Mr. Chairman and Members of the Committee: Thank you for inviting me to testify on S. 462, the Public Housing Reform and Responsibility Act of 1997, and more generally on the very important matter of public housing reform legislation. I appreciate the opportunity to return to the committee that held my confirmation hearing. I request that my entire statement be included in the record, as well as a summary, to be provided for the record, of HUD's "Public Housing Reform Act of 1997".

If we work together, we can enact historic legislation this year. As I told the House Housing Subcommittee last month, I will work day and night with the Committees, others in Congress and other interested groups -- including those who are served by the programs and those who administer them -- to obtain passage of a constructive, and definitive, public housing reform bill. In that spirit, I have directed HUD to draft a bill -- the Public Housing Reform Act of 1997 -- that presents HUD's positions in specific language for your consideration.

We need a strong bill to improve the quality of life for families who live in public housing. We're determined to create new opportunities for the children who grow up there, to build communities of hope and optimism.

Public housing should be supported

The majority of public housing is a success. It works, and it's a valuable resource. It's well-run, a good place for families to live. In fact, out of 3400 housing authorities, fewer than 65 are designated troubled by HUD.

But we have made mistakes with public housing. In the past, public housing has been purposefully racially segregated. Sometimes the original site plan and architecture of the development was flawed; other times, the buildings just wore out, outlived their useful lives. Sometimes seriously flawed management contributed to the deterioration of the housing ... or neighborhoods changed from residential settings to locations for manufacturing, for warehouses -- sites where nobody wants to live, or should have to live. Sites where the children see that virtually nobody goes to work in the morning.

None of us would justify allowing our children to live in these conditions: segregated, dangerous, dense, isolated. Literally a world apart.

Where public housing is not working, we must face up to it and fix it -- make it work for the families and communities it serves or, if it is not fixable, replace it with other housing assistance.

Public housing is a vital part of many communities, the only affordable housing alternative for a great many people.

Although it's a small part of our national housing resource, more than one million public housing units represent more than one- third (34%) of the housing that is affordable to extremely low- income families. Families at about the minimum wage level.

In Dade County, Florida, public housing accounts for more than one-fifth (21%) of rental housing affordable to extremely low- income families.

In Baltimore, it represents nearly one-quarter (23.4%) of the rental housing affordable to these families.

In Boston, public housing accounts for almost half (43%) of the rental housing affordable to extremely low-income families.

Hartford's public housing makes up 36% of the rental housing affordable to these families.

And New York's nearly 160,000 (157,229) public housing units account for 65% of the rental housing affordable to extremely low-income families.

Nationally, public housing serves only about 25% of the people eligible for assistance. And more than 5.3 million households pay 50% or more of their income for rental housing.

All across America, people -- and communities -- need public housing. It's a resource we dare not waste.

Public housing must not be a world apart. It can be, must be, a proud and productive part of the community. It must become a place of promise, a place to nurture and grow the seeds of citizenship, a place to build opportunity for a better life and commitment to a better country.

We have to look at public housing in the overall context of community development -- public housing and jobs, public housing and transportation, public housing and services. We must break down the walls between public housing and the rest of the community. For that to happen, public housing must work for the people who live there -- and for the entire community.

Context for a bill

Mr. Chairman, over the past two years, a consensus has developed regarding the basic strategy for transforming public housing. That consensus is due primarily to the leadership of former HUD Secretary Henry Cisneros and the Congress. Thanks to that leadership, we have made a substantial start on public housing transformation. We have begun to demolish the worst public housing and replace it with a mix of lower-density development and portable vouchers, replace the worst management and work in partnership with other PHAs, support communities with more working families and get together on crime. Working together, our efforts have included:

• suspension of the "one for one" replacement rule that is allowing PHAs to demolish the worst of their stock. To date, 23,000 units have been brought down nationwide; and about twice that number have been approved for demolition;

• implementation of the Hope VI program, not only to rebuild dilapidated public housing, but to revitalize whole communities and provide portable subsidies that expand housing choice;

• vigorous HUD intervention to turn around several large troubled PHAs, including the most difficult PHA, Chicago;

• suspension of so-called federal preferences to enable PHAs to admit more working families and build bridges to the working world;

• enactment of ceiling rents and optional earned income disregards to attract, retain and support working families;

• adoption of "One Strike" efforts to clean up crime and drugs in public housing, based on Congressional action, HUD guidelines and the President's personal intervention.

