Housing and Urban Development: Comments on HUD's FY 1997 Budget Request
(Stmnt. for the Rec., 06/17/96, GAO/T-RCED-96-205).

GAO discussed the Department of Housing and Urban Development's (HUD)
fiscal year 1997 budget request, focusing on: (1) HUD multifamily
reengineering cost estimates; (2) proposed bonus pools for
high-performing grantees who exceed established performance measures;
and (3) HUD progress in addressing management deficiencies. GAO noted
that: (1) HUD has requested about $22 billion in discretionary budget
authority and plans about $33 billion in discretionary outlays; (2)
overly optimistic cost control assumptions about the major restructuring
of the multifamily housing program could affect the HUD budget request
for rental assistance for low-income families; (3) HUD has requested
$845 million in bonus funding for high-performing grantees in some of
its new block grants; (4) implementing HUD performance funds will be
complicated and time-consuming; (5) HUD has proposed various internal
controls to address management deficiencies.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-96-205
     TITLE:  Housing and Urban Development: Comments on HUD's FY 1997 
             Budget Request
      DATE:  06/17/96
   SUBJECT:  Presidential budgets
             Housing programs
             Internal controls
             Cost control
             Federal agency reorganization
             Block grants
             Federal aid for housing
             Future budget projections
             Reengineering (management)
IDENTIFIER:  HUD Empowerment Zones and Enterprise Communities Program
             HUD Multifamily Coinsurance Program
             HUD Multifamily Housing Loan Program
             HUD Public Housing Management Assessment Program
             Housing Certificate Fund
             
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Cover
================================================================ COVER


Before the House Committee on Appropriations,
Subcommittee on VA, HUD, and Independent Agencies,
House of Representatives

Statement submitted
on June 17, 1996. 

HOUSING AND URBAN DEVELOPMENT -
COMMENTS ON HUD'S
FY 1997 BUDGET REQUEST

Statement for the Record by Judy A.  England-Joseph,
Director, Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-96-205

GAO/RCED-96-205T


(385635)


Abbreviations
=============================================================== ABBREV

  HUD -
  FHA -
  LLP -
  PHMAP -
  EZ/EC -
  IG -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to have this opportunity to comment on the Department
of Housing and Urban Development's (HUD) fiscal year 1997 budget
request.  When we appeared before the House Appropriations Committee
on March 27, 1996,\1 we noted that for the foreseeable future, HUD's
programs would be at high risk because of their vulnerability to
waste, fraud, and abuse and that limited progress had been made to
address HUD's the programmatic and budget problems.  We also said
that although the Congress and HUD had made a start at reexamining
HUD's policies on housing and community development, reaching a
consensus would take time and that few of HUD's proposals for
reinventing itself had been adopted.  Many of our observations on
this year's proposed budget were reflected in our March testimony,
and today we raise several new concerns.  This information is based
on our past work and on several ongoing assignments for the Congress
(see appendix I). 

Our statement today will discuss (1) HUD's multi-family reengineering
cost estimates, (2) the proposed bonus pools for high performing
participants in four of HUD's six proposed block grants to
consolidate existing programs, (3) and HUD's progress in addressing
the management deficiencies we described in our high-risk report.\2

In summary: 

  -- HUD's estimates of how multifamily portfolio reengineering will
     affect its budget in fiscal year 1997 and over the next 6 years
     may not be reliable.  The uncertainty stems in part from HUD's
     use of "best guesses" to develop some estimates rather than
     basing them on current, project-specific data.  However,
     information that HUD recently obtained from an Ernst & Young
     study of the multifamily portfolio should help address this
     weakness.  Furthermore, HUD's assumptions about how quickly it
     will be able to restructure projects with high subsidy costs
     appear optimistic and could be causing HUD to understate its
     need for appropriations to assist low-income renters. 

  -- HUD's proposal to provide $845 million in performance bonuses to
     grantees at the close of fiscal year 1997 could be premature. 
     Although establishing performance measures could lead to greater
     program accountability, HUD has not yet undertaken the
     time-consuming effort to fully develop appropriate measures, the
     key details for implementation, or information systems adequate
     to support performance measurement systems.  Not only are these
     elements necessary to a fair allocation of bonuses to grantees,
     but grantees need to know them before the assessment period
     begins.  Therefore, we believe that HUD will not be ready to
     award performance bonuses next year. 

