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Full Written Testimony
of The Honorable Mel Martinez
before the VA, HUD, and
Independent Agencies Subcommittee
of the House Appropriations Committee
May 23, 2001
Chairman
Walsh, Ranking Member Mollohan 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.
The Department of Housing and Urban Development faces a big challenge
in the coming years as we find ways to improve housing and expand
opportunities for families seeking to improve their quality of life.
President Bush and I are committed to restoring the confidence of
the Congress and the American people in the operation of this Agency.
Our fiscal year 2002 budget is the first step toward restoring that
confidence. This is a compassionate and responsible budget that
will allow us to serve people more effectively and empower individuals
and communities across the Nation.
This Department's success will not be measured by how much money
we spend, but by how many families get the chance to buy their first
house and by how many children get the chance to grow up in the
kind of neighborhood we all want to live in.
The Administration has set the overall growth for Federal spending
at 4 percent. This is a responsible and appropriate level. But the
President also recognizes that this Department has a special obligation
to help fulfill this Nation's housing and community development
needs.
That is why the Department of Housing and Urban Development's proposed
budget increases nearly 7 percent for fiscal year 2002. This will
allow the Department to meet its priorities in improving housing
and community development opportunities for American families. This
budget will help low-income families become home owners, increase
the amount of affordable rental housing, help low-income individuals
build the skills they need to compete in the modern workplace, support
community development, meet the needs of special populations, strongly
enforce our fair-housing laws, and provide the adequate resources
to improve the management of the Department.
HELPING LOW-INCOME FAMILIES ACHIEVE HOMEOWNERSHIP
Housing
- particularly homeownership - is at the heart of that mission.
President Bush has made increasing homeownership - especially for
low-income families and minorities - a top priority of his Administration.
Homeownership plays a vital role in creating strong communities
by giving families a stake in their neighborhoods and helping them
to build wealth. Although a period of sustained economic growth
has helped to raise the overall homeownership rate to a record level,
the homeownership rates of minorities and low-income families lag
far behind those of other families.
The most recent data show that the homeownership rate for Hispanic
and African American households is under 50 percent. By contrast,
the homeownership rate for the Nation as a whole is 67 percent.
This Department is firmly committed to reducing this gap by increasing
the homeownership rates of minority households.
The data indicate that homeownership rates are also lagging in central
cities (51.4 percent) and among households with incomes below the
area median (51.5 percent). Since minority households are more likely
to fall into these categories, it is clear that their homeownership
rates can be raised by improving access to homeownership in central
cities and among low-income families.
For fiscal year 2002, the Bush Administration has proposed a number
of new or expanded initiatives to improve homeownership rates among
low-income and minority families. Since the biggest single obstacle
to homeownership is the inability to afford a downpayment on a home,
two of the initiatives - the American Dream Downpayment Fund
and the Section 8 Homeownership program - focus directly on overcoming
this obstacle. A third initiative - the Renewing the Dream Tax Credit
- will subsidize the costs of homes that are rehabilitated or newly
constructed for purchase by low-income households, while a fourth
initiative - the Hybrid Adjustable Rate Mortgage - will expand access
to homeownership by reducing mortgage payments in the initial years
of a mortgage.
The American Dream Downpayment Fund will provide $200 million within
the HOME program to match downpayment assistance provided by third
parties. For every dollar provided by a third party, the program
will provide $3, up to a maximum of $1,500 provided against a $500
third-party contribution. This proposal will leverage more than
$60 million in locally controlled funds and help more than 130,000
low-income families overcome the biggest obstacle to homeownership
-- putting together a downpayment.
Another proposal that will help families own their own homes is
the expansion of the use of Section 8 vouchers for homeownership.
Under soon-to-be-published regulations, voucher-holders will be
able to use up to one year's worth of Section 8 assistance for the
downpayment on a home. HUD expects this program to be of use to
existing voucher holders who can afford the ongoing costs of a mortgage,
but who do not have enough savings to cover a downpayment.
Based on legislation enacted in the last Congress, HUD is also implementing
an alternative approach to Section 8 homeownership under which the
voucher can subsidize ongoing homeownership costs. To accommodate
the needs of disabled households, HUD will apply higher income eligibility
limits to these households.
A third proposal - the Renewing the Dream Tax Credit - is a $1.7
billion tax credit that will support the rehabilitation or new construction
of an estimated 100,000 homes for purchase in low-income neighborhoods
over a 5-year period. The program will subsidize up to 50 percent
of project costs and benefit low-income families.
In addition to working closely with the Department of Treasury in
designing this tax credit, HUD will conduct a thorough review of
policies and regulations that may constitute a barrier to the development
of affordable single-family homes and consider ways to streamline
the development process.
For fiscal year 2002, HUD seeks authority to allow the Federal Housing
Administration (FHA) to offer families a hybrid adjustable-rate
mortgage. These mortgages reduce the initial homeownership costs
by combining a low fixed rate in the early years of the mortgage
with a rate that adjusts with the market thereafter. HUD estimates
that the introduction of hybrid adjustable rate mortgages will allow
FHA to provide mortgages to an additional 40,000 families in fiscal
year 2002. It also will yield additional income of $99 million for
the FHA and $13 for the Government National Mortgage Association
(Ginnie Mae).
These initiatives will complement HUD's existing homeownership programs.
The main HUD programs that help families achieve homeownership are
the HOME Investment Partnerships Program (HOME), the FHA Mortgage
Insurance and the Community Development Block Grant (CDBG) program.
HUD also works to expand homeownership opportunities through the
efforts of Ginnie Mae, programs for Native American Communities,
the Self-Help Opportunities Program (SHOP), Housing Counseling and
oversight of the Government Sponsored Enterprises (GSEs) Fannie
Mae and Freddie Mac.
In fiscal year 2002, HUD will provide $1.796 billion in total HOME
funding, the same as in fiscal year 2001. HOME is a flexible block
grant that provides support for local affordable housing efforts.
Funds are allocated directly to large cities, counties, or consortia
of smaller areas (known as "participating jurisdictions")
and to states for distribution to other cities and towns. There
are currently 594 participating jurisdictions, although that figure
is expected to rise in fiscal year 2002.
