Statement of Michael Liu
April 29, 2003
Office of Public and Indian Housing
before the Committee on Financial Services
Subcommittee on Housing and Community Opportunity
U.S. House of Representatives
Ney, Congresswoman Waters, thank you for this opportunity to testify
before the Subcommittee on Housing and Community Opportunity regarding
the HOPE VI program. Secretary Martinez and I appreciate the ongoing
support of the Subcommittee in achieving the Department's critical
is important to recall the origins of HOPE VI to understand where
we are today. In 1989, Congressional concern over the highly publicized
and notorious conditions in some of the public housing developments
in a number of the nation's largest cities led to the formation
of the National Commission on Severely Distressed Public Housing.
The Commission concluded that 86,000 of the nation's 1.4 million
public housing units were severely distressed and in immediate need
of revitalization or demolition. The Commission set forth a plan
that highlighted deconcentrating poverty where possible, creating
mixed-income communities, improving service delivery to public housing
residents and addressing the urban blight surrounding public housing
on these findings, Congress created the Urban Revitalization Demonstration
program, later named HOPE VI, to be administered by the U.S. Department
of Housing and Urban Development (HUD), in 1992. This program was
authorized through yearly appropriations acts until 1998, when Section
535 of the Quality Housing and Work Responsibility Act (QHWRA) rewrote
Section 24 of the U.S. Housing Act of 1937 to establish a statutory
authorization for the HOPE VI program through fiscal year 2002.
In the FY 2003 appropriations bill, Congress reauthorized the program
through FY 2004.
has awarded $5 billion to revitalize 193 public housing developments.
Using these funds, Housing Authorities will demolish 87,000, rehabilitate
10,300 and construct 82,000 units of public housing. HUD has also
awarded $293 million in HOPE VI demolition-only grants to 90 housing
authorities to fund the demolition of more than 44,000 severely
distressed public housing units. Having been provided funds to accomplish
its original goal, HOPE VI is at a critical point as it relates
to the program's ability to handle current and future housing redevelopment
needs. While the program has been successful in creating exemplary
public housing communities in cities such as Seattle (WA), Milwaukee
(WI) and Denver (CO), many program elements detract from its successes
and call into question the program's ability to sustain the future
level of redevelopment needed in the public housing program.
1993 to 1995, HOPE VI revitalization focused mainly on demolition,
reducing density, and renovation and new construction of public
housing units. During that same period, Congress repealed the one-for-one
replacement requirement. The program also sought to create mixed
income communities by expanding the number of public housing residents
who were working. In addition, the HOPE VI program supported the
efforts of families who wished to relocate to non-impacted neighborhoods
using the Housing Choice Voucher Program. These families have now
been given the opportunity to remain, on a permanent basis, in these
the past few years, new tools have emerged as alternative methods
for revitalizing distressed public housing and addressing the backlog
of capital needs. Bond financing, which has financed $500 million
in capital improvements, and property-based initiatives, including
the proposed loan guarantee and public housing reinvestment initiatives,
have the potential to be applied to a wide range of PHAs, maximize
public funds by leveraging private debt for capital improvements
and place public housing developments on more sound footing in the
terms of demolition and providing funds for revitalization, HOPE
VI has accomplished its original goal to address the needs of the
Nation's most distressed housing stock, as identified by the Commission.
The program is now at the point where, if funded beyond fiscal year
2003, it will be moving beyond its original mandate. Moreover, it
is evident to us that HOPE VI is not an efficient method for meeting
the current and future capital needs of the public housing program.
The average cost of building a unit under HOPE VI is $120,000, more
than 33 percent greater than the average cost of building a similar
unit using the HOME block grant program. Given overall budget constraints,
it just doesn't make sense to us to continue funding for this program
at the expense of more cost-effective programs to serve the same
HOPE VI has met its funding and demolition benchmarks, the program
has many weaknesses that have limited the program's accomplishments
as a tool for public housing redevelopment. The planning and redevelopment
process is much slower than expected. The vast majority of new or
rehabilitated units are not complete, despite program deadlines,
and more than half of the HUD funds allocated to HOPE VI are not
expended. The program's ambitious redevelopment goals have led to
large, complex grants, which challenge the administrative and management
capacity of many PHAs and involve a large amount of community coordination.
Finally, the grant award process involves a tremendous amount of
time, requires significant HUD and PHA resources, and restricts
many PHAs' access to redevelopment funds.
lack of preparedness or capacity by many PHAs to manage such a complex
and multi-faceted redevelopment grant presents another challenge.
HOPE VI requires grantees to develop plans, raise funds, gain commitments
from community partners and select a developer for physical revitalization.
