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U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call at 1:35 p.m., in room 210, Cannon House Office Building, Hon. Mark Green, [vice chairman of the subcommittee], presiding.

    Present: Vice Chairman Green; Representatives Tiberi, Miller, Baker, Frank, Velazquez, Carson, Lee, Schakowsky, Jones, Capuano, Sanders, Clay, Israel, Crowley, and LaFalce.

    Chairman GREEN. The hearing will come to order.

    Today marks the first hearing of this session. And we are honored to have the Honorable Mel Martinez, Secretary of the Department of Housing and Urban Development to discuss the Administration's Fiscal Year 2003 proposed budget.

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    Thank you, Mr. Secretary for appearing before this subcommittee.

    I am chairing this hearing today in the place of Chairwoman Marge Roukema who is unable to be here today. However, we will insert her opening statement into the record and look forward to her continued leadership on housing issues.

    During the first session, the Housing Subcommittee conducted a series of seven hearings to identify the contemporary housing issues facing this Nation. As a result of those hearings I expect to work with Chairwoman Roukema to introduce an omnibus housing bill designed to address many of these housing issues.

    During those hearings last session it was evident that housing was not a Republican or a Democratic issue, in fact, there were as many Members of both parties actively engaged in our hearings. Through the hearings we understood the growing housing affordability and availability crisis confronting this Nation, particularly in high-cost areas.

    While we may have various opinions on how to address housing problems, it is clear that we all agree that we can do a better job. The housing budget the President proposes, I believe, is a good start. You in the Administration are to be commended for crafting a housing budget that makes homeownership housing affordability for all Americans a priority.

    Certainly not everyone will agree with the funding levels and program changes outlined in this budget, but we can agree on the goals of increasing homeownership for all and providing affordable housing to more Americans.

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    Our country is obviously fighting two battles; one against terrorism, and the other to overcome a slow weakening economy. In the midst of all the negative economic news over the last year, the housing market has been one of the few bright spots. Housing posted its best year in history last year. There is no doubt that housing can be a significant catalyst on the road to economic recovery.

    The budget contains a number of provisions designed to create opportunities for homeownership, revitalize communities and to create incentives to build new, affordable housing.

    I know I speak for Chairwoman Roukema and others on the subcommittee when I say that we are anxious to work with you, to enact initiatives that will expand affordable housing to meet the needs of low- and moderate-income Americans.

    For example, the budget provides for an increase in 34,000 new incremental rental subsidy vouchers. This is great. However, we should ensure that the vouchers can be utilized and that hard-to-house families can find shelter. The budget provides for a threefold increase in funding for the Self-Help Homeownership Opportunity Program or SHOP. A perfect example of leveraging private and non-profit resources with limited Government funds to create homeownership opportunities.

    I am particularly interested in the President's American Dream Downpayment Fund which will provide an additional $200 million in funding for downpayment assistance to first-time, low-income home buyers. Coupled with that assistance, the Administration is proposing that Section 8 funds be used to assist low-income families moving into homeownership.
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    We know that homeownership strengthens communities and these initiatives will begin that process.

    This HUD 2003 budget represents a 7 percent increase, however, Mr. Secretary, I would like to measure housing policy success not by mere increases in budget authority, but by the success stories we can document at the end of this term.

    I am concerned that rental housing vouchers are underutilized in both high-cost and average rental markets. We should provide those local administrators with the flexibility necessary to achieve higher utilization levels.

    I am concerned that the Department is unable to reimburse non-profit organizations for technical assistance provided and authorized by law. We can do better to efficiently manage our housing programs.

    As you may know, Mr. Secretary, I have a strong interest in promoting faith-based organizations because of the tremendous success stories and records that they have in the area of assisting very difficult and challenging populations. In that regard, I applaud the Administration's acknowledgement that HUD will have to comprehensively reform its rules and regulations to establish a level playing field for faith-based and community organizations that seek to partner with the Federal Government.

    I look forward to working to eliminate those regulations and handbook policies that preclude what I believe could be a great relationship.
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    Mr. Secretary, this Administration has a great opportunity to turn around this agency and to lead the way to an innovative housing policy that understands the value of partnering with the public sector and our local and State governments. Your good will, integrity, and willingness to work with Congress, as well as your great background in the housing area is appreciated, and I am sure will move us to higher homeownership and rental opportunities.

    At this time I would yield to our Ranking Member, Mr. Barney Frank for his opening statement.

    [The prepared statement of Hon. Mark Green can be found on page 34 in the appendix.]

    Mr. FRANK. Mr. Chairman, I'll yield the first 4 minutes to Mr. LaFalce.

    Mr. LAFALCE. I thank the gentleman very much.

    Secretary Martinez, it's great to see you.

    First of all I want to express publicly what a delight it has been to work with you and so many of your assistants, Mr. Bernardi, Mr. Weicher, and so forth. It's been a great working relationship and I'm appreciative for it. I was about to say, there could be certain improvements in this area, and certain areas. I understand Senator Sarbanes mentioned difficulties in getting responses. Actually, my staff tells me that sometimes we could receive phone calls from Congressional Affairs a bit more quickly just giving us a status update.
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    Secretary MARTINEZ. We're going to work on it.

    Mr. LAFALCE. I am sure that will improve after today. Yes, good; good.

    Look, I'm not going to go into the specifics of this budget, I know that Mr. Frank will in great, great detail as the Ranking Member. But in short, and I don't think this is your fault, I think this is OMB's fault, it's inadequate. It's inadequate from this year's perspective, but it's inadequate from a historical perspective.

    And I just want to give you a little bit of a historical perspective before you came here. You know, going back to 1994 and 1995 when we had the revolution. And things have changed. We don't have the same anti-government rhetoric. We don't have people calling for the abolition of HUD today. But they were then. And upon taking control of Congress, Speaker Gingrich led the effort to slash the HUD budget by 25 percent. It was a cut of over $6 billion. And so when we measure today's budget, we just can't measure it against last year's and say we're treading water. We have to measure it against where we were and what we experienced. And that was that huge cut. And we've never caught up. We are still down and we are still down significantly.

    We were not spending too much on the homeless in those days. We were not spending too much on urban and rural housing in those days. Not to say we couldn't be spending it better. We could have spent it better then and we can spend it better today. We've got to do that. And that's one of the things I'm working with you on; trying to get some evaluation of how effectively we're spending our money so that we could do it better in the future, and I understand that.
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    But compared to the levels approved in the fiscal 1995 spending bill, funding for Section 202 is down 50 percent in real terms. And funding for Section 811, disabled housing, is down 44 percent. And public housing is taking a big hit. Over the last 8 years, funding for public housing is down 31 percent in real terms. And I'll take you to any of the housing units in my Congressional district, whether it's Buffalo, or Niagara Falls, or Lockport, and we need that money desperately.

    And the money we're getting does not say we couldn't spend it better and more wisely to accomplish our goals, to be sure. We need to talk about that. We need to talk about how we mesh public housing with the concept of integration so that we don't have segregated enclaves. You know, I mean, that's something that I want to work on with you.

    The CDBG and homeless programs are down 15 percent in real terms from that time period, 1994-1995. So I appreciate the job that you have done in trying to juggle priorities and use the dollars that you have as effectively as you can. I want to work with you on that in the future. But I want to get—you know, if we want to have a good economic stimulus bill, boy, there's no better way to provide an economic stimulus to our economy, you know, the ripple effect of money spent and housing and community development and the good that it has accomplished—not for a day, but for permanently—is fantastic.

    Mr. FRANK. Your time is up.

    Mr. LAFALCE. I yield back the balance of my time.

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    Mr. FRANK. I thank the gentleman. I will take the rest of it to say that the gentleman from New York is absolutely correct about the inadequacy of the budget. In some areas of the economy, it's easy for people to say that as we enjoy prosperity—even if we're in a temporary recession—but this economy remains a very strong one, and we've had great prosperity and will have again. And prosperity does take care of a lot of things. It's the best anti-welfare program. It deals with unemployment, obviously, by definition. But given the unevenness of prosperity, and the nature of our society, prosperity in some ways exacerbates the housing crisis for those who are most disadvantaged. Because in those urban areas where people are not fully mobile, where people don't have the job opportunities to let them move across the country, where people are tied to a great extent to a local job market in the near term, the prosperity we have had in area after area has driven up hosing prices and left a significant segment of the working population unable to afford decent housing.

    So we have to do more rather than less. As prosperity creates more resources for the society, we ought to be using some of those resources to alleviate a housing crisis that is made worse rather than better. I know there is this popular saying that the rising tide gets all boats. But we're talking about the people who can't afford a boat. And if you can't afford a boat, the rising tide goes up your nose.

    The fact is that we have people who are disadvantaged by prosperity, not advantaged.

    That's particularly relevant, Mr. Secretary, because homeownership is a very good thing and I want us to encourage it. It is a grave error to make that the central focus of housing policy from the standpoint of the Government. Of course, we do have a significant aid to homeownership in the tax code. The ownership of housing is very much advantaged by the tax code. You get a significant advantage there.
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    There was an article by Ken Harney in The Washington Post documenting to what extent that exists. And I am in favor of trying to help lower income people get the advantages of homeownership. Although, as we should note, if you are taking the standard deduction, the tax advantages of homeownership are not nearly so great for you. But almost by definition, the large majority of poor people are going to need rental housing. And we will never alleviate the terrible housing crisis that affects so many people in this country if we do not do a much better job of building decent, affordable rental housing.

