Testimony of Secretary Andrew Cuomo before the
March 25, 1998
House Appropriations Subcommittee
on VA, HUD, and Independent Agencies
Chairman Lewis, Ranking Member Stokes, members of the Subcommittee:
thank you for inviting me here this morning to share with you
HUD's 1999 budget proposal. If it pleases the Subcommittee, I
would like to enter my testimony for the record. Thank you.
HUD's 1999 budget proposal represents the second step of a two
step process we're undertaking to restore the Department's capacity
to fulfill its mission of empowering communities across the country.
The first step of that process was carried out last year and
is still underway. HUD is focusing its energy on reform, reinvention,
and renewal. In 1997 and now in 1998, the Department is devoting
itself to reorganizing its functions, streamlining its workforce,
and cracking down on waste, fraud, and abuse of HUD programs.
This 1999 budget proposal - the smartest and strongest budget
in 10 years - builds on the progress HUD has made over the last
year and a half in proving competence and restoring public trust
in the agency. The budget reflects the President's belief that
HUD today is smaller, faster, and more efficient than it was a
year ago. We have requested some $1.8 billion in funding for
program activities directed toward two fundamental goals: producing
jobs and economic opportunity and expanding housing opportunities
for low and moderate income families.
The budget increase will not, however, support new programs.
It will not support new bureaucracies. It will not be wasted
on programs that are fundamentally flawed or blatantly abused.
This new funding will support only those programs that have proven
successful and those programs that have been improved or enhanced
by design changes. In other words, HUD will put the new funding
only where it works best to fulfill our mission.
All told, the 1999 HUD budget represents not just a shift in policy,
but a shift in philosophy. This budget seeks to change HUD's
role from Washington director to community empowerment. Not with
federal mandates, but with a federal menu of opportunity. Not
with solutions driven from the top-down, but from the bottom-up.
Not with a one-size-fits-all mentality, but with action plans
written by and tailored to local communities. HUD's goal is not
to tell communities what to do, but to help communities do what
they want to do. In the process, it takes partnership to a new
level - by setting aside part of the CDBG program to encourage
cities and counties to work together on a regional level to solve
Management Reforms Lay the Groundwork for Budget Increases
Before I outline our funding requests, let me explain in a little
more detail the foundation of reforms on which we built this budget
proposal. President Clinton's second-term urban agenda recognized
that the mission of HUD was as vital as ever, but the Department
itself faced a competence gap that compromised its ability to
fulfill that mission. Decades of neglect left HUD with the dubious
distinction of being the only federal agency designated as "high
risk" by the General Accounting Office (GAO). What's more,
HUD's main rent subsidy program for the poor, Section 8, was on
the brink of becoming the next savings and loan scandal, with
grave consequences for more than four million low-income Americans
who depended on the program for a place to live.
At the President's direction, and with the Vice President's guidance,
we didn't set out to defend the problems, we set out to fix them.
Our efforts have focused on closing the competence gap by eliminating
waste, fraud, and abuse. We are partnering with the Justice Department
to crack down on bad landlords. We partnered with the FBI to
create a new Enforcement Center. We are creating an Assessment
Center that will inspect all HUD properties nationwide for the
And, drawing on the lessons of the private sector, we consulted
with reinvention experts James Champy and David Osborne to implement
the most sweeping reform plan in HUD's history. In conjunction
with our unions, we enacted a plan that clarifies HUD's mission,
streamlines its operations, improves customer service, harnesses
new technology, and infuses a new generation of talent called
Most importantly, this plan is moving from the drawing boards
to reality. HUD has undertaken exhaustive consultations with
affected stakeholders, including public housing authorities and
resident groups, multifamily project owners and lenders, HUD's
Inspector General and Members of Congress and their staffs. HUD
has overcome tremendous institutional inertia and built a momentum
for change that will carry the implementation of the Plan forward.
I am happy to report significant progress has already been achieved.
- Through unprecedented employee personnel actions such as buy-outs
and personnel reorganization, HUD has been able to streamline
staffing and reorganize operations. HUD's workforce (funded by
the Salaries and Expenses account) is now approximately 9,000,
down from 10,500 at the end of 1996. To date, HUD has posted
and filled 1,100 positions and hired 90 percent of new managers
for the new organizational structure, while executing 1,000 buyouts
to downsize the agency. The Department also negotiated an historic
agreement with the employee unions to staff the new streamlined
HUD with no layoffs before 2002.
- Four FHA Single Family Homeownership Centers are already operational.
By April 1, all 18 FHA Multifamily Program Hub offices will be
- Public and Indian Housing already has 27 Program Hubs and
16 Program Centers operational. By August, 1998, the Public Housing
Grants Management Center and Troubled Agency Recovery Centers
will also be operational.
- The Assessment Center is currently using its new physical
inspection protocols and hand-held computers to inspect a sample
of public housing and multifamily properties.
- The Section 8 Financial Management Center will be fully operational
and handling 100 percent of the Section 8 financial processing
by October, 1998.
- The Enforcement Center has already begun working on cases.
Four Assistant U.S. Attorneys have been detailed to the Center.
- More than 300 Community Builders from existing HUD staff have
already been selected. Their training will has just begun and
the first training sessions at Harvard University's Kennedy School
of Government will take place in August 1998. Outside hires of
230 Community Builders will also be completed by August.
The Best HUD Budget in a Decade
HUD undertook management reforms to improve administrative
capacities, and with the realization that we must put our own
house in order before we can truly fulfill our mission. HUD has
worked to restore public confidence to win more resources to create
jobs, stimulate economic activity, house low and moderate income
Americans and end the plague of discrimination.
