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Wednesday, March 5, 2003
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.

    The committee met, pursuant to call, at 10:10 a.m., in Room 2128, Rayburn House Office Building, Hon. Michael G. Oxley [chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Ney, Kelly, Shays, Miller of California, Capito, Feeney, Hensarling, Barrett, Harris, Renzi, Frank, Waters, Sanders, Maloney, Gutierrez, Velazquez, Watt, Carson, Meeks, Inslee, Moore, Ford, Hinojosa, Lucas of Kentucky, Clay, McCarthy, Baca, Matheson, Lynch, Miller of North Carolina, Emanuel, Scott, and Davis.
    The CHAIRMAN. The committee will come to order. And pursuant to the Chair's prior announcement, the Chair will recognize himself and the Ranking Minority Member for 5 minutes each for opening statements, and the chair and ranking minority member of the Subcommittee on Housing and Community Opportunity for 3 minutes each. All members' opening statements will be made part of the record. This is the Greenspan rule, in effect. You are in good company, Mr. Secretary.
    Today the committee welcomes back HUD Secretary Mel Martinez. I would like to note that this is the Secretary's third time before the committee since I have been Chairman to speak on the administration's budget proposals. He has also been before the committee on other housing topics such as reform of the Real estate Settlement Procedures Act. We appreciate all the work that you do. We truly understand that in these difficult times you have exhibited the type of leadership necessary to move the Department of Housing and Urban Development and Federal housing policy in the right direction. For that, we are all very grateful.
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    Today, Secretary Martinez will explain the administration's fiscal year 2004 budget proposal. There are several bolded issues that will command the attention of this committee. It has always been my policy that we should have a thorough understanding of the issues and then let the committee work its will to foster a housing policy that is comprehensive, that maximizes the taxpayers' investment in housing and economic development, and that makes common sense.
    Around the country, national and local newspapers are running articles about housing. In some cases it is about the public, private, and nonprofit partnerships that make housing affordable. In other cases it is about expensive urban centers that no longer have affordable housing for those working families making minimum wage salaries. Or it is about rural areas where economies of scale do not allow for the building of affordable house. As always, we can do better.
    Today's witnesses, including Secretary Martinez, will address different perspectives of our Federal housing policy. The administration's housing budget proposes to, among other things, convert Section 8 tenant-based housing vouchers to State-mandated block grants with a transition period in fiscal year 2004 and full implementation in 2005; provide a new FHA product for subprime borrowers, which will assist many homeowners who have been locked out of the traditional mortgage finance markets; provide an additional $200 million for the American Dream Down Payment Initiative, which will assist low-income families whose only barrier to home ownership may be difficulty in saving for a down payment; and enhance single-family direct loan programs in the Rural Housing Service to provide more home ownership opportunities for very low-income families in rural areas.
    The proposed budget also plans to eliminate some programs that I know are important to members of this committee. This will be an opportunity for the Secretary to explain those changes as well as how the administration intends to continue addressing the issues through different programs. Because the Housing Subcommittee also has jurisdiction over the National Flood Insurance Program which plays a key role in home ownership, the administrator of the flood program will address its budget proposal as well.
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    Let me say welcome to Secretary Martinez, to Rural Housing Administrator Art Garcia, Federal Insurance Administrator Anthony Lowe, and the Executive Director of the Neighborhood Reinvestment Corporation, Ellen Lazar. All of you represent agencies that have made a worthwhile contribution to housing policy and your comments today will be most helpful in assisting this committee in its work.
    The Chair's time has expired. I now yield to the gentleman from Massachusetts, the Ranking Member of the committee.
    Mr. FRANK. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for your availability and your willingness to stay and answer questions fully as you have said you would do. We appreciate that. We don't always get that from various high-level people.
    I am seriously troubled by several aspects of the housing budget. First is public housing. The poorest people in this country live in public housing. There are people who are critical of public housing and say it is not very good housing, but they don't understand that no one lives in public housing under court order. People are in public housing because, as inadequate as it may seem to many, it is the best that those people who live there can afford. It is a very important resource. And having the public housing operators of this country be subjected to the fiscal storms that they have been suffering in the past few months is really just unconscionable.
    As you know, your Department announced that as of now, agencies are getting in many cases 70 percent of what they admittedly need to operate. We were told that could go to 90 percent once the appropriations bills were passed. Of course, those appropriations bills were held up for an outrageously long time. But now that the appropriations bills have been passed, the ranking member of the subcommittee and I, as you know, had written to you and asked, when are we at least going to get the 90 percent? Now, it is a pretty sad situation when we are begging you to give them 90 percent, when 100 percent isn't enough to do what they ought to be doing. But the one thing you can say about the 90 percent is that it beats the hell out of 70 percent. And now I don't know how many weeks after we passed this it is still at 70 percent.
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    Telling the people who run public housing and administer to the poorest people and people beset with problems that they are going to go with 70 percent, and it will take a while even to get them up to 90 percent, is unconscionable. In addition, we are told that the problem has been that there has been this ongoing shortfall in the operating subsidy account in 2001 and again in 2002. We were told the problem here is that in fiscal year 2002 there was this $250 million shortfall.
    What troubles me is that you have apparently decided to pay for the $250 million shortfall—that is the number that HUD gave us—by taking it from the fiscal 2003 appropriation.
    Now, the problem here is that you sent up a budget before there was any knowledge of the $250 million shortfall for fiscal 2003. You got from the committee only slightly more than you asked for, I believe about $70 million. And out of that number, you are going to take $250 million. So the problem is that we are going to solve the problem of the shortfall apparently by creating another shortfall; because public housing, if you were right in what you asked for fiscal 2003 and you subtract $250 million from that, by your own numbers there is a shortfall.
    We should add that that shortfall is exacerbated by the fact that when this administration took office, it got Congress to abolish a $300 million program that existed in addition to the operating subsidy for public housing to combat drugs in public housing. We were told, pay for that out of your operating subsidy. So we now have a $300 million program that was abolished that is to be paid for out of an operating budget that is $250 million less than it used to be. If Enron had done that, there would be more of them in jail than there are going to be.
    Next we have the problem of production. The fact is that the housing crisis in this country in many areas has gotten worse. The very prosperity that was such a blessing for this country, and which many of us miss and hope will return, in some cases exacerbated the housing crisis because of the nature of the market, the geographic distribution, et cetera. It is in my judgment impossible for us to go forward in alleviating that without a Federal program thoughtfully designed to help housing production. And in fact, we had this question last year, we had a dispute not about whether or not to have a housing production program but what kind to have. We had a vote. The gentleman from Vermont had a proposal, and we had a vote and it was countered by a proposal offered by the gentlewoman from New York. And the proposal offered by the gentlewoman from New York was to authorize funding for State and local housing trusts. We had proposed, many of us on this side, to go with a national one. There was a very close vote, a one-vote margin. But the dispute was, should we have a new production program that goes entirely through the State and local trusts for production, or should we do a national one?
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    And after this committee split on that issue of how, not whether, apparently—and I have read this, and perhaps you were misquoted, that does happen from time to time here— you intervened and asked that the bill not come to the floor because of the possibility that the House might actually authorize a production program. And I think that is a serious problem we have.
    When this committee overwhelmingly voted—and I would not doubt the sincerity of the people on the other side, even if I could under the rules—when they voted for a program that allowed this money to go through the local and State housing trust, I am sure they did this out of a conviction that we should help build housing production, not simply to stave off a more popular proposal.
    And so when this committee divides along those lines and you then intervene to get the whole bill killed and with it kill a lot of other good proposals that I thought weren't controversial, I am very disappointed. So I think we have a very serious set of problems facing us.
    Thank you, Mr. Chairman.
    The CHAIRMAN. The gentleman's time has expired.
    The CHAIRMAN. The Chair now recognizes the gentleman from Ohio, the chairman of the Housing Subcommittee, Mr. Ney.
    Mr. NEY. Thank you, Mr. Chairman.
    And I am pleased that we are having this hearing today. As we are aware, HUD, the Rural Housing Agency, FEMA, the Neighborhood Reinvestment Corporation, are all important parts of providing housing in the United States. And particularly, I am interested in the proposals proposed by HUD for reforming the Section 8 voucher program and of course the elimination of the funding for the brownfield development.
    There is no doubt, I think we all recognize, Section 8 is in need of reform. Right now, the program takes up about 50 percent of HUD's budget; at the same time, not all the vouchers we fund are being used. We can't afford to keep operating the program as we have, although I want to praise the Secretary for—you know, we have talked, and I know the statements that you want to do something always to make things better.
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    So the committee is going to have to consider how to reform the Section 8 program so that the vouchers are being utilized, people who need vouchers can use them even in the high-cost areas. And that cost of vouchers, we have got to make sure it doesn't grow out of control. And I am not sure what the best way is to do this, to be frank, but we will be willing to work with you and to partner with you and to work with the members of the committee on both sides of the aisle.
    Furthermore, of course, there is a debate about HOPE VI and if HOPE VI is to be continued or whether reforms are necessary. And again, I think it is a subject that we need to spend some time on to come to some conclusions of what happens with that program.
    And I had mentioned the brownfield, which I think is very important. Early this year one of our committee members reported his bill 239, H.R. 239—that was Gary Miller—which would make it easier for communities to use the brownfield development money. I think it would be unfortunate, after that being reported, to somehow be able to have legislation passed and then not have the money that is needed to do that.
    Despite the questions I have, I applaud the Secretary, what you have done to work on reform. You have been working hard to update the technology that HUD uses, to streamline your programs, and to bring greater accountability to the Department. There is a lot more work to be done, but I am sure that working together we will all face the job. So I appreciate your time here, Mr. Secretary. Thank you.
    Secretary MARTINEZ. Thank you, sir.
    The CHAIRMAN. I Thank the gentleman.
    The CHAIRMAN. The gentlelady from California, Ms. Waters.
    Ms. WATERS. Thank you very much. I would like to thank you for holding this hearing today. And Secretary Martinez, I thank you for your presence. You are going to be made to feel a bit uncomfortable here today, because you are going to hear over and over again from many of us about what we don't like about this budget. I would like to believe that if you had your druthers, you would give us adequate funding, you would advocate for it, and you would make sure that we are meeting the needs of our citizens for housing and particularly our poor citizens.
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    Having said that, let me just share with you what my concerns are. First, starting at the poorest levels, homelessness. I am very, very concerned that this budget does not really deal with the growing homelessness that we have in this country. And while I think there is some reference to dealing with kind of the permanent homeless, in the city of Los Angeles, downtown Los Angeles, around our city hall and our government buildings and hotels, we are stepping over homeless bodies on the street. It is absolutely shameful. And I really do believe that the Federal Government must be in partnership with our cities to really deal with the homeless problem.
    Also, public housing. All of us are very concerned about the shortfall that was announced for public housing. You know, public housing—despite the fact there are people on waiting lists that need to get in, people who can't really find housing anyplace else—is a place where people are often blamed for the way the housing looks. They are blamed because the trash is not picked up, they are blamed because the buildings are not painted, they are blamed because the plumbing is not working. But that is really a problem of management at our public housing authorities. And it seems to me they cannot do the job unless they have the operating budget to do it. Whether it is the plumbing and repair or the screen doors or security, we must have an adequate amount of dollars to ensure that we can keep up these places, because we have the poorest people living there, with the least number of resources themselves. And so that is a responsibility. We cannot be slum lords. The government must have the kind of operating budget—and I do want to hear whether or not we are going to be operating with 70 percent or 90 percent. As Barney said, we should be talking about 100 percent.
    Please explain to us about HOPE VI. As you know, most of us like that program. It has relocated approximately 41,000 families to better housing, demolished over 51,000 distressed and obsolete units, and rebuilt 19,000 public and nonpublic housing units. So we need to know why, when we are on the track for doing something good, then all of a sudden we don't have access to those resources anymore.
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    As for Section 8, we have waiting lists in many of our cities and certainly we do in the city of Los Angeles. I am not—I am not at all interested in privatizing Section 8, I am not at all interested in block granting Section 8. I come from a State where we have a $35 billion deficit. I don't want to block grant anything to my State, because anything that gets block granted, monies will be siphoned off to pay for other things. And so we have to be very careful about that.
    Having said that, let me also add that CDBG is a very important resource, the Community Development Block Grant. We should have a substantial increase in CDBG. Not only do we have CDBG that provides money for housing, but for all of those nonprofits out there that are doing the kind of work that is so desperately needed, whether we are talking about some of that money going to seniors or to children or to other efforts in the community to basically help poor people.
    And so while again I would like to believe that if you had your druthers, you would do it differently and you would advocate for more money, unfortunately you are on the hot seat. I mean, the buck stops with you on this one. So you have to tell us what you are going to say and what you are going to do about all of these issues that we are bringing to your attention today.
    I still thank you for coming. I may have to go in and out, but I will certainly have access to whatever information you are going to share, and I thank you very much.
    I yield back the balance of my time.
    The CHAIRMAN. The gentlelady's time has expired.
    The Chair would now wish to recognize Mr. Feeney from Florida for the purpose of introducing the Secretary.
    Mr. FEENEY. Thank you very much, Mr. Chairman. It is indeed a great honor to introduce a very close friend of mine and somebody I admire a great deal, our 12th Housing and Urban Development Secretary here in the United States. Secretary Martinez was unanimously confirmed in January of 2001. He is a graduate of Florida State University Law School among other things, and, like me, he is a recovering lawyer, and practiced law in Orlando for about 25 years. Before becoming, Secretary, he was elected as Orange County's chairman, served on the Governor's Growth Management Study Commission, and did a remarkable job in central Florida. And we are so proud to have him as our favorite son.
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    As HUD Secretary, he has worked to strengthen our communities by launching programs such as HUD's Center for Faith-Based and Community Services. He has expanded home ownership opportunities throughout the United States, and he is actively working to reform and simplify the home buying process to make the American dream of home ownership available to more Americans.
    So Mr. Chairman, it is a great delight and privilege for me to introduce a hometown fellow, and a good friend of mine, Secretary Martinez.
    The CHAIRMAN. I thank the gentleman.
    And, Mr. Secretary, welcome back. And after that high barrier that the gentleman from Florida set for you, I am sure you can equal or exceed that. So welcome back.


    Secretary MARTINEZ. Thank you, Mr. Chairman. It is a pleasure to be back. It is a particular pleasure to see on the committee some Florida friends like Congressman Feeney and the Congresswoman from Sarasota who is also a dear friend.
    We are delighted to be back here today to talk about the fiscal year 2004 budget. And I have prepared remarks, and I would like to make them part of the record.
    The CHAIRMAN. Without objection.
    Secretary MARTINEZ. I am going to go through some prepared remarks, but I do also want to be sure in my opening comments perhaps I can begin to deal with some of the issues that have been raised by some of the members and their concerns, because I do think that while a lot of these things may sound draconian, they do have, I think, a certain amount of logic and a good number of them also have some pretty good answers.
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    We are at a time of some great uncertainty in the world, and the administration continues focusing on strengthening the United States economy. Creating affordable housing options remains a critical component of the President's agenda. HUD's proposed $31.1 billion budget offers new opportunities for families and individuals and minorities seeking the American dream of home ownership. It offers new opportunities to increase the production of affordable housing and expand access to housing free of discrimination. It provides new opportunities for strengthening communities and generating renewal growth and prosperity with a special focus on ending chronic homelessness. And our budget creates new opportunities to improve HUD's performance by addressing the internal management problems that have long challenged the Department.
    I know that this particular subject is of great interest to the committee, and we will be talking to you a little more about that in the course of my testimony.
    I want to discuss, first, home ownership. The President has committed this Nation to creating 5-1/2 million new minority homeowners by the end of the decade. Several new and expanded proposals for the fiscal year 2004 budget will increase the availability and production of affordable homes and help more families to know the security of home ownership.
    As a first step, HUD proposes to fund the American Dream Down Payment Initiative at $200 million. The initiative will help approximately 40,000 low-income families with a down payment on their first home. We also reach out to low-income families hoping to make the move into home ownership by allowing them to put up to a year's worth of their housing choice vouchers assistance towards a home down payment.
    To promote the production of affordable single-family homes in areas where such housing is scarce, the administration is proposing a tax credit of up to 50 percent of the cost of construction of a new home or rehabilitating an existing home.
    HUD is committed to helping families to understand the home buying process and how to avoid the abuses of predatory lending. The fiscal year 2004 budget will expand funds for counseling services from 40 million to 45 million. This will allow us to provide 550,000 families with home purchase and home ownership counseling and about 250,000 families with rental counseling.
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    Our budget also strengthens HUD's commitment to shop the Self-Help Home Ownership Opportunity Program. SHOP is the key initiative that turns low-income Americans into homeowners by partnering with the Federal Government with faith-based and other community organizations. The program is funded at 65 million, which will support the construction of 5,200 homes.
    Along with boosting home ownership, HUD's proposed budget promotes the production and accessibility of affordable housing for families and individuals who rent. We achieve this in part by providing States and localities with new flexibility and additional resources to respond to local needs. The Home Investment and Partnership Program is a major tool for helping communities meet housing affordability needs.
    As reflected in this year's program assessment, the HOME Program is successful because it is well managed and its flexibility insures local decisionmaking. Our budget, Mr. Chairman, provides a 5 percent or $113 million increase over the amount the administration proposed for the HOME Program in the fiscal year 2003, which I believe is a real shot in the arm to those who believe that housing production is an essential part of what must be done in America's housing strategy. HOME will make nearly $2.2 billion in funds available to State and local grantees to help finance the cost of land acquisition, new construction, rehabilitation, down payment, and rental assistance.
    To ensure greater flexibility within the Section 8 Housing Choice Voucher Program, and to empower States to make decisions based on local needs, we propose converting the voucher program to a State-run block grant called Housing Assistance for Needy Families. Turning over administration of the program to the States is the appropriate way to ensure the best service for needy families while improving its management by putting it closer to the people that it is intended to serve.
    Our budget includes legislative proposals that would substantially improve living conditions within public housing communities by giving public housing authorities new ability to leverage private capital. The Public Housing reinvestment initiative would authorize HUD to replace public housing subsidies for development or portions of development with project-based voucher assistance. Our budget also adds a partial loan guarantee that will cover up to $1.7 billion in loans. This financial restructuring will allow VHAs to secure private financing to rehabilitate or replace aging properties on a property-by-property basis, as other affordable housing owners do.
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    The Public Housing Reinvestment Initiative reflects our vision for the future of public housing. For 10 years, the HOPE VI Program has been an avenue for funding the demolition, replacement, and rehabilitation of severely distressed public housing. Established to revitalize 100,000 of the Nation's most severely distressed public housing units, the program has already funded the demolition of over 115,000 such units and the production of another 85,000 revitalized dwellings.
    With a 2003—2002 and 2003 appropriations, we anticipate being able to demolish an additional 15,000 units and replace 15,000 more. Just this week we began notifying those communities that have been awarded HOPE VI grants for 2003. With $2.5 billion already awarded but not yet spent and an additional $1 billion to be awarded in 2002 and 2003, HOPE VI will continue to serve communities well into the future.
    When HOPE VI was first created, it was the only significant means of leveraging private capital to revitalize public housing properties. But that is no longer the case. Today HUD has approved bond deals that has leveraged over $500 million just in the last couple of years. PHAs can mortgage their properties to leverage private capital. In Maryland and Alabama, PHAs are combining efforts to leverage their resources and assets to attract private capital. Some cities like Chicago are committing hundreds of millions of dollars of their own money to revitalize public housing neighborhoods.