    It's true that 40 and 50 years ago, this society built rental housing for the poor in the public housing area in very anti-social ways. But we ought to be very clear, the poor people never asked that we house them by building large sterile concrete towers with no services. That wasn't their idea. That was society's decision that that was the cheapest way to handle it. We've learned from that. We haven't built those kind of bad buildings. We've torn some of them down. We know how to build better rental housing.

    And I finally have to say, Mr. Secretary, I see a disconnect between the hearings that were held all last year. This subcommittee had hearings and the witnesses were overwhelmingly chosen by the Majority. And with one or two exceptions, the witnesses that were chosen both by the Majority and by the Minority said, ''You need to get back in the business of producing rental housing.''

    So homeownership is a useful thing and I want to work with it. But until we begin to take some of the resources of this very wealthy country and dedicate them to adequate production of rental housing as part of an overall mix, we're going to continue to condemn hardworking people to homelessness in some cases, because there are working people who can't afford anyplace at all, and even more inadequate housing and a situation where they have to pay far too much of their income for the housing they have.
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    And, again, we ought to be clear, as has been made clear by various studies recently, we are talking about people who work hard and make, $20-, $25-, $30,000, and even more in some municipalities, people who do basic essential services and cannot afford housing and will not be able to house themselves and their families decently at a reasonable price until we get back in the business of improving the stock of rental housing.

    Chairman GREEN. Members are notified, we will likely have a vote in the next half hour. Under the rules of this subcommittee, opening statements have been allocated 8 minutes for each side. That time has been used up. So I would invite the rest of the Members to submit opening statements for the record.

    And with that, we will turn to and formally welcome our guest. Secretary Martinez, welcome. And we look forward to your testimony.


    Secretary MARTINEZ. Thank you, Vice Chairman Green and Ranking Member Frank and distinguished Members of the subcommittee. It's a pleasure to be back with you and talk about the 2003 Budget for the Department of Housing and Urban Development.

    The $31.5 billion HUD budget represents a funding level increase of 7 percent over fiscal year 2002. By helping Americans reach the dream of homeownership, ensuring affordable housing opportunities for those who rent, strengthening and renewing communities, and preserving a safety net for the most vulnerable, this budget will enable HUD to make a tremendous difference in the lives of millions of Americans.
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    The housing market in 2001 was extremely vigorous, and we entered the new year with homeownership at a record high. Because we know that homeownership gives families a stake in their communities and creates wealth, the HUD budget makes owning a home a viable option for even more Americans. In his State of the Union Address, President Bush acknowledged our commitment to expanding homeownership, especially among minorities.

    As a first step, we have quadrupled the American Dream Downpayment Fund, to $200 million. This Presidential initiative will help an estimated 40,000 first-time homebuyers overcome the high down payment and closing costs that are significant obstacles to homeownership.

    A tax credit for developers of single-family affordable housing will promote homeownership opportunities among low-income households by supporting the rehabilitation or new construction of homes in low-income urban and rural neighborhoods.

    We are tripling funding for the Self-Help Homeownership Opportunity Program—SHOP—to $65 million, as committed to by the President last spring. That, and a lot of sweat equity, will make possible the construction of an additional 3,800 homes for disadvantaged Americans. SHOP is an excellent example of Government maximizing its resources by working with private-sector partners like Habitat for Humanity.

    Another exciting homeownership initiative targeted at low-income families will allow them to put up to a year's worth of their Section 8 rental voucher assistance toward a home down payment. And, because we consider it an invaluable tool for prospective homebuyers and renters, we have proposed making housing counseling a separate program. The increase in sub-prime lending has made financial literacy more important than ever; armed with the facts, a consumer is far less likely to be victimized by predatory lending. We are funding the counseling program at $35 million, which represents a $15 million increase over the previous fiscal year.
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    While we consider homeownership to be an important goal, we recognize that it is not an option for everyone; therefore, our budget preserves HUD's commitment to expanding the availability of affordable housing for the millions of Americans who rent their homes.

    The Section 8 tenant-based program today assists nearly two million families; our budget provides an additional 34,000 housing vouchers. The budget also dedicates $16.9 billion to protect current residents by renewing all expiring Section 8 contracts.

    To encourage the production of moderate-income rental housing in underserved areas, we plan to reduce the mortgage insurance premium for Federal Housing Administration multifamily insurance.

    Three times over the last 8 years, HUD has been forced to shut down our multifamily mortgage insurance programs, because of lack of credit subsidy. Last year, the shutdown stopped the construction of some 30,000 rental units throughout the country and clouded developers in uncertainty.

    We made a commitment at HUD to a comprehensive review of the credit subsidy program. We examined the statistical techniques that were used to analyze loan performance. We thoroughly updated and refined FHA's data and incorporated the major tax law changes in the 1980s that affected the profitability of multifamily housing. Through our review, we were able to lower premiums, create a self-sustaining program, provide the industry with stable financing at a much lower cost, and provide thousands of new opportunities for rental housing across the country.
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    In fact, the program made firm commitments to insure $1.25 billion worth of new rental housing in just the first 4 months of the fiscal year. Reducing the premiums in fiscal year 2003 will lower the cost of building over 50,000 affordable rental apartments each year.

    The 2003 budget gives HUD new resources to further our mission of supporting the Nation's most vulnerable. This includes low-income families, homeless men and women, the elderly, individuals with HIV/AIDS, victims of predatory lending practices, and families living in housing contaminated by lead-based paint.

    Let me highlight just a few of our proposals.

    To better coordinate the work of the many Federal agencies that reach out and provide a continuum of care to homeless men, women, and families, the budget calls for doubling HUD's funding for the newly reactivated Interagency Council on the Homeless. Additionally, converting three competitive homeless assistance programs into a consolidated grant will eliminate the workload and expense of administering three separate programs.

    But, more importantly, it will give local jurisdictions new discretion in how those dollars are spent, while at the same time expediting the payout rate to the recipients by at least a third.

    HUD's Lead Hazard Control program is the central element of the President's effort to eradicate childhood lead poisoning in 10 years or less. The HUD budget will fund the program at $126 million, a substantial increase over the previous year.
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    The budget also proposes spending $251 million under HUD's Section 811 program to improve access to affordable housing for persons with disabilities. And many of the additional 34,000 Section 8 vouchers will aid non-elderly, disabled individuals.

    In addition to addressing the Nation's critical housing needs, programs such as the HOME Investment Partnerships Program and the Community Development Block Grant program stimulate economic development and job growth. Combined, these two programs will distribute an additional $200 million in formula funding to State and local governments. We have proposed changing the distribution of CDBG formula funds by reducing the size of grants going to the wealthiest communities. This will help bring dollars into those areas where they can do the most good.

    We are excited about a brand-new concept to address the large backlog of repair and modernization projects in public housing. The Public Housing Reinvestment Initiative represents a new way to leverage the value of public housing by allowing public housing authorities to borrow funds to make needed capital improvements. This project unlocks the value of public housing assets by allowing PHAs to convert public housing units to project-based vouchers. The PHAs can obtain loans by borrowing against individual properties, similar to private-sector real estate financing.

    Innovative thinking like this represents a departure from the way things were done so often in the past, but being effective does not have to mean spending more money. Government works best when Government serves as steward and facilitator and measures success through results. By facilitating the involvement of new local partners, the Public Housing Reinvestment Initiative will breathe new life into public housing communities.
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    I am proud of our budget and the way it reflects HUD's renewed commitment to efficiency, accountability, and the principles of excellence expressed through the President's management scorecard. When Government spends efficiently, the funds go much further, we reach more citizens, and we help to change more lives.

    The people of HUD know that the American Dream is not some unattainable goal, because we see it achieved every day, so often by families who never imagined owning their own home or reaching economic self-sufficiency. I am confident that through our budget, and the continued commitment of President Bush, HUD will be better able to offer citizens the tools that they can put to work in improving their lives, and strengthening their communities and their country.

    I would like to thank each of you, the Members of this subcommittee, for your support in our efforts, and for our working partnership as we seek to go forward on behalf of the American people. Thank you very much, Mr. Vice Chairman.

    [The prepared statement of Hon. Mel Martinez can be found on page 52 in the appendix.]

    Chairman GREEN. Thank you, Mr. Secretary for your testimony.

    In the budget, you proposed decoupling the Brownfields program from the Section 108 Loan Guarantee program to attract more participants. Can you explain how that works and why that's necessary in your view?
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    Secretary MARTINEZ. The BEDI, Brownfields Economic Development and Initiative program, is a good financing tool along with the Section 108 program for addressing the lack of investment in urban areas resulting from real or perceived environmental contamination. So the reduction in the 108 funding level will not affect the ability of communities to leverage the BEDI funding, because it is anticipated that more communities may apply for BEDI grants now that the Section 108 guarantees are not required with a pledge of their CDBG funds as collateral.

    So, in other words, what we're doing is opening up this way of financing urban redevelopment by making it more flexible and more appealing to the communities. The BEDI program has been tremendously underutilized. So our hope is that by doing this, we will enhance this program and encourage more participation.

    Chairman GREEN. Obviously, with much of the budget it isn't so much the monies that are allocated, but how efficiently they get spent and utilized.

    Secretary MARTINEZ. The coupling with the 108 made it undesirable for communities. They didn't want to pledge their CDBG funds. So this way we're breaking it up.

    Chairman GREEN. And hoping that those dollars will actually get utilized?