The Clinton Administration has taken note of the progress that
HUD has made in reforming itself . The result: the best HUD
budget in a decade. New funding for HUD is increased by $1.8
billion, a significant increase for program activities. Consistent
with the Government Performance Reform Act (GPRA), new funding
will be directed to achieve objectives outlined in HUD's 1999
HUD has worked hard to find ways to expand our programs without
increasing our bottom line - reforming programs within HUD to
accomplish more while costing less. We have identified several
such reforms in our budget. For example, our proposal to increase
FHA loan limits would increase homeownership opportunities for
thousands of Americans each year and would bring in more than
$225 million per year into FHA. Similarly, our proposal to reform
our system for disposing of FHA single family properties would
streamline and accelerate processing of defaulted mortgages and
save $525 million in FY 1998.
Taken as a whole, the budget reflects two very clear themes that
reinforce the twin missions of the Department of Housing and Urban
The first theme is jobs and economic opportunity. Nothing
empowers an individual, develops a community, or builds a stable
tax base like a job. The challenges of the global economy combined
with the implementation of welfare reform has placed new demands
on communities across America, and made HUD's economic development
mission more vital than ever. This budget reinvents several HUD
programs to meet that challenge in an innovative way, proposing
vouchers to help people move from welfare to work, a Community
Empowerment Fund to get businesses the start-up capital they need
to create jobs, and funding for second round of Empowerment Zones
to bring opportunity back into the inner city. It also builds
on successful core programs, doubling funding to convert old brownfields
into thriving businesses, and streamlining the Community Development
Block Grant program to provide communities with more resources
and more flexibility to turn their plans into reality.
The second theme is housing and homeownership. Housing
is the foundation on which everything else is built. For the
past two years, tight budgets have reduced America's net increase
of rental assistance to virtually zero. The 1999 HUD budget gets
America back into the housing business, not by creating new programs
but reinventing old ones. It proposes new vouchers to help people
find affordable housing, a new "bank" to allow communities
to leverage up to five times their HOME allocations to build housing,
and the largest level of funding ever to end the tragedy of homelessness.
It also makes clear that all of HUD's separate housing roads
should ultimately lead to one place: homeownership. Our goal
is to help more people become homeowners, and this budget does
so in innovative ways: by raising FHA loan limits to help more
middle class families buy homes, and by increasing HUD's campaign
to weed out housing discrimination once and for all.
The goal of HUD's FY 1999 budget is to be a better partner for
communities to empower them to address their full array of needs.
To accomplish this goal, HUD has provided both more resources
and better tools for communities to tap.
Let me outline some of these initiatives in more detail.
Jobs and Economic Opportunity
The biggest challenge for distressed communities in central
cities, suburbs and rural areas is creating jobs. In an increasingly
globalized economy, new jobs are more likely to be created in
suburban areas, or in developing nations than in the core of America's
While the nation has experienced unprecedented economic prosperity,
distressed communities, particularly central cities still face
Poverty is disproportionately concentrated. Between 1970
and 1990, the proportion of city residents living in neighborhoods
with poverty rates of more than 40 percent doubled. By 1990,
more than 10 percent of all city residents lived in these high
Unemployment rates remain high. While nationwide unemployment
rates have plummeted to 24-year lows, city unemployment rates
remain substantially higher than the nation as a whole and suburbs.
In all metro areas, central city unemployment rates are 5.1
percent, a full one and a half points higher than their suburbs.
Most job creation is occurring in the suburbs. While
the economy has generated more than 14 million new jobs since
1993, the vast majority of those jobs are being created in suburban
areas. In the early 1990s, only 13 percent of new entry level
jobs were created in central cities.
Job creation is the foundation for economically and socially healthy
communities. Job creation will also be critical to make welfare
reform a success, particularly in light of concentration of welfare
recipients. Nationwide, recipients moving from welfare to work
will need an estimated one million jobs in the next several years.
Our FY 1999 budget increases funding for economic development
and job creation by more than 15 percent over 1998 enacted levels,
based on a number of programmatic improvements.
Community Empowerment Fund and Economic Development
The centerpiece of HUD's job creation efforts is the Community
Empowerment Fund, an enhancement of HUD's existing Economic Development
Initiative and Section 108 Loan Guarantee program. The Community
Empowerment Fund (CEF) will provide resources for spurring private
investment in our nation's cities and increasing opportunities
for former welfare recipients to successfully move from welfare
to work. The 1999 request of $400 million will leverage an estimated
$2 billion in private sector loans over time and will support
an estimated 280,000 jobs when projects are completed.
The Community Empowerment Fund is a creative financing
tool that combines local control, private sector capital and federal
loan guarantees to rebuild distressed urban and rural communities.
The Fund will finance a wide range of job-creation
projects, from loans for new small businesses to neighborhood
commercial revitalization efforts.
HUD's FY 1999 proposal will also incorporate substantial innovation
by providing strong incentives for standardization of economic
development lending. Unlike the housing finance system, where
Fannie Mae and Freddie Mac have established standard underwriting
criteria, economic development lending has no cookie-cutter deals.
Without such standardization and the evaluation of loan performance
using standard criteria, there can be no effective secondary market
for economic development loans.