We have a solid foundation of agreement. But, we have been unable to enact many of these initiatives on more than an annual basis in Appropriations Acts. Year-to-year legislative action is not enough to support the fundamental reform that is needed.

These are not political issues, they are not partisan issues. They are issues we must resolve for the benefit of the people and communities we serve.

I believe that we can not only resolve the remaining issues this year, but improve upon last year's efforts. We can go further to provide the responsible deregulation needed by HUD and PHAs as they cope with more limited resources. Even with limited resources, we can more effectively demand results from PHA management by focusing on what counts, particularly the condition of the housing. Most importantly, we can and must make these reforms and bring about more viable public housing communities, without compromising the basic principle that our precious housing subsidy resources must effectively serve those with substantial housing needs.

HUD's Public Housing Reform Act of 1997 would accomplish these goals. It would build upon the work of both Houses, so that a constructive bill can be promptly passed. Mr. Chairman, I would like to describe HUD's proposal by focusing first on management reforms: responsible deregulation, program streamlining, and responsible enforcement.

Responsible deregulation and program streamlining are essential for PHAs' performance and HUD's managemen

In a world where projected PHA resources are flat and HUD staffing is projected to drop from 11,000 to 7500 persons, substantial deregulation and streamlining is essential. HUD'S legislation would accomplish this by scaling back both the HUD approvals and the submissions required of PHAs under both current law and the Senate and House proposals; substantially deregulating small PHAs; combining and consolidating programs and converting programs from competitive to formula funding systems.

First, the PHA plan requirements can be scaled back responsibly. HUD's bill essentially would limit HUD approval to the areas of greatest funding or program risk -- capital plans, demolition or disposition including disposition for homeownership, designation of housing for use by particular populations such as the elderly, and certifications that citizen participation and other processes were followed. Additional basic information -- notably admissions policies including local admissions preferences, cooperation efforts with welfare and employment agencies and security plans -- would be included and subject to the citizen participation process, but reviewed by HUD only for completeness in the event of a challenge. Drug Elimination planning requirements would be consolidated with the other plan requirements. Of course, HUD would retain authority for audits, collecting essential information, enforcing of legal requirements such as rent rules and consistency of admissions preferences with local needs, and intervening to correct severe management failure. With respect to reporting, various annual reports could be consolidated into one performance report.

A five-year strategic plan and annual performance reports would be required. Numerous performance reports currently required by HUD would be consolidated. High-performing PHAs would receive additional points in funding competitions.

HUD'S bill would substantially deregulate small PHAs with 250 or fewer units. These PHAs number about 2500, or over two thirds of all PHAs, but manage only about 200,000, or 15 percent, of the public housing units. For these PHAs, capital and operating funds could be made fully fungible. A less complicated Public Housing Management Assessment Program (PHMAP) evaluation system with no more than five factors would apply. These PHAs would remain subject to basic laws and approvals, such as rent limitations, income targeting and demolition/disposition approvals, and of course to audit requirements.

HUD's bill would make additional changes to assure that PHA and HUD staff time can be devoted more to improved conditions and less to paperwork. The Comprehensive Improvement Assistance program (CIAP) and the Drug Elimination Program (DEP) would be converted from competitive programs to formula programs, thus making the funding process much easier. The supportive services program funded in each of the past two years would be consolidated with the tenant opportunity program, with both PHAs and resident groups eligible to apply.

S. 462 shares with HUD's bill numerous important deregulation and streamlining steps, such as permanent adoption of the reforms in the appropriations acts, adoption of one capital fund and operating fund in place of multiple programs, merger of the certificate and voucher programs and allocation of modernization funds for small PHAs (CIAP) by formula rather than by staff- intensive competition processes. The reduced plan requirements in S. 462 are a significant improvement from last year's bill. The bill does not go as far, however, as several steps HUD is proposing. For example, PHA plan requirements remain more demanding than HUD would require, and the Drug Elimination program would remain a competitive rather than a formula program. In addition, S. 462 adds requirements which may sound desirable but add administrative burden. For example, the requirement that over the next two years PHAs conduct detailed cost comparisons between the cost of continuing each development as public housing or converting it to tenant-based assistance is well-intentioned, but the requirement to carry this out for every site is more sweeping than necessary to assure the efficient use of subsidy funds.