    Secretary MARTINEZ. Exactly.
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    Chairman GREEN. Switching gears, but on the subject of effective utilization of dollars, the report that the Administration produced some months ago called the ''Unlevel Playing Field'' identified a number of regulations within HUD that the report believes impeded the ability of faith-based organizations to access and utilize some of the HUD grant programs, and particularly in the HOME VI and CDBG programs, disabled and elderly housing.

    Could you address what efforts the department is planning to try to break down some of those restrictions?

    Secretary MARTINEZ. Well, the President, in his Executive Order on the faith-based initiative, which is something that we have embraced wholeheartedly at HUD, asked us to do a survey of impediments. And what we found was a very uneven playing field. We found that there were very inconsistent requirements of agencies and we also found that the amount of paperwork and administrative red tape they had to go through was really quite discouraging, particularly to small faith-based charitable organizations who found it difficult to wade their way through the bureaucracy.

    We are now in the process of developing amended regulations. So we will clean this up, level the playing field, create a set of rules that are standard, that are easy to understand and that are evenly applied so that more and more opportunities will be made available to community-based and faith-based organizations to partner in our HUD programs. We think they can have a very transforming effect and impact on our communities.

    You know, when we're talking about $15 million new dollars for a total of $35 million in homeownership education and assistance, teaching families how to make themselves homeowners, how to bring themselves out of non-ownership and into ownership, this is an area where I think faith-based organizations in our inner cities could have a tremendous impact in working with people.
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    Chairman GREEN. I know you personally have had a long relationship with faith-based organizations back in your home State, so I know it's a priority of yours.

    One of the areas that I am most concerned about right now in the area of housing policy is what is being done to expand the stock of new, affordable housing? And one of the ideas that's floating around is the creation of some kind of housing impact statement. Some sort of mechanism by which agencies like HUD would be directed to perform regulatory reviews to examine how regulations may be impacting the cost and availability of affordable housing. And I was wondering your thoughts on such a proposal, whether you would support that or think it's a good idea?

    Secretary MARTINEZ. I think it's a terrific idea. And I think that, frankly, a lot of it is also at the local level. I think it's amazing how much Government has imposed upon the cost of housing by regulations and by different requirements that, you know, sometimes have been rooted in good intentions, but not always in good results. And so I believe it would be very, very helpful to engage in that kind of a review.

    Many years ago, the mayor of the City of Orlando, my home town, asked me to head an affordable housing task force and it was incredible the kinds of things we were able to find in regulations that no thought had been given to the impact that they would have on the cost of housing. So I think much can be done to alleviate those kinds of problems.

    And, frankly, I also believe that RESPA reform, which we're engaged in, the Real Estate Settlement and Procedures Act, this is a terribly important opportunity for more people to make housing more affordable for purchasers. The fact is that for many people, a lot of cost is added to the cost of buying a home by the Real Estate Settlement Act and the requirements that it has. So thinning that out, cleaning that out, making it more transparent, these are all the things that can help make housing more affordable.
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    Chairman GREEN. Well, Mr. Secretary, I share your enthusiasm and look forward to working with you.

    The Ranking Member, Representative Frank, is recognized for 5 minutes.

    Mr. FRANK. Mr. Secretary, I have to say at the beginning that communication has been a problem. At the last hearing, which I think was April, Members submitted questions, the answers came a couple of weeks ago, to those questions. And, frankly, they weren't much in the way of answers. And we've had similar problems. I know it takes a while, but the responses should be better. You know, we're supposed to learn from our mistakes.

    Secretary MARTINEZ. May I just briefly say, Senator, I appreciate the comment, and I will assure you that we will do better.

    Mr. FRANK. Maybe you sent them over to the Senate, maybe that was the problem.

    Secretary MARTINEZ. Well, I'm not sure they're any happier.

    Mr. FRANK. I know you said ''Senator'' I thought maybe you sent the answers to the wrong place.

    Secretary MARTINEZ. I'm sorry. You know, I was down here this morning, so I'm sorry. I was trying to give you a promotion, but anyway—or demotion, whichever way, I'm not sure.
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    Mr. FRANK. Mr. Secretary, from your department I'll take motion whether it's de or pro.

    The next question I have really has to do with a mistake. And we have to learn from our mistakes and I have to say, your department made a very serious, very time consuming, very disturbing mistake. I understand that you said this morning, my Assistant Ms. Gibbs heard you testify that you're going to be able to rectify it. But we have to learn how it happened and how we can prevent it.

    Obviously, I'm talking about the grants known as ITAG and OTAG. The agencies that were set up to help, you know, and we all pay great lip service to an ocean of community involvement, tenant involvement, and so forth. And these were—we're talking about a small amount of money, $11 million in this budget for next year. We're talking about a million-and-a-half that was owed, and it's still owed, unfortunately, to help community groups. And we were told last year by your department that there was a violation of the Antideficiency Act and these community groups who are scraping along on very low dollars—these are very low budget operations, trying to employ very lower income people in many cases—that they were not going to get the money because there had been some problem that the Antideficiency Act had been violated.

    We put some language in the budget in the Defense Appropriations Bill, because that was the last train out of the station and directed the department to clean it up and to have a report by January 15th. As of yesterday we were still being told that the Department couldn't pay and didn't even know how much was owed.
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    Now, something appeared magically to somebody during the night, and I am all happy about that, because this morning you announced, contrary to what we had been told yesterday afternoon, that this was going to be resolved. But how did this happen? I mean, apparently now the ruling is that there was no violation. Well, what made everybody think there was a violation and the mistaken notion that there was a violation caused great havoc for a lot of low-income groups.

    Secretary MARTINEZ. Well, the first thing that I need to say is that I am sorry about that and it is a tragic situation and it is terrible to people who had nothing to do with it. I mean, they are blameless. These are victims of a set of circumstances not of their own making. And I understand that these are people who are working on margins. So it is unfortunate and I really do regret it.

    I have to tell you that there is a significant problem in the way that—and you're talking about how we fix it for the future as well, which I think is very important. OMHAR, which is the agency in charge of administering these grant programs, was not a part of HUD, was of HUD, but not directly under HUD. We have now brought OMHAR under HUD.

    Mr. FRANK. And we voted for that.

    Secretary MARTINEZ. And you did and it was a great thing to do. And I don't think you'll see this kind of situation in the future.

    Mr. FRANK. Well, why did someone decide until yesterday that there was a violation of the Antideficiency Act to the great discomfort and damage of these groups?
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    Secretary MARTINEZ. Let me say, we thought there was a violation of the Antideficiency Act.

    Mr. FRANK. Who thought that?

    Secretary MARTINEZ. Our office of CFO office.

    Mr. FRANK. And at what point did they unthink it?

    Secretary MARTINEZ. Well, they had been unthinking it when they asked the IG to conduct an investigation and the IG's investigation went into all of these records which we didn't have, because OMHAR had them. We had to actually go to some other grantees to get the records and now in reviewing all of the records, it appears that there was not a violation.

    Mr. FRANK. Well, when did the IG tell you that?

    Secretary MARTINEZ. The IG has, in the last couple of days, has concluded that that was the case. But let me say—let me finish.

    Mr. FRANK. We were begging you before to do this and—because these people were held hostage while you were arbitrating this question.

    Secretary MARTINEZ. Well, and I understand that. But there was no way not to compound what——
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    Mr. FRANK. Well, there was. There was this. But, because the Congress and the Defense Appropriation instructed you to pay them.

    Secretary MARTINEZ. But—but—

    Mr. FRANK. ——waited—I mean, the IG somehow——

    Secretary MARTINEZ. But, it has——

    Mr. FRANK. Excuse me, but can I tell Senator Byrd that according to you, the IG outranks the Appropriations Committees?

    Secretary MARTINEZ. No, sir. I think that would be—I don't want that said.


    Mr. FRANK. But that's what you're telling me, Mr. Secretary.

    Secretary MARTINEZ. My grandmother did have an outhouse, but I don't want to get into that today.

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    Secretary MARTINEZ. Anyway, no, here's the thing. Mr. Frank, here's the problem. We thought there was an Antideficiency Act violation. We had to stop payment in order not to compound the problem.

    Mr. FRANK. Why didn't the December appropriations ever pay them the money regardless of the Antideficiency Act. Let's work that out among ourselves don't—and you've held these people up.

    Secretary MARTINEZ. Two reasons why that has not happened. We, on the 12th of January, immediately after the signing of the bill, we asked OMB to allow us to disburse the funds. That authority has not come yet. In order to utilize those funds it typically takes 30 days and that is about the timeframe where we are now.

    Mr. FRANK. This is the first I heard that it was OMB holding up. I wish you would have told us that.

    Secretary MARTINEZ. Well, OMB might tell you that it was us holding it up. The bottom line is that the funds have not been available. We now have a way of paying it, even without utilizing the $11 million, because the fact is that we——

    Mr. FRANK. Well, can you pay them tomorrow? This afternoon?

    Secretary MARTINEZ. On the 27th of February we are going to start making payments.
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    Mr. FRANK. Why the 27th?

    Secretary MARTINEZ. Because between now and then we have to ascertain how much each of these groups is owed. And we have had to reconstruct records. I know this all sounds like a lot of bureaucratic gobblygook. I know what it's like to be out in the field and have the need to make payroll. I mean, you know, I used to be a small businessman myself and I know that's a terrible problem. We are doing the best we can. Good-meaning, well-meaning people have been working tirelessly to fix this problem.

