Secretary Andrew Cuomo's Testimony Before the
HUD's Reform Efforts and Plans for the Future
House Appropriations Subcommittee on VA, HUD and Independent Agencies
March 18, 1997
Chairman Lewis, Ranking Member Stokes, and Members of the
Subcommittee, thank you for inviting me here this afternoon. If
it pleases the Subcommittee, I would like my testimony entered
into the record. Thank you.
I am honored to have been chosen by President Clinton as HUD
Secretary at this decisive moment in the Department's history. I
was proud to serve with Secretary Henry Cisneros, whose
leadership and commitment to our mission transformed HUD into a
vital, positive force for the American people and their
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. It is a privilege to
build on the job he began.
I know that Secretary Cisneros had a positive working
relationship with members of this Subcommittee and I pledge to do
all I can to make sure that this productive, bipartisan
Mr. Chairman and members of the Subcommittee, I appreciate
the opportunity to discuss HUD's reform efforts and plans for the
future and I am pleased to present the Clinton Administration's
proposed budget for the Department of Housing and Urban
Development for Fiscal Year 1998.
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.
His budget for FY 1998 will keep America strong and moving
forward. It will spur economic growth, promote education,
protect the environment, save essential social programs that the
American people rely on, and eliminate the federal deficit for
the first time in three decades.
Since President Clinton took office in 1993, the annual
federal deficit has been cut by nearly two-thirds, from $290
billion in 1992 to $107 billion in 1996. As a proportion of our
economy, the U.S. budget deficit is now the smallest of any major
nation in the world.
Finishing the job of balancing the budget is vital for the
continued health of our economy. Balancing the budget will free
up billions of dollars in private investment -- investment that
is needed now more than ever, as the country seeks ways to move
millions of welfare recipients into the economic mainstream.
The President's budget helps create a climate where families
can flourish and hope can blossom. A budget must stretch to the
poorest neighborhoods and reach out to empower those who want to
reach up. The President's FY 1998 budget makes this commitment
-- it is exemplified in his proposal to double the number of
empowerment zones and enterprise communities and in his proposal
to clean up Brownfields and make these contaminated urban lands
sites of new and expanded job opportunities for the American
Despite all the good news in America, President Clinton
reminded us last month in his State of the Union address that
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 -- indeed.
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 -- providing affordable housing,
increasing homeownership, 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
HUD will contribute its share to balance the budget while
helping communities meet their most pressing needs. While
addressing the full range of HUD's activities, this budget
focuses particular emphasis on meeting four core challenges we
expect to face in the coming years:
- Averting the Section 8 Crisis.
- Expanding housing opportunities for all Americans.
- Making welfare reform work.
- Restoring the public's trust in the Department.
I will now discuss each one of these challenges and HUD's
response to them.
AVERTING THE SECTION 8 CRISIS
As this Committee knows, a record number of Section 8
contracts are beginning to expire, with contracts on 1.8 million
units expiring in FY 1998. That is more subsidized units with
expiring contracts than have expired in the previous five years
About 1.4 million of the Section 8 contracts expiring in
1998 are tenant-based vouchers and certificates. Another 400,000
of the expiring contracts are project-based; of this number, some
167,000 fall into the so-called "Mark to Market" category, which
I will discuss in greater detail later in my testimony.
What will happen if we do not renew these 1.8 million
expiring Section 8 contracts in 1998? Some 4.4 million people
could risk losing their homes -- either through evictions or
unbearably sharp rent increases. Without reform, that number
could grow to 6.4 million Americans at risk by 2002. Over 90
percent of these Americans are elderly persons, persons with
disabilities, or families with children.
That means in Los Angeles some 60,000 people will be at risk
and in Cleveland about 17,000 people could become homeless.
American communities 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 to push 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.
The renewal plan must protect America's communities. Our
solution must be community-friendly. The answer cannot be to
divert funding away from other vital programs. That would
undercut America's communities, many of which are working hard to
generate new jobs for welfare recipients, control homelessness,
and create more affordable and safe housing. A shredding 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 severe cuts in core HUD programs like CDBG, public housing
operating support, homeless assistance, and many others.
The potential harm of a 35 percent across-the-board cut in
these core programs -- which is what it could take to fund the
additional budget authority for Section 8 contract renewals over
and above last year's amount -- could translate into a loss of:
$1.9 billion from public housing operating and capital
assistance; $1.61 billion from CDBG; $500 million from HOME
program funding; $288 million in homeless assistance; and $71
million from HOPWA.
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, it would
simultaneously trigger other community crises in homelessness and
affordable housing -- as states, counties and cities small and
large would face billions in cuts in 1998 alone.
HUD's solution to the renewal crisis calls for both tough
reforms to control outlays and new spending authority. HUD's
budget asks for an increase of $5.6 billion in new budget
authority -- virtually all of it to renew the expiring Section 8
contracts. The budget also proposes program reforms that would
save $2.4 billion in Section 8 outlays in FY 1998 and $15 billion
in outlays over the next five years.
Without these reforms, the long-term cost in budget
authority of renewing expiring Section 8 contracts will continue
to rise, from $10.4 billion in 1998 to $16.4 billion in 2000, to
$18.9 billion in 2002.
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 this will occur within the
constraints of the President's five-year glide path to balancing
the budget. In particular, our approach stresses tough savings
Our proposed reforms would:
Increase the number of working families to
fill vacant units.
Limit the annual rent increases for project-
Maintain $25 minimum rents in public and
Reduce administrative fees for public housing
authorities; and most importantly,
End excessive subsidies to landlords.
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
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
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
Our investment in helping the homeless work toward
independence and self-sufficiency is clearly the right thing to
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
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-
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
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
- 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.
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.
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