Written Testimony of Sandra B. Henriquez
Assistant Secretary for the Office of Public and Indian Housing
U.S. Department of Housing and Urban Development (HUD)

Hearing before the House Appropriations Subcommittee on Transportation, Housing and
Urban Development, and Related Agencies
The Office of Public and Indian Housing's
Fiscal Year 2012 Budget Request

Wednesday, May 25, 2011

Chairman Johnson, Ranking Member Shelby and Members of the Committee, thank you for the opportunity to testify Chairman Latham, Ranking Member Olver, and Members of the Committee, thank you for the opportunity to testify today regarding the fiscal year 2012 Budget for the Department of Housing and Urban Development's Office of Public and Indian Housing (PIH). In addition to outlining the Department's key investments on behalf of vulnerable families, I want to describe our work to ensure we are holding our public housing authorities accountable for their use of taxpayer dollars. In particular, I look forward to discussing our work to provide the oversight, tools and needed reforms that ensure that public housing residents are receiving the quality housing and services they need and deserve.

I also want to acknowledge at the outset that the President's fiscal 2012 Budget was transmitted before enactment of the final fiscal year 2011 Appropriations bill. I am aware that there are ongoing bicameral, bipartisan discussions between the Administration and congressional leadership on the Nation's long-term fiscal picture. These conversations, along with the enacted fiscal year 2011 Appropriations, could impact eventual funding levels. Nonetheless, the fiscal 2012 budget request for PIH reflects the Administration's policy priorities and remains a good starting point for developing funding levels. The Department, and I, look forward to working closely with you as the process moves forward.

Responding to the Housing Crisis

Much has happened in the two years since HUD submitted its fiscal year 2010 budget. Only weeks before, the Bush Administration and Congress had taken dramatic steps to prevent the financial meltdown, the nation was losing 753,000 jobs a month, our economy had shed jobs for 22 straight months and house prices had declined for 30 straight months.

Today, an economy that was shrinking is growing again - and instead of rapid job loss, more than a million private sector jobs were created in the last year.

One contribution that my office has been deeply involved in to support economic recovery has been the careful and effective stewardship of $4.5 billion in American Recovery and Reinvestment Act (ARRA) funding by public housing authorities and tribally-designated housing entities. To date, HUD has obligated 99.8% of its ARRA grant and loan funds and expended over 72.5% of this funding - well ahead of the aggressive timelines the Administration set down and to which the Vice President has held every Department accountable. Across HUD, these funds have led to the development and renovation of over 410,000 homes and saved or created nearly 27,000 jobs in the fourth quarter of 2010 alone.

But there's still more work to be done. We all know, Mr. Chairman, that the foreclosure crisis and economic recession took its greatest toll on those that were already struggling to make ends meet. This was confirmed by HUD's Worst Case Housing Needs Survey, which we released in February. HUD defines "worst case needs" as renters with very low incomes who do not receive government housing assistance and who either pay more than half their income for rent, live in severely inadequate conditions, or both. The report showed an increase of 20 percent in worst case needs renters between 2007 and 2009. This is the largest increase in worst case housing needs in the 25 year history of the survey, and caps an increase of 42 percent since 2001.

At a time when more than one-third of all American families rent their homes and over 7 million of these families spend more than 50 percent of their income on rent, it remains more important than ever to provide a sufficient supply of affordable rental homes for low-income families. In many communities, affordable rental housing would not exist without public funding, including crucial support from HUD.

Meeting the Challenge

PIH's Fiscal Year 2012 budget helps to tackle these challenges head on: by providing quality affordable rental housing; by supporting the transformation of neighborhoods of poverty to ensure we are not leaving a whole generation of our children behind in our poorest communities; by helping to rebuild the national resource that is our federally-assisted public housing stock and helping its tenants become part of the mobile, skilled workforce our new global economy requires; and by leveraging private sector investments in communities to contribute to the job creation and economic growth we need to out-innovate, out-educate and out-build the rest of the world.

