Good evening to all of you. Let me make a couple of points if I can because this is too special a gathering, with the minds that are in this room, and it comes at a very opportune time. We are right now, literally, discussing with Congress the future of housing and what it's going to be in this budget, President Clinton's last budget.

I have had conversations throughout the day on this. And it is still fascinating to me. I've been at HUD for going on eight years now. I've seen the evolution of the discussion, but as much as it has evolved, it has also remained the same. Cushing Dolbeare, who is here today, said once, there was never a housing bill that was widely acclaimed at the time it was passed, it was only the best compromise that could be reached.

And in many ways, we're having the same basic debate with the Congress today, although it's at a much, much different time than we were at any point over these seven years. Many of the dynamics were the same. This has been an ongoing debate and an ongoing dialogue. I like to think that this HUD team and this President has brought this issue up several notches in terms of priority and in terms of the decibel level of the debate. That is a good thing. It is easy to have a simple debate, but it doesn't do justice to the issue, and I'm proud of what President Clinton has done.

But the debate has gone on. It reminds me of the great line that Daniel Webster used in his Second Reply to Hayne in 1830, when the Senate was debating the role of the federal government, vis-a-vis the states -- a topic that we are still debating today.

Webster had a great opening paragraph which said, "When the mariner has been tossed for many days in thick weather and on an unknown sea, he naturally avails himself of the pause of the storm, the earliest glance of the sun to take his latitude and ascertain how far the elements have driven him from his true course. Let us imitate this prudence and before we float further on the waves of this debate, refer to the point from now which we departed, that we may at least be able to conjecture where we are."

Webster then went on to speak for two days in his response to Hayne. His point was that the debate had gone on for many days, let's just remember where this all began. You can see why they had to take their bearings. In some ways we've been having this housing debate for so long, I think it's important to take our bearings because this debate is going to be just as furious this year as it's ever been before.

You started with the 1937 Housing Act and the 1949 Housing Act, which were so simple, in some ways, that they were truly profound. And you look at what we've done since then.

We have a great, great success story, which is the homeownership story in this nation, the story of Kent Colton and the homebuilders. We have so much to be proud of -- we've accomplished, literally, the highest homeownership rate in the nation, over 50 percent homeownership in cities for the first time ever. We've gone from a nation of renters to a nation of owners.

We have a great, a great infrastructure of housing organizations out there -- not-for-profits, community-based organizations, our secondary mortgage finance companies. Our housing industry is envied around the globe. It has worked extraordinarily well.

But if you were to look at where we were in 1949 and the progress we have made, you'd see that great record of success, but my guess is you would talk about what we have not done and the challenges that we have not met -- that you could have 5.4 million worst-case needs today.

When they were arguing about the 1949 Housing Act, there were 3.3 million people living in overcrowded or substandard conditions, who would be our equivalent of worst-case housing needs. And today we have 5.4 million. You have that great strong economy, which is a gift to this nation, the strongest economy in history, that is also driving up rents 1.5 times faster than inflation. You have waiting lists longer than ever before -- two and a half years to get a Section 8 voucher, if you can figure out how to make it work, as much as ten years for public housing, 600,000 homeless Americans. Great, great success, but so much more to do.

The first question for me is why am I fighting with the Congress? Why should this be a debate? Why are we arguing the need for housing and the numbers? So many other basic needs, it is assumed that certainly government must play a role. Why don't we have this fundamental debate on education? Why doesn't the government say, let the private market do education? Why don't we have this debate on health care? Why don't we have this debate on food? Why don't we debate the food-stamp program this way? Why do we take housing, which is just as basic a need as the food-stamp program, as the health care program? And why, on housing, is the first debate point whether or not we should do it?

And that is the starting point, whether or not we should do it. The House and Senate opening bid for new vouchers is zero. Zero. This is not an argument where we say 120,000 and they say 60. This is where they say zero.

They say we should not do it, let the private market do it. Why? Why has housing taken on a fundamentally different position than these other comparable needs? I think, frankly, government itself bears some of the responsibility for the negative light in which housing is seen. I believe that the old stereotype that government public housing projects failed is still the conventional wisdom.