    Mr. FRANK. But I would have told you this, but it is these people were further victimized by an error, because someone at HUD found an Antideficiency Act violation that did not exist and it terribly disadvantaged these people and we just have to figure out a way not to have that happen again.

    Secretary MARTINEZ. Understood.

    Chairman GREEN. The gentleman's time is expired.

    The Chair recognizes the gentleman from Ohio, Mr. Tiberi.

    Mr. TIBERI. Thank you, Mr. Chairman. Thank you, Mr. Secretary for coming today.

    This is kind of following on the lines of what Mr. Frank said. You may be aware that in central Ohio, in fact, Congresswoman Pryce and I sent a letter to the Chairman of the Full Committee expressing some concerns about OMHAR. And I would just like to give you an opportunity to—I think you were starting to answer the question and weren't able to finish with respect to where do you see this going?
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    Secretary MARTINEZ. Well, going forward in the future OMHAR is now a part of HUD and all of their financial transactions will be a part of the way HUD does business. Their grant administration will be a part of HUD. It will allow us to have access to the records that we did not have and had a problem getting access to. So in the future I really do believe that these problems will be alleviated.

    HUD does not have a problem in knowing how it is funding out and how to administer grants. This has not been a typical situation that we have seen in other HUD programs. So I have great comfort that going forward that this is not something that is going to be repeated. It is, indeed, a terrible situation for the people involved and they are totally blameless in this. But sometimes these things happen.

    The problem is, too, an Antideficiency Act violation is a darned serious piece of business. People go to jail for that. And when our office of General Counsel and others at HUD decided that there was a potential for such a violation, the prudent thing to do was to stop making more payments which would have compounded the problem. So it is unfortunate that now as it turns out there may have not been one. But I think you cannot fault HUD for using caution in a situation where I think caution was warranted.

    Mr. TIBERI. Mr. Chairman, Mr. Secretary, what timeline should we give our constituents who are impacted by this as to what are they looking at?

    Secretary MARTINEZ. We will be able to pay $550,000 in outstanding obligations by the first week in March.
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    Mr. TIBERI. And final question, Mr. Chairman. Mr. Secretary, can we work with your office then rather than OMHAR in terms of finding out exactly what the payout would be?

    Secretary MARTINEZ. Yes, sir. In this situation if you need to know a specific group, just call my office and we will make this a priority. And, you know, let me assure you that I have been involved in this in the last couple of days and I am going to stay involved in it, because we need to get it to finality and get this taken care of.

    Mr. TIBERI. Great. And just switching the subjects, Mr. Chairman, and Mr. Secretary, you mentioned RESPA and you are down-the-road on RESPA requirements. Can you give us a timeline on what your goal is to come out with recommendations?

    Secretary MARTINEZ. My hope is sometime in 90 days or so we will be in a position to come out with some recommendations. We are seeking input from consumer groups, from the industry groups and from members as well so that we can come out with something that is as comprehensive as we can make it, and I believe quite revolutionary. You know, RESPA is an area where if Social Security is a third rail, this is a third rail of HUD. Nobody has wanted to touch it.

    But from 1972 until now, an awful lot has changed in the financial world and the world of technology and everything else. And I think it's time that we take a good look at the amount of clarity that has not been available to people who are closing on a home and the amount of knowledge about what they're paying and why they're paying it. So I think it's time for a new day and I am really very aggressively pursuing that.
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    Mr. TIBERI. Thank you, Mr. Secretary. As a former realtor, I encourage you to continue to keep the consumer in mind with respect to disclosure as well.

    Secretary MARTINEZ. Absolutely. That is the key, disclosure.

    Mr. TIBERI. Thank you.

    Secretary MARTINEZ. Transparency in the transaction really means disclosing all of the information so that the consumer can make informed choices.

    Mr. TIBERI. I agree. Thank you.

    Chairman GREEN. The Chair recognizes Ms. Lee for 5 minutes.

    Ms. LEE. Thank you very much, Mr. Chairman.

    Hello, Mr. Secretary.

    Secretary MARTINEZ. Yes, ma'am.

    Ms. LEE. Let me ask you a couple of questions with regard to the funding for homeless initiatives. Now, your budget indicates that there are about, well, somewhere between 100,000 and 200,000 persons without a home for long periods of time, making chronic homelessness in the decade a top priority.
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    Let me just ask you about how that translates into your budget, because it's estimated that it will cost some $95 million more in 2003 than last year in terms of funding for the Shelter Plus program grants, but yet your budget doesn't reflect any increase in that. And you indicated you're consolidating the programs and also funding the interagency task force.

    Secretary MARTINEZ. Right.

    Ms. LEE. But how does all of this translate to addressing the problems of chronic homelessness? HUD's budget, I guess, is what, $1.1 billion? Is that what you are——

    Secretary MARTINEZ. The total budget for homelessness is approximately that, $1.1 billion.

    Ms. LEE. OK.

    Secretary MARTINEZ. But let me address the problem of Shelter Plus, because I think there is a little bit of a misunderstanding.

    The Shelter Plus program was advance funded in the 2002 budget, so it means that the 2003 appropriations that we will make were funded in last year's budget. And we can keep all the current level of funding without a new appropriation in this 2003 budget. We will need to appropriate again in 2004, but the 2002 appropriations were appropriating for 2002 and 2003 fiscal years. So we will be in a position this year to fund all of the programs of the Shelter Plus program. They are fully covered in the 2002 Appropriations Act.
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    Ms. LEE. So what does that mean for this year? Then what was the amount from last year? What was that? How did that translate for the program?

    Secretary MARTINEZ. What it will mean is that in the year 2004, we will need about $190 million in order to fully fund, going forward, the Shelter Plus program. But that in this current budget year that we are considering today, there was no need to do additional funding because it had been taken care of in the 2002 fiscal year budget.

    Ms. LEE. Then——

    Secretary MARTINEZ. Does that answer your question?

    Ms. LEE. Well, it does, but it doesn't in terms of the need that's there, given the need of addressing the 150,000, 200,000 chronic homeless population. Whatever that number was, was too low. I remember from last year and this year with the $1.1 billion, what does that include? I mean, it is just homeless assistance programs. Are these grants to shelters?

    Secretary MARTINEZ. We have supportive housing programs, Shelter Plus Care Program, the Section 8 Modernization Rehabilitation Program, and the Emergency Shelter Grants Program. So all of those are the HUD programs that address the needs of the homeless.

    But what we are doing beyond that is by reactivating the Interagency Task Force, the Interagency Council on the Homeless, and doubling the funding for that. We now have an executive director that's coming on board, we will now bring the resources of all the agencies of the Federal Government to bear on this problem. HHS has an awful lot that they can do with homeless populations, particularly the chronically homeless who often have additional health issues that are afflicting them which is sometimes the cause of their homelessness and we need to make sure that these people, these populations are accessing all that is available to them through these other agencies which today we are not necessarily always doing.
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    Ms. LEE. So in an ideal world, Mr. Secretary, what do you think we need? Because we all, including yourself, have been struggling to try to really deal with the problems of the chronic homelessness. What do you think the funding level should be that would begin to provide not only shelter, but transitional housing, the supportive services, all of those kinds of efforts to help people move from homelessness into housing?

    Secretary MARTINEZ. I believe that the programs that we have currently available are adequate and helpful to the population that we are dealing with. The problem is not that they are not accessing the opportunities for help. The problem is that we have a segment of the population particularly that is chronically homeless and we need to find a way that we can get better treatment options to those people so we can move them out of homelessness.

    So it isn't necessarily, in my view, necessarily a funding issue. It's about how we administer these programs and how we get all of the agencies of the departments of the Federal Government working together to try to address this problem.

    Ms. LEE. So you think that for drug treatment, for substance abuse, for children who are homeless, for——

    Secretary MARTINEZ. Well, drug treatment and substance abuse are things that are covered under other parts of the budget that are not necessarily under HUD, although we do some things like that in our continuum of care programs. But we do need to address these problems in a comprehensive way. And I think that this Interagency Council is going to be a tremendous resource for us in doing so. So I look forward to continuing the dialogue, because I know you care about the issue. I do too and our agency is tasked with dealing with it. So we intend to forcefully pursue it and this interagency task force is going to help us get it done.
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    Ms. LEE. Thank you, Mr. Secretary. Thank you, Mr. Chairman.

    Chairman GREEN. Thank you.

    The Chair recognizes Mr. Miller of California for 5 minutes.

    Mr. MILLER. Thank you, Mr. Chairman. Mr. Secretary, it is good to have you here today.

    Secretary MARTINEZ. Thank you, sir.

    Mr. MILLER. You have been a pleasure to work with over the last year on Brownfields as it applies to HUD and I believe the Chairman is going to mark that bill up possibly in March. And I am looking forward to that being implemented. I am also glad to see in the budget that HUD received a 7 percent increase in funding. I think that's long overdue.

    I think it's impossible though to look at one sector of the housing market and completely understand the housing problem we are facing in this country. We talk about the chronically homeless. But there's a new generation of homeless that's developing also and those are individuals who can't afford to live within the community in which they work. We are worried about air quality, we're worried about transportation, but there are so many people who have good jobs who just can't afford to live in the community or the county within which they work.