  -- As we first reported in January 1994 and several times since
     then, four long-standing, Department-wide management
     deficiencies--weak internal controls, an ineffective
     organizational structure, an insufficient mix of staff with the
     proper skills, and inadequate information and financial
     management systems--led to our designating HUD as a high-risk
     area.  To address these problems, HUD has proposed several
     initiatives in its Departmentwide reinvention document called
     Blueprint II, and we believe that HUD has taken steps in the
     right direction by requesting funding in its fiscal year 1997
     budget to implement several of these initiatives.  Nevertheless,
     because the problems are longstanding and complex, the
     Department likely will remain in high-risk status for some time
     to come. 


--------------------
\1 Housing and Urban Development:  Limited Progress Made on HUD
Reforms (GAO/T-RCED-96-112, Mar.  27, 1996). 

\2 High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-95-11, Feb.  1995). 


   HUD'S FY 1997 BUDGET AND
   PROGRAMS
---------------------------------------------------------- Chapter 0:1

Established in 1965, HUD is the principal federal agency responsible
for the programs dealing with housing and community development and
fair housing opportunities.  Among other things, HUD's programs
provide (1) mortgage insurance to help families become homeowners and
to help provide affordable multifamily rental housing for low- and
moderate-income families, (2) rental subsidies for lower-income
families and individuals, and (3) grants and loans to states and
communities for community development and neighborhood revitalization
activities. 

HUD's fiscal year 1997 budget proposal requests about $22 billion in
discretionary budget authority and plans about $33 billion in
discretionary outlays.  Compared with HUD's fiscal year 1996
appropriation, this request represents about a 7-percent increase in
budget authority and 10 percent increase in outlays.  HUD believes
that this increase in outlays between fiscal years 1996 and 1997 is
somewhat misleading.  For example, 1996 outlays were unusually low
because HUD expended $1.2 billion--which normally would have been
disbursed early in fiscal year 1996--in late fiscal year 1995 because
of the government shutdown.  In addition, reforms in the mortgage
assignment program generated a significant one-time savings of over
$1 billion in fiscal year 1996 (under credit reform as scored by the
Congressional Budget Office). 

HUD's March 1995 blueprint, HUD Reinvention:  From Blueprint to
Action, proposed to merge 60 of its 240 separate programs into three
performance-based funds that would be allocated directly to the
states and localities.  HUD's objectives were to provide communities
with greater flexibility and instill a level of accountability in its
programs through the use of performance measures and a series of
rewards and incentives.  As of March of this year, few of the
proposals in this reinvention document have been adopted.  HUD's
second reinvention proposal, Renewing America's Communities from the
Ground Up:  The Plan to Continue the Transformation of HUD, also
known as Blueprint II, would supersede the first proposal but
continue the move toward accountability by fiscal year 1998 by (1)
consolidating over 20 community development programs into three
performance funds where high-performing grant recipients would be
awarded bonuses, (2) replacing 15 separate public housing programs
with two performance funds, and (3) consolidating the 14 existing
voucher and certificate funds.  Appendix II summarizes HUD's plans to
fund the proposals in Blueprint II through its fiscal year 1997
budget request. 


   UPDATED DATA MAY ASSIST IN
   EVALUATING HUD'S MULTIFAMILY
   REENGINEERING COST ESTIMATES
---------------------------------------------------------- Chapter 0:2

HUD's fiscal year 1997 budget request discusses how a planned, major
restructuring of the multifamily housing program is likely to affect
its budget over the next 6 years and beyond.  The restructuring is
aimed at addressing serious and longstanding problems affecting
properties with HUD-insured mortgages that also receive rental
subsidies tied to units in the properties (project-based assistance). 
HUD deserves credit for attempting to address these complex problems. 
However, HUD's assumptions about its ability to quickly restructure
properties with high subsidy costs appear overly optimistic and could
be responsible for HUD underestimating its request for rental
assistance for low-income families. 

According to HUD's latest data, 8,636 properties with about 859,000
apartments would be subject to the restructuring proposal; the unpaid
loan balances for these properties total about $17.  8 billion.  In
many cases, HUD pays higher amounts to subsidize properties than are
needed to provide the households living in them with decent,
affordable housing.  In other cases, rents set by HUD are lower than
required to maintain the properties' physical condition, contributing
to poor living conditions for families with low incomes.  Initially
termed "mark to market" in last year's budget request, and now
referred to as "multifamily portfolio reengineering," the goal and
general framework of HUD's proposal remain the same:  eliminate
excess subsidy costs and improve the poor physical condition of some
of the properties by relying primarily on market forces. 

