Review of the Community Development Block Grant Program

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REVIEW OF THE COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM

THURSDAY, MARCH 14, 2002
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 10:36 a.m., in room 2220, Rayburn House Office Building, Hon. Sue Kelly, [acting chairwoman of the subcommittee], presiding.

    Present: Chairwoman Kelly; Representatives Miller, Grucci, Frank, Lee, Jones, Capuano Waters, Clay and Israel.

    Chairwoman KELLY. The hearing will come to order. This hearing of the Subcommittee on Housing and Community Opportunity is on the Community Development Block Grant program. And we welcome our first panel of witnesses here today: the Honorable Christopher Shays, the Honorable Carrie Meek, and we understand the Honorable Ileana Ros-Lehtinen is on her way.

    The Chairwoman has asked me to take the chair here. She is on her way to another hearing.

    Ranking Member Frank, I want to thank you for agreeing to hold the hearing today to review this Community Development Block Grant program.

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    As we are all aware, the Administration has called for reforms of the Community Development Block Grant program in the budget submission. And we all need to give these proposals a close examination. CDBG grants distribute approximately $4.3 billion to over 1,000 cities, urban counties and the States each year. These funds support various community development activities that are required to be directed primarily to low- and moderate-income persons.

    In my home county of Westchester County, New York, these funds fill critical needs. Seniors, the disabled, low- and moderate-income working families are dependent on the services these funds provide. In addition, these funds help strengthen communities by assisting towns with the proper growth and redevelopment of their commercial and public areas.

    On page 175 of the budget, the Administration calls for a redistribution of the CDBG grant funds. In an effort to ensure that these funds are truly targeted to poorer communities, the Administration calls for a 50 percent cut of these funds to communities whose per capita income is two times the national average.

    On the list of the towns and cities who qualify for this proposed cut is one single county, one county and a number of other locations. But only one county has been chosen for this cut. That is Westchester County, New York.

    Because of this, Westchester would be subject to a $3.5 million cut, which makes up 35 percent of the expected revenues of the county. This proposal troubles me and my neighbors in Westchester County. The needs of the county will only grow larger in the future.

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    Poor families will still need clean, safe, affordable housing. Seniors and disabled residents will still need support services. In light of all these needs, this proposed cut is unacceptable for Westchester.

    Secretary Martinez has assured me he is willing to work with us on this issue. And I have found him to be a good and reasonable man. It is my hope the testimony we hear today and the discussions we will have will give us all a better understanding of the issues involved.

    I look forward to working with my colleagues on this subcommittee and along with HUD, County Executive Spano and County Legislator Oros as we seek to ensure that the Community Development Block Grants continue to be distributed fairly and equitably in this proposed cut and that the cut does not become a reality.

    At this time, I would like to ask if any other Member has an opening statement.

    [The prepared statement of Hon. Sue W. Kelly can be found on page xx in the appendix.]

    Mr. Frank.

    Mr. FRANK. Madam Chairwoman, I agree with much of what you have said. We have two separate proposals in the works here. One is a proposal, long advocated by the gentlewoman from Florida, who has been one of the most tenacious and forceful defenders of social justice to serve in the House and has used her position on the Appropriations Committee successfully to block some raids on the Community Development Block Grant program that would have tapped into funds regardless of any of the social requirements.

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    She has a piece of legislation. And I have been asking the subcommittee leadership for some time to have a hearing on it. And I appreciate the fact that they have accommodated us in this regard.

    And the thrust of it, I think, is very important. I have some questions about the details and specifics.

    But we have a program that is intended to benefit low- and moderate-income people. And I think it is reasonable to say that no Administration in the 22 years that I have been here, which encompasses both parties, has really enforced that.

    And one of the things that we can do is to encourage HUD—a relatively new HUD, so they come to this with a clean slate—to enforce better than we have the requirement that low- and moderate-income people be the beneficiaries. And I hope we can move in that direction.

    There is another proposal that the Chairwoman of the hearing just mentioned, which is an Administration proposal to take CDBG funds away from about a dozen communities on the grounds that they are too wealthy. Now, these two are interconnected in my mind, because if we did a better job of enforcing the low- and moderate-income requirement, you would not have an argument that wealthy people were unduly benefiting.

    That is, I do not think any of these communities has only rich people. Every one of the communities, as is virtually—remember, we are talking about communities of 50,000 or more. So we are not talking about an enclave of 3,000 people. And I do not know of any communities of 50,000 or more that do not have some low-income people.

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    So the remedy that you might, if you think there is a problem of this not going where it is supposed to, the remedy is perhaps to strengthen the requirement statutorily, as the gentlewoman from Florida is trying to do, and certainly to enforce them administratively. And I know, because I represent two of the communities that are on the—what we would technically refer to as the ''hit list''—that have substantial low-income populations. And they are in the metropolitan area.

    And as it will be shown, I think in testimony, they are both communities that work very hard to try and promote diversity. They are communities which, in the absence of Government action, local government action, would be more homogeneously wealthy than they are. And I do not want to see us take away from those communities one of the major tools that they use to promote diversity.

    It seems to me, in fact, in Massachusetts there has been a lot of criticism of communities that are resisting low-income housing, resisting doing things to make the communities more diverse. Here, we have two communities that are at the top of the list in doing that. And I do not want to take the funds away that allow them to do that.

    I am prepared to look at tighter requirements on the use of those funds, both statutorily and administratively. So I do not regard these two things necessarily as in conflict. I think that they can be harmonized.

    And the final thing I would say is this. We are told ''Well, after all, we want to give more money to the lower income communities so we have got to take the money away from the top communities.''

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    I congratulate anyone who advances that with a straight face. If you look at the total amount of money that these relatively small communities get, it would amount to very, very, very, very little if it was spread around.

    I do think we should be spending more money on the lower income people. But my own view is that the people in the lower income areas are, at this point, in far graver danger from a number of social and other kinds of ills than they are of being hit by a missile from North Korea.

    So if we are looking for a source of funds better to support these important community services, I have other places to look than communities that are trying hard to promote diversity within themselves.

    Thank you, Madam Chairwoman.

    Chairwoman KELLY. Thank you, Mr. Frank.

    Mr. Miller.

    Mr. MILLER. Thank you, Madam Chairwoman. I would like to associate my comments with yours, Mr. Frank and the Chairwoman. You have hit on issues that are very concerning for me.

    I was a former Mayor of the city of Diamond Bar. And it was a new city. And from the outside, it might appear to be a fairly prosperous community, but it is a low tax community too, because it is a newer one. So the revenues to that city were very low compared to some of the cities that might seen less affluent, because they are older cities and they receive a higher tax generation.

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    Yet, I look at what Diamond Bar does with their funds on Meals for Wheels and childcare through the YMCAs and other functions that really benefit people who are in need. And I am concerned if we throw the baby out with the bath water here by just taking a generic look from the outside—this community needs it; this one does not—yet not looking inwardly at the funds the cities actually have and what they do with those funds, especially to benefit CDBG funds to those communities and people who need people, whether it be seniors, children or just people who are struggling to get by.

    So I am interested in having this hearing, listening to the testimony and hearing what your proposal might be.

    I yield back the balance of my time.

    Chairwoman KELLY. Thank you, Mr. Miller.

    Mrs. Jones.

    Mrs. JONES. I am just coming from one hearing to another. I am just glad to be here. I am looking forward to the testimony. The Community Development Block Grants are very important to my community in the development of opportunities for affordable housing.

    Thank you very much.

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    Chairwoman KELLY. Thank you.

    Mr. Grucci.

    Mr. GRUCCI. Thank you, Madam Chairwoman. I have a prepared statement that I will asked to be submitted into the record. Allow me to associate myself with the remarks that are being made here today.

    I was a town supervisor. And for those who do not understand what that is, it was tantamount to being the mayor of a small city. My town was 450,000 people strong.

    And while it may have an appearance of being an affluent area, there are many pockets of poverty throughout the town who benefited from the Community Development Block Grant program. And in fact, every time the Federal Government would cut it back and less money would come into those areas, the less we could do.

    I always looked at this program as the conscience of Government, where we were able to do those things for people who really and truly needed the help—whether it was youth programs, youth interventions, whether it was to help the elderly with Meals on Wheels, whether it was to do things to improve the quality of life in communities that had been forgotten for many a year, whether that was to improve a park or put a pool into an area that allowed people to enjoy a quality of life. Everyone in America should be able to enjoy the riches and the beauty of this country and be able to know that their Government is there to help and support them.

    I support the concept of taking money and putting it where it can do the most good. I am a little apprehensive about how this program is going to be implemented. I see that the Chairwoman's district is one of those districts that have been targeted. I am fearful that the county I represent may be another one, because it does have the pockets of affluence in it that could have a detrimental effect on the computations of whether or not it should or should not receive the funds.

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    I can assure you that, without the Community Development Block Grant funds, many people will not have the help that Government ought to provide for those who are less fortunate.

    And so, Madam Chairwoman, I appreciate the opportunity to be here at this hearing. And I am eager to hear the testimony of the esteemed panel. Thank you.

    Chairwoman KELLY. Thank you very much, Mr. Grucci.

    Mr. Clay.

    Mr. CLAY. Thank you, Madam Chairwoman. I too am eager to hear from this esteemed panel. I am really interested in the proposed legislation that Ms. Meek is proposing because, representing the city of St. Louis, I know of projects that have gone to higher income neighborhoods, to light bridges.

    And I do not think that was the original intent of the CDBG programs and would like to tighten the rules and regulations. And hopefully, that is what her bill proposes to do.

    I am also interested in hearing from Mr. Shays in coming up with another way to reward those communities that spend funds in accordance with the letter of the law. So I will stop there and look forward to this panel's testimony.

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    Chairwoman KELLY. Thank you very much, Mr. Clay.

    Ms. Lee.

    Ms. LEE. Thank you very much, Madam Chairwoman. I look forward to hearing the testimony from the panel. I think it is very important, at least for some of us, to look to be sure that Community Development Block Grants are really benefiting those that I thought it was intended to help, and that is low- and moderate-income communities.

    It is a pot of money. It is an instrument that we use very aggressively to ensure not only housing, but economic development, which creates jobs for those who need these types of jobs. So I just look forward to the testimony.

    Thank you very much for the hearing.

    Chairwoman KELLY. Thank you very much.

    I appreciate the statements from the panel members. I also would like unanimous consent to insert into the record the statement of Chairwoman Marge Roukema, Congressman Henry Waxman, Congressman Lincoln Diaz-Balart, the city of Palo Alto, California and 22 other community letters that we have received on this issue.

    Mr. FRANK. Madam Chairwoman.

    Chairwoman KELLY. Yes?

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    Mr. FRANK. May I also get unanimous consent? I know our colleague, Mr. Waxman of California, has a statement. And there is a statement submitted through Mr. Hoeffel of Pennsylvania for Lower Merion, Pennsylvania. So I would ask unanimous consent that those and other statements on this be also part of the record.

    Chairwoman KELLY. Yes, thank you. I had included Mr. Waxman. But I am glad we did it twice.

    [Laughter.]

    With that being said, we turn now to our first panel. We have Honorable Christopher Shays from Connecticut, the Honorable Carrie Meek from Florida and the Honorable Ileana Ros-Lehtinen from Florida. We welcome the three of you.

    We begin with Mr. Shays.

STATEMENT OF HON. CHRISTOPHER SHAYS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CONNECTICUT

    Mr. SHAYS. Thank you, Chairwoman Kelly and Ranking Member Frank. And thank you, other Members of this subcommittee. I am impressed that you have such a large number of Members participating and appreciate it a great deal.

    I am here to ask that you evaluate the CDBG based on how communities spend their funds and to encourage you to reconsider the Administration's proposal to cut 50 percent of the CDBG funds from the top one percent of the eligible communities. CDBG is the largest source of Federal community development assistance to State and local governments, as you know.

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    Frankly, I would add a third request that you increase the amount from $4.3 billion and let it at least go up with the cost of living. It is a very valuable program.

    It is one of the most flexible and most successful programs the Federal Government administers. And I would say to you that Mr. Frank knows this in particular. My predecessor, Stewart McKinney, was a strong believer in this program, a strong architect of it. And I think we have seen tremendous good happen from it.

    The Administration's proposal includes, obviously, the recommendation to reduce the size of the grants for communities with income two times the national average. But it begs the question: many of those communities have three or four times the cost of living.

    As a Congress, we are committed to helping those in need and those who are not in a position to help themselves. And I think the message of this proposal is that those in need in communities of wealth should not get the kinds of attention they need. For instance, in one community impacted in my district, Greenwich, Connecticut, bordering your district, Ms. Lowey—excuse me, Ms. Kelly; Ms. Lowey as well touches that district.

    Greenwich has used this money for homeless shelters, for a food bank, for drug liberation programs and for two youth homes. And also, it has used this money for neighboring communities.

    Chairwoman KELLY. Excuse me, Congressman Shays.

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    Mr. SHAYS. Sorry.

    Chairwoman KELLY. Could you pull the microphone closer? We are having a hard time hearing you up here.

    Mr. SHAYS. Thank you very much. I am at a conclusion here.

    [Laughter.]

    Let me then just be as wise as I can be and say I thought your statement, Ms. Kelly, was awesome. I thought your statement, Mr. Frank, was awesome. I totally concur with it.

    And would just ask ultimately that we design a program based on the merit of how the money is spent. And I can just tell you, a wealthy community in my district, which gets some of these funds—Greenwich—is spending this money on homeless shelters, on food banks and so on and is spending a good chunk of it in the surrounding areas where they have partnered.

    And it has helped draw Greenwich into the rest of the area. And this money has been spent well.

    Where it is not spent well, then take it away.

    [The prepared statement of Hon. Chris Shays can be found on page XX in the appendix.]