    In Orange County the median home price is $338,500, which means you have to have an income of about $112,833 to qualify for a home. And the average rental price is over $1,000. And last year we had Los Angeles County in here, which is probably the largest housing market in the Nation. They said that their affordable housing rental units had a vacancy factor of 3 percent, which means they are totally occupied, because 3 percent of all the units are always under refurbishing in some form.
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    But, in order to provide low-income housing for those at the lowest levels, you have to have an affordable move-up market. You can't have one without having the other, because people are not going to move out of the low-income housing into the next level if there's no place for them to go. Yet, if you look at the average sales price of a home in this Nation, 30 percent of that sales price is directly attributed to Government; 30 percent alone. And that's not indirect cost. If you figure the Endangered Species Act on top of that.

    I know Congressman Baca, from San Bernadino County, who is in the district adjacent to mine, there's a project called Liddell Creek that is next to a wash. And this entire project is zoned for quarry. And there happens to be a San Bernadino kangaroo rat that lives in this wash. Now, you have to understand, the kangaroo rat is endangered, because the kangaroo rat only lives in washes and every time you have a rain storm, they get washed out and they die.

    And yet, every study about wildlife and every biologist has been out there said, they will never live uphill from that wash, they will only live in the wash, and there's a project on 335 acres that they want to build affordable housing. Because of that rat, they spent 5 years trying to get approvals. Now that the county has approved them, they're being sued by the Friends of the Sage and other environmental groups to make sure they can't build affordable housing, because they said it's zoned for a quarry, it should be used for a quarry.

    And we all know what happens to a quarry for sand and gravel, they dig a hole and destroy the entire environment. But, I mean, it's just an attempt to stop providing housing. Where do you think we have to go in this Nation to deal with, yes, the people who are homeless, but also to deal with the marketplace that moves up so the rest of society can afford to live in this Nation?
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    Secretary MARTINEZ. Well, I think you speak of the problem, again, that's at the heart of the issue which is how do we get this continuum of people allowing them to move out of homelessness into affordable rental, then from rental into perhaps homeownership. And this is something that is a very difficult problem.

    Orange County, Florida, where I come from, has similar problems to what you speak of. It's not nearly at the same price levels, but they exist. People who have an ordinary job working in a service industry find it difficult to find an affordable place to rent.

    The issue of Government adding costs to the cost of housing is a very serious problem. That can only be addressed though at the State and local level, for the most part. I think the Federal Government may play a role in that, but it's a very, very small role compared to the local and State roles in these types of regulations.

    The things you're describing make me realize how happy I am that I'm not in local government anymore, you know, because it is a difficult set of issues to deal with.

    The problem is that we have got to find ways in which we can continue to erode the regulatory costs while at the same time finding more innovative ways of creating housing opportunities. I mean, I know that there would be some members who would just want to have a Federal program worth billions and billions of dollars for housing production. But that's not really answering the problem either.

    Mr. MILLER. See, I support the concept, and I talked to Mr. Frank about it repeatedly in the Section 8 vouchers. But then we come back and say there's a huge shortage of supply, so we need to increase Section 8 vouchers, but all we're doing is increasing demand for a product that is in shortage.
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    So, no matter how high you increase Section 8 vouchers, there's still no place to spend them. And yet we don't look at the concept of maybe we take a Section 8 voucher and allow that to be applicable to purchasing a home.

    And then maybe in 5 or 6 years, those people on Section 8 vouchers won't need Section 8 vouchers, because they've built up equity in the homes. But this housing crisis we're facing, and it's a crisis, is so complex we sit here in Congress and we come up with some good ideas on how to try to deal with it, but unless we have some mandate that says, things must be done, there's nothing in the world we're going to do to solve the crisis that's confronting us.

    Could you please try to address that?

    Secretary MARTINEZ. I'm not sure that I can provide you with a set of scripted answers to the problem you pose. I think it's a very serious problem.

    Some of the things we're doing are through our FHA program. We are finding that in reassessing how we did the premium calculation we found that we now have a tremendous interest in this program and that it is being utilized. In our FHA multifamily program, we increased the loan limit by 25 percent. It is now being utilized in high-priced communities like those you mentioned.

    So this is going to allow for—I mean, we're seeing applications coming in from communities that we hadn't seen in many, many years. So I'm hoping that's going to have an effect.
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    We may even raise that FHA limit even higher. The bottom line is that in doing so we've been able to create some opportunities.

    That's not a total answer, but it is a partial answer.

    Mr. MILLER. Well, in closing, I want to thank you. Your office has been extremely cooperative and responsive to issues we believed important in Brownfields and important to people who need housing.

    Secretary MARTINEZ. Thank you.

    Mr. MILLER. And I want to commend you for that.

    Secretary MARTINEZ. Thank you.

    Chairman GREEN. OK. We have a vote on. We're going to adjourn temporarily for the vote—a recess.

    Mr. Secretary, you can stick around, I hope?

    Secretary MARTINEZ. Mr. Vice Chairman, I have a commitment with the President that I have to be at 4:00 and that's my only constraint. Until then, I'm yours.

    Ms. SCHAKOWSKY. Mr. Chairman.
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    Chairman GREEN. We have but one vote so we'll come back immediately after the vote and we'll reconvene.

    Secretary MARTINEZ. I'll be here.

    Chairman GREEN. So we stand in recess until the vote is conducted. Thank you.

    Secretary MARTINEZ. Thank you.


    Chairman GREEN. If everyone will take their seats, we will get back started again given the sensitivity to the Secretary's schedule.

    At this time I would recognize Ms. Stephanie Jones for questions she may have.

    Mrs. JONES. Thank you, Mr. Chairman.

    Chairman GREEN. Good afternoon.

    Mrs. JONES. Mr. Secretary, how are you?

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    Secretary MARTINEZ. Good, thank you.

    Mrs. JONES. Good. You know what? This is a grand opportunity. I get to play Ranking Member on a subcommittee. So I'm really having a good time sitting here in Barney Frank's seat. Ignore his name.

    Secretary MARTINEZ. I won't call you Mr. Frank.

    Mrs. JONES. Thank you.


    Mrs. JONES. I want to pick up on some of the questioning that has already been asked of you. In my State, the great State of Ohio, with regard to the OTAG programs, I've heard from many, many organizations and I promised them I would go on record with regard to their complaints, though I will accept your representation that they will be paid by February 27th or March 1st. I'm going to send them letters today, in fact, so they'll be real happy.

    But the Cleveland Tenants Organization was a recipient and their money was used to send local tenants to training opportunities. They have approximately $20,000 coming back to their organization.

    The Volunteers of American in Cincinnati was the recipient of $70,000 for a pre-development grant for acquisition and preservation of the Parkway Towers, a 100-unit elderly and disabled building in Columbus. Mount Vernon Plaza, they were using their dollars and they represent that they're out $20,000.
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    Then there's an organization called COHIO, as the OTAG recipient for the State, they've been forced to lay off their part-time staffers, suspend their contract with the Cleveland Tenant's Organization, and delay filing three Vista positions in Dayton, Columbus, and Cincinnati. And they have not been reimbursed approximately $70,000. So it's really coming down to the rubber meets the road and I would appreciate you giving immediate attention to those particular programs.

    Secretary MARTINEZ. Ms. Jones, you're absolutely right and I understand the depth of the problem. We, as I stated earlier, are in the process of getting payments out and we hope this is something that will never be repeated.

    Mrs. JONES. Because we only have 5 minutes, I have to rush through all my questioning. Let me ask you, what do you anticipate being the composition of this interagency council on the homeless and who will actually have, if we want to call and say, OK, you're responsible for this, who is that person?

    Secretary MARTINEZ. There will be an executive director hired who begins the job on the first day of March or right around the first of March. There is statutory language that created the council and the members are prescribed by that, but it is the secretaries of HUD, VA, HHS, Labor—that's the composition of it and there will be——

    Mrs. JONES. Well, that poor executive director has many bosses, huh?

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    Secretary MARTINEZ. Well, his ultimate boss is really the President. It's actually out of the White House, but that's the composition of it and that's how it will work.

    Mrs. JONES. Well, they've figured that out already. I'm kidding. Go ahead.

    Secretary MARTINEZ. So that's who you would address. And the person will be housed at HUD. So you can direct your inquiries to HUD.

    Mrs. JONES. Let me also go back to an issue that was raised with regard to, we're working with ownership wealth which is a program that the Congressional Black Caucus Housing Foundation is working on, but I want to voice my concern as well with regard to the whole issue of affordable rental housing. Can you tell me—and I lost the question that I really want to ask, Rodney, help me out real quick. With regard to the allocation of costs—tell me where real quick. That's what we get when we get a break. OK.

    In spite of the recent loss of the portion of affordable housing stock and the demonstrated need for more affordable housing, don't you think that you could use additional funding for the production of affordable housing?

    Secretary MARTINEZ. I believe that there are many ways to attack the problem. One of them would be to just provide additional funding through the Government. I don't think that is likely to happen. I think we need to look for a multiplicity of ways of doing it. One of the ways is increasing the multifamily loan limits of FHA. Another is the revising of the subsidy program at FHA which we've done. Both of which are having a very, very positive effect in the production of multifamily housing.
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    The Millennial Housing Commission, instituted by the Congress, has been studying the affordability problem for a year-and-a-half now and their report is going to be out in May, and I would look forward to what they have to say. It's been a bipartisan group of people.

    Mrs. JONES. OK. I want to raise two more issues with you and maybe I won't get a chance to ask them both, but maybe I can get a response later, real quick.

    Secretary MARTINEZ. Sure.

    Chairman GREEN. You won't, but you can get one of them in probably.

    Mrs. JONES. OK. Can I just raise two questions? I can get an answer back later. OK.