Recipients of HOME funds have substantial discretion to determine
how the funds are spent. To date, approximately 45 percent of HOME
funds have been spent on assistance to homeowners and new homebuyers,
with the balance going to activities that help make rental housing
affordable. HOME funds can be used to expand access to homeownership
by subsidizing downpayment and closing costs, as well as the costs
of acquisition, rehabilitation, and new construction. To date, HOME
grantees have committed funds to provide homeownership assistance
to more than 320,000 low-income households.
In fiscal year 2001, the HOME program received a substantial increase
of nearly $200 million (12 percent) over the prior year's level.
For fiscal year 2002, HUD will dedicate this money to the American
Dream Downpayment Fund, described above, which is funded within
HOME.
FHA insurance continues to be one of the Nation's principal tools
for increasing homeownership for moderate-income and first-time
homebuyers. FHA insurance helps make homeownership affordable for
families who may not qualify for conventional mortgages.
FHA offers a range of different insurance products. In fiscal year
2002, an estimated 1.15 million families will finance their homes
with FHA's Single Family Insurance. Other FHA homeownership products
include insurance for rehabilitation loans, condominiums, energy-efficiency
loans, and reverse mortgages for elderly homeowners. In addition,
FHA provides mortgage insurance for multi-family developments and
health-care facilities.
Many of FHA's single-family programs operate at a surplus, which
means that income from premiums is more than enough to cover losses
from defaults. The Mutual Mortgage Insurance Fund, for example,
is expected to have a net income of $2.5 billion in fiscal year
2002.
In fiscal year 2002, FHA plans to make a number of programmatic
reforms to strengthen its financial position. For example, to address
losses in the General Insurance and Special Risk portfolios, FHA
will raise premiums and review its underwriting criteria in a number
of the programs in these portfolios. This will reduce the amount
of credit subsidy required to support these programs from $101 million
in fiscal year 2001 to $15 million in fiscal year 2002.
In addition to FHA, Ginnie Mae helps ensure mortgage funds for low-
and moderate-income families served by FHA and other Federal government
programs. Ginnie Mae guarantees securities backed by pools of mortgages
insured by FHA or guaranteed by the Rural Housing Service (RHS)
or the Department of Veterans Affairs. Through this guarantee, Ginnie
Mae has helped to finance homeownership opportunities for more than
24 million families.
In addition to its normal pass-through of pooled mortgages, Ginnie
Mae operates a Targeted Lending Initiative in which the guarantee
fees it charges lenders are reduced for mortgages in any of the
Nation's 72 Empowerment Zones, Enterprise Communities, and adjacent
eligible central city areas. Since its inception in 1996, this incentive
has led to over $11 billion to finance more than 121,000 loans in
central cities.
The Department's fiscal year 2002 budget also has three programs
that are specifically designed to help promote homeownership among
Native American communities.
First, the Indian Housing Block Grant provides tribes or tribally
designated housing entities with a flexible source of funding for
affordable housing and related activities. As provided in the Native
American Housing Assistance and Self Determination Act (NAHASDA),
block grant funds may be used for a wide range of homeownership
and rental activities. The fiscal year 2002 budget provides $649
million, the same level as enacted in fiscal year 2001.
Second, the Title VI Federal Guarantees for Tribal Housing Activities
provides loan guarantees for Indian Housing Block Grant recipients
who need additional funds to engage in affordable housing activities,
but who are unable to borrow from other sources without the guarantee
of payment by the Federal Government. The fiscal year 2002 budget
provides $6 million in funds set aside within the Indian Housing
Block Grant Program as a credit subsidy to guarantee $53 million
in private sector loans.
Third, the Indian Home Loan Guarantee Program (Section 184) helps
Native Americans to access private mortgage financing for the purchase,
construction, or rehabilitation of single-family homes by providing
loan guarantees to lenders. The fiscal year 2002 budget provides
continued funding of $6 million in credit subsidies to guarantee
a total of $234 million of such loans.
To support its homeownership programs for Native American communities,
HUD will again provide $2 million to the Native American Indian
Housing Council which delivers technical assistance and training
to tribally designated entities, conducts research, and provides
information on Indian housing and economic development issues.
In addition to the programs discussed above, the fiscal year 2002
budget includes funding for a number of other programs that help
families achieve homeownership.
One such program is Housing Counseling, which provides comprehensive
housing counseling services, including pre-purchase, default, and
renter counseling to eligible homeowners and tenants. By educating
families on the homeownership process and the responsibilities and
benefits of homeownership, Housing Counseling helps to expand homeownership
opportunities. For fiscal year 2002, HUD plans to continue funding
this program at $20 million as a set-aside within HOME.
Another such program is the Self-Help Homeownership Opportunities
Program (SHOP). SHOP provides grants to national and regional
nonprofit self-help organizations to subsidize the costs of land
acquisition and infrastructure improvements. Homebuyers must contribute
a significant amount of sweat equity or volunteer labor to the construction
or rehabilitation of the dwellings. For fiscal year 2002, HUD is
requesting $22 million for SHOP as a set-aside within the Community
Development Block Grant account, an increase of $2 million over
fiscal year 2001. The increase reflects the early successes of this
program. Fiscal year 2002 grants will help to produce more than
1,400 new homes.
HUD also sets affordable housing goals for two key housing financial
institutions over which it has oversight responsibilities: Fannie
Mae and Freddie Mac. Known as Government Sponsored Enterprises (GSEs),
these institutions play a vital role in financing affordable owner-occupied
housing in the Nation through their participation in the secondary
mortgage market. Last year, HUD announced new affordable housing
goals for the GSEs that will substantially increase the availability
of financing for affordable housing. In fiscal year 2002, HUD will
continue to monitor the compliance of the GSEs with these goals
and work in cooperation with them to find new ways to expand homeownership
for all Americans.
In fiscal year 2002, HUD plans to continue to fund a $3 million
cooperative agreement with the Housing Assistance Council (HAC).
HAC is a nonprofit corporation that works to increase the availability
of decent and affordable housing for low-income people in rural
areas throughout the United States. In fiscal year 2002, HAC will
focus on the affordable housing needs of people living in the "Colonias."
These are poor rural communities and neighborhoods along the U.S.-Mexican
border that lack basic infrastructure and services, as well as decent
and affordable housing.
