FY 2008 BUDGET PRESS CALL

Monday, February 5, 2007

PARTICIPANTS:

ALPHONSO JACKSON
Secretary

JOHN COX
Chief Financial Officer

ROY BERNARDI
Deputy Secretary

BRIAN MONTGOMERY
Assistant Secretary of Housing and
Federal Housing Administration Commissioner

ORLANDO CABRERA
Assistant Secretary
Public and Indian Housing

PAMELA PATENAUDE
Assistant Secretary
Community Planning and Development

DARLENE WILLIAMS
Assistant Secretary
Policy Development and Research

KIM KENRICK
Assistant Secretary
Fair Housing and Equal Opportunity

KEITH NELSON
Assistant Secretary
Office of Administration

L. CARTER CORNICK
General Deputy Assistant Secretary for
Congressional and Intergovernmental Relations

The Buffalo News

PROCEEDINGS

Operator: Good morning. We will now begin the conference call. I will now turn the call over to the Department of Housing and Urban Development.

Ms. Nordquist: Hi, everybody. I'm D.J. Nordquist with HUD's Office of Public Affairs. Welcome to our annual budget briefing. Secretary Jackson will begin today's conference call in just a moment. And just for your information, we have posted all of our budget materials on our web site at hud.gov.

I'd like to outline today's format. Since our senior management team is scheduled to brief members of Congress and their staff as well as our industry and trade partners this afternoon, our time is somewhat limited. Following Secretary Jackson's opening remarks, we'll hear from HUD's chief financial officer, John Cox, and then we will open it up to your questions.

We have a number of our senior staff standing by as well. They include Roy Bernardi, our Deputy Secretary; Brian Montgomery, Federal Housing Commissioner and Assistant Secretary for the Office of Housing; Orlando Cabrera, Assistant Secretary for HUD's Office of Public and Indian Housing; Pamela Patenaude, who leads our Office of Community Planning and Development; Kim Kendrick, who directs our Office of Fair Housing and Equal Opportunity; Darlene Williams, Assistant Secretary for HUD'S Office of Policy Development and Research; and Keith Nelson, who is our Assistant Secretary for the Office of Administration.

With that, let me turn things over to Secretary Jackson.

Mr. Jackson: Good afternoon. Today, I am pleased to present President Bush's Proposed Fiscal Year 2008 Budget for the United States Department of Housing and Urban Development. The President's overall budget goal is to support what works and reduce the federal budget deficit. As a result, HUD's FY 2008 budget exercises physical discipline and gives priority to those programs with measurable and proven results.

For the FY 2008, the President is proposing a $35.2 billion budget for HUD. This is an increase of $1.6 billion over last year's request. This budget will allow HUD to continue to build upon the success we have achieved over the past six years, especially our efforts to increase a record number of Americans, especially minority individuals, who own their home; provide more affordable housing; and help the most vulnerable among us move beyond life on the streets.

Today, more Americans are homeowners than at any time in our nation's history, and the minority homeownership rate has reached a historical high. To continue to increase the minority homeownership and expand the affordable housing supply for very low - and low-income families, the FY 2008 budget will increase funds for critical programs, including $1.97 billion for the Home Investment Partnership Program for families to purchase or rehabilitate their homes or apartments, and $50 million for ousing counseling services to help families prepare financially for homeownership, avoid predatory lending and defaults.

Fostering an ownership society has been one of the President's top priorities, but homeownership may not be a viable option for everyone. That's why the largest component of HUD's budget promotes safe and affordable rental housing.

The 2008 budget supports housing for nearly 4.8 million people in public housing and throughout the Section 8 voucher and assisted program.

The President has also proposed an innovative reform to the Section 8 voucher program.

The reforms will allow the public housing authorities who have been good stewards of the taxpayers' money to assist more families. We estimate that 180,000 more families can get real assistance through this change.

Ending chronic homelessness remains a priority for the President. Since 2001, the Bush Administration has awarded a record $6.1 billion to help homeless individuals move beyond a life on the streets. To provide further support of the housing option for the individuals who are chronically homeless, the 2008 budget will provide $1.59 billion, an increase of $50 million more than last year.