Specifically, for properties with mortgages insured by FHA that also
receive project-based assistance, HUD has been proposing to let the
market set the property rents to market levels and reduce mortgage
debt if necessary to permit a positive cash flow.\3

In addition, HUD has proposed replacing project-based rental
subsidies with portable tenant-based subsidies, thereby requiring the
properties to compete in the marketplace for residents.  While
maintaining this general framework, HUD made several changes to its
proposal this year.  For example, under the initial proposal all
rents would have been reset to market levels whether the market rents
were above or below the subsidized rents.  The current proposal gives
priority attention initially to properties with subsidized rents
above market.  In addition, HUD plans to let state and local
governments decide whether to continue with project-based rent
subsidies after mortgages are restructured or to switch to
tenant-based assistance.  HUD has also indicated that it will allow
owners to apply for FHA insurance on the new, restructured mortgage
loans, whereas last year the proposal expressly disallowed FHA
insurance on restructured loans. 

We are currently evaluating a study by Ernst & Young LLP released on
May 2, 1996, that was designed to provide the Department with current
information on HUD's multifamily portfolio.  This information could
form the basis for the improvement of key assumptions needed to
estimate the net savings or costs associated with the reengineering
proposal.  In this regard, HUD's contract with Ernst & Young LLP
requires that the firm update HUD's information on (1) market rents
versus the project-based rents that the agency subsidizes and (2) the
physical condition of the properties.\4 These two variables strongly
influence whether a property can operate at market rents without debt
reduction or what amount of debt reduction is needed to cover the
property's expenses.  Having good data on these variables will allow
FHA to better develop claims estimates which will be based on the
amount of debt write-down.  In addition, the rent data are integral
to estimating the change in subsidy costs if the project-based rents
are replaced with market rents and the residents receive tenant-based
assistance.  HUD also tasked Ernst & Young with developing a
financial model that would show the likely result of reengineering
the portfolio and identify the related subsidy costs and claims
costs. 

The results of the Ernst & Young study were not available when the
fiscal year 1997 budget was being developed.  Because HUD lacked the
project-specific data contained in the Ernst & Young study, HUD used
assumptions in some cases that represent the Department's "best
guess" as to outcome.  These assumptions can affect the budgetary
savings HUD expects to result from reengineering the portfolio. 
Ernst & Young's May 2, 1996, report presents information on projects
that are expected to be affected by this reengineering.  While the
report did not directly discuss subsidy and claims costs, we are
currently reviewing the results of this study and its cost
implications.  We plan to issue our report on the Ernst & Young study
this summer. 

On the basis of our ongoing work, we believe that some of the
assumptions HUD used may overstate the projected savings associated
with reengineering the portfolio.  We cannot, however, determine the
extent of that overstatement at this time.  One of HUD's assumptions
is that a substantial number of mortgages with excess subsidy costs
will be restructured well ahead of the dates that their rental
assistance contracts expire.  Although the extent to which HUD will
be able to accomplish this remains unclear, this assumption appears
optimistic and HUD's budget request may understate its need for
funding to renew section 8 rental assistance contracts for fiscal
year 1997 and beyond. 


--------------------
\3 Debt restructure amounts will likely be reflected as claims costs
in the Federal Housing Administration General Insurance and Special
Risk Insurance Accounts. 

\4 The study is based on a national sample of properties with both
insurance and project-based assistance.  The sample was designed to
meet a 90 percent confidence level, with a plus or minus 10 percent
relative precision for the overall population. 


   HUD NEEDS MORE TIME TO
   ESTABLISH A PROGRAM OF
   PERFORMANCE BONUSES
---------------------------------------------------------- Chapter 0:3

In its fiscal year 1997 budget, HUD requested $845 million in bonus
funding for high-performing grantees in four of its six new block
grants.  HUD calls the block grants "performance funds." HUD believes
that these grants will provide communities with greater flexibility
to design local solutions to local problems.  HUD plans to
competitively award bonuses to grantees who exceed the established
performance measures and who submit project proposals.  (App.  III
summarizes the details of the proposed bonus pools.)

We generally support performance measurement as a method of building
accountability into block grants because it would allow grantees to
achieve objectives while also vesting them with responsibility for
their choices.  Moreover, HUD's development of block grants and
performance measures would be consistent with the underlying
principles of the Government Performance and Results Act and
recommendations for program consolidation made by the National
Performance Review.  However, the characteristics of the block grants
themselves--their program breadth and the flexibility allowed the
grantees--will greatly complicate and add significant time to HUD's
development of uniform performance measures.  HUD is still in the
early stages of developing such measures, however, and without them
grantees will have difficulty understanding HUD's objectives and
performance measurement process.  Moreover, because of inadequate
information systems to support performance measurement, we question
whether HUD's request for bonus funding can be effectively used
during fiscal year 1997. 