There are other areas related to local flexibility where S. 462 is silent or problematic and HUD is proposing additions. First, while I fully support the repeal of the one-for-one replacement requirement, there needs to be some means of giving communities undertaking demolition a way to rebuild or acquire some replacement housing. Sometimes, not all of these needs can be met by vouchers or the Hope VI grant process. HUD's bill would allow PHAs demolishing housing to retain limited amounts of modernization funds to be used for either replacement housing or for other capital needs. Second, HUD's bill specifically allows PHAs to undertake site-based waiting lists, subject to applicable civil rights and other laws. This could help PHAs attract tenants with more varied incomes to some sites, and thus contribute to the viable communities we all seek. Third, HUD's bill would provide the additional flexibility needed so that Section 8 certificates finally can become an effective tool to promote homeownership. Fourth, HUD's bill does not contain S. 462's prohibition on any additional formula funding for incremental new public housing units, which HUD views as too restrictive.

Responsible enforcement must accompany responsible deregulation: more accurate identification of management problems, more timely preventative action, insistence on improved conditions, and more certain and effective use of enforcement resources.

Recently proposed administrative changes to PHMAP will increase the usefulness of the indicators. In addition, I feel strongly that we must find a greater role in that system for physical inspections of the properties. Improvement in PHA management indicators means nothing to the families we serve unless conditions actually improve, and PHMAP's relatively light treatment of physical conditions compromises its credibility.

PHAs ideally should not be given passing grades, without further explanation, while a substantial portion of their occupied units fail to meet basic housing standards.

To address this matter, HUD intends to undertake baseline inspections for the entire PHA system, undertake inspections at troubled authorities annually, and institute inspections at other authorities on a regular basis. HUD also will initiate a national financial auditing system and increase the scope of independent audits, so that they more regularly provide information supportive of PHAs' PHMAP certifications of management progress. HUD is evaluating additional steps such as requirements for minimum compliance with housing codes, or at least progress toward compliance, to escape troubled status. These steps will be reflected in an evaluation system that replaces the current PHMAP system.

The HUD bill also proposes an advisory Performance Evaluation Board. The Board would consider further improvements to the evaluation system. The improvements to be considered would include any possible role for peer review, accreditation and placement of more emphasis on the actual condition of the housing.

The evaluation system only is meaningful if enforcement is effective. Under Secretary Cisneros, HUD finally actively intervened to turn around various troubled authorities. Those PHAs subject to HUD takeovers in various forms have included Chicago, New Orleans, San Francisco, Springfield, Illinois and some smaller PHAs. HUD has also assisted court receiverships in Kansas City, Missouri, Chester, Pennsylvania and Washington, D.C.

We have learned some lessons from these efforts. Although intervention is essential, the substantial involvement of HUD itself in the staffing and operations of troubled PHAs has had mixed results. In any event, that kind of approach will not be possible with reduced HUD staff in the future.

Therefore, while I support the intent of S.462's provisions regarding takeovers and receiverships, HUD's bill would go further. With respect to large PHAs with more than 1,250 units, HUD would be required to petition for judicial receivership where a troubled PHA remains troubled after one year. With respect to smaller PHAs, where problems sometimes can be remedied fairly easily by an alternative manager, HUD could choose after the year between petitioning for a judicial receiver and imposing an administrative receiver.

HUD's oversight should be particularly stringent where there are the greatest risks regarding effective use of large sums of money. Because of the funds involved, the large scale of construction and the importance to the program of difficult negotiations with private developers and investors, oversight of the Hope VI program is critical. With that in mind, HUD will insist upon private sector contract representatives who will help to ensure that the expenditure of Hope VI funds is cost- effective.

Moreover, the inability of some PHAs to use precious resources in a timely fashion can no longer be tolerated. HUD's bill also requires withdrawal of Hope VI funds if construction does not start in 18 months and activities are not completed in four years, and withholding of modernization funds where funds are not obligated within eighteen months of their initial availability. 

