Excessive subsidies to landlords is a special problem for Section 8 contracts that will expire in 1998 on some 167,000 units in apartment buildings that are insured by the Federal Housing Administration (FHA). This problem is not limited to 1998: Section 8 contracts will expire on a total of 500,000 FHA- insured units over the next 12 years. All of these units have rents well in excess of the market rents for comparable housing 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 and the federal government 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 as excessive Section 8 subsidies are curtailed, causing large losses to the FHA insurance fund.

Our Mark-to-Market approach is a good starting point for a constructive, bipartisan dialogue with this Congress that puts in place a comprehensive fix for this problem this year. It shows clearly that HUD is prepared to make the necessary reforms in order to control program costs while protecting families. I look forward to working with our Authorizing Committees and, if necessary, with you and your Committee to enact a permanent solution to this inventory this year.

By squarely, honestly, and in a bipartisan 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 business.

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 community-friendly solution.

As we move through this period of cascading contract renewals, we will eventually end up with all Section 8 contracts having one-year terms, requiring predictable and relatively constant amounts of renewal budget authority each year.

EXPANDING HOUSING OPPORTUNITIES FOR ALL AMERICANS

While solving the Section 8 crisis must be HUD's first priority, our second challenge must be to expand affordable housing opportunities for those not currently served. Our 1998 budget does this.

HUD's budget asks for 50,000 additional Section 8 certificates, and links them to welfare reform. It moves to boost homeownership rates to an all-time high. It continues to transform public housing and help the homeless work toward self- sufficiency. It will keep building on the success of the HOME program. And it provides more money for our Fair Housing initiatives.

As you know, our request for additional Section 8 certificates for FY 1997 was not funded. Nor were any additional certificates provided in FY 1996.

In the 1998 budget, our request is particularly compelling because the 50,000 additional Section 8 certificates we're asking for will help advance welfare reform. We are targeting these certificates to help welfare recipients move into the working world. With this targeting, we feel we can find common ground with Congress to provide these certificates.

A key part of our strategy to expand housing opportunities will be to build on HUD's great success in expanding homeownership.

There are two key reasons why the homeownership rate surged during President Clinton's first term to 65.4 percent last year. Under his leadership, the economy is strong. Jobs are up by 11 million over the past four years, and interest rates are low, making buying a home easier than ever. And, at the President's direction, HUD helped organize the National Partners in Homeownership, an unprecedented alliance of 58 housing industry organizations dedicated to adding 8 million new homeowners by the end of the year 2000. These partners have worked together marvelously to lower barriers to owning a home. They deserve a great deal of credit and our continuing support.

The success of the National Partners in Homeownership has encouraged housing industry leaders in cities and counties across the country to form local affiliates that reflect the goals and values of the National organization. In 1998, we will continue to promote these local affiliates, adding 75 local homeownership partnerships for a total of 225.

We will continue reforms at FHA that allow that vital agency to help even more of the first-time buyers and minorities they serve better than anybody else in the consumer mortgage field. With these reforms, 75 percent of FHA's mortgage business, excluding refinancings, will go to first-time home buyers in 1998. When President Clinton took office, first-time buyers were just 65 percent of FHA's new mortgage business. These reforms will help almost 500,000 families become new homeowners.

Additionally, we will fund Ginnie Mae's efforts to stimulate $1 billion in mortgage lending to inner cities, and we will provide $50 million to help cities reclaim abandoned urban land by building homeownership zones -- suburban-style developments of single-family homes to stabilize and reclaim neighborhoods in the shadows of downtown.

And we are making sure that Americans have full access to the homes they want by increasing our budget for Fair Housing by $9 million -- a 30 percent increase. These funds will increase enforcement and compliance activities and build the America we all want, a land where opportunity is available to all who seek it -- no exceptions.

We will also expand affordable housing by building on the transformation of public housing.

Even as we undertake to replace the worst 100,000 public housing units, we must maintain sufficient operating and capital funds for the 3,300 mostly well-performing public housing authorities across America.

In 1998, we are requesting $2.9 billion in public housing operating subsidies and $2.5 billion in capital funds, equal to FY 1997 levels. These numbers, however, actually reflect an $85 million increase in operating subsidies and a $162 million increase in capital funds to public housing authorities, since funds that formerly were included for Indian housing were separated out and put into their new housing block grant. These funds are needed to keep sound buildings in good shape -- preventing them from deteriorating to the point where they would need to be replaced.

HUD is beginning the process of shifting our focus in public housing away from demolition to replacement housing. The 1998 budget intensifies that move. For HOPE VI, the program that spearheads HUD's public housing renovation effort, we are asking for $524 million in 1998 -- $103 million for replacement vouchers and $421 million for demolition and revitalization activities.

Our goal is to increase the number of habitable units. And after all the demolitions are completed and all the new units built, we will have 100,000 expanded housing opportunities. Just over 40,000 of these are new opportunities (vouchers and new units), since about 40 percent of the units in the buildings that are being torn down are vacant.