We are also reforming the administrative infrastructure that oversees those programs to increase efficiencies and ensure that we are being responsible stewards of taxpayer dollars. The Budget includes key provisions from the Section 8 Voucher Reform Act (SEVRA) legislative proposal that would simplify and rationalize the rent setting provisions of our three largest rental assistance programs. Representative Waters reintroduced SEVRA (H.R. 1209) on March 17, 2011. The budget request for Housing Choice Vouchers, Project-Based Rental Assistance, and Public Housing reflects a savings of about $150 million in the first full year of implementation of the proposed SEVRA provisions, and these provisions would yield over $1 billion in savings over the next half decade.

Investing in our Future

The Administration is now focused on ensuring that we continue to make strategic investments in our communities while taking responsibility for the deficit. For HUD, that has meant using three core principles to develop our budget:

  1. Continuing to provide critical support for the housing market while bringing private capital back into the market;
  2. Protecting current residents - and improving the programs that serve them; and
  3. Proposing no new initiatives - while continuing to invest in initiatives that have been part of our budget the last two years and are critical to winning the future.

As such, PIH's budget for fiscal year 2012 follows the roadmap the President has laid out for keeping America at the forefront of the rapidly changing global economy. Specifically, this budget helps America:

Out-Educate. America cannot out-educate the rest of the world if a lack of quality, affordable housing prevents Americans from accessing good schools in safe neighborhoods, or if homelessness threatens the schooling of a young child. That is why we propose continued investment in the Choice Neighborhoods initiative, which links HUD's investments in housing to education funding provided through the Department of Education's Promise Neighborhoods initiative.

Out-Innovate. A clean energy economy is vital for America to compete in the new century. Through the Recovery Act's dramatic investments to green America's housing stock, HUD will provide comprehensive energy retrofits that will reduce energy costs for families by as much as 40 percent in an additional 35,000 public housing units. We will also continue to partner with the Department of Energy to leverage weatherization assistance funds for many of these properties.

Out-Build. The President's focus on repairing our existing infrastructure and building new ways to move people, goods and information will not only put people to work now, but also spur investments that build a stronger economy. Just as we cannot compete in the new economy if we fail to rebuild our highways and transit systems, nor can we ignore the importance of affordable housing in communities. For this reason, our budget proposes a Transforming Rental Assistance demonstration to preserve and rehabilitate-cost-effectively, and with an emphasis on unlocking the power of private capital- some of our most valuable affordable housing assets: America's federally-subsidized public and Section 8 housing stock.

In addition, beginning in FY10 and continuing in FY 2011, HUD launched the Transformation Initiative (TI), which is fundamentally altering how we approach our investments in delivering technical and capacity-building assistance, conducting research demonstrations, and maintaining and upgrading our IT systems so that we can hold ourselves and our local partners accountable for the outcomes needed to achieve the Department's strategic goals.

For PIH that has meant using TI funding to examine the current allocation method for Housing Choice Voucher (HCV) administrative fees to get a more accurate measure of the cost of the program. We are also using TI funds for the Native American Housing Needs study - the first such study conducted in over 15 years, and in the development of the Next Generation Voucher Management System (NGVMS) which will replace 20-year-old legacy systems and Excel-based budget spreadsheets with a solution that establishes uniform processes and a standard set of rules and regulations that support all of HUD's rental assistance programs, adding far greater efficiency.

Meeting the Need for Quality, Affordable Rental Homes

The results of the Worst Case Housing Needs Survey highlight the historic need to protect the most vulnerable Americans harmed by the crisis. To that end, our Budget protects the low-income families served by HUD's core rental assistance programs. As noted, PIH has made protecting current recipients of such HUD assistance its top priority. That is why we have proposed to fully fund the public housing operating fund and the tenant-based rental assistance program. We are confident that these targeted investments will enable HUD programs to continue to house 1.1 million families in public housing (over 60% elderly and/or disabled); and provide tenant-based vouchers to more than 2.2 million households (over 45% elderly and/or disabled).

HUD's programs represent the single best tool we have to fight Worst Case Housing Needs. That's because extremely low-income families make up 72 percent of HUD-assisted households. While the median income of American families today is over $60,000, families who receive HUD rental assistance have a median income of $10,200 per year - and more than half are elderly or disabled. The extraordinary vulnerability of residents in HUD-assisted programs is why we have chosen to protect the funding that houses these families. Indeed, fully 80 percent of our proposed budget keeps current residents in their homes and provides basic upkeep to public housing while also continuing to serve our most vulnerable populations through our homeless programs.