AFFORDABLE RENTAL HOUSING
While
seeking to expand homeownership opportunities, HUD recognizes that
homeownership may not be a practical option for all families, especially
those at the bottom of the income scale. To help low-income families
afford the high costs of rental housing, HUD provides rental subsidies
to more than four million households nationwide through a variety
of programs.
To spur the construction of more affordable rental housing, HUD has
proposed that the limits for FHA multi-family insurance be increased
by 25 percent. Increasing the limits will help to spur the availability
of private financing for new production and substantial rehabilitation
of residential rental housing in high-cost areas.
The fiscal year 2002 budget seeks to strengthen HUD's current rental
assistance programs rather than proposing any new ones. During fiscal
year 2002, HUD will focus in particular on improving the utilization
of Section 8 vouchers and public-housing capital funds by housing
agencies.
This budget funds the project-based and tenant-based Section 8 programs
under a single account, known as the Housing Certificate Fund. In
the Section 8 voucher program, families live in modestly priced rental
housing that they find in the private market. In the project-based
Section 8 program, by contrast, families live in specific developments
that have a pre-existing contractual relationship with HUD. In both
programs, families are expected to contribute approximately 30 percent
of their income for housing costs (rent plus utilities). HUD provides
subsidies to cover those rental costs not paid by the tenant.
In fiscal year 2002, HUD will obligate $15.1 billion in new budget
authority to renew all expiring Section 8 contracts for one year,
an increase of $2.2 billion over fiscal year 2001. The increase is
explained largely by the fact that Section 8 contracts were previously
funded on a long-term multi-year basis. As long-term Section 8 contracts
expire, the number of contracts that need to be renewed each year
(and the funding required to do so) increases. Fiscal year 2002 funds
will be used to renew expiring contracts for 2.7 million units.
For fiscal year 2002, the Department has requested $197 million for
approximately 34,000 additional "incremental" Section 8
vouchers. These vouchers will enable HUD to make progress in reducing
the number of low-income renter households with worst-case needs,
which stood at 4.9 million in 1999. Rather than targeting the vouchers
to any specific purpose, HUD will distribute them through the Fair
Share allocation system to public housing agencies (PHAs) that have
demonstrated an ability to use effectively their existing vouchers,
as measured by high voucher-utilization rates. This process will maximize
the ability of housing agencies to meet locally defined needs.
HUD recognizes that in the past, it has not moved as quickly as it
should have in issuing incremental vouchers to PHAs. If Congress funds
its request for incremental vouchers, HUD will act expeditiously to
distribute the vouchers to PHAs.
To further speed assistance to low-income families, HUD has targeted
for improvement in 2002 the utilization of existing Section 8 vouchers
by PHAs. The most recent available data indicate that housing agencies
are utilizing approximately 92 percent of the vouchers under contract
for one year or more. By working to improve PHAs' utilization of vouchers,
HUD will be able to serve tens of thousands of additional families
within existing funding levels.
In addition to funding contract renewals, the Housing Certificate
Fund provides funds for a number of additional activities. One of
those is the Tenant Protection Program. This program protects
families who live in a project-based subsidized development whose
owner either chooses to opt-out of the program or is terminated for
cause. Such families receive "enhanced" vouchers to help
them remain in their developments or tenant-based assistance to move
to a new apartment. Housing vouchers are also provided to public-housing
tenants displaced by the demolition of distressed public housing.
In fiscal year 2002, funds are requested for an estimated 30,000 tenant
protection vouchers.
HUD is also requesting funds to continue its performance-based Contract
Administrator Program, which funds contracts with designated State
or local housing agencies, sometimes in partnership with other public
or private entities. Acting as HUD's agent, contractors oversee some
20,000 direct contracts between HUD and project owners for project-based
Section 8 assistance. In fiscal year 2002, approximately $196 million
will be required to continue these contracts, which run for three
years.
The Family Unification Program (FUP) provides Section 8 vouchers to
families with children who have been placed, or are at risk of placement,
in foster care primarily because the family lacks adequate housing.
Since 1992, HUD has awarded over 18,000 FUP vouchers to housing agencies
working in partnership with child-welfare agencies, helping more than
50,000 families either stay together or bring their children home.
In fiscal year 2001, approximately $11 million will be provided for
Family Unification. To the extent appropriations are available, the
Administration intends to continue funding at this level.
HUD will shortly be submitting legislation to continue authority to
"mark down" excessive rents for certain Section 8 project-based
developments to the rents charged in the surrounding market. Authority
for the Mark-to-Market program expires at the end of fiscal year 2001.
PUBLIC HOUSING
The public housing program is funded through the Public Housing Operating
Fund, the Public Housing Capital Fund, and the HOPE VI program, which
provides funding to support the demolition and revitalization of distressed
public housing.
While no longer supporting the development of new public housing on
a major scale, HUD remains committed to sustaining and improving the
Nation's public housing by funding public housing operating and capital
expenses. Through the HOPE VI program, HUD also funds the demolition
of obsolete public housing stock and its replacement with vouchers
or new public housing that blends into the community.
The fiscal year 2002 budget provides $3.385 billion for the Public
Housing Operating Fund, an increase of $150 million over the fiscal
year 2001 enacted levels.
In light of higher-than-expected energy costs, many PHAs are facing
a shortage of funds in fiscal year 2001. To address this problem,
the Department has moved quickly to provide $105 million of fiscal
year 2001 funds to affected agencies.
This increase is not likely to meet fully the increased costs associated
with the sharp and unexpected rise in energy costs. However, PHAs
will be reimbursed in fiscal year 2003 for excess utility costs in
fiscal year 2001. The reimbursement only helps those public-housing
projects that pay utility costs themselves. PHAs are not compensated
for decreased rental income due to increases in tenant-based utilities.
About one-fourth of utility costs are tenant-based.
The Public Housing Operating Fund provides formula grants to PHAs
to meet the accrual of new modernization requirements and to reduce
the backlog of rehabilitation and modernization requirements. The
rehabilitation of existing public housing developments is important
to help ensure that they do not become so obsolete that they must
be demolished.