    HUD is also seeking additional tools from Congress such as the Public Housing Reinvestment Initiative. HOPE VI has been a successful program that was created to serve public purpose. It is time to look at the future, and the future also is full of opportunities. And I look forward to working with the Congress as to how we together might like to create ways to learn from HOPE VI and move to new areas of opportunities for urban revitalization.
    Regulatory barriers through the State and local level have an enormous impact on the development and the creation of affordable rental housing. Within the 2004 budget, HUD builds on its commitment to work with States and local communities to reduce these regulatory barriers. Through the new Office of Regulatory Reform, HUD will spend an additional $2 million next year to learn more about the nature and extent of regulatory problems and how to reduce the effects of excessive barriers to rental and affordable house. The President has made it a top priority to reduce the cost of regulatory barriers at the Federal level as well, and at HUD we are committed to doing so.
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    I am sorry. Were you to your break point or not? Okay.
    State and local governments depend upon HUD grants to support community development projects that revive troubled neighborhoods and spark reinvestment and renewal. In the 2004 budget, HUD will strengthen its core grant programs by ensuring the grantees have even greater flexibility to address locally determined priorities. The CDBG program will provide $4.4 billion in funding to meet local needs in more than 1,000 jurisdictions. In 2004, HUD would make programs more effective by studying ways to reward communities that commit to results-oriented, outcome-based performance results.
    The CHAIRMAN. Mr. Secretary, if you would suspend just a second. The Chair would indicate there is a vote on the House floor. It would be my feeling, after consultation with the Ranking Member, to continue the Secretary's testimony, with 10 more minutes left on the vote. Some of our members went over to vote and come back, so we will try to keep this moving without a break. So, thank you, Mr. Secretary. You may continue.
    Secretary MARTINEZ. Through the fiscal year 2004 budget, HUD will strengthen its efforts to protect the Nation's most vulnerable, those individuals and families who truly need government assistance. The budget funds services benefiting adults and children from low-income families, the elderly, those with physical and mental disabilities, victims of predatory lending practices, and families living in housing contaminated by lead paint hazards.
    I want to highlight the administration's and President's commitment to those who have no place to call home. Across the scope of the Federal Government funding for Homeless Specific Assistance Program increases 14 percent in the fiscal year 2004 budget proposal. This American initiative is an important new element of the administration's strategy to end chronic homelessness within a decade. This American initiative includes a proposed competitive grant that would be administered jointly by HUD and the Departments of Health and Human Services and Veterans Affairs. For 2004, HUD provides $50 million for the housing component of this initiative, while HHS and VA will each provide $10 million for services such as substance abuse treatment and primary health care.
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    To increase a community's flexibility in combating homelessness, the budget proposes to consolidate the current three competitive homeless assistance programs.
    Finally, in recognition of the effectiveness of the recently reactivated Interagency Council on Homelessness, the Department would provide $1-1/2 million to operate the Council in the fiscal year 2004, which represents a 50 percent funding increase.
    HUD has made great progress over the past 2 years in making the Department work better for the taxpayers and for every American who seeks a place to call home. HUD fully embraces the President's management agenda and is on target to meet its challenging goals of improving overall efficiency and effectiveness. The steps the Department has taken thus far have gone a long way towards restoring the confidence of the Congress and the public in HUD's management of its financial resources, and I can assure the members of this committee that our commitment to the highest standards of ethics, management, and accountability will continue in the coming fiscal year. And I look forward with the members of the committee in working towards common solutions to the problems that vex America's cities.
    Thank you, Mr. Chairman.
    The CHAIRMAN. Thank you, Mr. Secretary.

    [The prepared statement of Hon. Mel Martinez can be found on page 122 in the appendix.]

    The CHAIRMAN. And let me begin the series of questions for you.
    As you know, the overall HUD budget calls for a slight increase to 31.3 billion, up from 31.245 billion in fiscal 2003. With some agencies all over the Federal Government taking drastic cuts, could you explain to this committee how the fiscal year 2004 overall budget numbers are actually a good sign that the President is committed to housing, particularly given the tight budget climate and the international crisis?
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    Secretary MARTINEZ. Mr. Chairman, I don't think there is any question that we must understand that this budget is in the context of what is happening around our Nation and the world. It is in the context of all of the priorities that our Nation faces. But notwithstanding that, because of the very important issues that were raised about a housing trust fund, it was felt by us that we needed to do more to encourage housing production, which is why we increased housing production under the HOME Program by 5 percent, a $113 million increase in that very program.
    And, you know, Ranking Member Frank might give me credit for things that I am not powerful enough to do. I must say to you that I am not sure that National Housing Trust Fund is the right way to approach the problem. In the HOME Program, we have a program that works, that has a proven track record, and in fact that 5 percent increase is a substantial increase. We also focus on the President's priority on home ownership. We move forward in that area aggressively with a Down Payment Assistance Program.
    Also in the area of homelessness, as Ms. Waters commented, the homeless problem in America is a serious problem. Our attack on the homeless issue also increases funding with the New Samaritan Grant Program. These are all welcomed things that I believe are good news in our budget, and frankly I think will make a real difference in programs that find ways to help American families where they need it the most.
    The CHAIRMAN. Mr. Secretary, as you know, the President has proposed an elimination of the double taxation on dividends, something that our committee obviously has a major interest in. There are some folks, however, that say that the unintended consequence would be loss of certain tax shelters, a possible loss of 44,000 new units under the first year enacted. That was an Ernst and Young study. Would you care to comment on the impact of the President's proposal, particularly on the low-income tax credit, and ultimately on affordable housing in general?
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    Secretary MARTINEZ. Mr. Chairman, first of all, I should say that the Ernst and Young study, while it does make the claims that you allege, the Department of Treasury, who is ultimately in charge of fiscal policy and tax policy for the administration, has a different view of it. Their view is that the effect will be minimal. And I would say that in addition to the Department of Treasury's view of this, the Mortgage Bankers Association also has an analysis of the tax proposal which also seems to suggest little or no consequence to the low-income housing tax credit.
    I believe that there have been various different views of that. I have had people initially become alarmed by it, and as they have looked at it further, understand that perhaps the impact is not what is purported to be. So I think we must go forward with this tax package, which, at the end of the day, is going to create more jobs and is going to create more opportunities for America to be better housed, to move our economy to a stronger point; and that overall goal may be the overriding issue that we need to keep in sight.
    So I believe we need to continue to move this process forward, to allow the President's tax proposal to move forward so that we might see the type of robust economic recovery the President wants and I know the members of this committee would also like to see.
    The CHAIRMAN. The fiscal 2004 budget calls for elimination of HOPE VI. What is your view on HOPE VI? Some say it has been successful, others say it has not. Is the administration prepared to replace HOPE VI with some other method? Give us your thoughts on that, if you will.
    Secretary MARTINEZ. Sure. I think it is a fair question. It is a program that I think by and large has been largely successful. There are some things about HOPE VI that have caused concern in a number of circles, and a number of studies have been done on HOPE VI, and I think all of these ought to be analyzed.
    The first thing I should say is that this was a 10-year program. It was a program that came up for reauthorization this year. The history of HOPE VI will tell us that while it has had great success in revitalizing many parts of our country, only 14 out of 165 projects that have been funded have been completed. The promise of HOPE VI really remains yet unfulfilled. In addition to the—out of the $5 billion that have been funded through HOPE VI over the last 10 years, only 2-1/2 billion have been expended. So, 2-1/2 billion remains unexpended, with an additional billion in this year's cycle and in next year's cycle still to be awarded.
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    My point on this is that we are at a time when it would do us good to allow the projects to be completed, to move forward and the money to be spent out, while at the same time we continue to fund this year's cycle and next year's cycle with monies already appropriated, and then take a good look at what have been the lessons of HOPE VI. I know that if we were here under different circumstances, many would be concerned about the displacement of folks from the HOPE VI projects that have been already undertaken. That is an issue that needs to be addressed. We haven't dealt with that very well.
    So I think as we look to the future, that it is not an abandonment of a good idea, but is a time to rethink those things that are good about HOPE VI, while at the same time attempting to improve those things about HOPE VI that haven't worked so well, like the issue of the relocation of families and how many families in fact that lived in public housing, that lived in those projects that were then torn down, have been able to move back into those housing projects that have now been revitalized.
    So I believe that while largely it is successful, it is an area that remains one that we should study more closely. And it appeared to us that at a time when the process of HOPE VI was up for reauthorization was a good time to take a good hard look at it, learn from successes, learn from failures, and move forward.
    The CHAIRMAN. Our time has expired. The gentlelady from California, Ms. Waters.
    Ms. WATERS. Thank you very much, Mr. Chairman. And you have raised some of the questions that I would like to ask.
    But continuing in this discussion about HOPE VI, you agree, we all agree it is a good program. And I am looking at the numbers that you have talked about, 2.5 billion I think you said that is left to be spent; 1 billion of that in this funding cycle.
    Secretary MARTINEZ. This one and next year. Half a billion and half a billion. So it is correct. The prior funding cycle and this funding cycle, we just funded some projects.
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    Ms. WATERS. How many years have we been into HOPE VI?
    Secretary MARTINEZ. Ten years.
    Ms. WATERS. So what you are saying is that the grant lags behind the 10-year anticipated time by which we would spend all of the money for HOPE VI.
    Secretary MARTINEZ. Correct.
    Ms. WATERS. And, therefore, we are not asking for any more; we want to spend this money.
    Secretary MARTINEZ. Right.
    Ms. WATERS. But you agree, based on everything that you know, that HOPE VI is a good program.
    Secretary MARTINEZ. HOPE VI is a good program.
    Ms. WATERS. So shouldn't we not only speed up the granting, but increase it so that we can get on with the business of getting rid of the outdated public housing developments, create more housing opportunities?
    Let me tell you what I am really worried about. Go ahead.
    Secretary MARTINEZ. May I touch on that point? Because I think it is very pertinent. When we look at the city of Chicago, Mayor Daley is doing a phenomenal job. The city of Chicago had some of the worst examples of what public housing shouldn't be. They still do. And we have moved very aggressively through HOPE VI to fund that city. Right now we had three projects going into closing this month. We have now learned they are not going to be able to close on them. I am not sure how much good it would do for us to fund Chicago with more HOPE VI's this year, next year, or frankly for the next several years, until they can get done what they have already had funded for them. So that is my point. It isn't that it is a bad program.
    Ms. WATERS. But this is in the country, Mr. Secretary. We have dilapidated public housing all over the country. What about New York? What about Los Angeles? What about——
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    Secretary MARTINEZ. But what is it about the way we are doing HOPE VI now that entangled it and it takes so long for the money to get out? What I would like to see is the same thing you would like to see. I would like to see all of this money, this $2-1/2 billion, $3-1/2 billion that we still have in the pipeline, I would like to see that go in the ground and dirt turn. But I know how long it takes for these projects to come together, because—I am not sure that we are doing it the right way. I am not sure that housing authorities were ever intended to be developers. They were rental property managers. That is what public housing authorities are. Are they the best vehicle by which to make sure that the HOPE VI projects go forward?
    When you hear from people in your district and they tell you that they have got displaced from a HOPE VI and they don't have a place to go, what do we do with those people? They are not going to come back oftentimes to that project.
    Ms. WATERS. But Mr. Secretary, that is what we expect you to do. We expect you, once we authorize and fund, to just get it done. We don't expect that they have this lag—if the public housing authorities are not capable of developing—and they probably are not, because the public housing managers, particularly these large public housing authorities, are not asked about their development experience, their construction experience. They are managers. So if we know that doesn't work, why don't we just institute a program by which we can get developers in there to get these projects on-line and get them done?
    Secretary MARTINEZ. So just like with that issue, there are a number of things about HOPE VI which, while a good program, need to be addressed. At this time of reauthorization, with substantial money backlog and in a difficult budget choices year, doesn't it make sense for us to take a good deep breath, to look at the program, to see what works and what doesn't, and jointly between us—with proposals, but also with your input—together fashion what HOPE VII ought to look like, HOPE VIII ought to look like?
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    How do we continue on some sort of commitment to the revitalization of public housing in a way that may be yet even better? In addition to the fact—and I have not mentioned this other than in my formal comments—that we are also working with the private sector to find ways that public housing authorities can, independent of the Federal Government, go into the private marketplace and finance reconstruction and revitalization of their projects. This is a very significant thing. A substantial amount of dollars already is going into these kinds of private financing arrangements. Chicago is leading the way, Philadelphia is doing it, other cities are coming on board. And we want to encourage that as well.
    So HOPE VI is not the only way that we can revitalize public housing in America. The private sector dollars, through private financing, through ways that we are evolving into, also can provide a real solution to the problem.
    Ms. WATERS. So what you are telling me is that some of your public housing authority is already going out. They are putting requests for proposals out for developers to come in and look at how they can do some of this work? Is that happening already?
    Secretary MARTINEZ. It is happening, I am not sure exactly as you phrased it, but they are going to the private sector seeking bank loans so that they can then themselves rebuild their projects or revitalize those public housing authorities that need that. And so that is occurring today. But we cannot now do a HOPE VI with anyone other than the public housing authority. We would need congressional authorization for us to do the project in a different way.
    Ms. WATERS. Well, let me just wrap this up by saying we need to have more discussion about that and take a look at what you can do given the authority that you have.
    Finally, let me just say, Mr. Secretary, I am very concerned about public housing developments that do not have enough operating money. I am very concerned that they are going to continue to fall into disrepair, and that it would be exacerbated by the fact that we have lost funding and drug elimination programs and other kinds of things. And it is not fair to blame the poor people for lack of good management by us and the operating dollars that we need to make these livable places. I certainly hope you are going to increase the operating expenditures from that 70 percent that you announced not too long ago that shocked us all.
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    Secretary MARTINEZ. Well, if I may directly answer that. I think within a week of that announcement going out, which was ill advised, which was done because we didn't have a budget, no budget was passed, and we were trying to take the safest course of action, we quickly advised the public housing authorities—and you should be aware of the fact that it was going to be a 90 percent funding level. And what I would say about that is that what we are doing is something that I am extremely proud of. We are in fact fixing a longstanding financial problem at HUD that recurrently causes the shortfalls in funding to public housing authorities. Next year this problem will not occur because we fixed the problem.
    But a funding level of 90 percent is not historically without precedent in public housing authorities funding. I would say to you that in 1999, it was only funded at 92.5 percent. It was funded in 1996 at 89 percent. And in 2002, we funded it at 100 percent. In 2001, it was funded at 99 percent. But over the last 10 years, the history of public housing funding at these levels of 90 percent to 100 percent is not without precedent.
    The CHAIRMAN. The gentlelady's time has expired.
    Ms. WATERS. Thank you very much. I appreciate that.
    The CHAIRMAN. The gentleman from Ohio, Mr. Ney, chairman of the Housing Subcommittee.
    Mr. NEY. Thank you, Mr. Chairman.
    Mr. Secretary, as you know, the President has proposed a tax reform package, stimulus package, which I support. But in there it eliminates the double taxation on dividends. Some people, however, believe the plan would have an unintended impact on certain tax shelters, and the Ernst and Young study cited a possible loss of about 40-some-thousand new affordable units the first year the plan would be enacted. Do you have any thoughts on this or maybe how it would be altered for a carve-out?
    Secretary MARTINEZ. I am sorry. Congressman Ney, my concern is that, you know, we at HUD do not lead on tax policy. And we are watching this situation, are greatly concerned, and are discussing it within the administration. I assure you that the President is concerned about the impact on housing policy. The President is very committed about increasing the availability of affordable housing. That is why we have the single-family housing tax credit proposal.
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    I believe that the concerns that have been raised at this point, even with the Ernst and Young study which is under consideration and study by the administration, that the administration still is prepared to stand by the projections of the Department of Treasury, which does strongly believe that the impact on housing will not be what was forecasted by the Ernest and Young study.
    But we continue to study the situation. I know the administration wants very much to ensure that we don't have a detrimental effect on the housing supply, and so we will continue to study and analyze the situation. But the Department of Treasury will have the lead on tax policy. We at housing are housing advocates, and I assure you we are making sure that the administration hears the concerns of the industry, hears the concerns from people in the low-income housing credit field, and those concerns are being addressed in the administration.
    Mr. NEY. Thank you. I do believe it was an unintended consequence, not something that was planned as part of the overall stimulus package.
    Also, the National Housing Trust Fund campaign will be introducing legislation, I think it is today, to create the National Housing Trust Fund. According to sponsors, they call for surplus FHA funds to be the major dedicated source of revenue for that National Housing Trust Fund, which they estimate to be 34.124 billion between now and fiscal year 2009. Do you have any comments on that?
    Secretary MARTINEZ. Yes, sir. First of all, I would say that we have maintained and continue to maintain that a National Housing Trust Fund would not be the right avenue by which to create a greater production of affordable housing in America. We believe that many States do have housing trust funds and they fund them in various and different ways, and these are very productive that work through their various and sundry State programs.
    We believe that our increase in the HOME Partnership Program, which is a very successful program, where we are this year going to be funding it at $2.2 billion with an increase of 5 percent, or $1.3 million, is the right way to address a housing production affordability problem.
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    I continue to also maintain that the needs of affordability can only, ultimately, be solved at the local level, by mayors, city council members, and others at the local decision-making level, rolling up their sleeves and looking at their local regulations and what it does to affordability. We are working in that vein as well.
    And so we are continuing to look at how HUD can be of assistance to local communities with regulatory reform. We are creating a clearinghouse for regulations, we are looking at how we can provide vehicles for people to be better informed about the cost of regulation and what it does to the cost of housing at the local level.
    So, while the Federal Government has the responsibility, which we believe we best meet through the HOME Program, we also want to work with local government as they need to address the issues of affordability.
    One last point I would make is that—I lost my train of thought. I am not sure what that last point was, but I will come back to it.
    Mr. NEY. It had to be a good one though.
    Secretary MARTINEZ. I am sure it is coming. Just hang on.
    Mr. NEY. One quick—because my time is running, Mr. Chairman and Mr. Secretary.
    We struggled for a long time with manufactured housing. This is before your time at HUD. And you have requested 17 million for implementation of the Manufactured Housing Standards program. That is up 31 percent from 13 million in 2003 and more than double, 8 million actual, in 2002; and I think that is tremendous.
    I used to and still hear a lot of people saying, though, that we need to quicken the pace on implementing reforms enacted by Congress in the Manufactured Housing Reimprovement Act of 2000. It is an important resource of unsubsidized housing for moderate-income families, and right now they are having a downturn, as many people are in this country, but we do credit the increase.
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    And I just wonder if you have any other thoughts on that manufactured housing. And do you think the pace is going where it should be, or can it be accelerated?
    Secretary MARTINEZ. I think it probably could be accelerated. But at the same time, I also want you to know that we are working very closely with a new committee that was created in order to have a voice at our Department for the manufactured housing industry.
    I have traveled and had an opportunity to see some of their products, met with some of the industry leaders, and I believe it is a housing option that America increasingly needs to embrace. I think it would be good for a lot of the affordability problems, frankly, if we liberated some of the constraints on financing for manufactured housing. And so I look forward to continuing to work with the industry in that vein.
    And my brilliant thought came back to me, which is, frankly, that I think the proponents of a national trust fund really are approaching a very wrong source for funding if they think the FHA insurance reserve is an appropriate place to look for found money.
    The fact is that the so-called FHA surplus, it really is an FHA insurance reserve. FHA is an insurance product that has been a key to home ownership for poor and first-time home buyers in America for a long time in our history and nothing we should do to tamper with the solvency and the financial solid nature of FHA.