The bill must make the needed reforms to bring about more viable public housing communities, while retaining the programs' focus on assisting the least fortunate at affordable rents

The question of who will be served by housing subsidies is addressed by the bills' income targeting provisions. For public housing, HUD's bill retains the current law eligibility ceiling of 80% of median, with requirements that forty percent of new admissions have incomes below thirty percent of median and ninety percent have incomes below sixty percent of median. With respect to each development, as a minimum protection against economic segregation, the bill requires that forty percent of the development's occupants have incomes under thirty percent of median. The requirements are consistent with, and somewhat more protective than, those of S.462. They are much more protective than the provisions in the House bill, which would result in effectively no targeting for very low income families.

Congress has recognized that because tenant-based Section 8 consists of rental of private apartments throughout communities, the program does not raise as severely the concern of over- concentration of the very poor. Thus, it can be more targeted to the neediest families than public housing. For that reason, the federal preferences that targeted admissions to those most desperately in need previously applied to 90% of new admissions to tenant-based Section 8, but only 50% of new admissions to public housing.

This distinction between the public housing and tenant-based Section 8 programs should be continued, particularly since the incomes of those admitted to public housing must be broadened. HUD's bill proposes that Congress retain the current law eligibility limits for the tenant-based Section 8 program of 50% of median with exceptions for previously assisted tenants, rather than adopting S.462's proposed increase to 80% of median. It also requires that 75% of new admissions to a PHA's tenant based program have incomes under 30% of median. This proposal is less restrictive than the targeting of tenant-based Section 8 that existed under the federal preferences, but still assures that this assistance largely is directed to those with the greatest unmet basic housing needs.

With respect to rent rules, both HUD's bill and S.462 agree that the Brooke amendment should remain and that for public housing PHAs should be able to change "up to" thirty percent of adjusted income. Our proposals also are similar on minimum rents. HUD's bill sets minimum rents at twenty-five dollars per month, with both HUD and PHAs able to require classes of hardship exemptions, while S.462 allows PHAs to set minimum rents up to $25.

HUD's bill also would expand the authorized ceiling rent levels that would be paid for under the federal operating subsidy formula. The current law provides for ceiling rents at the greater of market or rental value operating cost of the property. Its effectiveness is compromised, however, because the operating cost floors are sometimes higher than market rental values for the developments. These floors also are too high for the ceiling rents to help working families with incomes near the minimum wage. HUD's bill would address this problem, by allowing ceiling rents at the greater of market or 75% of operating costs in family developments rather than the greater of market or 100% of operating costs as in current law. Such a change could boost the effectiveness of ceiling rents, while maintaining adequate fiscal protections.

Both the House bill and the Senate bill contain provisions to make work pay, through an eighteen-month disregard of income earned by previously unemployed workers followed by a three-year phase-in. HUD's bill now contains the Senate provision. While HUD supports provisions to help move public housing residents into the work force, it is mindful of the administrative burdens, the costs and the uncertain impacts of this yet untested work incentive. I will work with the Committee and others to eliminate or reduce disincentives to work in our housing assistance programs and to devise the most cost-effective incentives we possibly can.

Other substantial concerns: welfare reform, crime reduction

When the Senate passed its bill last year, welfare reform had not been enacted. Now, many public housing residents are subject to new and critical welfare program requirements.

Both HUD's bill and S.462 recognize that the principal job of housing authorities is to manage housing, not to undertake welfare reform. Thus, both bills require PHAs to seek cooperation agreements with other agencies that would target services to help public housing residents become self-sufficient, provide that rents will not go down if a household's income drops because of non-compliance with welfare rules and require eight hours monthly of community work for families not already subject to welfare program work requirements or in school or training; but would not require the housing system to duplicate the welfare system's self-sufficiency efforts. HUD will work with the committee to resolve the remaining differences in our common approach. These include HUD's proposal that rents drop if a family's income drops solely because time limits have expired and the household has not found a job.

The residents of public and assisted housing generally are the biggest supporters of efforts to get tough on crime in their communities -- they have to live with the crime. The President, Congress, and HUD commenced the promising "One Strike" initiative last year. HUD's bill consolidates the relevant legal authority and extends this authority to assisted housing other than public housing, and continues the Drug Elimination Program as a separate formula program.

It is time to work together to pass a bill

The HUD bill and S.462 are in many respects very close; but, clearly, substantial work remains for us to produce a successful bill.

Let us make a commitment to resolve the remaining issues. With bipartisan effort, we can pass a bill that will put the public housing and tenant-based Section 8 programs on a much sounder basis for the difficult years ahead. I invite you to work with me to achieve that goal.