy in 
        place at CHA at the time of the takeover was 
        ineffective and vulnerable to fraud, waste and abuse. 
        CHA's institutional deficiencies are exemplified by the 
        following examples: $600 million in unexpended funds 
        were trapped in the CHA pipelines at the time of the 
        HUD takeover,\34\ the Valukas report unearthed an 
        estimated $26 million in losses due to fraud at CHA; 
        \35\ and the HUD Inspector General Audit on Maintenance 
        Operations found serious deficiencies in CHA's 
        execution of maintenance repairs and other public 
        housing management operations, including tenant 
        screening and eviction policies.\36\
    \34\ HRIR Hearing of 9/5/95. Original transcript p. 62, in 
subcommittee files. (Testimony of Joseph Shuldiner, Assistant Secretary 
of Public and Indian Housing, HUD) Mr. Shuldiner confirmed that $600 
million in unexpended funds were available to CHA for redevelopment. 
Shuldiner stated that half of the $600 million were funds allocated to 
CHA in the past for general development purposes, while the other half 
were allocated specifically for the redevelopment of the Cabrini Green 
and Henry Horner developments.
    \35\ See Supra at note 13.
    \36\ Banking Hearing of 6/7/95. p. 207. (Statement of Susan 
Gaffney, Inspector General, HUD.)
---------------------------------------------------------------------------
          Resident/CHA Relations: Problems exist with respect 
        to resident/CHA relations. Oral accounts provided by 
        several CHA resident leaders during, and prior to, the 
        hearing suggest resident alienation from the CHA 
        administration, patronage between former CHA 
        administrators and certain residents, resident distrust 
        of CHA Police, and resident distrust of CHA commitments 
        with respect to redevelopment plans.
4. HUD's presence at CHA will be required beyond January 1, 1996.
    Secretary Cisneros testified at the hearing that HUD would 
remove itself from daily operations of CHA by January 1, 1996. 
Given the protracted nature of the problems faced by CHA and 
the absence of a long term plan for CHA's recovery, the 
Subcommittee finds that HUD's presence will be required beyond 
the Secretary's projected pull-out date.
5. HUD lacks clear statutory or regulatory standards to trigger 
        intervention at troubled housing agencies.
    HUD is primarily a regulatory and monitoring agency that 
assumes direct control over housing agencies in only rare and 
select cases.\37\ PHMAP scores assess public housing agencies 
on performance indicators such as vacancy rates, use of 
modernization funds and housing conditions. Public housing 
agencies that fail to receive a passing score on their PHMAP 
are listed as ``troubled'' by HUD and enter into a memorandum 
of agreement that sets forth strategies, incentives and 
sanctions for improving management performance. If a housing 
agency substantially defaults upon its agreement, or with 
respect to other covenants or conditions to which it is 
subject, HUD may solicit proposals from other public housing 
agencies and other public housing management agencies for the 
management of the defaulted public housing agency, or petition 
the appropriate State or Federal court to appoint a receiver to 
manage the defaulted housing agency.\38\
    \37\ HRIR Hearing 9/5/95. (Prepared written statement of Jeffrey 
Lines, President, TAG Associates, p. 5, in subcommittee files.)
    \38\ 24 CFR 901 et. seq.
---------------------------------------------------------------------------
    Presently, no statute or regulation requires HUD to 
intervene if a housing agency fails to raise its PHMAP score or 
fulfill its memorandum of agreement over time. Section 6(j) of 
the United States Housing Act of 1937 states only that, 
``[n]otwithstanding any other provision of law or of any 
contract for contributions,'' the Secretary of HUD may engage a 
variety of models for intervention at housing agencies found in 
default of their agreement with HUD to operate public housing 
programs.\39\ Without more objective criteria to trigger HUD's 
intervention, HUD's decision to act at select housing agencies 
can appear arbitrary or motivated by political 
considerations.\40\ Although, HUD asserted it intervened at CHA 
in response to the Board of Commissioner's abdication, HUD 
participated in the decision to place the department in charge 
of CHA.
    \39\ 42 U.S.C. 1437d(j).
    \40\ HUD's intervention at CHA in part facilitated the finalization 
of plans to demolish the blighted Henry Horner developments. The 
developments are located across the street from the site of the 1996 
Democratic National Convention. Consequently, allegations have been 
made in the media that the HUD takeover may have been politically 
motivated. (In subcommittee files.)
