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Testimony of Secretary Andrew Cuomo before the
House Appropriations Subcommittee
on VA, HUD, and Independent Agencies

March 25, 1998

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 problems.

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 first time.

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 "community builders."

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 operational.

  • 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 Performance Plan.

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 Development.

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 central cities.

While the nation has experienced unprecedented economic prosperity, distressed communities, particularly central cities still face critical challenges.

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 poverty neighborhoods.

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 Initiative

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 Store.

  • 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."

Welfare-to-Work Vouchers

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 all.

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 employment prospects.

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.

Empowerment Zones

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 economies.

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 regional economies.

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 redevelopment.

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 most needed.

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 percent.

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 under

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 year.

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 rental assistance.

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 guarantee.

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.

Homeownership Zones

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.

Housing Counseling

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 options.

Therefore, housing counseling remains an important feature of the President's commitment to increase the country's homeownership rate.

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.

Affordable Housing

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 segregation.

  • 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 System.

  • 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 activity.

  • 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

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