    I know that only a few years ago, before my time, but I know a few short years ago this Congress was very concerned about the solvency of FHA. Fortunately, through many changes that were made by the Congress wisely at that time and good management, the FHA now is in a very solvent condition. But ultimately, any money FHA has is a premium that it charges poor families in America at the time they buy a home. And we are working diligently to ensure that surplus, that excessive reserve, as some view it, does not continue to grow and is not more than it ought to be.
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    And what we will do is to find ways in which the FHA can continue to serve America's neediest and also keep the premiums in check and work with ways that we can eliminate unnecessary premiums to American families.
    The CHAIRMAN. The gentleman's time has expired.
    The gentleman from Massachusetts, Mr. Frank.
    Mr. FRANK. Mr. Secretary, I am impressed by your modesty. But maybe you and I ought to get together and correct a misstatement in the press—not, perhaps, for the first time.
    You said I was imputing to you more power than you perhaps have. I assume you meant when I said that you would intervene to get the bill killed.
    On January 25th of this year, the National Journal in an article said, Martinez opposed the fund; the measure passed in the committee vote. Only then did Martinez pay attention, calling on the VA-HUD subcommittee chairman. They got a little confused on the procedure though.
    Martinez stopped the markup and got another committee vote scheduled, successfully killing the bill. And then after we had that division about how to do it, it never came to the floor.
    Do you want to take the occasion now to correct this egregious error apparently in the National Journal?
    Secretary MARTINEZ. I would be delighted to correct a lot of egregious errors in——
    Mr. FRANK. Well, just one at a time. You can do the others on your own time.
    Secretary MARTINEZ. I only got a C-plus from them, and one of my Cs came from congressional——
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    Mr. FRANK. But let us talk about specifics here. Is this wrong?
    Secretary MARTINEZ. Yes, sir, I will talk specifically about——
    Mr. FRANK. Is this wrong?
    Secretary MARTINEZ. I don't know that all the ultimate conclusions that it raises are correct. I don't think that I was the person who ultimately did not allow that to come to the floor.
    Mr. FRANK. Did you intervene to try and get the bill killed?
    Secretary MARTINEZ. The first thing I would correct is that I didn't pay attention to it until it got passed out of committee.
    Mr. FRANK. Did you intervene——
    Secretary MARTINEZ. I did not favor a trust fund, sir. And I said that clearly at the time of——
    Mr. FRANK. Mr. Martinez, I understand that. Did you ask that the bill be killed and not come to the floor after it passed committee?
    Secretary MARTINEZ. Sir, I talked with people who were concerned about the bill, who agreed with my position on it; and I believe the bill got killed——
    Mr. FRANK. And asked them not to——
    Secretary MARTINEZ. I did not specifically ask that the bill be killed. No.
    Mr. FRANK. It got killed.
    Ah, the passive voice. The passive voice has committed more errors and done more damage in this country than all the people ever created. And I must say I always take the passive voice as a nondenied denial.
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    Let me ask you what you thought about the Millennial Housing Commission.
    Secretary MARTINEZ. I think the Millennial Housing Commission had some good recommendations. I think the Millennial Housing Commission also had a laundry list of things, all of which could not be accomplished.
    But, you know——
    Mr. FRANK. Were they wrong in principle, do you think?
    Secretary MARTINEZ. I am sorry?
    Mr. Frank. Were they wrong in principle?
    Secretary MARTINEZ. I think in principle—and I am not going to comment on every single recommendation made, but I think it was well-intended people trying to look at and address——
    Mr. FRANK. Well, because when you were here in February of last year, we asked about the housing crisis, and you said, ''The Millennial Housing Commission, I know, has been addressing this very issue. I look forward to hearing what they have to say.''
    Apparently, you were disappointed in them, because they said, ''The most serious housing problem in America is the mismatch between the number of extremely low-income renter to households and the number of units available to them. It has been more than 20 years since there was an active Federal housing production program designed to serve extremely low-income households.''
    One of the principal recommendations was, quote, ''Provide capital subsidies for the production of units for occupancy by extremely low-income households.''
    I gather you disagree with that recommendation?
    Secretary MARTINEZ. No, sir, I wouldn't disagree with the ultimate recommendation. I think that our response in the HOME Program with $113 million of new money, 5 percent increase in addition to the——
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    Mr. FRANK. Well, you think a 5 percent increase is adequate. Here is what they said, ''The most serious housing problem in America is the mismatch between the number of extremely low-income renters''—''despite persistence and growing need, it has been more than 20 years,'' et cetera.
    So your response to that, you think a 5 percent increase in the HOME Program—not all of which, of course, is used for production; it is a varied program—that seems to you an adequate response, to provide for the capital subsidies recommendation of the Commission?
    Secretary MARTINEZ. The Commission also addresses the issue of local problems. It doesn't indicate——
    Mr. FRANK. I understand. Why don't you talk about what I have asked you, and then you can raise the other things?
    I am struck by this and I am struck by HUD's criticism of local zoning and local regulation. I share some of those, and I think those who might argue that the Federal Government shouldn't be trying to influence local zoning decisions are wrong. I think that is what we have a Federal Government for.
    But I am interested whether you think, given the way the Millennial Housing Commission phrased this, a 5 percent increase is enough.
    How many units will we get out of a 5 percent increase, how many additional units, Mr. Secretary, that ought to be a fairly clear response.
    Secretary MARTINEZ. Well, I have it here, and I am going to find it for you in a second.
    Mr. FRANK. Another train that got derailed?
    Secretary MARTINEZ. 2.2 billion is going——
    Mr. FRANK. No. Mr. Secretary, please answer the specific question. You said——
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    Secretary MARTINEZ. What is your question?
    Mr. FRANK. I talked about the Millennial Housing Commission. They say there is a growing need, in 2002; your response is—one of them—a $113 million increase. How many units nationally will we get from $113 million?
    I think it is clearly inadequate to what the Millennial Housing Commission said. You can disagree with that.
    Secretary MARTINEZ. I am sure that if we are going to follow the recommendation of the Millennial Housing Commission, and if you are also an advocate of a trust fund for production of Federal housing, you find our budget inadequate.
    Mr. FRANK. You are not answering a question—that is just a speech.
    I am asking you a specific question: How many units will we get from $113 million? Is that a hard question? I mean, did nobody think of that before?
    Secretary MARTINEZ. Five thousand five hundred from that additional 5 percent.
    Mr. FRANK. I think that is a wholly inadequate response.
    Let me just raise one last question. On the operating subsidy, I am puzzled. You say you have solved the problem. You have said that the $250 million shortfall that existed in the last fiscal year, you are going to take care of that by taking that money from the current appropriation. But the current appropriation, when you asked for it, didn't assume that 250 million.
    Do we not now still have a $250 million hole? How did you fill that $250 million hole? You borrowed it from 2003 for 2002. What is that going to leave us in 2003?
    Did you ask for enough in 2003? Did you ask for too much? I mean, how, when you got essentially what you asked for in 2003, are you able to take $250 million of that and fill the hole with 2002?
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    Secretary MARTINEZ. Sir, we believe that the accounting misallocations that had carried over for a number of years have been corrected. And I believe that for the year 2004, which is the current budget year that this hearing is on, public housing will receive——
    Mr. FRANK. Mr. Secretary, please answer the question. I don't know why you don't want to answer the questions.
    You have said that you have solved the $250 million problem. You have also said that you are going to take the money from 2003 and give it to 2002. Does that not mean that we are going to have a shortfall during 2003?
    Secretary MARTINEZ. They are going to have 90 percent funding. That is the problem.
    Mr. FRANK. So that will be the shortfall?
    Secretary MARTINEZ. Exactly.
    The CHAIRMAN. The gentleman's time has expired. The gentlelady from New York, Mrs. Kelly.
    Mrs. KELLY. Thank you.
    Mr. Secretary, you may recall that in last year's budget proposal, the administration suggested that HUD would redistribute the CDBG money. And the funding in the way the distribution level was done cut 35 percent out of Westchester County. It was the only county in the United States singled out for that kind of a cut or for any full—any full county singled out for a cut.
    That is part of my district, and following the release of the proposal, the county executive and I and a county legislator came down here, and they gave testimony about the impact that would have on Westchester County.
    I would like to get a better understanding from you, because I did not see in this year's budget any such proposal. And I would like to get a better understanding from you about whether or not this is something that HUD is still considering, or if this is something that I am going to have to continue to fight with you on.
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    Secretary MARTINEZ. You won the battle.
    Mrs. KELLY. Good. I am glad to hear that. Thank you.
    I want to ask you also about the HOPE VI program. You say on page 8 in your testimony that HUD is programmatically and financially committed to ensuring that the existing housing stock is either maintained in good condition or demolished.
    I am concerned about the HOPE VI program, because I have listened to the figures you gave in your testimony, and you said that there were—you demolished 115,000 units and built 85,000 units. If my math is correct, that means 30,000 people were in units that got demolished that have no place to go. Those units were not rebuilt.
    Now, I don't know if there were trackers used on those people, but I do know that the people that are living in public housing get lost in the system sometimes, and I am concerned about that.
    I also am—I applaud you for the fact that you are talking about demolishing 15,000 units with this new budget and replacing that with 15,000 units.
    I would like to ask you about whether or not we need to give you more flexibility with that HOPE VI program to make it possible for you to make sure that when we demolish a unit of Federal housing, we are able to replace it with better Federal housing for the people who truly need that housing.
    Secretary MARTINEZ. Your point is precisely what we need to address now that this program is up for reauthorization. The current program does permit local housing authorities, as they go about development or redevelopment of projects, to not replace on a one-for-one basis. Some places do.
    The District of Columbia, last year the mayor came up with a plan that would replace and put everybody that was in the project back into the project. But that is not always the case. And so currently local housing authorities, as they present their plans for HOPE VI revitalization, may or may not provide 100 percent relocation back into that project of people who live there. That is one of the things we need to address, because I agree with you; and it concerns me that when people that were living in a place now are relocated in what was supposed to be temporary, but at the end of the day they may not ever be able to come back into that project.
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    So while there are wonderful things that happen in communities, they are not always providing the kinds of number-for-number opportunities for federally assisted housing, and that is a concern, so one of the reasons, among others, why it was prudent at this time to stop where we were on HOPE VI and look to how we may do it in the future.
    Mrs. KELLY. Do you need a piece of legislation that will help you with the flexibility? I don't know whether or not there is written into the legislation the flexibility that you need in order to make sure it is one-for-one, if we are demolishing one, we rebuild.
    When you talk about relocation, some of these families obviously have not gotten relocated from at least what I have been in touch with some of the Federal housing across the United States, and there are families that have just gone through the cracks. We have got 30,000 here of units that never got replaced. We don't know, and I am sure you probably can't tell us, either, whether or not all 30,000 families got placement somewhere in that local community.
    So, do you need a legislative—a piece of legislation here that would help you?
    Secretary MARTINEZ. Yes, ma'am. First of all, Congress did away with the one-for-one policy many years ago, so we do not currently have that. Not all of the units that are demolished oftentimes are tenant-occupied, so that does provide some vehicle for them. And the people who are displaced do get vouchers, Section 8 vouchers, to go find housing somewhere else.
    So I don't think we completely drop them from the radar, and they are not without assistance through the Section 8 program. But ultimately we do not have currently a policy or legislative authorization to do one-for-one deals. I think, frankly, flexibility is probably a good thing to provide local government, but we do need to figure out how we are diminishing the number of public housing units available in America as we go through HOPE VI. There is no question about that.
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    Mrs. KELLY. There is also no question that we need more affordable housing. We need to be able to have people qualify for that. So, certainly, I am sure that this committee would be glad to work with you if we can develop some language that would give you flexibility on that HOPE VI program. I hate to see it—I would hate to see it end, but I think we need to readdress some of the major issues, as Mr. Ney was talking about as well. Thank you very much.
    Yield back.
    The CHAIRMAN. The gentlelady's time has expired. The gentleman from Vermont, Mr. Sanders.
    Mr. SANDERS. I thank the gentlemen from Ohio, and thank him for holding this hearing, and thank you, Secretary Martinez, for being with us today.
    Secretary Martinez, as you know, today I am going to be introducing legislation to create a National Affordable Housing Trust Fund. I am happy to inform you that as of today we have 160 cosponsors. Last year we had 200. We hope to top that number this year.
    Mr. Secretary, I am sure you will be happy to know that this particular legislation has been endorsed by over 4,000 national, state and local organizations representing every walk of life from homeless organizations to banks, because they all understand that we have a major housing crisis in this country and we need serious legislation to address that crisis.
    The National Affordable Housing Trust Fund would triple affordable housing construction in the United States, paying attention to those people most at need, to veterans who are sleeping out on the streets, to children who are sleeping out on the streets of this great country.
    It would pay attention to the 4 million American families who are paying 50 percent of their limited incomes on housing. It would pay attention to those families who are working 40 hours a week and sleeping out on the street.
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    Now, let me address some of the issues that have come up already today. You say we are addressing the problem. We are working on the home program. Mr. Franks flushed you out, and in the midst of the serious housing crisis you were talking about building at most 5,000 units of housing. Frankly, given the severity of the crisis, you know and I know that that is a pathetic number, not serious about addressing the real crisis.
    Our proposal addresses 150,000 new housing units, you address 5,000. Now, you are an expert on the subject. You probably agree with me that 150,000 units is significantly more than 5,000. You say, a few minutes ago, well, I don't want the Federal Government getting involved in national affordable housing trust funds, let the local governments address the issue of affordability.
    I am happy to tell you that the U.S. Conference of Mayors strongly supports the National Affordable Housing Trust Fund, because they understand that with State and local governments, tens of billions of dollars in debt, that the Federal Government is going to have to play a role. So when you talk about local control, yeah, we have got the mayors behind us.
    You just say, well, the FHA surplus, Mr. Ney asked you a question about the surplus. And you say, well, we have got to protect the safety and soundness of the surplus. The latest actuarial analysis by Deloitte & Touche for 2002 projects an excess, let's be clear about this, an excess above the 2 percent reserve needed for safety and soundness.
    Nobody here wants to impact safety and soundness. Their reserve above that level is 34 billion between now and 2009. So let's not fool the people. We want to preserve safety and soundness. Our legislation does that.
    You say, well, if we are going to use some of that money, let's use it to help poor people. Well, what do you think our legislation is doing? It is building affordable housing for the poorest people in this country.
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    Now, Mr. Frank mentioned to you a moment ago the quote from the National Journal, and last year the National Journal says that, and I quote directly, The House Financial Services Committee last year drafted a bill that established a Housing Trust Fund. Martinez opposed the fund, but HUD was out of communication throughout the bipartisan drafting process and the measure passed at a committee vote. Only then did Martinez pay attention. We got behind the ''8'' ball. He admitted calling on Representative James Walsh, chairman of the House Appropriations Subcommittee. Martinez stopped the markup and got another committee vote scheduled, successfully killing the bill. After that episode, Martinez fired his head of Congressional Affairs and reshuffled his Congressional staff. With that shake-up and a lot of Republicans grateful for his campaign assistance, he may get a chance at redemption on the Hill, end of quote.
    If you want redemption, why don't you work with us not to kill serious legislation, but to help us solve the problem that is plaguing millions of Americans. Can you respond to that, sir?
    Secretary MARTINEZ. The most recent national data available on affordability of rental housing nationwide comes from the 2001 American Housing Survey. As of 2001 the number of unassisted very low income renters that pay more than half of their income for housing was .47 million——
    Mr. SANDLIN. What was that number?
    Secretary MARTINEZ. 4.7 million. This represents 13.9 percent of all U.S. renters and 4.4 percent of all U.S. households, which is the lowest share observed in the 23-year history for which comparable data is available.
    Mr. SANDERS. I agree with your figures. 4 million——
    The CHAIRMAN. The gentleman's time has expired.
    The gentleman may respond and then we'll move on.
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    Mr. SANDERS. If 4 million Americans, you have just told us, are paying 50 percent of their income for housing, do you think that building 5,000 units of housing is going to solve that problem?
    Secretary MARTINEZ. No, sir, I don't. But the HOME Program, fortunately, does a whole lot more than that. The HOME Program, over the history of that program, as of February of this year has committed 308,500 units of rental housing, has 288,516 home-buyer type housing, and has 140,170 units of existing home ownership, so a total of 737,186 are committed, 453,515 have been completed.
    The HOME Program is a very successful program.
    The CHAIRMAN. The gentleman's time has expired. The gentleman from California, Mr. Miller.
    Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman. It is good to have you here, Mr. Secretary.
    Secretary MARTINEZ. Thank you, sir.
    Mr. MILLER OF CALIFORNIA. Some people want to argue that government funding is a way to resolve all the housing needs in this Nation. I agree there is a need for government funding, but in many cases if government would get out of the way the housing would be provided. I was in the building industry, am in the building industry still, for over 30 years, and I support your attempts to reduce regulatory barriers that stop builders from being able to basically provide housing that this Nation needs.
    And I applaud your commitment to working with State and local communities, because that is where we have to go to resolve the problems. We have a limited available housing stock in this country. Nobody ever argues that.
    But yet we focus on a limited part of the housing stock. We talk about Section 8 vouchers, which there is a need for Section 8 vouchers. But in California you can't find a place to use a Section 8 voucher because there are no available units to rent. Until we deal with regulatory barriers in a move-up market and remove many barriers that allow people to build reasonably priced homes in an affordable move-up marketplace, we are never going to find a place to put all of these people.
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    So I would like to hear a little bit on your reducing regulatory barriers initiative—how do you think that should be approached.
    Secretary MARTINEZ. Well, we believe that it is unquestionably part of the problem. You know, in your home State I know some communities have like $118,000 in fees and regulatory costs before a house or any sort of a home structure gets constructed.
    Mr. MILLER. Each year it takes more and more time to get your applications processed.
    Secretary MARTINEZ. Which time in the construction business is money. So the more it is delayed the higher cost of financing and everything else that goes with it. It is unavoidable that that is something that we must deal with. So what we are doing is providing a framework for local governments to come to us to see how others' best practices, how they are eliminating regulatory barriers to have a place where they can all come through the Internet, to be informed, to find out what the barriers to building housing may be, and then to continue what was began under Secretary Kemp when he was HUD Secretary, which is to bring to date a study on affordability, which clearly showed that the root cause of the affordability crisis in America is local regulatory barriers, a NIMBism to construction of affordable housing.
    Mr. MILLER OF CALIFORNIA. And Federal also, laws that we pass.
    Secretary MARTINEZ. Sure. So the combination of the two.
    Mr. MILLER OF CALIFORNIA. I would strongly encourage you to be very aggressive in this area because it is very needed. The bulk of my friends are in that industry. They are trying very hard to be able to provide housing. It is becoming more and more difficult. The other issue I would like to talk to you about is brownfields.
    I know you think that HUD should share in responsibility of redeveloping the Nation's blighted areas. You have talked about that and we have had personal conversations on that vein. In the past, the BEDI Program that HUD administers has been somewhat difficult to take advantage of because of the Section 108 requirement and the obligation of CDBG funds. There has been talk about shifting oversight to EPA, which I strongly disagree with, because they only deal with States, they don't deal with the locals, and then the petroleum, which is probably 80 percent of the sites that we might be able to deal with on there.
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    I would like to hear your opinion about the benefits of changing the oversight about creating more flexibility, which we are trying to do through a bill that I have put into the committee and the chairman has helped, and Chairman Ney has also. And it is giving you more flexibility in actually being able to use those BEDI grants and completely redevelop these sites.