---------------------------------------------------------------------------
6. HUD does not have the staff resources necessary to run several 
        troubled housing agencies at once.
    In their written statement, GAO testified that Assistant 
Secretary Joseph Shuldiner stated that HUD may not have the 
capacity to run troubled housing agencies in the future.\41\ 
Additionally, other troubled housing agencies, in desperate 
need of HUD assistance and oversight, must be tended to by 
HUD's finite pool of public housing specialists. The extended 
presence of HUD staff at CHA could have implications for the 
quality of oversight provided to the 87 other troubled housing 
agencies in the Nation. This drain on staff resources would be 
compounded by additional HUD takeovers pursued by HUD prior to 
their departure from CHA operations.
    \41\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director, Housing and Community Development Issues, 
General Accounting Office. p. 4, in subcommittee files.)
---------------------------------------------------------------------------
    Should HUD or Congress determine that the intervention 
model pursued at CHA is a viable alternative for reforming 
troubled housing agencies, the potential for its use at other 
housing agencies would be limited by the finite pool of 
qualified staff at HUD.
7. The Resident Management Corporation as 1230 North Burling, Cabrini 
        Green, Chicago has improved living conditions and economic 
        opportunities for public housing residents.
    Assumption of management responsibilities at 1230 North 
Burling, Cabrini Green, resulted in improved living conditions 
and the creation of economic opportunity for the residents 
living there.\42\ Cora Moore, Manager of the 1230 North Burling 
Resident Management Corporation, testified that her 
corporation's presence in the building has resulted in a 60% 
decrease in crime and a 50% decrease in vandalism at the 
building site. Furthermore, the resident management corporation 
now operates its own on-site laundry room, the profits from 
which will be used for future projects for the 1230 North 
Burling community.
    \42\ Prior to the hearing, members of the subcommittee were given a 
tour of the development at 1230 North Burling in Cabrini Green. The 
Resident Management Corporation operating at 1230 North Burling has 
produced visible improvements in the quality of housing provided and 
created job opportunities for some residents.
---------------------------------------------------------------------------
    1230 North Burling's management activities facilitated the 
hiring of eleven of its residents as employees of the resident 
management corporation and an additional 35 residents are 
projected to be hired to renovate all of the apartments in the 
building. 1230 North Burling also runs an after school tutoring 
program in conjunction with a non-profit organization which 
donated a new playground to the resident management 
corporation.\43\
    \43\ HRIR Hearing of 9/5/95. (Prepared written statement of Cora 
Moore, Manager, 1230 North Burling, p. 3, in subcommittee files.)
---------------------------------------------------------------------------

                      IV. RECOMMENDATIONS

1. HUD should promptly secure strong, long term leadership at CHA.
    CHA is in need of strong, long term leadership.\44\ The new 
management secured for CHA must have the required expertise to 
develop and implement a long term strategy for the recovery of 
CHA and to act autonomously of HUD's participation in daily 
operations. Timeliness in securing this new management 
structure is necessary to prevent any potential lapses in 
implementation of recovery initiatives and improvements made by 
HUD during its interim control of CHA operations. Also, delay 
in securing long term leadership could create a potential for 
the excessive expenditure of funds on short term HUD efforts 
that may prove inconsistent with long range goals yet to be 
defined by CHA management. Such expenditures could pose a 
threat to CHA and the limited resources available to it.
    \44\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director, Housing and Community Development Issues, 
General Accounting Office, p. 6, in subcommittee files.)
---------------------------------------------------------------------------
    Additionally, the new management structure should correct 
deficiencies in the former CHA administrative structure, which 
was weak and inefficient.\45\
    \45\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director of Housing and Community Development Issues, 
General Accounting Office, p. 5, in subcommittee files.) (Prepared 
written statement of Jeffrey Lines, President, TAG Associates, p. 2, in 
subcommittee files.)
---------------------------------------------------------------------------
2. HUD, and new CHA management, should develop a long term strategy for 
        the recovery of CHA.
    HUD must ensure that a long term strategy is defined to 
address the long standing difficulties confronting CHA. The 
strategy should address comprehensive rehabilitation of the 
housing stock, the quality of resident services and relations, 
progress toward community enhancement and development, and the 
quality of the relationship between the housing agency and the 
broader community.\46\ Implementation of this long term 
strategy should also account for HUD's withdrawal from daily 
CHA operations.