    With regard to converting public housing units to project-based units, tell me what your position on whether private lenders are going to really be acceptable?

    Second question is, it appears to me that in this colonias program that you're really just moving rural housing dollars by raising the colonias program and cutting rural housing dollars.

    Chairman GREEN. Is this a question?
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    Mrs. JONES. No, but, yes. And I want to get an answer too.

    Secretary MARTINEZ. Well, the quick answer to the first one is, in terms of what—I'm sorry, I've got the colonias in my head now. I forgot the first question. What did it have to do with?

    Mrs. JONES. With regard to Section 8 and private lenders.

    Secretary MARTINEZ. Oh. I do believe the private lenders will be interested in that. I think that is a viable market and I think that the research that HUD has done indicates that they will be interested in making loans to public housing authorities.

    The second question is, the colonias are a very much neglected part of American life. These are people who live in the border States. And I believe that the very small amount of directed funding that we're going to apply to them in this budget, if it's the will of the Congress to enact it, will be a significant help to these people to community centers and other intermediary organizations that are working with these people to provide infrastructure assistance to help these folks.

    Mrs. JONES. Thank you.

    Chairman GREEN. Thank you.

    The Chair recognizes Mr. Baker from Louisiana for 5 minutes.
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    Mr. BAKER. Thank you, Mr. Chairman.

    First, I appreciate your courtesy in calling this hearing. And, Mr. Secretary, I do appreciate your appearance here today and want to compliment you on your effort and initiative to change the course of direction for the enterprise to provide more effective utilization of taxpayer dollars for the benefit of those in need of housing.

    I really wanted to raise two issues, both of which are not new to you. We have had prior conversations, but on the subcommittee record, relative first to HANO, the Housing Authority of New Orleans, and my longstanding concerns about the disastrous conditions in which many low-income individuals find themselves within the city. The clear record of the authority being unable to meet the minimal standards for conduct in whatever scoring methodologies have been used and my interest in seeing the current administration be terminated and the creation of a judicial receivership to bring about the most independent manner for reconstruction of services within that city.

    I understand that after careful review, the Administration did determine that an administrative receivership was the most appropriate way to proceed given the current body of law. However, I was surprised to learn that the city itself didn't file suit against the administrative receivership and is now demanding the implementation of a judicial receivership. My point being that the political difficulties over the many years to proceeding with real world improvements for the people who are trapped in the walls of that deteriorated housing may continue to be so trapped unless there is some immediate remedy to this crisis.

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    Since 1992, the Congress has appropriated in excess of $800 million to the Housing Authority of New Orleans and I can honestly tell you, having walked the streets and talked to the individuals that the conditions for people living there today are at least no better, and perhaps worse, than they were before the $800 million was provided. I think it's a tragedy, speaking from the State. I think the only housing authority in the Nation are in the purview of Congressional assistance is probably Puerto Rico which might be worse. And I think that would be a close call.

    So I want to express my deep interest in assisting you and the Administration in whatever steps can be taken to get people in safe, decent housing, within the next 12 to 15 months, if not sooner.

    There have been kids born, grown up, and died fighting drug wars on the steps of this deplorable condition. And it's really intolerable that we as the Nation's largest slum landlord continue to fail in our ability to bring about safe housing conditions.

    Second, and even more parochial of interest than HANO is the distribution of HOPE-VI grants across the Nation. Approximately 13 of the largest cities get almost half of all the funds made available, and not to get all 13 angry with me, I would suspect that on careful review we would find that the utilization of those dollars within those very large and enormous housing projects has not been particularly successful for the quality of life for people who reside in them.

    And, in fact, it is the smaller, well-managed housing authorities across the country that do provide a measure of quality for elderly and handicapped particularly, but for all those who need it. And that smaller housing units, diversified into communities appears to be the way that gives the most benefit to the taxpayer dollar.
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    I am going to be very much interested in working with the Administration, I hope, in a revision of the HOME VI formula to ensure that well-run, well-managed, smaller housing authorities get access to the capital they need to provide the services that are increasingly obvious across many States of the Nation. Those are my two points, Mr. Chairman. I just wanted to put them on the record.

    I have deep concerns and I hope we can see some progress on both fronts.

    Thank you, Mr. Secretary.

    Secretary MARTINEZ. Thank you, Mr. Baker. And if may just quickly respond, I share your concern. HANO, as you know, we've talked about it and I think that very, very soon we will get a ruling from the court on the wishes of the court on judicial or administrative. We're prepared to go either way. We think it will work either way. We just had a preference for administrative. We thought that we had an agreement from the City, but that apparently wasn't the case. The bottom line is, the living conditions for those people has got to get better, there are no two ways about that. And I appreciate your concern on that and look forward to working with you as we go forward to make those people's lives better, no question.

    Chairman GREEN. Thank you.

    Ms. Schakowsky is recognized for 5 minutes.

    Ms. SCHAKOWSKY. Thank you, Mr. Secretary. I appreciate your being here. I just wanted to tell you that last week I had a very good meeting with Mr. Galvon who is the Director in the Chicago area and I look forward to working with him on the many issues that we face.
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    I want to associate myself with our Ranking Member's comments and with his opening comments, and particularly the question he was asking about the payment to non-profit organizations. I also wanted to associate myself with Mr. Baker's characterization of us. I had never really thought about that, as the largest slumlord. We have that situation in Chicago as well.

    And as we try and address the problem of the Chicago Housing Authority, get rid of some of those bad buildings, we have an enormous lack of affordable rental housing as a replacement and would really hope that we can effectively address that, mainly, I think by production, as does Mr. Frank.

    A couple of questions that I wanted to ask. I want to be sure that I got you right, that I could tell Tenants United for Housing which was owed money has—actually will go out of business in a couple of months, if they don't get it—has laid off the majority of its staff already. So it's not true that they're stumbling along, most of them are crawling along, if at all, and have actually suffered enormously, because this money has not come. If they are scheduled to get it, they are going to get it by the beginning of March? I can call them this afternoon and tell them that?

    Secretary MARTINEZ. That is correct.

    Ms. SCHAKOWSKY. OK. Great.

    I wanted to ask you about transitional housing. Over 100 Members of Congress are co-sponsors of a bill that I have that would allocate $50 million to victims of domestic violence to provide transitional housing to them. Last time we actually authorized $25 million, none of that money was ever appropriated; 75 Members of Congress in early January sent a letter to you and to the President, both sides of the aisle, bipartisan, asking that we put some of that money—that we put $50 million into transitional housing.
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    You know, we're fighting terror around the world and we have so many people here at home who face terror every day in their homes because of domestic violence. It is not a lot to ask, I think, to begin, at least, to address the problem to say that we put some money into transitional housing, help these women and their children get their lives together and move on.

    I want to know if this is or is not a priority for you if you can take another look at the budget and see if we can't find some room to address these women, preferably with the full $50 million which I believe is a drop in the bucket for a critical issue facing us.

    Secretary MARTINEZ. Well, we prepared the board that we thought was appropriate and I'm afraid that was not part of it. I do believe that there are—I know from my own local experience—a number of very effective programs at the local level that are run and that usually address these kinds of problems. I don't know that every problem that society faces cries for a Federal solution, necessarily.

    So I guess what I'm saying to you is, no, that was not part of what we put into our budget and I'll be happy to discuss it further with you and see if there is some way that we can provide some assistance or find a way that it would be possible. But, you know, what I have learned in my experience is that many, many times these are very serious problems, but that often local government and not-for-profits work together at the local level to provide answers to some of these problems.

    Ms. SCHAKOWSKY. Women are being turned away every single day at shelters, because there just is not enough room for all the women who are actually making the move to leave, plus the probably millions of others who would like to. I would appreciate the opportunity to talk to you. I think this does cry out for a Federal solution and I think the least—if we are going to worry about terror, then we ought to worry about terror. There are terrorists in homes right now terrorizing women and their children and we should do something about that. I would like to talk to you more about that.
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    There are several housing developers in my district who have been involved in affordable housing who have told me that high exit taxes are the things that prevent them from selling their properties to affordable housing developers. And that if there were some relief for them from these high exit taxes that we might be able to see to prevent the loss of affordable units, I'm just wondering if you would support an initiative to provide tax relief for developers who sell their buildings to developers of affordable housing?

    Secretary MARTINEZ. That's probably an issue emanating from the 1986 tax laws, and it is something that I don't believe HUD would have the authority to commit to do. I think it's something that the Department of the Treasury would probably have to address since it is a matter of tax law and not of something that HUD would have the authority to do in the way we currently are configured.

    Ms. SCHAKOWSKY. I realize my time—but, if it would help to achieve your goals, maybe we could work together to try and move that idea along.

    Secretary MARTINEZ. I would be happy to—absolutely. It would be my pleasure to talk to you further and learn more about it and maybe we could work together.

    Ms. SCHAKOWSKY. Thank you.

    Chairman GREEN. Mr. Capuano, I understand you're going to be shifting up here? Would you bring your nameplate with you?
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    Subcommittee Members know, we are following standard subcommittee practice and recognizing Members in order of their first appearance here. So, Mr. Capuano, it's your turn, 5 minutes for questions.

    Mr. CAPUANO. Mr. Secretary, I give you all the credit for my recent promotion and I appreciate that.

    Secretary MARTINEZ. Yes, sir.

    Mr. CAPUANO. Mr. Secretary, I guess I have some questions, but I want to make it very clear, though I have some disagreements and I still have some serious policy differences, I want to commend you on what I think was a budget that was much better than I anticipated.

