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H.R. 2--THE HOUSING OPPORTUNITY AND RESPONSIBILITY ACT OF 1997: BUILDING COMMUNITIES OF OPPORTUNITY
TUESDAY, MARCH 11, 1997
House of Representatives, Subcommittee on Housing and Community Opportunity,
Committee on Banking and Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 3:30 p.m., in room 2128, Rayburn House Office Building, Hon. Rick Lazio [chairman of the subcommittee] presiding.
Present: Chairman Lazio, Representatives Fox, Kelly, Kennedy, Sanders, Gutierrez, Maloney, and Carson.
Chairman LAZIO. The hearing shall come to order.
Good afternoon. Thank you for being here today at the subcommittee's third hearing on H.R. 2, the Housing Opportunity and Responsibility Act of 1997.
I introduced H.R. 2 on January 7 of this year. The legislation is designed with the intent to end the isolation of many of our poorest communities and ultimately to foster the creation of communities of opportunity rather than tolerating communities of despair. Our goal is to overhaul and refocus our Nation's assisted housing program so economically driven solutions instead of ''one size fits all'' policies become the norm rather than the exception.
Our laws must be drafted so that the creative forces of local chief executives and community leaders, the people who are closest to the problems and most able to develop solutions, are fostered and developed. The Federal Government needs to be supportive of these efforts, not overly restrictive. Flexibility must be built into the system so that we have a 21st Century model, not programs based on old style bureaucratic concepts.
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We are lucky to have with us here today someone who can speak to this vision. We also need to speak to how our Government, and specifically the Department of Housing and Urban Development, conducts its business. If the Federal Government is to serve a supportive role, then HUD cannot be just an issuer of regulations stifling innovation, nor, for that matter, can HUD be just a rubber stamp.
We have individuals with us today who can provide insight as to what we in Congress can do to improve how the Department not only monitors, but how can it can encourage and improve the performance of America's public housing authorities.
I would like to note that several mayors have indicated that they may wish to submit written testimony for the record, and other groups have requested the same. I would ask unanimous consent that their testimony be submitted to the record. Without objection, that is so ordered.
[The prepared statement of Hon. Rick Lazio can be found on page 424 in the appendix.]
I would like to ask, do any Members have any opening statements they would like to make?
Mr. Gutierrez.
Mr. GUTIERREZ. I am glad to be here today, Mr. Chairman, as the subcommittee continues the review of your bill, H.R. 2, and the effect it will have on low-income families across our country.
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This legislation has several major flaws, flaws that will have a major impact on the people public housing is designed to serve. As I stated many times last year, I believe public housing must remain available to very low-income families. Therefore, I must say I will work with my colleagues to make improvements in this session.
If H.R. 2 is enacted in its current form, I am concerned about the future. I realize that public housing authorities face very difficult challenges trying to provide decent housing for increasing numbers of low-income persons with fewer resources. However, public housing is the housing of last resort for our neediest families, in many cases their last chance to avoid homelessness.
Public housing must be available for those who need it most. I would hate to see H.R. 2 leave a legacy of increased numbers of homeless because the bill failed to serve those in desperate need of housing. To address this need and avoid the devastating circumstances this bill could bring to many housing authorities, Congress must step up to the plate and encourage and support affordable housing.
If we are to rid our cities of the high-rises that concentrate our Nation's poor and serve only to foster crime and neglect, we must provide the resources, the financial resources, including public/private partnerships, to tear down these projects and build real mixed income communities that provide decent housing and hope for the future.
In addition, although the bill is beginning to move in the right direction, I believe that we must retain the Brooke protections. Tenants should only be required to pay 30 percent of their adjusted income for rent. As Congressman Frank and I advocated in this subcommittee and on the House floor last year, giving housing authorities the ability to set rents up to 30 percent of income is critical. This will encourage work and encourage families to stay together and not leave public housing.
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Many of the other pieces of this bill are troubling. The lack of Davis-Bacon protections for tenant workers and the changes in the grievance procedure are extremely worrisome examples. I do not believe the subcommittee should be in the business of restricting the basic rights of tenants. I also have concerns about the Home Rule Flexible Grant. I am very worried that up until today no witness has endorsed this program as a constructive solution to our Nation's public housing problems.
Mr. Chairman, I believe the real solution to the problems we face in public housing is that the Members of this subcommittee must begin fighting for an adequate, substantial, targeted HUD budget. Otherwise, what this subcommittee decides to do will matter very little. There will be no way housing authorities, large or small, will have the ability to provide decent and safe housing for low-income persons.
I want to welcome our witnesses, and I look forward to hearing from them this afternoon.
Thank you so much, Mr. Chairman.
Chairman LAZIO. Thank you.
Mrs. Kelly.
Mrs. KELLY. Thank you, Mr. Chairman, and I also thank Ranking Member Kennedy for agreeing to hold this, the third hearing of a series on H.R. 2, the Housing Opportunity and Responsibility Act of 1997.
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I want to thank all of the witnesses that are here today before us for taking the time to come here and express their views on this piece of legislation. I would like to emphasize my belief that we are very close to legislation that we can pass here. We have a good start with H.R. 2, and it is my hope that by working with the witnesses who have and will come before this subcommittee, we hope to have comprehensive legislation that will make a real difference.
Our goals are simple: Personal responsibility that extends to a mutual obligation between the provider and the recipient; removal of disincentives to work and retention of protections for the residents; and the empowerment of the individual and family tenant through choices that I believe will lead them to economic independence and the pursuit of their own American dream.
In our last hearing we heard testimony from public housing authorities. We heard about their interaction with local government and the problems they saw with H.R. 2 sections with local control.
I am pleased to see we begin today with the mayor of Indianapolis to hear the view of the local government perspective. The concept of local control for good public housing authority merits review, and I look forward to the thoughts of our witnesses today and hope they are willing to give us the feedback that will enable us to move forward.
Thank you.
Chairman LAZIO. Thank you, gentlelady.
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Mrs. Carson.
