Statement of Dr. John Weicher
June 17, 2003
Assistant Secretary & FHA Commissioner
Committee on Aging
Chairman Craig, Ranking Member Breaux, distinguished members of
the Special Committee, on behalf of Secretary Mel Martinez, thank
you for inviting the Department to testify on the subject of the
Section 202 Supportive Housing Services program.
You have asked the Department to discuss specifically its views
on the viability and need of the Section 202 Housing Program, the
need for improvement in administrative performance and the processing
of applications and the timely distribution of funding commitments.
You also requested that the Department discuss its views on the
recent General Accounting Office's (GAO's) report and specifically
on GAO's recommendations for improvement in the administration of
The Department is especially appreciative of your concerns as raised
through the GAO review of this program. As with any program that
has been in existence for a long period of time, there is always
a need to re-evaluate the program's performance and to institute
changes that will improve that performance. I am pleased to let
you know that the Department, with the assistance of the GAO Report,
has identified issues concerning the implementation of the funding
and development processes and is instituting measures that will
improve the Section 202 program.
Overview of the Section 202 Program
The Section 202 program provides an important resource to address
the housing needs of one of the nation's most vulnerable populations,
the low- to very-low income elderly. Along with the Low-income Housing
Tax Credit, the HOME block grant, and Section 8 housing assistance,
the Section 202 program makes a significant contribution to addressing
these needs by providing affordable housing units, many with supportive
services. Since the inception of the Section 202 program, established
by the Housing Act of 1959, there have been over 350,000 units funded
and the program has undergone at least two significant changes since
that time. It has gone from a low-interest rate loan program without
rental subsidy in 1959, to a loan program with project-based Section
8 rental assistance in 1974, and to its current operation as a capital
advance program with project rental assistance in 1991. Under the
current program, the capital advance is provided without interest
and does not have to be paid back as long as the housing remains
available for the intended population for forty years. Projects
developed under the current program either provide or will provide
supportive services dependent upon the service needs of the residents.
The Section 202 program provides an affordable and secure environment
for the nation's low- to very low-income elderly. Based on the funding
appropriated each year, more than 6,000 new units of Section 202
housing units are approved. These housing units, which are sponsored
by nonprofit organizations, many of whom are faith-based organizations,
have a history of serving the elderly, and they are committed to
meeting the needs of this very vulnerable segment of the population
for the 40-year term of the project and beyond.
The GAO Report reflects an excellent understanding of the importance
of the Section 202 Supportive Housing Program in the delivery of
affordable housing to very-low income elderly households. One of
GAO's observations in the report, which further supported our belief,
is that only a relatively small part of the unexpended funds, about
14 percent, are associated with pipeline projects that have exceeded
HUD's 18-month processing time guideline. The report also verifies
that the number of projects scheduled to reach construction start
will double in the next six months, suggesting that the remaining
projects represent an even smaller share of the unexpended balances,
approximately 7 percent. The Department does not question the conclusions
in the Report since they provide an indication of the progress we
have made in reducing the Section 202 pipeline since 2001.
In a report prepared for GAO in early fiscal year 2002, the Department
identified 118 Section 202 pipeline projects that had exceeded HUD's
current processing time guidelines. As one might expect, these projects
had some of the toughest issues that developers must address, such
as environmental problems, funding shortfalls, litigation and contractor/staffing
issues. Despite that, only seven Section 202 projects remain in
the pipeline that were funded in 1997 or earlier. The Department
is committed to closing these projects as soon as possible. We noted
very early in our analysis of the aged pipeline that there are certain
parts of the country where Section 202 closings rarely occur in
24 months. The GAO study noted this and early studies have also
noted this. This project is located in one of those areas. When
we meet with our stakeholders later this year we will discuss this
issue and the current 18 and 24-month policy to get their input
as we consider changes to the Section 202 program.
The Department certainly recognizes the importance of timely processing
of applications for the Section 202 program and the Secretary has
made it a priority. We believe substantial improvement has been
made since the end of FY 2000, the concluding date for the analysis
in the GAO Report. Due to increased Headquarters' monitoring, the
number of projects reaching construction start within 24 months
has increased by 10 percent. In addition, late in the last fiscal
year, for the first time in 10 years, training on the processing
of Section 202 applications through the development phase was provided
for our field staff.
The Department has been aware for almost two years that in some
areas of the country capital advances may be insufficient to cover
the cost of developing Section 202 projects. If sponsors have to
seek additional funds from other sources, the development time will
be lengthened. We have initiated steps to examine how HUD's Section
202 development cost limits compare with other objectively measurable
indicators of local construction costs. However, if the allowable
per unit cost limitations were increased as a result of that review,
there would be a reduction in the number of Section 202 units built.
In addition, the successful partnerships that have been developed
with states, localities and other interested parties over time to
provide additional resources would be affected. This is one of the
issues we will explore with stakeholders of the Section 202 program
early this summer.
In its recent report, GAO made recommendations to the Department
to improve the administration of the program. Overall, the Department
concurs with the recommendations and has the following specific
- GAO recommended that the Department evaluate the effectiveness
of the current methods for calculating capital advances. HUD has
initiated steps to examine how HUD's Section 202 development cost
limits compare with other objectively measurable indicators of
local construction costs. We anticipate this evaluation will be
completed in late spring 2004.