The fiscal year 2002 budget provides $2.293 billion for the Public
Housing Capital Fund, a decrease of $700 million relative to fiscal
year 2001. This amount will be sufficient to meet all new modernization
requirements. Because PHAs have a large amount of unspent capital
funds from prior years, however, the budget does not provide any new
funds to address the backlog of modernization needs.
The purpose of the reduction in capital funds is to draw down capital
funds that have been appropriated, but not expended, by PHAs. Recognizing
that the funds are primarily for capital improvement projects, HUD
expects PHAs to obligate these funds within 18 months and expend them
in 36 months. Although not all PHAs are falling behind in scheduled
modernization, the buildup of unobligated and unexpended funds by
some PHAs indicates that modernization funds may not be reaching the
PHAs with the greatest needs or capacity. For example, as of March
1, 2001, $700 million in fiscal year 1998 funds remained unspent by
PHAs. HUD plans to review the Capital Fund program and put procedures
in place to ensure a more timely and effective reduction of the nearly
$20 billion backlog of modernization and rehabilitation needs.
While we provide increased funding for the Public Housing Operating
Fund, this Department also provides funds for the demolition and revitalization
of severely distressed public housing under the HOPE VI program. The
budget requests $574 million for HOPE VI grants in fiscal year 2002,
the same as the fiscal year 2001 enacted level.
HOPE VI was launched as part of an effort to demolish 100,000 of the
most distressed public housing units. As of the end of fiscal year
2000, HUD had approved applications to demolish nearly 113,000 units
and PHAs had actually demolished approximately 60,000. Almost 35,000
of the completed demolitions were carried out in connection with HOPE
VI revitalization grants. Some portion of the remainder were financed
with HOPE VI demolition-only grants.
The HOPE VI program will expire in fiscal year 2002 and must be reauthorized
to continue. The Department is evaluating the HOPE VI program and
will submit authorizing language during the coming year to extend
and amend the program to target funds to the highest priority needs.
For fiscal year 2002, HUD has proposed the termination of Public Housing
Drug Elimination Grant Program (PHDEP), which was funded at
$309 million in fiscal year 2001. There are three main reasons for
this termination. First, the program is duplicative of the Operating
and Capital Funds in that all expenditures that are eligible under
PHDEP are also eligible expenditures of one or both of these funds.
Second, many other Cabinet Departments have anti-drug programs that
can be brought to bear on the problems of drug use and violent crime
in public housing. Governmentwide, over $18 billlion in Federal funding
is projected for fiscal year 2002 on anti-drug programs and illegal
drug enforcement efforts. Finally, the Inspector General has severely
criticized PHDEP for being the source of funds for such inappropriate
activities as staff retreats, bank loans, and Christmas parties. Indeed,
the Department itself diverted PHDEP technical assistance funds to
implement a gun buy-back program, which the Comptroller General ruled
was not a legal use of funds.
Although HUD is not requesting funds for PHDEP, it will fund Operation
Safe Home and the Witness Relocation Program. The Inspector General
operates a special task force Operation Safe Home which combines
the expertise of Federal and local crime-fighting forces to combat
violent crime such as illegal drug trafficking and gang-related activity
in public and assisted housing developments. In fiscal year 2002,
$10 million will be set aside within the Public Housing Operating
Fund and transferred to the Inspector General for additional law-enforcement
staff.
The Witness Relocation Program assists families that have cooperated
in efforts to combat crime in communities. It is a crucial part of
Operation Safe Home. Since the initiation of Operation Safe Home,
the Inspector General has relocated 650 witnesses whose testimony
was essential to the prosecution of perpetrators of violent crimes.
BUILDING ASSETS and SKILLS among LOW-INCOME FAMILIES
Central to HUD's mission of promoting stronger communities are programs
to help low-income working families acquire skills that will increase
their earnings and to help families on welfare make progress towards
self-sufficiency. HUD also seeks to help low-income families accumulate
assets so that they can achieve homeownership, pursue educational
opportunities, start a new business, and attain other important goals.
HUD's basic programs contribute to this objective by providing low-income
families with the housing stability they may need to focus on obtaining
work or increasing their earnings. HUD's homeownership assistance
programs also help families accumulate assets. In addition, HUD has
a number of programs that focus directly on building assets and skills
among low-income families.
The Community Technology Centers program is one such initiative. For
fiscal year 2002, HUD will provide $80 million in competitive grants
to help communities create or expand computer technology centers in
low-income areas. The centers will provide free Internet access and
help families acquire computer skills, access educational information,
and search for work.
Through the Neighborhood Networks program, HUD has helped to create
more than 700 computer technology centers in multi-family assisted
housing developments and HOPE VI sites throughout the country. Hundreds
of additional computer centers operate in public housing and Native
American housing. HUD supports the development of these centers by
providing guidebooks and other technical assistance, sharing information
on best practices, and allowing the centers to occupy space in affordable
housing developments.
Another such program is the Family Self-Sufficiency (FSS) Program.
Currently serving some 55,000 families in the tenant-based Section
8 and public-housing programs, FSS promotes the development of local
strategies to help families obtain or increase employment so that
they can build assets and achieve economic independence and self-sufficiency.
FSS helps to link participating families with local opportunities
for educational services, job training, counseling, and other services
while they are receiving housing assistance. As participating families
increase their work effort, the amount of increased rent attributable
to increased income from employment is deposited in an escrow account.
Families that comply with program rules and become independent of
welfare assistance by the end of the 5-year program term can use the
funds in the escrow account to purchase a home, pay for higher education,
start a business, or other agreed-upon goals.
In fiscal year 2002, HUD will work to increase participation in FSS
by providing funding for FSS service coordinators at local housing
agencies, helping to spread awareness of successful practices, and
promoting partnerships between local housing and welfare agencies.
The fiscal year budget provides $46.4 million for FSS coordinators
within the Housing Certificate Fund.
The Administration also plans to expand on FSS and other existing
asset-building programs by proposing a tax credit for financial institutions
that match private Individual Development Accounts (IDAs). IDAs are
savings accounts set up by low-income families to help them save for
a first home, pay for education, or start a business. As an incentive
to encourage savings, families' contributions to IDA accounts are
matched (sometimes several times over) by third-parties. IDA programs
also provide families with training in financial literacy.