Mrs. CARSON. Mr. Chairman, Members of the subcommittee, I am pleased to have all the witnesses here today, especially the presence and comments of my mayor from Indianapolis, Mayor Stephen Goldsmith, who is both a creative and dedicated leader of our city and he has brought a background in that position as an attorney and prosecutor, as an instructor at the Harvard Kennedy School of Government, to bear and tackle the challenge of governing our hometown as mayor for the past 5-plus years. And although Mr. Goldsmith and I come from opposite sides of the political spectrum, we do often agree, but we will often agree on the method for solving our cities' problems.
I can assure the subcommittee that Mayor Goldsmith is a person and leader we can work with toward the common goal of safe and affordable housing for all. I have worked with him on many worthy projects in the past and look forward to working together with him on many more in the future.
That said, the block grant proposal that Mayor Goldsmith and others will discuss indicates that under these proposals Federal requirements of income targeting, protection for elderly and disabled, for mandatory community service requirements, caps on rent at 30 percent, the Brooke Amendment, grievance procedures, and tenant participation all will disappear. That seems to be a bad idea to me, and even if it is a good idea, it is a risky one and better approached through demonstration programs trying similar block grants on a small scale. Such demonstration programs are already in place and will indicate tenants are protected when Federal guarantees are dropped.
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Although I have not been an active participant in this subcommittee as long as I would have preferred to have been, my experience with the Indianapolis public housing has been three things. Number one, we cannot continue to allow senior citizens of low-income status to be integrated with other citizens and families who are not. Senior citizens, especially in their golden years, have a right to live in quiet, safe environments without having to be placed in public housing along with people who have not reached that plateau in life.
And I would also like to add that public housing, like any other entity that is public, has not met the problems by its own making. Society has created enormous problems within the public housing spectrum, and I will continue to work with the mayor of our city to try to alleviate some of those social problems so that this country can get on with quality public housing for people who deserve to participate in those kinds of opportunities.
Thank you, Mr. Chairman.
Chairman LAZIO. I would thank the gentlelady.
I am proud to have testifying before the subcommittee one of America's truly great mayors, the mayor of one of America's truly great cities and, I might add, a former prosecuting attorney, as Mrs. Carson referred to, Mayor Stephen Goldsmith of Indianapolis.
Mayor Goldsmith has earned a well-deserved reputation as one of America's most innovative mayors. He has not only reduced government spending and held the line on taxes, he has done much more. He identified more than $120 million in savings and reinvested this into his community by providing for more police officers and instituted a $500 million infrastructure improvement program called ''Building Better Neighborhoods.''
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If I were to list all the awards Mayor Goldsmith has received over the years, we would never get out of here. For that reason, I would just mention a few and especially welcome him here before this subcommittee. He has certainly been an exceptional public servant. He has been the national Co-Chairman of the National Council of Public-Private Partnerships, for which he has received the Distinguished Leadership Award. He has been the Chairman of the Center for Civic Innovation, an assistant professor at Indiana University School of Public and Environmental Affairs, and I note there, you probably did not have tenure. I am familiar with that situation.
I want to welcome you, Mayor Goldsmith. Thank you for coming here, and thank you for the fine work you are accomplishing in Indianapolis. It is a role model for our Nation's other cities. The floor is yours.
STATEMENT OF HON. STEPHEN GOLDSMITH, MAYOR, CITY OF INDIANAPOLIS, IN
Mr. GOLDSMITH. Thank you, Mr. Chairman.
Let me start by thanking Representative Carson for her kind comments and also acknowledging over the last decade, although not always agreeing, we have worked together to solve many of the problems facing the residents of our cities, particularly those who are the poorest, and I appreciate your indulging me today, and not offering any other observations about my successes or failures. So thank you, Representative Carson.
I don't come before you as a public housing expert; quite the contrary, I come before you as a mayor struggling to make our city work and looking for ways to furnish necessary services to those who are the poorest. For large cities, and Indianapolis is the twelfth largest in the country, to succeed we have to be creative and flexible and we have to understand that virtually, at least in the Midwest and the East, cities contain a disproportionate share of those who are poor and those who are in need of shelter.
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I also acknowledge, although I think probably we could debate whose responsibility it is, yet there is a public responsibility for shelter, and in the end a mayor is going to be the one responsible. If public housing fails, Section 8 withers away and funding for homeless is insufficient. There is no mayor who is going to allow a mom and her children to sleep on the sidewalks of the streets. It is necessary for cities to respond.
I also would say that we probably had more successes and more failures than most any other city in delivering public housing. I come before you with a long list of each. Let me briefly reference what I think are the problems and issues involved with public housing.
First of all, I appreciate the Chairman's recognition that we are in the middle of a sea change with respect to providing public services in cities, particularly public housing. It has been a Federal responsibility for decades. That responsibility now is, to some extent, being withdrawn.
We have voucher contracts which are now expiring in record numbers, leaving fundamental questions about how the residents who were receiving those vouchers are going to be housed. We have a new Federal/State relationship which devolves money and responsibility both to State governments, thus changing the very fundamentals of the Federal relationship with cities. We have the Federal Government's effort to balance its budget, and we have cities' efforts in resisting raising taxes, especially those in the urban core where the tax rates are already too high.
So inside this package of changes is both a very important opportunity and serious problems for cities.
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My city has been, up to a couple of years ago, historically on the troubled list with respect to public housing. After huffing and puffing, we finally got ourselves off of it, and we precariously remain above that line. Our city has handled public housing as a city agency, not as a city agency, as an outside corporation, and has looked at every possible structural change as an answer to the problem, which I don't think has an answer in that fashion.
I don't want to take much of your time, but let me start with an anecdote. When I got elected Mayor in 1991, one of the first things I did was go to our seniors public housing complex. It was in deplorable shape, and I met with the seniors and I said, boldly, ''90 days, all the hallways, all the public areas are going to be repainted and clean.'' I gave them my word. I left. I decided I was going to use city dollars and not HUD dollars to do this.
I naively started the process of issuing a contract for a commercial painter, when the HUD police knocked on my door and said, ''You can't do this.'' And I said, ''OK, I'll just negotiate kind of a new wage rate for painting, because everybody wants the seniors who are impoverished to have a higher quality of living.'' They said, ''No, you are not allowed to negotiate this with your unions; we establish this.'' I said, ''OK, what would it be?'' They said, ''We will tell you what, the first three floors will be residential painting rate, but we define floors 4 and above as commercial rate, and therefore the paint rate will triple on floors 4 through''--whatever it was--''15, as contrasted with 1 through 3.''
