Secretary Andrew Cuomo
February 27, 1997
Testimony before the
Government Oversight and Reform Housing Subcommittee
Chairman Shays, Ranking Member Towns, and Members of the Subcommittee, thank
you for inviting me here this morning. If it pleases the Committee, I would
like my testimony entered into the record. Thank you.
I appreciate the opportunity to discuss HUD's reform efforts and plans for
the future and I look forward to building a productive, bi-partisan working
relationship with you and the members of your committee over the next four
Before I begin, I'd like to take a moment to salute my predecessor,
Secretary Henry Cisneros, for his compassion, vision, and commitment to HUD. It
was a personal honor to work with him over the last four years. Today, HUD is a
stronger, abler, more cohesive Department because of Henry's leadership. He is,
in my opinion, the best Secretary in the history of the Department.
The past four years have proved that when we work together we can produce
real results for America. Today, because of all of our efforts, the economy is
strong; jobs are up; and homeownership is up. At the same time, crime is down;
unemployment is down; and so is poverty. President Clinton has America pointed
in the right direction.
Yet, as the President reminded us during his State of the Union address a
few weeks ago, serious challenges remain. One out of five American children
still lives in poverty. Over five million families spend over 50 percent of
their income on rent. Many in our middle class play by the rules and work hard
every day, but they have not gained a fair share of the American Dream.
These challenges come at a time when the Federal government has fewer and
fewer resources. If we had to make a choice between fiscal prudence and meeting
the obvious needs of troubled Americans, the choice would be difficult --
But in truth, we have no choice because we have an undeniable responsibility
to balance the budget and, at the same time, we have an equally undeniable
responsibility to meet the challenges that lie ahead -- increasing homeownership
for all Americans, promoting fair housing, reducing homelessness, fostering
economic growth and good jobs. We have to do both.
How can we do that, how can we meet our social and fiscal obligations? With
a government that is smarter and smaller -- and a Department that is more
sharply focused and better managed. HUD's proposed budget for fiscal year 1998
recognizes this need to meet both our fiscal responsibilities and social needs
as we begin to address the challenges we must face in the next four years. I'd
like to focus our attention on the two major issues we must resolve in the
coming years -- the Section 8 crisis and HUD management reform issues.
America faces a choice: Renew or not renew.
As this Committee knows, a record number of Section 8 contracts are
beginning to expire, with 1.8 million expiring in FY 1998. That's more
contracts than have expired in the previous five years combined.
In 1998, if we do not renew these Section 8 contracts, what will happen?
4.4 million people could risk losing their homes -- either through evictions or
unbearably sharp rent increases. Over 90 percent of these Americans are elderly
persons with disabilities, or families with children. That means in Bridgeport,
Connecticut over 3000 people will be at risk, and in New York City more than
110,000 could become homeless. The American people should not have to bear the
high social costs, and should not have to face the potential social chaos, of an
unprecedented explosion of homelessness that would surely arise if we did not
fully renew these contracts. None of us would advocate a policy guaranteed topush hundreds of thousands of elderly, children and disabled Americans into
homeless shelters and onto the streets and grates of our communities. That is
why I believe we must renew these contracts.
Renewal must protect America's communities. Our solution must be
community-friendly. The answer cannot be to divert funding away from other
vital programs. To do so, would directly or indirectly undercut the needs of
America's communities, many of whom are working hard to generate new jobs for
welfare recipients, control homelessness and create more affordable and safe
housing. A weakening of the social and economic fabric of our communities would
surely be the result if we choose to fund the expiring Section 8 contracts by
making draconian cuts in other HUD programs like CDBG, public housing operating
support, homeless assistance and many others. The potential harm of a 35%
across the board cut in programs, which is what it could take to fund the
Section 8 contract renewals out of HUD's budget, could translate into: a loss
of $1.9 billion in public housing operating and capital assistance; $1.61
billion in CDBG cuts; a decline of more than $500 million in the HOME program
funding; a cut of $288 million in homeless assistance; and a reduction of $71
million HOPWA support.
I believe this kind of "cut-and-shift" approach -- robbing
Peter to pay Paul -- would be short-sighted and self-defeating. While such
an approach would avert the Section 8 crisis, we would simultaneously be
triggering other community crises: in homelessness and affordable housing -- as
states, counties and cities small and large would face billions in cuts in 1998
alone. For example, a 35% across the board cut of HUD's budget could translate
into Bridgeport, Connecticut suffering a $6.6 million loss in HUD program
funding, while New York City could confront a $416 million loss.
HUD's solution to the renewal crisis calls for tough reforms and new
spending. Specifically, in the budget, we ask for $5.6 billion in new
budget authority to renew the expiring Section 8 contracts, and propose program
reforms that would save $2.4 billion in outlays in FY 1998 and $15 billion in
outlays over the next five years.