EDI funds have been used to support a wide variety of innovative
community lending initiatives. The Community Empowerment Fund
will support more such innovative projects. Some successful
EDI projects include:
- Revolving Loan funds, such as Ohio's Mahoning
Valley Economic Development Fund that is aimed at helping communities
retool their economies in the wake of the steel industry's decline,
which had once been the backbone of the local economy.
- Inner-city shopping centers, such as the Good
Hope Marketplace in Washington DC's Anacostia neighborhood, which
includes a full-service 55,000 square foot Safeway Food and Drug
- Welfare-to-Work efforts, such as Cessna Aircraft's
Learning and Work Complex in Wichita, Kansas, which provides daycare
and job training for former welfare recipients employed in the
company's adjacent industrial facility.
President Clinton said it best when he unveiled the Community
Empowerment Fund proposal earlier this year. The Community Empowerment
Fund, he said, "will provide capital to businesses who recognize
the potential and the possibilities of the inner cities. This
is the right way to help our cities. It is not a handout. It
will bring new credit, new jobs, and new hope to the people."
HUD's budget provides a flexible new tool to help states and communities
meet the challenge of moving welfare recipients into jobs. Specifically,
HUD proposes to provide 50,000 new welfare-to-work vouchers at
a cost of $283 million, targeted to welfare recipients who need
housing assistance to get or keep a job. Families could use these
new vouchers to move closer to new jobs or to reduce long and
cumbersome commuting patterns.
In many parts of the country, jobs are being created far from
where many welfare recipients live. Three quarters of welfare
recipients live in cities or rural areas and the vast proportion
of jobs are being created in suburban areas. Few welfare recipients
own cars. Even when jobs are available, long commutes by public
transit pose a substantial barrier for welfare recipients finding
and keeping jobs. For example, 45 percent of entry level jobs
in the Cleveland metropolitan area are accessible from Empowerment
Zone neighborhoods within an 80-minute one-way commute via public
transportation; 55 percent are not public transit accessible at
HUD has developed an innovative transportation solution to this
problem: the Bridges to Work demonstration is connecting inner-city
residents to suburban jobs in 5 cities. Based in part on this
demonstration, the Department of Transportation is proposing a
$600 million Access to Jobs initiative to improve transportation
connections for welfare recipients.
But some welfare families will not be able to maintain long and
difficult commutes to keep their jobs. Our proposal goes one
step further: helping families move closer to available jobs.
HUD's request for these 50,000 additional portable housing vouchers
will help families making the transition from welfare to work.
The additional vouchers will be available on a competitive basis
to local public housing agencies (PHAs) who, in collaboration
with their local welfare and employment agencies, will develop
plans to use the new vouchers to support families transitioning
from welfare to work.
We imagine these vouchers could be critically important in many
circumstances: in suburban counties like Anne Arundel County
in Maryland, where jobs are concentrated in a few areas but welfare
recipients are dispersed; and in central cities, where welfare
recipients living in isolated poverty neighborhoods must take
several buses to get to downtown jobs. Some central city residents
will move from central cities to suburbs, where most of the new
entry level jobs are located. Finally, some rural recipients
could use portable housing assistance to move from rural areas
where there are simply no jobs to metropolitan areas with better
The vouchers will be focused exclusively on families where housing
assistance is deemed essential to help families transition from
welfare to work--that is, where housing assistance is essential
to getting or keeping employment. Local agencies will have great
flexibility to design and operate the welfare-to-work voucher
program within broad national guidelines.
In 1995, the Administration selected nine Empowerment
Zones, entitling them to receive federal tax incentives and direct
funding for physical improvements and social services. These
communities fashioned comprehensive revitalization strategies,
with all local stakeholders - residents, non-profits, businesses
and government - at the table. The early results have been extremely
encouraging: they have leveraged billions of dollars in private
investment and new jobs and business activity are expanding in
many of these communities.
To build on this early success, the 1997 Taxpayer Relief Act created
20 new Empowerment Zones -- 15 new urban zones and 5 new rural
zones. Second Round Zones were provided with tax incentives to
attract new economic activity, but need the direct spending equivalent
to the assistance the successful first round zones received.
The President's Budget for 1999 requests $1.5 billion funded over
10 years in equal $150 million amounts for the 15 new urban Zones.
We are preparing the legislation to authorize flexible funding
for the Empowerment Zone program.
Following the model set forth in the first round, funding will
be made available for a broad range of job stimulation activities,
with an effort to link revitalization plans to welfare reform
strategies. Examples of eligible activities include: community
policing, health care, neighborhood development, brownfields cleanup
and redevelopment, economic development projects, work force
development, and housing assistance.
Community Development Block Grants
A total of $4.725 billion is requested for the major Community
Development Block Grant Program, an increase of more than $50
million over the 1998 enacted level, and an all time high. Further,
HUD has substantially reduced the requested set-asides for other
programs within CDBG, from $479 million in FY 1998 to $292 million
in FY 1999. As a result, funding available for formula allocation
to state and local governments effectively increases by $238 million
in FY 1999, a five percent increase.
In addition, the CDBG funds will support $1.3 billion in new loan
guarantees under the Section 108 program of the Housing and Community
Development Act. This is the same level enacted in 1998.