    Secretary MARTINEZ. We liked your approach. We think that creating more flexibility and opening up more opportunities for us to do what we would do with that money is certainly a move in the right direction. It was felt by the administration that all of the brownfields redevelopments should be in one place. At least it was felt——
    Mr. MILLER OF CALIFORNIA. Probably because it wasn't working.
    Secretary MARTINEZ. Exactly. We were underutilizing the BEDI Program year after year. We were not getting out the money rapidly enough for it being utilized well enough. So under those circumstances it has been placed under EPA, where a tremendous commitment by the administration has, I think, more than doubled the funding available for brownfields redevelopment.
    So we look forward to the process as we go forward.
    Mr. MILLER OF CALIFORNIA. The problem by shifting it, as you know, where you work with locals, the EPA only works with the States. And where you can deal with petroleum, they won't deal with petroleum. So we are taking and eliminating a tremendous number of sites that we could actually revamp and put into good use, and they are never going to be done. So I am pushing the bill, and hopefully we are going to be able to get that to you.
    But I would strongly—and you and I have had these discussions privately—encourage HUD to look at Section 108. Yes, we need to look at the inner city. But we need to look at that move-up marketplace, too, because we can talk about building all of the housing units that you can dream of that Section 8s can qualify for, but unless we move people out of Section 8 into the next level of independence where we can open up the availability of Section 8 housing, until we do that, we are never ever going to meet the demands of low income people that are placed on government.
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    Secretary MARTINEZ. Thank you.
    The CHAIRMAN. The gentlelady from New York, Mrs. Maloney.
    Mrs. MALONEY. Thank you, Mr. Chairman, and I would like to echo some of the points that Gary Miller, my colleague, had mentioned, particularly on brownfields, and we have worked together in a bipartisan way to build more flexibility into that program. It is one that could benefit and rejuvenate our urban and rural areas, and yet all of the money was zeroed out. And I feel strongly, as he does, that it should continue with the modifications that build in more flexibility.
    But I really want to talk about public housing, because New York City has the largest public housing unit in the Nation, and it is extremely successful. It provides housing to 400,000 families, and we have probably that many on a waiting list trying to get into public housing.
    It is a huge success, and over 200,000 are served by Section 8. So the proposed 2004 budget reductions are critically important to the residents that I represent. And the estimated $44 million reduction, building on top of the 2002 reduction, is a total of 80 million in lost capital funding over the last 2 years, and this cut doesn't mean that fewer people are going to be served, the people are there that need to be served.
    So if the capital money is not there, then the units will fall into disrepair and maintenance will have to be cut. So this proposed cut is very problematic, I believe, to maintaining the housing stock that we have in this country. Many of our colleagues talked about measures to improve the availability of capital, but cutting the capital budget is going to really make it very hard for our public housing authorities across the Nation to provide the level of maintenance that is necessary.
    And then this builds on top of the well-documented $250 million shortfall. Again, this hurts the existing units and operations, and then this also builds on the administration's successful effort to do away with the drug elimination program in 2002. Many people had complaints about it, but in New York it was a huge success. It put police officers into public housing, and the public housing units had a greater drop in crime than in the overall city.
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    And as you know from the papers and elsewhere, local funding and State funding is not an option. New York has this special problem of 9/11. But localities and States across the Nation all are facing budget woes. And the Federal Government needs to be there, not only for the new housing but to maintain the public housing that exists.
    So my question is, would you at the very least support a supplemental appropriation to make up for the $250 million shortfall in the operating fund? The cuts with the drug program, and by the way when they cut the drug program, they said we will make up the money elsewhere. They just didn't want the drug program. But what happened was that those moneys were lost. Those moneys at least should have stayed in the public housing coffers for maintenance and other things.
    So we are facing a dire situation for public housing across the Nation, and it is very important. It has been a success and we want to continue it.
    Would you support a supplemental for the lost 250 million in operating?
    Secretary MARTINEZ. First of all, let me say that the 2004 budget for public and Indian housing by the Department is a request which is $2 billion higher than the enacted amount for 2001 for public and Indian housing.
    The operating subsidy problem which arose as a result of bookkeeping problems is going to result in a funding of about 90 percent of the operating subsidy. As I said earlier, 90 percent operating subsidy funding levels is fairly in keeping with a number of other years, when like in 1999 only 92 percent was funded, or in 1996 when only 89 percent was funded.
    We believe that the commitment to continue to improve public housing is one that ought to be maintained, and the Department of—my Department does not have really the—as is traditionally the case with other HUD Secretaries and other administrations to agree with you and authorize a supplemental appropriation. That is really something that OMB has to be the one to ultimately make decisions on.
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    Mrs. MALONEY. Well, then my numbers come from the New York City Public Housing Authority, and they are saying that these cuts, that they are well over 10 percent, they have no way to make up for these cuts.
    And you mentioned that any request for funding will come from OMB. Well, OMB will listen to what you have to say on the HUD budget. If you support making up the $250 million shortfall, and if we don't make it up, then we are really people—poor people in public housing are the ones that are going to pay for it. It seems—why should they suffer because of a bookkeeping problem that someone confronted?
    Secretary MARTINEZ. What I am saying is that the funding level of 90 percent is not without historical precedent, and in fact between 89 and 100 percent, somewhere in there, has been the funding levels over the last 10 years.
    So a funding level of 90 percent, we do not believe for 1 year—last year we funded it at 100 percent. Next year we fully anticipated funding it at 100 percent once again. A 1-year funding shortfall in that operating subsidy of 10 percent will not do great harm to the programs in the way they operating public housing.
    Mrs. MALONEY. It is more like 70 percent, according to the New York City Public Housing Authority.
    Secretary MARTINEZ. No.
    Mrs. MALONEY. During the boom years, that was one time. Now we are facing this terrible recession across the whole country, not just in New York. New York has the 9/11 problems on top of it.
    The CHAIRMAN. The gentlelady's time has expired. The gentleman may respond.
    Secretary MARTINEZ. Let me be very clear. It is not a 70 percent funding level. That has been clarified beyond any question, that it will not be 70 percent funding level. It will be 90 percent funding level.
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    Mr. FRANK. When?
    The CHAIRMAN. The gentleman from Texas, Mr Hensarling.
    Mr. HENSARLING. Thank you, Mr. Chairman. Thank you, Mr. Secretary for your testimony here today.
    Recently I met with some constituents of mine who operate multi-family housing in Dallas, Texas. They tell me that it costs 20 to 30 percent more to operate Section 8 housing than it does market housing. Obviously that drives up costs, gives operators disincentives to get involved in the program and gives fewer housing choices to the working poor.
    Now, the administration is proposing block granting this program. Although I am new here, I have discovered there are block grants and then there are block grants.
    In your opinion, will the administration's program take care of this particular problem?
    Secretary MARTINEZ. We believe, sir, that the administration of Section 8 at the State level with block granting and ensuring that the money remains available for funding of Section 8 and for affordable housing will be a way to address those very problems.
    Another problem that will be addressed with the block granting of Section 8 is the problem that would be of interest to Ms. Waters, because she mentioned the problems with, you know, the Public Housing Authority in Los Angeles and the fact that they needed more Section 8 vouchers. She will be surprised to know that last year we recaptured $78.2 million from the L.A. Housing Authority on Section 8 vouchers that they couldn't put out on the street.
    Our take on this is that that is a disservice to the people of Los Angeles, just like a 30 percent tax to do business with HUD is not a good service to the people of your State. We should in this block grant proposal facilitate the ability for those vouchers to get out to the people that need them, and for people who construct multifamily housing to want to be in the business, the States under the TANF proposal are handling the welfare of the same customer base that Section 8 deals. We believe that the TANF proposal will enhance the State's ability to deal with this population of people who need government assistance and that the States are now participating in their assistance, whether it be medical care or other needs, and we want to add housing to that.
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    Mr. HENSARLING. Mr. Secretary, if I did my math right, the administration is proposing block granting roughly 60 percent of the HUD budget, I believe, 17 billion out of roughly 31.3 billion. If block granting is such a good idea, and this particular member thinks it is a great idea, why are we stopping there?
    Secretary MARTINEZ. Well, sir, perhaps we shouldn't. And we believe that in addition to providing the States, by the way, with the ability to manage this program, we are also going to give them the management moneys available to manage it so this is not an unfunded mandate to the States. It is the kind of thing that we think would be very successful and has been successful in the HOME Partnership Program and a lot of other—the CDBG Program, frankly, is one of the most successful things that HUD does, and that is a block grant program as well.
    So we—no, I don't know that necessarily we should end that. Dealing with over 2,600 individual housing authorities on the Section 8 program is a whole lot more complex than it would be to deal with the 50 governors or the 50 State entities that would manage the program.
    Mr. HENSARLING. I am always convinced that government can find ways to do more with less. Two of my colleagues, I guess within the context of the HOPE VI program and regulatory relief, asked you about things that Congress could do that I think would help you achieve the goal of doing more with less.
    So I would like to make sure that you have an opportunity to tell this committee what do you think that Congress could do to make HUD more efficient that would actually allow us to help the working poor even greater?
    Secretary MARTINEZ. Well, I tell you one thing not to do, is to create a new housing trust fund that would be administered at HUD and give us yet another new program to administer. But find those programs that work, like the HOME Program, and fund it to whatever level you think it is appropriate to meet the housing needs of America.
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    That is the right way to do it, because that program is already in effect, it already works, it has an infrastructure through which to operate. It should not be now loaded up with yet another new program.
    Mr. HENSARLING. Returning back to the Section 8 program in the remaining time that I have, your own Policy Development and Research Division showed an alarmingly high number of approximately $2 billion in subsidy overpayments.
    Now, I am new here, but $2 billion still seems like a very large number to me. I know that you are familiar with this issue and this problem, but can you tell me the steps that HUD is taking now to fix the problem of fraud and overpayments?
    Secretary MARTINEZ. We are very focused on that problem. We have a task force working right now with the States, and we—Congressman Sessions introduced legislation which is going to give us one new tool which is going to give us access to the new hires information. We are then going to be able to computer match up the information on new hires and salary levels, so that we can then easily and correctly verify the right levels of subsidy under the Section 8 program.
    We believe that that legislation will help us to make sure that we do not continue what has historically been, you know, when I came to HUD, and I see that we are mistakenly paying by a billion dollars a year, and nobody seems to be concerned about it, we have been very diligently addressing this problem since I arrived at HUD. I am happy to say that we are coming to some solutions, one of which is the legislation that Congressman Sessions has introduced.
    Mr. HENSARLING. Thank you. This member is concerned.
    Mr. NEY. [presiding.] The Chair now goes to Ms. Velazquez.
    Ms. VELAZQUEZ. Thank you.
    Mr. Secretary, on January 15th, you issued a press release, and I am going to quote you: Today's correspondence to the PHAs' executive directors clarified that the funding level was a temporary estimate until HUD's requested 2003 budget is finalized by Congress, at which point HUD intends to fund PHAs' 2003 budget at or near 90 percent.
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    It has been 2 weeks, Mr. Secretary. Can you please tell us for the record when the PHAs will get their budget increases and if they will be retroactive?
    Secretary MARTINEZ. Within 4 weeks. They will be funded at that point, because it does take time from the time of an appropriating budget like you have just done 2 weeks ago for us to be able to cycle it into our system and get the money out to the PHAs.
    Mr. FRANK. I am distressed by that if we are talking about another month after the 2 weeks. They knew this was coming in January. I don't know why they weren't ready. So a month and a half after the budget passed, these are people in great distress. Sorry to hear that.
    Secretary MARTINEZ. Let me make a clear answer to that. We are waiting for submissions of budgets from the PHAs. They have to submit their budgets to us so that we can then fund them. So our inability to fund it quicker, in many instances, relates to their inability——
    Mr. FRANK. Well, then how did you fund 70 percent? That doesn't wash. If you can fund them at 70 percent—if you don't know what the budget is, how do you know what 70 percent is? If you know what 70 percent is, I will give you an easy way to figure out what 90 percent is. It is called arithmetic.
    Secretary MARTINEZ. I am going to ask, with permission from the Chair, Mr. Michael Liu, who is Assistant Secretary for Public and Indian Housing, to give you the details on those technical aspects of how that is done.
    Mr. NEY. We will add an additional minute on to your time.
    Mr. LIU. Michael Liu, Assistant Secretary For Public and Indian Housing.
    This is one of the few programs where the Federal Government is obligated to provide dollars for the operations of an entity, but prior to that entity being required to submit to us their budgets.
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    Now, that was a system put in place some years ago. We are working to change that system. It will require a change in rules and regulations. So that will take time. But currently, we only have the budgets for those housing authorities which started their fiscal year in January 1. We do not yet have the budgets for the housing authorities for the second, third and fourth quarters who start their fiscal years during that time frame in the future.
    Therefore, it does take time for us to be assured that we have the data, so that we can proceed in a reasonable fashion. Now, this has to change. This is not a good practice. This will change.
    Ms. VELAZQUEZ. Excuse me. Are those PHAs that submitted their budget requests to you, getting 90 percent?
    Mr. LIU. They just submitted their budgets on March 3rd. We will be able to process the information, and with the additional moneys provided by the Congress in the 2003 budget for an operating subsidy and a number of other items that we now know that we will not have to fund, we will be able to fund those housing authorities at or near 90 percent.
    Ms. VELAZQUEZ. Mr. Secretary, you stated that your budget will create 5,500 units through the HOME Program. As my colleagues have established, our housing crisis goes much deeper than that, yet your budget proposal potentially creates more problems than it solves.
    In fact, your proposal to block grant Section 8 opens the door to drastic changes to the implementation and intent of the program such as allowing States to impose lifetime limits similar to those that have been proposed in Philadelphia and Delaware. You claim to already be concerned about the tenants who have been displaced under HOPE VI. What guarantee can you offer that your block granting proposal will not do the same thing?
    Secretary MARTINEZ. Well, clearly our block granting proposal is to work with the States to ensure that people are provided places to live, not to just allow them to throw people on the street.
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    But I want to tell you that we recapture every year money from the Section 8 program. In New York, from the New York City Housing Authority, we have recaptured $88.9 million in Section 8 moneys. That is moneys that we hope, with State administration, and Governor Pataki is very eager to look into the program and is supportive of it, that we could perhaps find better ways of getting the money to the people who need it.
    So the idea here is not either to not fund people, is not to not find a place for people who need a place to live, to have a place to live, but it is frankly more compassionate, I believe, to find a way that really works than to believe we are doing it all right the way we are doing it now, but every year recapture a billion dollars that doesn't go to people who need housing.
    Ms. VELAZQUEZ. But Mr. Secretary, you haven't answered my question regarding the localities, such as Philadelphia and Delaware where they want to impose lifetime limits on Section 8.
    Secretary MARTINEZ. All of the details of this block granting proposal have not been worked out. You have it within your power and the legislation that you would enact in order for this to become law to define the terms by which the States will be block granted the money.
    It is my view that those who fear that this money will be diverted to other uses really are misplacing a fear, because you just put it in the legislation, it will be for use in housing. If you believe that terms limits or lifetime limits or whatever the limits may be are inappropriate——
    Ms. VELAZQUEZ. Don't you?
    Secretary MARTINEZ. ——then that should be part of the legislation.
    I believe everyone should be given an opportunity to be helped when they need help. I think everyone should be encouraged to self-sufficiency, because I don't believe anyone living in government dependence really finds the opportunity to fulfill their dreams.
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    Ms. VELAZQUEZ. Let me tell you, Mr. Secretary. Some of my constituents on the Lower East Side of Manhattan were just notified of the fair market rent increase, bringing the HUD-approved FMR for the two-bedroom apartment to $2,750. At that rate a family will need to earn in excess of $91,000 a year to achieve the accepted standard of paying 30 percent of their gross income on rent. Worse yet still, two parents, both minimum wage earners, will have to each work 13 hours a day, 365 days a year merely to cover rent. Given these conditions, where do you expect low income families to live when they reach the end of their lifetime limits on Section 8 housing assistance?
    Secretary MARTINEZ. Anyone who needs housing the Section 8 program is there for them. Over 60 percent of the HUD budget goes to Section 8 housing. I am not suggesting to you that a family who needs rental assistance because of their life circumstances should not be given assistance.
    I am also going to tell you that for us to set minimum rent standards out of Washington for New York is not the best way for the Section 8 program to run, which is yet another reason why block granting it to the States would allow the kind of local flexibility to set minimum rent standards that would give the program the benefit that that family obviously would need from the program.
    Mr. NEY. The gentlelady's time has expired.
    Mr. Renzi.
    Mr. RENZI. Thank you, Mr. Chairman.
    Mr. Secretary, thanks for your testimony. And more so, I wanted to thank you from the people of Arizona for your numerous visits to Arizona.
    The focus and concentration that you provided to help revitalize some of the poorest sections of our State, particularly our barrios in South Phoenix, which I know you are aware of and have visited, and particularly on your watch, I want you to know that we got some figures in this week. We had a visit from the tribal chairman of the White Mountain Apache, a community of almost 5,000 Native Americans, and as the representative of the largest Native American population in America, I want to thank you for White Mountain and the success that we have seen there under our Section 184 program. We have built, in the last 24 months, over 300 homes in a community of less than 5,000 people.
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    And what I need help on, I need to understand and be taught, since I am just a snot-nosed freshman, is how we move the success that we see at White Mountain and the Apache to the Navajo Nation, how we are able to better communicate the programs, the success stories, home ownership, and I know the credit subsidies that we are seeing at White Mountain up to the Navajo Nation, which is the largest of our Native American populations, and would be interested in your comments in that, along that line.
    Thank you, sir.
    Secretary MARTINEZ. Congressman Renzi, I had the privilege of meeting with the President of the Navajo Nation this week, and they came to talk to us about some of the programs that they are doing within their property and also to talk about how we might work with them more closely in the future. We do have a very aggressive Indian Housing Program at HUD. We are proud of the work that has been done over—on a bipartisan basis over many administrations.
    We look forward to working with them to improve what is probably the most substandard housing of any Americans, which is the Native Americans, and we need to continue to work with them, just like we have done with the Colonias Initiative, which is part of what you mentioned in your State. We also need to work with our Native American people to make sure that safe and decent housing is not just a dream but a reality for every American.
    Mr. RENZI. Thank you.
    Mr. NEY. The gentleman, Mr. Scott.
    Mr. SCOTT. Mr. Secretary, good to have you. I want to ask you questions about HOPE VI. I am really baffled by this administration's approach to HOPE VI and your willingness to pull the plug on such a worthwhile program. And I have heard you speak about self-sufficiency and compassion, and I am here to tell you this. This conservative compassionism is being misplaced if you do away with this program with a meanness that is just—aching at the hearts of many people across this country.
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    This HOPE VI Program embodies all of the basic conservative economic principles that you advocate, that this administration does; self-sufficiency, privatizing.
    Let me just tell you about my State of Georgia and the success that we have had. Our Atlanta Housing Authority has reduced its work force by 53 percent because of HOPE, the very things that you are advocating. It has increased the number of families that are served by 17 percent. It has privatized the management of 100 percent of all of its properties, got government all of the way out of it.