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    Chairwoman KELLY. Thank you very much, Mr. Shays.

    Mrs. Meek.

STATEMENT OF HON. CARRIE P. MEEK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

    Mrs. MEEK. Thank you very much, Madam Chairwoman. And I want to thank the Members of this subcommittee.

    Chairwoman KELLY. Please get that microphone close to you.

    Mrs. MEEK. Sorry.

    Chairwoman KELLY. We do not have the new wonderful microphones here. So you really have to get them pointed at you.

    Mr. FRANK. And our ears are not so good either.

    [Laughter.]

    Chairwoman KELLY. Speak for yourself, Barney.

    Mrs. MEEK. I am really grateful to the subcommittee for hearing us today. And I really agree with everything I have heard so far regarding Community Development Block Grant funds.

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    And I want to thank my colleague, Ileana Ros-Lehtinen. We are almost like the gold dust twins. We go together in most of our programs to benefit the people of our area. And I must say that we do fairly well—pretty well—in meeting those needs.

    I do not need to lengthen this presentation by talking about the needs of low- and moderate-income people. But I do not want you to confuse the Administration's proposal with this bill. They are quite different, with two different concepts in mind.

    We know that we have an affordable housing crisis. And each of you has spoken to that.

    But you must realize that Community Development Block Grant funds follow the people, the lower income people. The real purpose of the Community Development Block Grant funds. It does not mean that high-income communities do not have low-income people and do not have needs to that point.

    But if you have distressed areas and you do have unemployment in your areas and you have deteriorating areas, urban and rural as well, that is why it is so important that we ensure that the funds are used for the intended purpose of helping low- and moderate-income.

    Since 1974, this has been going on. It is a very good program. It is a flexible source of Federal funds.

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    You know, it is not revenue sharing. All people like me remember the revenue sharing program. This is not revenue sharing. It is not meant simply to redistribute money from the Federal Governments to the States and local government for any purposes whatsoever.

    Rather, the primary purpose of the CDBG program is to build housing, to provide safe, healthy housing for people who cannot afford market rents. It is meant to provide economic development and jobs. I do not need to tell this subcommittee this. You know more about this than I do.

    I introduced this bill because I am very concerned that, while many jurisdictions—and I must underline, Chris, many jurisdictions—comply with both the spirit and the letter of the CDBG law, many other jurisdictions are using CDBG funds for purposes far removed from CDBG's intended goal, to principally—and I must emphasize to principally—benefit low- and moderate-income persons.

    At a time when community development corporations, individuals and other agencies are focusing on trying to develop these poorer neighborhoods, they are inadequately funded. Jurisdictions should not use their poor neighborhoods to justify and obtain CDBG funding, but then use these funds in their wealthier neighborhoods. That is not the intent of the CDBG legislation.

    Many of you may be familiar with recent reports of CDBG funds being used to develop United States Post Office facilities, to repair airport runways, renovate museums, build sports arenas and pour miles of concrete in many jurisdictions. These may well be wonderful projects. But they are not projects that should be funded through CDBG.

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    It is time to do a better job to manage these scarce CDBG funds. My bill, H.R. 1191, would seek to amend the statute to reflect and to solve some of these problems and to go back to the original intent of the law by focusing the grant program on low- and moderate-income. It is sponsored by 59 Members of Congress who want to see more of their monies used for low-income Americans.

    And then, as a just cause, Madam Chairlady, let me highlight some of the provisions of H.R. 1191. It would require grantees to spend at least 80 percent of their CDBG funds to directly benefit low- and moderate-income people, instead of the current 70 percent threshold. That gives you a little bit better target than the 70 percent.

    My bill would require grantees to spend at least 40 percent of CDBG funds to directly benefit low-income persons, those with incomes between 30 percent and 50 percent of the median income. These are the people who are really low-income people. And they need these funds.

    Currently, there is no mechanism that HUD uses to prevent jurisdictions from spending all or most of their CDBG monies for households at the relatively high income of 80 percent of the area median income. Now I go way back with HUD to some of the people who really, really put all of these things in. As they say in my district ''back in the day.'' And they have never really, really, really had an accountable way of measuring how CDBG monies are spent.

    Finally, my bill would require proportional accounting so that CDBG guarantees would calculate the benefits to low- and moderate-income people by using the actual percentage of lower income persons residing in the census tracts that would be served by the grant. And that highlights what some Members of this subcommittee have already indicated.

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    The reason that many jurisdictions can claim that over 90 percent of their expenditures benefit low- and moderate-income is because currently, CDBG law allows 100 percent of the money spent on non-housing activities to count as benefiting lower income people only if 51 percent of the beneficiaries are low- and moderate-income. So you see that broad umbrella that is there.

    For an example, if a jurisdiction spends $500,000 on a road improvement in a census tract where 51 percent of the households are low- or moderate-income, that jurisdiction can report to HUD that all $500,000 of that spending benefits low- and moderate-income people, rather than a proportionate amount of $255,000, which is $500,000 times the 51 percent of the population of lower income. This lack of proportionate treatment inflates the benefit report by 49 percent.

    So it just tells you that the benefit inflation is well documented. In a 1993 audit of the HUD, the Inspector General reviewed CDBG expenditures of 18 grantees and found that HUD's low- and moderate-income claims were significantly overstated. The audit shows that when proportionate accounting was used, the actual benefits to low- and moderate-income individuals were approximately 65 percent for the individual grantees, even though HUD continuously reported the annual percentage of low- and moderate-income benefits as exceeding 90 percent.

    Madam Chairlady and Members of the subcommittee, proportional accounting in the CDBG program is badly needed. And it will bring out many of the things which each of you has indicated, that the money will follow the need.

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    Counting all of the CDBG dollars spent on an activity as benefiting lower income persons when it is known that a substantial portion of those benefiting from the activity are higher income persons is just plain wrong. The absence of proportional accounting greatly exaggerates the CDBG program's achievements in serving low- and moderate-income.

    The reforms included in my bill, H.R. 1191, have been around for some time. As I said, I have been around. Starting out with Jack Kemp, who was probably the guru of housing, under the first Bush Administration, tried to pass these provisions into law.

    These changes to the CDBG program raise the fundamental issue of fairness. The Federal resources——

    Chairwoman KELLY. Ms. Meek.

    Mrs. MEEK. I could put the rest in the record.

    Chairwoman KELLY. Could you do that?

    Mrs. MEEK. I know I am going on and on. But I just wanted the subcommittee to understand that this concept is quite different from the one that has been presented by the current Administration. It is one that is asking for a proportional accounting so that low- and moderate-income people, that the money will follow where they are.

    Thank you very much, Madam Chairwoman.

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    [The prepared statement of Hon. Carrie P. Meek can be found on page XX in the appendix.]

    Chairwoman KELLY. We thank you. We also know that——

    Mrs. MEEK. I also forgot to put in the record——

    Chairwoman KELLY. With unanimous consent, we will insert your statement in the record.

    Mrs. MEEK. Thank you, ma'am.

    Chairwoman KELLY. I also know you have family that live in my district.

    Mrs. MEEK. That is true.

    Chairwoman KELLY. So you know how hard Westchester County is.

    Mrs. MEEK. You better be good to me, Madam Chairlady.

    [Laughter.]

    Chairwoman KELLY. You know how hard we are going to get hit if Westchester County has to take this on the chin, because you have been all over my district. I know that.

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    So I really appreciate your presence and your testimony here today. And we will include that with unanimous consent.

    Mrs. MEEK. And I want to be excused. I have a hearing. Thank you.

    Chairwoman KELLY. We turn now to Ms. Ros-Lehtinen.

STATEMENT OF HON. ILEANA ROS-LEHTINEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

    Ms. ROS-LEHTINEN. Very few people, Madam Chairwoman, are able to get Carrie Meek to stop talking. So I congratulate you.

    [Laughter.]

    We have never done it in the Florida House and in the Florida Senate. It is the first time I have ever seen it. What a sight to behold.

    But thank you so much. I am here to testify on behalf of my very good friend, Congresswoman Carrie Meek, on her bill, H.R. 1191, the Community Development Block Grant Renewal Act. As you know, this Act concerns one of the most significant sources of Federal funding for housing, economic development, job creation and community revitalization.

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    The Community Development Block Grant Renewal Act would target funds to low- and moderate-income communities by providing affordable housing, suitable living environment and expanding economic opportunities. The CDBG—it sounds like one of the clubs in my South Beach District. Not that I have ever been there, but I hear it gets really good about 3:00 in the morning.

    Mr. FRANK. I think that one closed.

    [Laughter.]

    Ms. ROS-LEHTINEN. That one closed. You know, they close. They open. You know? I do not know, I heard you were the one responsible for closing it down, but I do not know.

    [Laughter.]

    But it was originally established as Title I of the Housing and Development Act of 1974. The Act served to improve communities by providing State and local governments with an elastic source of money to use for the benefit of low- and moderate-income communities. Title I assured that, at minimum, 70 percent of the allocated funds would be used for those people earning low- and moderate-incomes.

    H.R. 1191 looks to improve the ''Primary Objective'' of CDBG to ensure that at least 80 percent of such funds go directly to aid those individuals and their families. The Act specifies even further that at least, as has been testified before, 40 percent of the appropriated money is earmarked for people of lower income. And this ''Primary Objective'' will help bring needed aid to a suffering housing industry and will help fill the gaps of the current law.

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    H.R. 1191 also enables the CDBG to give monies to non-profit organizations whose sole purpose is to help low- and moderate-income people. This non-profit funding will promote greater public participation and will provide a better forum to monitor the use of CDBG funds. According to H.R. 1191, any business which receives funds from CDBG still has to make sure that at least 51 percent of any new or retained jobs would target lower income people.

    It has strong support from several groups, such as the National Council of La Raza, the National Low Income Housing Coalition, the National Alliance to End Homelessness and our Miami-Dade Board of County Commissioners. I would like to encourage all of our colleagues to please support H.R. 1191, the Community Development Block Grant Renewal Act, and help end the current housing crisis that so many of our communities are suffering.

    So thank you very much, Madam Chairwoman. And I ask to have it be entered in the record.

    Thank you.

    [The prepared statement of Hon. Ileana Ros-Lehtinen can be found on page XX in the appendix.]

    Chairwoman KELLY. We thank you very much, Ms. Ros-Lehtinen.

    I have no questions of this panel.

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    Mr. FRANK. Just one point to reinforce what I hope is going to be a consensus here, which is rather than exclude particular communities, the answer is, for us, both statutorily perhaps and certainly administratively, to do a better job of enforcing the low-moderate requirement for every community. And I think we can all work together on that.

    Chairwoman KELLY. That is right.

    Mrs. MEEK. Thank you very much.

    Ms. ROS-LEHTINEN. Thank you very much.

    Chairwoman KELLY. We thank you very much for appearing. This first panel is excused. We now will seat the second panel.

    The chair notes that some Members may have additional questions and may wish to submit those in writing of this panel. So without objection, the hearing record will remain open for 30 days for Members to submit written questions to the witnesses and place their responses in the record.

    We thank the panel for appearing with us today. We thank the second panel.

    On our second panel today is Mr. Roy Bernardi. He currently serves as the HUD Assistant Secretary for Community Planning and Development. Prior to this, Mr. Bernardi served two terms as Mayor of Syracuse, New York, the first Republican to serve in that position in 24 years. Previous to being elected in 1993, he served five terms as Syracuse City Auditor.

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    We welcome you, Mr. Bernardi. And we look forward to your testimony. Please proceed.

STATEMENT OF HON. ROY A. BERNARDI, ASSISTANT SECRETARY, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. BERNARDI. Well, thank you, Madam Chairwoman. Good morning, Ranking Minority Leader Frank, Members of the subcommittee. My name is Roy Bernardi. I am Assistant Secretary for Community Planning and Development at the Department of Housing and Urban Development.

    And I have with me today two members of my staff. To my left is Deputy Assistant Secretary Nelson Bregon, who directs grants programs. And to my right is Dick Kennedy, who is the Director of the Office of Block Grant Assistance in our Department and has great institutional knowledge.

    On behalf of Secretary Martinez, I want to extend our commitment to work with you to improve the effectiveness of the Community Development Block Grant program and to ensure that America's neediest communities receive adequate Federal resources to meet the local development needs. We are certainly appreciative of the additional $95 million proposed for the Department's CDBG formula programs for fiscal year 2003.

    The increased funding will provide for larger allocations to our grantees and result in more assistance being made available to those that are most in need. These communities have fewer resources for addressing housing, community and economic development needs and are consequently in greater need of Federal financial assistance.

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    The lowest income residents of these communities deserve to share in Congress' vision of viable urban communities. The CDBG program, authorized by the Housing and Community Development Act of 1974, as amended, is one of the most successful Government aid programs to have ever been created. A testimony to this success is the longevity of the program and how it has adjusted over the years in response to changes in public policy over the nearly 28 years since its inception.

    The CDBG program remains one of the most flexible local tools for revitalizing neighborhoods and encouraging economic development. Since its inception, the CDBG program has provided approximately $100 billion to our Nation's cities, towns, counties and States, so they may undertake a wide range of activities that are locally determined.

    The imprint of the CDBG program can be seen in nearly every jurisdiction of this great country of ours. As a former mayor and municipal worker, I can attest to the significance of the CDBG program. Each and every year, when Syracuse received its grant—when I talk about flexibility and when I talk about local determination, that is the beauty of the program. And I was just very proud, each and every year, to utilize those dollars to help the people that were most in need.

    Immediately prior to accepting my current position at HUD, as Madam Chair indicated, I served as the Mayor of Syracuse, New York. And that provided me firsthand knowledge of the usefulness of the CDBG program as a tool for housing and economic development, and to providing a better quality of life for our people.

