Statement of Michael Liu
Assistant Secretary for Public and Indian Housing
before the Committee on Financial Services
Subcommittee on Housing and Community
Opportunity,
U.S. House of Representatives
April 24, 2002
I am Michael Liu, Assistant Secretary for Public and Indian Housing
at the U.S. Department of Housing and Urban Development. In that
position I have responsibility for administration of the public
housing, voucher and Native American housing programs. Accordingly,
I will limit my testimony to Titles IV, V and VI of the bill, which
concern those programs.
First, Congresswoman Roukema, thank you and your cosponsors for
developing and introducing the Housing Affordability for America
Act of 2002. The bill contains many proposals that will allow us
to do our jobs better, of providing the most effective low-income
housing assistance possible with the funds available. The reauthorizations
for two of our critical programs, HOPE VI and Native American Block
Grants, are critical measures in themselves. The bill contains several
measures to achieve our common goal of assuring that the voucher
funds Congress appropriates can be fully used. The bill also contains
the Administration's Public Housing Reinvestment Initiative, which
holds great promise as a means of improving the Nation's public
housing communities.
Title IV, Section 8 Rental Housing Assistance Program
Section 401 of the bill proposes a new thrifty production voucher
program. This program is patterned after the current project-based
voucher program, but assumes that the capital for production will
be found from other programs or sources and provides for a reduced
subsidy designed to cover only operating costs.
HUD generally supports additional tools that may help public housing
authorities (PHAs) meet their communities' housing needs, and in
that context will work with the Committee to develop a means of
offering vouchers that can be combined easily with capital subsidies.
The current proposal seems rather complex and differs from the project-based
voucher program in ways that may not be necessary, such as waiting
list administration, development location requirements and several
others. I look forward to further discussions on this matter.
The bill contains several initiatives designed directly or indirectly
to increase the successful use of appropriated voucher program funds,
including an increase in the amount families can expend as their
share of rent when initially leasing any unit (section 402), authorization
for PHAs to use up to five percent of program monthly assistance
payment funds (as opposed to administrative fees) for efforts to
help families obtain and remain in suitable housing (section 403)
and an authorization to provide increased administrative fees for
high-performing PHAs in the voucher program (section 405). These
proposals would augment steps HUD and Congress already have taken
or are taking to accomplish this goal, including increased flexibility
for PHAs to set payment standards; increased fair market rents to
the 50th percentile of rentals for units in satisfactory condition
in some areas; initiation of the Section 8 Management Assessment
Program (SEMAP), a management report card with consequences; training
of PHA staff; award of new incremental vouchers only to PHAs with
high usage of current resources; and reallocation of vouchers from
PHAs that have not been able to use them to PHAs that need and can
use them.
HUD supports the direction of these new proposals, but has suggestions.
HUD supports the increase in allowable family rent to forty percent
of gross income but believes PHAs also need flexibility to address
compelling situations-for example, where a family already in the
program would like to move to a significantly less expensive unit,
but cannot do so because the family still would be paying more than
the limit.
HUD would consider allowing the use of some program funds to help
increase voucher utilization for PHAs that are effectively using
their administrative fees solely for the section 8 program. However,
at the proposed maximum limit of 5 percent, this could translate
into $500 million, which would affect the administration of the
core program. Any such authorization should be substantially narrower
and structured to include appropriate oversight. With respect to
administrative fees, HUD recommends that it be given broader authority
not just to provide a bonus for high performers, but also to restructure
the fees to promote performance in general and the accomplishment
of specific program priorities, such as families' movement to self-sufficiency
and homeownership.
The bill contains several provisions regarding enhanced vouchers.
HUD supports clarification of the obligation of owners to take enhanced
vouchers in projects where tenants are eligible for them (section
406). With respect to the same section's protections for overhoused
families, HUD recommends that such families be treated in the same
manner as overhoused families are treated now in the voucher program
(basically, the enhanced voucher families could choose to stay in
the oversized unit, but would be subsidized at the level they would
receive if they were in a unit of appropriate size at the property).
The bill also contains a provision to provide for higher contract
rents upon the renewal of moderate rehabilitation contracts (section
408). HUD agrees that the current-law restriction of such rents
to the lower of comparable rents, current rents plus an operating
cost adjustment or fair market rents is unnecessarily restrictive.
The bill's proposed solution, however, will pose administrative
challenges for PHAs not accustomed to evaluating budget-based rents
and may go further than is needed to preserve assisted units.
You asked me to discuss the future impact of Section 8 contract
renewals on the HUD budget. Renewals for both tenant-based and project-based
Section 8 rose from $14.3 billion in fiscal 2001 to a requested
$16.9 billion for fiscal 2003, and are projected to increase to
over $20 billion in several more years. This is a result of the
program serving more families, some program changes that have increased
per-unit costs, such as increases in fair market rents, and conversion
over time of all contracts to one-year contracts, so that all contracts
must have new budget authority each year.
Title V, Public Housing
I am excited that Title V contains the Administration's Public
Housing Reinvestment Initiative (section 505), because that initiative
can provide a new and effective means of improving public housing.
Recent HUD studies indicate that the backlog of public housing capital
needs is in the $20 billion range and that new needs accrue at about
two billion dollars annually. Strides have been made in recent years
in public housing communities, but appropriations for the Capital
Fund at two to three billion dollars annually will allow only slow
progress. The Public Housing Reinvestment Initiative provides a
means of addressing this problem sooner with the dollars available.