    It has leveraged over $184 million in Federal grants, including three HOPE VI grants totaling 113 million. It is $2.5 billion in terms of local economy. When Ms. Waters asked you the question, and you commented, and you said that the housing authorities were not meant to be developers, well, in Atlanta our housing authority under Renee Glover's directorship of HOPE VI has attracted private investment to the tune of more than leveraging over $150 million. It has become the gold standard. And for you to pull the plug on this program, it is like cutting a man's legs off from underneath him at the kneecaps and then condemning him for being a cripple. It is just downright mean.
    I have a lot of respect for President Bush. I have been supportive of him on many of his programs. But I am asking this administration to don't pull the plug, don't cut these folks' legs off. It is too valuable a program.
    Now, many of us in this committee are working on legislation to reinstate HOPE VI. We realize that it is sunsetted. I want you—you seem to be a very compassionate person. You are the head of an agency that is probably the spear carrier for that phase of the administration's approach called conservative compassionism, and you are a very honorable man, and I would like for you to take the leadership in conveying to this administration, as the Housing Secretary, don't pull the plug on this. Work with this committee. Work with us to help us reinstate HOPE VI.
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    And if he has any questions, all he has to do is come to Atlanta, Georgia, to see the model of how this works. Could you do that?
    Secretary MARTINEZ. Well, first of all, let me say that I have no quarrel with what you say about HOPE VI. I know Renee Glover has done a fabulous job in Atlanta, and I took the President there last June. We were there. We saw what HOPE VI has done in some of the areas of Atlanta. I can't remember now the name of the specific project we visited, but we were there. We have seen the——
    Mr. SCOTT. Centennial Homes, I think.
    Secretary MARTINEZ. Probably was. Atlanta still has $140 million that they haven't spent of current HOPE VI funding moneys. We have got to find a better mechanism to do it. I don't think the argument, Mr. Scott, is in any way with the validity over HOPE VI program or the good things that it has done. What I believe we must do is to find a way in which we can ensure that the displacement issues, ensure the way in which it is administered in many ways is as successful as we can make it.
    It is up for reauthorization. We are in a difficult budget cycle. We do have a lot of unspent money still in the program. This frankly was felt to be an area where we could take a good look at where we are and where we might want to go before we just fund more money, where money has already—where money has not come out of the pipeline.
    So I don't disagree with you. I appreciate the passion that you exhibit for a program that helps families. I have seen it in my own community in Orlando, Florida. It is a good thing. But it breaks my heart when I see that Hampton Park in Orlando, that so darn few people that used to live at Orange Villa, which is what it used to be called, are now moving into Hampton Park.
    Something isn't right about that equation. So we can work with it to ensure its future success, but I agree with many of the things that you have said, and I will work with you as we look to the future and how we might come up with something even better than the current HOPE VI.
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    Mr. SCOTT. I appreciate that.
    Mr. NEY. The time of the gentleman has expired.
    The gentlelady from West Virginia, Mrs. Capito.
    Mrs. CAPITO. Thank you, and welcome, Mr. Secretary. Thank you for your testimony. I have a question on the block granting to the States for the new program, the new initiative. I met with some housing authority members several weeks ago and they have great concern about this.
    The question they asked me is, if the money is block granted to the States instead of directly from HUD, will the State then be entitled to 10 to 15 percent of administrative costs and would that then translate to fewer dollars actually being in the hands of those who need housing? In your statement, you mentioned that $100 million would be available to assist States with the effort in the transitional. Is that $100 million on top of what we are appropriating, what we would appropriate in that program, or is that in fact administrative costs?
    Secretary MARTINEZ. It is an additional $100 million in order to transition the program. Housing authorities currently receive a management fee for managing the Section 8 Housing Program. If the management of Section 8 housing were to then be with the States, the management fee for the Section 8 program should be with those that are managing the program.
    Mrs. CAPITO. It is reasonable to assume, though, that the housing authorities then would not have any kind of management fee involved in that as well? Would it be——
    Secretary MARTINEZ. If they are not managing Section 8, they then would not have the management fee that goes along with the management of Section 8. So that is correct.
    Mrs. CAPITO. I had another question about the elimination of the brownfield initiative. In my State of West Virginia this has been an important initiative. Can you explain why the program was eliminated, and if this—does this involve shifting all of the brownsfields responsibility to the EPA, and how do you feel about that?
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    Secretary MARTINEZ. That is precisely what it means. It is shifting the responsibilities to the EPA. Not having been a Washington bureaucrat for too long, I did learn one thing, which is you always try to hold on to what you got, but you don't always succeed.
    So it is now with the EPA. It was a $25 million program with HUD, so it is not a very large program and in fact difficult to utilize, as we pointed out earlier. The administration has funded in excess of $220 million for brownfields remediation, and a very strong commitment has been made, far in excess of what was being budgeted traditionally for brownfields remediation. So the commitment is there. The shifting of priorities does put it under EPA, where all brownfields programs would then be housed in one entity.
    Mrs. CAPITO. Finally, I just kind of have a general philosophical question. I have kind of heard the repeating theme of money being left on the table, whether it is at the housing authority level, that is meant for well-intended programs and meant to provide the housing that we so desperately need.
    How much money is really left on the table? I mean, I know you can't say percentage wise, but is this a large problem?
    Secretary MARTINEZ. It is a large problem, particularly in the Section 8 program where every year over a billion dollars in recaptures comes back, meaning that whether it was L.A. With 78 million, or whoever, which one it may be, many housing authorities cannot get the money out the door on the Section 8 voucher program.
    It is a problem sometimes in the spend-out rate of other programs, and in HOPE VI it has been a problem. We have funded and funded and funded programs in places like Chicago, but very little has come out of the ground. New Orleans, because of horrible mismanagement by the New Orleans Housing Authority, is just now under Federal Government management and beginning to see the first things come out of the ground for what had been HOPE VI's for many years.
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    The unfortunate part, particularly in New Orleans, is that the demolition took place, but the rebuilding hasn't taken place. So in other words, it exacerbates a difficult housing problem for people who live in public housing.
    Mrs. CAPITO. Thank you.
    Finally, I would like to applaud your increase in funding for the housing counseling initiative. Our State is very pleased with that and thinks that it will go a long way towards future hope ownership for many West Virginians.
    Secretary MARTINEZ. I appreciate it. I also want to point out, which I failed to mention in my opening remarks, that the voucher program for the 2004 year budget request, which we are on here today, we are requesting more than a $990 million increase over the 2003 budget allowances.
    Mrs. CAPITO. I yield back.
    Mr. NEY. The gentleman from North Carolina, Mr. Watts.
    Mr. WATTS. Thank you, Mr. Chairman. And welcome, Secretary Martinez. Appreciate you being here today. I am sorry I have had to be in and out, but we are in the middle of a markup in Judiciary, and I have been getting a running summary of your comments about HOPE VI.
    And I won't go as directly at you as my colleague Representative Scott did because it sounds to me from the summary of what I have heard of what you have had to say you believe HOPE VI has served a useful purpose and that it is a program that is worth continuing. That, I would have to say, is contrary to some language in the President's statements that seem to suggest that it, the HOPE VI Program, has achieved its objective, and I am happy to see that you have tempered that.
    I don't think I have ever seen quite as much Democratic support for continuation of what was a Republican program. HOPE VI was a Republican program. I mean it. So it is not as if this is one of the programs that we are defending from our own bosom, this is one of you all's programs that happens to have worked very well despite some of its shortcomings.
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    So I am not going to dwell on that. It seems like you are going to take a pause, you are going to try to keep this program going in some form. What I am interested in is in what form and when we might get some specifics on this new proposal that the President says he wants to replace HOPE VI with.
    Because if we are going to have any kind of continuity here—the funds run out this year. We need to have—if we are not continuing HOPE VI in its current form, we need to have whatever is right behind it ready to go and gear it up, and I haven't seen any specifics on it. The couple of things I have seen on it suggest that there might be an 80 percent guarantee, Federal guarantee of development. You might be able to pledge Section 8 vouchers as security for the loan. But it seems to me that until we have details on the specific plan that you are talking about as a successor to HOPE VI, we can't move forward in doing our job of trying to evaluate and shape that in a way that helps you make it better than what HOPE VI was.
    So my question to you is when are we going to get these kind of specifics? Do you have a working group working on those specifics now? When can we expect the fleshed out details of what you are planning or what you all would like to replace this with?
    Secretary MARTINEZ. We have been internally studying the issue for some time. Senator Mikulski suggested yesterday perhaps a task force that would also include some of the people in the housing field who have commented on HOPE VI, who have written analyses of it. Some of it was greatly supportive, but also with some improvements or criticisms or commentary on it.
    So I think we will continue to evolve and think on it. In addition——
    Mr. WATTS. How long?
    Secretary MARTINEZ. Well, I understand—what she would like to do is have it be before markup. I think that is probably a good time frame to think about. But I also will tell you this on the way that the program operates is that no one was applying for a HOPE VI right now. It is going to be effective, because the cycle will come over next year. We will still have another funding cycle to go and 50 percent of the money is still to be realized. So——
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    Ms. WATERS. I understand that. But that was always the plan. I mean even you all say in your comments about HOPE VI that you expected at least a 5-year—I mean, most of these things are massive projects. So for you to come and say that a criticism of the program is that people are being methodical and they are moving the moneys through the pipeline and doing this in a way that doesn't create more distressed public housing but revitalizes communities, that is a long-term project.
    Secretary MARTINEZ. One of the things we have done actually in the grant process is to ensure that these grantees that are getting grants have got a program ready to go. In the past I think oftentimes grants were made to people who had an idea and a dream, but hadn't really pulled the deal together.
    Now, we are asking communities——
    Mr. WATTS. We put that in the legislation that we drafted yesterday.
    Mr. NEY. The gentleman's time has expired.
    Secretary MARTINEZ. That I think is a key factor. We want to work with you. We want to talk with you about whatever legislation it is that you are planning. We have our own set of ideas that are germinating within the Department. There are people out there in the academic community and others who have had, over time, analyzed the issue of HOPE VI.
    So I look forward to a continuing dialogue on this and Congress will have the timing to dictate how it will handle it in the future.
    Mr. NEY. The gentleman's time has expired. The gentleman from New Jersey, Mr. Garrett.
    Mr. GARRETT. Thank you. Just before I begin, you know, I appreciate your comments with regard—and I am on the same page as far as turning some of those decisions back, the block grant approach. I was in another hearing in a different agency, and I raised the same sort of questions on their responsibilities. And I said, why aren't we turning more of this over back to them, the local decision makers? And fortunately the answers weren't quite the same. It is like, well, we can make those decisions a lot better here. And we are more confident here in Washington making some of these decisions. And I think whether it is that other issue or it is the housing issues, it is the people who are going to either benefit or suffer from it that are going to be able to make the decision best, and people on the State level are going to hear about it the first on a daily basis more so than us folks here. So I am on the same page.
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    I want to turn away from what you have been talking about, the HOPE and Section 8 issues, just ask you a couple of other questions. A while back, back in 1992, Congress passed some legislation concerning the government-sponsored enterprises, the GSEs, Fannie Maes and Freddie Macs, and this legislation required that HUD review all of their new programs that Fannie Mae and Freddie Mac considers before they go forward and implement them.
    Now, my understanding just looking over the materials here and yesterday, in the past decade, despite a number of new products, and I just have about a dozen of them, I don't know whether there is more, they have—in none of those cases did Fannie Mae or Freddie Mac come before HUD for approval.
    And as far as I can see here HUD has never exercised any statutory authority in this regard. I know you want to—you are charged with implementing the law, following the law. What is it that HUD is going to do to ensure that a meaningful and mandatory preclearance mechanism is not only is established, but is carried on?
    Secretary MARTINEZ. Well, sir, I think I will comment to you by saying that this is but a number of other issues that I have faced at HUD that had long lingered without attention, just like the accounting problem with the operating subsidy for public housing. We are correcting it and fixing it. The issue of the GSE and new product preauthorization was never addressed by HUD. No one ever drafted the regulations or addressed how that should be done or created a mechanism for the GSEs to even do that.
    We have been engaged in that process. We are moving forward on it. We anticipate having some sort of a preproduct approval process, which will be forwarded to OMB for OMB's review and approval. We are diligently working at it. We believe it is our responsibility. We believe we are legislatively mandated to do it. We have to find a way to do it in a way that is—this is not an easy thing to do.
    We have to make sure that as we do it we are not interfering with these very successful entities' ability to do business. But we are just looking at new products, how you define new products, how far does that cover? These are all very, very difficult issues. We are dealing with them. We are coming up with a mechanism.
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    Our Housing Commissioner, John Weicher, I will be happy to have him brief you in more detail on this if you like. But we are taking this responsibility seriously, I believe for the first time HUD has ever taken that responsibility seriously.
    Mr. GARRETT. I appreciate that. Calvin Coolidge is famous for saying, you can't do everything at once but you can do something at once. On this case, HUD hasn't done anything at once on this whole issue for the last 10 years. So I will echo the comments from the other side of the aisle, and from the other size of the dais of just how long they are asking for. Can you give us some sort of a time frame as to when we should anticipate that the process will be up in place? I will welcome your time afterwards to—after the meeting to maybe get a more detail briefing on it.
    Secretary MARTINEZ. The number one issue we have to deal with, also by statutory mandate, is the issues of the GSEs' housing goals. We are dealing with it immediately, because it is something that we must do during this calendar year.
    After that is ascertained, and we have dealt with that issue, then the issue of product approval will be coming on line for us to put out a mechanism for product approval.
    Mr. GARRETT. If I——
    Secretary MARTINEZ. That would be sometime towards the end of this year, beginning of next year.
    Mr. GARRETT. Okay. And just in the few seconds that I have left, just quickly, GSEs have been granted substantial government involvement and support in the years. The quid pro quo was a limitation on where Fannie Mae and Freddie Mac may be restricted to the secondary market. Do you have—and that if GSEs seek to enter new lines of business—do you have an opinion or comment on a limitation of their competition into the private market in some of the other areas that they are speaking of?
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    Secretary MARTINEZ. I believe that the GSE charter is clear on what—I don't know how clear it is, but we hope it is clear—and defining their lines of business and the things that they should be doing. They should be in the secondary mortgage market. They should not be in the primary mortgage market. I think by charter that is their role, and that is how they should be defined.
    Mr. NEY. The time of the gentlemen has expired. Mr. Clay of Missouri.
    Mr. CLAY. Thank you, Mr. Chairman. Mr. Secretary, let's go back to the HOPE VI issue, maybe kind of follow up with Mr. Scott as well as Mr. Watt's questions. If we have HOPE VI projects that are currently in one phase or another, if the program is zeroed out, what will happen to those projects, or have you all reached a conclusion on that yet?
    Secretary MARTINEZ. It is—sir, the idea here was not to tamper with or kill the program. The idea was that this program came up this year for reauthorization. We are talking about going forward on what we do in the future. Anyone who got a HOPE VI it is fully funded. Anyone who has applied for a HOPE VI this year and got a grant is fully funded. Anyone who hopes to get a HOPE VI in the next year's cycle and is successful will also be fully funded. There is complete funding for all HOPE VI that have been awarded in the past or are being awarded this year or would be awarded next year. Nothing——
    Mr. CLAY. You are talking about orderly phaseout of this program, if it is zeroed out?
    Secretary MARTINEZ. My hope is, in keeping with what I said to Congressman Scott, it is not a phaseout, but an evolution of what we go to in the future.
    Mr. CLAY. Okay, Mr. Secretary. The Section 8 program provides rental assistance to 5 million low income persons, including 1.2 million families with children, over a quarter of a million elderly families, and approximately the same number of disabled families.
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    During a time of economic downturn, why are they facing extensive cuts and also dramatic boosts to their rents? Also the second part of the question is why is the Section 8 block grant program being taken away from the local administrators?
    I come from a background of 17 years in the State legislature in Missouri, and I don't have faith in the States being able to administer block grants for housing. They have no expertise in housing, so to speak, and I just don't see it being workable. I mean, can you comment on that?
    Secretary MARTINEZ. Sir, this is a flexible program. If there are States that have don't have the expertise, the capacity or the desire to do it, we would continue to do the program just as it is being done today.
    The program today, though, is not really fully managed at the local level. It is managed with oversight from HUD. It is managed out of Washington in many ways. For instance, a fair market rent, if we were going to set a fair market rent for St. Louis, some local dislocation created a higher market rent, people weren't able to utilize their vouchers, St. Louis' housing authority would to have to come to Washington to get it changed to that fair market rent, and it would take 6 months for that to happen. In the meantime people are not being served back home.
    So this is not intended in any way to minimize the importance to the people who are receiving assistance from HOPE—from the Section 8 program. Quite the contrary, it is a way to provide them with a better service, with providing them with full utilization of the vouchers that the Congress year after year authorizes but are unfulfilled.
    Mr. CLAY. Yeah. But I just don't see how it is going to make the program more efficient to let the States administer these block grants. I just don't see it.
    Secretary MARTINEZ. Well, right now if you think that the housing authorities of America are a picture of efficiency, you are looking at a different picture than I am.
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    In addition to that, I would suggest to you that the TANF program, the welfare program, that is being administered by the States, my read on it, what I hear on it, is that they are doing a very successful job of it.
    Mr. CLAY. TANF is one thing, housing is another. And I mean, this is an indictment on HUD itself then, is what you are saying; if it takes 6 months to turn around, then that talks about the lack of efficiency of HUD also?
    Secretary MARTINEZ. Yes, sir. I am here to tell you that it concerns me daily.
    Mr. CLAY. What about streamlining the process then?
    Secretary MARTINEZ. Sir, we are streamlining as fast as we can streamline.
    Mr. CLAY. That method is to turn it over the States and allow them——
    Secretary MARTINEZ. In often cases, that is the better way to do it.
    Mr. CLAY. You know and I know that States are in a heck of a financial fix now, and you and—and they will look at this as somewhat of a money grab for them. They will find a way to come up with administrative costs and to use that block grant as they see fit.
    Mr. CLAY. And that is not—I don't see it as being efficient at all, Mr. Secretary.
    Secretary MARTINEZ. Well, Mr. Lowe behind me tells me that 33 States administer the program now. And so I just don't believe, sir, that your fears are well-founded, but that is why we propose legislation. Ultimately you will dispose. And so we believe it is a better way to do it, but—and I am telling you, it is not just inefficiencies of HUD; it is inefficiencies in the housing authorities locally. And we have to acknowledge that. That is a problem. I mean, here, there and everywhere there are issues with housing authorities. I am not saying that—I mean, the evidence is there. The underutilization of the vouchers is a pretty good darn evidence. When you look at a billion dollars that gets recaptured or maybe more that doesn't go back to housing that you have identified as having to go out this year, $990 million we are asking for new vouchers, I can tell you right now that you can award that $990 million in new vouchers, and none of that money will be going to someone that needs a place to live, because you will recapture more than that amount every year.
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    Mr. CLAY. And the local housing authorities will come back to me and say it is because of bureaucratic red tape.
    Mr. NEY. The time of the gentleman has expired.
    Secretary MARTINEZ. Well, maybe if the States administer it, we would eliminate the red tape on both ends of the equation.
    Mr. NEY. Mr. Shays from Connecticut.
    Mr. SHAYS. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    I have four issues I want to talk about: Section 8, CDBG, brownfields, and HOPE VI, and we are going to try to get through them all.
    First, I want to say to be Secretary of HUD in a Republican administration is kind of like being Secretary of Defense in a Democratic administration. It is a challenge, and I know it is a challenge. But HUD is hugely important, and I bristle when I think that the Department of Agriculture has nearly 100,000 employees, HUD has about 10,000 employees, and the Department of Agriculture is like perfect. But because it is Republican to the core, we think—and it is farmers—that they can do no wrong. And I am tired of HUD getting dumped on when there are other agencies that need to be looked at with the same kind of look. And I wonder why the Department of Agriculture needs 100,000 employees. There is no good reason.