    \46\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director of Housing and Community Development Issues, 
General Accounting Office, p. 7, in subcommittee files.)
---------------------------------------------------------------------------
    However, short term actions by HUD could limit CHA's long 
term inventory options. After assuming control of CHA, HUD, at 
the direction of Assistant Secretary Joseph Shuldiner, issued a 
Request for Qualifications (RFQ) asking private sector housing 
managers to craft their own proposals for running some or all 
portions of the CHA stock. Action on responses to the RFQ had 
not been taken at the time of the hearing.
    Unfortunately, plans defined by the private sector, rather 
than the housing authority, may not be in the best interest of 
CHA and could leave CHA with a difficult mix of properties to 
manage. Management companies may not prove willing to assume 
responsibility for the properties at a reasonable cost, 
particularly the more troubled housing developments.
    A long term strategy will also foster improved resident/CHA 
relations. Residents have a deep seated distrust of the housing 
authority and local developers.\47\ Unless HUD/CHA can present 
the residents with redevelopment and reorganization plans that 
fit in a logical long term strategy for improving CHA and 
resident life, residents are likely to resist initiatives that 
threaten the status quo.
    \47\ Resident distrust of CHA and local developers was expressed to 
Subcommittee staff by during interviews with CHA residents prior to the 
hearing.
---------------------------------------------------------------------------
    Further, efforts to reform CHA should be integrated with 
initiatives to end the geographic and economic isolation of CHA 
residents. Strategies involving community and economic 
development efforts in, and surrounding, CHA housing 
developments need to be developed. As Chicago was chosen as one 
of the Nation's six Empowerment Zones (EZ) \48\, the city 
should make efforts to include CHA communities in EZ urban 
revitalization efforts.\49\
    \48\ The Empowerment Zone and Enterprise Community program promotes 
the comprehensive revitalization of distressed communities by funding 
broad, community based strategic plans. Chicago was named as one of six 
empowerment zones in December 1994.
    \49\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director, Housing and Community Development Issues, 
General Accounting Office, p. 9, in subcommittee files.) GAO stated 
that the involvement of CHA in activities such as the Empowerment Zone, 
``would be beneficial''. However, benefits resulting from neighborhood 
revitalization efforts may take years to manifest themselves at CHA.
---------------------------------------------------------------------------
3. HUD should maintain a clear distinction between its actions as a 
        Federal agency and its actions as CHA manager.
    Clear demarcations must be maintained between actions taken 
by HUD and actions taken by HUD in the name of CHA for the 
duration of the takeover. The resolution passed by the CHA 
Board of Commissioners specifically named Joseph Shuldiner, 
Assistant Secretary of Public and Indian Housing as the new 
proprietor of CHA. While this resolution was not legally 
binding,\50\ the takeover presents questions of Federal 
Government liability for the actions of HUD employees in the 
operations of CHA. These questions are particularly of concern 
with respect to HUD employees who assumed temporary CHA titles.
    \50\ It was the Secretary's June 2, 1995 breach of contract letter 
that provided the legal grounds for the HUD takeover. The letter stated 
HUD had decided to ``act in the name of and on behalf of the CHA,'' 
rather than stating the agency would act as the CHA.
---------------------------------------------------------------------------
    In an effort to maintain the demarcation between HUD and 
CHA and avoid possible conflicts of interest, Assistant 
Secretary Joseph Shuldiner and Deputy Assistant Secretary Kevin 
Marchman, acting as the CHA Executive Committee Chairman and 
Interim CHA Executive Director respectively, executed 
memorandums on June 6, 1995, recusing themselves from HUD 
matters regarding competitive assistance administered by HUD.
4. HUD's takeover of CHA should be evaluated as a pilot program to 
        determine the effectiveness of direct HUD intervention at other 
        troubled housing agencies.
    HUD should create measures by which the recovery of CHA can 
be assessed. According to GAO, HUD has taken steps towards 
establishing accurate baseline data for maintenance, finances, 
inventories and other areas to measure the success of the 
future CHA and private managers contracted by the housing 
authority. Additional indicators must be developed, although 
Congress should recognize that such measures can only be 
evaluated for trends over time. As certain HUD regulations are 
reinstated at CHA, such as tenant screening and eviction, some 
traditional public housing management performance indicators, 
such as vacancy rates, may actually worsen before 
improving.\51\
    \51\ HRIR Hearing of 9/5/95. (Prepared written statement of Judy 
England-Joseph, Director of Housing and Community Development Issues, 
General Accounting Office, p. 7, in subcommittee files.)