This Budget also holds our partners accountable for the funding they have received from HUD by requiring that public housing authorities (PHAs) contribute to the fiscal year 2012 budget for the Operating Fund from their excess reserves.

To clarify some misconceptions around the adjustment, the Budget reduces 2012 funding allocations to PHAs with excess reserves accumulated from prior year appropriations for the Operating Fund. We believe that PHAs should have a prudent level of operating reserves. That is why we are taking a targeted approach that will reduce 2012 allocations only to PHAs that exceed adequate reserve levels rather than imposing an across-the-board proration. Careful analysis by PIH shows that some PHAs have excess reserves in amounts sufficient to justify the proposed reduction to the Operating Fund

Some believe that HUD is penalizing public housing agencies for good stewardship of their funds, but these resources were set aside for the sole purpose of allowing PHAs to continue to effectively manage and operate their public housing properties if ever there were a rainy day. Mr. Chairman, it is clear that the rainy day is here.

Getting Back to Basics: Improving Oversight and Accountability for Public Housing Residents and American Taxpayers

But as the Committee knows, Mr. Chairman, meeting the need for quality affordable housing has a third essential component. As we're making tough choices and smart decisions about directing HUD investments in FY2012, we're also focusing on our core mission of providing low-income families with greater quality affordable rental housing, and being good stewards of taxpayer funds through improved oversight and accountability. That may sound simple, but decades of underfunding and operational neglect have had dire consequences for local housing authorities and staff dedicated to fulfilling that mission. We have seen that such conditions can result in public housing agencies making poor management and fiscal decisions which not only impact the physical condition of our properties but most importantly hurt the 3.3 million low-income residents that rely on us for providing decent, safe and sanitary homes. In addition, the federal workforce responsible for oversight and accountability has been understaffed and under-trained.

Despite these historic challenges, the vast majority of our public housing authorities operate very responsibly, and effectively serve the housing needs of the 3.3 million residents that call public housing, or privately-owned housing made affordable with a voucher, their home. In fact, 95% of our nation's PHAs meet or exceed property and program management standards.

But we must hold HUD, local officials and everyone else involved to the highest standards of professionalism. Anything less is a disservice to the residents and taxpayers. Clearly, Mr. Chairman, recent revelations that some public housing agencies have abused the public trust underscore the need for reform. But in addition to our systematic changes, I would also note that HUD has responded to these specific revelations quickly and forcefully.

In Philadelphia, once HUD learned of allegations of impropriety at the housing authority, we took swift action to restore credibility and protect tenants. We've acted quickly elsewhere as well - in communities like New Orleans, where David Gilmore has made great progress reforming the city's Housing Authority under very difficult circumstances.

  • Nevertheless, HUD is implementing a new approach to ensure that all PHAs are well managed and efficiently managing taxpayer dollars.

Compensation of Executive Directors

I can now report that HUD has begun to implement two new steps to add transparency to Public Housing Authority compensation packages, ensure good stewardship of taxpayer dollars and benefit the interests of the residents we serve:

  • First, we published in the Federal Register on April 26 a notice that HUD will require every Public Housing Authority in the country to report to HUD the compensation packages of their top five paid personnel. Once we have received OMB approval and amended the Annual Contributions Contract with all PHAs to require that reporting, hopefully this summer, HUD will begin posting this information on our website, consistent with applicable law. This will serve as a valuable transparency tool and point of comparison for local PHA boards and local officials in determining appropriate compensation levels. I believe it will also show that the majority of our nation's dedicated and talented pool of PHA leadership is compensated at a reasonable and fair level.
  • Second, we have begun steps to require that all PHA boards conduct comparability analysis when determining executive director compensation packages, and certify that their executive director's compensation aligns with those of comparable executive level officials in their jurisdiction. At the same time that we amend the Annual Contributions Contract for all PHAs to require the submission of compensation information for the five highest paid employees on an annual basis, we will also amend the ACC to require the comparability analysis.