These activities run concurrent with the establishment of a social
service network and the relocation of resident families. Handling
all of these tasks at the same time has proven challenging to some
PHAs that lack experience in these areas or sufficient personnel
resources. As a result, not only has the physical redevelopment
process been prolonged, but also many residents have been dissatisfied
with the level of services and relocation support provided by the
in HOPE VI redevelopment can be attributed to several programmatic
flaws. The ambitious goal of revitalizing not just the public housing
development but the surrounding community often requires land acquisition,
special permits and zoning and community support-all potentially
time consuming activities that lengthen the redevelopment process.
Until recently, the application process allowed PHAs to apply at
the conception stage of redevelopment planning. Awarding grants
this early in the planning process has led to a longer than anticipated
post-grant planning period and changes in the original grant design,
which contribute to increased costs and, sometimes, community opposition.
Department has already implemented several measures to address these
problems to the extent possible within the limits of the program's
basic design. With regard to the competition, the FY 2002 Notice
of Funding Availability evidenced a strong interest in funding projects
that were ready to go. For example, applicants were required to
demonstrate firm financing commitments from partners and site control.
With regard to managing the existing portfolio of grants, HUD has
streamlined the review process and made grantees more accountable
for timely achievement of milestones.
VI has an inherently long, drawn-out planning and redevelopment
process that often frustrates many grantees, residents and community
stakeholders. Only 15 of the 165 grants awarded through FY2001 have
completed all planned units and only 18 grants are nearing completion
(i.e., 80% or more construction completed). HUD has awarded funds
for the rehabilitation or construction of more than 85,000 public
and non-public housing units. Yet, only approximately 21,000 have
been completed. Of the $4.5 billion awarded in HOPE VI Revitalization
grants awarded through FY 2001, grantees have only obligated $2.54
billion and expended $2.12 billion. This $2.5 billion backlog of
unobligated federal funds in the pipeline represents a large expense
in opportunity cost.
funds from low-performing or slow-moving projects is a possibility.
The Department attempted to recapture the Hollander Ridge grant
funds from the City of Baltimore after the housing authority failed
to produce an acceptable plan. Subsequent to HUD's notification
that the funds would be recaptured, Congress passed legislation
allowing the housing authority to retain the grant funds. HUD has
also placed housing authorities in default for not proceeding with
their plan. Most recently, HUD notified the Detroit Housing Authority
it was in default of its Grant Agreement. The housing authority
then provided a sound plan for how to proceed. The Department accepted
its plan and the housing authority is now making progress.
are also fundamental problems in how the program was designed and
structured. First, in an attempt to fund the worst-case needs, a
competitive process creates a perverse incentive to PHAs. Those
that have not properly maintained their housing stock receive a
higher score. Second, by the very nature of a competition, with
arbitrary deadlines for applicants, prospective applicants are inherently
encouraged to rush to prepare and submit applications before they
are ready to implement their redevelopment plans. Third, the HOPE
VI grant application is a highly competitive and complex process
that requires a significant contribution of housing authority personnel
and financial resources. The application calls for a high level
of resident and community involvement, which is needed to achieve
a successful development plan. On average, the applications take
several months to prepare and require the PHA to contract with architects,
financial planners and grant consultants, as well as identify community
partners and leverage funding. However, this happens so early in
the planning process, without any guarantee of funding, that many
residents and community stakeholders are left disappointed and disenchanted
when a grant is not awarded. Finally, the program, by design, has
benefited many large PHAs, leaving most medium and small PHAs without
access to this resource.
expensive and cumbersome to carry out, the HOPE VI program has produced
successes in some cities. In determining which HOPE VI projects
are successes, HUD considers several factors: timely completion
of construction, effectiveness of local leadership in keeping the
project on track, positive impacts on the surrounding community,
mix of unit types and reasonable costs. The revitalization efforts
in Columbus (OH), Charlotte (NC), Portsmouth (VA), Milwaukee (WI),
Tucson (AZ), Nashville (TN), Louisville (KY) and Denver (CO) are
among those that met most of these challenges.
summary, despite its accomplishments to date and prospectively,
the Administration has come to the conclusion that no further funding
should be provided for HOPE VI. Rather, limited resources should
be directed at more cost-effective approaches to providing new low-income
housing. Additional capital resources should be provided to viable
public housing projects such as provided for in the Administration's
proposed Public Housing Reinvestment Initiative (PHRI).