      IMPLEMENTING PERFORMANCE
      FUNDS WILL BE COMPLICATED
      AND TIME-CONSUMING
-------------------------------------------------------- Chapter 0:3.1

Some features inherent to block grants will complicate the
implementation of a performance measurement system in fiscal year
1997.  These complications would result in extending beyond fiscal
year 1997 the time HUD needs to develop adequate measures.  We have
reported in the past, for instance, that the flexibility and wide
latitude allowed grantees make common and comparative measurement
very difficult.  HUD will need to collaborate with the states to
develop performance measures and establish reporting requirements. 
These entities' interests could vary markedly because HUD would be
looking to meet national objectives, while the states are trying to
meet local needs.  Not only do the federal and state interests
differ, but it will take time for both to develop data collection
systems and reporting capacities once the initial decisions are made. 

In addition, measurement is complicated because all observed outcomes
cannot be assumed to result from the programs and activities under
scrutiny.  Some outcomes, such as job creation, will be affected by
factors outside of the control of program participants, while other
desired outcomes, such as enhanced quality of life for residents, may
not be quantifiable.  Moreover, our work on block grants at other
federal agencies has shown that many of these agencies lack the
ability to track progress, evaluate results, and use performance data
to improve their agencies' effectiveness.\5 For example, HUD's
Inspector General ( IG) recently found that HUD is just beginning to
develop a Department-wide strategic plan, the key underpinning and
starting point for the process of program goal-setting and
performance measurement that the Government Performance and Results
Act seeks to establish throughout the federal government.\6

Program performance information comes from sound, well-run
information systems that accurately and reliably track actual
performance against the standards or benchmarks.\7 Our work has
shown, however, that HUD's information systems may not be adequate to
support the implementation of the four bonus pools.  For example, HUD
is proposing a $500 million bonus fund as part of its public housing
capital fund.  As a requirement for eligibility, housing authorities
would have to have earned high scores in the Public Housing
Management Assessment Program (PHMAP) and have undertaken substantive
efforts to link residents with education and job training.\8 However,
HUD generally does not confirm the scores of high scoring housing
authorities--many of the data to support the scores are
self-reported--and generally accepts the scores as accurate.  Our
analysis, as well as that of the HUD IG and others, has cast doubt on
the accuracy of PHMAP scores for some housing authorities.\9 Three
major public housing industry associations also share concerns about
PHMAP's use as a tool for awarding bonuses.  And finally, HUD itself
recently acknowledged that PHMAP scores should not be considered the
sole measure of a public housing authority's performance, noting that
circumstances can exist in which the best decision a housing
authority can make is not always the one that yields the highest
PHMAP score in the short term.\10 We believe, therefore, that
PHMAP--as it is currently implemented--should not be used as a basis
for awarding bonuses to public housing authorities. 

HUD has said that it intends to draw on its Empowerment
Zone/Enterprise Community (EZ/EC) experience with benchmarking to
move toward performance-based funding for all HUD programs.  However,
HUD officials said that developing benchmarks for the first round of
EZ/EC grants was a difficult task and they recognize that HUD could
have done a better job of explaining the process of developing
benchmarks to communities. 

Given this difficulty and the complications mentioned earlier, we are
concerned that HUD is still in the midst of developing its bonus
program and measures for its performance funds.  In its fiscal year
1997 budget, the Department is requesting $11 million for its Office
of Policy Development and Research to continue developing
quantifiable measures for each major program, a process for setting
benchmarks with grantees, and improvements in how the Department uses
information on program performance.  Because this development is
ongoing, the measures and the processes will not be in place and
known to the grantees before HUD uses them to award bonuses with
fiscal year 1997 funds. 

HUD officials believe that bonus funding needs to be offered during
fiscal year 1997 to encourage the states and localities to seek
higher performance and that the details will be worked out as the
program is implemented.  We believe that timing is critical in this
matter.  For the performance bonuses to have equity and merit, HUD
needs to be able to specify prior to the year over which performance
is measured what results and outcomes will be rewarded and how they
will be measured. 


--------------------
\5 For a more complete discussion of accountability with block grants
see Block Grants:  Issues in Designing Accountability Provisions
(GAO/AIMD-95-226, Sept.  1, 1995). 

\6 Under this act, no later than September 30, 1997, federal agencies
must submit strategic plans covering a period of at least 5 years to
the Office of Management and Budget which, as part of its effort to
link the act and the budget process, is requiring agencies to submit
parts of their strategic plans by June 7, 1996. 