For HUD's homeless programs, our proposed budget -- $823 million, the same as last year -- will allow HUD to move forward with our "Continuum of Care" strategy, a strategy that helps move people off the streets toward self-sufficiency.

This is the right thing to do. A study released in December by Columbia University found that in 1995 as many as 14 times more homeless people were served by HUD programs as in 1992 -- this during a period when federal funds only doubled. Communities are using HUD homeless funds to leverage substantial local matching contributions. We are getting funds out to every state across the nation, and we are serving more homeless people with disabilities.

Our investment in helping the homeless work toward independence and self-sufficiency is clearly the right thing to do.

MAKING WELFARE REFORM WORK

Our third major challenge is our newest one. We now have to respond to a new environment created by welfare reform.

Under President Clinton's leadership, the American economy has added more than 11 million new jobs in the last four years. Now he is committed to moving welfare recipients into work so that another 2 million people can leave the welfare rolls by the year 2000.

HUD's FY 1998 budget recognizes that the Department has a special ability to help welfare reform succeed. The people HUD serves will be among the people who are most dramatically affected by the changes that lie ahead.

We have learned over the past four years that housing is the foundation of progress and stability, but jobs are the essential element needed to drive people and families forward to self- sufficiency.

To fulfill our core mission of revitalizing America's communities, we must work to do two key things: we must create housing, and we must create jobs. HUD's economic development programs can play a vital role in bringing opportunity to communities all over America where, today, there are simply not enough jobs.

The 1998 budget asks for $100 million to fund a second round of Empowerment Zones and Enterprise Communities. EZs and ECs are designed to encourage job creation in high-poverty areas where many welfare recipients live. Communities use these funds to leverage billions of dollars of private investment. This $100 million -- which will be multiplied many times over by private and other public dollars -- is one of HUD's key contributions to the President's new federal initiative to make welfare reform work.

In addition, the HUD budget asks for $100 million over the next four years -- including $25 million for 1998 -- to clean up and redevelop abandoned Brownfields.

HUD is asking for stable funding for CDBG at $4.6 billion and $1.3 billion in Section 108 loan guarantee authority. Our $50 million request for the Economic Development Initiative will help create jobs and leverage private investment.

We will also help welfare recipients transition to work by providing and leveraging services for them. Our budget asks for $20 million in counseling assistance to help Section 8 recipients -- who often are welfare recipients -- find rental homes that are near jobs and needed support services. It asks for $30 million for Youthbuild, a program that gives young high school dropouts a chance to learn, earn, and do good for their community, all at the same time. Youthbuild places these disadvantaged youngsters into apprenticeships that teach them valuable construction skills while they work to renovate affordable housing.

The budget also requests $10 million to expand our Bridges to Work demonstration, which pays for transportation and support services to link central city residents to the suburbs, where the jobs often are.

And remember: the 50,000 new Section 8 housing certificates we're requesting -- at a cost of $305 million -- will be targeted to help welfare recipients move into the workforce.

These resources will help welfare recipients sign up for the best social program that has ever been invented -- a job!

RESTORING THE PUBLIC'S TRUST IN THE DEPARTMENT

Prepared as we are to fulfill our mission in averting the Section 8 crisis and in creating affordable housing and jobs to move welfare recipients into the workforce, we must recognize that success in meeting our first three challenges depends on our success in meeting the fourth challenge -- restoring the public's trust in HUD.

We must continue to demand accountability, not just from those who benefit from HUD -- tenants and landlords alike -- but from ourselves as well. Much progress has been made in the past four years, but much remains to be done.

The public must have confidence that our partners at the local level are spending HUD funds wisely, honestly and efficiently. Our FY 1998 budget contains several initiatives to earn that trust.

We will crack down on bad landlords with a $50 million effort to remove and punish those who run troubled HUD-assisted properties. We will clean up troubled public housing authorities by spending another $45 million for technical assistance and expertise that they so badly need. These funds also will help smaller housing authorities that are having problems.

And our budget will clear out crime, drugs, and gangs in public housing. HUD is asking to double funding for Operation Safe Home to $20 million. This highly effective crime-fighting effort in public housing is led by HUD, with our partners in the FBI, DEA and other state and local law enforcement. Team members prosecute both violent crime and white-collar fraud.

The HUD budget also requests $290 million in Drug Elimination grants for public housing to fight drug traffickers and violence, and to fund programs that give children growing up there an alternative to the crime they see around them.

But demanding accountability from others is just half of the equation. At HUD, we are equally determined to get our own house in order. 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 do not work. We must recognize the right roles for the government and private sector.

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.

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 dwindling resources.

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.

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I look forward to building a positive, constructive relationship with this Subcommittee and with the entire Congress to meet the housing and economic development challenges facing us as we head towards a new millennium.

Thank you.

Content Archived: January 20, 2009