Now, we can say that it's not true, look at the facts -- 97 percent of the housing authorities work, , it's only a few, a handful that aren't working. Public housing -- we're now talking about assisted housing, the multifamily side is different than public housing -- all those distinctions are lost.

The stereotype was, it didn't work. The government's housing program became Cabrini Green, became Pruitt Igoe, became the big low-income housing project that was down the block from my house. And that public housing high-rise came in and it ruined the whole neighborhood, or I heard stories about how it ruined the neighborhood. It's one of the reasons I fled from the city and I now live in the suburbs, because government fouled up the old neighborhood.

But this stereotype of the failure of government drives us today. When Bill Apgar was talking about making policy, we tease each other back and forth because at HUD you search for humor whenever you can. The fact is that Bill, the great policy person, had to become a manager if he was to do policy. And I, who was more of a manager coming in, needed to do policy in order to do the management. Why? Because they are the flip side of the same coin. If they do not believe you can do something, it is not a viable policy option.

That's the state we're in with housing. We built millions of units, in the 1950s, 1960s, 1970s. But somehow the perception became that they were a failure. So in 1974, we start to move to vouchers. Why? Well, first of all they're a nice idea -- mobility, choice, let the market work, subsidize the market. Sounds very nice, sounds a lot, frankly, like the education voucher discussion of today. Who could be against that? Let the market work. And it had one great added bonus, which was government doesn't have to do anything.

Just give them the voucher and let the market work, government's role is very limited, which is important. Why? Because then you won't foul it up, like you fouled up everything else. So vouchers became the panacea. That was a big shift from the project based approach, to go from the hard units to the Section 8 voucher.

We said, in order to have an intelligent policy discussion, we needed to have other options on the table and, therefore, we had to disprove the premise that was keeping those options off the table. We were an impediment to a full discussion, because, literally, if you say that HUD is incompetent, then it's a very short discussion. Then, by definition, you limit your options to only those programs that government has very little to do with and that was the attraction of the voucher.

So we had a startling revelation. It occurred to us that we were going to have to do something about the management of HUD, which was a scary proposition. When I became Secretary, I talked to some of the past Secretaries. They all had the same advice on this point: Don't go near the management of the Department. It is a morass that will suck you in. You do not come out of that morass. Once you enter that swamp, there is no exit. Just don't go there.

One, I don't believe that's true. And I do believe that if you take that as a premise, then I, as a government official, should go home, because once you give up on government, then find a different occupation.

Second, in some ways, by the force of circumstance, I didn't have an option, either. They were talking about eliminating HUD. And that was a very real threat four years ago. It seems like a lifetime ago, but it was a very real threat. And tinkering on the edges was not an option. So, we said we were going to go, literally, into the eyes, the teeth of the beast, and we were going to do basic management reform. We came up with a very aggressive template, we said we're going to start with a blank slate; we're going to think outside the box; we're going to bring in more business principles; we're going to make this place work; we're going to work with the market, not try to have programs that are going to defy the private market, which is what many of our programs were going to do.

We're going to figure out how to bring in the local community, do this with an integrated approach, have our programs work with our other programs. And do something about waste, fraud, and abuse so you had accountability and you could say to the Congress, you could say to the American person, I can actually do this thing called building housing, now let me try.

We revamped the place from top to bottom. I remember one of my hearings when I was just confirmed. I had a discussion with a senator, who said, you know, you're in the business of building slums and I don't know why we should be giving you money, and I don't know why you should be here because you're in the business of building slums. And I said, we're not in the business of building slums. I thought that was a good response at the time.

I still do. He said, oh, no, everything you build, you build the projects, you build ghettos, these are government-sponsored ghettos, that's what you do. You pay slumlords, you get ripped off, you build ghettos. I said, no, the overwhelming majority of our projects are well-run projects, they look good, they're an asset to the community and they're an asset to the neighbors. He said, well, how many? I said, how many what? He said, well, how many are good and how many are bad? I said, oh, an overwhelming majority are good. He said, well, how many is the overwhelming majority? I said, well over the majority. Hence, overwhelming. But I'll get you the specific number and I'll be back to you, which is always the case of last resort, the 'I'll get back to you, Senator'.