    Oh, you want me to change that? They don't want me to be Mrs. Jones anymore. The staff doesn't mind.

    So on some levels I don't like some of the things that are here, but on another level I really expected to really not like it and I want to commend you for what I expect was probably some difficult negotiations within the Administration and thank you.

    Secretary MARTINEZ. But may I thank you for not being nearly as ugly as you thought I'd be.

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    Mr. CAPUANO. Well, OK.

    I guess the questions I have really—there's a bunch of them, but I want to just talk about three of them, the empowerment zones, the CDBG earmarks and public housing. The empowerment zones, having one in my district and knowing how well it works and how well it matches up private funding, I actually think it's a pretty good program. I think it could be improved and I don't have any problem with doing different programs to get the money in the same place.

    But I guess I was a little surprised, very surprised to see it zeroed out particularly when the Administration just added nine new ones. If the Administration was saying it's a bad program, we're going to zero it out and end it, well, OK, we would have a difference of opinion. But you can't have it both ways. The way I look at it, if you're going to create new ones, and then not fund the existing ones, the only thing I can draw from that is that you have drawn the conclusion that the existing ones are finished. That they have accomplished their goals, that it's a good program that we should continue and that is just not even close to the case. I guess I'd like some explanation as to why that—what appears to me to be an internal inconsistency.

    Secretary MARTINEZ. Help me with which empowerment zone is in your district and——

    Mr. CAPUANO. Boston. I don't know.
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    Secretary MARTINEZ. Cambridge?

    Mr. CAPUANO. Boston.

    Secretary MARTINEZ. Cambridge.

    Mr. CAPUANO. No, Boston.

    Secretary MARTINEZ. OK. Boston. OK.

    Mr. CAPUANO. It's a round two.

    Secretary MARTINEZ. I couldn't find the exact. A round two, OK.

    Boston is a good example of the problem we're facing. Boston has been granted, so far, authorized $18,972,866, of which they've utilized so far, $1,166,000. They have utilized 6 percent of what's been appropriated so far.

    Mr. CAPUANO. Right.

    Secretary MARTINEZ. This is a 10-year program. We are 50 percent of the way through the program. So our prediction is that in the next 5 years at the utilization rate there's sufficient funds available which is approximately 80 percent of the appropriated funds that they can draw down as they go forward.
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    And, in addition to that, it has been our experience in some of the studies we've seen that the most successful part of these programs is not the grants, but is the tax credits. And so that's the part of the program that makes them really work and we feel like that is the right way to go.

    Mr. CAPUANO. I don't dispute that last part, but the first part, the reason that they hadn't been able to utilize it is because this particular round two has been fits and starts. You can't make a plan, you can't make partnerships, you can't make deals if you're not sure where the funding is going to come from.

    And the problem with this round two, as I've seen it, is that one year they get funding, the next year they don't, then they do, and now they're up for grabs again. How do you make a plan? How do you make a development? How does any developer want to come in and be a partner to a program that he is not even sure is going to be existing next year? That has been the problem that we've seen in Boston.

    So, I don't know about others, but I will tell you without question that's been our problem. If it were reduced amounts of money, which it was.

    Secretary MARTINEZ. They've got $17,800,000 to make——

    Mr. CAPUANO. Almost all of that came in the last year-and-a-half and that's been the problem—the inconsistency.

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    Secretary MARTINEZ. But it's there.

    Mr. CAPUANO. I understand that. But without the consistency, there's no guarantees that the next round is going to come, or the next round is going to come, or the next round is going to come. And that's the problem that I have with this kind of budgeting.

    I would rather, for planning purposes have a low—if that's what it's going to be, we'll fight about the amounts of money, but have a definitive amount of money that is there from start to finish of the program so that the people doing this can plan it and go out and make their deals, can get business people in, can talk to bankers, and say, we're going to make our share.

    Since my time is running out, I do want to hit two other things. Public housing. I understand the concerns about public housing. I don't think anybody is going to debate the general concerns that public housing is not been where we want it to be. But the answer to that is not to cut back capital funding.

    I understand some of the concerns and some of the concepts of changing over to project-based Section 8. I'm not so sure I'm totally—I am not close-minded on that at all, but in the meantime you cannot just walk away from it. And if we are going to get to project-based Section 8, which is fine, we can talk about that, we still have to have a plan and you still cannot let the existing plant deteriorate until that program gets done. And that has been my big fantasy, last year and this year, particularly when you add that on top of the drug grant, and we heard Mr. Baker talk about what some of his problems were and some of his issues—not ''his''—but, his district's.
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    Mr. CAPUANO. I know. I clarified that.


    Secretary MARTINEZ. Let me say that we believe that $120 million from the Capital Fund, which would be available to generate this other private financing, could lead up to $500 million this first year in refurbishments and renovations. So our hope is that not only is it not going to diminish, but it's going to increase the amount of money available to fix the current stock of public housing.

    You know, that's really the best answer I can give you. I think it's something we're trying and want to see how it works. I think it's worth pursuing, because frankly for more than my lifetime as a Secretary, and more than my lifetime probably living, there has been a backlog of public housing, capital fund needs. You know, the backlog of $20 billion is like a revolving fund. It never seems to be drawn down, it never seems to get lower.

    So I think this is an innovative way that we can get project-by-project improvements that I hope will improve the lives of the people who live in public housing.

    Mr. CAPUANO. Mr. Secretary, my time is up, but I don't disagree with some of the ideas to experiment, but you don't experiment by cutting off your arm. You experiment, and if it works, then you can change the monies as opposed to cutting off before you have the experiment. And my time is up and thank you.
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    Chairman GREEN. The Chair recognizes Mr. Clay for 5 minutes.

    Mr. CLAY. Thank you, Mr. Green.

    Mr. Secretary, good to see you again.

    Secretary MARTINEZ. Yes, sir.

    Mr. CLAY. In your opening statement you talk about a tax credit for developers for single-family, affordable housing. Would that require legislation? Help me out here.

    Secretary MARTINEZ. Let me——

    Mr. CLAY. Or do you have the authority now to issue the——

    Secretary MARTINEZ. No, no, this would be a program that would be under the Department of the Treasury, and it would be new legislation that would be required; yes, sir.

    Mr. CLAY. It would be new legislation and do you know if it's been introduced yet?

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    Secretary MARTINEZ. It will be shortly.

    Mr. CLAY. It will be shortly. Thank you. I am interested in that.

    You also talk about reconfiguring the community development block grant program and you want to ensure that the funding actually goes to those communities who need it the most, and I couldn't agree more with you on that program. Do you have an idea of how this will work?

    Secretary MARTINEZ. The idea is that there are a number of communities that really under anyone's analysis of them they are really not poverty communities. So we are trying to take a little bit of their money—50 percent—and try to focus that money on communities that need it more. So basically the money will be redistributed according to the formula, so there won't be any targeting of those funds, but it will give less CDBG monies to those communities who frankly, they're more than 200 percent of median income.

    Mr. CLAY. How about in a city such as St. Louis, which has some wealthy neighborhoods and other poverty stricken neighborhoods; will there be a formula or method of ensuring that those neighborhoods who have the severest need actually get the funds?

    Secretary MARTINEZ. Unfortunately, this is not reaching that far. We are now dealing with communities who on the whole are viewed as very wealthy communities. A place like St. Louis, that's going to be a local battle and, you know, at the local level to decide where the CDBG funds get spent.
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    Mr. CLAY. I see. OK. Now, about in your budget, you know, you acknowledge that there are some five million families with the worst case housing needs. Do you believe that your request for 34,000 incremental vouchers is adequate to address this need?

    Secretary MARTINEZ. It's more than adequate in terms of the utilization. We find that the recapture on vouchers is about $2 billion a year. And therefore, we're not currently seeing all of the vouchers utilized. What we are seeking to do as well is hoping that we can transfer vouchers from those communities that don't find it possible to use them to those that desperately need them and have a waiting list.

    Mr. CLAY. The last Congress, one of the biggest issues in this subcommittee was the concern about Section 8 opt outs. Approximately how many Section 8 units have opted out of the Section 8 system in the last 2 years? And how many units have participated in HUD's mark-to-market preservation programs, would you know?

    Secretary MARTINEZ. Well, let me give you one answer and offer you a second one that will have to come to you. I don't know how many is on your first question, but the mark-to-market has been working well and we have been able to preserve an awful lot of the Section 8 housing as Section 8 housing. So mark-to-market is working, it is having success. It was renewed and we look forward to that continuing to be successful. But I would have to get back to you on the specifics of the other question.

    Mr. CLAY. Just one more issue. I don't know if you have reviewed the proposed legislation for Ginnie Mae Choice. And if you have, would you have an opinion on it?
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    Secretary MARTINEZ. I have begun to review it, but I do not yet have an opinion on it, sir.

    Mr. CLAY. Would you share that with us?

    Secretary MARTINEZ. The Administration has not taken a position.

    Mr. CLAY. I thank you for that.

    Secretary MARTINEZ. You'll hear.

    Mr. CLAY. Thank you very much. Thank you, Mr. Chairman.

    Chairman GREEN. The Chair recognizes Mr. Sanders for 5 minutes.

    Mr. SANDERS. Thank you, Mr. Chairman.

    Welcome, Mr. Secretary.

    Mr. Secretary, you will allow me to respectfully disagree with some of my colleagues. I happen to believe, and I think you have acknowledged yourself that this country faces a terrible housing crisis.