A vital part of our mission is to reform the programs that serve those in need. The Federal Housing Administration needs to improve its ability to reach the traditionally underserved homebuyer, which will also help increase minority and first-time homeownership. Too many individuals and families have been steered into high-cost, high-risk loans, particularly minorities, first-time homebuyers, and families with less-than-perfect credit. American homebuyers need the FHA. Legislation to modernize it is critical.

Finally, government best serves the taxpayers when it performs well and produces sound results. Over the past several years, HUD has taken many steps to improve its management and performance, and the budget presented today strengthens these efforts. Last week, I am very proud to say HUD was removed from the Government Accountability Office High-Risk List for the first time ever since the list was started in 1994.

With that brief introduction, I now turn to HUD's chief financial officer, John Cox, to provide greater detail on the proposed budget.

Mr. Cox: Thank you, Mr. Secretary. Good afternoon, everyone. We're pleased to present the President's Proposed Fiscal Year 2008 Budget for HUD. Before I provide you with a line-by-line preview of the proposed budget, I want to provide you a brief overview of the strategic thinking that guided our budget formulation process, and note some of the resulting decisions we made.

I think it's important to first state the obvious, that the overall budget climate in Washington requires that we take a measured approach to discretionary spending. Tough budget decisions were made while ensuring that providing affordable housing, increasing homeownership, reducing homelessness, and doing so while providing equal opportunity in housing remain our top priorities.

As the Secretary mentioned, for Fiscal Year 2008, the President is proposing a $35.2 billion budget for HUD. Overall, this represents a $1.6 billion, or 5.4 percent, increase to the President's 2007 budget request.

In formulating HUD's Fiscal 2008 budget within current budgetary constraints, HUD examined its funding priorities to ensure that limited resources were used for those most in need. The Fiscal 2008 HUD budget includes references to needed reforms in multiple program areas, notably FHA, community development block grants, and public housing. Consequently, our proposed resources are distributed as follows:

First, we sustain support for the millions of households already receiving rental housing assistance through HUD's tenant-based voucher and project-based assistance programs. This was accomplished by increasing funding to meet the Section 8 tenant-based and project-based contract renewal needs in Fiscal Year 2008. The budget also includes funding for the public housing capital and operating funds. The total proposed funding for these programs alone represents 79 percent of the total HUD budget for Fiscal Year 2008.

Secondly, we want to increase or sustain support for some of the most vulnerable populations we serve. This level of support was accomplished by increasing funding for the homeless assistance grants. The President is again proposing a record level of funding to house and serve homeless persons and families. As the Secretary mentioned, the Fiscal Year 2008 budget seeks $1.586 billion through HUD's continuum of care and emergency shelter grant programs.

This request represents $259 million more than the Fiscal 2006 appropriation. Since 2001, HUD has awarded nearly $9 billion in homeless assistance nationwide.

Third, the budget continues support for the existing HUD-assisted housing for the elderly and disabled under our Section 202 and 811 programs.

The Department proposes demonstration projects in both programs to leverage alternative financing for new development such as low income tax credits. Increases are also proposed in housing programs for Native Americans.

Fourth, we are increasing the funding dedicated to the Home Investment Partnerships Program by $252 million over the Fiscal 2006 levels.

More than 143,000 households were assisted by the home program in Fiscal Year 2006, the last enacted budget. Each home dollar allocated to a local jurisdiction traditionally leverages more than $3 from public and private sources.

Fifth, the Fiscal 2008 budget proposes to fund the Community Development Block Grant, or CDBG, program formula at billion. The Department will continue to pursue formula fairness by appealing to Congress to approve a new allocation formula that will more effectively target CDBG funding to areas of greatest need, which is often not the case currently. In addition, HUD will work to boost performance measurements within CDBG to ensure these critically needed dollars produce the results the program was designed to achieve.

The Fiscal Year 2008 proposal is in line with the President's commitment to target limited resources where they are most needed on programs that work.