Regional Connections Initiative
In light of the long-term shift of jobs and people to
the suburbs, regions have become the building blocks of the larger
national economy. The challenge for local communities is to take
full advantage of the opportunities presented by the new regional
At the same time, communities need to find ways to respond to
some of the acknowledged negative impacts of the metropolitan
economy: a growing job skills and training gap; the concentration
of poverty in central cities; the spatial mismatch of housing
and jobs; a growing disparity in local government fiscal capacity;
schools at risk; rising infrastructure costs; higher vehicle miles
traveled; increasing congestion; air and water pollution; and
loss of prime farmland and open space. A new challenge facing
communities is to make welfare reform work in the context of new
This initiative is a $100 million set-aside within the CDBG program.
It will make funds available by competition to states and localities
to cooperate regionally to develop strategic plans that address
key regional issues facing the nation's metropolitan areas and
rural communities. The initiative will help communities adjust
to the significant demographic and economic shifts that are taking
place in metropolitan regions. It will encourage regional strategies
that emphasize coordinated metropolitan economic growth and regional
solutions to a range of environmental and social equity issues.
HUD will establish an Advisory Board of city and county officials,
distinguished urban planners, economists, and regional experts
to develop the competition, and expects to contract with a qualified
national organization to assist in managing the funding awards
process. This will limit the administrative burden on HUD.
The 1999 Budget proposes to double, from $25 million in 1998 to
$50 million in 1999, the level of funding for the Brownfields
Redevelopment program. This will significantly accelerate the
Administration's commitment to provide $100 million toward brownfields
Brownfields are low-to-moderately contaminated sites, often on
former industrial sites in American cities. An estimated 450,000
sites exist, and the vast majority of those are located in urban
areas. None of the sites has levels of contamination which would
score high enough to be placed on the National Priorities List
under the Superfund program. Without any cleanup mandate, these
sites could go for years without being restored to alternative
and modern uses. Their clean-up not only improves the environmental
condition of the area, it provides a unique opportunity to revitalize
downtown areas that have been essentially abandoned.
Each Brownfields dollar is highly leveraged. The $50 million
being proposed for 1999 will leverage $200 million in loans and
loan guarantees and the clean-up effort will generate 28,000 construction
and related jobs precisely where employment opportunities are
The Administration has established a Brownfields National Partnership
among 15 agencies to turn contaminated Brownfields into greenfields
of economic opportunity.
Homeownership and Housing
Housing needs in America remain substantial. More than five million
very low income families pay more than half their limited incomes
for rent or live in substandard housing. Staggering numbers of
families and individuals have no homes at all: the best estimates
suggest there are 600,000 homeless on any given night. While
the nation has achieved record homeownership rates, homeownership
for minorities, for female-headed households, and for residents
of central cities remain 20 to 30 points below the national rate.
The President's FY 1999 budget reverses this course. The President's
1999 budget gets HUD back into the housing business -- not by
creating new programs, but by reinventing existing ones.
To expand homeownership opportunities, HUD proposes higher FHA
loan limits, additional Homeowership Zones, new Empowerment Homeownership
Vouchers and increased funding for housing counseling.
To expand affordable rental housing opportunities, HUD proposes
100,000 new vouchers to help welfare recipients, homeless individuals
and families and other targeted groups find affordable housing;
a new HOME Bank, which combines increased funding for the HOME
program with a new loan guarantee feature to help communities
finance large-scale multifamily and homeownership developments.
HUD is also maintaining our investment in HOPE VI and other public
housing programs and renewing all expiring Section 8 contracts.
HUD continues to implement the successful Continuum of Care strategy
and the 1999 budget includes a record level of funding to help
end the tragedy of homelessness. In addition, the Clinton Administration
proposes to expand the Low Income Housing Tax Credit (LIHTC) by
raising the per capita cap from $1.25 to $1.75 to significantly
compensate for the loss of the Credit's value since 1986 and to
finance a $30 million pilot program through the Neighborhood Reinvestment
Corporation. The LIHTC expansion will assist an additional 180,000
Americans over the next 5 years.
Continuing the Growth of Homeownership
Nothing manifests the American dream more than owning a home.
Nothing helps create stability and safety for families and communities
like homeownership. This administration has made a unique commitment
to homeownership: in June 1995, the President pledged to reach
the goal of 67.5 percent by the end of the year 2000. We have
already reached the nation's all-time highest rate of homeownership-66
But the job is not done. Homeownership in central cities and
among women, minorities, and lower income Americans hovers at
or below 50 percent. In many parts of the country and in many
neighborhoods even middle class families have a hard time affording
homeownership or making the continued investments needed to project
their most valuable asset.
The budget includes a number of initiatives to allow more Americans
to make the dream of homeownership a reality.
FHA Loan Limits Increase
President Clinton's budget calls for helping hundreds of thousands
of hard-working middle-class American families qualify as homeowners
by raising home mortgage insurance limits used by the Federal
Housing Administration (FHA).
Despite record national homeownership rates, many Americans --
including young, first-time homebuyers, center-city residents,
and racial and ethnic minorities -- are shut out of homeownership
because they have difficulty accessing mortgage credit. Raising
the loan limits will enable FHA to meet the mortgage credit needs
of hundreds of thousands of American households not presently
served by the private mortgage industry.
The Federal Housing Administration's single family mortgage program
has been one of the most successful public-private ventures ever
established by the Congress. FHA provides mortgage insurance
that enables homebuyers to secure mortgages from private lenders.
Over the past 60 years, FHA has made homeownership available
to nearly 25 million families throughout the country.