\7 The EZ/EC program defines benchmarks as the long-term desired
outcome by which progress and achievement are measured.  Under this
definition, its "benchmarks" are similar to strategic goals. 

\8 Under the assessment program, a score of less than 60 on a
100-point scale earns a housing authority the performance
classification of "troubled"; a score of from 60 to 90 earns the
housing authority the classification of "standard performer"; and a
score over 90 earns the housing authority the classification of "high
performer."

\9 Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/RCED-96-25, Oct.  13, 1995). 

\10 "Office of the Assistant Secretary for Public and Indian Housing;
Public Housing Management Assessment Program,"Federal Register, Vol. 
61, No.  88, May 6, 1996, p.  20358. 


   HUD'S BUDGET PROPOSES FURTHER
   ACTION TO ADDRESS MANAGEMENT
   DEFICIENCIES
---------------------------------------------------------- Chapter 0:4

As we have reported,\11 four long-standing, Department-wide
management deficiencies led to our designation of HUD as a high-risk
area in January 1994.\12 These deficiencies were weak internal
controls, an ineffective organizational structure, an insufficient
mix of staff with the proper skills, and inadequate information and
financial management systems.  In February 1995, we reported that
HUD's top management had begun to focus attention on overhauling the
Department's operations to correct these management deficiencies.\13
In that report, we outlined actions that the agency needed to take to
reduce the risk of waste, fraud, and abuse. 

In reviewing the proposed 1997 budget, we found budgetary support for
the implementation of several of these recommendations.  First, we
recommended consolidating programs to give the communities greater
flexibility in applying for funds and reducing administrative burden. 
The 1997 budget proposes the consolidation of many individual
programs, either now or in the near future, into block grant programs
to increase participants' flexibility.  HUD is beginning to develop
performance measures for many programs to assess the participants'
progress.  Second, we recommended that HUD be authorized to use more
innovative initiatives to leverage private investment in community
development and affordable housing.  Several HUD programs will now or
in the future involve mechanisms such as grant proposals or loan
programs that will require either participation or investment by
private organizations.  In addition, FHA proposes creating new
mortgage products that would expand homeownership and that would
share risk with other entities. 

Third, we recommended that HUD continue to strengthen and coordinate
its long-range planning.  The budget proposal describes new
investments to upgrade and expand its computer systems to
specifically support implementation of Blueprint II.  HUD anticipates
that the proposed investments will improve efficiency and reduce
operating costs. 

However, HUD's budget proposes several new, specialized initiatives
that seem to run counter to the agency's consolidation efforts to, as
described in Blueprint II, "sweep away the clutter of separate
application procedures, rules and regulations that has built up at
HUD over the past 30 years." For example, HUD is requesting $290
million for its Housing Certificate Fund to assist several groups of
people needing preferred housing.  These programs include the
Welfare-to-Work initiative and housing for homeless mothers with
children.  However, this funding request is inconsistent with
Blueprint II, in which HUD urges the Congress to do away with the
statutes that require such preferences. 

Although the Department deserves credit for its continuing resolve in
addressing its long-standing management deficiencies, HUD's recently
initiated actions are far from reaching fruition, and the agency's
problems continue.  In addition, specialized programs are beginning
to reappear, and they may undermine the major restructuring of the
agency, reduce efficiency, and increase administrative burdens. 
Therefore, we believe that both now and for the foreseeable future,
the agency's programs will continue to be high-risk in terms of their
vulnerability to waste. 


--------------------
\11 Housing and Urban Development:  Limited Progress Made on HUD
Reforms (GAO/T-RCED-96-112, Mar.  27, 1996). 

\12 Improving Government:  Actions Needed to Sustain and Enhance
Management Reforms (GAO/T--OGC-94-1, Jan.  27, 1994). 

\13 High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-95-11, Feb.  1995). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:5

Our statement today discussed several issues that will affect HUD's
programs and their need for appropriations.  We identified new issues
and highlighted changes in other issues on which we have previously
testified.  By continuing to focus on improving its internal
management and coming to closure on how and when it will use the
market to eliminate excess subsidy costs and improve the poor
physical conditions of its assisted multifamily housing, HUD will be
better able to use additional appropriations and implement new
policy.  Although HUD has recognized many of its management
deficiencies and has budgeted funds to address them, we see this as a
long-term effort that will continue into the foreseeable future. 