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    More than that, however, was the appreciation I developed for the devolution of this wonderful Federal program back to the community level. I also appreciate the insightfulness of the designers of this program in recognizing the basic truth that people know what their needs are better than Government officials. I was also old enough to remember revenue sharing, and I think this program provides more opportunity for people in every jurisdiction.

    As Mayor, I often interacted with other mayors and officials on issues related to community development and the dwindling availability of resources. The CDBG program, however, has remained one of the most useful and dependable sources of funding for municipalities.

    In fact, our proposed reduction—not elimination—of funding to the more fortunate communities will still provide those communities with a steady annual funding stream, albeit it at a lower level. There are currently 865 cities and 158 counties entitled to receive CDBG funds directly from HUD. These are entitlement communities.

    In addition, 49 States and the Commonwealth of Puerto Rico award more than 3,000 grants to smaller cities and counties from CDBG funds allocated to the State by HUD each year. Those are all non-entitlement communities, the smaller cities and rural areas.

    I am very pleased to say we cover the entire spectrum of the country. HUD also administers CDBG funds to Hawaii's three non-entitlement counties.

    Within this vast number of grantees exist a wide variety of recipients. Some are quite wealthy, especially when compared with the poorest grantees. It is therefore quite understandable that calls would be made to reevaluate the method of allocating the limited resources of the CDBG program.

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    The continually increasing number of grant recipients has resulted in CDBG funds being stretched further and further with, in some localities, a continually increasing number of grand recipients. This has resulted in some localities, a lessening of the impact CDBG dollars can have on local housing, neighborhood development, public facilities, economic development and the provision of social services.

    Even though the CDBG formula funding has grown 11 percent since 1980, many large cities have seen a decrease in their CDBG funds, while some of their wealthier suburbs have received increased funding. For example, New York City's 2002 CDBG grant was 16 percent less than its 1980 grant, while over this same time period, Greenwich, Connecticut's CDBG funding increased 43 percent and Westchester County's increased 51 percent.

    Likewise, Boston's funding decreased five percent, while Newton, Massachusetts' CDBG funding increased 11 percent over the same period of time. Even some distressed cities have seen substantial decreases in their CDBG funding over the past 20 years. St. Louis and Cleveland, each with per capita income less than three-fourths of the national average, receive 21 percent less CDBG dollars today than they did in 1980.

    This proposal represents a small, but important step in redirecting CDBG dollars from areas with sufficient fiscal capacity to meet their housing and community development needs, to those communities with greater needs and fewer resources. While the CDBG program may be heralded as the dependable flagship of Federal financial resources, the Department clearly recognizes that current economic realities require at least some rethinking of how we do business.

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    The Department supports targeting of CDBG funds to provide assistance to lower income persons to the greatest extent permissible under the Housing and Community Development Act of 1974.

    H.R. 1191, a bill introduced to amend this Act, proposes a fairly stringent targeting of CDBG funds in an effort to assure that the needs of the lowest income communities are met. With respect to H.R. 1191, it would be premature for the Department to respond to this bill at this time, since it has not yet been voted out of committee.

    We recognize that there is some concern with this bill because while it will demand more targeting, it will significantly limit, for many communities, the very flexibility that has been the cornerstone of the CDBG program. In addition, the Department was asked by Congress to submit a study of the targeting of CDBG funds and HUD's administrative oversight of the program.

    This study was delivered to the House Committee on Appropriations yesterday, and emphasizes three things. First, targeting of CDBG funds is accomplished by the formulas used in determining allocations. Second, the program requires that 70 percent of a grantee's CDBG funds principally benefit low- and moderate-income persons. And third, activities identified as principally benefiting persons of low- and moderate-income generally assist persons of whom at least 51 percent are low- and moderate-income.

    Chairwoman KELLY. Mr. Bernardi.

    Mr. BERNARDI. Yes.

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    Chairwoman KELLY. The lights here indicate your testimony time. And you have gone well over the 5-minute allocation. If you could sum up, please know that your written testimony is included in the record. It is a matter of our record. So we have the written testimony and we are interested in having you sum up.

    Mr. BERNARDI. Madam Chair, I will be happy to do that.

    Chairwoman KELLY. Sorry for interrupting you.

    Mr. BERNARDI. I feel very strongly that the written testimony will answer the questions that you are possibly going to have.

    In closing, the Administration looked long and hard at ways in which we can provide additional dollars to the most needy people in our country. As a matter of fact, when it comes to providing CDBG funds, we are doing better than the 70 percent that is statutorily required. We are at 84 percent.

    I think that the program works well. The flexibility of the program is very important.

    Right now, from the 1990 census, the population numbers and growth lag have been entered into the formula for the 2003 year. However, poverty and overcrowding and pre-1940 housing data will not be available until the summer or fall of this year.

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    And so the formula will be changed. We will be conducting a study which will be completed at some time next year.

    Also, we have a comprehensive plan. Today, there is a meeting in Washington. We are taking a look at the overall comprehensive plan, how to streamline it, make it more effective, and eliminate some of the red tape that the communities go through. There were two of these meetings held around the country.

    And the meeting that is being held in Washington today includes providers. It includes local government. It includes HUD officials and institutions that deal with CDBG.

    In closing, we are here to answer any questions that you may have. I appreciate your time.

    [The prepared statement of Hon. Roy A. Bernardi can be found on page XX in the appendix.]

    Chairwoman KELLY. We thank you very much.

    Mr. Bernardi, I have a question about that formula that you were talking about. The fact that the Administration is proposing a redirection of the CDBG money and you are talking about doing a study and coming up with a comprehensive plan next year, it indicates to me that you have a lack of confidence in the grant formula that was created back in 1974.

    Now I want to know why the Administration has not simply proposed a new formula right now for Congress to consider that will account for the new needs in our communities.

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    Mr. BERNARDI. Well, we feel the formula works very well. And the formula is looked at in a constant way, especially after the census numbers are in. The 2000 census numbers, including population and the growth lag are in; however, poverty and pre-1940 housing have not yet come in from around the country.

    That is when the formula is looked at. And then proposals are made, in conjunction with yourselves, as to any changes that might take place to improve the formula.

    As you know, there are two formulas. There is a formula that helps cities that are growing. There is also a second formula that helps cities that have population lag and increased poverty.

    Chairwoman KELLY. Well, I would beg to differ with you, sir. I think when you lop off 50 percent of these communities, in these communities, that is a formula problem. And I question the criteria in the formula. And I think that it is time that we take a look at the criteria that you are using in that formula and make sure that the criteria actually are reflective of what is within the communities themselves.

    And so perhaps Congress should be working with you in setting the criteria for evaluating who gets the CDBG grants.

    Mr. BERNARDI. Well, this is just a work in progress, Madam Chairwoman. These communities are at two times the per capita income, and we are talking about $17 million. And with a reduction of 50 percent. And that money would go to other CDBG communities.

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    The fact of the matter is there are communities that are better able, that have the capacity building, the organizations, and members in the community that perhaps can assist more. There are other communities, communities that I visit when I travel this country, the colonias for example, where people have absolutely nothing.

    Chairwoman KELLY. I understand what you are saying about the fact that your assumption is that certain communities can better handle their own things. And that is probably so, in some instances. But I think where you have a blanket cut in some communities that perhaps are based on inappropriate criteria, it is time to change the criteria.

    We need to take a look at the criteria before you decide how you set this formula. And I would look forward to working with you. I am very concerned about that.

    HUD's identified projects that I think that they think, for instance in Westchester County, should not have been funded. I would like to know what you think they are. I would like to know what criteria you used to identify those.

    Mr. BERNARDI. Which projects are you referring to?

    Chairwoman KELLY. I understand that there are certain projects in the Westchester Urban County Consortium that you have decided were inappropriate. I would like to know what you think they are.

    Mr. BERNARDI. I do not know the projects that you are referring to, Madam Chair.

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    Chairwoman KELLY. Why are you cutting funding?

    Mr. BERNARDI. Well, it is to provide funding to communities that are more distressed than Westchester County.

    Chairwoman KELLY. If they are inappropriate, sir. Why cut the funding if they are doing their job?

    Mr. BERNARDI. They are not inappropriate, Madam Chair. I have not looked at Westchester in particular, but I am sure they are used according to the statutory regulations and for the needs that the CDBG program was established.

    The fact of the matter is that we are looking at ways, together with you, to perhaps redo the formula in a way which would provide monies. Our goal here is to take the very low- and moderate-income people and to provide them with more services and a better quality of life.

    Chairwoman KELLY. Are you planning to send us legislation with these proposed changes in the formula so that we can take a look at what criteria you are using on the formula?

    Mr. BERNARDI. To make any proposals on a formula change, we have to wait until the statistics come in from the 2000 census. So that will be approximately 2003, by the time we have the information.

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    Chairwoman KELLY. So you have no intention of changing the formula?

    Mr. BERNARDI. No.

    Chairwoman KELLY. Changing the criteria, until after this year?

    Mr. BERNARDI. That is correct.

    Chairwoman KELLY. Until next year. Why not?

    Mr. BERNARDI. The formula has been changed already.

    Chairwoman KELLY. Why are you proposing these changes? With the 50 percent cut?

    Mr. BERNARDI. It is a 50 percent reduction.

    Chairwoman KELLY. Yes, why? Why are you proposing that if you do not even have the statistics to back up what you are saying? I do not mean to put you in the hot seat here, but we need to work together if we are going to be efficient and get that money to the people who need it.

    Mr. BERNARDI. Those statistics could change with additional information. Westchester County may not be in the top nine.

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    Chairwoman KELLY. But you are not sure. That is precisely my point.

    Mr. BERNARDI. There is a starting point. This is a proposal. There is a starting point.

    Chairwoman KELLY. It is a starting point? I think that for you to cut 50 percent from these communities, without having—coming here and being able to speak to us with the criteria that you have used, show us what criteria and talk to us about the appropriateness of this formula.

    Mr. BERNARDI. Well, the criteria is two times the per capita income.

    Chairwoman KELLY. It is not just Westchester County that has been cut. That is why these other people were here. That is why these women were here from Florida and that is why Mr. Shays was here. Mr. Frank has somebody that is being cut in his area.

    Westchester happens to be the only county. You have cut an entire county with Westchester County.

    My concern is that these people have been cut and you are sitting here telling me that you are not comfortable with the formula, because you are going to study it and come up with something you feel is more appropriate.

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    Mr. BERNARDI. The entire formula.

    Chairwoman KELLY. But then if the entire formula is being applied to these areas that have been cut, why are you applying it this way now? Why not wait and do what you have done before?

    Mr. BERNARDI. When we have all of the information in from the census, the proposal will be ready to implement, in conjunction with this subcommittee and Members of Congress.

    Chairwoman KELLY. My time is over. I have several other questions. If we have a second round, I will ask those questions. In the meantime, I want you to know that I am going to submit to you a group of questions in writing. And I am going to hold this hearing record open for 30 days so that we can get those answers and put them in the record, sir.

    Mr. BERNARDI. Sure. Be happy to respond to your questions.

    Chairwoman KELLY. Mr. Frank.

    Mr. FRANK. Mr. Secretary, first, I was kind of struck by a rare, if you will accept this, example of deference by the Administration to the Congress. With regard to H.R. 1191, if I heard you correctly, you said it would be, quote: ''premature''—to comment, because the bill has not yet been voted on by committee.

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    Is that a new Administration policy, that you are not going to comment on legislation until the committees have acted? I would welcome that.

    [Laughter.]

    Do I accurately understand you, sir?

    Mr. BERNARDI. Well, that is an OMB policy.

    Mr. FRANK. That you are not to comment?

    Mr. BERNARDI. Well, I can comment on it. But until we have the particulars of the bill, it would be premature to make those comments.

    Mr. FRANK. So in other words, until—no, you did not say the particulars of the bill. Particulars of the bill have, in fact, existed before the committee process. Is this HUD policy now that you are not going to comment on legislation until it has been voted on by committee?

    Mr. BERNARDI. Well, OMB would prefer that I not comment on that legislation.

    Mr. FRANK. A lot of people would prefer a lot of things.

    Mr. BERNARDI. Well, I follow the company line.

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    Mr. FRANK. My question is: is this now HUD policy? Can we expect that there will be no HUD comment on pending legislation until it has been voted out of committee?

    Mr. BERNARDI. I can only speak for myself, sir.

    Mr. FRANK. OK. Let me suggest, Mr. Secretary, that what we have got here is a duck on a controversial issue. And it is particularly troublesome to me for this reason.

    You say in your testimony that cities like St. Louis and Boston have lost money because of the formula. But you are not yet proposing any change in the formula, which is what caused them to lose money. Correct?

    I mean, the money that Boston, St. Louis, the other communities lost, they lost that because of the existing formula. Is that correct?

    Mr. BERNARDI. Yes.

    Mr. FRANK. OK. And you are proposing, as of this point, no changes in that formula?

    Mr. BERNARDI. The census tract takes population into consideration. Each year, the formula changes based on population.

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    Mr. FRANK. Did they lose money because of population shifts, do you think?

    Mr. BERNARDI. In some instances, they did lose money because of population shifts.

    Mr. FRANK. Frankly, I think you gave a somewhat contrary suggestion here because the suggestion was that they were losing money because other communities were gaining the money, the wealthier communities. That is the juxtaposition.

    The total amount of money that would be saved by your proposal to knock off the communities at two times and above is how much money?

    Mr. BERNARDI. It is $17 million.

    Mr. FRANK. No, the total amount saved.

    Mr. BERNARDI. About $8.6 million.

    Mr. FRANK. $8.6 million. The total CDBG appropriation for this year will be what?

    Mr. BERNARDI. $4.4 billion.

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    Mr. FRANK. So you are going to alleviate some of these problems by applying $8.6 million to a total of $4.4 billion. By my arithmetic, that is .05 percent. I have never seen——

    Mr. BERNARDI. It is a little less than that.