The net result is, we never did paint, at least in that period, the areas that I promised to paint, because the Federal restrictions, the Federal process, just zapped all the energies of both the volunteers and commercial painters. You can replay that story over and over again.
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The point is, I think we need more flexibility and more responsibility at the local level. I have had four public housing directors. They have improved our conditions somewhat, and they have a long way to go, and we are searching for a new director right now as well.
I would say, Mr. Chairman, there are some fundamental flaws in public housing that make it virtually impossible to work in large cities. First of all, I think site-based subsidies are wrong. We take the poorest residents, they trap them in monopolies, they can't take those vouchers with them, and they serve as a strong incentive for slumlords. And to the extent--and I think we need to be very careful with this.
We can argue about what the extent is of public responsibility for shelter, but it is a very different question than whether government is the best landlord in the country. The question ought to be, ''With the resources you have allocated, what is the best way to provide shelter care?''
Entrapping people, either with site-based vouchers or with public housing delivered through government only, I think, is an insult to the people who need the services and is designed not to produce the most effective set of services. And I want to come back to that. So the site-based vouchers create economic inefficiencies.
Second, the assumption--the mayors the San Diego and Philadelphia and I were testifying before the DC. Committee--and there is across the country with mayors a now compelling feeling that we are not the best provider of every single service and that we have to subject these services to the competitive marketplace to see who is the best at repairing potholes, who is the best at treating water quality, and who is the best at providing housing services.
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So if public housing starts with the proposition that government needs to be this business as contrasted to government needs to provide funds for shelter, it starts with a fundamental flaw, as we see with this issue.
Finally, I acknowledge that the concept has been public housing has been housing as a last resort, but that tends to create artificial barriers in the housing continuum that create problems. Those fundamental flaws are aggravated by some structural mistakes. Every time there is an abuse, there is a rule, law, or regulation designed to correct the abuse. So public housing becomes something of an esoteric sport to see if you can weave your way through the process regulations to get to the end.
I was here 4 years ago with Secretary Cisneros, who I think did some important things in HUD, appearing before Congress to give HUD more authority to give communities more authority and flexibility on delivering housing. Some of what Secretary Cisneros proposed has occurred, much of it hasn't, and I would urge Congress to reduce the regulations, and the way to do that is to provide more flexibility and freedom at the local level.
I think this gets us to your proposal, Mr. Chairman. Let me introduce that by saying we have competed out now 70 public services. We have saved $250 million--not public housing, $250 million--and we have reinvested those dollars and more in our most difficult neighborhoods, whether it is for land acquisition, for housing or streets or sidewalks or curbs or parks or police, and the competitive process has allowed us to deliver higher quality services to our residents for lower cost.
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What we need, and what I think you can do as a result of our proposed legislation, is to allow cities that wish to participate in local demonstration projects. I would suggest that if you are going to invest X dollars in maintenance costs and subsidies and HOPE VI, then why don't you just cash that out and say to me, ''Mayor Goldsmith, we expect you to provide 'X' thousand affordable housing units for your citizens; here is a check; it is now your responsibility.''
To the extent you give me some money for CDBG, some money for HOPE, some money for public housing, some money for folks with AIDS, some money for people who are homeless, you create not only bureaucratic overhead but also obstacles in delivery of the continuum, and I, for one, would be willing to accept responsibility because, unlike some mayors, I really want this to work, and I can't figure out how to make it work.
We have an opening now for a public housing director. Unlike anything else I did in my community, instead of finding the best person to provide affordable housing, we don't do that. We acknowledge that public housing directoring is a profession in and of itself, because what you want is a person who understands the rules and regulations the best.
We are not talking about who can produce the most housing per dollar, we are talking about trying to hire the best person to do business with you in the Washington sense. It is not a very productive way to do business.
So I would compliment you on the willingness to allow communities who want to provide more housing an opportunity to do that. Public housing does not exist in a vacuum, and insofar as it is part of this continuum of shelter care, the more flexibility we have to manage people through this system the better off we will be.
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Now, as we conclude, I would just say that if I could talk about Representative Carson in conclusion, her last responsibility--she will have the last word, so I will say this very carefully. Her last responsibility is a job called ''trustee'', to the extent that I did not provide people with public housing, they knocked on her door and received a property tax voucher to get their housing, get their shelter care. And I acknowledged and understand that I, as mayor, and the local officials are the provider of last resort for shelter, and we take that seriously, as I think all other mayors in big cities.
And the best thing Washington can do for us is continue to address its responsibilities, look at the expiration of the Section 8 vouchers, but to do that in a way that recognizes that the best way to produce value is to acknowledge the importance and the humanity and the folks who need the assistance the most. Stop managing them inside a public monopoly and allow a greater variety of public housing to be produced. In that situation, you can hold me accountable for the results, you can audit our performance, but let's stop managing the process pieces in a way that is counterproductive.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Mr. Goldsmith can be found on page 427 in the appendix.]
Chairman LAZIO. Thank you.
I would like to reserve my questions to the conclusion. Mr. Gutierrez, do you have any questions?
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Mr. GUTIERREZ. Yes. Welcome, Mr. Mayor.
Mr. Mayor, last week we had someone from the National Housing Project who, in testimony before the subcommittee, listed several serious concerns with the Home Rule Flexible Grant Program. Particularly, he noticed that this program would eliminate any income-targeting provisions, the cap on a tenant's rent contribution, and protection against eviction without cause. I believe these are very serious protections that should be retained for any public housing resident.
How would you suggest, Mr. Mayor, we ensure the rights and economic security of public housing tenants on the program that you would put together?
Mr. GOLDSMITH. I think there are probably several areas where we might disagree. Let me kind of walk around that to answer your question.
Whatever you as a subcommittee in Congress decide are important shelter requirements, I would prefer that you expressly address that issue and give us the flexibility to do that. If you think a community should provide--I would like maximum flexibility--but if you decide a community should target provision of shelter care for a particular population, then spell that out and then let us figure out how to do it.
To the extent though that you require it to be done inside a public monopoly and pass lots of laws to tell that monopoly how to handle its business, I think you create high overhead cost.