To be clear, it is not HUD's legal role to set PHA compensation levels - as these are set locally - but we believe that these steps will enable us to ensure good stewardship of taxpayer dollars and promote transparency in government, which is a top priority for HUD and this Administration. We saw with the Recovery Act how effective transparency can be in ensuring good use of government funds. We will continue to work closely with local officials and PHA boards to see that this gets done.

Enhancing Oversight Responsibilities

To address the problems of the small percentage of PHAs whose poor performance results in "troubled" designation, we have developed cross-cutting PHA Recovery Teams. Based on experience under the Recovery Act, these teams include PIH and field personnel, as well as members of HUD's Departmental Enforcement Center, who have specialized financial and management expertise. These teams will assess underlying problems, engage local community leaders, develop corrective actions, and monitor the PHAs progress toward recovery. Teams have already been deployed to 28 sites to conduct initial assessments and another 15 assessments will be underway by June 30th.

Retraining our Workforce

We are also retraining and reshaping our workforce both here in Washington and out in the field to provide:

  • Increased on-sight monitoring and inspections;
  • Improved quality reviews of financial audits and statements;
  • Refined diagnostic tools to track performance goals; and
  • Enhanced governance training for local boards and appointing officials.

Changing the Role of our Workforce

In the past, PIH field teams have managed their relationships with our 3,148 public housing authorities as if they were technicians charged mainly with providing inspections and compliance reviews. Going forward, we will continue to ensure compliance and help our PHAs increase their capacity through training and technical assistance but we will also strengthen and reinforce HUD's role as federal regulator to ensure that every taxpayer dollar is used solely to house and protect our low-income residents.

Going forward, field staff will serve as a "portfolio monitors" overseeing a smaller number of public housing authorities on average than they do today. This will allow staff to familiarize themselves with the total operating environment of each agency, including knowledge of the Executive Director and governing board. Portfolio monitors will develop a complete, contextual understanding of early warning indicators, request additional information (e.g. financials) as needed, and be positioned to decide the level of assistance or intervention that might be necessary.

Collecting Better/More Timely Data

We are working to conduct more timely and thorough physical inspections of properties and more in depth analysis of data submitted by our PHAs. Our goal is to allow HUD to quickly identify and intervene when problems are identified.

Minimizing Waste, Fraud and Abuse: Zero Tolerance Approach

HUD relies on local elected appointing officials and the PHA boards to perform due diligence and ensure that affordable housing programs are well administered. However, there are instances when local Boards fail to carry out their governance and fiduciary responsibility to provide proper oversight of their PHAs.

As a tenured real estate professional, and as a public official, I am deeply dismayed when a housing authority is found to be malfeasant. And let me be very clear, Mr. Chairman - we have zero tolerance for fraud, waste and abuse.

Secretary Donovan and I expect greater accountability and transparency from public housing authorities. We hold HUD, local officials and everyone else involved to a higher standard of professionalism. Anything less is a disservice to the residents and taxpayers.

When HUD suspects or detects malfeasance, the PHA will be referred to the Inspector General's office. Within 30 days, the PIH field staff will perform an assessment to determine the causes of the problem and whether the local Board and appointing authority are prepared to address the situation. HUD staff will outline the immediate reforms necessary to bring the agency back into full compliance. If the Board is unwilling or unable to institute the corrective action reforms, we will begin establishing an administrative record and use all available legal tools to return the PHA to effective management and require accountability -- including assigning an administrative receiver and referring individuals for criminal prosecution, where necessary - to ensure federal funds are protected and that the residents continue to receive quality service.

To ensure that PHA Board Commissioners understand their responsibilities, PIH has instituted nationwide governance training. The training reviews governance, financial recordkeeping requirements, the budget process, financial indicator scoring, and annual audits. The goal is to ensure that each commissioner understands and can fully perform their governance and fiduciary duties.

Needed Reforms to Preserve our Nation's Affordable Housing Stock

Mr. Chairman, all of these issues-the successes of the Recovery Act, the limitations we face in the current budget environment, challenges facing some of our PHAs, combined with the President's goal of winning the future-remind us that the time has come to have a larger conversation about how we preserve America's affordable housing stock in the 21st century.

The preservation of critically needed 'hard units' of rental housing in this country is among our top priorities, particularly as the number of renter households with severe affordability issues has increased significantly in recent years.