The President has pledged to create 5.5 million new minority homeowners by the year 2010. We are over halfway towards meeting that goal. To help meet that goal, FHA single-family insurance programs are being revised to accommodate today's economic realities and the needs of low - and moderate-income families.

With that introduction, I'll now turn the call back over to D.J.

Ms. Nordquist: Next, we are prepared to take your questions now. To do that, to ask a question, you must press star 1 on your telephone, and you'll be placed in a queue. The conference coordinator will then introduce you. So if you could please remember to give us your full name and media affiliation, that would be a great help.

Operator: Your first question comes from Andrew Ackerman from Bond Buyer Newspapers. Your line is open.

Mr. Ackerman: Secretary Jackson, you got a bipartisan rhetorical beating in Congress last year when the administration attempted to cut CDBG funding and eliminate Hope VI. It looks like the Fiscal '08 budget that you guys unveiled this morning attempts to do both again. Why do you think you'll be more successful arguing for a new funding allocation formula for CDBG when Congress has made it clear that you need more money for that program, not less, and when Hope VI is still fairly popular?

Mr. Bernardi: This is Deputy Secretary Roy Bernardi. Secretary Jackson had to leave. When it comes to the '08 appropriation of approximately $3 billion for the CDBG program, you're correct. But trying to cut the budget deficit as we need to do and with the necessary restrictions that we have as a department, each and every year, the Secretary has indicated on a number of occasions as we increase the budget in certain areas, especially when it comes to providing housing assistance for the most needy in this country, that consumes a significant part of our budget, whether it's the tenant-based, project-based, or public housing component. It's almost 64 percent of our budget.

Difficult decisions had to be made, and that was one that we made.

Also, the fact is this year we're going to be funded as we were in '06 with a CDBG budget, and this will give communities and states an opportunity to have a significant lead time to make that adjustment.

Mr. Ackerman: Okay.

Operator: Your next question comes from Joe Poduska from HUD Reporter. Your line is open. Joe Poduska?

Mr. Poduska: Hello. Yeah, this is Joe Poduska with Housing and Development Reporter. I just wanted to ask about the -- there are a couple of legislative proposals that you're going to have to put forward as part of the budget, and that is with the Section 8 vouchers. You talked about raising the cap on the number of tenants that would be helped by the program. Is this basically -- are you basically sending up the same proposal that you did last year, or are there some changes to this? And would housing authorities be able to change the subsidy levels that they use for the program?

Mr. Cabrera: Joe, we would -- I'll take that in the two pieces that you just asked. The first part of it is what we intend to do--

Mr. Poduska: Okay.

Mr. Cabrera: I'm sorry, this is Assistant Secretary for Public and Indian Housing Orlando Cabrera. What we intend to do is seek substantive reform, or as I prefer to call it, evolution of the Section 8 program, in order to continue our commitment to allowing local housing authorities, local public housing authorities, to make a lot of these decisions on management and the management of their own portfolios in their own way.

That commitment will continue from the Office of Public and Indian Housing.

With respect to the lifting of the caps and our proposal to lift the caps, it's pretty straightforward. We think that we want to reward good actors who have been working within their budgets, and allow them to take fully advantage of the economies they manage when they issue Section 8 vouchers, and we're committed to helping them.

Mr. Poduska: Okay. And as far as the subsidy levels go, would you be able to, under your proposal, change the amount of subsidy for each family?

Mr. Cabrera: That would largely have to do with the legislative proposal you first asked about. So the short answer is nothing much has changed from the way that we've done it in previous years, except that we would be lifting the overall cap -- that limits their ability to issue more in new vouchers.

Mr. Poduska: Okay. All righty, thank you.

Mr. Cabrera: You're welcome.

Operator: Your next question comes from Stephen Ohlemacher from the Associated Press. Your line is open.

Mr. Ohlemacher: Hi, thank you. When I look at your funding for Section 8 and I see it's at $16 billion, now, you said that that's enough money to renew all of the contracts. Is that enough money to fund all of the authorized vouchers? Because the Center for Budget Policy and Priorities says that you would actually need another half a billion dollars to fund all of the authorized vouchers.