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So I answer your question, Mr. Representative, by saying hold us accountable for the results, tell us what it is you want in terms of the results, and move forward that way, as contrasted to saying ''Here is a rent subsidy, here is an operating budget, and then we are going to impose these rules on you in the way you manage your subsidy.''
Mr. GUTIERREZ. I think probably we could sit down and work that out, but under the Home Rule Flexible Grant Program, if you eliminate income-targeting provisions, let's say you said 35 percent, or 30 percent, of your public housing residents have to be under the 30 percent of median income, well, I know what public housing authorities are going to do. They are going to say, ''You know what, Congress? We already have 50-, 60-, 70-, 80-percent of those people. So from now on, we are going to take people at the higher scale, we are not going to take the very poor because we have already met that criterion.''
We say to people, you know, as I think we should, ''You will pay no more than 30 percent of your income for rent.'' When you look at substandard housing, people think of plumbing, roaches, rats, broken windows, lack of security, a whole host of things, including too many people living in too small a space.
But another issue obviously is, if, which is not unusual in many inner-city poor neighborhoods, 50- or 60-percent of all your dollars go to paying your rent, you are actually living in substandard housing, because now you don't have any money for food and other necessities.
So we want to give you the flexibility, but if we write a blank check, say, ''I understand your point, we are going to provide so many housing units, but to whom are we going to provide the housing units?'' Because you have people who really need it.
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Mr. GOLDSMITH. Absolutely. The last sentence, or question, I think is absolutely a critical one for the subcommittee. See, I think you are in the wrong business. I think the business I would encourage you to be in is providing financial assistance to the poorest so that they can have decent housing, as contrasted to being in the public housing business.
So once you say I am going to run public housing, we are going to argue about percentage and incomes inside those buildings, when what we ought to say is, the Federal Government accepts the responsibility for providing shelter care. You can do that through vouchers or a number of different ways, and that is why I would be interested in accepting responsibility, whether it is measured by income or any other way for providing shelter care, and then I would manage it across a continuum.
So ironically, you trust me with your home income dollars, your CDBG dollars, your Section 8 dollars, I am managing all of those, but public housing is over here all isolated because I am running these buildings. I don't want to run the buildings, I want to provide shelter care.
Mr. GUTIERREZ. You know, I think the problem here is, see, it is like in the State of Illinois. The State legislature and the governor, in their wisdom, said: ''We don't want to deal with the Chicago public school system, so we will tell you what we are going do, Mayor Daley. We are going to let you run it. We are not going to provide you one cent to truly run it and fund it, but here it is. You are the mayor. Why don't you run the Chicago Board of Education and the State will withdraw?'', when actually the State has a responsibility to help provide funds for that.
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So, you see, I think you can come here in the best of hopes and spirit for us to work collaboratively. The problem is, we may indeed give you everything you are asking for, and then this Congress, as it has done in recent years,
will cut the funding. Mr. Goldsmith, just be careful you don't get what you ask for, because we may say, ''Here it is, you have got plenty of flexibility. But guess what? The well has dried up in terms of the dollars necessary for you to be effective in reaching the goals, which obviously, given your past history and your success, you have been able to do. We want you to be able to compete.'' Thank you, Mr. Mayor, for being here with us.
As a former Chicago City Council member, I am from Chicago, I always have to take one last bow to any mayor. Thank you for being here.
The CHAIRMAN. Thank you.
Mrs. Kelly.
Mrs. KELLY. Thank you.
Mr. Mayor, I listened to you talk about what you were and I had read your testimony that you delivered here to us, and you are talking about an integrated community, and that is a great concept. You live in Indianapolis.
I live near New York City, and I have a real problem with a whole bunch of people who have an NIMBY attitude. You know what I mean? Not in my backyard. I have a question about how that is going to work in ordinary small communities, which is what I represent, a whole lot of small communities around a big city, and they will be hard hit if we pass legislation that has a broad stroke that allows mayors to push and shove and change communities around.
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So I am asking you two things. How do you deal with the people who don't want project people in their neighborhood? And I am going to ask you a follow-up question on that when you get finished with that first one.
Mr. GOLDSMITH. Well, I can't get finished with the first one.
Well, first of all, I don't propose a ''one-size-fits-all'' response, and it may very well be that this subcommittee would authorize HUD to do local projects, giving a department or area of HUD the authority to enter into these agreements. I could make a proposal to figure out how much they are spending in my city now, and I could suggest how we would undertake to provide those services outside the structure, because what works in Indiana may not work in Chicago and may not work in New York City.
Mrs. KELLY. If we do that, are you talking about doing it on an amount of money basis or the number of people?
Mr. GOLDSMITH. The amount of money now spent for the number of people now housed.
Mrs. KELLY. OK.
Mr. GOLDSMITH. But I think the more fundamental question is whether we trust the marketplace and whether we trust people to make decisions that are in their best interest.
Mrs. KELLY. That is my follow-up, sir. Are we sending money--is it like sending money--putting the fox in the hen-house here?
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Mr. FOX. I object.
Mrs. KELLY. Sorry, Mr. Fox.
Mr. GOLDSMITH. Let's see, I don't think I agree. It seems like I should agree on the ''fox in the hen house,'' but I appreciate your disagreeing.
Well, cities, the mayors are going to be responsible. We are responsible now, you are just financing a small part of the total shelter issue, and what government policy does today is assume that a government socialist monopoly is better than the private marketplace.
And I would suggest that if we--some of our worst facilities are those with site-based Section 8 vouchers. The landlord gets the money, the residents have no choice, can't move away, and it takes away all the driving force of American innovation is based on competition and customers, and we are taking that away in the site-based vouchers. I think the best way to produce these services is to use the existing financial resources of HUD in a way that appreciates the market rather than displaces the market.
Mrs. KELLY. As I understand it, your site-based Section 8 vouchers are things you would eliminate?
Mr. GOLDSMITH. I am sorry, would eliminate?
Mrs. KELLY. The site-based Section 8 vouchers are things you would eliminate.
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Mr. GOLDSMITH. I would change them to vouchers that travel with the person who is in need of services.
Mrs. KELLY. So you simply let that person go out and pick their housing wherever they could find it?