In connection with the proposed bonus pools, the lack of adequate
performance measures and associated information systems leads us to
question the basis for awarding additional funding at this time. 
While HUD officials believe that the details of awarding bonuses will
be worked out as the program is implemented, we believe that they are
overly optimistic, given the magnitude of the bonus pools and the
complexity of developing appropriate performance measures. 


   MATTER FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:6

We recommend that the Congress consider not appropriating the $845
million for HUD's proposed bonus pool funding until the Department
develops adequate performance measures and supporting information
systems to ensure that these funds are used effectively. 


SELECTED GAO PRODUCTS
=========================================================== Appendix I

Housing and Urban Development:  Limited Progress Made on HUD Reforms
(GAO/T-RCED-96-112, Mar.  27, 1996). 

FHA Hospital Mortgage Insurance Program:  Health Care Trends and
Portfolio Concentration Could Affect Program Stability
(GAO/HEHS-96-29, Feb.  27, 1996). 

GPRA Performance Reports (GAO/GGD-96-66R, Feb.  14, 1996). 

Homeownership:  Mixed Results and High Costs Raise Concerns About
HUD's Mortgage Assignment Program (GAO/RCED-96-2, Oct.  18, 1995). 

Multifamily Housing:  Issues and Options to Consider in Revising
HUD's Low-Income Housing Preservation Program (GAO/T-RCED-96-29, Oct. 
17, 1995). 

Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/T-RCED-96-25, Oct.  13, 1995). 

Block Grants:  Issues in Designing Accountability Provisions
(GAO/AIMD-95-226, Sept.  1, 1995). 

Property Disposition:  Information on HUD's Acquisition and
Disposition of Single-Family Properties (GAO/RCED-95-144FS, July 24,
1995). 

Housing and Urban Development:  HUD's Reinvention Blueprint Raises
Budget Issues and Opportunities (GAO/T-RCED-95-196, July 13, 1995). 

Public Housing:  Converting to Housing Certificates Raises Major
Questions About Cost (GAO/RCED-95-195, June 20, 1995). 

Government Restructuring:  Identifying Potential Duplication in
Federal Missions and Approaches (GAO/T-AIMD-95-161, June 7, 1995). 

HUD Management:  FHA's Multifamily Loan Loss Reserves and Default
Prevention Efforts (GAO/RCED/AIMD-95-100, June 5, 1995). 

Program Consolidation:  Budgetary Implications and Other Issues
(GAO/T-AIMD-95-145, May 23, 1995). 

Government Reorganization:  Issues and Principles
(GAO/T-GGD/AIMD-95-166, May 17, 1995). 

Managing for Results:  Steps for Strengthening Federal Management
(GAO/T-GGD/AIMD-95-158, May 9, 1995). 

Multiple Employment Training Programs:  Most Federal Agencies Do Not
Know If Their Programs Are Working Effectively (GAO/HEHS-94-88,
Mar.2, 1994). 

Multifamily Housing:  Better Direction and Oversight by HUD Needed
for Properties Sold With Rent Restrictions (GAO/RCED-95-72, Mar.  22,
1995). 

Block Grants:  Characteristics, Experience, and Lessons
Learned(GAO/HEHS-95-74, Feb.  9, 1995). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-95-11, Feb.  1995). 

Program Evaluation:  Improving the Flow of Information to the
Congress (GAO/PEMD-95-1, Jan.  30, 1995). 

Housing and Urban Development:  Major Management and Budget Issues
(GAO/T-RCED-95-86, Jan.  19, 1995, and GAO/T-RCED-95-89, Jan.  24,
1995). 

Federally Assisted Housing:  Expanding HUD's Options for Dealing With
Physically Distressed Properties (GAO/T-RCED-95-38, Oct.  6, 1994). 

Rural Development:  Patchwork of Federal Programs Needs to Be
Reappraised (GAO/RCED-94-165, July 28, 1994). 

Federally Assisted Housing:  Condition of Some Properties Receiving
Section 8 Project-Based Assistance Is Below Housing Quality Standards
(GAO/T-RCED-94-273, July 26, 1994, and Video, GAO/RCED-94-01VR). 

Public Housing:  Information on Backlogged Modernization Funds
(GAO/RCED-94-217FS, July 15, 1994). 

Homelessness:  McKinney Act Programs Provide Assistance but Are Not
Designed to Be the Solution (GAO/RCED-94-37, May 31, 1994). 


