Mr. Chairman and Members of the Committee: Thank you for inviting me to testify on H. R. 2, the Housing Opportunity and Responsibility Act of 1997, and more generally on the very important matter of public housing reform legislation.

I believe we can enact historic legislation this year. I will work day and night with this committee, with 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.

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.

The old developments are too often high-rise buildings with caged hallways stretching into blocks of despair. Under the old public housing program, the buildings are flawed; the policies are flawed. We have to replace both.

We've made mistakes with public housing. 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 and callous 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.

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

A word of caution here. This is not to stereotype all public housing; we don't want to be misleading. 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. In fact, out of 3400 housing authorities, only seventy-five are troubled.

And, 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.

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 Baltimore, it represents more than one-fifth (23.4%) of the rental housing affordable to these families.

In St. Louis, public housing accounts for more than half (55%) of the rental housing affordable to extremely low-income families.

Cleveland's public housing makes up nearly seventy percent (68%) of the rental housing affordable to these families.

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

Nationally, public housing serves only about twenty-five percent of the people eligible for assistance. And more than 5.3 million pay fifty percent 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.

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.

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.

Public housing should not be a final destination, but a temporary stop on the way to a better future. It should be safe and clean, integrated into neighborhoods, a place where people can get jobs and education, and move up the economic ladder.

Public housing should be a safe haven for children to play freely, an important part of a family's effort to improve their lives and take their place in mainstream America.

That's what public housing should be, and it isn't some pipe- dream I'm talking about; it's the way public housing used to be. In fact, much of it still is. Most public housing is -- and has been for years -- safe and decent housing for countless families. Families that get their economic lives in order and move on to a fuller, richer life.

But we don't hear about that. We hear about the failures; and that is as it should be, for we can do something about the failures. That's why we're here today. To change the public housing that isn't working.

We need a public housing bill to continue and strengthen the transformation of public housing that is not working for the people who live there, public housing that is a blight on the community.

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 you, this Committee, and the Congress. Thanks to that leadership, we have made a substantial start on public housing transformation. The kinds of reforms we have achieved in the last few years have not only begun to change the buildings -- the physical landscape of public housing -- but the incentives for residents' behavior, as well. These reforms include:

• 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;

• implementation of the Hope VI program, not only to rebuild dilapidated public housing, but revitalize whole communities;

• vigorous HUD intervention to turn around several large troubled PHAs

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

• adoption of "One Strike" to clean up crime and drugs in public housing;

• enactment of ceiling rents and optional earned income disregards to make work pay.

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 we have conceptual consensus on what we need to do to "fix" that part of public housing that's "broke." And I will work with you toward legislation that all America can be proud of. We already have a solid foundation of agreement. I believe we can build an historically significant bill that will make it clear that a new day is here for public housing and tenant-based assistance programs -- and especially for the people and communities we serve.

Mr. Chairman, I would like to discuss some of the proposals for management and policy reforms that will be part of legislation that we will introduce. The legislation must successfully perform a delicate balancing act, which has several components.

The bill must resolve the basic questions of who will be served by the housing programs and what rents they will pay, in a manner that balances pressing needs to create more viable public housing communities and to assist the least fortunate

On this question, H.R. 2 goes too far away from admission of households with the most substantial unmet housing needs. The income targeting proposed by H.R. 2 for public housing, that thirty-five percent of the units be filled at all times by households with incomes under thirty percent of median, would mean that there is no effective income targeting with respect to new public housing admissions. In most communities, the percentage of households in public housing with incomes under thirty percent of median is far more than thirty-five percent, and thus these communities would be free to admit households up to the program eligibility limit--eighty percent of the area median, or about $32,000 on average--for years.

HUD's past positions on income targeting may have been somewhat too restrictive in view of the need to broaden the mix of public housing resident incomes. On the other hand, H.R. 2's proposals are too open-ended. HUD's position strikes a better balance.

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 previously applied to ninety percent of new admissions to tenant-based Section 8, but only fifty percent of new admissions to public housing.