Today, FHA has over 250 separate loan limits ranging from $86,317
in more than 2,000 low cost counties to $170,362 in 130 higher
cost counties. About 930 moderate cost counties have loan limits
set at 95 percent of local median home sales price which fall
between $86,317 and $170,362.
HUD proposes to create a single, nationwide limit of $227,150,
which would simplify the current system and bring FHA back in
line with the limit used by Fannie Mae and Freddie Mac, the two
largest providers of mortgage credit in the market place.
Increasing the loan limits will expand FHA's ability to
reach underserved markets. Mortgage lending information gathered
by the Federal Reserve Board, as part of the Home Mortgage Disclosure
Act (HMDA) requirements, show that in 1996, some 350,000 households
- approximately one in eight applicants - were denied credit in
the conforming conventional market. These denials limit homebuying
opportunities for both minority and white households seeking to
live in urban and suburban communities.
Mortgage denial rates are particularly high for African-Americans
and Hispanic families who are nearly twice as likely to be denied
home loans as white applicants. In the aggregate though, white
families accounted for nearly two-thirds of the 350,000 households
denied credit. Raising the loan limits will enable FHA to meet
the mortgage credit needs of these American households who are
not well-served by the private mortgage industry.
The higher loan limits will also increase the capacity of families
to purchase and rehabilitate older homes, an important component
of neighborhood revitalization efforts. Overall, the average
loan insured under this initiative would be $145,000.
FHA-insured loans benefit homebuyers by: allowing down payments
5 percent, allowing homebuyers to borrow closing costs, allowing
more homebuyers to qualify for mortgages, and allowing homebuyers
to use gifts from family members and others to make their downpayments.
In addition to enhancing homeownership opportunities, raising
FHA loan limits is good for the federal budget. The insurance
premiums and fees associated with new mortgage business will provide
FHA with an increase in revenues of more than $225 million per
Property Disposition Reform. In addition to raising FHA
loan limits, HUD is proposing substantial reforms in disposing
of properties which have defaulted. The proposed reforms to the
single family property disposition program would provide HUD with
the flexibility to choose the most cost-effective way of paying
insurance claims and disposing of acquired (defaulted) notes on
insured homes. Current law requires HUD to pay insurance benefits
for defaulted single family mortgagees and details the manner
of calculating the amount of insurance benefits that must be paid.
If enacted, HUD would be able to take assignment of the mortgage
notes (instead of taking properties into inventory) and then selling
or transferring the property to a third party for servicing, loss
mitigation, foreclosure and potentially disposition. It is expected
that savings of more that $525 million (on a present value basis)
will result from the higher return on sales and reduced interest
payments to lenders because properties will be disposed of much
sooner than can be accomplished under current law.
HOME Bank: Leveraging the Home Program
The budget proposes a substantial enhancement to the HOME Program,
which provides flexible grants to states and local governments.
HOME is the model of effective devolution. Our initiative would
add a new loan guarantee feature, enabling states and localities
to leverage private investment with current HOME grants for large-scale
rental housing and homeownership developments. This enhancement
provides an effective new tool to enhance housing production.
The HOME program request for 1999 is $1.883 billion, which includes
$1.55 billion for the standard HOME program (with $25 million
for Housing Counseling assistance) and $333 million for elderly
and disabled housing. Funding HOME at $1.55 billion (a $50 million
increase from 1998) will provide 78,520 units of affordable housing
for owners and renters through construction, rehabilitation and
acquisition activities and 11,200 families would receive tenant-based
HUD proposes $333 million for housing for the elderly and disabled,
and would shift administration from HUD to state and local governments
through the HOME program. While maintaining the integrity of
the Section 202 and Section 811 programs, the shift of the program
into HOME will allow the Department to further consolidate its
program structure, and provide substantial opportunities for state
and local participating jurisdictions to leverage additional resources
for elderly and disabled housing. HUD intends to submit a legislative
proposal to accomplish this consolidation.
In addition, HUD's funding for the elderly includes an additional
8,800 new incremental vouchers. These vouchers replace direct
grant funding and allow HUD to serve a greater number of elderly
households with more limited resources. The overall funding proposed
to support the elderly and disabled in the FY 1999 budget will
serve more households than were served by the FY 1998 funding.
- HOME Loan Guarantee Program. Building on HUD's recent
success with the Section 108 loan
guarantee feature of the CDBG program, the FY 1999 budget proposes
to provide a similar enhancement to the HOME program: a new loan
This legislative initiative will permit HOME participating jurisdictions
to finance large-scale development activities by leveraging their
future HOME allocations. The budget supports $100 million of
new loan guarantees at an estimated credit subsidy cost of $11
million in FY 1999. Communities may borrow up to five times their
most recent HOME allocations.
The ability to borrow a large sum of money will encourage participating
jurisdictions to undertake broad-based neighborhood revitalization
strategies and to take advantage of economies of scale, producing
or rehabilitating a large number of rental or ownership units
in a single undertaking within a relatively short time frame.
The Budget proposes $25 million in 1999 to enable cities to undertake
large-scale single family developments in inner city neighborhoods
Creating new concentrated homeownership developments as part of
a whole neighborhood strategy is central to redeeming blighted
and troubled neighborhoods. Homeownership would serve as a foundation
for additional investment in residential, commercial, and economic
development of the Homeownership Zone. HUD has funded six Homeownership
Zones with 1996 funding and will soon be announcing a new round
of five to seven designated zones in the near future.