Mr. GOLDSMITH. Right.
Mrs. KELLY. Then support them. Would you make up the difference in the cost of the rent? Because that is sort of what you described your Indianapolis plan as doing.
Mr. GOLDSMITH. Yes, but sometimes your subsidies are below the rent level, sometimes they provide moderate income to landlords who are investing, but basically they are displacing the marketplace with the HUD program.
Mrs. KELLY. Would you suggest we do that on a sliding basis so that we reach--we allow people to pull themselves up? Because we are, as you know, talking about doing something similar to allowing people to get themselves up out of poverty.
Mr. GOLDSMITH. Yes, ma'am, I would.
Mrs. KELLY. Thank you very much.
Chairman LAZIO. Mrs. Carson.
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Mrs. CARSON. Mr. Mayor, realistically, could we believe that mayors who have political aspirations--and I am sure you don't, so I wouldn't be directing this at you--realistically, would a mayor take on the challenge of intermingling low-income people with high-income people in Indianapolis and Indiana?
Mr. GOLDSMITH. Only with the utmost of caution. It is a serious issue, and your two questions go together, absolutely.
Mrs. CARSON. Is it going to happen, really?
Mr. GOLDSMITH. It is not going to happen soon. It would happen a little bit, but public housing of course concentrates poor folks in those neighborhoods, traps them there now anyway.
Mrs. CARSON. Let me ask you the difference now and when Lockefield Gardens was built. You remember, one of the ones that were put on the historical landmark with the European design and all that? What was the difference between public housing then that everybody wanted to get into, and public housing now, and even people who exceeded income guidelines did not want to move?
Mr. GOLDSMITH. Well, that is a fascinating question. Of course, as you know, early years public housing wasn't designed to trap the very poorest people in dense housing. So we have economic segregation, not necessarily racial, but we have economic segregation in public housing and we have a great density. And I think moving from a mix of incomes to the poorest in the most dense situations is a predictable recipe for disaster, especially when you combine that with the peculiar rules of management that HUD forces on a situation.
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I am not sure that with a voucher situation you would disperse races, but you would give those who are poor more choice about where they are going to live.
Mrs. CARSON. Thank you.
Chairman LAZIO. Thank you, gentlelady.
Mr. Fox.
Mr. FOX. Mr. Chairman, thank you. Mr. Chairman, Ranking Member, I am very pleased to note we have the esteemed mayor of Indianapolis here.
Your record is nationally-known, and we appreciate your testimony and involvement in this national effort.
According to the Inspector General's report on the consolidation of HUD programs, the Inspector General said the following: ''Public housing has become so Federalized over the years that localities have come to view it as a Federal Government responsibility and not theirs. Rather than assuming a supporting role for public housing, the Federal Government, through HUD, has taken a lead role. This is the result of the economic isolation of public housing in most communities.''
Can you comment on this supposed--or alleged--isolation and where you would agree with it or not? And if you think it is a problem, how do you think we could address that problem?
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Mr. GOLDSMITH. Well, I think it is clearly a problem. The way we handle public housing today does isolate the poorest people in often inferior conditions, and I would say, and I kind of sense this from the subcommittee, most mayors are quite pleased to have that situation occur. It is not their problem; they don't have to worry about the quality of housing. We now have a problem with public housing, and since we have an outside agency, it is not my problem where it was my problem before.
So you not only isolate individuals, you isolate the management problems. I think the political process, although it obviously has some of the dangers that everyone is concerned about, the local city council and mayor are responsible to the voters, and that ensures some degree of accountability.
I think to the extent that the Federal Government acknowledges that it has a responsibility for funding shelter for the poorest citizens in our country and does that in a much more flexible way, outside of the traditional projects, that would be better for the individuals and better for the cities involved.
Mr. FOX. Thank you very much.
Chairman LAZIO. The gentleman from Massachusetts, Mr. Kennedy.
Mr. KENNEDY. Thank you very much, Mr. Chairman. I want to again thank you for carrying on the aggressive set of hearings that we have established so far. I think it is an important demonstration of the renewed energy that you are showing this year that this subcommittee is going to be active.
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I hope it is active not only in the writing of a new housing bill which I am hopeful this Congress can pass, but I also hope active in the defense of these issues on the Appropriations Committee.
I also think that even you must feel that the way the Appropriations Committee has dealt with the housing issue in general has been much more devastating than any particular housing policy that has been enacted. When we are talking about 16 million people being eligible for some type of housing assistance in the United States, yet only 4 million people receive any kind of housing assistance, there has to be a recognition across the board that we have got to do more to provide people with shelter.
The fact is that the housing budget last year was cut by over 20 percent, the homeless budget by over 25 percent. I don't think anybody talked to the American people about whether we expected that kind of policymaking to end up in any way reducing the amount of homelessness or the kind of problems that people face in terms of public housing issues, whether these problems are going to be solved by simply going out and cutting the budget.
Nobody--and I apologize for missing your testimony, Mr. Mayor--nobody in their right mind approves the kind of public housing monstrosities that we see so often on the news at night, where so many crime problems have existed. So much difficulty has been placed upon the poorest of the poor, due in some measure to some of the policies that we even as Democrats ended up pursuing, largely as a hope that we could get further appropriations and get the kind of funding for the operating budget in public housing that was necessary in order to allow these people to actually be served in a way that was anticipated. While the policies could have been upheld if the funding came through, the funding didn't come through. The public housing suffered, and now we love to run out in front of public housing, condemn it, and then, as a result of that condemnation, we end up cutting the budget.
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It is a self-fulfilling prophecy that ends up undercutting the most poor and vulnerable people in this country. And what I am concerned about--and the Chairman knows my concerns--in terms of the policies that we are pursuing at this time. It will end up providing perhaps a better mix in terms of the kinds of people who end up living in public housing. And certainly if you eliminate the Fourth Amendment, if you eliminate targeting, you can do that much more quickly.
But we don't do anything about the fact that these very poor people continue to live in our cities and rural areas and across our country. So we can end up with local housing policies, which makes it much easier for the housing authorities, whether assisted by the mayors or assisted by anybody else, to work better. But, if we do that by abandoning the basic commitment to the country to help the poorest and most vulnerable people in the country, I don't think in the overall scheme of things that anybody that creates these policies ought to sleep any better at night, because we haven't achieved anything. All we have done is get a little bit wealthier people involved in who lives in public housing.