SUMMARY OF MAJOR PROPOSALS AND
BUDGET REQUESTS
========================================================== Appendix II

                    Blueprint II                   FY 1997 Budget Request
------------------  -----------------------------  -----------------------------
Community           Grantees will use their        The budget proposes $4.6
Development Block   formula funds for the present  billion for the CDBG fund in
Grants Fund         wide range of activities       1997. In addition, $300
(CDBG)\a            eligible under CDBG, but two   million is requested for a
                    new features added--           second round of Empowerment
                    performance measures and       Zone/Enterprise Communities
                    benchmarks, and a bonus pool.  grants ($200 million) and a
                    The bonus pool will be         competitive Economic
                    devoted exclusively to job     Development Challenge Grant
                    creation and economic          ($100 million) for high-
                    revitalization efforts.        performing jurisdictions.

HOME Fund\b         Grantees will use their        The budget proposes a total
                    formula funds to expand the    of $1.55 billion for HOME in
                    supply of affordable housing.  1997, including $1.4 billion
                    The fund will require grant    for the HOME Fund and $135
                    recipients to set their own    million for the HOME Fund
                    performance measures and       Challenge Grant for
                    benchmarks. Ten percent of     Homeownership Zones. The
                    the fund will be set aside as  Budget also proposes to use
                    a bonus pool to create large   $15 million of funds provided
                    tracts of homeownership in     for the HOME Fund for Housing
                    communities.                   Counseling.


Homeless            The HAF will allow grantees    The budget proposes $1.12
Assistance Fund     to shape a comprehensive,      billion for the HAF in 1997.
(HAF)\c             flexible, coordinated          Of this total, $1.01 billion
                    "continuum of care" approach   will be for a consolidated
                    to solving rather than         needs-based homeless
                    institutionalizing             assistance program, and the
                    homelessness. Ten percent of   remaining $110 million will
                    the fund will be set aside as  be for the Homeless/
                    a bonus pool.                  Innovations Challenge Grant.

Public Housing      HUD will re-propose            The budget proposes $2.9
Operating Fund\d    consolidating several          billion for the Operating
                    programs (i.e., drug           Fund, an increase of $100
                    elimination grant, service     million over the anticipated
                    coordinators) into one         $2.8 billion for fiscal year
                    Operating Fund by FY 1998.     1996.
                    All existing eligible uses
                    under these funds, plus
                    expanded anti-crime
                    activities, will be permitted
                    under the Operating Fund.

Public Housing      HUD will re-propose            The budget proposes an
Capital Fund\e      consolidating a series of      appropriation of $3.2 billion
                    separate programs into one     for the Capital Fund in 1997.
                    Capital Fund by FY 1998. This  Two-hundred million will be
                    new Fund will largely be       made available for Indian
                    modeled after the current      housing construction. The
                    modernization program.         budget assumes that $500
                    Eligible activities will       million will be made
                    include those currently        available in a separate
                    eligible under modernization   account for a Capital Bonus
                    programs, under programs for   Fund. The budget does not
                    distressed public housing      allocate a specific dollar
                    developments, and under the    amount to be used for the
                    development and Family         Campus of Learners
                    Investment Center Programs.    initiative. However, PHA's
                    HUD will set aside 10 percent  are encourage to use capital
                    of the Capital Fund as a       funds to advance this
                    bonus pool. HUD plans to jump  endeavor.
                    start the Campus of Learners
                    initiatives in fiscal year
                    1996 by requiring all
                    applications for
                    redevelopment under the
                    public housing capital
                    programs to build in
                    educational, technological,
                    and job linkages. PHA's will
                    need to build viable
                    partnerships with local
                    educational and job placement
                    institutions to be eligible
                    for funding.

Housing             HUD will re-propose            The budget is requesting an
Certificate Fund\f  consolidating the existing     appropriation of $290 million
                    voucher and certificate funds  for fiscal year 1997 for the
                    into one performance-based     Certificate Fund for 50,000
                    Certificate Fund. The          incremental units, of which
                    Certificate Fund will be       30,000 units will be used to
                    HUD's principal tool for       help families make a
                    addressing what HUD considers  transition to work (25,000
                    the primary source of severe   units) and help homeless
                    housing problems in the        mothers with children obtain
                    nation: lagging household      housing (5,000 units). The
                    incomes and high housing       additional 20,000 units will
                    costs.                         be used for tenant protection
                                                   to support families in FHA-
                                                   insured assisted housing
                                                   projects directly affected by
                                                   prepayment, disposition or
                                                   restructuring.
--------------------------------------------------------------------------------
\a The Community Development Block Grant Fund will comprise the CDBG
and Economic Development Challenge Grant. 

\b The HOME Fund comprises the Home Investment Partnership Program
(HOME), and the HOME Fund Challenge Grant. 