    Mr. FRANK.——wielded as a weapon before in the battle against poverty. But that is what you are doing.

    [Laughter.]

    In fact, having resolved .05 percent of this problem, have you any proposals to do the rest? I mean, you make a good point. Boston should not be losing money. Cleveland should not be losing money. St. Louis should not be losing money.

    And you are going to give them .05 percent of that back. You got any ideas for the other 99.95 percent? Or do we have to wait until the committee acts before you can comment? Would it be premature for you to comment, in other words?

    Mr. BERNARDI. When all of the census information is in and the formula is looked at again, in conjunction with all of the Members here, I am sure there will be proposals in how the formula should be changed.

    Mr. FRANK. OK, so then in other words, we should tell the nine communities that are now on the list that they are only the early ones? Because if you are going to hold the amount constant, you are going to have to take money away from other communities as well. Is that correct?

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    Mr. BERNARDI. There is a limited amount of dollars that are going to be available, Congressman.

    Mr. FRANK. So you contemplate, once you get the census and you change the formula, do you contemplate taking money way from other communities that are maybe at 1.8 times the median or 1.7, to make up for these problems with Boston and St. Louis?

    Mr. BERNARDI. The extra $95 million that is proposed for this year is welcomed. There are additional monies that are always needed for many programs. But dealing with reality and what we have to deal with and what our charge is and what Secretary Martinez——

    Mr. FRANK. My guess——

    Mr. BERNARDI. No, can I finish please?

    Mr. FRANK. At this point, it looks to me like the thing you lament, the lack, the loss of money for some of these big cities, is going to be unchanged, certainly for this year. Correct?

    Mr. BERNARDI. I am sorry. Could you please repeat the question?

    Mr. FRANK. You have talked about how Boston has lost money and St. Louis has lost money. And I know they appreciate your sympathy. But can they expect to get any more than your sympathy in the current year?

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    Mr. BERNARDI. No.

    Mr. FRANK. In the 2003 budget? Boston and St. Louis and the others?

    Mr. BERNARDI. Depending on the formula. The formula that they utilize, whether it is formula A or formula——

    Mr. FRANK. Do you contemplate that they will be getting any of that cost back in the next fiscal year?

    Mr. BERNARDI. No. The answer is no.

    Mr. FRANK. OK. Frankly, I am a little troubled that you invoke their plight on behalf of your proposal to knock out these other communities but now acknowledge to me that that is all they are is kind of props, frankly, in the effort.

    Mr. BERNARDI. I think it shows a comparison of communities that have benefited to those that have not.

    Mr. FRANK. It does. But it also shows that you are not going to do anything about it. And I think it is an inappropriate invocation of their plight when you are going to wind up with $8 million.

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    Last question I have is this: with regard to the communities you are going after, I would think——

    Mr. BERNARDI. Congressman, we are not going after anyone really. It is a proposal.

    Mr. FRANK. Well, the communities who will lose funding as a result of your beneficent actions. It would seem to me—and I would just recommend this to you and then I have one other question that I would ask for in writing—that what is relevant is not simply the overall income, but the distribution within the communities. Certainly, the Federal Government is not suggesting that a community which has a large number of wealthy people and a large number of poor people should be one in which the wealthy people are individually taxed locally to pay for certain kinds of services.

    So if you were going to try and reallocate, I would urge you to take in a formula. And statistical techniques can do this. You do not simply look at the overall amount. A community in which everybody is making $70,000 probably needs the money less than a community in which a number of people are making $150,000, but a number are making $30,000 and $20,000.

    In other words, even on your own terms, this is simplistic beyond what we ought to be doing. You need to take some kind of matrix approach.

    Last point I would make is this. And I am touched by your concern for the failure of the funds to reach the intended recipients.

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    You have been Assistant Secretary for how long, Mr. Bernardi?

    Mr. BERNARDI. Eight months.

    Mr. FRANK. During that period—and, in fact, during the 14 months of this Administration—would you submit in writing examples of interventions by HUD against inappropriate uses of CDBG funds by recipient communities? That is, how many cases have you found in which money was not being spent appropriately? It was being spent other than——

    And in general, if you could give us a record of your enforcement of the low- and moderate-income requirements, I would be pleased.

    Thank you for your indulgence, Madam Chairwoman.

    Chairwoman KELLY. Thank you, Mr. Frank.

    Mr. Grucci.

    Mr. GRUCCI. Thank you, Madam Chair.

    Mr. Bernardi, welcome. Good morning.

    If I am correct in what I thought I heard, that there is going to be a 50 percent reduction in the CDBG funds. Did I hear that correctly?

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    Mr. BERNARDI. On the nine communities in question, yes.

    Mr. GRUCCI. Low-income and moderate areas, low-income to moderate communities that are adjacent to, in picking up from what Mr. Frank was saying, let me give you an example. In the district that I represent, I have a very affluent area known as the Hamptons. South Hampton, East Hampton, they have very wealthy areas, million dollar homes, multimillion dollar homes along the oceanfront.

    Go about six blocks away from the oceanfront and there are people struggling, who are living in what would be considered poverty. They are struggling to make ends meet because the high cost of living in that region causes the prices of houses to go up. The taxes are hurting people. And one thing after another.

    These areas should not be punished as a result of living next to a community that has been blessed with affluence. And I see that is what is going to take place.

    And I said in my opening statement that as a supervisor, you understand this. That Community Development Block Grant money, when it comes into your town or into your city, was enabling us to do some great things for the people who were the least fortunate.

    In infrastructure, it helped us to build the roads, the drainage, the signage in communities where people did not even have signs up on their blocks that tell law enforcement or emergency vehicles what street they were coming down. Bringing fresh, clean water into areas that had been polluted.

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    It built parks and it built ball fields and it built pools, as well as the teen crisis centers and senior centers, as well as programs like the teen pregnancy program, the battered women programs and nutritional program centers. And the list just keeps going on.

    If these communities are going to lose their money simply because they are fortunate—or misfortunate—enough to be in a census tract that would demonstrate that that area is affluent, where are they supposed to get their money from? Where are they going to get their help?

    The local government—and I do not know about the finances of Syracuse, but I can tell you that the local finances of our local governments are the least capable of helping these people. They have the least amount of resources. And county governments are already being besieged with burdens of mandated programs coming down upon them. They cannot keep up with the mandates.

    Are these people to just fall by the boards because they have the misfortune of living next to an affluent community? How do they get the help?

    Mr. BERNARDI. Congressman, communities that have a significant number of affluent people, as I mentioned earlier in my statement, have the capacity, have the wherewithal, if you will, the technical assistance. You look at city governments, town governments and county governments.

    In certain areas, obviously, there are more people. There are more people who do the work. There are more resources.

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    And this is just a proposal. We are not going to take any unilateral action here on the part of HUD. Looking for ways, quite generally, to find ways in which we can help those that are less fortunate, the people that you talked about, that live out on the water in those mansions, in those other areas.

    How can we provide them with additional assistance? That is the proposal.

    Mr. GRUCCI. I would encourage you to do as much as we can. I would encourage you to restore more money into the CDBG program. Let's do the things that that money can do.

    I have watched as it has helped teenagers get a fresh start on life. And I have also been there when the Federal Government has cut those programs and as a supervisor and a town board had to make the decisions as to what programs could not get funded. And we watched as programs that were helping the community fell by the boards.

    And there was no place for these people to get help. Instead of looking to cut CDBG, I think we should be looking to increase it. It is the conscience of Government that does the best for the people who are least capable of helping themselves.

    Mr. BERNARDI. Well, as I indicated, there is an appropriation of $95 million more for the CDBG entitlement program, which is welcomed.

    Mr. GRUCCI. But if areas of the country that were once receiving these funds—and I am not sure my county will be part of that county cut that was talked about. We will know that when the new census tract numbers come out and all the information comes out.

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    But the fact of the matter is, if it indeed does, and it has been getting cut year after year as a result of whatever reasons HUD has been cutting that money, people have been hurting and programs have been falling by the boards. And this money ought not to be—we ought not to take from this program to find monies to help balance budgets or to put things into perspective. This area is where Government ought to shine its best.

    And I would encourage you to do all that you can to not just put $95 million in, but also to make sure that the areas that were receiving these funds are not asked to take a bigger cut and be asked to make the sacrifice so that other areas of the country can be helped. It would be wrong to ask the poor people of one region to be impacted even further so that they can help poor people in other areas.

    And I yield back the remainder of my time.

    Chairwoman KELLY. Thank you, Mr. Grucci.

    We go now to Mr. Clay.

    Mr. CLAY. Mr. Bernardi, in your testimony, you extolled the virtues of benefits to a community of flexibility in the program. I know, for instance, in St. Louis and in my neighborhood in particular, they have used CDBG funds to erect gates, close streets, special lighting. I think that may be where the problem exists in the program is that this flexibility allows communities like where I live, which is probably one of the better parts of St. Louis, to use those funds in a manner which I do not think they were initially intended to be used for.

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    Don't you see some areas where that flexibility could allow for abuse in the program?

    Mr. BERNARDI. Well, the eligible activities that are statutorily required between headquarters and the field offices and our integration disbursement information system, we do track how communities use that money and that they reach that 70 percent threshold. And the average is even more than 70 percent. About 84 percent of the dollars spent each year by the grantees, on an average, go to benefit low- and moderate-income people.

    But I am sure there are situations that occur where that money could be utilized in a different way. But I think to take away that flexibility, you would really hamper the local decision-making process. The decisions are made locally, as they should be, with the community development boards in each locale.

    Mr. CLAY. OK, what about what Representative Meek talked about in her testimony, that the original intent is to build decent and affordable housing? We know that home ownership creates wealth. We know that.

    Can you point to many instances in cities such as mine where the dollars have actually gone toward building decent and affordable housing? Giving people the opportunity to own a home for the first time?

    What I know about in St. Louis City is that these funds have gone to benefit supporters of the mayor and have not necessarily gone to create housing. Of if they have created housing, it has been substandard. I mean, can you point to instances where they have actually gone to build affordable, decent housing?

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    Mr. BERNARDI. Mr. Kennedy indicates to me that St. Louis has a very good record in housing and will be happy to get that information to you.

    Mr. CLAY. Would you be willing to point that out?

    Now also in your testimony, you point to the fact that St. Louis and Cleveland, with per capita incomes less than three-fourths the national average, received 21 percent less CDBG dollars today than they did in 1980. Can you tell me what are the reasons for this?

    Mr. BERNARDI. The population decrease.

    Mr. CLAY. The population shift.

    Mr. BERNARDI. Primarily. Yes, the shift.

    Mr. CLAY. I know in St. Louis, that population has decreased. However, what is left are that you have more and more poor. So don't you think maybe the formula may need to be tweaked in order to address the increased amount of poor?

    Mr. BERNARDI. It is a very complex formula. But the fact is is that the decrease or the shift in population primarily led to the reduction. But there are other factors as well, I am sure.

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    Mr. CLAY. The other factors are?

    Mr. KENNEDY. If I could just comment generally that, with respect to the formula changes, HUD simply cannot launch a study of what is happening with the 2000 census data until we have all the data in. We expect to have that in by the fall.

    And then we can do a complete study that will look at the effects of the 2000 census changes. And we expect those changes to be fairly substantial.

    We want to be able to present to Congress a thought out evaluation of what those effects are and allow you to perhaps make some suggestions regarding changes to improve the formula. Certainly, that is a congressional activity. We want to be able to present the facts to you, once we have the data in, with respect to the overall formula.

    Chairwoman KELLY. Excuse me, sir. But you are not a listed witness at this hearing.

    Mr. KENNEDY. I am sorry.

    Chairwoman KELLY. I would like to have you identify yourself for the record, please.

    Mr. KENNEDY. I apologize, Madam Chairwoman. My name is Richard Kennedy. I am the Director of the Office of Block Grant Assistance. And I work for Assistant Secretary Bernardi and Mr. Bregon. I apologize.

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    Mr. CLAY. In conclusion, Madam Chairwoman, let me also ask that when you do give me that information on St. Louis housing, would you also look at the fact that the fact that the funding was used to build a convention center and hotel and tell me if that is proper or not.

    Mr. BERNARDI. That was economic development. Section 108 monies, I believe, were involved in that.

    Mr. CLAY. But would you put that in writing?

    Mr. BERNARDI. Of course.

    Mr. CLAY. Thank you.

    Chairwoman KELLY. Thank you.

    Ms. Lee.

    Ms. LEE. Thank you, Madam Chair.

    Mr. Secretary, let me just ask you about the proposed cut and at least where the budget summary says you intend to put the revenues that you receive from the cut. The comments indicated that the savings would fund a regional initiative to enhance affordable housing, economic opportunities in the colonias? Is that accurate, in terms of where you intend to put the money?

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    And I just want to find out where these colonias are. It says they are within 150 miles of the U.S.-Mexican border. And they lack infrastructure. And all the descriptions of what these colonias are.

    The criteria and the lack of infrastructure appears to be already late to qualify for existing funds. So why would you have to cut any to put the money there? Why couldn't you fund them with existing funding?

    Mr. BERNARDI. The money from the proposal would go back to the formula for redistribution to the remaining entitlement communities. The colonias is 150 miles of area along the Texas-New Mexico-California border, where there are communities that are really not communities.

    They are basically outside of the towns in that particular area. They have tremendous poverty and no infrastructure.

    The Secretary is very committed to putting together a proposal to help those people. There is money earmarked for that purpose that is separate from what we are talking about here. We have $16 million earmarked for that.

    Ms. LEE. Is it coming from CDBG though?

    Mr. BERNARDI. No.

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    Ms. LEE. At least the budget summary indicates that the savings from, as a result of the cuts, would go to fund this regional initiative. And I am just asking that because it seems to me that we should fund that anyway.