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    In my State it is not only a question of homelessness which exists all over America, it is a question nationally, and in Vermont, of millions of people who are working at low-wage jobs. You can do the arithmetic as well as I can, the minimum wage now is $5.15 an hour and perhaps you will tell me how you think somebody can afford housing at $5.15 an hour. People making seven bucks and hour, eight bucks an hour who are paying, 40, 50, 60, and in some cases 70 percent of their very limited incomes for housing. This is unconscionable, this is wrong.

    And the budget that the Administration brought forth is totally, absolutely inadequate. And it speaks to the moral question as to how we can give hundreds of billions of dollars in tax breaks to the richest 1 percent, folks who do not have a housing problem, yet not have adequate funding to make sure that working families can keep their kids in safe and decent housing.

    My question for you to begin with, I have been working with the National Low Income Housing Coalition on a piece of legislation called ''The National Affordable Housing Trust Fund.'' And this is tripartisan. It has 164 co-sponsors. And I know earlier you talked about faith-based initiatives. It has many religious organizations, including the Catholic Charities are in support of it. This is serious about dealing with the housing crisis.

    This would build over a million units of affordable housing in the next 10 years and in the process put a heck of a lot of workers to work doing meaningful work and earning decent wages.

    As I mentioned earlier, we have 1,800 organizations including business groups in California who understand they can't attract workers because the cost of housing is so expensive. We have church groups, we have unions, we have low-income organizations who say that the time is now to be serious about addressing the national housing crisis.
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    I just have a couple of questions. Number one, would you be interested in speaking with me and some of the groups who are sponsoring this legislation so that we can explain to you what this legislation would do? Can we meet with you to do that?

    Secretary MARTINEZ. Absolutely. Would be delighted.

    Mr. SANDERS. I appreciate that very much.

    Secretary MARTINEZ. I look forward to hearing it.

    Mr. SANDERS. My second question I will get in touch with you to see if we can work out a time.

    Secretary MARTINEZ. Sure.

    Mr. SANDERS. The second issue is, do you believe, in fact, do you agree with me that this country is facing a serious national housing crisis?

    Secretary MARTINEZ. I believe that the problem you cite about the inability of some people who work at low-wage jobs to find affordable rental housing is a serious problem.

    Mr. SANDERS. No, I'm not talking about some people. I'm talking about millions of people.
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    Secretary MARTINEZ. A definable number of people that we call——

    Mr. SANDERS. Not a definable number of people.

    Secretary MARTINEZ. Well——

    Mr. SANDERS. In other words, I don't want you to pass this off as, well, it's a problem that the guy across the street has. I am suggesting that this is a national crisis affecting millions of people. Do you agree with me?

    Secretary MARTINEZ. It is a national problem affecting millions of people.

    Mr. SANDERS. OK. I would use the word ''crisis'' I gather you do not.

    Secretary MARTINEZ. I do not use the word ''crisis''; but I think it is a serious problem.

    Mr. SANDERS. OK.

    Secretary MARTINEZ. And it is one that merits addressing and discussing seriously as to how we might approach it.
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    Mr. SANDERS. Can you tell us with a straight face—and I don't blame you for preparing the budget, I know that the President has lots of needs out there and so forth, but can you tell us with a straight face that you think that this budget addresses the seriousness of the housing crisis that this country faces?

    Secretary MARTINEZ. Congressman Sanders, I think that this is a budget that's serious and responsible. I think it's a budget that addresses an awful lot of the problems that our country faces. We could be just as passionate.

    Mr. SANDERS. Housing.

    Secretary MARTINEZ. Well, it is obviously about housing which is what the budget addresses. I think at a time of a national recession, I think at a time that we are at war, and I think at a time when this——

    Mr. SANDERS. We have given hundreds of billions of dollars in tax breaks. Do you want to add that to your statement?

    Secretary MARTINEZ. What I prefer to say to you is, that I look forward to working with you to find what we might disagree on the solutions, but at least to discuss what solutions we might find to what we both have agreed is a problem.

    The bottom line is that your solution to it and mine might be different. The depth of your concern, I think, speaks to your commitment to finding a solution and I welcome the opportunity to work with you toward that.
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    We may have different alternatives that we consider as positives in terms of what outcomes we come to. The Millennial Housing Commission I know has been addressing this very issue. And I look forward to hearing what they have to say. They've spent 18 months studying the problem and some of the people that you've mentioned I know have been represented at this Millennial Housing Commission. So I look forward to hearing what proposals they might make and I look forward to meeting with the groups that you've identified and hearing what proposals they might make.

    Mr. SANDERS. I appreciate that, because I've been involved in politics for a few years. I have never seen 1,800 different organizations, business groups, labor unions, everybody in between speaking about the need to address this crisis coming together around a piece of legislation. So, Mr. Secretary, I'll give you a ring. Let's see if we can get together.

    Secretary MARTINEZ. Absolutely.

    Mr. SANDERS. Thank you very much.

    Thank you, Mr. Chairman.

    Chairman GREEN. The Chair recognizes Mr. Israel for 5 minutes and thanks him for his patience.

    Mr. ISRAEL. Thank you, Mr. Chairman. It's my pleasure. And it's a privilege to be here with you, Mr. Secretary.
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    In the interest of time I'll be brief. I have a bunch of questions that I will submit in writing.

    First, Mr. Secretary, I'm from Long Island which is a high cost of living area. And I can't tell you how many veterans come to my office who are homeless, in search of housing, just barely hanging on. I'm wondering whether you would be willing to have a dialogue with me and try and develop some ways of providing some additional Section 8 help for those veterans on a priority basis within the constraints of the law? Is your department willing to work with us and attempt to help veterans who are just barely hanging onto their homes or don't have homes?

    Secretary MARTINEZ. Yes, sir. And I want to tell you that we have been doing some things in working with the veterans, the Department of Veterans Affairs and the Supportive Housing Program for veterans is something that we have been addressing and I agree with you that this is a problem that needs also to be addressed and I'll be happy to meet with you.

    Mr. ISRAEL. Great. I would appreciate that and we'll be in touch.

    Second, just to pick up on something that my colleague from Missouri mentioned with respect to CDBG funding that had been removed from counties at 200 percent of median income. His point was St. Louis has wealthy areas and pockets of poverty. And certainly so does Long Island. We have extremely wealthy areas, but in my district we have some very troubled underserved communities.
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    In Long Island we have an organization called the Long Island Housing Partnership and many of your predecessors and Democratic Administrations and Republican Administrations have been kind enough to visit Long Island. And I can assure you when they got on the plane to head to Long Island, they couldn't understand why they were going to this rich area. And as soon as they landed and toured some of the projects that the department worked on with the Long Island Housing Partnership they understood that this is an area that has poverty, has homelessness, and needs help.

    You had mentioned to Congressman Clay that haven't quite reached that far with respect to fine tuning the formulas in dealing with wealthy areas that have pockets of poverty. Is there a way that we can discuss fine tuning those numbers?

    Secretary MARTINEZ. Well, you know, this is an apropos time—opportune time—we are in the midst of a Census year, so the report from the Census comes out, the CDBG formula has been discussed in the Congress before and I think it ought to be discussed again and how it might be tweaked in order to make it applicable to problems like you mentioned.

    Mr. ISRAEL. So you're open to that dialogue as well?

    Secretary MARTINEZ. Absolutely

    Mr. ISRAEL. Terrific. Final question, Mr. Secretary. I've been told by members of the Native American community that black mold has become a dire health problem to them and other throughout the countries in HUD projects. It's been linked to skin rashes, fever, inflammation of the respiratory tract, neurological problems, depression; can you tell us what HUD is doing with respect to some of the studies that have been issued on black mold and what your plans are in order to deal with that?
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    Secretary MARTINEZ. We've had a very aggressive program in trying to deal with the health risks associated with housing and the lead-based paint initiative also includes asthma and mold as part of what we are addressing. So we are looking at the problem. There is funding available to deal with it and we are, in this budget, I can't tell you off the top of my head now the increase, but there is an increased amount of money. I believe it's going to be $126 million altogether with a very significant increase for that area of health-related issues.

    Mr. ISRAEL. Would you be kind enough to contact my office and give us an approximate timeframe for the studies that are dealing specifically with black mold?

    Secretary MARTINEZ. There are no ongoing studies that I'm aware of, but we are dealing with how to get housing that is afflicted with the problem, how to fix the problem so that people don't have to live in those conditions.

    Mr. ISRAEL. OK. If possible I would like to follow-up with you at another time.

    Secretary MARTINEZ. Our office, you know, we have a very active program in this area working in partnership with EPA in some instances and we would be happy to bring you up to date.

    Mr. ISRAEL. Just so I understand, no study but funding and programs to remediate?
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    Secretary MARTINEZ. Right.

    Mr. ISRAEL. OK.

    Secretary MARTINEZ. And there may be some study associated with some of this, but it's an ongoing program of remediation.

    Mr. ISRAEL. Great. We'll follow up with you and I thank the Chairman for my time. I yield back.

    Chairman GREEN. Thank you, Mr. Israel.

    The Chair notes that some Members may have additional questions for this panel which they may wish to submit in writing. Without objection the hearing record will remain open for 30 days for Members to submit written questions to the witness and to place the responses in the record.

    The hearing is adjourned.

    Thank you, Mr. Secretary.

    [Whereupon, the hearing was adjourned.]

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February 13, 2002