    Now, in terms of this issue of Section 8, there is a real reason why vouchers don't work: Because you need to put down a deposit, first month, second, last month. You need to have a security deposit, and people don't have—in a place like where we live, they don't have $3,000 if they are poor. So there is a reason. And so I would like to ask you, would you object to taking some of that Section 8 voucher money and allow it to be for deposits?
    Secretary MARTINEZ. No. That seems perfectly reasonable. I think that would help people to get into safe and decent housing. I hate to make policy here today without——
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    Mr. SHAYS. I understand.
    Secretary MARTINEZ. ——the people behind me, but as a notion, it sounds fair to me.
    Mr. SHAYS. Okay. In terms of CDBG, Republicans—I believe in block grants with all my heart and soul, but the problem is when we get a block grant, we never increase it like CDBG; we find ways to then take a little from it. And I understand why Democrats get concerned. We sometimes put a lot of categorical grants, then we give this big block grant, but it is 70 percent of all the categorical grants. I wish that as Republicans we simply transferred all those categorical grants as a unit without a cut and made people assured that we would, like a categorical grant, keep increasing them. And I just say it to you because block grants make sense, but we I think as Republicans lose credibility because we don't protect them. And CDBG is a program that hasn't grown, and yet it is what enables a community to do so much.
    Brownfields, I don't understand why we are eliminating them. I don't understand. It is the Department of Housing and Urban Development. These brownfields grants have enabled us to clean up and leverage tons of money, and why would we eliminate it? Don't we want businesses to come in so they can pay taxes and we have a more complete community?
    Secretary MARTINEZ. Well, it is not only elimination, sir. It is transfer to the EPA where the program is not only continuing, but enhanced. EPA is funding over $200 million for brownfield redevelopment and remediation. Twenty-five million at HUD was deemed by OMB to belong better with a larger program at EPA where it could all be administered in one place. So that is really the genesis of that.
    Mr. SHAYS. Okay. Then we just need to make sure that, in fact, it is not a transfer with less money.
    Secretary MARTINEZ. I believe it is a transfer with a substantial additional amount of money.
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    Mr. SHAYS. But I hope that HUD doesn't lose its name and spirit of its name. It is urban development as well, and this is a key program for urban development. I am not sure that EPA is focused on urban development.
    The last thing. I will——
    Secretary MARTINEZ. If I may, just on the issue of CDBG, just wanted to tell you that we do have in this year's budget a request for $96 million in addition to the 2003 appropriated amount for the CDBG program.
    Mr. SHAYS. Okay.
    Let me talk about HOPE VI. I will fight to my death on this program. It has enabled us to tear down old, dilapidated housing, warehoused housing for the poor, and it has enabled us to—as you come into the city of Stanford in the major part of the Fourth Congressional District, we have the poorest of poor living with low income, living with middle income, living with upper middle income, and they can have whatever unit comes next, and it is absolutely awesome. And poor kids see rich folk go to work, and they see people who have a hope and a future. They are not warehoused. I just hope and pray that we rethink what we are doing with HOPE VI.
    And I am confused by your statement, 100,000 established—on page 10—established, HOPE VI has served its purpose. I don't understand why it stopped. Established to revitalize 100,000 of the Nation's most severely duressed public housing units. The program has funded the demolition of over 115 severely distressed public housing units and the production of over 60,000 revitalized dwellings. Why stop? And if the money isn't getting spent well, why not fix it?
    Secretary MARTINEZ. It isn't that—I mean, I believe that it is getting spent well for the most part. It is not being spent out fast enough. And it needs to be continued. I mean, in other words, we are not stopping the program; we are not going to continue—I mean, we are going to continue to monitor and pay out as communities pull their deals together. Half of—I mean, half of—$2.5 billion remain unspent. We want to see these units come out of the ground. And so my——
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    Mr. NEY. The gentleman's time has expired.
    Secretary MARTINEZ. And so my point today has been to request that we all work together towards what the future of HOPE VI is.
    Mr. SHAYS. Thank you. It is a great program, Mr. Secretary, and I hope you save it.
    Mr. NEY. The time of the gentleman has expired.
    The gentleman from Illinois Mr. Emanuel.
    Mr. EMANUEL. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. And I want to continue on a line of questioning from others, including my colleague from Connecticut. Other people have talked about their local government experience. So, you know, when I lived back in Chicago, I served at the appointment of Mayor Daley as vice chairman of the Chicago Housing Authority, which actually did the plan of revitalization; it was the sponsor of it in the board to get it done, the plan you come and talk to and have seen.
    Now, there are difficulties with local housing authorities. As you know, what we are doing now in Chicago is not a project, but the entire public housing is being revitalized. We have torn down 100 buildings, replacing 24,000 units; 8,000 of them are for seniors, the very thing that your plan talks about on the HOPE VI, what the Congressman from Connecticut talked about. By ending it, you would cripple the plan that you praised, by doing what you are doing to Section 8. And in Chicago we have, in fact, made massive use of Section 8, exactly the plan of transformation. You would take out from the Chicago plan the very vehicles we have used to transform the public housing. It is the largest expansion—not expansion, the largest recreation of public housing into mixed units anywhere going on in the country, and the vehicles we have used to do that have been the bonding authority you talked about, Section 8, and the HOPE scholarship.
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    And my goal, I would hope, is what you would do is not end it as a successful program. I don't understand why you would end a successful program since it has taken down 100,000 units. If you are unhappy about the money getting out, put an incentive clause so PHAs move those dollars out quicker. You don't end a success. And if you are unhappy about Section 8, you reform it.
    You are abdicating the responsibility that has been given rather than giving guidance and incentive. I have worked on this, spent 4 years of my life on a housing authority doing this, worked with your predecessor, worked with you at one point on this, and you are going to cripple what is a model in Chicago or other housing authorities, close to 20 of them come to look at and try to repeat.
    And as I say, I have been on the ground. We can all talk out here in Washington. I have been on the ground actually doing this, trying to work through Section 8, trying to move families, used HOPE VI, and you are going to cripple what Chicago is doing.
    Secretary MARTINEZ. Sir, I think that what Mayor Daley is doing in Chicago is remarkable, and I commend you for your part in it. And I believe that if more cities aggressively pursued the issues of housing like Mayor Daley is doing, that we would have a much better America. So I have no quarrel with the approach that Terry and your——
    Mr. EMANUEL. I will convey it directly to him.
    Secretary MARTINEZ. Please do. I was there about a month ago——
    Mr. EMANUEL. I know.
    Secretary MARTINEZ. ——and I conveyed it myself.
    I just think that the vehicles for private financing that are being used by Chicago are a real key to the future success of what we will do to revitalize America's cities. I also believe that what HOPE VI has done—and Chicago is a good example of what we are talking about. Much has been done. Much needs to be done. And still a great deal of money remains unspent on projects that are already in the pipeline in Chicago. So, you know, you, I believe, are well familiar with how the administration might operate, and you know that there are competing interests every time the President puts a budget together. So at a time of tremendous national need, we felt like HOPE VI is an area where we should take a look at where we have been and where we are going while still maintaining the commitment to continuing to see through all the projects that are out there now.
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    Mr. EMANUEL. But what you will do—look, you know, you yourself have said it was a success.
    Secretary MARTINEZ. It is.
    Mr. EMANUEL. Okay. You don't end a success. There are still a lot of failed buildings. Those buildings fail the residents, and they fail the taxpayers. But HOPE VI was a bipartisan initiative. It is succeeding. Do not end it. You are making a mistake. And the greatest program that you model and just praised, you would be crippling it, I am telling you up front, having worked on it endless hours at hearings, with residents, with taxpayers, the HOPE VI.
    The Section 8 has been overall a net plus. It has its problems. Block grant isn't the way to do it. I would be more than willing to work with you on types of reforms on how to do it because it doesn't adequately meet the ability of people to move away from the actual geographic area where they live in public housing. Eighty percent of the people who use Section 8 end up going within a three-block radius of the public housing because of the other services that are available there. We need to ensure that Section 8 is a tool that can get away from physically where the public housing has been geographically physically isolated from the rest of the city. We don't want them within a three-block radius of that area. And Section 8 has the right goal. It is not exactly a strong enough bus ticket to get away, but you don't end it by block-granting it because States are not in the capacity to deal with it. You would be hurting Chicago, another example you hold up as a model.
    Secretary MARTINEZ. But you would have the flexibility in Chicago to keep the program at the city level. I mean, it doesn't mandate that it go to the State. It gives the option that it go to the State. If it doesn't make sense for Chicago, then that is the way it should be. If it makes sense for another place, they would then have the option to do it. So it doesn't tell you that you must do it that way; it gives the option for it to be done that way.
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    Mr. EMANUEL. Mr. Chairman, do I have 1 more minute, or should I end?
    Mr. SHAYS. No. I think we need to end and let other Members.
    Mr. EMANUEL. I appreciate it.
    Mr. SHAYS. If we get a second round, we could recognize you.
    Let me just say, Mr. Capuano has the floor, and based on the Members who are here, it is Mr. Davis and then Ms. Carson. So, Mr. Capuano, you have the floor.
    Mr. CAPUANO. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. There are many things in your budget that I like, and I always like to emphasize that as well, because I know in these hearings many of us tend to argue about the things we don't like. I like the home ownership opportunity stuff. I like some of the increases that I see in the HOME and other things. There are several things here that I like. So it is not everything that I don't like, and I want you to know that going forward.
    Secretary MARTINEZ. Thank you, sir.
    Mr. CAPUANO. I liked your answer on the brownfields grants, although I have some concerns what is relative to the EPA's mission versus your mission. I would prefer to see it split for that very reason. I actually think that HUD has a better idea what to do in urban areas than the EPA does, but that is something we will work out.
    I want to associate myself with everything that has been said about HOPE VI. I am one of the many people that my district has benefited from it. You have heard all the arguments. I don't think it is helpful to repeat them, but I want to make it as clear as I can that everything I have heard here about HOPE VI I totally agree with plus some.
    I also want to very clearly associate myself with the things that Mr. Shays had said earlier about the Section 8 certificates. I am really tired about hearing about how the Section 8 certificates are not used. I don't know why they are not used in other parts of the country. I know why they are not used in Boston. And all the reasons you just heard are exactly it. Particularly in one of the most expensive, if not the most expensive, housing market in the continental United States, it really makes it difficult. And the fact that we can use any of them sometimes amazes me. So I think that when HUD realizes that there are differences in different areas, I think we will have a much more productive discussion on the matter.
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    But I do want to take a minute to talk about some things that I don't think have gotten fully blown out today, namely—well, a couple of things in particular. The Section 108 CDBG loans and the empowerment zones. Both of those items produce more private capital in their respective areas than they do Federal money. Now, I was under the impression that that was a good thing, to generate private investment in areas that would not necessarily get them and to accomplish things that would not otherwise be done, particularly since I have been hearing from the administration rumblings about some liking towards the concept of smart growth, though I have some problems with the way that concept is sometimes utilized. I understand the idea of trying to build in some of the holes we have in some of the urban areas, and both of those programs do it. And to eliminate empowerment zones or to eliminate the Section 108 loans I think cuts off private money that is otherwise unattainable for many urban areas, and I guess I just don't understand what the thinking is on it.
    Secretary MARTINEZ. On empowerment zones, let me say the mission was the grant program, which was not very successful and didn't work well. We continue to encourage through the Tax Code for investment in those types of areas that you mentioned, and I think that is the most successful part of the empowerment zone program. So, I mean, we believe in them, we continue in them, but the grant program was just felt to not be the particularly most successful part of it. And so we continue to encourage the economic development that comes from empowerment zones and the tax credits that are given, and many places find it very successful.
    Mr. CAPUANO. If empowerment zones are working, again, as my colleague said, in another program, if it is working, why mess with it? And empowerment zones were working, are working, and I think deserve our support.
    Secretary MARTINEZ. We have new tax credits in this budget for $11 billion, so we are with you on that.
    Mr. CAPUANO. I understand that, but tax credits are one thing, they don't come up front. This is upfront money that has to be matched up. And the same with the 108 loans.
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    I want to talk a minute, too, about the public housing cuts. It just seems to me just continuous that we are going to walk away from public housing, which amazes me on some levels. I understand, I have all the same concerns that anybody has relative to some of the past history of public housing, but we got rid of the Drug Elimination Grant program. I didn't like that. I think it was a mistake. Now this year we are trying to get rid of the HOPE VI program, which we have already talked about; again, another huge mistake. But we are also cutting the capital fund, we are also cutting the operating fund, which are amazing to me.
    Is there any concern whatsoever? Do you think that we are ever going to get to the bone of public housing, or are we just going to every year cut deeper and cut further and just totally get rid of public housing? What is the general long-term policy goals on this issue?
    Secretary MARTINEZ. I don't think there is any change in the policy goals in respect to public housing, sir. I believe that the operating subsidy funding levels of this year are consistent with funding levels of other years, you know, in the range of what has been done in the past. And I don't believe that the capital fund funding this year is inappropriate, given where we are in the budget cycle.
    Mr. CAPUANO. I don't disagree that there is no change in policy, because it is to cut further and further and further and just ignore our public housing. I don't think there is a change in policy. I guess I am just wondering what is the long-term goal if you are here for 100 years and the administration is here for 100 years, to just get rid of public housing, let it all crumble and fall around the areas of all the people that live there now?
    Secretary MARTINEZ. Well, I can assure you I won't be here for 100 years, but I don't think that that is the goal, no.
    Mr. CAPUANO. One last comment. All right. I won't.
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    Mr. SHAYS. If you would like to make a comment after others have gone. We have Ms. Harris—Ms. Harris, excuse me—and then Mr. Davis and then Ms. Carson.
    Ms. HARRIS. Thank you, Mr. Chairman.
    Welcome, Secretary. Thank you for your testimony this morning.
    It is clear that the administration is poised to create a robust commitment to expand affordable housing opportunities for low-income families. Your budget proposal contains several landmark initiatives that will extend the dream of home ownership to tens of thousands of families and individuals across the United States. For example, HUD's American Dream Down Payment Initiative would empower families and individuals to overcome the most significant obstacle that faces potential home buyers, and that is the down payment.
    I strongly support this innovative proposal, and thus I plan to introduce the American Dream Down Payment Act in the upcoming days. The act will fully implement the initial commitment that Congress made to this idea by providing $75 million in funding for fiscal year 2003. By providing communities throughout America with $200 million grants in fiscal years 2004 and 2005, and it will enable 40,000 families to receive an average subsidy of $5,000 annually. This initiative will be administered as a part of HUD's home program while preserving the home program's flexibility. States will have the authority under the act to creatively design the package of down payment assistance that best meets local needs.
    Secretary Martinez, could you please comment further on this proposed legislation, the assistance that it will provide to low-income families and individuals, and to minorities in particular?
    Secretary MARTINEZ. I so much appreciate your focus on this, and I appreciate very much your willingness to sponsor this American Dream Down Payment Initiative. I believe at the end of the day that the way we are going to make America's needy families successful in this country is by providing them the opportunity to become a part of the American dream, and that comes through home ownership. That will give people the economic empowerment to be in control of their own lives and to become self-sufficient.
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    All we can do to bring families that might be today holding a Section 8 voucher, that might be today part of that HOPE program that we talk about, and all of us concerned about how we better address them is to give them that opportunity to own a home, and you do that through the American Dream down payment, giving them a little help with the down payment so they can become home owners; and then, in addition to that, with the increase in home ownership education and counseling that is in this budget as well. We have more than almost doubled, more than doubled, the money that was in the budget for—when I came to HUD for home ownership education and training. People need the skills to know how to buy a home. Immigrant families, people to whom English is a second language are now the largest minority in America. We need to teach them the ways of the American financial system and how they, too, can taste the dream of home ownership.
    So I thank you for your support and commitment to what I believe is the vitally most important thing we are doing at HUD, providing home ownership.
    Ms. HARRIS. Thank you, Secretary.
    I would like you to comment further. Some State and local government housing authority—advocacy groups oppose the American Dream Down Payment Initiative. The National Council of State Agencies objects to what they view as this initiative to disparagement of the HOME program. They claim that it will duplicate and dilute existing efforts. What is the administration's response to that criticism?
    Secretary MARTINEZ. I really think their concerns are misplaced and misguided. The fact of the matter is that this $200 million is over and above current funding levels for the HOME program. Many HOME programs around the country already do down payment assistance. The President's goal is to ensure that at a minimum $200 million of what goes in the HOME program is going to be devoted to down payment assistance, the greatest tool that we can provide families that are seeking to buy their first home and families who are seeking to move into home ownership.
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    So I believe that their concerns are really not appropriate, particularly in light of the fact that this is all new money funded on top of what already is a very substantial increase in the HOME budget, over 5 percent.
    Ms. HARRIS. And in closing, Mr. Chairman, the expansion of opportunities for low-income families is one of my top priorities to my constituents, and, in fact, my district has relied heavily on HOPE VI grants in the past. There is a stellar example in Manatee County where they received about $21 million to revitalize the public housing side, and it is really extraordinary. And now I am working—I have been working with several other communities, counties to receive that.
    So just let me echo, while I recognize that HOPE VI has had its concerns that need to be addressed, I just wanted to state for the record, too, that we have been pleased with what has actually occurred within our district.
    Secretary MARTINEZ. Thank you.
    Mr. SHAYS. Thank you.
    The Chair will recognize Mr. Davis next and then Ms. Carson. And, Ms. Carson, you are going to get an extra minute because you are so patient.
    Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman.
    Mr. Secretary, let me try to cover some ground that has not been covered in the last couple of hours. One——
    Secretary MARTINEZ. You are going to have a challenge on your hands.
    Mr. DAVIS. I do indeed, and I will try to live up to that.
    Secretary MARTINEZ. Yes, sir.
    Mr. DAVIS. One of the things that strikes me as someone who represents a district that has a large rural component is that the Rural Housing and Economic Development Program is eliminated altogether. Now, when you have spoken on this previously, including your testimony to the Senate yesterday, the response that you have given and that others in the administration have given is that, well, the elimination of the RHED is not so bad because the USDA Rural Housing Program will pick up the slack.
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    Let me tell you one concern I have of that, Mr. Secretary. Let me tell you the facts as I understand them, and I am sure you will correct me if I am wrong. The program, the RHED Program, as I understand it, targets capacity building. It provides a vehicle for not-for-profits, for example, to put money into building low-income housing. It also provides some money for developers to put into low-income housing, whereas the Rural Housing Program that is within USDA is basically yet another form of a lending program.
    Now, my concern is that at the end of the day, if we are serious about the problem of community capacity building, if we are serious about the problem of expanding housing opportunities, then we need to not simply put more resources into programs that transfer money to consumers. That is an important part of it. But we need to also make sure that we are giving developers an incentive to build certain kinds of housing, and that we are giving not-for-profits the incentive to do this kind of work. So can you address that concern of mine, Mr. Secretary?
    Secretary MARTINEZ. Yes, sir. First of all, I reiterate that the Office of Management and Budget views this program as belonging with rural housing, and that is why it is every year not funded and always funded through the—well, it gets funded by Congress back into HUD. But in any event, this little thing goes back and forth every year, one of the interesting things that I have come to learn about Washington.