With an infusion of low- and middle-income homeowners, these
zones are transforming their city neighborhoods. More than 2,000
units of housing are being constructed or rehabilitated in Louisville,
Cleveland, Sacramento, Buffalo, Baltimore, and Philadelphia and
are having an enormous impact on the economies of these cities.
Not only do these zones attract homeowners, they create demand
for other neighborhood economic activities like grocery stores
and dry cleaners. While a majority of the newly constructed units
are reserved for low- and moderate-income families, the zones
are also designed to attract middle-income families in order to
increase the long term stability of a neighborhood. This program
is expected to help solve one of the most difficult problems faced
by cities: retaining middle class families.
PATH (Partnership for Advancing Technologies in Housing)
The Partnership for Advancing Technologies in Housing (PATH) is
a public/private partnership developed to increase the use of
emerging technologies to improve the affordability, quality, efficiency,
and durability of our Nation's housing. Housing seriously lags
behind other sectors of the economy in the area of technological
innovation and remains one of the last major U.S. industries to
effectively "reengineer" itself. The $10 million request
for PATH is to increase information access nationwide on advanced
housing technologies; remove institutional barriers to the adoption
and use of innovative technology; demonstrate the successful
applications of technologies to today's housing; and stimulate
development of new technologies that will lead to the high performance
homes of tomorrow.
Initiated by the Clinton Administration, PATH will bring together
Federal agencies and private industry to achieve real progress
in improving the quality of our homes. PATH has been designed
to concentrate on gaps; those areas where technology as a result
of regulatory barriers, lack of information, or inadequate technical
support, is failing to reach the market place. HUD is well positioned
to lead this effort because of our long-standing contacts and
credibility within the housing industry.
The Housing Counseling program, a set-aside in the HOME program,
is designed to provide pre- and post-purchase counseling assistance
to clients on housing issues. The request for counseling funds
is increased by 25 percent over the 1998 enacted level of $20
million to $25 million in 1999.
Despite the success of the President's National Homeownership
Strategy, homeownership education and counseling is still in great
demand, providing both an opportunity and a challenge in raising
the homeownership rate. Recent ethnographic studies completed
in 1997 examined the homebuying experience of minority and immigrant
households. These groups are the least likely to become homeowners,
the studies concluded, because of the lack of knowledge about
the homebuying process, the lack of credit histories to justify
mortgage applications and a lack of information about financing
Therefore, housing counseling remains an important feature of
the President's commitment to increase the country's homeownership
Ending Discrimination in Housing
Under Secretary Cuomo's leadership, HUD has taken a prominent
role in the President's One America initiative, doubling
its targeted number of housing discrimination enforcement actions
and partnering with 67 non-profit housing groups to reduce housing
discrimination. HUD has also entered into 113 best practice agreements
with key lenders, resulting in more fair lending practices and
expanded opportunities for low-income minority families.
At the President's direction, Secretary Cuomo launched efforts
to double the number of fair housing enforcement actions
to crack down on housing discrimination during the President's
second term. These efforts include HUD's new "Make
Em Pay" initiative to take civil action against
people who commit housing-related hate crimes. During 1997, the
compensation for persons alleging discrimination and hate acts
has increased dramatically, resulting in a 224 percent jump in
compensation to victims$7.7 million for May-September 1997, compared
with $3.5 million for May-September 1996.
The FY 1999 budget proposes a 73 percent increase in funding
for fair housing activities to allow HUD to follow through on
the Secretary's commitment to protect the right of every American
family to live and raise their children in any neighborhood they
can afford. The 1999 Budget nearly doubles funding for the Fair
Housing Initiatives Program (FHIP)- from $15 million in 1998 to
$29 million in 1999. The FHIP program provides funding to help
private, non-profit fair housing organizations carry out programs
that enhance compliance with fair housing laws.
There are three key components to the increase. First, the budget
proposes a $10 million housing discrimination audit, to assess
systematically the levels of housing discrimination in 20 communities
across the country. The audit findings and data will also be
used as evidence to enhance fair housing enforcement efforts.
Second, FY 1999 resources will increase funding available to
private non-profit fair housing groups around the nation, so they
can do more to reduce housing discrimination. These groups use
HUD assistance to help pay for investigations and lawsuits.
Third, funding will create a national Fair Housing Rights Education
Campaign to inform Americans about their legal rights and responsibilities
under the Fair Housing Act and to provide them with assistance
when confronted by illegal discrimination.
The Fair Housing Assistance Program (FHAP) program enables HUD
to certify State or local fair housing enforcement programs as
"substantially equivalent" agencies. FHAP reimburses
the agencies for handling fair housing complaints filed in their
jurisdictions. Funding for FHAP is proposed at $23 million, up
from $15 million in FY 1998.
Not all Americans can afford the benefits for homeownership.
In fact, the need for affordable housing is at an all-time high.
In 1995, 5.3 million low-income families had "worst-case"
needs - that is, spent more than half their income on rent or
lived in severely substandard housing. This 5.3 million does
not even include the Americans who are literally homeless, since
these families and individuals cannot be counted by the biannual
survey of housing conditions conducted by HUD and the Census Bureau.
The best estimates suggest that 600,000 individuals and families
are homeless on any given night.
This budget puts housing at the top of HUD's agenda, where it
rightfully belongs. Total funding for housing initiatives increases
10 percent over 1998 levels. The Administration proposes a comprehensive
agenda of new housing initiatives.