    Mr. BERNARDI. It will give us more room in the budget to have the $16 million to help the colonias. But it is not coming from the CDBG program.

    Ms. LEE. It is not coming from the CDBG?

    Mr. BERNARDI. No, that money will go back to be redistributed amongst the remaining entitlement communities, as I understand it.

    Ms. LEE. It is in your budget proposal, where it indicates that the savings from this proposal, which we are talking about today, would go to fund these colonias. Unless I am misreading.

    Chairwoman KELLY. Mr. Bernardi, what she is asking, I believe, is for clarification, because in the proposal, while you talk about it—in basically the information you sent out about what you are proposing, you do not define the colonias. And it just says, actually let me read from this: ''The savings from this proposal will fund a regional initiative to enhance the availability of affordable housing, economic opportunity and infrastructure in the colonias.''

    We do not know where that is. We do not have a definition of that. And we are sitting here wondering why you are not talking about things like the Appalachian region, the Mississippi Delta region. What is the colonias?

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    In other words, we need a geographic definition. That is what she is asking.

    Ms. LEE. And also, Madam Chairwoman, in addition to the geographic definition, what I am also asking is why can't these communities access CDBG funding now? And why do we have to establish a new pot of money for these communities?

    Mr. BERNARDI. They are not entitlement communities. And with the redistribution of the dollars, they would go to the remaining entitlement communities.

    Communities within those States could provide assistance and some already have. I know that the Texas legislature has passed money to help the colonias.

    Ms. LEE. OK. So then you are saying again—I need to clarify this, as we move forward—you are saying this money, the proposed cuts that you are presenting to us today do not go to fund, the savings do not go——

    Mr. BERNARDI. No. They go back to the formula and will be redistributed to the remaining entitlement communities.

    Mr. FRANK. If the gentlewoman would yield?

    I think it is very clear. First of all, there appears to have been a change from the budget proposal where it talked about putting the money into the colonias. But I think what you have here is one more effort to get some sympathy for this proposal by invoking a very worthy, but legally, quite irrelevant issue.

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

    Thank you, Madam Chair. I understand now. I get it.

    Chairwoman KELLY. Thank you.

    Mr. Bernardi, we need a definition. And we need a geographic definition, a better definition of what this is because you have not defined it. And it is necessary if we are going to seriously pursue——

    Mr. BERNARDI. It is not part of the program and the reduction. But I will get you the definition, all of you.

    Chairwoman KELLY. Thank you.

    Mrs. Jones.

    Mrs. JONES. Am I the last one?

    Chairwoman KELLY. No, no.

    Mrs. JONES. Let me pass.

    Chairwoman KELLY. All right. Then we go to Ms. Waters.

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    Ms. WATERS. Thank you very much.

    I do not know, Mr. Bernardi, you have not been around here very long maybe. You have not been doing this very long.

    You have to understand that we decide to support efforts in various ways. For example, it would be very attractive—it would seem very attractive—for me to accept the idea that you are doing something to give more money to the poorest areas of the country. It would be easy for me to grab hold to that.

    But I have learned to be very selective about doing that kind of thing because we all define these needs in various ways at various times. For example, when I look at your proposal where it says, ''Our 2003 budget proposes reducing the annual CDBG allocation to the wealthiest one percent of eligible grantees.''

    Now, I use that kind of language with tax cut when I talk about who should be given a tax cut and who should not be given a tax cut. And I say that the wealthiest people in this country should not be given a tax cut.

    But the Administration rejects that kind of thing. They believe that the tax cut that they have given, that the wealthiest people should benefit from it. So, on that occasion, we differ.

    On this occasion, where you are using that same kind of argument, I differ with you because I have learned that once you give somebody some money, you are not going to get it back. And when you have, in this case, Republicans who come from wealthy communities who like this money and they are accepting this money and they honestly believe that, despite the fact they have a wealthy community, there are pockets in those communities that benefit.

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    And as was described, maybe even more when you have a community where you may have $150,000 incomes and pockets of $30,000 incomes than where you have everybody getting $70,000. So, you are going to lose that one.

    And I think what we are all saying is this. And I use that argument too with Social Security. I am selective. And Social Security, when they try to make the argument that wealthy people should not benefit from it, I say, ''No, no, no, no, no, no. I reject that because I want to keep everybody in the loop so that we join hands and get as much money as we can.''

    So, you find yourself in a position where the Administration's argument will not work with one. What we are going to do is we are going to join hands and we are going to all say, ''Well, we need more money. We need more money. We are not going to let you cut out these wealthy communities. They are our friends on this one.'' OK?

    [Laughter.]

    We are going to support them. We are not going to let you separate us out.

    Mr. BERNARDI. I am so happy I could bring you all together.

    [Laughter.]

    Ms. WATERS. So my advice to you is number one, first of all, it is not enough money that you are going to take from them to really spread out to do anything. And you got caught talking about the colonias and some other places that are not going to benefit at all. So, we caught you.

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    And having caught you, I hope this is a nice little, you know, beginning lesson for you. What you should be doing with all of this now is recognize that we all love CDBG. It is extremely important.

    We depend on it. We love it. It works in poor communities. It works in not-so-poor communities. We are all together on this.

    We need more money for CDBG so that we can have more money to spread around. Now, there may be some places that do not use this money appropriately. And it is OK. You go look for those and find those and try to extract those. And then, we will all join hands, perhaps, on that one.

    But on this one, uh-uh. Nope. It is not going to work.

    So, take the message back. Do what you have to do. But I am going to support Westchester.

    [Laughter.]

    Mr. BERNARDI. If we took more, could we change your mind?

    Ms. WATERS. Huh? Nope, will not work on this one.

    Mr. BERNARDI. Thank you. Thank you for your comments.

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    Ms. WATERS. And understand, there are some times when what appears to be logic does not fit. And this is one of them. Sorry.

    Mr. BERNARDI. Thank you. Thank you for your comments.

    Chairwoman KELLY. Thank you very much, Ms. Waters.

    We go to Mr. Capuano. Oh, I am sorry.

    Mrs. Jones.

    Mrs. JONES. Thank you, Madam Chairwoman. I talk loud so I do not really need a microphone.

    Mr. Secretary, thank you very much for appearing here today. I was reading through your testimony. And at page four, it says: ''St. Louis and Cleveland, with per capita incomes less than three-fourths the national average, receive 21 percent less CDBG dollars today than they did in 1980.''

    I represent the great city of Cleveland. Can you be a little more specific? Or could you have your staff submit to me information with regard to the city of Cleveland and CDBG grants and why our grants have gone down?

    Mr. BERNARDI. Yes, I will be more than happy to get you all that information.

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    Mrs. JONES. I would deeply appreciate it. Let me ask you another question. At page five of your testimony, it says: ''With respect to H.R. 1191, it would be premature for the Department to respond to this bill at this time, since it has not yet been voted out of committee.''

    Even though the bill has not been voted out of committee, we are here to discuss conceptual things, what would best work for the CDBG community. Could you discuss with me conceptually some things that would either support or not support the legislation and on and on and on that would be great to improve the CDBG?

    Mr. BERNARDI. If we had a copy of a bill that is in final form, we would be happy to. We want to work with you on it. If there are things in the bill that would be of a benefit to especially low- and moderate-income people, of course. We are all working toward the same goal.

    But that is a proposal that you had. And we will look at it. And we will get back to you on it.

    Mrs. JONES. But you do not have any responses for me this morning?

    He can talk for himself. You do not have to bug him. He is a big guy, he can handle it.

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    [Laughter.]

    Mr. BERNARDI. Well, the——

    Mrs. JONES. Who is this guy whispering in your ear?

    Mr. BERNARDI. This is Nelson Bregon. I introduced him earlier. He is the Deputy Assistant Secretary for the grants program, the CDBG program that we are speaking of.

    Mrs. JONES. Well, pass him the microphone.

    Mr. BERNARDI. OK, I would be happy to.

    Chairwoman KELLY. Sir, will you identify yourself for the subcommittee, please?

    Mr. BREGON. Yes, honorable Chairwoman. My name is Nelson Bregon. I have been a career HUD employee for over 22 years. And I am the Deputy Assistant Secretary for the Office of Grant Programs.

    Mrs. JONES. So are you permitted in your capacity to respond to that question I just asked?

    Mr. BREGON. No, not without the permission of my boss.

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    [Laughter.]

    Mrs. JONES. Well, what good are you?

    [Laughter.]

    I am joking. Really, I am. I am just having fun this morning.

    Mr. BREGON. I understand.

    Mrs. JONES. I do not want you all to take me too seriously.

    OK, Mr. Secretary, let's go to another page of your testimony. You are going to get something back to me so that we can have a real discussion about CDBG programs?

    Mr. BERNARDI. Yes.

    Mrs. JONES. In your statement, you say that just yesterday, you submitted to the Appropriations Committee—this is at page five: ''In addition, the Department was asked by Congress to submit a study of targeting of CDBG funds and HUD's administrative oversight of the program. That study was delivered yesterday.'' Did you happen to bring a copy along for us?

    Mr. BERNARDI. Yes, we have copies here.

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    Mrs. JONES. OK. It says the report emphasized three things: targeting of funds, the program that requires 70 percent and activity. I am not reading all of this, this is for the record. ''And three, activities identified as principally benefiting persons of low- and moderate-income generally assist persons of whom at least 51 percent are low- and moderate-income.'' This is page six of the report.

    I do not want to spend all of our time—because I probably do not have any time left actually—on this. But for future, it would be nice for us to have something like that before the day before the hearing so we could spend some time reviewing it to be able to make some reasoned inquiry into some of those things. Is that something you could facilitate for us, sir?

    Mr. BERNARDI. We would be happy to do so. The Congress asked us to give it to the Appropriations Committee.

    Mrs. JONES. I understand.

    Mr. BERNARDI. Double check with the Appropriations Committee. If they are fine with it, we are fine with it.

    Mrs. JONES. OK.

    But this is the Housing Subcommittee on Banking, over which we do have oversight.

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    Chairwoman KELLY. Financial Services. You are fined $1.

    Mrs. JONES. Right. Financial Services Committee. And this is the Housing Subcommittee. And we do have jurisdiction over HUD. So I do not think you have to get the Appropriations Committee approval to give us information that is applicable to that department.

    Somebody else is whispering in your ear. Go ahead, tell me your name.

    Mr. FRANK. He has already identified himself.

    Mr. BERNARDI. That is OK.

    Mrs. JONES. OK. Great. Thank you very much.

    Chairwoman KELLY. Ms. Waters, have you a question?

    Ms. WATERS. Yes, I guess I do. And I guess what I am saying to you is what is the likelihood of us—is it too late? Well, no, it is not too late—of us working at some formula changes to accommodate the loss of population, so that we can make up for the dollars that are lost in these cities where they have lost money, maybe due to population changes? And at the same time, not touching the communities where you are talking about taking this meager amount anyway, that will not really make up for that loss?

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    I mean, I think that is where we need to be going with this. Increase above and beyond what appears to be about a two percent increase in CDBG, so that that increase will accommodate the population losses that are changing the formula and leave those other communities alone.

    What is the likelihood that we may be able to advocate in that way?

    Chairwoman KELLY. We spoke with Mr. Bernardi just now. And he indicated he would work with us. Because part of the problem is not just the formula, but the criteria used within that formula. And we need to work together.

    That is part of the reason why I am very happy to have him here in front of us today, because I think it is very clear, from what we have all heard in this room so far, that there is a need for us to take a look at the criteria, take a look at the formula. And based on the 2002 census figures, then they will come up with a new formula.

    The problem is they are trying to do something now without that new formula, without the new criteria. And so that is where we are going. That is exactly where we are heading. And your question is very appropriate and a good one.

    Mr. BERNARDI. When we look at the formula, and have all of the information from the 1990 census, we will come back to you to discuss what the information is, what it shows and look for your input as well as to how we can improve it.

    Ms. WATERS. I guess what I am saying is, just my initial review of this, it may require a small increase to cover what needs to be covered. So that I do not want to see anything that is done to try and not support an increase so that it would leave those communities intact.

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    Chairwoman KELLY. Mr. Israel, we have been called for a vote. I am going to ask Mr. Israel to present his questions, then I will recess.

    Mr. ISRAEL. Thank you, Madam Chair. In the interest of time and because we have a vote, I will be very brief.

    Mr. Bernardi, did you have a chance to read Secretary Martinez' testimony to this subcommittee on the budget several weeks ago?

    Mr. BERNARDI. Yes, I looked at it.

    Mr. ISRAEL. You did read it? Do you recall reading that portion of the testimony where I asked him if HUD would reevaluate the formulas that are being used as a basis to reduce CDBG allocations in so-called wealthy communities with pockets of poverty?

    Mr. BERNARDI. The Secretary is committed to working with the Members of Congress on this. This is not unilateral. We are just making a proposal here.

    Mr. ISRAEL. Do you recall that in the testimony, the Secretary did, in fact, commit that he would work with my office and other offices to revisit that issue?

    Mr. BERNARDI. I did not see the testimony. But I know the Secretary, the person that he is. Of course, he would do that.

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    Mr. ISRAEL. He did, in fact, commit to that. I would just comment to your attention that my office has been trying to contact the Secretary's office in order to begin to shape that dialogue. And we have been rebuffed every step of the way. Was the Secretary being inconsistent when he pledged that he would meet with us?

    Mr. BERNARDI. No, not at all.

    Mr. ISRAEL. Can we get a meeting with him?

    Mr. BERNARDI. Let me get back to you as to working with that particular program. I think you have some of the gentlemen right here at the table that we would be happy to meet with you.

    Mr. ISRAEL. Can we get a meeting with somebody at HUD to discuss this? A human being?

    Mr. BERNARDI. Sure, I will meet with you.

