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Testimony of Secretary Mel Martinez
before the
Senate Committee on Banking, Housing and Urban Affairs
Subcommittee on Housing and Transportation
April 25, 2001

Chairman Allard, Ranking Member Reed, and distinguished Members of the Committee, thank you for this opportunity to discuss the Department of Housing and Urban Development's budget for fiscal year 2002.

I am both humbled and energized by the challenges that face us, in this Department and this nation, as we work to improve housing and expand opportunities for families seeking to move ahead. President Bush and I are committed to restoring the confidence of the Congress, the Department's constituents, and the American people in the operation of this Agency.

This budget is the first step toward restoring that confidence. It is a compassionate and responsible budget that will allow us to serve people more effectively, empowering individuals and communities across this great land.

We cannot face this challenge alone. We look forward to the support of this Congress and particularly this Subcommittee to accomplish this.

The American Taxpayer will measure our success not by how much money we spend, but by how many families have a better home, by how many immigrants get the chance to buy their first house, and by how many children grow up in the kind of neighborhood we all want to live in.

Our existing programs must operate efficiently and effectively before we create additional programs. Over the past two decades, the Department has grown to include more than 300 programs. Simply adding new government programs does not necessarily improve the lives of the citizens who need the most help.

The Administration's overall growth for federal spending of four percent is a responsible and appropriate level. Nevertheless, the President also recognizes that we have an obligation to increase homeownership opportunities and serve those that cannot afford decent housing. The Department of Housing and Urban Development's proposed budget requests an increases of nearly seven percent in budget authority for fiscal year 2002.

Buying a home is the biggest investment most families ever make. By building equity in a home families can pass on wealth from one generation to the next, can provide for child's higher education, or can access venture capital for small businesses --- all the while strengthening their communities. All Americans should have these opportunities, no matter the color of their skin.

Nearly 70 percent of all families have come to realize the American Dream and own their own home. Yet, despite this record number of homeownership, there are still communities that lag behind: less than half of African-American and Hispanic-American families own their homes.

We can do better. We need to tear down barriers to homeownership for families that are financially able to sustain homeownership. President Bush's budget includes three new homeownership initiatives to expand opportunities for hundreds of thousands of low-income and minority families.

The "American Dream Down Payment Fund" provides $200 million to match down payment assistance, helping more than 130,000 low-income families overcome the single greatest obstacle to homeownership. President Bush also proposes a tax credit to support the rehabilitation or construction of at least 100,000 homes for low-income families over the next five years. The Administration will seek authority to offer low-income families new adjustable-rate mortgages that protect new homebuyers from dramatic changes in market rates until they can establish an economic foothold.

The American Homeownership and Economic Opportunity Act of 2000 provided low-income families the ability to use rental vouchers for down payment on a home. President Bush proposes to make this provision permanent and not subject to appropriations, enabling the Department to help more low-income families become homeowners. This builds on the existing authority to use vouchers for mortgage payments.

Finding affordable and decent housing continues to be a problem for many Americans. Almost five million very low-income renter households have "worst case needs" for rental housing. While this number represents an eight percent decline from 1997 to 1999, it is still unacceptable.

In order to expand the production of affordable housing, President Bush proposes to raise the limits for FHA multi-family insurance by twenty-five percent. This is the first increase in nearly ten years and will help spur the development of affordable housing in moderate to high cost urban areas.

We are strengthening our traditional obligations to public housing by increasing the public housing operating budget by $150 million. This money can be used by local housing authorities to fund those programs that best meet urgent needs, including the rising costs of utilities.

President Bush and I are also continuing our strong commitment to helping families with the costs of rental housing through Section 8 housing vouchers. This budget renews all expiring Section 8 contracts at a cost of $15.1 billion - an increase of $2.2 billion over fiscal year 2001 - and funds an additional 34,000 Section 8 housing vouchers at an additional cost of nearly $200 million.

The budget proposal does not request as many new housing vouchers as in previous years for two reasons. First, we cannot continue to increase the Department's budget each year by 12 to 16 percent. At the previous year's rate of increase, our budget would surpass $100 billion by 2010. Second, there has been a serious problem with the utilization of existing Section 8 vouchers by state and local agencies and some vouchers do not get used as quickly as they should. I will work with Congress to improve the utilization of Section 8 vouchers by state and local housing agencies.

Vouchers are more than just a piece of paper; for many families they are the first step in the process of greater economic opportunity and homeownership. There are two issues regarding the voucher utilization problem: making vouchers easier to use and improving the management capacity of local housing agencies. First, we should take additional steps to ensure that more families are able to use their housing vouchers. While vouchers work well in most markets, there is growing evidence that families are having difficulties using vouchers in certain markets. We should resolve that.

Although market conditions affect the utilization of vouchers in different areas, under-utilization is ultimately a management issue. Good managers can overcome difficult market conditions and ensure that all of their vouchers are used. I plan to work with housing authorities to help them become better managers so that they can serve more families. We can do this through a combination of management techniques: fully employing the Section 8 Management Assessment Program (SEMAP) that gives substantial weight to utilization rates, giving priority in fund allocation to housing authorities with high utilization rates, and implementing HUD's new authority to make some vouchers project-based.

While we focus on our goal of improving housing opportunities, this budget does not neglect the Department's traditional role of supporting community and economic development. Much of this support is carried out by the Community Development Block Grant (CDBG) Program and this Administration continues strong support of this important program. CDBG will receive almost $4.4 billion in funding for formula grants to meet the specific needs of local governments. CDBG funds locally developed programs that revitalize communities and help spur economic growth.

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