Testimony of the Honorable Mel Martinez
June 14, 2001
Senate Appropriations Committee
Subcommittee on Veterans and Housing and Urban Development
Mikulski, Ranking Member Bond 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
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 Single-Family Housing Tax
Credit will subsidize the costs of homes that are rehabilitated
or newly constructed for purchase by low-income households, while
a fourth initiative FHA's 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. This proposal will help 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. As part of a
pilot program to accommodate the needs of disabled households, HUD
will apply higher income eligibility limits to these households.
A third proposal the Single-Family Housing 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
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 as a set-aside
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
through FHA's Mutual Mortgage Insurance Fund. 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 expected
losses from defaults. For example, new mortgages insured by the
Mutual Mortgage Insurance Fund in 2002 are expected to generate
$2.5 billion over the life of the loan .
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.
Ginnie Mae helps to ensure the availability of 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.
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. These Government Sponsored Enterprises (GSEs),
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
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 multifamily 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
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 30 percent of their
adjusted 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
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.
HUD will shortly be submitting legislation to continue authority
to restructure FHA-insured mortgages in conjunction with "marking"
down of excessive rents for certain Section 8 project-based developments
to the rents charged in the surrounding market. Authority for the
Mark-to-Market restructuring program expires at the end of fiscal
The public housing program is funded through the Public Housing
Operating Fund, the Public Housing Capital Fund, and the HOPE VI
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, some 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.
If this increase is not sufficient to cover costs associated with
the sharp and unexpected rise in energy rates , PHAs will be reimbursed
for excess utility costs due to rate increases as outlined in regulation.
The Public Housing Capital 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 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, the budget does not provide any new funds
to address the backlog of modernization needs. Two other reasons
to cut this program include the facts that: QHWRA (Public Housing
Reform) gives PHAs the ability to leverage federal funds with private
investment to finance capital improvements; and HOPE VI removes
the most severely distressed units which represent a disproportionate
share of backlog need.
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 $18 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.
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
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 billion 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
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
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
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 multifamily 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 plans to offer additional incentives to encourage
savings and asset accumulation by low-income households through
the Individual Development Accounts (IDA) initiative. This new program
will improve access to savings institutions by creating a mechanism
to subsidize the savings of eligible participants. Financial institutions
would be allowed a tax credit in exchange for matching contributions
to participants' deposits. Individuals would then be able to withdraw
their contributions and matching funds, along with earnings, for
qualified purposes, such as education expenses, first-time home
purchases, and business start-up expenses, that help facilitate
entrance into the country's economic mainstream.
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
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
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
$401 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,
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, originally proposed to provide each of the 15 Round II urban
Empowerment Zones with $10 million in annual grant funding. Cumulative
funding to date has not reached this level, but HUD is seeking funding
of $150 million for fiscal year 2002, equaling the originally proposed
This Department is also active in helping to redevelop brownfields.
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 year 2002 budget 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
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
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
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 $20 million over 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.
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 year 2002 FHIP 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
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 starting point for any improvement in how this Department operates
is proper use of staff. 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
its programs effectively. 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 dealing with this loss of
talent and experience.
HUD will also continue its efforts to improve oversight of the local
housing agencies and property owners who 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
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 prepared 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.
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.
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
Content Archived: March 12, 2010