I came back to the building and I said, you know, we need to know, I need to know, because I have to get back to the Senator, what percent of our buildings are in good shape, what percent are in moderate shape, what percent are in poor shape. And everybody looked at me. And they said, well, this is an issue. I said, well, what do we have in terms of knowing what shape the buildings are in? Well, we have reports from the owners and the owners are on the public housing authority side of the PHA directors, they say the projects are in very good shape. I said, well that's a start.

But I can't go back there with that, because they'll say, of course, the owners are going to say that, what else are the owners going to say? I'm in violation of my contract, I'm in breach of the federal law, please come and arrest me. They'll probably not say that. I said, well, what do we have as an independent analysis of our portfolio? To make a long story short, we had none. And this was a very big deal now, because before you could go inspect the buildings, you needed to know where the buildings were. And we didn't. We knew where we sent the check, because that's the address that we maintained but that was very often the managing agent for the building and the management or the owner may have moved to Florida.

So we went through a process that in many ways for me is a metaphor of the entire transformation. We had to find out where the buildings were. Then we had to go out and inspect the buildings, and we had to audit the financials which meant that we had to come up with a national protocol to do this. We had to train the inspectors. We had to get out a contract. We had to determine what was a good building, or a bad building. We had to find out what was a good financial audit. But just about four years later we can now say we know where all the buildings are. We know which ones are good. We know which ones are bad. We can manage the ones that are bad and we can also tell you that overwhelmingly the HUD programs have worked extraordinarily well.

Assistant Secretary Harold Lucas is here. Over 75 percent of the public housing projects, when we went out and did a physical inspection, were in good condition the way we define it. We did a customer survey of the residents of public housing. We had a higher customer approval rate than people who stayed at a Marriott hotel, believe it or not.

So the projects did work. And more importantly, we had a basic idea and basic assessment of what our portfolio was all about. We called that the REAC, the Real Estate Assessment Center. We put together measures that said if you are defrauding the public at HUD, if you have one of the bad buildings, if you come up with an audit that suggests that there's been foul play, we're going to have a process that handles that because at HUD one of the things we must prove is that we can safeguard the tax dollar.

So much of HUD's negative reputation or the "scandals" which I still hear about. When I'm introduced to someone who doesn't follow this day in and day out and I say I'm the HUD Secretary, they say I thought you were in jail. I said, no, this is a parole. It's like Ground Hog Day. I'm out and I'm back at HUD again.

But that negative stereotype is still there. Waste, fraud, and abuse, making sure that we safeguard the money. We started an Enforcement Center. We brought the FBI into HUD to head up the Enforcement Center as a way to say don't worry, your tax dollars are in good hands.

The FHA is a totally different organization than it was. It is night and day. When Bill Apgar came in, it was 5,000 employees. Today it's 3,000 employees. It will do more mortgages this year than it's ever done before, 1.7 million mortgages. Its first automated underwriting system. We had 81 centers across the nation when Bill took over. We now have four Homeownership Centers, and we're doing more and we're doing it better.

Public housing under Harold Lucas, the Hope VI program, is a different experience -- 100,000 units across the country approved for demolition. Our homeless programs -- totally revamped. A different approach, community driven, moving people towards independence with three times the money. We're serving 14 times as many people than we did eight years ago.

We're on the side of the consumer now -- what we've done with predatory lending and getting ahead of that issue and putting it on the national radar screen, what we've done with the FHA Home Buyer Protection Program, our Healthy Homes initiative.

We are a competent regulator. HUD regulates Fannie Mae and Freddie Mac. The initial concept of HUD as a regulator for Fannie/Freddie left some people wondering whether HUD could actually do this. I think over the past four years we've proven ourselves a competent regulator.

We've done the same in enforcing the Fair Housing law. We enforce the Fair Housing law, the law that was passed one week after Martin Luther King's death. We will do two times as many discrimination cases at FHEO, our Office of Fair Housing and Equal Opportunity. The first federal department to sue the Ku Klux Klan? The Department of Housing and Urban Development just last year in Pennsylvania.