Mr. Cabrera: I don't know where they are deriving their statistics from, but I think you'll also see that in the past, they've had statistics, or represented that they had statistics that showed a particular result that didn't come to transpire.

I think at the end of the day, what the conversation is or should be now is that the Section 8 program is a budget-based system, not a voucher-based system. So at the end of the day, these numbers are basically generated using a formula that takes into account issues -- like CPI takes into account how it is that various public housing authorities administer these programs. So it's a pretty well-known formulaic process. And so I think we are pretty comfortable with the $16 billion number.

Mr. Ohlemacher: Okay, thank you.

Mr. Cabrera: And for clarity's sake, I'm sorry, that was again Orlando Cabrera responding. Sorry.

Operator: Your next question comes from Rebecca Adams from the Congressional Quarterly.

Ms. Adams: Yes, hi. I wanted to know if any of the changes that you have outlined in the budget document can be done administratively, and what your regulatory priorities are for the year?

Mr. Cornick: Are you talking about Section 8?

Ms. Adams: Well, that and other things as well, but yes, in particular I'm interested in Section 8.

Mr. Cabrera: Okay, just so I can do it right for the first time. This is Assistant Secretary for Public and Indian Housing Orlando Cabrera.

Most of the changes that we seek legislatively, we try to get those changes because we can't do things administratively. We've pretty much run the gamut on things that we can do administratively. The best we can do from here on out is do some administrative changes on the fringes, but our big concern would be that we're looking to deregulate Section 8, not re-regulate it.

So the short answer to your question is it's mostly statutory.

Ms. Adams: Okay. Would you say virtually all of it is statutory, or what would not have to go through Congress?

Mr. Montgomery: This is Brian Montgomery from FHA. We have a legislative proposal that you're aware of that we carried last year, what was passed in the House. We have to reintroduce that here soon. There are some process improvements that we've made over the past year that were administrative in nature that allowed us to help modernize FHA. We can go into more detail later on some of those process and procedural improvements, but we've done -- taking Orlando's line, we've gone about as far as we can administratively, but we need to really improve FHA in today's mortgage marketplace. It does require legislative approval.

Ms. Adams: Okay, thank you.

Ms. Patenaude: Hi, Rebecca. This is Pam Patenaude from the Office of Community Planning and Development. And we have three legislative proposals with our '08 budget submission for CPD and all three, the CDBG formula, the Hoffmore (?) formula revision, and the continuum of care consolidated homeless legislation, all require a legislative fix.

Ms. Adams: Okay, thank you.

Operator: Your next question comes from Bruce Alpert from New Orleans Times. Your line is open.

Mr. Alpert: Hi. How does your budget enable you to revamp public housing in New Orleans post-Katrina?

Mr. Cabrera: This is Orlando Cabrera, Assistant Secretary for Public and Indian Housing. Most of the issues of public housing in New Orleans have to do with a section of the appropriations bill that was passed on December 30, 2005, where HANO was given -- HANO is Housing Authority of New Orleans -- was given a greater latitude with the resources it receives from Congress. So from that perspective, HANO at this point is being funded pretty fully in order to take advantage of everything it can in order to recover.

Mr. Alpert: So you don't need any additional, you don't think, at this point?

Mr. Cabrera: Most of that's being undertaken through CDBG funding that's being allocated by the state of Louisiana, so that I think you'll see, both in the Road Home Program and the efforts of the Louisiana Housing Finance Agency, evidence that people are trying to use every resource available in order to help public housing in New Orleans.

Operator: Your next question comes from Tom Harmon from Community Development.

Mr. Harmon: Hi. I was wondering if anybody there could speak with me for just a second about the CDBG reform language that went up on the Hill. Will there be any changes made, any alterations made to try to push that thing along this year at all, or will it stand as currently offered?