And that is something I would appreciate you, as I see you nodding your head, maybe I would just ask you to comment on it.
Mr. GOLDSMITH. Well, I think it is a very good observation. I don't particularly view it as my responsibility or yours to provide housing for folks who can afford it on their own. So operating public housing and mixing the economic populations is kind of a strange way to go.
I view my role--let me back up just a second. I think your observations are very helpful. We have the twelfth largest city in the United States, we have got about 850,000 people, and we have got a very high percentage of the poor in our metro region live in my city. And our city already has property taxes higher than the suburbs, education which is a little bit worse, and crime which is worse. So I cannot be entirely responsible for the shelter care for those who are poor. I do believe we need Federal help.
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We have thousands of people receiving vouchers for public housing in our community. So I think we agree on the responsibility that it is our responsibility to help those who are poorest.
What I want to do is not be in the business of running public housing. I want to be as a partner with the Federal Government, responsible for delivering shelter care to those who are poor. And so to the extent that we think about running projects and mixing populations inside these projects, I think it is the wrong model.
I think the right model--and let me just do this, and I will stop talking. Our current HOPE VI grant in Indianapolis allows us to take down two public housing communities and create a series of duplexes inside our public neighborhood, sense of family and community, still accepting responsibilities, taking money we were spending before in the project and using it for people.
So what I would rather do is take the Federal dollars and direct them to people based on income levels or poverty or some other standard you set up for me rather than running the projects, and that is why I was shaking my head yes, because I don't think just mixing the populations inside these buildings is really the answer to anything.
Mr. KENNEDY. Well, I don't think, Mr. Mayor, that anybody would have a problem with developing alternative models to the 300-, 400-, 500-unit apartment buildings where you just end up putting the poorest of the poor.
I don't know exactly what the HOPE VI model is you are talking about. I think those are the kinds of things we want to see encouraged by public housing along the way.
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I think the way this specific bill is written would, in fact, turn over a tremendous amount of power without any responsibility to serve that lower-income community as a result of the block grant proposal. When we look at projects, or public housing like DC., or Detroit, or New Orleans, which have largely been turned over to the mayors, we haven't seen the kind of leadership that perhaps you have shown in Indianapolis.
So I think you should just recognize that we have got our job to do here and we have got to make sure that the kind of policies we end up pursuing end up allowing the kind of flexibility you are pursuing but----
Mr. GOLDSMITH. Could I make one observation, not in terms of having the last word, but in terms of agreeing? Whenever the number of folks that are in public housing currently in a community--say it is 5,000--it should be our responsibility to continue to provide shelter care for 5,000. And so if one-third of those folks move out and move into single-family or duplexes, then we can provide care for those percent who move out, and if they are replaced inside a project by 1,000 people who are higher income, that is not really what you should hold me accountable for. What you should hold me accountable for is maintaining shelter for the number we fix as the current base when the community grows over time.
Mr. KENNEDY. Mr. Mayor, I wish we had had you last year, because what you just advocated is one-for-one housing, and that is a concept that got blown out of the water about a year-and-a-half ago. But thank you.
Chairman LAZIO. Thank you, Mr. Kennedy.
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I just wanted to reflect on the fact that the normal flexible program proposal is an effort to do exactly what I think the Mayor would like to have done; that is, to have a request by a mayor who may be faced with a dysfunctional housing authority or worse, work with HUD, because it is a performance agreement. The plan would have to be a credible plan approved by the Secretary that begins to focus on outputs, not simply the process.
This concept applies not simply to housing but to a whole range of public services where we measure success, because I think people of good will can define what success looks like prospectively and then begin to measure the results.
One of your colleagues, Norm Rice, in Seattle, from the other side of the aisle, has talked about the concept of a seamless grant and integrating Federal resources, setting goals, and having the Federal Government back off and letting local leaders, whether it is the civic leaders or whether it is in the elective office, design the programs that fit the character of their local communities. That is one of the underlying principles and a major step that we are trying to take in H.R. 2.
Can you speak to whether we need to think more broadly than housing? It is a much larger issue. Is housing just a symptom of deeper poverty that we have to deal with in a much more holistic way than we have been dealing with it over the last 35 years?
Mr. GOLDSMITH. That is a very insightful observation, Mr. Chairman, and I am delighted to have the opportunity to respond.
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Let me first say I don't think it was meant to be a confidential comment. When Secretary Cisneros was testifying several years ago and he provided us the floor plan for HUD, I turned to him and said, ''Why don't you just deed over the properties to me and tell the owner responsible for people in them to just get out of the way with the voucher money?'' And he said, ''Because I don't have the authority to do that. If I get the authority to do that then I would consider negotiating it.''
So what we are advocating today and the reason we are excited about H.R. 2, is there are some very good managers in HUD, to give them the authority to entertain proposals from mayors and hold the mayors responsible. So that is what excites me about H.R. 2.
Your question is that every family is different. Some families need housing because the husbands are beating up their wives. Some families need housing because they are scared of the 17-year-old delinquents. Some families need housing because they have a person in their family with a severe disability. Some need housing because they don't have any money.
So to the extent you are not always solving the problem necessarily with the vouchers or with the public housing, so today you give me some money for social service, some money for Section 8, some money for HOME VI, some money for CDBG, some money for the homeless, and in the center of all this you have got this public housing walled off or isolated from the rest of those services, and the more flexible those funds, the more you can solve the problems of the individuals that need them.
So I would strongly urge the subcommittee to provide the vehicle to integrate the housing dollars with the other services that are often necessary to get people in the position they need to sustain themselves.
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Chairman LAZIO. In your opinion, would it be more likely or less likely that you have local investment in housing and community development initiatives that now target moderately low- and very low-income people and families? What would you have if you had fungibility and flexibility and you had the type of concept you are talking about?
Mr. GOLDSMITH. Oh, dramatically more. I mean, I have got community development corporations; I have got leverage in the CDBG. You have lists playing with tax credit opportunities; you have got private investors. We have the City of Indianapolis actually buying property and doing the environmental remediation and making that available to people.