Zero tolerance for waste, fraud, and abuse -- between the Enforcement Center and what we will have done with tenant income verification. Every resident of public housing or multifamily housing will have had their income submission run against their IRS data. Never been done before. Controversial? Frankly, I was not wild about the concept. But their income submission will be run against the IRS data. Where there is deviation between what they reported to the housing authority and what they reported to the IRS, that deviation will be resolved one way or the other so no one can say, well, all those rich people in public housing are really ripping off the taxpayer. First time that was ever done.

All of the programs, especially on the housing side, have been redefined with a 'now we'll work with the market as opposed to against the market' philosophy. That's what the mark up to market and the mark down to market is.

The reforms have worked. Are we bumping up against the ceiling? Have we reached management nirvana? No. But is this a well-functioning department? Is it a credible department? Yes. So says GAO, so says Chairman Leach, so says Chairman Walsh of our Appropriations Subcommittee. So says David Osborne who is the guru who started the whole concept of reinventing government. That expression was David Osborne's. He said the HUD transformation was one of the most ambitious in the federal government. And the respected real estate report Ken Harney just last week said, "The FHA has turned itself into what is arguably the consumer protection leader in the mortgage industry."

So we have management credibility. Which means what? Which means we can talk policy again. Now we can revisit the 1974 vouchers production discussion with alternatives because you needed the alternatives to have a real discussion. With vouchers, I say they work very, very well. The concept is right -- mobility and choice and using the private market and deconcentration and lower density. The concept is right but the difference between the practice and the concept in this case at this point in history is a schism.

You have about 25 percent of the vouchers that are returned, that don't work. Why? Discrimination is still alive and well in America. Some landlords don't want to deal with the Section 8 person. Some people don't like the profile. Some landlords don't like the profile of the tenant who appears with the Section 8 certificate.

Sometimes they don't work because there's no vacancy in the market. Sometimes they don't work because the price has gone too high in the market and we haven't kept up with it with our FMR - Fair Market Rent - standards. So 25 percent of the time they're being returned to us.

First step, we have to correct what's not working in the voucher program. We tried to do that by raising the FMR to the 50th percentile of available units three weeks ago which was a very big change -- raising the value of the voucher, literally raising what the voucher will pay to a point where now 50 percent of the units will be available to a voucher holder.

We've changed the program where seniors can now use vouchers for assisted living facilities. Most importantly in my opinion, a voucher can now be used to purchase a home.

Think about it. Since 1974 you've had vouchers. About $7 billion per year today, $7 billion of housing subsidy, $7 billion cost. Only rental. By definition, you could not use that voucher to pay your mortgage. Why? Today any Section 8 voucher can be used to pay a mortgage, and I think that's a big change.

Also you have to understand that the vouchers need help in the administration. Sometimes you need home ownership counseling, you need mobility counseling and we have a $50 million proposal in this year's budget that we call the Voucher Success Fund to put the servicing and the counseling together with the voucher holder.

So vouchers are good. But vouchers are not a panacea. They are a tool. They are not the exclusive tool. That's why we need a production program especially today. Especially in these markets where you can't get an apartment with a voucher because you can't find the apartment. You need to produce housing. You no longer have the excuse that says you can't do that because you're incompetent because we're now competent.

We should talk about production. President Clinton in his budget this year had a production program. It will be the first new one in 24 years, but the President had it in his budget.

Back in the spring the President was talking about the FHA increase. FHA when we took over was in the red. The value was negative $2 billion. Today it is a positive $16 billion. The President was talking about what to do with that increase in value in FHA, and the President was signaling that he wanted a production program.

Our production program has certain parameters. Number one, it is all mixed income. No more 100 percent poor complexes. We did that. We don't want to go back there. Our number is no more than 30 percent of the units in a complex low income. We believe the production program should be targeted to the extremely low income because they are the ones who are being least served by this market, and we believe a housing production program now must take advantage of one of our best assets which is the infrastructure that we have, which is the state Housing Finance Agencies certainly, not exclusively.

The state Housing Finance Agencies are not the only housing production mechanism. But we also have Community Development Corporations and we also have national not-for-profits, national intermediaries. Use that entire infrastructure. That's what we mean by a production program.

But the bottom line in this budget debate is that we need vouchers. We believe we're making the vouchers work better but we still need vouchers and we need a production program, and we've made that point abundantly clear to the Congress.