    In fiscal year 2004, the President's request includes a new Rural Strategic Investment Program for the Department of Agriculture which closely mirrors the Rural Economic Development Program established by Congress and HUD. This new program was authorized in the Farm Security and Rural Development Act of 2003, and it funds it at a level of $85 million, which is a first-time funding. So I believe that the same programs that are existing through this program at HUD would be mirrored at the Department of Agriculture with a far larger funding level than what is at HUD.
    Mr. DAVIS. So do you take issue with the premise then that the actual purpose of the RHED is different from the purposes of the Rural Housing Program in the USDA? I understand the funding commitment is matched, but the nature of the program.
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    Secretary MARTINEZ. I think the Rural Strategic Investment Program now in the Department of Agriculture will provide the variety of opportunities for programs that are now under HUD.
    Mr. DAVIS. And what kind of a funding increase is that program?
    Secretary MARTINEZ. With that kind of a funding increase as well. So I don't believe what you are seeing at HUD is going to disappear; it is going to be funded at $85 million at Agriculture is what it really boils down to.
    Mr. DAVIS. Before I move on, I would just reiterate the concern that I think that the nature of the two programs is different, and I think that they both serve important parts of the mission. There is a similar concern that I have that relates to the Section 502 program. And while there is an increase in the program, there seems to be a shift from direct loans to guaranteed loans.
    Now, the problem that I have with that, Mr. Secretary, is that the guaranteed loans, number one, serve people who are at a higher income bracket, around 37,000 to 40,000, as opposed to the 17,000 to 20,000 served more by direct loans. The second problem that I have is that if you look at the characteristics of people who benefit from the guaranteed program, they tend to be more urban. The people who benefit from the direct loan program under 502 tend to be more minorities, and they tend to be more rural.
    So my concern is that, as with the first matter I raised, the administration is shifting its strategies and saying that we are getting the same bang by putting more money into another area, but the nature of the programs are different. And I am particularly concerned with Section 5012 that some of the neediest people are going underserved. The increase that this budget recommends is a relatively small increase over a period of time.
    Secretary MARTINEZ. Well, sir, I am afraid that I can't comment beyond what I have said to you on that, but if you would like, I would be happy to try to provide you a more comprehensive written response to your request on that issue. But I am really not that knowledgeable about rural programs, so it is difficult for me to try to equate one thing with the other.
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    Mr. DAVIS. I would just make one point about that; that I would hope that you would change that, Mr. Secretary, because I do think that in rural America housing is a very important need.
    Secretary MARTINEZ. It is, but unfortunately, the way the government has been envisioned, it puts a huge component of housing for rural America at the Department of Agriculture, not at HUD. And while I work with Secretary Veneman from time to time, and we do joint things and try for our local offices to work together and benefit families, for instance, our down payment assistance with Section 8 vouchers has been utilized for people to purchase houses under the Rural Housing Program, I am just not conversant enough to give you an accurate answer to the question that you have raised.
    Mr. DAVIS. Okay. I think my time has expired, Mr. Chairman.
    Mr. SHAYS. Thank you, Mr. Davis.
    Ms. Carson, you have the floor and then Mr.——
    Ms. CARSON. I promise you, Mr. Chairman——
    Secretary MARTINEZ. I am going to need a break at some point.
    Mr. SHAYS. Let me just say, I was going to first say while I still had the chair, you have reported yourself extraordinarily well. You are a credit to the administration, I think, and you have been very generous with your time. If I could be certain as to how many more, we would be happy to give you a break and come back, or we could just go through. Would you like a break right this second?
    Secretary MARTINEZ. I would like to break and then come back if there is more than one.
    Ms. CARSON. Well, I am going to be very brief.
    Mr. FRANK. But we do have more than one, and the Secretary has been extremely generous, and we are grateful for the time. So why don't you take a break and come back.
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    Mr. SHAYS. Should we come back in 5 minutes?
    Mr. FRANK. We have three more possibly, I think.
    Mr. SHAYS. We are going to come back in 5 minutes.
    Ms. CARSON. Are you going to break before me?
    Mr. SHAYS. But you are going to get 6 minutes as long as I have that chair just to make up for it.
    Ms. CARSON. But I got to yield to Mel Watt.
    Mr. SHAYS. We are going to have a 5-minute break. Trust me on that one.
    Mr. SHAYS. The committee will reconvene. And we move on to the gentlelady Ms. Carson.
    Ms. CARSON. Thank you very much, Chairman Ney. In deference of time, Mr. Chairman, I would like to yield 1 minute of my 7 minutes to the Honorable Mel Watt, please.
    Mr. SHAYS. I wasn't good in math, but I think we can yield that 1 minute of the 6-1/2 minutes. Compromise is the art here.
    Mr. WATT. Mr. Secretary, I just had one other question I meant to ask you. You all last year put a $20 million cap on HOPE VI grants, and I am wondering whether you will at least look at the idea of putting some exception language into the next round, because there are some projects if we are going to terminate this program or if you are not going to terminate the program.
    Secretary MARTINEZ. We still have one more round regardless. We will take a look at that. The fact that we felt—I felt, frankly, very personally about this, that it would only enhance the ability of the grants to be spread out a little more throughout America. And when you look at——
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    Mr. WATT. I understood the rationale for it. I just wanted to know if you would look at the possibility——
    Secretary MARTINEZ. Okay.
    Mr. WATT. ——of putting some exception language in that for compelling reasons.
    Secretary MARTINEZ. You wouldn't have any specific area in mind where that might be?
    Mr. WATT. Yeah, I got a specific area.
    Secretary MARTINEZ. You might let us know about that, too, so we could at least take a look at what it is you are trying to accomplish.
    Mr. WATT. Yes, sir. I would be delighted. And I have bipartisan interest in it.
    Ms. CARSON. Excuse me. I am reclaiming my time.
    Thank you very much, Mr. Secretary. I will be very brief. I will be like Brillcream, just a little dab will do me.
    My question is concerning the Public Housing Drug Elimination Program that has been dropped. You were out in Indianapolis and saw what a great job we have done with public housing there, et cetera, et cetera. I hope you had a chance to go around and look at some of them.
    Secretary MARTINEZ. Yes, ma'am.
    Ms. CARSON. Crime dropped 60 percent. You eliminated the drug elimination program to the police, the COP program. How do we respond to that? The cities are strapped for resources. And then I was wondering, can I drop—see, I am being very nice. I have a request for a waiver here, so—because I am nice, I want you to look at that.
    Secretary MARTINEZ. Thank you very much. We will be glad to look at a waiver. We sign a lot of those, so I will be happy to take a look.
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    We put $250 million into the Operating Subsidy Grant Program, which was supposed to take the place of drug elimination monies. What it did is it freed it up for the local authorities to then do as they saw fit with that money, so that they could then devote it to drug elimination programs or do something else with it. Many housing authorities felt like there were other ways that they could do the same thing. So we freed up the opportunity for people to do different things with it, and as you know, it was a program that had a lot of challenges in it.
    And one of the things that I also think is important to keep in mind is the continuing obligation of local government to provide public safety in places of public housing. I don't think it is the obligation of the landlord in public housing to be the policeman on the beat as well. Whatever the city is, Indianapolis or whoever, they continue to share a responsibility for law enforcement, for providing the kinds of drug programs that are going to help a person out of addiction. All of these things really are community resources that need to be attacked on a communitywide basis.
    So I believe that we are continuing to look at the problem. I understood your concern, but most of the funding was restored as in that large grant to the housing authorities.
    Ms. CARSON. Okay. I am going to draft you a letter to save time, and concerning FHA 30 percent foreclosure. I heard Congresswoman Harris discuss this first-time homebuyer where you give them a down payment. My concern is how are they going to pay for the house after that? Indianapolis outranks any other place in the country, 6,000 foreclosures. Home ownership is ideal, but we have got to find out what is going on that people are losing their homes.
    Secretary MARTINEZ. Well, a lot of times that comes from predatory lending. We need to work at that.
    Ms. CARSON. That is my point. You hit it right on the head.
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    Secretary MARTINEZ. Absolutely. We are working diligently on that. We are also doing things at FHA to avoid the flipping of properties and a lot of abuse that came as a result of that. We are taking this issue very seriously. We understand how they harm people who are at the place where they don't need harm. They need help.
    And so I understand what you are saying, and we are working with the FTC in enforcement of predatory lending. We did a major case which I believe may have touched Indianapolis or Indiana this past year, and we are looking forward to more and more enforcement actions as we tried to eradicate predatory lending.
    I am also reforming the Real Estate Settlements and Procedures Act in a way that is going to make consumers more empowered to fully understand the closing process and better be able to shop for the lowest price so they don't get in the closing process, number one, know what they are buying, and number two, what they are paying for, in a way that reduces also the costs hopefully by about $700 per transaction, which is going to be good for needy families and consumers that are out there trying to get a mortgage.
    Mr. SHAYS. Mr. Gutierrez.
    Mr. GUTIERREZ. Thank you very much.
    Mr. Secretary, welcome.
    Secretary MARTINEZ. Thank you.
    Mr. GUTIERREZ. I was hoping we could talk for a minute about a local issue in Chicago, and it is in regards to your Section 514 Technical Assistance Program for tenants and the audits by HUD's Inspector General. There is in particular an organization, Tenants United for Housing. They are a not-for-profit organization serving tenants in my district in Chicago, and it is a recipient of HUD's Outreach in Training Grant. One of the buildings that they helped work on is 1170 West Erie, which is called Northwest Tower. You see it from the Kennedy Expressway. We saved it from gentrification. It was financed under HUD, and when the owner wanted to go bankrupt, the tenants bought it and organized it. So it is a pretty good organization. And I guess we have a problem with their funding, and it has to do with $6,900.
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    Now, they were given a no tag grant of $800,000; they received $434,423, and the Inspector General found that they had $6,900 in ineligible costs. That is to say that—they had a conference which they were approved for; HUD approved expenditure of $6,900 for a conference in September and October, but then September 11th and the tragedy of September 11th occurred, and they didn't have the conference. And then HUD froze the money for everybody. Just froze it. So it is kind of hard to get. Give the money back, put in your next waiver. You usually say you made a mistake, and here is your money back.
    So the IG came out, and it just seems to me since they have done such a great job, and since they got 434,000, and nobody is disputing the $6,900, and they are dying to give it back in terms of the receipts, it has never been an argument. And I guess it totals, what, about 1-1/2 percent of the total money that they received. So they got $434,000, never a problem. Then their last $6,900 there was a problem, and they are dying to give it back, and they have been calling me. And I know they want to give it back, but they are frozen out.
    Now, some people who the Inspector General had a problem with, not only was ineligible but other costs, continued to receive money after it was not frozen. So I just thought if we could just look at the $6,900—look, we shouldn't—1-1/2 percent is 1-1/2 percent too much. But given what it represents in its totality and when it happened, maybe we could take another look so that they can go out there and do the splendid work that they have been doing. What do you think?
    Secretary MARTINEZ. I think you raise a perfectly good legitimate point. My problem is, as often is the case, is that I am constrained in what I can do by the legislation that directed the audit by the IG in the first place. That audit—and I have received a draft report from the IG, and it doesn't make a determination as to whether or not grantees who have very technical violations—it says that if there is a violation, it shall terminate funding. That is the way the statute reads.
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    My hopeful interpretation of it is that I will be given the discretion to make judgments in a situation like this as opposed to some other that might be a very egregious violation.
    So we are trying to make sure that we get, first of all, the final report from the IG before we proceed, but then, in addition to that, the legal interpretation of what latitude I have, because right now the argument is made that I have no latitude and that I must withhold any further funding. I assure you that I am one who is, you know, a benevolent judge. And I believe that, if given the opportunity, a case like this will be funded.
    So I will look at it particularly closely in the one that you have brought to my attention, but for all of them actually, to see that we do what is right and find the latitude, actually ensure that we don't fund those who maybe have abused the privilege of the grant, but certainly continue to fund those who are doing a good job and maybe had a very technical violation.
    Mr. GUTIERREZ. Because they haven't received anything, and so now they are looking at obviously they have had to terminate most of their employees. My understanding, and I know you will check into this, Mr. Secretary, is that you do have the discretion, and that the statute is you can—may proceed. I know you can do one or the other. But it just seemed—and maybe the law is so tightly wound, but if you take a look at it, I just think it is a great group of people. Again, I am not willing to excuse 1-1/2 percent of anything, but it is the last 1-1/2 percent they ever got.
    Secretary MARTINEZ. You are a good advocate. You made a compelling case. The question really boils down to whether I have the legal authority to take that into account or not.
    Mr. GUTIERREZ. I appreciate that.
    Mr. NEY. The gentleman's time has expired.
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    Mr. Miller of North Carolina.
    To follow up on the line of questioning that you just had, my understanding is that the statutory term is recapture the funds, any funds that have been misspent, not to terminate funding.
    Secretary MARTINEZ. It is both terminate funding and recapture funds.
    Mr. MILLER OF NORTH CAROLINA. Okay. So it is your understanding that the statute requires you to terminate all funding if there is any violation however de minimis it may be?
    Secretary MARTINEZ. My understanding is—well, first of all, I have not concluded what my ultimate understanding is going to be because I don't have a final legal opinion on it. Some are suggesting that that is the case, that I have no latitude whatsoever. We are hoping that there will be some latitude found so that I can do what would be the right thing to do, what I believe to be the intent of Congress. But when the language says shall, that usually is mandatory language, and we need to be very cautious that I am acting within the legal authority that the statute gives me.
    Mr. MILLER OF NORTH CAROLINA. Mr. Secretary, I would urge that you hurry with that determination, because while these groups have had their funding suspended, they are having to lay off the people who do their work; those folks are finding other jobs, and the ability to complete their work, they are losing that ability altogether while their funding is suspended.
    Secretary MARTINEZ. I understand, and I just ask you to please understand my position as well. I have an Inspector General that operates independent of my jurisdiction, if you will. He is a Presidential appointee. He has his own set of responsibilities. I have to get a final report from the Inspector General, and once I get that report, then I will be quick to make a determination. I assure you that it is not going to just languish on my desk, but I don't have the final report from the IG, and until I do, I just cannot do anything about it.
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    Mr. MILLER OF NORTH CAROLINA. I also understood, Mr. Secretary, that the statute required that any action would come after a final report; is that not correct?
    Secretary MARTINEZ. That is correct.
    Mr. MILLER OF NORTH CAROLINA. I am sorry? You have suspended funding now, but you haven't gotten the final report?
    Secretary MARTINEZ. The IG has instructed us—have done individual reports. And based on the individual report from the IG, and interpreting the law as being mandatory, we have suspended funding for the time being.
    Mr. MILLER OF NORTH CAROLINA. Okay. My understanding is that the IG, the Inspector General's conclusion is that there is not any kind of widespread pattern of abuse.
    Secretary MARTINEZ. That is not the case. The IG report found that out of the 47 grant—out of the 40 grantees, about 30 had violations of some sort of another. As I say, some are trivial, but a good number of them are not trivial.
    Mr. MILLER OF NORTH CAROLINA. Well, but we are not talking about fraud. We are talking about recordkeeping, we are talking about not having receipts.
    Secretary MARTINEZ. I don't know that I am in a position to characterize the nature of the violations. I do believe, though, that some would be fraud while others might be very technical in nature.
    Mr. MILLER OF NORTH CAROLINA. Okay. What opportunities do these agencies have to challenge, to have due process, notice and opportunity to be heard to challenge this really draconian measure of losing funding and the programs are drying up and blowing away?
    Secretary MARTINEZ. You know, let me say that what you raise are interesting points and interesting issues. I am charged with administering congressionally passed legislation, and what I have to do is to make sure that I am true to my obligations under the law so I am not in violation. So I am going to have to be very careful about what I do. And the statute does not seem to provide a great deal of latitude in all of these issues. So what we are doing is taking a very safe approach, which is to make sure that we are not back here on hearings before you about why we didn't enforce the law; and in the meantime, the process—the due process that we will administer is whatever due process the Congress passed in its statute.
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    I mean, I don't create the laws; I enforce them. So my role is to provide whatever due process is provided for in the law, but I cannot create due process where none may exist. They certainly have a chance to challenge, they have a chance to appeal it. I mean, common sense will prevail in all of this. But I believe that, you know, we always should look at the statute and see if this is something we want to live with going forward or whether changes ought to be made in how it reads.
    Mr. MILLER OF NORTH CAROLINA. Do those agencies have any opportunity to challenge the suspension of funding before it was suspended or to challenge the findings of the audit before their funding was suspended?
    Secretary MARTINEZ. I don't feel that I have enough of a legal opinion to give you on that, but I would say that whatever is provided by statute we will do to the fullest. And I will interpret the law in any way that I can in the light most favorable to the applicants and to the grantees to give them every benefit, obviously, of due process. But ultimately, if it is found by the conclusions of the IG that either fraud or serious misdeeds have been committed, then we will enforce the law and ensure that Federal money is not being misspent.
    So I am afraid I cannot answer for you more fully at this point.
    Mr. NEY. The time of the gentleman has expired.
    The gentleman from Massachusetts.
    Mr. FRANK. I just wanted to follow up only because of this, because I want to make clear I agree with the Secretary. We are dealing with an excessively rigid statute, but I should make clear, this is an Appropriations Committee invention. This was not done here. And it is relevant because I think that when we talk about not legislating appropriations bills, there are reasons for this. This is an example. And I don't mean by this to agree exactly with how it is being interpreted.
    I will say this: We had an earlier problem with some of these groups, the outreach groups. I spent a lot of time, Mr. Weicher was helpful, the Secretary too. I was frustrated it took longer than it should have, but we about cleaned up that situation. These are groups of, people should understand, hard-working volunteers. And I agree with the gentleman from North Carolina. I don't think we are talking about people trying to steal any money. I am pretty sure we are talking about hard-working people, not always fully funded for lawyers and accountants, and I think they were being somewhat excessively harshly treated. We were able to work out with this committee, with the Secretary, and we had most of the things resolved, and then an excessively rigid enactment came from the appropriators.
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    Now, there may be more flexibility in how we do it, but I have been urging people that we all ought to be asking the appropriators to relax, because while, there is room for some flexibility in administration, I do believe in this case the greater part of the problem is from a statute that the appropriators adopted without any consultation, I believe, with any of our staff, certainly not on the housing side either way. And I would be glad to work with the Secretary. And I again appreciate, Mr. Secretary, your very generous use of your time and your willingness to respond, as you have, to all the questions. But I would be willing to work, and I would hope on both sides we could here in this committee, and the Secretary, to try to get the appropriators to give a little of the flexibility. I think what the gentleman from North Carolina was asking for substantively we would all agree makes sense. And to the extent that the appropriations language might interfere with some of that, I hope we can get it changed.
    Secretary MARTINEZ. Absolutely. Yes, sir. I think your sentiments and mine are the same. I want to do right by these folks to the extent that that is possible. But I am also going to be constrained by what the statute language is.
    Mr. NEY. The Chair notes that some Members may have additional questions which they will want to put in writing. Without objection, the record will remain open for 30 days for Members to submit their questions in writing to the witnesses and for the responses to be part of the record.
    Mr. NEY. Without objection, I also want to thank the Secretary for his time and also his answers to the questions.
    Secretary MARTINEZ. Thank you very much, sir.
    Mr. NEY. We will call up the second panel.
    I would also note, we have conferred with the Ranking Member. And if the panelists would so choose, the witnesses would so choose, you can capsulize your statements. There are, I would assume, a few questions. It is up to your discretion whether to take the full 5 minutes or to capsulize your statements and submit for the record.