---------------------------------------------------------------------------
5. Clear statutory or regulatory standards should be established for 
        HUD intervention at troubled housing agencies.
    Congress should establish a statutory threshold for HUD 
intervention at troubled public housing agencies. Although HUD 
created an Office of Troubled and Public Housing in 1994 to 
address the problems posed by troubled public housing agencies, 
HUD's oversight and regulation of public housing agencies 
continues to be insufficient. Troubled public housing agencies 
represent a waste of Federal funds and can have tragic 
consequences for the tenants residing there.\52\
    \52\ Public Housing: Vacant Units, Wasted Federal Dollars, 
Oversight Hearing Before the Subcomm. on Employment, Housing and 
Aviation of the House Government Operations Comm., 103rd Cong., 2nd 
Sess., (1994). The subcommittee testimony revealed extensive waste and 
abuse of federal funds and deteriorated living conditions at public 
housing agencies.
---------------------------------------------------------------------------
    The absence of thresholds triggering intervention raises 
questions concerning what factors influence decisions to 
intervene at troubled housing agencies. The absence of 
objective thresholds for intervention also begs the question as 
to why an ailing housing authority would be permitted to 
continue operation without some form of intervention into its 
operations by HUD. Without uniform requirements governing the 
agency's intervention at troubled housing agencies, the process 
may be open to politicization.
    In the case of CHA, HUD intervened in the daily operations 
of the housing authority upon the resignation of the entire CHA 
Board of Commissioners. Although conversations had been on-
going with respect to the possibility of a takeover between 
representatives of HUD, CHA and the City of Chicago prior to 
passage of that resolution, Secretary Cisneros did not sign a 
letter declaring a breach of contract between HUD and the 
housing authority until June 2, 1995, three days after HUD had 
been appointed by the former Board of Commissioners as the new 
proprietor of CHA. HUD's inability to declare an official 
breach of contract on the same day of the takeover suggests 
some challenges on the part of the department in responding to 
an unpredictable intervention process.
    Given that HUD's intervention at troubled housing agencies 
is not governed by statute or regulation, it is difficult to 
establish measures to rate HUD's performance in a housing 
agency takeover. Also, the lack of clear guidance governing the 
implementation of HUD takeovers also fails to provide the 
department with a clear exit strategy from PHA operations.
    HUD is presently considering regulations which would 
necessitate intervention by HUD if a housing agency failed to 
improve performance over a specified period of time.\53\
    \53\ See Supra at note 25.
---------------------------------------------------------------------------
6. HUD should protect viable Resident Management Corporations from 
        poorly managed public housing agencies.
    Resident Management Corporations (RMC) can provide viable 
private management at public housing developments. RMC's 
additionally create opportunities for resident empowerment and 
economic uplift. Accordingly, HUD should encourage public 
housing agencies to contract with functional RMCs where 
possible. RMCs should particularly be encouraged within 
developments that have been failed by troubled housing agency 
administrations.
    However, HUD needs to provide effective oversight of RMC 
contracts with public housing agencies to ensure the integrity 
of the contract and working relationship in place. In a written 
statement submitted for a subsequent hearing held by the 
Subcommittee on HUD's management of resident programs, one 
resident management consultant stated, ``Resident councils fail 
to achieve Resident Management of their crime infested 
developments all across the country because bad PHA's limit, 
intimidate and control the funds available to resident 
organizations for training, technical assistance, economic 
development and empowerment.'' \54\
    \54\ Resident Hearing of 11/9/95. (Prepared written statement of 
Bertha Gilkey, President, Cochran Tenant Management Corporation, p. 6, 
in subcommittee files.)
---------------------------------------------------------------------------
    The Resident Management Corporation at 1230 North Burling, 
Cabrini Green, provides an example of how even well managed CHA 
properties can fall victim to dysfunctional PHA administration. 
Prior to the HUD takeover, the RMC at 1230 North Burling had 
been providing management services in accordance with a 
contract signed by CHA. The quality of housing management 
provided by the RMC was commendable. However, CHA failed to 
accurately calculate the Allowable Expense Level (AEL) for the 
1230 North Burling building, and subsequently failed to provide 
funding to the RMC in accordance with proper HUD procedure. 
While this situation has been remedied since the hearing, 
Resident Management Corporations identified in the future for 
management contracts should be protected from this type of 
neglect and abuse.