As the Housing Secretary I have one ultimate weapon which is, if I don't believe the budget reached is in the best interests of the department and the purposes that we're supposed to be serving, I can recommend to the President a budget veto.

I've told OMB and I've told the Congress if we don't have vouchers in this budget and we don't have a housing production program, I will recommend a veto to the President and I believe he will do it. This is a President who has put housing back on the agenda. It was high up on the radar screen last year. The only reason we have 120,000 vouchers is because President Clinton said he would not sign the bill without vouchers. That's how that it happened last year. I believe that Congress has heard the message.

I don't want to argue about the numbers now, and we will argue about the numbers between vouchers and production, but we need voucher program and we need a production program and we have to make the statement today that it is time we get back into the housing production business. We need the units and there's no reason not to. We are competent as a federal department. We have the best housing infrastructure on the globe. Use it. Use it. That's going to be the argument we're making over the past few weeks.

My final point is this. Many of you I saw when I first started four years ago as Secretary, not as assistant secretary, and I said can you imagine this? Here's the nirvana. We do all this management work at HUD because when we started, you have to remember 4 years ago, there was no money anyway. There was no possibility of budget infusion. We were fighting the deficit. It was all about the deficit, so there was no great budget increase for HUD. So we were doing the management work.

But I said, can you imagine what would happen if we did this management work on HUD and HUD turned around from a management point of view, or at least you weren't a negative, you were a positive in the discussion, and simultaneously the economy turned so there's actually a possibility for funding. And you put a competent HUD together with a possible budget increase. And that we had to be ready for the moment where you could once again talk about progressive government and resources for government.

HUD had to be ready and we would do the management work because who knows, maybe the stars were going to align and maybe we would come out the other end of the tunnel. We'd have a competent HUD and we would have a government budget that could actually do what we need to do because housing is still a question of resources. You have to close that gap, and only dollars close that gap.

My friends, that is where we are.

The reason I'm going to push this budget so hard is because I believe we have a moment in history. I believe the stars are aligned in a way they have not been aligned before. You have a political consensus that you have not had in decades. You have Republicans arguing for production. You have Democrats arguing for vouchers. You have both sides saying we have to do something about housing.

You have a geographic consensus. There's no longer a war between the city and the suburbs. They're both saying you need housing, you need it in the suburbs intelligently, smart growth, and you need to redevelop the cities. That tension is gone. From an academic point of view, I don't know what you decided today, but before today we would have had agreement and a consensus that no one tool does a housing policy make. Yes you need vouchers. Yes, you also need a production program. Yes, you need the state entities and the federal government and the community-based non-profits and intermediaries.

You have that consensus that you haven't had in years. You put that consensus together with the strongest economy in the history of the nation. You went from the greatest deficit to the greatest surplus. They're talking about breaking the caps now in addition to the surplus. You have an investment to make.

The consensus, the investment, the need, and then the competence of HUD -- where they can't excuse stepping into this arena because of the competence of HUD. All the elements are there. They're floating in the air. You feel that you just need a spark and you'd have ignition. You'd have spontaneous combustion.

When has this happened before? When have you seen all those stars aligned that way? Forty years? Fifty years? Sixty years? And we are that far. In some ways the spark that's needed is just the daring, the boldness to do it.

I was looking back, getting ready for tonight, at the floor debate on the 1949 Housing Act, and what you hear over and over and over again is, of course you should provide safe, clean, decent housing for every American. Why? Because they are Americans. And because this is America, and because we can and we should. And how could you not? How could you leave a person in dilapidated conditions? At that time they were talking about the slums and the ghettos.

How could you not do it? If you can do it, please give me a reason why you wouldn't. If you don't have the money, that's one thing. If you're incompetent, that's something else. If it's a political war between Democrats and Republicans, it's something else. If it's a war between the cities and the suburbs, it's something else. But if you have none of that happening, why wouldn't you do it? Only because you didn't believe you can, or you didn't care enough to do it.

I don't believe either of those are the case. We know we can. We know we need to, just light that spark, and we can do what we've all dreamed of for decades.

It's been an honor to be part of this journey with you. Thank you very much.

Content Archived: January 20, 2009