The Resident Opportunity and Self-Sufficiency Program (ROSS ) provides
a range of supportive services to families in public housing through
competitive grants to PHAs, resident groups, Indian tribes and other
qualified organizations. The services funded through ROSS are designed
to help families make progress towards self-sufficiency; enable the
elderly and persons with disabilities to live independently through
service coordinators and other activities; and support resident management,
business development, capacity building and conflict resolution activities.
Funding for ROSS in fiscal year 2002 is continued at $55 million,
the same level enacted in fiscal year 2001. Consistent with prior
practice, it is funded as a set-aside in the CDBG program.
Through its Youthbuild program, HUD provides young high-school dropouts
(aged 16-24) with education and job training services, counseling
and other support activities and onsite paid training in housing rehabilitation
or construction work. This will help these youths find well-paying
jobs. The average wage earned by Youthbuild trainees is $7.50 per
hour and an impressive 84 percent of the graduates obtain full-time
employment or re-enter school on a full-time basis. A wide range of
groups are eligible to compete for Youthbuild funds, including nonprofit
organizations, State and local housing agencies and State and local
governments.
In fiscal year 2002, HUD will continue Youthbuild at last year's level
of $60 million and will continue the program as a set-aside within
the CDBG program. HUD estimates that this funding will provide training
to an estimated 3,774 youths.
HUD has also been active in helping to make "Welfare-to-Work"
a reality. The fiscal year 1999 VA-HUD Appropriations Act included
funds for up to 50,000 Section 8 vouchers to help families make the
transition from welfare to work. Housing vouchers can help families
make progress towards self-sufficiency by providing them with the
residential stability they may need to focus on obtaining or retaining
work as well as the opportunity to move closer to a new job. Although
implementation of the Welfare-to-Work Voucher program has been delayed
due to the challenges of designing a new program and of coordinating
the efforts of local housing and welfare agencies, substantial progress
has been made in recent months.
The costs of renewing the existing Welfare-to-Work vouchers are included
as part of the overall Section 8 contract renewals in the Housing
Certificate Fund. As requested by Congress, HUD's Office of Policy
Development and Research is in the process of evaluating this program.
COMMUNITY and ECONOMIC DEVELOPMENT
Beyond
housing issues, HUD's other core commitments involve community and
economic development. Our fiscal year 2002 budget will continue to
support these programs, which play an essential role in helping communities
address locally determined development priorities and maintaining
long-term prosperity.
Much of HUD's community development work is done under the auspices
of the Community Development Block Grant Program (CDBG). CDBG provides
local communities with a flexible source of funds to help them attract
private investment, maintain a high-quality housing stock, rebuild
infrastructure and community facilities, provide critical community
services, and create new high paying jobs. CDBG funds are provided
directly to approximately 1,000 large cities and counties (known as
"entitlement communities") and to States for distribution
to smaller communities. For fiscal year 2002, HUD has requested a
total of $4.8 billion in CDBG funds. This is composed of $4.4 billion
for CDBG formula grants and $403 million in set-asides for specific
programs. The amount requested for the CDBG formula is the same as
the level enacted in fiscal year 2001. This represents a record level
of formula funding and a $160 million increase over the amounts appropriated
in fiscal years 1999 and 2000.
During fiscal year 2002, the Department will continue to work
to increase communities' timely expenditure of previously allocated
CDBG funds. Although HUD's efforts over the last few years have led
to a 34 percent reduction in the number of communities that are failing
to meet their timeliness obligations, there are still a number of
communities that are not spending their CDBG funds in a timely manner.
The Department intends to work closely with communities to ensure
that comprehensive plans are implemented fully and funds are used
expeditiously under the consolidated plan review process.
Although funding for the CDBG formula is maintained at fiscal year
2001 levels, HUD has proposed a substantial reduction in funding of
set-asides within CDBG. The enacted level of set-asides within CDBG
in fiscal year 2001 was $713 million. The requested level for fiscal
year 2002, by contrast, is $403 million, a reduction of $310 million.
The principal source of the reduction is the proposed elimination
of funding for the Economic Development Initiative and the Neighborhood
Initiative Demonstration. These programs, which together totaled $412
million, were earmarked for "special purpose" grants in
the appropriations act.
The growth in special purpose grants has been dramatic over the past
few years. In fiscal year 2001, the appropriations act contained over
800 individual projects. Administering these individual grants is
costly, time-consuming, and distracts HUD staff from its core programs.
As most of the special purpose grants would be eligible expenses under
the CDBG formula, these types of projects can be funded if deemed
to be priorities by local recipients of CDBG funding.
The Section 108 Loan Guarantee program provides a means by
which local communities can leverage their CDBG grants to obtain financing
for large community revitalization projects. Under this program, the
government acts as the guarantor of loans secured by current and future
CDBG funds. Section 108 financing is at work in hundreds of communities
across America. Over 1,200 projects have been funded since the program's
inception in 1978.
In every year since fiscal year 1997, the total loan volume authorized
for the Section 108 program has been $1.2 billion. Only about one-third
or less of this loan level has been used each year, however, with
an average annual utilization of $375 million. To reduce the level
of the government's outstanding commitment to levels that reflect
actual usage, while at the same time ensuring that any upward surge
in loan volume is fully accommodated, the fiscal year 2002 budget
is requesting a loan volume of $609 million. HUD will reconsider the
loan volume cap for fiscal year 2003 based on this year's demand for
the program.
Another HUD program designed to assist in community development is
the Empowerment Zones and Enterprise Communities (EZ/EC) Initiative.
The EZ/EC initiative is an interagency effort to promote economic
development and community revitalization in distressed areas by targeting
tax relief and Federal funds to designated Empowerment Zones (EZs)
and Enterprise Communities (ECs). EZs and ECs are eligible for an
array of different tax credits and other incentives designed to spur
investment and economic growth. EZs and ECs also receive some amount
of Federal funding for revitalization activities. Grants are used
for a wide variety of activities that assist residents and businesses,
including workforce preparation and job creation efforts linked to
welfare reform; neighborhood development; support for financing capital
projects; financing of projects in conjunction with Section 108 loans
or other economic development projects. Funds are also used for rental
assistance and other housing assistance, policing and healthcare.