Our FY 1998 budget proposal offers a solution to the renewal crisis in a way
that protects America's communities. Under our proposal, none of the 4.4
million at-risk Americans would go homeless and none of America's communities --
none of our communities -- would face unbearable and punitive cuts in
other critical HUD programs -- all within the constraints of the President's
five year glide path to balancing the budget. In particular, our approach
stresses tough savings reforms.
Our proposed reforms would:
- Increase the number of working families to fill vacant units.
- Limit the annual rent increases for project-based units.
- Maintain $25 minimum rents in public and assisted housing.
- Reduce administrative fees for public housing authorities.
- And, most importantly, end excessive subsidies to landlords.
The problem of excessive subsidies to landlords is a special problem for
Section 8 contracts that will expire on some 500,000 units over the next few
years in apartment buildings that are insured by the Federal Housing
Administration, or FHA. All of these units have rents well in excess of the
market rents in their neighborhoods. We are determined to end excessive
subsidies on these properties. But we must do so in a way that protects
families, preserves affordable housing and does not lead to massive defaults and
foreclosures that could cost FHA billions in insurance claims.
The Department's portfolio re-engineering proposal, what we call "Mark-to-Market,"
generates $1.25 billion in discretionary savings between FYs 1998 and 2002 by
reducing rents to market rate, providing tenants with choice, extending
affordability and rehabilitating apartments in disrepair. It also generates
five-year mandatory savings of $700 million, due largely to the proactive
restructuring of FHA-insured debt. Without the partial write-down of project
mortgages, thousands of owners would be forced to default on their loans,
causing large losses to the FHA insurance fund.
I am confident that our Mark-to-Market approach is a good starting point for
a constructive, bi-partisan dialogue with this Congress, that gets a
comprehensive fix for this problem in place this year. It shows clearly that
HUD is prepared to make the necessary reforms in order to control program costs
while protecting families.
I would like to make very clear, however, for this Oversight Committee, that
the need for the requested 30 percent increase in our budget is not the result
of agency mismanagement but the inevitable consequence of bi-partisan actions
taken over many years to renew and maintain Section 8 housing assistance for
By squarely, honestly and in a bi-partisan manner facing this crisis now --
and making the tough decisions needed to control spending -- we can take
critical steps to correct a historic problem and reform the way HUD does
The Section 8 program was forged in a bipartisan spirit and it must
be fixed with that same bipartisan spirit. I look forward to working
with this Committee and this Congress to pass a comprehensive and
While averting the Section 8 crisis is HUD first priority, our second
challenge is restoring the public's trust in HUD.
As I said earlier, government must find ways to be smaller and smarter. We
must remain committed to worthwhile goals but not to failed means. We must be
willing to admit that some programs don't work. We must recognize the right
roles for government and the private sector.
Our 1998 budget reflects these believes. In the budget, to help ensure our
partners at the local level are spending HUD funds wisely, honestly and
efficiently, we propose:
- to crack down on bad and irresponsible landlords;
- to clean up troubled public housing authorities; and
- to intensify existing efforts to clear crime, drugs and gangs from
I understand in a very personal way the need to reform HUD's management. I
entered housing -- not as a government official -- but as a builder, operator
and manager, responsible for meeting a payroll and balancing a budget. HUD
needs to continue to reinvent and adopt a private sector mentality. To that
end, we will be targeting efforts to show that "HUD Means Business."
The agency will borrow -- for a limited time -- business executives and experts
from leading companies to help us implement the financial and management reforms
we must make.
I am proud to continue the task that Henry Cisneros began four years ago --
bringing this agency back from the brink of public disrepute by modernizing and
preparing it for a new century. And I also recognize that while genuine progress
has been made in the past four years -- progress acknowledged by a number of
outside experts -- much remains to be done.
While I know we will discuss some of these issues in your questions, let me
note a few of the areas that most concern me:
- HUD continues to be listed as a high-risk agency by the General Accounting
Office. While the GAO acknowledges progress -- citing "substantial efforts
over the past two years" -- they are right to say that a lot more must be
done. In short, HUD's public purpose is too vital -- especially in this time of
sweeping economic and social transformation as we move from an industrial to an
information age -- to be compromised in any way by waste, fraud, abuse and poor
management. We must go further.
- HUD continues to have problems with its financial control and management
systems. While we've made improvements in the past few years, these changes are
not sufficient if we are going to make sure this agency effectively and
efficiently serves the Nation.
- While HUD is right on target for reducing the size of its staff -- from
13,200 in 1992 to 10,400 today and ultimately down to 7,500 in 2000 -- we must,
in the next few years, bring our long-term mission in line with our reduced and
As I pledged in my confirmation testimony in the Senate, management reform
will be a top priority for me. It is perhaps a thankless task, but I believe
the moment is ripe, as the most recent GAO report makes clear, for a close
collaboration between HUD and Congress to clean up the agency for the long-run.
I look forward to building a positive, constructive relationship with this
Committee and with the entire Congress to meet the housing and economic
development challenges facing us as we head towards a new millennium. And I
look forward to your questions.
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