    Mr. ISRAEL. You will?

    Mr. BERNARDI. Yes.

    Mr. ISRAEL. Thank you. I appreciate it.

    In the interest of time, Madam Chair, I will yield back.

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    Chairwoman KELLY. Thank you, Mr. Israel.

    Mr. Bernardi, as you can see, there is a tremendous amount of concern and a strong need that we feel to be able to be a part of the process. So I would urge you to please meet with all of us. You could meet with people as requested. But more importantly, I think that what we are asking for is a certain amount of transparency in the process of what you are doing with regard to this formula and the criteria that are being a part of the formula.

    You have withstood our questions very well. This has been a tough panel. And you are new at the job. And we appreciate very much the fact that you were here, you were open, as honest as you possibly could be.

    And with that, I am going to excuse this panel. And I am going to ask the third panel to be seated. We are going to go for our vote. We have a 15-minute vote and then a 5-minute vote. So we will be back in approximately 20 to 25 minutes.

    Mr. BERNARDI. Thank you, Madam Chair.

    Chairwoman KELLY. And I will keep this record open for 30 days for the written questions and statements by the Members of the subcommittee.

    [Recess.]

    Chairwoman KELLY. Will people please take their seats?

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    We welcome our panelists for this panel. We have before us the Honorable Andrew Spano, who was elected in 1998 as County Executive for Westchester County, New York. Prior to his election, he was the Westchester County clerk.

    As County Executive, Mr. Spano has streamlined government services by restructuring the county's department of social services and creating a new Office of Economic Development. He believes that state-of-the-art technology can be used to deliver more services at less cost.

    Next, we have the Honorable George Oros, who was elected to the Westchester County Board of Legislators in 1995. He chairs the board's Special Committee on Economic Development. Known as a determined tax cutter and fiscal reformer, Mr. Oros has a long record of community service, having served as Cortland town councilman, chair of the Cortland Zoning Board of Appeals and as Cortland's Assistant Town Attorney.

    They also happen to come—both of them—from Westchester County, where I reside. And I welcome both of them.

    We follow that with Mr. David Cohen, currently serving in his second term as Mayor of Newton, Massachusetts, having previously been a member of the Massachusetts House of Representatives for more than 20 years. Since becoming Mayor in 1998, Mr. Cohen has promoted efficient and cost effective delivery of public services. He has a strong interest in affordable housing.

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    We have next Ms. Josephine McNeil. She is the Executive Director of CAN-DO, an affordable housing development organization in Newton, Massachusetts. As a real estate attorney, Ms. McNeil's practice focused on affordable housing. She also served as the project manager for a for-profit housing development.

    Following her is Yvonne Gonzalez, the CEO of the Rio Grande Valley Empowerment Zone Corporation in Mercedes, Texas. The corporation was founded in 1994, one of only three rural empowerment zones in the Nation.

    Following that, we have Ed Gramlich, who is a Research and Community Development Specialist with the Center for Community Change in Washington, DC. He joined the center since 1979 and since then, has become a noted authority on the CDBG Block Grant program and other programs at HUD, providing low-income community organizations with technical assistance. He has lectured widely and written numerous guidebooks for local organizations on UDAGs, enterprise zones and CDBG.

    Following him, we have Mr. Greg Hoover, who is the Director of Development of Davenport, Iowa's Housing and Neighborhood Development Department. He currently serves as President of the National Community Development Association. The association is a national, non-profit organization comprised of more than 550 local governments across the country that administer federally-supported community and economic development housing and human services programs.

    I want to welcome this panel. We look forward to your testimony. And we would begin with you——

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    Mr. FRANK. Madam Chair, just before you do, let me particularly welcome the Mayor of my hometown, David Cohen, with whom I had the pleasure, 24 years ago, of serving in the Massachusetts Legislature before I came here. And he and Josephine McNeil have both distinguished themselves by their advocacy in a generally wealthy community, on average, for the kind of inclusive housing and other policies that I believe are at issue here.

    So I am particularly pleased that Mayor Cohen and Ms. McNeil were able to join us. Thank you.

    Chairwoman KELLY. Thank you. If there are no other opening statements, we are going to begin with our witnesses on our first panel. We thank all of you for joining us here today to share your thoughts on these issues.

    Without objection, your written statements will be made part of the record. You will each now be recognized for a 5-minute summary of your testimony.

    There is a light here in front of you that will indicate how much time you have. The green light means that you have 4 minutes in your summary. The yellow light means you have 1 minute remaining. When the red light turns on, it means your time has expired and we would appreciate your ending the testimony.

    We will begin with you, Mr. Spano.

STATEMENT OF HON. ANDREW SPANO, COUNTY EXECUTIVE, WESTCHESTER COUNTY, NY

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    Mr. SPANO. Madam Chair, Congressman Frank, Members of the subcommittee, I would like to thank you for the opportunity to testify here today on the importance of retaining the Community Development Block Grant formula as it is. As you know, a proposal has been made to cut Westchester County's CDBG grant in half to $3.5 million and use the savings for infrastructure improvements near the Texas-Mexican border, at least that is, I thought, where that was going.

    It has been suggested that we in Westchester, New York City's northern neighbor, are too rich to deserve this money and should have our CDBG funds cut. If this proposal goes through, we would be the only county in the United States and the only municipality in New York State to be so cut.

    Indeed, only nine of 1,000 entities nationwide that receive money from the $4.75 billion CDBG program are targeted for cuts. And our consortium of 40 Westchester communities is being asked to shoulder the burden of more than one-third of the total cut.

    I have a quick way to make sure that funding for Westchester's consortium is not slashed. I can ask three of our wealthiest communities—Scarsdale, Bronxville and Pound Ridge—to leave our consortium. If you take them out of the group, we are no longer double the national average in income. But to omit from the consortium our longtime partners make no sense and punishes people in those communities who need our help.

    I am talking here about senior citizens on fixed incomes, whose homes have been rehabilitated with the help of this money, who without this help would be forced to either live in an unsafe home or move. The CDBG funds that have gone to these communities have been used to help people who need this help.

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    I do not think omitting these three communities from our program is just a solution. Instead, it is a Hobson's choice: which needy people should you cut? I believe that forcing Westchester to bear the cuts being proposed unfairly singles us out and would severely hurt people in our county, people of limited or modest means who need and rely on the kinds of neighborhood revitalization, housing and job creation programs that these funds go to.

    It will hurt our senior citizens, thousands of whom each day use senior centers that have been built with the help of these funds. Without this money, some of these seniors would have to place to go for companionship and a hot meal, or help with housing, counseling and other referral services.

    It will hurt our youth, about 1,000 of whom have a safe place to go for daycare after school because this money has helped build youth centers and playgrounds. Without this money, some of these teens and preteens would be out on the streets in trouble.

    It will hurt our families, thousands of low- and moderate-income households that have been helped by these funds that have rehabilitated dilapidated housing units to make them decent and safe. Without this money, some of these people might have been homeless.

    It will hurt our low- and mid-income workers, many of whom are working today because of economic opportunities created by these funds that have revitalized neighborhoods and business districts or because of daycare, senior centers and subsidies that have allowed them to feel comfortable, knowing their children and their elderly parents were in safe places while they worked. Without this money, some of these people might be on welfare today.

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    People who do not know Westchester think we have the proverbial streets of gold. And the proposal to cut our funding reflects this false notion.

    Let me give you the facts. Eighty-seven thousand people in Westchester live below the poverty level. And that number increased by 50 percent since 1990. Almost 40,000 of these people are children. Our average salaries may be high relative to much of the Nation, but so too are our housing costs.

    Take a two-income Westchester family of four with a moderate income of $73,000. With that income, the family could qualify for a $200,000 mortgage in Westchester. Elsewhere in the Nation, that might buy a luxurious home. Here in Westchester, where the median cost of housing last year was $450,000, that home might be nonexistent. And if that house is found, the chances are it will be in great need of repair.

    And it is just not our houses that are costly, but our rental units as well. Someone working minimum wage has to work 27 hours a day to be able to afford a two-bedroom apartment at fair market rent.

    It is no surprise to us that the National Low Income Housing Coalition gives us the dubious distinction of being sixth on the list of the least-affordable places to live. Maybe that is why we have the highest per capita rate of homelessness in the United States. And almost 30 percent of the housing stock in our consortium was built before 1940; meaning unless we renovate, our housing shortage will get even worse and possibly our homeless population even larger.

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    Our population is aging as well. One in every five of our county residents is over 60, putting us 50 years ahead of the national average, placing us on an increased demand for services. And while yes, we have perhaps more of our share of millionaires, we also have 17,000 families with low-income enough to qualify for food stamps and over 40,000 families receiving medical assistance. And last year, there were five million visits by our residents to local food pantries and soup kitchens.

    Our consortium is made up of 40 diverse communities, some of them very urban, some suburban and others more rural. But our poverty is dispersed within them all. And our anti-poverty programs must recognize this.

    Our county is composed of 15 percent African-American and 16 percent of the people are of Hispanic origin.

    Chairwoman KELLY. Mr. Spano.

    Mr. SPANO. Yes?

    Chairwoman KELLY. I am going to have to ask you to sum up.

    Mr. SPANO. That is our fastest growing segment of the population. If you withdraw these funds from us, which represents half of the money we are getting now, it will cause a severe hardship on the people of Westchester County. And I urge you not to do that.

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    Thank you very much.

    [The prepared statement of Hon. Andrew Spano can be found on page XX in the appendix.]

    Chairwoman KELLY. Thank you very much.

    Next we have Mr. Oros. And please gentlemen and Mr. Cohen, Ms. McNeil, just make sure that the microphone is very close to your mouth. These are not particularly good microphones.

STATEMENT OF HON. GEORGE OROS, MINORITY LEADER, WESTCHESTER COUNTY, NEW YORK, BOARD OF LEGISLATORS

    Mr. OROS. Chairwoman Kelly and Ranking Member Frank, thank you for this opportunity to share with you and the subcommittee a perspective of what Community Block Grants mean to the communities I represent as a member of the Westchester County Board of Legislators. During my tenure on the board, I have served as Chairman of the Board and now Minority leader. During the 1998-99 session, I was appointed Chair of our Committee on Community Affairs and Housing, which oversees and votes on the annual CDBG appropriations.

    Now earlier, I was struck by Congresswoman Waters and Congressman Frank and Congresswoman Kelly joining hands and saying this joins hands. And I want to point out, the county executive is here. He is the executive branch. I am the legislative branch.

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    He is a Democrat. I am the Minority leader, the Republican Minority leader of our legislature. So clearly, in our county, we have crossed and joined hands as well on this issue.

    In this limited timeframe, allow me to focus on several key points. The vernacular of a block grant is somewhat of a misnomer. These funds are more of an investment than a grant or an expenditure.

    And they are an investment not only in housing, infrastructure and services, but an investment in people. The City of Peekskill, one of three municipalities I represent, was the only city in New York State to actually gain population in the last census, after losing population in the 1980s and 1990s as business and industry left.

    That growth in population was due in part to the wise investment over the past 20 years of almost $12 million in CDBG money. That investment, leveraged with other Federal, State and county funds and matched with Peekskill's own dollars, is improving a community that has a median income of $16,589, a minority population of 25 percent, substantial unemployment and stagnant economic growth.

    In two of the block groups, the low- to moderate-income population exceeds 70 percent. Unemployment in this area amongst adults over 16 is 45 percent. And 72 percent of the housing is rental.

    CDBG has made Peekskill a more desirable community. People have stopped fleeing and are actually moving into the city and investing their future there. In making that choice, they continue to revitalize an economy and become more productive citizens. But more needs to be done.

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    Peekskill is a HUD-approved Neighborhood Revitalization Strategy Area, having in place a 5-year plan to undertake comprehensive infrastructure and community projects with CDBG funds. These projects include housing, streetscapes, a neighborhood facility and park improvements for the 7,108 residents that live in the strategy area.

    This strategy includes a gateway off the Hudson River leading into the downtown. The uninhabitable houses, boarded up stores and vacant lots will be turned into affordable homes, busy shops where people can work and a safe community center to keep our children off the streets.

    But that will happen only if you in Congress decide to continue this important investment in CDBG funds. Should Congress approve the proposal that is on the table here, this strategy would be stopped dead in its tracks.

    Another example. The Hudson River Health Center used a $125,000 Community Development Block Grant and a $300,000 CDBG loan to fundraise another $580,000. And this is only the second phase of a $3.2 million dollar project. This investment will allow the Hudson River Health Center to expand its service beyond the current 40,680 patient visits it handles each year. These are people who otherwise could not afford appropriate healthcare or would needlessly clog emergency rooms at area hospitals.

    Fifty nine percent of the population they serve is uninsured. The preventive medicine, counseling and drug rehabilitation programs run at this facility ultimately save all taxpayers by improving the quality of health and life. But again, CDBG is crucial to the success of this project.

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    Peekskill is only one community that I represent. And I am only one of 17 county legislators. If time permitted, each my colleagues could tell you firsthand the needs of the other 39 municipalities that utilize the investment dollars of CDBG.

    Earlier, I referenced that CDBGs and the word grants is a misnomer. I think another misnomer is the idea that Westchester is a wealthy community.

    On behalf of my constituents and all the taxpayers of Westchester County, it is respectfully requested that you do not adopt this proposed change in the CDBG formulas. Thank you for your time.

    [The prepared statement of Hon. George Oros can be found on page XX in the appendix.]

    Chairwoman KELLY. Thank you, Mr. Oros. And thank you for watching your own time.

    [Laughter.]

    Next, we go to Mayor Cohen.

STATEMENT OF HON. DAVID COHEN, MAYOR, NEWTON, MA

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    Mr. COHEN. Chairwoman Kelly and Ranking Member Frank and Members of the subcommittee, thank you very much for this opportunity to speak before you today. My name is David Cohen. I am the Mayor of Newton, Massachusetts, which is a community of approximately 82,000, just west of Boston.