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    The second panel, I would like to introduce the panelists. Mr. Art Garcia. And Mr. Garcia was appointed by President Bush to serve as the Administrator of the Rural Housing Service in the U.S. Department of Agriculture. Prior to coming to Washington, Mr. Garcia enjoyed a career in banking while also serving as president of the Hispanic Bankers Association, as chair of a PBS affiliate in Albuquerque, as a member of the City of Albuquerque Library Board. I want to welcome Mr. Garcia.
    Mr. Anthony Lowe was appointed Administrator of the Insurance and Mitigation Administration on March 2002. Mr. Lowe is responsible for overseeing the National Flood Insurance Program, the Hazard Grant Mitigation Program, and all initiatives aimed at eliminating and reducing the risks this Nation's communities face for natural disasters.
    Welcome, Mr. Lowe.
    And the last witness is Ellen Lazar, the Executive Director of the Neighborhood Reinvestment Corporation, a public nonprofit organization chartered by Congress in 1978. The principle purpose of the Corporation is to revitalize older urban neighborhoods by mobilizing public, private, and community resources at the neighborhood level.
    Welcome, Ms. Lazar.
    And we will begin with Mr. Garcia.


    Mr. GARCIA. Thank you, Mr. Ney.
    Thank you very much for the opportunity to testify today. A year ago, working in the financial services industry, I never dreamed that I would be before——
    Mr. NEY. Turn the mike on there.
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    Mr. GARCIA. Okay. Thank you. Again, thank you for the opportunity to testify. I have been Administrator of Rural Housing—my name is Art Garcia—for a little less than a year. A year ago I never dreamed that I would be before such a distinguished body, but the American dream does come true, and I am grateful to be here.
    I would like to submit for the record my written testimony and provide a brief summary of that testimony.
    We have a proposal in the administration, $5.67 billion for our program. Of that we are utilizing 4 billion in guaranteed loans and direct loans to assist 49,000 families gaining the dream of home ownership. Of that, 2.5 billion will be utilized in the Loan Guarantee Program to allow 31,000 families to achieve the American dream; $1.4 billion will be utilized to allow 18,000 families to get direct loans from the U.S. Department of Agriculture to attain home ownership.
    The 2000 census shows that 13 percent of rural America is minorities. In 2002, the rural housing portfolio of loans, guarantees, and grants totaled 24 percent minority usage in rural America, but we say that is not good enough. To further the President's initiative on minority home ownership, we have stood up and made a Five-Star Commitment, a five-point commitment to increasing minority home ownership in rural America, and to do that we are lowering the fees in our guarantee program. We are doubling the number of participants in our self-help program; that is, the grantees. We are increasing our participation with minority lenders, promoting credit counseling with FDIC and other partners as well, and setting goals and monitoring our activities.
    I wanted to go back for a moment and talk about our 504 program where we are providing 66—or proposing 66.5 million to help 12,000 families have better homes by providing sanitary homes for existing homes, by providing disability facilities for homes, and the ability for Americans to have a better way of life.
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    We also believe that we have to do this with fiscal responsibility, and we are proud of the leveraging that we have done within our program. In 1996, 8 percent of our single family loans were leveraged. In the year 2002, 55 percent of our loans are leveraged with other funds from other sources. In doing this, we have expanded the taxpayers' tax dollars by 12 percent and have added $120 million to our ability to help families by helping 2,000 more families with that money.
    We also have a Multifamily Housing Program that we are very proud of. We are proposing in the 2004 budget $70.8 million for rehab and repair of 5,900 units. We are proposing 100 million for new construction under the 538 guarantee program. We project that that will provide 2,400 new apartments for rural America, and also 14 million for our farm labor, both on-farm and off-farm program, to provide livable conditions for farm workers who often face the worst living conditions and who are the fuel of the agricultural industry in America.
    An investment in 100 multifamily units from Rural Housing Service puts back into the community. Its contribution to the community is $5.3 million in income to that community in the year of construction and 2.2 million thereafter. It provides 112 jobs for construction year, and 46 jobs thereafter to maintain the facility. And it provides to a small local community 630,000 in government revenue, local government revenue, in the year of construction, and 384,000 in revenue thereafter.
    Coupled with our 515 program, we are proposing 740 million for our Rental Assistance Program. This is to renew over 42,000 new contracts. The rental assistance contract covers 5 years for a tenant, so it allows through rental assistance stability for an apartment complex, stability in that people stay for a long time and in a much more livable complex.
    In this Multifamily Housing Program, we help Americans who have an average income of around $8,000 a year. They are the most neediest. What we need to do in our administration, what we propose, is to find new ways to stretch the dollars, to find new partners to protect tenants. And that is our administration's position, to protect the tenants that are in our facilities. And we are also proposing or beginning work on a study to see how we can make the 1962 version of the 515 program—make it more relevant to 2002, 2003, and beyond.
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    So, we are proposing and we are beginning work on a study to make our program better.
    Finally, in our Multifamily Housing Program, we have taken the recommendations of this committee, and we are improving our technology. We have now installed a third generation of our multifamily information system, and our management system is now more capable to track rental assistance, capable to track our inventory, and gives us a much better streamlined way to make sense of managing our program.
    Finally, our community facility program brings more than brick and mortar houses to a community. It helps us to complete the picture by bringing fire, rescue, libraries, et cetera, to a community. We are proposing 250 million in direct loans, 210 million in guarantees, and 17 million in grants.
    I know I am running short on time, so I will cut my comments, but I want to make a few more comments. With these community facilities, we are proposing that we will do 140 new or improved health care facilities for rural America, 130 new or improved fire and rescue facilities for rural America, and 50—create 50 new child care facilities for rural America.
    I want to end by stating, first of all, that we are very proud of our community, of our loan service center in St. Louis, we have been very active there, and that we are managing and servicing over 470,000 loans in that facility. That facility has been very active in working with the National Industries for the Blind to help provide statements in Braille. We have been working with the TDD phone system and e-mail for the visually impaired. Eleven percent of our staff there is bilingual, so we help those who are unable to speak English and are experienced on how we do this in our facility. And we are very active in the Work to Welfare Program, where we have taken many people from the roles of welfare and put them to work in our loan center.
    Again, I thank you for the opportunity to speak today, and we will stand ready to answer any questions.
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    Mr. NEY. Thank you.

    [The prepared statement of Art Garcia can be found on page 82 in the appendix.]

    Mr. NEY. And all witnesses, extra material or statements will be, without objection, entered into the record.
    Mr. Lowe.


    Mr. LOWE. Thank you very much. My name is Anthony Lowe. I am the Federal Insurance Administrator as well as the Director of the Mitigation Division of the Emergency Preparedness and Response Directorate, Department of Homeland Security.
    Chairman, Ranking Member Frank, members of the committee, on behalf of the National Flood Insurance Program administered by the Department of Homeland Security, I welcome and appreciate the opportunity to appear today before the Committee on Financial Services. I will focus my testimony today on the issues of risk reduction as they relate directly to the National Flood Insurance Program as well as its modernization program.
    Before doing so, however, I want to particularly thank this committee, the Chairman, the Ranking Member Frank for your leadership for reauthorizing the National Flood Insurance Program. Through your efforts we were able to maintain service to 4.4 million policyholders and our stakeholders that rely on the National Flood Insurance Program for protection from flood losses.
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    I am also happy to report that the National Flood Insurance Program, the largest single-line insurance company in the world, is debt free.
    As you may recall, in June of 2001, after Tropical Storm Allison battered the Gulf Coast and East Coast states, we had to borrow $660 million from the Treasury to pay for losses that exceeded our reserves. We have repaid that debt, with interest, as of October of 2002. The true payoff, however, was the 30,000 victims of Allison who had their claims paid off through the National Flood Insurance Program, rather than relying on disaster relief.
    The National Flood Insurance Program stands once again on solid financial ground as we begin a new era in emergency management that began on March 1 of this year. That day, 22 Federal agencies were consolidated in the Department of Homeland Security that serves a clear mission, to protect our citizens from all hazards, from terrorist attacks to natural disasters.
    Applying our collective expertise and resources in DHS to all hazards that face our Nation is the expectation of the President, Secretary Ridge, and the American people. In fact, this is the mission of Secretary Ridge, a mission that Secretary Ridge made clear last week to the National Emergency Management Association, namely that DHS serves an all-hazard mission and that the Department is an all-hazard agency.
    As you know, the Homeland Security Act of 2002 was budget-neutral for the necessary start-up costs for the new Department. With the authorization and approval of Congress, each agency moving into DHS was asked to make a one-time contribution from its unobligated balances from fiscal year 2002.
    The National Flood Insurance Program was no exception. We also contributed funding for start-up costs from unobligated funds. Those remaining balances from fiscal 2002 were from the Flood Mitigation Assistance Program.
    Many of our stakeholders and partners, including the Association of Flood Plain Managers, have voiced concern about this transfer of funds and whether it signals a shift in national priorities or in our commitment to serve those at risk in the Nation's flood plains.
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    While the creation of DHS is an enhancement to our mission to protect people and property from floods and other natural hazards, as well as man-made, I want to assure this committee and the NFIP's partners and stakeholders and those at risk from flooding that our commitment to save lives and property under the NFIP is unwavering.
    First, all eligible and pending FMA mitigation projects that States submitted at the time of the transition will be funded with the balance of fiscal year 2002 and 2003 funds as well as any additional funds necessary from 2003 and 2004 appropriations.
    Second, the President's 2004 budget request for the Department of Homeland Security accounts for the administrative needs of the Department, so ours was a one-time contribution.
    Third, the traditional 2-year overlapping cycle for the development of funding of FMA projects should minimize any significant impact on projects that are ready to be implemented in fiscal year 2003.
    In addition, for fiscal year 2003, Congress provided $150 million for the Predisaster Mitigation Grant Program. The increased funding for predisaster mitigation offsets the reduction in the Hazard Mitigation Grant Program, HMGP. The remaining FMA funds, coupled with the increased funding for predisaster mitigation and the continued HMGP funding, will also provide multiple opportunities to fund mitigation projects and address our highest priorities, including repetitive lost properties.
    To implement this competitive program, we are developing a national evaluation system where the benefit-to-cost ratio will be primary.
    I want to talk a little bit about map modernization as well, mitigating and insuring the——
    Mr. NEY. Excuse me. I just want to note your time has expired. But if you want to summarize.
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    Mr. LOWE. I will close.
    Again, I appreciate my opportunity to testify before this committee.
    Mr. NEY. Of course, anything you want to submit for the record has already been approved.
    Mr. LOWE. Thank you.

    [The prepared statement of Anthony Lowe can be found on page 117 in the appendix.]

    Mr. NEY. Move on to Ms. Lazar.


    Ms. LAZAR. Thank you. Good afternoon, Chairman Ney, Ranking Member Frank.
    My name is Ellen Lazar. I am the Executive Director of the Neighborhood Reinvestment Corporation and would like to ask that my full testimony be submitted for the record.
    I am pleased to brief you this afternoon on Neighborhood Reinvestment and the NeighborWorks network's outcomes in fiscal year 2002 and our plans for fiscal year 2004. Before I do so, I would like to take this opportunity to talk about our history and how the NeighborWorks system, working in over 2,300 communities across this country, is able to achieve significant impact.
    Neighborhood Reinvestment developed from a 1972 effort by the Federal Home Loan Bank Board and HUD to encourage lending in declining neighborhoods. The Bank Board identified a model for community-based lending and community revitalization in Pittsburgh, named Neighborhood Housing Services.
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    By 1978, the model's success in stimulating private sector investment led Congress to establish Neighborhood Reinvestment as a public nonprofit corporation.
    There are three interrelated components of the NeighborWorks system: the Neighborhood Reinvestment Corporation, the NeighborWorks network, and Neighborhood Housing Services of America, which we call NHSA.
    Neighborhood Reinvestment supports the NeighborWorks network through an integrated approach, combining flexible grants, technical assistance, regular oversight reviews and training. These activities build the productivity and strength of the NeighborWorks network and the broader community development field.
    Neighborhood Reinvestment founded the NeighborWorks network, 226 community-based nonprofits active in more than 2,300 communities, which operate in our Nation's largest cities, suburban areas and rural areas. NeighborWorks organizations are partnerships of local residents, lenders and local governments. Each organization is a 501(C)(3) corporation and has a local board of directors that sets priorities, raises funds and oversees service delivery. These organizations address a wide range of community concerns, including home ownership, rural activities and multi-family rental housing.
    To meet the secondary market needs of NeighborWorks organizations, NHSA works with Neighborhood Reinvestment to replenish the revolving loan funds and capital pools of network organizations.
    One example of the power of the NeighborWorks system is the NeighborWorks Campaign for Home Ownership, which is the largest initiative of its kind to bring families of modest means into the economic mainstream. Over the past 10 years, the Campaign has assisted more than 60,000 families to become homeowners. We have provided more than 350,000 individuals with home buyer education and counseling services. We have invested more than $5 billion in distressed communities. The Campaign for Home Ownership has achieved these outcomes by establishing aggressive goals and high standards for production and service delivery.
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    Over the next 5 years, the Campaign will create 50,000 new homeowners, 59 percent of whom will be minority households; assist 50,000 families to preserve home ownership and improve their homes; and reach a half a million families through home buyer education.
    In fiscal year 2002, Congress provided Neighborhood Reinvestment with an appropriation of $105 million; and the NeighborWorks network achieved new levels of production, including generating nearly $1.7 billion in direct investment to targeted communities, making available affordable housing opportunities for nearly 70,000 families, providing home buyer education and counseling services to over 68,000 families, and leveraging $15.80 in other investments for each dollar Congress appropriated to Neighborhood Reinvestment.
    For fiscal year 2003, Congress funded us at the President's request of $105 million. I look forward to reporting our outcomes to you next year.
    For fiscal year 2004, we are requesting an appropriation of $115 million. Most notably, we will assist the NeighborWorks network to leverage nearly $2.2 billion in direct total investment, use each dollar Congress appropriates to leverage $18 from other sources, assist nearly 79,000 families to obtain and maintain safe and affordable rental and homeownership housing, provide homeownership counseling and financial literacy training to nearly 84,000 families, and disburse 69 percent of our congressional funding in the form of grants.
    Mr. NEY. I wanted to note that time is expiring.
    Ms. LAZAR. Let me close by thanking the committee for the opportunity to brief you on our work. The congressional support is a valuable asset to more than 2,300 communities across this country, and your continued support is vital to building healthy, strong and safe communities.

    [The prepared statement of Ellen Lazar can be found on page 100 in the appendix.]
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    Mr. NEY. I want to thank all of the witnesses.
    I do have several questions. First of all, we appreciate you coming to the Hill. It is important that we have a dialogue and continue to do this.
    Due to the nature of time, the first panel ran so long I am going to submit my questions to you. They are important to me and I think important to the committee, but I am going to submit them to in writing to you, and I will yield to Mr. Frank.
    Mr. FRANK. I didn't have time to write them down, so I have got to ask them.
    On rural housing, I am very concerned about the 515 program. I agree it has been a very valuable program. I am afraid that through a combination of the law, the Court decisions we have seen and the appropriations process, we are losing the units. I think they are a very valuable asset.
    What is the plan that you have to deal with the preservation issue? And if we don't change policy and if we were to continue the level of appropriation for the next year that is asked for, what is the future of this inventory?
    Mr. GARCIA. I agree, Ranking Member Frank, that our 515 program is a national asset. We certainly hear you, and we certainly are putting together plans that will preserve——
    Mr. FRANK. Right now, what does it look like? What is your estimate? My sense is that, with the appropriation being asked for and some legal issues that we have got——
    Let me be clear. I think we probably have lost what we might have thought were the rights of some people to stay in the program. But my understanding is that there are people who are in this program who would be willing to stay with the right incentives, and we are not giving ourselves enough money and offering enough money to do that. So if you would do a projection forward, what is your projection? How many units are we likely to lose?
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    I am told, for instance, that we have 100,000 units subject to prepayment, which is about nearly a quarter of the inventory, better than 20 percent of the inventory. We are now losing more units than we are creating. Is that accurate?
    Mr. GARCIA. Yes, sir.
    Mr. FRANK. What are we doing about it?
    Mr. GARCIA. First of all, we are seeking out faith-based and nonprofits where we can come in and say, somebody wants to prepay out of our program. What we do is we help to facilitate the nonprofits and these faith-based agencies who want to stay in our program long term and help facilitate the purchase from the faith-based to the people who are looking to get out of our program. That is one of things that we——
    Mr. FRANK. That is very promising. Do we put any money in for that, or do they? The problem we have, I guess, is this: these are people who got the subsidies and in some cases, because of market forces, the housing is now worth a lot more than it used to be. Are we asking these nonprofits, faith-based and others, to come in and pay a high market price but then run them at a subsidized rental level or a limited rental level?
    Mr. GARCIA. No, sir. What we are doing is we are financing the equity in the property.
    Mr. FRANK. With Federal funds?
    Mr. GARCIA. With Federal funds. Exactly. So it makes much more sense.
    Mr. FRANK. I agree. So we are losing—it is a cooperative arrangement, so that we buy down, in effect, the market value so that they can then keep it.
    How much have you asked for in the fiscal 2004 budget for that purpose?
    Mr. GARCIA. $70.8 million.
    Mr. FRANK. $70.8 million. I thought some of that was for rehabbing existing units physically? Is that all for purchase, for facilitating the purchase of units for preservation purposes?
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    Mr. GARCIA. On our figures for——
    Mr. FRANK. I was told that, in 2004, the funds requested for the rental housing account were $71 million, $70.8. How much of that would go for the program you just talked about?
    Mr. GARCIA. Okay. About $70 million for rehab and $50 million for—70 percent for rehab.
    Mr. FRANK. Of the $70 million? That is about $50 million for rehab. So that leaves us $20 million for facilitating the purchase. What is the per-unit cost of trying to preserve a unit with this system? Do we know? What percentage of the 100,000 units that are out there that are at risk, how many of them would we save with $20 million?
    Mr. GARCIA. Okay. About 15,000 per unit per rehab and for equity.
    Mr. FRANK. It can't be the same for rehab and for equity.
    Mr. GARCIA. Combined. I am sorry. That is combined.
    Mr. FRANK. You said we have got $20 million in the fiscal 2004 budget for preservation in the legal sense, as opposed to the physical rehab.
    Mr. GARCIA. Right.
    Mr. FRANK. How many units will we save with $20 million?
    Mr. GARCIA. Apparently, we do not have the information, but we will be glad to submit that back to you.
    Mr. FRANK. Well, Mr. Garcia, I am glad you value the program. But, to be honest, how in the world did you come up with that number if you didn't know how many units that is going to save? Is that what OMB gave you and you were happy to get it?
    Mr. GARCIA. I don't have that information. We will submit that.
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    Mr. FRANK. I am unimpressed that this is as high a priority as it ought to be, when you can't give me those numbers. I think preservation of these units ought to be—from the efficiency standpoint—I think you get the best bang for the buck with this kind of preservation.
    You want to bring the faith-based in, et cetera. I am not impressed by what seems to be a lack of attention to this.
    Thank you, Mr. Chairman.
    Mr. NEY. I will talk with the ranking member. Maybe we ought to do additional hearings on rural housing.
    Mr. FRANK. On the preservation thing, I would be glad to do that.
    Mr. NEY. The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to these witnesses and place the response in the record.
    Thank you for coming to the Hill.
    [Whereupon, at 1:30 p.m., the committee was adjourned.]