So as you mix and match funding sources with creative entrepreneurs, with city facilitation, then are you going to find a better match and leverage of those dollars. So I am absolutely confident that you could increase the number of units with the dollars now spent if you can be more creative in the way you use those dollars.
Chairman LAZIO. I want to thank you very much, Mr. Mayor, for some very insightful testimony and for answering a great range of questions and of course for the wonderful work you are doing in Indianapolis. Thank you very much and have a safe trip home.
I ask the next panel to please come forward. I want to welcome the second panel. I appreciate very much your taking the time to prepare written testimony and agreeing to be with us here today and make your presentations.
I would like to introduce our next panel.
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The first speaker will be the Honorable Susan Gaffney, who is the Inspector General of the Department of Housing and Urban Development.
Before coming to HUD, Ms. Gaffney was Chief of the Management and Integrity Branch at the Office of Management and Budget. I want to say from personal experience that Susan Gaffney is one the finest public servants I have had the pleasure to work with. Her assistance has been exceedingly constructive during the time that I have been Chairman of this subcommittee, and I appreciate that very much.
The next panelist is Ned Epstein. I am going to turn to the Ranking Member, Mr. Kennedy, to introduce Mr. Epstein.
Mr. KENNEDY. Well, I was going to introduce him when he was going to speak, but I will introduce him right now.
I want to just take a moment to introduce a good friend and someone who has worked very hard on a range of public housing issues, Ned Epstein. Ned used to be the Director of the Multifamily Asset Management of the Massachusetts Housing Finance Agency and is one of the premier advocates of housing, for affordable housing, for low-income people around the country. He was responsible for the fiscal and financial viability of the agency's $3 billion multifamily portfolio, and Ned has done a terrific job.
He was very, very helpful to us last year in developing some alternative thinking in how public housing management should be treated in terms of being held to market conditions. I very much appreciate him taking the time to be with us here this afternoon.
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Thank you, Mr. Chairman.
Chairman LAZIO. I thank the gentleman.
The final panelist is someone who is also no stranger to this subcommittee, or certainly to me. Joseph Schiff is President of The Schiff Group Housing Consulting Organization. He was Assistant Secretary for Public and Indian Housing for the U.S. Department of Housing and Urban Development from 1990 to 1993, where he was responsible for the overall operation of the Nation's public housing, Indian housing, and tenant-based programs.
Before coming to Washington, Mr. Schiff served as Manager of the HUD Kentucky Field Office, where he was responsible for the oversight and implementation of all of HUD's programs throughout the State of Kentucky. He knows HUD from top to bottom, and I look forward to hearing his views on how we can improve the management and oversight for these programs.
I also want to thank you personally for your constructive input in terms of H.R. 2 and many other housing initiatives that we have been discussing.
Without further delay, I will turn to you, Inspector General, for your presentation.
STATEMENT OF HON. SUSAN GAFFNEY, INSPECTOR GENERAL, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
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Ms. GAFFNEY. Thank you, Mr. Chairman, and Members of the subcommittee. I am going to talk about H.R. 2 in relation to management accountability issues. I am going to stay away from the policy issues that Mr. Gutierrez was talking about.
Over the last years, HUD's mission has become increasingly vague and broad. The current mission statement is that we are about creating communities of opportunity. At the same time that the mission has become more vague, the number of programs has consistently increased and the number of HUD staff has consistently decreased. These two things have happened with no apparent concern either at HUD or in the Congress about how the two are related.
We also have in HUD a culture that views management as administration having nothing to do with policy or programs. We also have a lot of internal system problems at HUD, and what this all adds up to is a situation in which good performance by HUD is simply an impossibility.
I am heartened by what I have heard Secretary Cuomo say about the situation. He recognizes it and he is putting forth a plan to address it, and it's the first time that has happened since I have been at HUD. But HUD's efforts will be to absolutely no avail unless the Congress steps up and does its part in terms of authorizing legislation, which it has not done for the past several years.
I believe that H.R. 2 is a move in the right direction. You have a very clear statement of purpose. What H.R. 2 is about is decent housing for low-income people. H.R. 2 also accomplishes a major consolidation of HUD programs, which will hopefully enable a decreased HUD staff to do a better job of monitoring oversight, and technical assistance.
House Resolution 2 further has a clear definition of actions that are required to be taken when entities are troubled or near troubled, so that we take those actions out of the political arena. You give greater authority to receivers and the HUD Secretary when taking over properties. This is terrific stuff. This is what should have happened years ago.
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Now just one problem I want to talk about and that is the Housing Foundation and Accreditation Board. I fear that concept--I am not opposed to it. I am just afraid of trying to set up that new concept. A new bureaucracy is going to take a lot of time and trouble.
I believe that HUD has come to understand that we have got a bad problem on our hands with PHMAP, the current Public Housing Management Assessment Program. That system measures management processes, it does not measure the quality of housing.
What we are about is decent, safe, and sanitary housing; but the PHMAP system ignores that whole area. So we have a situation where, for instance, Memphis is taken off the troubled list, and if you saw Memphis public housing you would cry. Camden is not a troubled housing authority, yet I have never seen anything like the situation of public housing in Camden, New Jersey.
But I think, finally, HUD understands this has to change and we need a new assessment system. I would say: can't we build on what we have, can't we try that without going right now to this concept of an accreditation board? But, other than that, I think it is so important that we get H.R. 2 enacted for all the reasons I have gone through.
Thank you, Mr. Chairman.
Chairman LAZIO. Thank you.
I also want to acknowledge in terms of you have instructed that you have forwarded a proposal to the committee that would improve and supplement the current PHMAP system.
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[The prepared statement of Hon. Susan Gaffney can be found on page 432 in the appendix.]
Chairman LAZIO. Mr. Epstein, thank you for joining us.
STATEMENT OF NED EPSTEIN, TREASURER, HOUSING PARTNERS, INC.
Mr. EPSTEIN. Thank you very much. Mr. Chairman, I am delighted to accept your invitation to share my vision of implementing effective asset management strategies and performance standards for public housing.
First, let me say I had the pleasure of working with Congressman Kennedy and his office on asset management provisions and some alternative thinking last year. I also had the pleasure of discussing many of the asset management concepts discussed in my written testimony with Members of the subcommittee's Majority staff.