Mr. Cornick: This is Carter Cornick. I work in the Office of Congressional and Intergovernmental Relations. It is the case that the legislation we proposed last year in May, submitted to the Congress for their review, is going to be the legislation that we move forward soon this year. Obviously because it's a new Congress, we have to resubmit the legislation. And Assistant Secretary Patenaude and the Department are -- we anticipate that we will have before the Hill for their consideration that reform legislation again soon, certainly by the end of February, if not early March. And the basic principles remain the same: Formula reform as well as a priority on performance measurement and results, as well as trying to introduce into the program an incentive for people and creativity. This would be the challenge grant proposal that was part of last year's effort.

So I think that gets at what you were trying to hear from us.

Mr. Harmon: Will it be identical or --

Mr. Cornick: I'm not sure that we're clear that it'll be identical. The honest fact is we've been engaged with a whole range of groups, not to mention Congress. We had no fewer than three and maybe four hearings last year where we got a lot of feedback. We've worked closely with groups like NACO as well as Conference of Mayors and others who have very big interests in this program.

We want to improve the proposal to the degree that we think we can, so we're open. And I can't say to you right now today that it will be exact. My guess is we'll have some modifications that are reflective of some of the input that we've received.

Mr. Harmon: Thank you.

Operator: Your next question comes from David Hess from the National Journal.

Mr. Hess: Hi. Can someone speak to what's going to happen at the Rural Housing Service program?

Ms. Patenaude: Hi, David. This is Pam Patenaude, Assistant Secretary for the Office of Community Planning and Development. The President's budget does not include a request for any new funding for the Rural Housing and Economic Development Program for Fiscal Year 2008.

Mr. Hess: Does that mean that it's being eventually phased out?

Ms. Patenaude: This is part of the reform, that this program will be consolidated with the CDBG program.

Mr. Hess: And will it be block granted then?

Ms. Patenaude: It will be included with the $3 billion that is proposed funding of '08 for CDBG.

Mr. Hess: And will CDBG be block granted?

Ms. Patenaude: Yes, the block grant program will continue.

Mr. Hess: Okay.

Operator: Your next question comes from Richard Cowden from DNA Banking Report.

Mr. Cowden: Yes. When the President proposed his 5.5 million minority housing goal in 2002, the Administration proposed $200 million annually for the American Dream Downpayment Program. I see that's proposed for $50 million.

And also, there was a single-family housing tax credit, a rather key component of that.

I haven't seen anything about that recently. Can you explain why these proposals have been downgraded?

Mr. Cornick: Let me offer this. I'd like our Deputy Secretary to first respond to you. This is Carter Cornick again. I'm going to let the Deputy start here.

Mr. Bernardi: Yes, this is Roy Bernardi. The program in 2003, when President Bush visited HUD and signed that piece of legislation, as you may recall the history of that, we continually asked I think for $200 million a year, and that was reduced by the Congress in successive years.

The program is run very well. The participating jurisdictions in our home program take those dollars, and that goes an awful long way to providing first-time homeowners an opportunity to own their own home, and it goes for downpayment and closing costs. And it also goes an awful long way to the goal the President has set, which, by the way, we're proceeding along very well, of 5.5 million more minority homeowners by the end of the decade.

The request this year is $50 million, and we're just hopeful that the Congress will leave it at $50 million. We wanted to be realistic with it.

We do have some money in the pipeline. But the fact of the matter is, we've had thousands of families take advantage of this opportunity. Twenty-two thousand to be exact.

Mr. Cornick: Twenty-two thousand. And so I think it would be -- nobody's downgrading anything. This has been a very successful program, and it is the case as well that we have learned there are capacity issues in each of the jurisdictions. This is one of these programs where we want the jurisdictions to help guide exactly how this is going to be used. It's being used broadly all across the country, and we're going to continue to seek funds for it. And I think you're going to continue to see the kinds of results where people are getting into homes for the first time.