  ADDITIONAL VIEWS OF HON. CARDISS COLLINS, HON. EDOLPHUS TOWNS, HON. 
  HENRY A. WAXMAN, HON. LOUISE McINTOSH SLAUGHTER, HON. BARBARA-ROSE 
  COLLINS, HON. JAMES P. MORAN, HON. CARRIE P. MEEK, HON. CHAKA FATTAH

    This Investigative Report (the Report) results from an 
ongoing Human Resources and Intergovernmental Relations 
Subcommittee investigation of the U.S. Department of Housing 
and Urban Development's (HUD) takeover of the properties and 
operations of the Chicago Housing Authority (CHA). The 
investigation was initiated at the request of Ranking Minority 
Committee Member Cardiss Collins, and we commend Chairman 
William Clinger and Subcommittee Chairman Christopher Shays for 
their efforts in this matter.
    CHA is the third largest public housing authority in the 
nation, and has within its housing stock a disproportionate 
number of the nation's worst public housing--huge 
concentrations of aging, deteriorated, poorly designed and 
poorly maintained buildings inhabited by very low-income, often 
female-headed families and plagued by gang crime and violence. 
At the time of the takeover, the HUD Inspector General, U.S. 
General Accounting Office (GAO), and independent analysts had 
documented systemic problems at CHA across major operational 
areas including housing management, maintenance, financial 
management, and security.
    We support the Federal takeover of CHA as the only logical 
action to confront the systemic problems in Chicago's public 
housing and to address the urgent needs of the residents. This 
investigation seeks to determine the efficacy of HUD's strategy 
for reforming CHA, and the agency's capability to carry out 
proposed reforms in light of the enormity and intractability of 
CHA's problems.
    We generally support the Report. However, the briefing 
provided to Subcommittee staff by HUD and CHA officials on 
December 5, 1995 has yielded new information, not reflected in 
the Report, that indicates that some of the Subcommittee's 
recommendations have already been undertaken by HUD. Our 
additional views include this information, as well as 
additional facts that can be found in the record, and provide a 
more complete picture of the status of the intervention effort, 
the rationale for the takeover, and the capability of HUD to 
intervene in other troubled housing authorities.
    We concur with the Report's finding that ``three months 
following the takeover, HUD lacked a long-term strategy for 
reforming CHA * * *'', and the recommendation that ``HUD, and 
new CHA management should develop a long term strategy for the 
recovery of CHA''. In fact, in his testimony before the 
Subcommittee, HUD Secretary Cisneros acknowledged the need for 
a long-term plan. Subsequently, in the December 5 briefing HUD 
indicated that its five-year strategy for reforming CHA would 
be significantly in place by February 15, 1996, and that the 
``vision statement'' governing the reform effort would be 
released by HUD before December 31, 1995. We recommend that the 
Subcommittee closely monitor the development and implementation 
of the CHA recovery strategy to determine its efficacy and 
potential for success.
    Also during the December 5 briefing, HUD demonstrated that 
all senior positions at CHA have been filled by new and 
qualified personnel in the employ of CHA, facilitating the 
agency's differentiation between its Federal operations and its 
activities as CHA manager. It is our opinion that HUD is, in 
fact, already being responsive to the Subcommittee's 
recommendations that ``HUD should promptly secure strong, long 
term leadership at CHA'', and that ``HUD should maintain a 
clear distinction between its actions as a Federal agency and 
its actions as CHA manager''.
    We concur with the Report's finding that ``HUD's takeover 
of CHA was a necessary response to the resignation of the CHA 
Board of Commissioners''. However, the Report does not 
sufficiently underscore that the Federal takeover action was 
also consistent with HUD's Reinvention Blueprint, the 
Administration's strategy for restructuring HUD that was 
released in December 1994. Among its provisions, the Blueprint 
establishes a one year benchmark during which troubled public 
housing authorities (PHAs) must either demonstrate improvement 
or HUD will be required to find that the PHA has breached its 
contract with the Federal government. If a breach is declared, 
HUD can administer the PHA--as the agency is now doing in 
Chicago.
    We also concur, as does the agency, that ``HUD lacks clear 
statutory or regulatory standards to trigger intervention at 
troubled housing agencies''. Although current authorizing 
language provides that the HUD Secretary may intervene in 
troubled PHA's (Section 6(j) of the U.S. Housing Act of 1937, 
as amended), HUD has indicated to the Subcommittee that the 
statutory changes necessary to carry out the Blueprint proposal 
are integral to the agency's ability to intervene in troubled 
authorities. We support HUD's efforts to achieve this important 
statutory reform.