Expanding and Preserving Section 8 Assistance
A centerpiece of HUD's housing agenda is a proposal to provide
100,000 new incremental rental vouchers. Unlike previous years,
however, HUD is proposing to martial new housing resources for
specific strategic purposes: 50,000 for helping welfare recipients
make the transition to work; 34,000 for homeless persons and families
who are ready and able to make a transition into permanent housing
in the private rental market; and 16,000 for the elderly, family
unification and other targeted purposes.
To further increase the supply of tenant-based rental assistance,
HUD proposes to eliminate a provision that requires PHAs to delay
for 3 months the re-issuance of existing tenant-based units at
turnover. This provision substantially reduces the number of
families who can be assisted tenant-based certificates and vouchers
at any point in time.
In addition, HUD proposes to renew all expiring Section 8 contracts.
Last year, HUD's budget described the crisis posed by expiring
Section 8 contracts. With HUD's vigorous support, Congress included
sufficient resources in the Balanced Budget Act to renew all expiring
contracts through 2002. In addition, Congress enacted landmark
legislation to restructure the contracts of private owners of
Section 8-assisted housing. This legislation will stop paying
landlords excessive rents, while restructuring their mortgages.
The FY 1999 budget requests $7.2 billion to renew Section 8 contracts
covering 2 million units expiring in 1999. This continues HUD's
clear policy to continue to renew all contracts that expire in
the future. To reduce our request for new budget authority for
renewing Section 8 contracts in 1999, HUD will first use $3.7
billion in Section 8 reserves being held in a special Section
8 Preservation Reserve Account, that was created specifically
to hold recaptured excess reserves.
Moreover, HUD has improved the Section 8 funding process by identifying
and taking back excess project reserves held by public housing
authorities who administer the tenant-based Section 8 program
and utilizing more accurate methods for estimating renewal costs.
In the past, many PHAs simply held unused funds, while
others used excess funds to provide rental assistance to additional
households. HUD will now also sweep any excess PHA reserves on
an annual basis. HUD has also adopted new methods for budgeting
for Section 8 renewals based on the actual costs PHAs incur, rather
than costs based on the full fair market rent. These changes
produce more accurate estimates of PHA renewal needs.
Homeless Assistance Grants
Reducing homelessness is one of my top priorities. While I was
Assistant Secretary for Community Planning and Development, HUD
initiated a new strategy for reducing homelessness, requiring
communities to establish "Continuum of Care" strategies.
A Continuum of Care strategy is a coordinated community approach
that ensures that homeless families and individuals can make the
transition from homelessness to permanent housing.
HUD's innovative Continuum of Care approach serves the specific
needs of all homeless persons, including those with mental illness,
those in need of substance abuse treatment, and those in need
of job skills. Continuum of Care strategies focus on filling
existing gaps in housing or other services within a community
that are necessary to move individuals and families from temporary
shelters to permanent housing. The Plan must, therefore, be inclusive
of and utilize the services of public, private and non-profit
participants within a community.
The 1999 Budget requests a total of $1.15 billion, an increase
of almost 40 percent over the 1998 enacted level of $823 million.
This includes $958 million for homeless assistance grants and
$192 million for 34,000 vouchers. This is the highest level ever
requested for this program.
Moreover, any increase in funding, if enacted, combined with recent
policy changes will have a tremendous impact on the number of
needy individuals receiving assistance to help them achieve independent
lives. A recent Columbia University study concluded that the
number of individuals and families that have been assisted in
moving to permanent housing increased by 14 times between 1992
and 1995 while HUD funding only doubled.
When families and individuals are ready to graduate from emergency
and transitional homeless facilities to permanent housing, affordable
permanent housing is too often not available. Therefore, HUD
proposes the inclusion of $192 million for 34,000 additional incremental
Section 8 vouchers intended for homeless individuals and families
who would otherwise have the most difficult time securing permanent
housing, as determined through the approved continuum of care
strategy. The vouchers will help ensure that when families and
individuals are ready to leave the Continuum of Care and
enter private housing, affordability will not be a barrier that
inhibits this progress.
By assisting homeless individuals and families, including those
with disabilities, in moving to permanent housing, shelter and
services are freed up for other homeless persons to achieve self-sufficiency.
Also, while transitional assistance provides good progress -
an average stay is 9 months - some rental assistance with services
is key to the restoration of dignity and independence that is
critical for children and parents.
Maintaining HUD's Investments in Public Housing
Over the last 50 years, the Federal government has invested
billions of dollars into the construction and operation of the
1.4 million units of public housing. In most communities, it
is well-managed and provides decent quality affordable housing
for poor families who cannot afford private market housing. Public
housing units represent one-third of all housing that is affordable
to families with minimum-wage incomes.
But in too many communities, public housing is found at the heart
of urban communities plagued by deterioration, crime and drugs.
Critical mistakes were made in the design, construction and maintenance
of many of these public housing developments.
The Clinton Administration has worked for five years to implement
a physical and social transformation of public housing. At its
heart, this transformation requires the demolition of the worst
public housing developments. To replace these developments, HUD
has created a new mold for public housing: mixed-income, mixed-finance
projects that blend into their neighborhoods. HUD has sought
and will continue to seek enactment of comprehensive legislation
that will provide responsible deregulation of the public housing
industry and new tenant rent rules that encourage and assist tenants
to move from welfare to work. Finally, HUD is developing new
real estate assessment and enforcement capacities to fix the most
troubled housing agencies and create incentives for good performance.