Mr. Montgomery: This is Brian Montgomery, FHA commissioner. You may recall from our Expanding American Homeownership Act of 2006 there's a provision there to do away with the 3 percent downpayment requirement. Part of that would be to structure a product that would meet a family's needs based on their particular financial situation. What that means is if this legislation goes through, that we would be able to offer families, in looking at their risk profile, perhaps a 1/2 percent down or 1 percent down, but not to exceed 3 percent. Right now we're statutorily required to set that at 3 percent. So if the FHA bill does go through during this Congress, we would have some flexibility on what families may choose as far as their downpayment, because that is one of the single largest barriers to homeownership.

Mr. Cornick: This is Carter Cornick again. And part of the importance of what Commissioner Montgomery is talking about is it works hand in glove with the downpayment program. That program would benefit as well from the legislative relief, the reform that we're seeking with FHA.

Mr. Cowden: Someone mentioned earlier a low-income tax credit. Does that have anything to do with the single-family housing tax credit?

Mr. Montgomery: This is Brian Montgomery again. There are two demonstration projects proposed in this budget for the Section 202 and Section 811 programs. The 202 has a $25 million demonstration project, 811 is a $15 million. Part of those demonstration projects would be to identify and hopefully do away with barriers to the use of low-income housing tax credits within those programs, and also to look at those programs and see ways that we can better leverage the federal resources with those of what local governments and states can offer, whether it be through home program or the use of private activity mortgage or multiple-family bonds, and of course, low-income housing tax credits. Well, we've been working with some in the industry, and hopefully they'll be pleased to see that this made it into the '08 budget.

Mr. Cowden: Nobody said low-income housing tax credit. They just said low-income tax credit, so I was confused.

Mr. Montgomery: This is Brian Montgomery again. All I can speak for is the low-income housing tax credit.

Operator: Your next question comes from Andrew Vanacore from Buffalo News.

Mr. Vanacore: Part of your block grant reform program includes terminating the Brownfields Economic Development Initiative, the Community Development Loan Guarantee Program, and the Rural Housing and Economic Development. And it says these are activities that are eligible to be funded by the CDBG. Does that mean these block grants are actually going to have the responsibility of funding more of than it did in the past?

Ms. Patenaude: Andrew, this is Pam Patenaude from the Office of Community Planning and Development. As you know, the CDBG program has tremendous flexibility, and the activities under Rural Housing and the Brownfields Economic Development are currently eligible activities under CDBG.

Ms. Nordquist: Okay, this will be the last question.

Operator: The last question comes from Stephen Ohlemacher from the Associated Press.

Mr. Ohlemacher: Hello, thank you. First of all, just one quick question. When someone spoke about the proposed legislation that you're going to be coming out this year for CDBG reform language, who was that?

Ms. Patenaude: That was either Carter -- Carter Cornick.

Mr. Ohlemacher: Okay, yes, yes, that's right. Thank you. And I see you have -- okay, $3 billion for CDBG funds next year. What is the estimated spending for 2007, and will there be any other programs such as the Rural Housing and Economic Development that will be consolidated into CDBG?

Ms. Patenaude: This is Pam Patenaude again from the Office of Community Planning and Development. The President's 2007 request was for $3.032 billion in '07 versus '08 at $3.037.

Mr. Ohlemacher: Isn't the estimated spending for '07 a lot higher than that?

Mr. Cornick: Well, put it this way: The House passed in the Joint Spending Resolution 3.77, call it 2, billion dollars. That's what they passed. And the Senate has yet to act on that. It would be presumptuous of us to presume what they will do, but I think it is the case that they've funded '06 in the $4.1 billion category, so there's a very strong probability that the '07 final number would be in the 3.7 category, or 3.8.

Mr. Ohlemacher: Okay. And are there other programs that are being proposed to fold into CDBG?

Ms. Patenaude: The Section 108, the Rural Housing and Economic Development, and the Brownfields program.

Mr. Ohlemacher: Got you. Thank you.

Ms. Nordquist Okay, great. Thanks very much. If you have any other questions that we didn't get to, please feel free to call the Office of Public Affairs at (202) 708-0980.

Thanks, and have a great day.

(Whereupon, at approximately 1:05 p.m., the PROCEEDINGS were adjourned.)

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