    We support the Report's recommendation that ``HUD's 
takeover of CHA should be evaluated as a pilot program to 
determine the effectiveness of direct HUD intervention at other 
troubled housing agencies'', with the caveat that the Congress 
take into consideration in its evaluation the impact of the FY 
1995 rescissions and FY 1996 HUD appropriations on the 
availability of funds for the CHA recovery effort. Any failure 
to acknowledge the impact of these fiscal constraints imposed 
on HUD or CHA would result in an unfair and distorted 
evaluation of the effectiveness of the intervention effort.
    For example, the FY 1995 rescissions bill reduced funding 
levels previously available to CHA in 1995 for modernization 
from $179 million to $143 million. This unanticipated shortfall 
has necessitated CHA's postponement of building modernization 
activities requiring these funds to 1996.
    Second, the FY 1996 House Appropriations bill significantly 
curtails funding of CHA operations. Taken in conjunction with 
the 1995 reductions, CHA stands to lose over $58 million in 
modernization funds, reducing the 1995 appropriated level to 
$121 million in 1996. In addition, a total of $23.5 million in 
operating subsidies will be cut, reducing CHA funding from $170 
million to $146 million. The bill also eliminates the 
Development and Hope VI programs. Housing sites that would have 
been eligible for redevelopment funding under these programs 
can no longer access these funds.
    Finally, like the Majority, we are concerned about HUD's 
ability to deliver a sustained commitment of key officials with 
housing management experience in the intervention of other 
chronically troubled housing authorities. However, the Report's 
finding that ``HUD does not have the staff resources to run 
several troubled housing agencies at once'' was refuted by HUD 
in the December 5 briefing. It is important to note that the 
Report raises questions about HUD's ability to intervene in 
other PHAs using the CHA model. HUD can employ other 
intervention models that do not require the same commitment of 
HUD staff and resources as were provided to CHA, that are 
responsive to the unique needs and conditions of the individual 
PHA. Given that HUD may be taking intervention action against 
other troubled housing authorities in the coming weeks, it is 
incumbent upon the Subcommittee to monitor the implementation 
of these models to determine whether HUD can effectively carry 
them out.
                                   Cardiss Collins.
                                   Edolphus Towns.
                                   Henry A. Waxman.
                                   Louise McIntosh Slaughter.
                                   Barbara-Rose Collins.
                                   James P. Moran.
                                   Carrie P. Meek.
                                   Chaka Fattah.
               ADDITIONAL VIEWS OF HON. CHRISTOPHER SHAYS

    On December 5, 1995, representatives from the Department of 
Housing and Urban Development (HUD) and the Chicago Housing 
Authority (CHA) briefed Members and staff on progress made in 
the implementation of the initial 120-day plan for CHA and in 
the formulation of a long-term vision and strategy to reform 
that profoundly troubled housing agency. Much of the 
information provided at the briefing was not available when 
this report was finalized. Therefore, I join my colleagues, 
Rep. Cardiss Collins (D-IL) and Rep. Edolphus Towns (D-NY), in 
acknowledging that HUD has already made notable progress 
implementing some of our recommendations.
    In particular, with the hiring of an Executive Director and 
all the Assistant Directors, the top tier of a new CHA 
management team is in place. That addresses our first 
recommendation and should provide the leadership needed to 
improve operations and living conditions at CHA properties.
    HUD informed us that Secretary Cisneros will issue a vision 
statement to guide long range planning at CHA. We were also 
told that a long range plan should be finished by February 15, 
1996 and a Memorandum of Understanding (MOU) between HUD and 
CHA formalizing needed reforms will be signed by March 15, 
1995. Completion of those steps should implement our second and 
third recommendations.
    At the briefing, HUD disputed the conclusion that the 
Department lacks the staff resources and expertise to engage in 
several takeovers simultaneously. While I applaud HUD for 
taking more pro-active and aggressive steps to stabilize 
troubled public housing, I believe the Department's assessment 
of its capacity is well intentioned but premature. The hearing 
record supports our finding and any conclusion to the contrary 
can only be made in the context of HUD's long-term plans at CHA 
and our continuing oversight of this process.
                                                 Christopher Shays.

                                   - 