To date, there have been two rounds of EZ/EC designations, with
a third round authorized but not yet made. In the first round, nine
communities (six urban and three rural) were designated as Empowerment
Zones and 95 communities were named as Enterprise Communities. Twenty
new Empowerment Zones - 15 urban and 5 rural - were designated in
the Round II competition, along with 20 new Enterprise Communities,
all rural.
In December 2000, Congress approved legislation to designate nine
new EZs, seven in urban areas and two in rural areas. HUD will designate
the seven new urban EZs in 2001, while the Department of Agriculture
will designate the rural EZs. The legislation also authorized the
designation of 40 Renewal Communities, 28 in urban areas and 12 in
rural areas, to be designated by HUD by the end of 2001. Businesses
in Renewal Communities will benefit from local regulatory streamlining
and a variety of Federal tax incentives to stimulate economic growth.
HUD is responsible for providing each of the 15 Round II urban
Empowerment Zones with $10 million in annual funding. As funding to
date has lagged behind this committed level, HUD is seeking full funding
of $150 million for fiscal year 2002.
This Department is also active in helping to clean up brownfields
in order to facilitate development. Brownfields are vacant or underutilized
properties whose redevelopment is hampered by the real or perceived
threat of environmental contamination. A recent survey of over 200
cities by the U.S. Conference of Mayors indicated that more than $2.7
billion in additional tax revenues and 675,000 new jobs could be created
if brownfields sites were returned to productive use. For fiscal year
2002, HUD proposes to fund the Brownfields Economic Development Initiative
at $25 million, the same level as enacted in fiscal year 2001.
The Brownfields Economic Development Initiative makes competitive
economic development grants available to local governments in conjunction
with Section 108 loan guarantees. The grants enhance the security
of the Section 108 loan, facilitating the reclamation of brownfields.
HUD works closely with the Environmental Protection Agency to implement
strategies to return brownfields to productive uses.
In addition to the programs discussed above, several additional HUD
programs help to support local community and economic development.
To help reduce the hazards of lead-based paint, the fiscal year 2002
budget requests a 10 percent increase in funding for the Lead-Based
Paint Hazard Reduction and Healthy Homes Programs for a total of $110
million. Pursuant to Executive Order 13045, a multi-agency task force
that included HUD, EPA, Justice, and the Centers for Disease Control
and Prevention developed a comprehensive 10-year plan to eradicate
the risk associated with lead-paint poisoning from American homes.
HUD's grants are key to the achievement of this objective. The increased
funding in fiscal year 2002 will be distributed through a competitive
process to entities that match every Federal dollar with significant
additional dollars. All funds, whether private or Federal, must be
used for hazard reduction or public education on lead-poisoning prevention.
Included in this request is a set-aside of $10 million to continue
the Healthy Homes Initiative, which helps to develop, demonstrate,
and promote cost-effective preventative measures to correct multiple
safety and health hazards in the home that can cause serious disease
and injuries to children.
HUD is also funding the National Community Development Initiative
(NCDI). NCDI is a partnership of public and private funders and intermediaries
that works to expand the capacity of community development corporations
and other community-based and nonprofit organizations to carry out
community and economic development. HUD provides NCDI funding to national
intermediaries, including Habitat for Humanity, the Enterprise Foundation,
and Local Initiatives Support Corporation, which then provide capacity
building services to the targeted organizations. The fiscal yearbudget
requests $29 million for NCDI, an increase of $1 million over fiscal
year 2001 levels. The additional $1 million will go to Habitat for
Humanity to increase funding for their capacity building efforts to
$4.4 million.
Colleges and universities can make an important contribution to the
revitalization of America's cities and neighborhoods by bringing their
intellectual and financial resources to bear on locally identified
problems. HUD has several programs that encourage partnerships between
colleges and universities and local governments and community-based
organizations. These programs include: the Community Outreach Partnership
Centers Program, the Historically Black Colleges and Universities
Program, the Hispanic-Serving Institutions Assisting Communities Program,
the Alaska Native/Native Hawaiian Institutions Assisting Communities
Program, and Assistance to Tribal Colleges and Universities. In addition,
the Community Development Work Study program provides stipends and
tuition support for economically disadvantaged and minority graduate
students who plan to pursue careers in community and economic development.
The fiscal year 2002 budget funds all of the university programs at
fiscal year 2001 levels.
In order to assist with the community and economic development needs
of Native American and Insular Area communities, HUD funds Block Grants
for Indian and Insular Area Communities within CDBG. The fiscal year
2002 budget provides $69 million for Indian community development
block grants and $7 million for community development block grants
to Insular Areas (American Samoa, Guam, the Northern Mariana Islands,
and the Virgin Islands). Funding for Insular Areas is included within
the set-aside for Section 107 grants.
A set-aside of $1.25 million in the Indian Community Development Block
Grant will fund the Native eDGE program, an interagency initiative
designed to facilitate sustainable economic development within American
Indian and Alaska Native communities. eDGE includes a telephone call
center, a publications clearinghouse, a web site, and a technical
assistance information center. The web site links seventeen Federal
agencies, educational institutions, and organizations through a single
portal so that tribes, Native Americans, lending institutions, and
private businesses can collaborate to promote economic growth.
MEETING the NEEDS of SPECIAL POPULATIONS
HUD
programs provide housing and other essential support to a wide range
of populations with special needs, including the elderly, persons
with disabilities, homeless persons, and persons with HIV/AIDS.
In fiscal year 2002, HUD will continue its strong level of support
by funding the programs targeted for these populations at or above
fiscal year 2001 levels. Notable increases include $20 million in
additional funding for the Housing Opportunities for Persons with
AIDS (HOPWA) program and $20 million for the Improving Access Initiative,
which will be used to increase access by disabled persons to the facilities
of nonprofit organizations.
In fiscal year 2002, HUD plans to continue its strong support for
the elderly by providing $783 million for elderly housing programs,
an increase of $6 million over fiscal year 2001 levels.
The principal HUD program targeted specifically to the elderly is
the Supportive Housing for the Elderly (Section 202) program. This
program provides capital advances to finance the construction and
rehabilitation of structures that will serve as supportive housing
for low-income elderly persons and provides rent subsidies (known
as Project Rental Assistance Contracts (PRAC)) for the projects to
help make them affordable. For fiscal year 2002, HUD will provide
$679 million for Section 202 grants, an increase of $3 million over
fiscal year 2001. The fiscal year 2002 budget also includes $3 million
for PRAC renewals.