With our proposed budget, we have begun to lay out a Comprehensive Preservation Strategy based on feedback we heard from you, the singular focus of which is to place public and assisted housing stocks on a sound, sensible financial and regulatory footing for the long-term and better serve the families that live there.

Our preservation agenda includes regulatory and administrative changes to make it easier for owners to preserve HUD-assisted housing as well as creating tools that will put the Department's stock of affordable housing on sound financial and regulatory footing for the long-term.

The new authorities we are seeking include more flexible income eligibility requirements for the Low-Income Housing Tax Credit - which was utilized in about half of all multifamily production in the 1990s - allowing for better coordination and alignment with other federal programs administered by HUD and USDA. In this budget, we've proposed a limited basis boost to increase the tax credits available to preserve federally assisted housing - including public housing.

To this end, the Budget includes a Transforming Rental Assistance demonstration and rigorous evaluation of the conversion of thousands of public and assisted housing units to some form of long-term project-based rental assistance contracts that will enable PHAs to leverage private debt and equity capital to make repairs. This funding will allow us, working with key stakeholders, to develop new preservation tools to help ensure that we protect our affordable rental housing stock - some of our most valuable affordable housing assets.

We estimate that this proposal will leverage private debt and equity capital which would go a long way in helping meet the estimated $20-30 billion capital backlog for public housing, ensure that existing households are not displaced from HUD-supported housing and support significant job creation in communities across the country.

The demonstration is just one piece of this preservation strategy - and we want to work with you to shape it.

We come to it with an open mind and a willingness to try strategies that weren't a part of the discussion last year.

We believe this demonstration will represent an important first step toward preserving this housing for future generations.

For owners and tenants alike, this strategy means supporting our communities' ability to preserve affordable homes and new funds to make much-needed repairs.

It means making it easier to transfer homes at risk of falling out of the affordable housing stock to owners with a history of successfully preserving affordable housing.

It means that communities will have the new revitalization tools, from private debt to equity capital, they need.

Perhaps most of all, these proposals will not only bring new capital to public housing, but also a private sector discipline that extends from the way these homes are financed to how these properties are managed.

Utilize Housing as a Platform for Improving Quality of Life

As we work to provide all families with quality, affordable homes, HUD also recognizes that stable, affordable housing provides an ideal, cost-effective place to deliver healthcare and other social services focused on improving life outcomes for individuals and families. And Mr. Chairman, our partners in state and local governments, the nonprofit community, and the private sector recognize it as well.

Out-Innovating: Solving Homelessness, Saving the Taxpayer Money

Nowhere is this clearer than in the successful efforts in communities around the country to address homelessness. These efforts have yielded a substantial body of research, which demonstrates that providing permanent supportive housing to chronically ill, chronically homeless individuals and families not only ends their homelessness, but also yields cost savings in public health, criminal justice, and other systems.

This year, we have made a specific effort to target homeless veterans. Our nation's Veterans are fifty percent more likely than the average American to become homeless. More than 11,000 service members returning from those wars have already been forced to live on the streets or in homeless shelters. And more Vietnam-era Veterans remain homeless today than troops who died during the war itself. Nowhere is our obligation to our citizens, and to those who have defended our nation, more important, more visible, or more urgently necessary than in our commitment to end homelessness.

How HUD and the VA Are Partnering to End Veterans Homelessness

The Homelessness Prevention and Rapid Re-housing Program, or HPRP, created by the Recovery Act, has helped local partners prevent or end homelessness for more than 870,000 people - including about 18,000 veterans. And its effects have had an equally innovative impact on how the Federal government responds to homelessness - particularly veterans' homelessness.

HUD and the Department of Veterans' Affairs are collaborating on "HUD-VASH," which combines HUD's Housing Choice Voucher rental assistance with VA's case management and clinical services. This partnership is critical to ending veterans' homelessness. When President Obama was sworn into office, the program helped less than 1,200 veterans lease properties. One of the reasons veterans couldn't use HUD-VASH vouchers was that they couldn't provide something as simple as a security deposit.

HPRP helped many veterans overcome these kinds of obstacles to find a home. As of January 2011, HUD-VASH had accelerated its pace of housing veterans by nearly 20 times - currently helping more than 20,000 veterans and more than 25,000 veterans overall.