    I want to urge you to oppose the proposal to cut CDBG funding to communities whose per capita income is twice the national average. Newton is such a city. And over the past decade, the low- and moderate-income people living in the city of Newton have benefited greatly from the generosity of the Federal Government.

    Since 1991, the city has used $3.7 million in CDBG funds and $1.3 million in HOME funds to help leverage construction of 605 units of affordable housing. Now I know that 605 units over 10 years may not seem like a lot. But Newton is a community with almost no vacant land.

    In excess of 99 percent of the land is in use. And the construction of 600 units represents a huge effort in terms of finding sites and putting together packages.

    And it has made a difference. Some 1,000 people are living in good homes in Newton. Many of those people might otherwise not have a place to live at all. And almost all of those people would not have a place to live in Newton, but for your program.

    The City of Newton cares very much about diversity. The diversity of its population enriches all of us, giving a greater understanding and respect for the traditions of our neighbors and a deeper appreciation of our own heritage. The availability of affordable housing is critical to our maintaining a degree of income diversity.

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    And over the years, the city of Newton has taken many steps to increase that diversity. In the early 1970s, when I was a member of the Board of Aldermen, we enacted the first legislation in the State to require developers to provide 10 percent of their units for low- and moderate-income housing.

    And this past fall, the city of Newton people, in a referendum voted on by the entire city, chose to increase their annual taxes in order to build more affordable housing. And last year, the city approved the largest ever affordable housing development in its history. And it was passed unanimously and with the active support of the residents in the surrounding neighborhood.

    The city of Newton has also put CDBG money to use over the years in making sure that eligible residents in housing lived in housing that meets applicable building codes. Since 1991, we have used some $5 million of your money to do 220 major rehabs of substandard units and 750 minor ones.

    I think it is very important that those people needing affordable housing have access to a wide range of communities in our metropolitan area. Low- and moderate-income individuals should not be restricted to living in the core cities for lack of affordable housing elsewhere.

    The best tool that we have available to us in order to achieve this very important end is the CDBG program. And I hope our access to these funds will not be reduced.

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    Although Newton is a community that is well-off—indeed, wealthy by many standards—not every individual living in the city of Newton is wealthy. In fact, there are many low- and moderate-income people who live in our city. According to the 1990 census, of the 29,000 households, some 7,500 fall below 80 percent of the median income.

    If you are the State or a private funding source not from Newton, it is easy to overlook these families. After all, Newton has so much.

    So in the competition for these funds, we have not fared well. The one place Newton's low- and moderate-income population has received support has been from the Federal Government in CDBG. We have tried to expend those funds wisely in order to provide suitable living environments for low-income people.

    We believe that our full participation in this program furthers the purposes of this Act in an important way. We ask only that we be allowed to continue at that same level of participation.

    Thank you.

    [The prepared statement of Hon. David Cohen can be found on page XX in the appendix.]

    Chairwoman KELLY. We thank you, Mr. Cohen.

    Next we move to Ms. McNeil.

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STATEMENT OF JOSEPHINE McNEIL, DIRECTOR, CITIZENS AFFORDABLE HOUSING DEVELOPMENT ORGANIZATION OF NEWTON, MA

    Ms. MCNEIL. Thank you, Madam Chairwoman Kelly, Ranking Member Congressman Frank, who is—I am happy to say—my congressman. I am thankful for the opportunity to speak to you today about the issue that is before us with respect to reducing the allocation of monies to so-called wealthier communities.

    We live in an area in metro Boston where housing costs are beyond belief. A person would have to make $50,000 in order to afford a two-bedroom apartment in metro Boston. And in Newton, I would daresay that they have to earn even more.

    So people in our community are very concerned about the issue of affordable housing. Newton has had a history—as the mayor mentioned—of supporting affordable housing in many ways.

    I am the director of an affordable housing organization known as CAN-DO. And we were created by the city as part of the HOME program, which requires municipalities that receive HOME funding to establish what is called a CHDO, which means that a third of the people on our board are people who could be recipients of the housing which we create.

    We started off in 1994 and developed our first project with the help of consultant in 1996. When the city began to realize how the increase in the real estate market, the detrimental impact that was having on the community and, in terms of maintaining the economic diversity, which the mayor has referred to, the city decided that one way that they could use the CDBG funds, which is an acceptable use, is to increase the capacity of our organization.

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    And in 1999, I became the executive director of that program.

    In the subsequent years, we have continued to advocate and to try to develop housing. The real estate market is so hot that it is very difficult for us to compete with private developers. And there has been a lot of development going on in the community.

    And indeed, as I said, the community has become very concerned. And 2 years ago now—it is hard to believe it was that long—Congressman Frank actually came to a meeting that we sponsored. We, CAN-DO, is a part of an advocacy group called Uniting Citizens for Housing Affordability in Newton.

    We had standing room only. We had people outside of the doors. And the information we shared with people, people were just utterly surprised. People who had lived in the community for a long time had no idea that it was so expensive to live in the city.

    I would like to share with you some information about one program or project that we are currently engaged in that uses CDBG money. And we are renovating an existing historic property to create five units of housing for single mothers and children.

    And we are working with one of the social service agencies in the city, known as the Young Parent Program. And that program provides some supportive services and we will provide supportive services for the women and children who will be living in the house.

    So we are providing housing and helping people to become more self-sufficient so that, in the future, they will not need assistance. And for me and my board, one of our goals is to move people out of the need for subsidized housing and into an environment where they will be able to take care of themselves.

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    So funding for CDBG is important. And I guess my biggest concern is that we are going to, if this proposal is enacted, we are relocating poor people from a wealthy community, where there are good schools, where there is a good quality of life, into perhaps poorer communities and exacerbating the conditions for the people who are living in those communities.

    And I thank you for the opportunity.

    [The prepared statement of Josephine McNeil can be found on page XX in the appendix.]

    Chairwoman KELLY. I thank you, Ms. McNeil.

    Ms. Gonzalez.

STATEMENT OF YVONNE GONZALEZ, CEO, RIO GRANDE VALLEY EMPOWERMENT ZONE CORPORATION, MERCEDES, TX

    Ms. GONZALEZ. Thank you and good morning. Chairwoman Kelly, Ranking Member Frank and Members of the subcommittee, who apparently are not quite here this morning. They are voting and out.

    Chairwoman KELLY. They went to the vote and there are many other hearings.

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    Ms. GONZALEZ. Right. Right.

    Chairwoman KELLY. So that is where a lot of people are.

    Ms. GONZALEZ. Yes, ma'am.

    Mr. FRANK. Right. And there are also airplanes.

    Ms. GONZALEZ. I am sorry?

    Mr. FRANK. And there are also airplanes.

    Ms. GONZALEZ. Oh, yes, yes. I currently serve as the Chief Executive Officer of the Rio Grande Valley Empowerment Zone Corporation. And I have been with the Empowerment Zone Corporation since 1995. The Rio Grande Valley Empowerment Zone Corporation is a 501c3, a non-profit corporation. And we are one of what I call the ''original old fogies.'' We are one of the original Round I Rural Empowerment Zone designations.

    On behalf of the RGVEZC and other numerous public-private partner sectors, I would like to thank you for the opportunity to address this subcommittee. I also serve as one of the co-chairs of a group called the Southwest Border Region Partnership. This is a network representing over 84 counties along the U.S.-Mexican border, from Brownsville, Texas to San Diego, California.

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    The SBRP, the Southwest Border Region Partnership, realized that in order to have true sustainable community economic development, the private sector needed to be at the table. And I will speak to you about our relationships in leveraging those dollars with the private sector.

    There is a group that is called the Border Trade Alliance. And they have relationships with both borders. Actually, they like to say they have relationships with one border, which is one border around the United States. But they have relationships in the northern border and in the southern border.

    They are a trade and commerce advocacy organization. And they have worked with grass roots communities to address the issue of sustainable economic development.

    You know—I am not saying anything new—the Community Development Block Grant program works largely to ensure decent affordable housing, provide services to the most vulnerable of our communities, to create jobs and expand business opportunity. CDBG funds have made considerable differences in the lives of generally distressed communities, as so witnessed by these witnesses this morning.

    The RGVEZC itself, the Empowerment Zone Corporation, does not receive CDBG funding. But the communities that we work with, in our specific census tracts, do.

    The housing and economic development work that we engage in is structured so that the original SSBG dollars are only a seed investment. We busily go about creating partnerships. We believe very strongly—very strongly—that communities themselves must feel a sense of ownership and accountability to the project in order for it to succeed and be sustainable.

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    With the Empowerment Zone dollars and leveraging CDBG dollars and private investment dollars, we have implemented and have expanded on water wastewater treatment plants, boys & girls clubs, health clinics, rural health clinics, have assisted in revolving loan programs so that we have businesses that have been created. Noted in our successful record is the fact that out of the original $40 million, we have contracted and/or allocated $38.5 million and have leveraged an additional $416 million dollars into these communities.

    Through the support of Senator Hutchison and Congressman Hinojosa, the Border Trade Alliance and the Southwest Border Region Partnership came together, created an assessment of communities and centered on best practices in these communities, identified two issues: small business development, affordable housing and looking at bridging the digital divide.

    I cannot speak to all or about all of the communities on the border. I am only the CEO of the Rio Grande Valley Empowerment Zone. But I can tell you that the work that we do as a corporation is centered on some very key principles: community participation, a bottoms-up approach; establishment of public-private partnerships; fiscal and programmatic accountability; leveraging of other dollars; and sustainability.

    In a time of limited resources and critical community challenges, we do not have the luxury of reinventing the wheel. It is our belief that these common issues can be addressed by continued investment in programs and organizations that have a proven track record.

    Thank you.

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    [The prepared statement of Yvonne Gonzalez can be found on page XX in the appendix.]

    Chairwoman KELLY. Thank you, Ms. Gonzalez.

    We go now to Mr. Gramlich.

STATEMENT OF ED GRAMLICH, RESEARCH AND COMMUNITY DEVELOPMENT SPECIALIST, CENTER FOR COMMUNITY CHANGE

    Mr. GRAMLICH. Good afternoon. I am Ed Gramlich. I am from the Center for Community Change, which is a national non-profit organization that provides free technical assistance to low-income community organizations all around the country.

    Since the beginning of the CDBG program, both CCC and I have helped to inform low-income community groups all about the CDBG program—the law, the regulations and HUD policy.

    Based on the CDBG problems that CCC observes in its daily work with low-income community groups, we know that these CDBG problems exist in jurisdictions large and small all across the country. Therefore, we fully support endorse H.R. 1191.

    We think that H.R. 1191 is an excellent bipartisan approach to addressing CDBG problems; bipartisan because two of the important features of H.R. 1191 are redolent of changes that were suggested in 1989 by HUD Assistant Secretary Anna Kondratas.

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    The modifications that H.R. 1191 seeks are not radical. They are firmly rooted in CDBG's primary objective which, as you have heard today, is to principally benefit low- and moderate-income people.

    But the CDBG program has diverged from the primary objective. It has become too place-based, forgetting the law's goal of making places better principally for low- and moderate-income people.

    CDBG is a great potential resource for helping to address the affordable housing and other needs of low- and moderate-income people. But it is too often used in ways that do not benefit low- and moderate-income people. It does not meet their needs.

    One of the key provisions of H.R. 1191 would raise the primary benefit to low- and moderate-income people from 70 percent to 80 percent of the funds. Since most jurisdictions have reported that they already meet a 90 percent benefit level, there should not really be any objection to making this simple change now.

    In addition to the jurisdictions not taking low-income benefits seriously, there are five technical reasons why 90 percent of CDBG money does not really benefit low-income people. These technical problems give the impression that low- and moderate-income people are benefiting.

    My written testimony goes into great detail about these technical things. But I would especially urge you to read about the proportionate accounting provisions. Without them, low-income benefit reporting is greatly inflated.

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    H.R. 1191's fixes to the statute are not dramatic. Three or four of them actually use existing language from HUD's own regulations.

    Probably the most important provision of H.R. 1191 is the introduction of a second tier of targeting; that is, ensuring that, at a minimum, 40 percent of CDBG funds go to directly benefit people whose incomes are below 50 percent of the median, roughly $27,200 this year. Jurisdictions consolidated plans universally identify the needs of those with incomes below 50 percent of the median as being by far the greatest. Yet, advocates all around the Nation note that CDBG money is not allocated to low-income households commensurate with their needs.

    Now some opponents of H.R. 1191 might worry that a second tier of targeting would destroy the flexibility of the CDBG program. We disagree.

    Jurisdictions will still have 60 percent of their money to use for meeting the housing and community development needs of those whose incomes are $54,400 a year. Even within that second tier of targeting, that 40 percent, jurisdictions will have a great deal of flexibility. The types of activities that could be funded remain largely unchanged.

    And then finally, some might argue that a second tier of targeting would convert the CDBG program into an anti-poverty program. Our response to that is that the law has always sought to principally benefit moderate and low-income people. However, low-income people have not seen their fair share of the program's funds.

    A second tier of targeting would not be a fundamental shift in the program. On the contrary, a second tier would help to reestablish a kind of balance within the program, a balance which is consonant with the primary objective and as well as with the program's weighted allocation formula.

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    Thank you very much.

    [The prepared statement of Ed Gramlich can be found on page XX in the appendix.]

    Chairwoman KELLY. We thank you.

    Mr. Hoover.

STATEMENT OF GREG HOOVER, PRESIDENT, NATIONAL COMMUNITY DEVELOPMENT ASSOCIATION; DIRECTOR, HOUSING AND NEIGHBORHOOD DEVELOPMENT DEPARTMENT, CITY OF DAVENPORT, IA

    Mr. HOOVER. Thank you, Madam Chairwoman, Ranking Member Frank.