In addition to providing funds for new Section 202 developments, the
fiscal year 2002 budget includes $50 million to cover the costs of
converting existing Section 202 developments to assisted living facilities
and another $50 million for service coordinators that help the elderly
maintain their independence. Both of these activities are funded at
fiscal year 2001 levels.
More than 1.3 million elderly households are also served by public
housing and tenant-based and project-based Section 8 programs.
In addition to programs for the elderly, this Department also places
a strong emphasis on meeting the needs of the disabled. The Supportive
Housing for the Disabled (Section 811) program provides capital advances
to construct or rehabilitate rental housing with supportive services
for very low-income persons with disabilities. (As noted below, a
portion of Section 811 funds is used for tenant-based rental assistance.)
For fiscal year 2002, HUD will provide $217 million for new Section
811 grants, the same level as in fiscal year 2001. The budget will
also provide $1 million for PRAC renewals to help keep existing Section
811 developments affordable.
In recognition of the importance of providing non-elderly persons
with disabilities with mainstream housing opportunities, the Department
plans to continue to set-aside a portion of Section 811 funds to provide
these households with tenant-based vouchers that they can use to rent
private market apartments of their choice. Public housing agencies
will also continue to have the authority to provide vouchers to non-elderly
persons with disabilities pursuant to designated public housing plans.
Some 500,000 households with one or more disabled persons are also
served by public housing and project-based and tenant-based Section
8 programs.
As part of a Governmentwide effort to improve the access of disabled
persons to community services, HUD's fiscal year 2002 budget includes
$20 million as a set-aside within the CDBG account for the Improving
Access Initiative. This initiative will provide competitive grants
to help organizations that are exempt from the Americans with Disabilities
Act and have limited resources to make their facilities accessible
to the disabled. Among other eligible organizations are civic organizations
and religiously affiliated service providers.
Of particular importance to the Department of Housing and Urban Development
are the needs of the neediest among us who lack even the most basic
shelter. The fiscal year 2002 budget continues to provide strong support
for homeless persons by funding HUD's homeless programs at fiscal
year 2001 levels. In fiscal year 2002, a total of $1.12 billion is
provided for homeless assistance grants and shelter plus care renewals.
The Department will focus on providing permanent housing solutions
to those without homes and work closely with the Department of Health
and Human Services and other agencies to identify and remedy the barriers
to homeless persons' access to mainstream supportive services programs.
As specified by Congress, at least 30 percent of Continuum of Care
funding will be used to provide homeless persons with permanent housing.
The Continuum of Care process allows local communities to determine
their own priorities for the use of HUD homeless programs funding.
Under this process, communities submit Continuum of Care plans to
HUD which describe local priorities and rank specific projects according
to locally identified needs. HUD provides funding to communities that
provide for maximum participation by local homeless providers and
representatives of homeless clients, that clearly identify gaps in
housing and service needs, and that coordinate homeless assistance
with mainstream health, social services and employment programs.
The Continuum of Care funds three programs geared toward the needs
of the homeless. The first is the Supportive Housing Program, which
provides funds to develop supportive housing and services that will
allow homeless persons to live as independently as possible. Funds
are used for transitional housing (up to 24 months) and permanent
housing for persons with disabilities.
The second is the Shelter Plus Care Program, which provides rental
assistance for hard-to-serve homeless persons with disabilities in
connection with supportive services funded from sources outside the
program. This is a form of permanent housing. In fiscal year 2001,
a special account was created to fund renewals of expiring Shelter
Plus Care contracts. In fiscal year 2002, HUD will continue to fund
these renewals at $100 million.
The third program under the Continuum of Care is the Section 8 Moderate
Rehabilitation for Single Room Occupancy (SRO) Dwellings for Homeless
Individuals Program, which provides rental assistance for homeless
persons through the moderate rehabilitation of SRO dwellings.
In addition to funding these three homeless programs, HUD will provide
approximately $150 in Emergency Shelter Grants by formula.
These grants are used for the rehabilitation or conversion of buildings
into homeless shelters, as well as certain related social services,
operating expenses, homeless prevention activities, and administrative
costs.
Finally, the Department will continue to work in fiscal year 2002
to implement the Congressional mandate to develop and implement new
systems to track homeless individuals as they enter and exit the network
of homeless services programs and to provide unduplicated counts of
the number of homeless persons served. HUD believes it essential to
get a fix on the reach of HUD's homelessness programs so that the
performance of these programs can be measured.
HUD is also concerned about the special housing needs of those suffering
from HIV/AIDS. The Housing Opportunities for Persons with AIDS (HOPWA)
program funds housing assistance and related supportive services for
low-income persons with HIV/AIDS and their families. Grants are provided
by formula allocations to States and metropolitan areas with the largest
number of cases and highest incidence of AIDS. In addition, a small
portion of funds is awarded competitively among projects proposed
by State and local governments and nonprofit organizations.
In fiscal year 2002, HUD will provide $277 million for the HOPWA program,
an increase of $20over fiscal year 2001 levels. This will support
an increase in the number of jurisdictions eligible for funding based
on increases in the number of persons with AIDS as reported to the
Centers for Disease Control and Prevention.
ENFORCING FAIR-HOUSING LAWS
HUD is committed to vigorous enforcement
of the fair-housing laws to help ensure that all households have equal
access to rental housing and homeownership opportunities. For fiscal
year 2002, the Department plans to increase the amount of
funding available for fair-housing enforcement and education activities
by 16 percent over current levels. The Department also plans further
steps to decrease the incidence of predatory lending.
HUD contributes to fair-housing enforcement and education by directly
enforcing the Federal fair-housing laws and by funding State and
local fair-housing efforts through two grant programs.
The first grant program is the Fair Housing Assistance Program (FHAP),
which strengthens nationwide enforcement efforts by providing grants
to State and local agencies to enforce laws that are substantially
equivalent to the Federal Fair Housing Act. For fiscal year 2002,
HUD will provide $23 million for FHAP, an increase of $1 million
over current levels.