Out-educating the Rest of the World: Choice Neighborhoods

The President has made clear that winning the future depends on America winning the race to educate our children. But that's not possible if we are leaving a whole generation of children behind in our poorest neighborhoods. That is why the budget also brings federal partnerships to connect historically isolated people and neighborhoods to local, regional, and national economies by providing a third year of funding for another signature element of the Administration's place-based approach - the Choice Neighborhoods initiative.

Choice Neighborhoods builds upon the HOPE VI program launched by previous HUD Secretaries Jack Kemp and Henry Cisneros and congressional champions like Senators Kit Bond and Barbara Mikulski. HOPE VI restored the most severely distressed public housing across America and did so while leveraging double the government investment in additional private development capital. Choice Neighborhoods will continue transformative mixed-finance investments in high-poverty neighborhoods where distressed HUD-assisted public and privately owned housing is located. It will bring private capital and mixed-use, mixed income tools to transform affordable housing with grants that primarily fund the preservation, rehabilitation and transformation of HUD-assisted public and privately-owned multifamily housing. Like HOPE VI, it will also engage the private sector and the "third sector" of non-profits, philanthropies and community development corporations who have become some of our most sophisticated affordable housing developers and important civic institutions.

Choice Neighborhoods is a central element of the Administration's inter-agency strategy to provide local communities with the tools they need to revitalize neighborhoods of concentrated poverty into neighborhoods of opportunity. This strategy requires HUD, the Department of Justice, the Department of Education, the Department of Health and Human Services, and other agencies to work together, co-investing, and pooling their expertise as part of a focused Neighborhood Revitalization Initiative where local actors can seamlessly integrate diverse federal funding streams to tackle complex problems. In particular, through partnerships with Education's Promise Neighborhoods initiative, Choice Neighborhoods will help ensure that the President's commitment to out-educating the rest of the world applies to every child in America, regardless of their neighborhood or the kind of housing they grow up in.

The Department announced the first Choice Neighborhoods Planning Grant awards on March 18. We awarded a total of $4 million through 17 grants for cities, nonprofits and PHAs to develop their comprehensive Transformation Plans. In addition, 6 finalists for Implementation Grants have been named, who will apply for up to a $30.5 million grant under a NOFA posted on March 22. As a result of this competition, HUD expects to announce 4-5 Implementation Grant awardees later this summer. We will be ready to publish a NOFA for Planning Grants with FY11 funding by early summer.

Ensuring Native American Communities Can Compete in a 21st Century Global Economy

The Administration has placed a significant emphasis on ensuring that America's native and rural communities are competitive in the 21st century economy. Rural communities generally have less access to public transportation, along with higher poverty rates and inadequate housing. This Administration recognizes that residents of Indian Country also face unique challenges when it comes to accessing health care, grocery stores, and adult education opportunities, among others.

HUD has requested funding for programs that will support housing and community development initiatives in American Indian, Alaska Native, and Native Hawaiian communities. As the single largest sources of funding for housing in Indian tribal lands today, HUD initiatives in Indian Country continue to provide crucial investments. Programs like Indian Housing Block Grants, Indian Home Loan Guarantees, and Indian Community Development Block Grants have proven track records in improving communities in remote areas where safe, decent, affordable housing is desperately needed. HUD also directly supports housing and infrastructure development and homeownership opportunities in the Hawaiian Home Lands through the Native Hawaiian Housing Block Grant program and Native Hawaiian Loan Guarantee program.

HUD also proposes investing in Native Hawaiian Housing Block Grants, which in addition to developing homes will fund foreclosure prevention efforts and the promotion of responsible homeownership.

And our commitment goes beyond traditional affordable housing. To support the ability of Native American families to become responsible homeowners with market-rate financing, HUD's budget proposes funding for the Section 184 program, which will support families either to buy new homes, or upgrade the homes they already own.


Mr. Chairman, this Budget reflects our recognition that given the economic moment we are in, this isn't a time to spend more in America's communities - it's about investing smarter and more effectively.

It's about making hard choices to reduce the deficit - and putting in place much-needed reforms to hold ourselves to a high standard of performance. But most of all, it's about the results we deliver for the vulnerable people and places who depend on us most. Thank you.


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