    I am Greg Hoover, Manager, Housing and Neighborhood Development for the city of Davenport, Iowa, which is—until recently with redistricting—the home of Congressman Leach and will be the district of Congressman Nussle, should he be successful in next year's elections.

    I am here representing the National Community Development Association as their president, but also here on behalf of the U.S. Conference of Mayors, the National Association of Counties, the National Association for County Community and Economic Development and the Council of State Community Development Agencies. I am here to speak in strong opposition to H.R. 1191.

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    I dispensed my remarks to a few sheets here, but I am even going to divert from that.

    I want to give a very quick history lesson, because what you have heard this morning is some informed and a lot of misinformed conceptions about CDBG. CDBG was not an anti-poverty program that grew out of the 1968 Johnson Administration. It began in 1974 with the Model Cities Program and of the Nixon Administration.

    It is a program that is designed to benefit communities—yes, principally low- and moderate-income people. And there seems to be a disagreement on the definition of what principally means. But I will tell you that in our city and the communities that NCDA represents, it has been a tool for economic change. It has been a tool that will allow us to move people, to de-concentrate those folks who are low- and moderate-income people from those areas in which they currently live to other, better, more affluent areas and also to bring in people of higher and moderate income into those poorer, distressed neighborhoods.

    If you would continue and pass this bill, I can tell you, as a practitioner, the real-life effect will be that you will concentrate low- and moderate-income people in the neighborhoods in which they are currently living. And that flies in the face of other Federal legislation of affirmatively furthering fair housing. So this bill would put us in conflict with another—and I think higher—authority bill.

    Excuse me. I would like to also address the issue of raising the aggregate amount of CDBG. In Davenport, we have done an excellent job, I believe. And 50 percent of our people over the last 5 years—or 3 years—have been at those 50 percent or below. So we can do those things.

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    But what you are doing is decreasing the flexibility of the local governments. Additionally, in H.R. 1191, there is a provision that would disallow claiming of low-mod benefit to areas that are not primarily residential. That would hurt downtown redevelopment.

    In Davenport, we have approximately $113 million revitalization project going on, of which CDBG will be a small, but important part. And the downtown is right now the locus of a lot of elderly housing and a lot of services that are down there. So if you are telling me that the city of Davenport cannot use our funds down there, then what you are telling me is we cannot serve the low- and moderate-income people that are intended to be served by the program.

    I would like to quickly address the what I call ''anti-wealthy community'' proposal by HUD. I think that is very much akin to saying to wealthy people, ''Sorry. When you get to the age where you can get Medicare, you cannot participate in that because you have enough money to provide that yourself.'' It just does not make sense.

    As Lewis Carroll said at one time, ''If it were so, it might be. If it was so, it would be. As it is not, it ain't.'' And that is logic. And I do not think there is any logic to HUD's proposal.

    We would also strongly endorse what I have heard here today by the subcommittee of increasing HUD's budget. That is the way to get a lot of these changes.

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    And lastly, I would conclude by saying you have already received—albeit late—a report from HUD. There is another study that is coming out on the formula. We would encourage you to delay any action on these two proposals until you get those studies, have a chance to review them and make informed decisions.

    And NCDA and the other groups that I am representing would pledge our support to working on that formula committee. In fact, NCDA—and I hope your communities are members; Mr. Frank, I know that Newton is—that they would join with our committee that we have in NCDA on the formula allocation.

    Thank you for your time.

    [The prepared statement of Greg Hoover can be found on page XX in the appendix.]

    Chairwoman KELLY. We thank you, Mr. Hoover.

    Mr. Hoover, what you testified to just now was somewhat contrary to what Mr. Gramlich said. And Mr. Gramlich, I wonder if you would like to focus on a response of some sort with Mr. Hoover. I know I am sort of catching you unawares here. But I would like some clarification.

    Mr. FRANK. Oh, I do not think you have caught him unawares.

    [Laughter.]

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    Mr. GRAMLICH. We could do this in our sleep because our organizations have been battling.

    Mr. FRANK. Yes, just do not do it in our sleep.

    Mr. GRAMLICH. Are you saying I am boring? Having done CDBG for 27 years, I think I probably am boring.

    One of the misconceptions that he talked about was the notion that one could no longer use CDBG money in downtown areas. First of all, HUD—in its regulations—has long proscribed the use of the area-wide benefit test in areas that are not primarily residential in character, precisely because some downtown areas might—they have few people who live there. They are primarily business oriented. But in terms of the census tracts, they are low-income.

    So what you have are decorative lighting, fancy brick streetscapes and things of that nature, which do not really benefit low- or moderate-income people. So HUD, at least as far back as 1988, said, ''Well, in those cases, that does not meet the idea of benefiting low- and moderate-income people. We will not allow that in an area that is not primarily residential in character.''

    Now there are a lot of neighborhood commercial strips, and small town central business districts that do serve lower income people who live around that. And HUD's service area test would certainly allow the use of the area-wide benefit test in those cases.

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    Mr. Hoover talked about housing in a downtown area. I got my start in CDBG in 1974 in Davenport. I recall 202 down there. I cannot remember the street anymore, however.

    You could use CDBG money for housing. That is not a part of the area-wide benefit test.

    So there are a whole lot of misconceptions that I think if one carefully looked at the proposed statute, H.R. 1191, you would find that things are not quite as scary and dire as has been proposed here. And of course, if you read my lengthy written testimony, you will find that out.

    Chairwoman KELLY. Thank you very much.

    It sounds to me as though what we are coming out with here is a need for the people who are allowing the CDBG grants to go forward to assess exactly what they are doing with regard to their intended purpose.

    That takes me to Mr. Oros, because I know the City of Peekskill well. This is a poor community in many ways.

    The way that the city has been able to bring itself back has been able to allow loft living above commercial development there. It has been extremely important to try to bring this almost moribund city back into play as a modern city, to allow that intermix between housing—and that is low-income housing, some of it—and a better downtown. And actually, in fact, in this instance, the repaving of the streets and providing better streetlights stopped the types of things that were going on on the streets and allowed people to be able to live in the lofts.

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    And I am wondering, Mr. Oros, if Peekskill is forced to apply for the CDBG grants as an individual municipality, what effects on Peekskill would you anticipate?

    Mr. OROS. Well, thank you. I think the simple answer to that is something that many of you in Washington hear all the time, is the money will not get to the use it needs. Instead, what we have been successful in doing in Westchester County with our consortium is having a central administrative office so that, for every dollar we get from this program, more of it gets to the programs to be spent on the bricks and mortars and the other things it needs to be spent on, rather than—dare I say this word here?—bureaucracy.

    So I think what would happen is that you would end up having many of the communities of Westchester County having to build their own internal staff and bureaucracy and planning departments and so forth to do this, rather than relying on the county where we have a central staff. They are well attuned to everything that is going on. They are able to work with the local communities. But to keep up with all the Federal guidelines, to make sure all the things are being filed properly would be an administrative nightmare for Peekskill.

    Peekskill is a city of 20,000. You know, ''city'' may be another misnomer here because only 20,000 people live in Peekskill. Most of them are under the median income. Most of them are in need of this.

    And the problem is you cannot have the type of—you do not have the type of tax base there to have a huge city government bureaucracy to take care of these things. So they do rely on the county.

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    And that is, I think the county executive alluded to how he could take some of these communities out of here to fool around with this formula proposal. But that really does not serve a purpose, I do not think, for any of these communities.

    Chairwoman KELLY. Thank you.

    I have one other question, and that is for you, Mr. Spano. The HUD people spoke in their testimony of a 51 percent increase in Westchester County CDBG funding since 1980. I wonder if you would like to talk about that a little bit. Can you explain that?

    Mr. SPANO. Well, they are going back to when there were about 21 communities in the consortium. We have increased our consortium from 21 to 40. So you can pick it up right there.

    Subsequent to the 1990 census, in the new census, we have also increased our population of minorities in Westchester County. So that would account for a lot of it.

    Chairwoman KELLY. Thank you. I have no more questions.

    Mr. Frank, have you a question?

    Mr. FRANK. Yes, let me begin. And Mr. Spano understandably checked himself because HUD has changed its position. When you referred to the argument that this money was going to go to the colonias. Not that $8 million would go very far.

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    Apparently, HUD has changed its position because there were two documents. The earlier document said it would go to the colonias. They reconsidered that. And in Mr. Bernardi's testimony, the colonias were involved only in the sense that the ankle bone is connected to the shoulder bone.

    [Laughter.]

    I mean, there was no direct transplant in that regard.

    I just want to make a couple of observations. First of all, I want to congratulate the most 5-minute observant witness panel we have ever had.

    [Laughter.]

    But you also showed collectively that you can within the 5 minutes if you do not waste a lot of time, get a lot of meat on the bones.

    Yes, Mr. Mayor.

    Mr. SPANO. We were intimidated.

    [Laughter.]

    Mr. FRANK. But it is a good lesson for me.

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    Mr. SPANO. At least I was.

    Mr. FRANK. But I just want to make a couple of comments. First of all, one of the problems we run into is because so many of the Government's other housing programs have been cut back, CDBG has been forced to be more of a low-income housing program than it was originally intended to be.

    Mr. Hoover alluded to the origins of CDBG. It was special revenue sharing. There was general and special revenue sharing back in the Nixon days.

    And part of the problem has been that CDBG has been forced to bear more weight in a different area. And I am hoping that we can get the Federal Government back in the business of some specific housing production programs, which would take some of this distorting pressure off CDBG.

    So I agree with Mr. Hoover's description there.

    Second, I do think—and we have gotten two proposals here. One which says take some money away from wealthy communities; another which says focus more on low-income legislatively. My view is—and I had a chance to speak with Ms. Meek about this, who has been a very staunch advocate of social justice.

    Part of the problem has been that HUD—and I do not mean to point to this HUD. No HUD in my memory, 22 years, has enforced these restrictions. And then I want to give some of the blame to us. Frankly, what would happen if they did try to enforce the restrictions is that the city would complain to their Representative or Senator.

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    And I think one of the things that we need to do, Madam Chair, is I am ready to ask HUD to be tougher. And I am ready, among ourselves, to say we will back HUD up if they are tougher. And when some of our colleagues come complaining to us and say, ''Penalize HUD because they are doing this,'' that we have to be willing to say no. That is, I think if you looked at the rules—now, the one question I think we need to debate is the question of the accounting and whether or not you should do proportional accounting.

    It would seem to me that proportional accounting should not be objectionable, depending on what the requirements are, that if it is not in the service. You know, proportional accounting in the service of a 90 percent low-income requirement is going to be strongly resisted. But, proportional accounting in the service of this orientation to low- and moderate-income, in general, would be different.

    But I would like to say out of this—and it has been a very useful hearing. And I am grateful to the chair for the way she has conducted it and to all the participants, the HUD people and others.

    I see, on a tough issue frankly, the potential for consensus, which says we will agree at least to try for a while better enforcement than we have ever had of the existing low- and moderate-income restrictions, some better accounting that more accurately looks at that. At the same time, a recognition that this is not meant to be primarily a housing program or exclusively certainly a housing program, but that it ought to be able to provide some of the amenities that would go along with the housing.

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    And our part in that would be to say to HUD, ''OK. And if and when you start enforcing this, we will be there to protect you against the inevitable complaints that are going to come from some of the members.'' And I frankly hope that maybe out of this whole set of kind of proposals could come that approach.

    And I want to say I appreciate that the Deputy Assistant Secretary is remaining, seriously. Because sometimes, you know, we get some hit and run. The Deputy Assistant Secretary has remained and has listened. And we appreciate that.

    So Madam Chairwoman, I look forward to all of us working together. Because I think out of this one, we may get some consensus.

    Let's be honest. I do not think any of the legislative proposals are going to pass. The Administration's bill is not going to pass. Carrie Meek—I strongly support a lot of what Carrie wants to do—that is not going to pass.

    I think my colleague, Ms. Waters, gave everybody a very good political science lecture in about 3 minutes. She ought to go on the internet for distance learning with it.

    [Laughter.]

    But I do think we could come together on at least a much better enforcement than we have ever had of the existing rules and work on that.

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    Mr. Hoover, you wanted to comment on that?

    Mr. HOOVER. Yes, thank you very much. I would just like to pledge the support of NCDA and the members that I am representing today to that effort.

    As you know, we work very closely with the Department of Housing and Urban Development to get the spend-down rate more in line. And we are committed to doing that.

    Mr. FRANK. Good. Let me throw in here, both for NACO and for the Conference of Mayors, if we could get—and you, of course, NCDA is the primary advocate for this. If we could all agree that when HUD enforces, in fairness to HUD, they just do not just get jumped on and they are left alone, because they had the temerity to enforce the rules.

    If we could all agree to try and support such enforcement, I think we may be able to advance this.

    Madam Chair, I am finished. And I thank everybody for helping.

    Chairwoman KELLY. Thank you very much.

    Mr. FRANK. Mr. Hoover had one more.

    Mr. HOOVER. Just one more thing. In a quick aside, when we ask for money, I will tell you that what would be very beneficial would be technical assistance money directly——

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    Mr. FRANK. OK, Mr. Hoover. I have got to tell you this. If my district, if my community was about to go into the district of the guy who is now the Budget Chairman, I would not waste time talking to me and Kelly. So why don't you go there and go talk to him?

    [Laughter.]

    Mr. HOOVER. I intend to do that.

    Chairwoman KELLY. If there are no more questions, then the chair notes that some Members may have additional questions, 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 these witnesses and place their responses in the record.

    This panel is excused with our great thanks for your patience and your testimony. And we appreciate your time.

    [Whereupon, at 1:37 p.m., the hearing was adjourned.]