Thank you, Gene, for that very generous introduction.

And thank you to the U.S. Conference of Mayors for inviting me to meet with you this morning. I welcome this opportunity to update you on our work at the Department of Housing and Urban Development.

I want you to know that I appreciate your service to America's cities and communities.

I've met with mayors from across the country during the past four years. I've visited your cities and toured your housing developments - both the successes, and the troubled areas that we've pledged to work together to revitalize. I want you to know that you'll continue to have my personal support and the support of this Administration in working to make our cities better places to live, work, and raise a family.

But let me be frank: The federal budget that we'll be rolling out in early February is going to reflect some tough realities. The President is committed to controlling the deficit, and that will not happen unless Congress and the Administration make difficult choices on the spending side.

The HUD budget will not be exempt from these tough choices.

I'd like to outline some of our plans for you this morning . In three specific areas - strengthening the Section 8 program, increasing homeownership, and combating homelessness - we'll be depending in new ways on your expertise and unique understanding of your communities.

Let me start with one of my top priorities: reform of the Section 8 rental assistance program. I know that Section 8 is one of your top concerns as well.

It's a fact that Section 8 costs are growing out of control.

In 1998, the Housing Certificate Fund, under which the Section 8 program is funded, consumed 42 percent of HUD's annual budget. That had risen to 64 percent last year. The 2006 budget continues to be hammered out, and we won't have final numbers for a couple of weeks. But it's very likely that the percentage of the HUD budget required to fund Section 8 in 2006 will be higher still.

Section 8's current rate of growth is simply unsustainable.

Those rising costs are already cannibalizing every HUD program. If we don't solve this problem, all of our programs - including popular programs that your cities and municipalities depend on - are in jeopardy.

I'm also troubled that as Section 8 costs rise, we're not seeing equally dramatic results in terms of moving families toward self-sufficiency. Despite drastic funding increases, Section 8 waiting lists continue to grow across the nation. In some cities, families who sign up on a waiting list today wouldn't receive an apartment for another ten years.

If Section 8 is to continue serving those in need and helping families become self-sufficient, we need reform now.

When Congress passed HUD's 2005 budget, lawmakers converted Section 8 funding from a unit-based system to a dollar-based distribution. This made sense, but for the dollar-based system to work, we need to simplify program requirements and provide your public housing authorities with greater flexibility.

That's exactly what the Administration is again proposing.

Under the Section 8 reform plan we've developed, we're going to return flexibility to local agencies. For example, PHAs will be able to set and adjust subsidies based on their own market rents, rather than depend on HUD-determined rents. We'll encourage PHAs to design their own tenant rent policies to reward work. And our plan will reward PHAs for good management through performance-based incentives.

We're also proposing to eliminate the quota system which requires that Section 8 vouchers go almost exclusively to families making less than 30 percent of area median income. Our assistance would still be limited to low-income families, but housing agencies would no longer have to discriminate against those moving up the economic ladder.

Let me underscore that these changes wouldn't be mandatory - they'd be at the discretion of local decision-makers. But I'm certain that this flexibility will enable your PHAs to better serve low-income families, reduce the waiting lists for vouchers, and move more Americans toward self-sufficiency.

I ask you to give our proposal your serious consideration.

Of course, the quickest path to self-sufficiency is the purchase of a home. President Bush and I believe firmly that when a person owns a home, they have a vital stake in the future of our country.

During these past four years, our Administration has built a new federal commitment to homeownership, especially for minority families. The President has challenged the nation to create 5.5 million new minority homeowners by the end of this decade. I'm proud to say that 2 million minority families have purchased homes in just the past two years.

I'm pleased that HUD's Federal Housing Administration is responsible for about a quarter of those families. That's a good record, and we're going to build on it.

Last year, a number of you sent comments to HUD about our proposed GSE affordable housing goals. I want you to know that we read your comments very carefully, and took them into account in the final rule. We believe that our affordable housing goals, which became effective January 1, 2005, will help many more city dwellers become homeowners. This will promote neighborhood stability and community revitalization across our cities. We also anticipate that the goals will encourage both GSEs to do more in the multifamily rental housing market, where most loans are likely to count toward one or more of the affordable housing goals.

The new goals are already affecting GSE behavior. Last week, Freddie Mac announced plans for new activities to provide mortgages for families that are now borrowing in the subprime market, and other underwriting changes.

We're pleased to see both GSEs putting more effort into serving first-time homebuyers, because they traditionally have lagged behind other lenders in this area. Done properly, this will increase homeownership opportunities for many of your constituents, and that's all to the good. At the same time, I want to assure you that we at HUD will be looking closely at these new activities, to ensure that they meet the statutory requirements for new programs and for fair housing compliance.

This year, we're going to propose legislation that would boost homeownership by creating a Zero Downpayment Mortgage option in FHA. We're also proposing that Congress enact a Homeownership Tax Credit that will encourage the production of homes for moderate-income families.

It's true that some communities just don't have enough affordable housing. In too many places in this country, middle-income individuals can't afford to live in the same communities where they work.

Local regulations that drive up the cost of housing are often to blame.

One way HUD is addressing the problem is through "America's Affordable Communities Initiative". We're convinced that if cities, states, and counties review their laws and regulations, and fix the ones that are preventing affordable homes from being built, we can increase the supply of affordable housing by as much as 35 percent.

We created the Initiative to take that message directly into your communities and begin a national conversation about housing costs. You received a mailing from us last year, and we've followed that up with an informational website and a series of educational seminars.

The National Association of Counties passed a unanimous resolution in support of the Initiative, and local officials around the country have told us that eliminating regulatory barriers could help reduce the cost of housing in their communities. I'd like to encourage mayors to learn about the Affordable Communities Initiative - and to see it as a valuable tool for making your cities a more welcoming place for homeowners.

The third priority I want to touch on is homelessness.

Since President Bush launched a nationwide effort to end chronic homelessness by 2012, more than 200 cities, counties, and states have joined with the Administration to combat homelessness. More cities are signing on every month. All but four states have established State Interagency Homelessness Councils.

I appreciate our close collaboration with the nation's mayors. You're doing innovative work to meet the homelessness challenge, and this Administration will support you in any way that we can.

We're doing that first and foremost with dollars; HUD's homeless assistance totals nearly $5 billion since President Bush took office. I want to assure you that this commitment will continue in fiscal year 2006.

We're also supporting your work by ensuring that homeless individuals have access to services through HUD's mainstream housing assistance programs. We're coordinating better than ever before the many federal agencies that work with you in serving the homeless population. And in addition to our focus on ending chronic homelessness, we're making permanent housing a more viable option.

I appreciate the difficulties our mayors face as you seek answers to the challenges of transportation, schools, economic development, housing, and the many other concerns you deal with daily. President Bush and I are committed in a very profound way to working hand in hand with you to strengthen America's families and communities.

And I feel confident that we'll succeed when I look at the successes we've already achieved by working together with you.

HUD is proud to be your partner.

Thank you - and thank you again for inviting me to meet with you today.