Committee has also asked me to discuss the relationship between
the proposed Public Housing Reinvestment Initiative (PHRI) and HOPE
VI. PHRI is intended to provide a financing tool for housing authorities
to prevent developments from becoming severely distressed. It's
another development tool to assist PHAs in addressing the backlog
and accrual needs.
would leverage private funds for public housing improvements. The
budget also proposes $131 million for a partial loan guarantee that
would support $1.7 billion in capital improvement loans to public
housing agencies (PHAs). The partial loan guarantee authorized along
with PHRI will enhance the program's attractiveness to private lenders.
Further, PHRI will place public housing developments on a more sound
financial footing over the long term, since it requires PHAs and
HUD to focus on property-based planning and management.
current funding levels, PHAs are able to keep up with the capital
improvement needs that accrue annually, but have considerably less
resources available to deal with their backlog of capital improvement
needs. However, if the PHRI were enacted, it would increase the
amount of capital available to revitalize and sustain viable projects
by $1.7 billion in mortgage financing just in its first year. Given
overall constraints on appropriations, to make substantial and timely
progress in shoring up the public housing stock, and improving living
conditions for residents, enactment of the PHRI is essential.
will introduce a market test into public housing investment decisions
and give PHAs access to private capital when they adopt the same
"asset management" principles that are used in private sector real
estate finance and management. Rental housing across America is
financed and managed on a property-by-property basis - except for
public housing. In the current public housing system, PHAs receive
grants from HUD that cover all of their properties combined, and
they manage their properties accordingly. This system does not demand
the same level of management and financial discipline that other
owners of rental housing must exercise to be successful. While most
PHAs are good managers, many others would benefit from the additional
discipline and accountability required when properties must be financed
and managed on an individual basis.
is voluntary. PHAs that choose to participate would receive project-based
vouchers from HUD to substitute for existing public housing operating
and capital subsidies on a unit-for-unit basis. PHAs could then
secure private financing to rehabilitate or replace their aging
properties by pledging the revenues from each property to debt repayment.
Private lenders already have experience underwriting and lending
against rental properties with project-based voucher contracts.
Consequently, PHRI should have greater lender acceptance than a
program that continued to rely on fluctuating public housing subsidies.
Further, the partial loan guarantee authorized as a part of PHRI
should significantly enhance lender participation.
important benefit of PHRI to PHAs and residents is the significant
relief it offers from the complex rules governing the public housing
program. Instead, the program generally would be governed by the
more flexible and streamlined rules of the current project-based
other topic of discussion here today is Representative Leach's Small
Community Main Street Rejuvenation effort. While the Department
believes this idea has merit and welcomes further discussion, it
addresses a significantly different issue than the basis for the
HOPE VI program. The Main Street program is not at all related to
the public housing program. If this is the direction in which Congress
wishes to move, that is further evidence that it is time to reevaluate
the entire HOPE VI program and how Congress and the Department should
make funds available for the revitalization of public housing.
none of the Department's public housing programs are designed to
provide assistance solely to small communities for revitalization
or redevelopment projects, the Office of Community Planning and
Development does administer two programs that include provisions
specifically for smaller communities. The State Community Development
Block Grant (CDBG) program provides funds to each state for those
communities that do not receive an allocation directly from HUD.
These funds may be spent on any CDBG-eligible activity and are not
solely geared toward redevelopment projects. The HOME program also
provides a similar funding structure, but states may fund projects
in communities of any size.
In conclusion, the HOPE VI program has achieved its program goal
of addressing the nation's most distressed housing, as identified
by the National Commission on Severely Distressed Public Housing.
While HOPE VI also has been successful at demolition, the program
has been less successful at actual construction and redevelopment
of these properties. The $3 billion awarded but not yet expended
(including the recently awarded FY 2002 grants) evidences that HUD
still must accomplish a significant amount of work in the program,
without responsibility of additional grant awards. An additional
$500 million will be awarded in FY 2003. Overall, the program's
administrative and design weaknesses make HOPE VI a less efficient
method of revitalizing public housing properties.
Looking forward, HUD must learn from the HOPE VI experience and
reevaluate how to deploy its limited resources for public housing
redevelopment. This will involve applying these resources to responsive,
flexible and accessible redevelopment tools in an effort to address
the multi-billion dollar backlog in public housing capital needs
that cannot be addressed solely by Capital Fund appropriations.
VI, given its delays in implementation, high per-unit construction
costs, unexpended federal dollars and complex application process
may not be the most responsive and productive way to address the
universe of capital needs in the public housing program. Therefore,
HUD has not proposed a fiscal year 2004 appropriation for the HOPE
VI program and instead will focus on aggressively managing the grants
you again for this opportunity to testify, and I look forward to
responding to any questions you may have.
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