HUD's FY 1999 budget supports the continued transformation of
public housing while maintaining HUD's financial investment.
- HOPE VI. The Department is requesting $550 million
for the Revitalization of Severely Depressed Public Housing Program,
commonly referred to as HOPE VI. The Department has set a goal
of approving the demolition of 100,000 blighted or obsolete units
by the year 2000, and providing essential replacement housing
in their place.
In 1999, the Department plans to approve an additional 15,000
units for demolition. and will fund 14,000 replacement units,
of which 4,000 are "hard" units and 10,000 are tenant
based rental assistance. By the year 2000, 99,670 replacement
units will be funded. The hard replacement units will be incorporated
into economically diverse communities to foster more stable communities.
HUD is committed to changing the patterns of social and economic
isolation, high concentrations of very low-income families and
- Public Housing Capital Fund. The 1999 Budget requests
a total of $2.55 billion for 1999, an increase of $50 million
over the 1998 enacted levels. This increase will help reduce
substantial backlogs of PHA capital improvement needs. Capital
funds may be used to upgrade viable housing units, demolish obsolete
worst units, provide continued assistance to displaced families
or build replacement units.
- Public Housing Operating Fund. HUD requests $2.818
billion for the Public Housing Operating Fund in FY 1999. Whensupplemented with $113 million in anticipated carryover funding,
available Operating Fund resources will be $2.931 billion. This
level represents a $31.6 million increase over FY 1998 levels
and will enable the Department to meet its commitment to fund
100 percent of the amount established by the Performance Funding
- Drug Elimination Grants. HUD proposes that $310 million
be appropriated for Drug Elimination Grants again in 1999 for
anti-crime, anti-drug and clearinghouse information services.
Eligible activities include the employment of security personnel,
reimbursement of local law enforcement agencies for protective
services, enhanced security through physical improvements and
drug prevention, intervention and treatment programs.
Funding also includes $20 million for Operation Safe Home.
Operation Safe Home is an effort to combat violent crime in public
and assisted housing and is administered by the Department's Office
of Inspector General in close coordination with local and federal
law enforcement authorities. The program establishes coalitions
to implement a coordinated fight against gang and other criminal
- Native American Housing Block Grant. HUD requests
$600 million for the Native American Housing Block Grant. This
funding level is critical to maintain and expand affordable housing
opportunities for Native Americans. Funds can be used for a wide
variety of activities that will increase the availability of affordable
housing stocks. The program operates as a block grant to eligible
Indian tribes or through their Tribally Designated Housing Entities.
Federal aid plays a critical role in providing affordable housing
for Native American populations. Presently, almost 45 percent
of all low-income households in tribal areas are served by HUD
assisted housing units. Of the estimated 69,000 units assisted,
32 percent are in the rental program. For the Native American
Indian and Alaskan Native areas, the 1990 census reported an
unemployment rate of 20 percent and a poverty rate of 36 percent.
Housing Opportunities for Persons with AIDS (HOPWA)
The 1999 HUD Budget requests an increase of 10 percent or $21
million over the 1998 level of $204 million for Housing for Persons
with Aids (HOPWA). If enacted, the funds would support 41,500
units of housing assistance and would provide related services
to approximately 74,875 individuals.
The number of eligible jurisdictions has grown each year and that
trend is expected to continue. The Centers for Disease Control
reported 69,101 new cases of AIDS in 1996 alone. An increase
in funding would enable the program to keep pace with the need
and the increase in jurisdictions eligible for funding. Based
on the current formula allocation of HOPWA funds, the only alternative
to increasing the funding level would be to require that all jurisdictions
take a significant reduction in assistance.
Enhancing Tenant Mobility in the Section 8 Program
HUD is also requesting $20 million in new funding for Regional
Opportunity Counseling in the Housing Certificate Fund. This
program is targeted to reducing concentrations of poverty by helping
at least 13,000 families in 10-20 metropolitan areas choose housing
in low poverty areas. Funds will be awarded by competition to
collaboratives of housing authorities and non-profit organizations.
These collaboratives will develop specific strategies to help
move individuals to areas with low poverty rates. Examples of
eligible activities include; landlord outreach, motivational counseling,
training in household budgets, direct search assistance, payments
to landlords, assistance with security and utilities deposits.
In addition, HUD is requesting a small set-aside within the Housing
Certificate Fund to reward public housing agencies that successfully
reduce the poverty concentration of families using portable tenant-based
assistance. Research suggests that families moving from high
poverty to lower poverty neighborhoods can access better schools
and jobs, and ultimately improve life outcomes for children. The
1999 budget would set aside $8.75 million in Section 8 funding
to increase the administrative fees paid to PHAs if agreed upon
targets are achieved. The program is modeled after a successful
pilot conducted in Chicago, where a private contractor is managing
the tenant-based Section 8 programs.
In the end, this budget is the best in a decade not just because
HUD is closing its competence gap, but because America still has
an opportunity gap. Our nation has created more than 14 million
new jobs, but only 13 percent are in cities. We have more homeowners
than ever, but over five million Americans either live in substandard
housing or pay 50 percent or more of their income in rent. We
have more millionaires than any time in our history, but an estimated
600,000 Americans still sleep on our streets every night. That's
why HUD's mission is more vital than ever. We closed the competence
gap so we could close the opportunity gap. That is both our challenge
and our continuing commitment today. This budget says we can
do it -- but only if we work together.
Content Archived: January 20, 2009