\c The Homeless Assistance Fund will consolidate HUD's six McKinney
homeless assistance programs-Shelter Plus Care, Supportive Housing,
Emergency Shelter Grants, Section 8 Moderate Rehabilitation (Single
Room Occupancy), Rural Homeless Grants, and Safe Havens, as well as
the Innovative Homeless Initiatives Demonstration Program.  It will
also include the Homeless/Innovations Challenge Grant. 

\d The Public Housing Operating Fund will consolidate the Public and
Indian Housing Operating Subsidies. 

\e The Public Housing Capital Fund will consolidate the Public
Housing Modernization, Public and Indian Housing Development, Major
Reconstruction of Obsolete Public Housing (MROP) Projects,
amendments, lease adjustments, and Family Investment Centers. 

\f The Housing Certificate Fund consolidates the Section 8
Certificates, Section 8 vouchers, Section 8 Contract Renewals,
Section 8 Family Unification, Section 8 for Persons with
Disabilities, Section 8 for Persons with AIDS, Section 8 for
Homeless, Section 8 Opt-Outs, Section 8 Counseling, Section 8 Pension
Fund Certificates, Section 8 Veterans Affairs Supportive Housing,
Section 8 Headquarters, Reserve, Lease Adjustments, and Family
Self-Sufficiency Coordinators programs. 


PROPOSED REQUESTS FOR AND BASIS
FOR AWARDS IN HUD'S BONUS POOLS\A
========================================================= Appendix III

          Reques
          t       Bonus                                    Allocation and
Fund/     (total  fund       Bonus                         allowable uses for
account   )       title      fund    Basis for award       bonus funds
--------  ------  ---------  ------  --------------------  ---------------------
Public    $3.2    Capital    $500    Public Housing        The bonus fund will
Housing   billio  Bonus      millio  Authorities (PHAs)    be split among
Capital   n       Fund       n       need to have scores   elegible PHAs based
Fund                                 of 90 or higher       on the Caital Fund
                                     under Public Housing  formula, and bonus
                                     Management            funds may be used for
                                     Assessment Program    any uses elegible
                                     (PHMAP) and           under the Capital
                                     undertaken            Fund.
                                     substantive efforts
                                     to link residents
                                     with educational,
                                     self-sufficiency
                                     intitiatives, or
                                     "Campus of Learners"
                                     activity.

CDBG      $4.9    Economic   $100    Any CDBG grantee      Funds are to address
Fund      billio  Developme  millio  that meets program    brownfields, generate
          n       nt         n       requirements, meets   economic
                  Challenge          or exceeds            revitalization in
                  Grant              performance measures  distressed
                                     and benchmarks        communities, link
                                     included in its       people in these
                                     Consolidated Plan,    communities to jobs.
                                     and demonstrates
                                     that it has expended
                                     grant funds on a
                                     timely basis.

                                     Awards given on a
                                     competitive basis to
                                     high performing
                                     jurisdictions that
                                     propose innovative
                                     economic
                                     revitalization and
                                     job creation
                                     strategies using a
                                     combination of their
                                     own resources,
                                     private capital, and
                                     federal program
                                     incentives.

HOME      $1.55   HOME Fund  $135    Bonus funding is a    Funds will be used to
Fund      billio  Challenge  millio  "challenge grant"     create Homeownership
          n       Grant      n       awarded on a          Zones to support
                                     competitive basis to  state/local efforts
                                     high-performing       to develop
                                     jurisdiction that     homeownership
                                     propose creative,     opportunities in
                                     cost-effective        targeted areas.
                                     homeownership         Families earning up
                                     strategies using a    to 115 percent of the
                                     combination of their  median income could
                                     own resources,        be assisted.
                                     private capital, and
                                     federal program
                                     incentives.

          $1.12   Homeless/  $110    Competitive basis to  Bonus funding is to
Homeless  billio  Innovatio  millio  high-performing       address the stated
Assistan  n       ns         n       jurisdictions that    national priorities.
ce Fund           Challenge          address national
                  Fund               priorities such as
                                     homeless persons
                                     with multiple
                                     diagnoses,
                                     particularly mental
                                     illness and/or drug/
                                     alcohol addictions

                                     Jurisdications need
                                     to propose creative
                                     strategies using a
                                     combination of their
                                     own resources,
                                     private capital, and
                                     federal program.
--------------------------------------------------------------------------------
\a Congressional Justification for 1997 Estimates, HUD, Part 1, April
1996. 

*** End of document. ***