This distinction should be continued, particularly since the incomes of those admitted to public housing must be broadened. I strongly suggest that Congress retain the current law eligibility limits for the tenant-based Section 8 program of fifty percent of median with exceptions for previously assisted tenants, rather than adopting H.R. 2's proposed increase to eighty percent of median. I also urge adoption of the further targeting requirement that seventy-five percent of new admissions to a PHA's program have incomes under thirty percent 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, I propose that for the basic public housing rent structure, we look at Congressman Frank's suggestion last year that PHAs be able to charge up to thirty percent of adjusted income. This proposal, enacted last year for the Native American program, would allow PHAs willing to take the financial responsibility to reduce or eliminate the disincentive to work I discussed earlier. Minimum rents should be set at twenty-five dollars per month, with a reservation of HUD and PHA authority to require classes of hardship exemptions.

I also would support an expansion of the authorized ceiling rent levels that will be paid for under the federal operating subsidy (performance funding system) formula. The current law provides for ceiling rents at the greater of market or the operating cost of the property. Its effectiveness is compromised, however, because the operating cost floors are sometimes higher than market rental values for these developments and are too high for the ceiling rents to help working families with incomes near the minimum wage. The committee should consider a change to allow ceiling rents at the greater of market or seventy-five percent of operating costs. Such a change could boost the effectiveness of ceiling rents, while maintaining adequate fiscal protections.

H.R. 2 has brought us closer to consensus relative to last year's bill by offering tenants coverage under the Brooke amendment's rent limitation to thirty percent of adjusted income. I applaud the bill's sponsors for that step. At the same time, the bill's proposal for allowing tenants annually to choose alternative flat rents reflecting rental markets will cause confusion, administrative complexities and in some applications, a loss of revenue that the public housing system can ill-afford. In addition, while the bill proposes Brooke rent protections, it includes minimum rents at levels that are higher than needed to make the point that all tenants should pay something. This will cause hardship to the most destitute residents.

I am in full agreement with the goals of H.R. 2's flat rent proposal as I understand them, which are to provide greater ability for public housing to attract or retain working households and promote greater PHA attention to the rental value of their properties. HUD's "up to thirty percent" rent proposal and expanded ceiling rent proposal largely would accomplish the same purposes, in a simpler and more cost-effective way.

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. 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.

Finally, the concerns raised by H.R. 2's income targeting and rent provisions are exacerbated in the authorization for open- ended grants of public housing and section 8 funds to localities in Title IV. The routing of these funds through localities does not mitigate the need for basic income targeting and rent protections to ensure that program funds are used for their intended purposes.

Both the benefits of allowing well-managed PHAs to make local decisions and the reductions in funding for both PHAs and HUD make responsible deregulation imperative

First, the PHA plan requirements responsibly can be scaled back. Essentially, HUD approval should be limited 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, should be included and subject to the citizen participation process, but reviewed by HUD only for completeness in the event of a challenge. Of course, HUD would retain authority for audits, collection of essential information and enforcement of legal requirements such as rent rules and consistency of admissions preferences with local needs. With respect to reporting, various annual reports can be consolidated into one performance report.

Second, some further relief can be given to high performers. A five-year strategic plan with annual updates generally would be required. Instead of annual updates, however, high-performing PHAs that have scored at least ninety points on PHMAP for at least three years would submit only one interim report to HUD. Changes made to the plan in years where a HUD submission is not required would remain subject to the local citizen participation process.

Third, we can go further to 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 fifteen percent, of the public housing units. For these PHAs, the capital and operating funds could be made fully fungible, a less complicated Public Housing Management Assessment Program (PHMAP) evaluation system with fewer factors could apply and basic strategic plans (assuming the PHA is not troubled) could be submitted with the same frequency as for high-performing PHAs. They would remain subject to basic laws and approvals, such as rent limitations, income targeting and demolition/disposition approvals, and of course to audit requirements.

H.R. 2 includes some important deregulation steps, such as permanent adoption of the reforms in the appropriations acts and allocation of drug elimination funds and modernization funds for small PHAs by formula rather than by staff-intensive competition processes. It does not go nearly as far, however, as the steps HUD is proposing. The local housing management plans required by H.R. 2 in some specifics add to, rather than subtract from, to current requirements.