- GAO recommended the Department make the necessary changes to
these methods based on this evaluation, so that capital advances
adequately cover the development costs of Section 202 projects
consistent with HUD's project design and cost standards. HUD will
consider this recommendation. The Department will be discussing
this recommendation with Section 202 program stakeholders this
summer and completing the evaluation prior to making any changes
to the current methods.
- GAO recommended that the Department provide regular training
to ensure that all field office staff are knowledgeable of and
held accountable for adhering to current processing procedures.
As I previously have stated, during FY 2002, the Department provided
training to field staff for the first time in ten years. Subject
only to resource limitations, we are committed to continuing to
implement an effective training program. Our next training will
include technical processing training for field staff to assure
that there is consistent processing nationwide.
- GAO recommended that the Department update its handbook to
reflect current processing procedures. The Department has initiated
the process of consolidating and updating the Section 202 program
handbooks. We hope to complete this process by the end of FY 2004
so to allow the Department to incorporate any changes to the program
as a result of the meeting with Section 202 stakeholders and completion
of the cost limits study.
- GAO recommended that the Department improve the accuracy and
completeness of information entered in the Development Application
Processing (DAP) system by field office staff and expand the system's
capabilities to track key processing stages. During FY 2002, there
was an intensive effort to verify the accuracy of the information
in the DAP system by HUD staff. The Department is committed to
expanding the capabilities of the DAP system, and it is an Information
The Department is committed to strengthening the Section 202 program
to better address the need for affordable elderly housing. GAO's
assistance in monitoring this program and the Department's performance
has been very beneficial.
Department's Commitment to the Section 202 Program
The Administration and the Department are committed to the ongoing
viability of the Section 202 program. We are committed to working
with you, with the nonprofit organizations that sponsor these projects,
and with elderly persons eligible to reside in these projects to
make sure that this program continues to be successful and a viable
We are appreciative of the GAO study because it caused the Department
to take a closer look at the performance of the Section 202 program
and the Department's policies for administering the program In the
FY 2004 budget process, the Administration conducted its own assessment
of the program, identifying several areas of weakness, including
lack of performance measures, undefined long-term benefits and higher
costs compared with alternative housing programs.
In response to these reviews, the Department has taken and is taking
a number of steps to improve the program's performance, including
1. Established a management plan goal that focused on
the reduction of the aged projects in the development pipeline.
This has resulted in a reduction in the projects in the aged pipeline
from 118 projects in 2001 to 7 as of June 2003. This was accomplished
through working with our senior leadership in Headquarters and
the field to focus attention on getting aged projects to their
initial closing as well as continuing to focus on the more recently
funded projects. Senior staff in Headquarters communicated regularly
and directly with the senior leadership in the field to discuss
the status of the aged projects and has and will continue to provide
the necessary Headquarters' assistance to get the projects to
2. As stated above, the Department recognized that a
large number of the staff processing Section 202 projects had
never received any Section 202 development processing training
because they were either new to the Department or new to the Section
202 program. Consequently, the first classroom training on the
development processing of Section 202 projects in 10 years was
held in FY2002.
3. The Department has strengthened the structure of
the program by tightening the selection criteria for new projects.
Because of the keen competitiveness of this program, the loss
of even one point could cause an application to not be selected.
Changes to the selection criteria in this year's Notice of Funding
a. Loss of 4 points if the Sponsor had a previously
funded project that had been extended more than 48 months, 3
points if extended more than 36 months, or 2 points if extended
more than 24 months, unless the delay was beyond the control
of the Sponsor.
b. Loss of 1 point if the delay (unless it was beyond
the control of the Sponsor) resulted in the need for amendment
c. Loss of 1 point if the proposed site was not properly
d. Awarding 5 points to those applications in which
the Sponsor's development timeline indicated their full understanding
of the development process so it would result in the timely
development of the project.
4. The Department has reviewed and verified the Development
Application Processing (DAP) database so the pipeline data is
accurate which allows the Department to manage the program effectively.
5. The Department plans to meet with Section 202 stakeholders
this summer to discuss the Section 202 program and solicit their
input on ways to improve the administration of the program.
6. The Department has drafted regulations to implement
the Mixed Finance provisions of the American Homeownership and
Fair Housing Act of 2000. The interim regulations, which will
allow for use of low-income housing tax credits and other additional
funding for Section 202 projects were recently submitted to OMB
for review. We anticipate being able to publish these regulations
during the first quarter of FY 2004. Although we recognize that
the amount of time that the Department has taken to develop these
regulations has been lengthy, this Administration initially focused
attention on developing the procedures for certain existing Section
202 projects to refinance their mortgages- a priority to both
the Department and Section 202 stakeholders. Consequently, it
has taken us some time to develop policies to implement the statutory
changes permitting mixed financing while at the same time insuring
that the integrity of the program is maintained and that the interests
of the population that these projects are to benefit are protected.
7. The Department will produce a plan this year to improve
the Section 202 program's performance, which will include the
development of meaningful performance measures. In the review
leading to this plan, HUD will examine other policy changes or
reforms to strengthen the program's performance.
In summary, the Administration and Department are committed to
the ongoing viability and successful performance of the Section
202 Supportive Housing for the Elderly program. However, this commitment
does not come without some challenges. We are confident that working
with you and other stakeholders this challenge will be met.
This concludes my statement, Mr. Chairman. Thank you again for
the opportunity to appear before this Special Committee.
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