The second program is the Fair Housing Initiatives
Program (FHIP), which provides funds to public and private fair-housing
groups, as well as to State and local agencies, for activities that
educate the public and the housing industry about fair-housing laws
including accessibility requirements, investigate allegations of
discrimination and help to combat predatory lending practices and
reduce barriers to minority homeownership.
In fiscal year 2001, FHIP was funded at $24 million,
of which $7.5 million was dedicated to the National Survey of Housing
Discrimination, a major study of housing discrimination being
conducted by the Urban Institute. This left $16.5 million for FHIP
grants. As no additional funding for the survey is needed in fiscal
year 2002, the fiscal year 2002 level of $23 million provides an
effective increase for FHIP grants of $6.5 million.
The additional $6.5 million in fiscal yearFHIP funding will be directed
towards increasing the number of organizations that receive funding
for activities to enforce the rights granted under the Fair Housing
Act and substantially equivalent State and local laws through education,
outreach, prevention, and other enforcement activities. This funding
increase will significantly expand the geographic distribution of
FHIP awards to communities that are currently underserved or not
served at all by fair-housing organizations. In fiscal year 2000,
HUD was only able to fund 42 percent of eligible applicants. With
the increase in funds, HUD will be able to fund 72 percent of the
eligible applicants.
During fiscal year 2002, HUD also plans to continue its efforts
to combat predatory lending. The Department will work closely with
interested parties, including consumer groups, Federal, State and
local regulators, and the industry to put an end to predatory lending
practices, increase financial literacy, and expand access to homeownership
and private mortgage credit. As part of this overall effort, HUD
will consider ways to better enforce existing laws which may include
strengthening existing regulations as well as assess the need for
legislative action to better protect consumers and stop unfair lending
practices.
IMPROVING HUD'S MANAGEMENT
Despite the
progress of the last twelve years, much more needs to be done to resolve
HUD's serious management challenges. Although HUD is no longer listed
by the General Accounting Office as a "high-risk" agency,
many of its major programs continue to bear this label. This Administration
has made improving the management and restoring the focus of this
Department its number one priority. It is a message that Congress
has told HUD repeatedly throughout the years. And this Administration
is finally listening.
The basis of any improvement in how this Department operates is staffing.
During fiscal year 2002, HUD will review staffing levels against program
needs to rationalize the distribution of staff resources. HUD's efforts
will be aided by the new Resource Estimation and Allocation Process
which will help the Department to assess where staffing should be
increased or decreased to administer effectively its programs. HUD
is also working to develop a long-term staffing strategy to meet the
rapid increase in retirements expected over the next several years.
Currently, the average HUD employee is 48 years old with 18 years
of Federal service. To ensure HUD's continued ability to deliver its
programs in an effective and timely manner, HUD must develop a strategy
for replacing these workers as they retire.
HUD will also continue its efforts to improve oversight of the local
housing agencies and property owners that administer its housing programs.
Although the Department recognizes that the physical inspections protocol
used to assess public housing and multifamily assisted housing needs
further refinement to ensure consistent and fair results, it plans
to continue to assess the physical condition of HUD-assisted housing
to ensure that it is decent and safe.
The Department will also take steps to improve income and rent determinations
to reduce subsidy overpayments. HUD overpays hundreds of millions
of dollars in low-income rent subsidies due to the incomplete reporting
of tenant income, the improper calculation of tenant rent contributions,
and the failure to collect fully all outstanding rent. During fiscal
year 2002, HUD will implement a number of measures to resolve this
problem, including the development of tools to assist housing agencies
and housing owners in the determination of income and calculation
of rent, and the introduction of a quality control program to monitor
the performance of these intermediaries. HUD also plans to review
the current laws and regulations regarding income and rent determinations
to ascertain whether their simplification would facilitate program
compliance.
The Department is greatly concerned that some recipients of HUD funding
are either failing to utilize all of the funds provided by HUD or
failing to obligate and spend the funds in a timely manner. These
practices significantly diminish the effectiveness of HUD's programs.
HUD will be reviewing the following programs to determine how to increase
the rates of expenditure of funds: Section 8 vouchers and project-based
renewals, the Section 202 program, CDBG, and the Public Housing Capital
Fund.
Inadequate information systems have weakened FHA's ability to monitor
lenders that use its guarantees and contributed to HUD's failure to
obtain a clean opinion from its auditors in 1999. A fraudulent scheme
known as "property-flipping" recently highlighted internal
weaknesses in FHA's single-family systems and controls. To combat
this scheme last year, FHA implemented emergency foreclosure moratoria
to protect borrowers in areas where property flipping was prevalent.
During fiscal year 2002, FHA will strengthen the integrity of its
internal systems and controls to eliminate the need for foreclosure
moratoria and other emergency responses. Actions will include improving
the loan origination process and providing better monitoring of lenders
and appraisers.
The Department is committed to the continued review and evaluation
of its programs to determine what is working well and what needs to
be improved. HUD is also committed to continuing to conduct surveys
and research to collect the factual information on housing markets
and conditions necessary to inform the policy decisions of HUD, Congress
and State and local governments. To this end, the fiscal year 2002
budget provides $43 million in funding for basic research and technology,
the same amount as in fiscal year 2001.
Finally, HUD recognizes the importance of the work being conducted
by two Congressional Commissions: the Millennial Housing Commission
and the Commission on Affordable Housing and Health Care Facility
Needs in the 21st Century. HUD is eager to assist Congress
in assembling factual information on the extent of the Nation's housing
needs, analyzing HUD's programs, and developing proposals for improving
current housing programs.
This
Administration is openly and strongly committed to focused programs
and an efficient government that works. And my approach to the task
will focus on four governing principles.
First,
our mission will be to serve people, not programs.
Second, we will have the discipline to stick to our mission. Mission
creep is mission death.
Third, we will be good stewards of our resources.
Fourth, we will observe the highest ethical standards. This means
more than prosecuting graft. It means rejecting the subtler corruption
of settling for good appearances rather than insisting on good results.
As we seek to fulfill our mission, this Department is committed
to continuing a strong relationship with Congress so that together
we can make the Department of Housing and Urban Development an efficient
and effective fighter on behalf of America's housing and community
development needs.
Thank you.
Testimony as given
Content Archived: March 12, 2010
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