In addition, H.R. 2 adds requirements which may sound desirable but add administrative burden. These occur particularly in the area of promoting resident self-sufficiency. All of us would agree upon the goal, but it is unreasonable to require the PHAs to enter into individual personal responsibility contracts with residents in view of current public housing funding levels. Instead, to the extent residents are on welfare PHAs should be required to seek cooperation agreements with the agencies principally charged with facilitating self-sufficiency of welfare recipients, and be judged in PHMAP on their efforts to attract employment-related services through means such as this. There are other areas related to local flexibility where H.R. 2 is silent or needs refinement. 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. Not all of these needs can be met by vouchers or the Hope VI grant process. Second, H.R. 2 allows PHAs to undertake site-based waiting lists notwithstanding any laws or regulations to the contrary, including civil rights laws. I will not support the override of other laws, but I believe that site-based waiting lists in some circumstances can bolster PHAs' ability to manage their individual properties and increase the program participation of working families. I will work with the committee to find more acceptable authorizing language that meets civil rights concerns, if authorizing language is deemed necessary.

The proposed oversight and enforcement system must promote more accurate identification of problems, more timely preventative action, more certain enforcement and more effective use of scarce 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. HUD intends to undertake inspections of troubled authority developments annually, and to institute inspections at other authorities on a regular basis. HUD also will increase the scope of independent audits, so that they more regularly provide information to back up PHAs' PHMAP certifications of management progress.

H.R. 2 appropriately recognizes that improvements in the evaluation system are needed, particularly regarding certainty and effectiveness of enforcement. H.R. 2, however, prematurely discards the current system for identifying problems. H.R. 2 would require a study regarding the potential advantages of an accreditation system and other systems for evaluating PHA performance, but would presume the results of the study by requiring the creation of a new federal accreditation agency irrespective of those results. It is hard to understand why Congress would insist on the creation of a new federal agency, particularly in these times of great budget stringency, prior to receiving the results of a study undertaken to examine the merits of such a proposal.

Most of the prior PHA accreditation proposals, such as that contained in the Final Report of the National Commission on Severely Distressed Public Housing in 1992, called for accreditation to be a private peer review function undertaken by a nonprofit entity rather than the federal government. Such an endeavor might not necessarily replace PHMAP. Even that proposal raises questions that need exploring, including whether any increase it would bring in the accuracy of evaluations would merit the additional administrative effort and what the proper role of HUD would be. I would favor HUD participation and funding if necessary for an industry-led study regarding the merits of such a peer review approach. I would not favor a law that presumes the results of any study.

Under Secretary Cisneros, HUD finally actively intervened to turn around various troubled authorities. Those 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 endeavors. Although intervention is essential, it is not helpful, and clearly will not be feasible in the future, for HUD itself to be deeply involved in the staffing and operations of troubled PHAs. Therefore, while I support the intent of HR 2's provisions regarding takeovers and receiverships, I propose going further. With respect to large PHAs with more than 1,250 units, I propose that HUD be required to petition for judicial receivership where a troubled PHA remains troubled after a year of operating under a performance agreement. With respect to smaller PHAs, where problems sometimes can be remedied sometimes fairly easily by an alternative manager, I propose that HUD be able to 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 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. HUD also advocates clear language contemplating withdrawal of Hope VI funds from poor performers.

The final bill should make clear that a new day is here for the public housing and tenant-based assistance programs

Nevertheless, there are enough dramatic problems with public housing today that even the term "project" widely connotes failure. These problems, however, already are being addressed. Moreover, I believe we will agree upon a new law that will address them further and result in a much more favorable perception of the public housing program.

Given this situation, I can understand the Majority's desire to repeal the U. S. Housing Act of 1937 as an indication that the new law signifies a dramatic program departure. Apart from the symbolism, however, our first obligation to the public is to enact a statute that technically works as well as possible. Some significant technical and substantive concerns have been raised regarding repeal, and it is also incumbent upon us to come to agreement on a symbolic statement that all of us will regard as positive. I will work with Congress to bring about a satisfactory resolution to these issues.

It is time to work together to pass a bill

Let us put our heads together 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 sounder basis. I invite you to work with me to achieve that goal.