The Public Housing Reinvestment Initiative allows PHAs that choose
to participate to trade their public housing subsidies for project-based
vouchers on a property-by-property basis. PHAs then could borrow
money for capital improvements on the same individual property basis
now used for Section 8 developments and multifamily housing generally.
In addition to leveraging private capital, this action is likely
to lead to more accountable property and financial management because
management must be done at the individual property level. Tenants
generally would be protected in the same manner as in public housing.
PHAs could use the project-based vouchers on current sites, or on
replacement sites where appropriate.
The Public Housing Reinvestment Initiative can be a powerful tool
for the prompt rehabilitation of housing that otherwise would languish
for years. For example, a development's capital needs of four million
dollars that otherwise would be impossible to address from available
Capital Fund moneys can be addressed with debt service payments
on a seven percent, thirty-year loan of about $335,000 per year.
PHAs could undertake individual transactions as long as the monthly
expenses for operations, debt service and a capital replacement
reserve did not exceed the lower of market rents or the applicable
Section 8 payment standard. If the approvable rent levels were too
low to finance all the necessary capital work-for example, if the
PHA only could raise $20,000 per unit at approvable rent levels
but the development needed $30,000 per unit in capital work-the
PHA could choose to supplement the project-based vouchers with an
up-front contribution from the Capital Fund or other sources.
The bill contains a proposal to suspend the PHA Plan requirement
for three years for the smallest PHAs up to 100 units (section 504).
Current law requires annual PHA Plans with eighteen listed elements,
but also allows HUD to streamline PHA Plans for small, high-performing
and Section 8-only PHAs. The extent to which the PHA Plan requirement
has resulted in useful strategic planning has varied greatly from
locality to locality. In many localities, the Resident Advisory
Board participation requirement has resulted in better access for
public housing residents and Section 8 families to make their views
known to PHA decision-makers.
The usefulness of the PHA Plan relative to the PHAs' ability to
carry it out with limited staff resources, however, appears to drop
dramatically for small PHAs. HUD has provided some streamling of
PHA Plan requirements for these PHAs, but I believe we need to go
further and HUD is developing a regulation that will accomplish
this. The bill's proposal is certainly along these lines, although
we may be able to accomplish the necessary streamlining through
regulation without disturbing the current resident and public process
to the same extent. I want to thank Congressman Bereuter's for his
leadership on this issue.
While HUD has differentiated between small and larger PHAs in PHA
Plan processing, it has not done this to enough of an extent in
its other programs. Small PHAs with 250 or fewer units constitute
75 percent of all PHAs, but operate only fifteen percent of the
units. From a risk management standpoint, it is unnecessary to impose
the same regulatory burdens on these PHAs as on larger ones. The
new regulation I have mentioned will recognize that in several program
areas.
The bill would require HUD to develop and test a third-party system
for public housing performance evaluation, through an outside contractor
(section 503). This year, HUD has implemented a binding public housing
management assessment that contains an independent inspection of
physical conditions. However, experience with the Public Housing
Assessment System (PHAS) during its extended advisory period raised
so many questions regarding the adequacy of its physical inspection
and finance components that HUD substantially simplified and in
some respects had to pare back these components prior to implementation.
HUD is committed to working with public housing groups toward how
best to revise the system. It may be that a third-party system could
accomplish the same tasks better and provide a broader assessment
that would be more readily recognized and accepted as appropriate
by all parties concerned. The work being done by others such as
public housing industry groups and private companies to develop
such systems is promising, and HUD may be able to take account of
this work and the views of resident representatives and others to
develop an improved system expeditiously.
Section 501 of the bill would allow HUD to waive the requirement
that PHAs have a resident on the board of commissioners in particular
States, where reasonable efforts are being made to take the necessary
legislative or regulatory action so that this can occur. Congress
has recognized problems in the implementation of the resident on
the board requirement in several States, has exempted housing authorities
in three States from the requirement for fiscal 2002 and has required
HUD to provide a report by May 30, 2002 regarding the impediments
to its implementation and related matters. Thus, further legislative
action seems appropriate. The proposed legislation, however, would
allow for permanent waivers and would not result in having residents
on boards of commissioners promptly in the affected States. A better
solution may be to provide for appointment by the chief executive
officer of the PHA's jurisdiction of an additional board member
to fulfill the resident on the board requirement, for a temporary
period such as three years. This would give the noncompliant States
more time to complete any necessary actions so that residents could
be appointed to PHA boards as federal law requires, but the relief
would be temporary and promptly would result in residents serving
on boards of commissioners.
The bill provides for a two-year reauthorization of HOPE VI and
for measures to ensure that a broader group of communities in terms
of size and location have a realistic possibility of receiving a
HOPE VI award. HUD supports both reauthorization and the general
effort to promote broad program participation. More discussion of
concepts in regard to reauthorization of HOPE VI will be constructive.
A report on HOPE VI lessons learned is due to Congress on June 15,
2002.
Title VII, Native American Housing
Title VII reauthorizes both the Native American Block Grant Program
and its related loan guarantee program. HUD believes that these
programs continue to hold much promise and supports the reauthorization
of both programs.
I look forward to working closely with the Committee as you continue
to develop this important legislation for the improvement of the
voucher, public housing and Native American housing programs. Please
call on me and my staff for any assistance we can provide.
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