To summarize my written testimony, which I submitted for the record, many PHAs are technically managing the public housing. However, a number of PHAs are classified as ''troubled'' or ''near troubled.'' These authorities manage a highly visible proportion of the public housing inventory. Federal pressure for deficit reduction will result in fewer dollars being available for public housing operations over the next 5 years, thereby increasing the need for more efficiency.
PHAs have contended for years that the condition of some public housing is the result of too many rules and regulations whereby HUD micromanages from Washington. From my perspective, although clearly there are a ton of regulations that control all aspects of public housing, there has been little accountability or recognition of the qualities of the individual property that contribute to its success or failure in the marketplace.
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While opportunities for change exist, change will not be easy. How PHAs perform will have a major impact on their local communities. Operating successfully requires applying tested real estate principles that are not traditionally used by PHAs.
My vision for designing and implementing effective asset management strategies involves transforming PHAs into entities similar to those of State housing finance agencies. Housing finance agencies have financed over a million units. Often they serve a very similar clientele, as those served by public are as the public housing authorities, and they enjoy investment bond rates from Wall Street.
Two major components of effective asset management strategies involve, first, asset management decisionmaking and, second, the property-based management. With respect to asset-based decisionmaking, PHA's should perform portfolio evaluations to determine the most appropriate use of each site. One of the fundamental premises of real estate that distinguishes privately owned rental housing from public housing authorities is that each property is considered individually in terms of its position in the marketplace, its management, its operations, its budgeting, and its capital needs.
In performing portfolio evaluations, PHAs as owners will look at their properties in a way that first, integrates the physical and financial characteristics of the housing with market conditions to determine the highest and best use consistent with the PHAs goals and objectives; and, second, it will evaluate alternative treatments and strategies in light of available resources and, third, will prioritize future action and clarify strategies going forward.
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While H.R. 2 takes new and important steps, it does not require portfolio evaluations based on individual property assessments, and that is why I think when you go out and look at particular PHA developments, you might find that even when a PHA has a good PHMAP score, the projects may be intolerable.
The second component of asset management strategy is effective property-based management systems. That is, implementing property-based management systems with properties managed as individual developments with separate and distinct management plans and detailed property-based operating budgets.
Again, this is similar to how State HFAs and conventional property managers manage their portfolios. And further, none of the portfolio evaluation measures that I have discussed could be undertaken if PHASs do not implement property-based management.
To conclude, public housing is entering a challenging period. If PHAs make the transition that I have discussed, they will position themselves to be full service, public purpose, affordable real estate companies, which will allow them, first, to further promote their mission and, second, to operate as a real estate company outside of the box of traditional public housing programs. I believe, based on speaking with several executive directors of large public housing authorities that they would find this a new and exciting opportunity and challenge. Thank you.
Chairman LAZIO. Thank you very much, Mr. Epstein.
[The prepared statement of Mr. Epstein can be found on page 446 in the appendix.]
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Chairman LAZIO. Mr. Schiff.
STATEMENT OF JOSEPH G. SCHIFF, PRESIDENT, THE SCHIFF GROUP, AND FORMER ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING, HUD
Mr. SCHIFF. Thank you, Mr. Chairman.
I come before you this afternoon to thank you and your colleagues for all of your efforts to reform public housing and to make a few suggestions for how I think H.R. 2 could be even better. There are a great number of aspects of the bill that deserve praise. However, time constraints limit my ability to address each and every one of them. Therefore, I am going to talk about some of the more critical areas of the bill.
First of all, let me state I totally support the repeal of the 1937 Housing Act. I firmly believe it is an essential step toward true reform of public housing. The fact that public housing must have a different look 5 or 10 years from now than it has today has become an effective viewpoint concerning the program. The only thing we are still debating is what it should look like and how we should get there. The 60 years of baggage this act is mired in must be swept away.
It seems to me that we are engaged in debate over whether the glass is half full or half empty. One group of housing advocates says ''repeal the act.'' The other group says ''amend the act.'' The distinction, as I see it, is how confident we are that simple amendments will accomplish all we want to achieve. I, for one, am extremely worried that forces that support the status quo will intervene in an amendment-type of situation to stymie the advocates of positive changes. I do not underestimate the power of determined attorneys to find a section of the act that was not amended and thereby thwart the constructive change being advocated today.
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In order to forestall this eventuality, a cleaner option is to just repeal the act and start with a clean slate. The operational delay that H.R. 2 builds into the act, to me, gives ample opportunity for technical corrections to be made. It seems to me to be a very rational compromise to the debate that occurred during the last Congress.
Once the slate is clean, the question arises of what should be written on it. H.R. 2 goes a long way to drafting a positive program, but unfortunately it is deficient in some practical applications. The most philosophically sound bill will turn out to be meaningless if it is not practically implemented. In fact, if anything, you have gone the extra mile to seek input on the bill. However, I still think it has a long ways to go. Please retain as much focus as possible on the practical.
A major problem in last year's public housing reform revolved around the appropriate targeting of public housing to deserving citizens. To me, there are three things you should be considering in this area. First, if the Federal Government is going to fully pay for the program, it has a right to determine who its funds will benefit. However, in this age of severe budget constraints, you are relinquishing this right in my opinion through abdication of the pocketbook.
Second, if you are going to target your assistance, give greater flexibility to the community. Target overall service delivery levels, and give local agencies, through their local housing management plans established in the act, the discretion to decide how to meet the national goal. Let them choose what percent to target in public housing and what percent to use in choice-based housing. So that, on an overall basis, you end up with a reasonable percentage of very low-income people being sifted.
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Finally, I think you should seriously consider the relationship of whatever targeting you do to the minimum wage for non-elderly and non-disabled residents of public and assisted housing. Doesn't it make sense to target assistance to those who are trying to comply with the provisions of welfare reform by getting a job?
Another major issue is the rent that we charge to publicly assisted housing residents. While I personally favored the appeal of the Brooke Amendment, I recognize the political impossibility of this position. Therefore, I do support the compromise Family Choice of Payment System with modifications. The last two sentences of Section 225(b)(1) are in conflict with one another. I would appreciate very much if you would try to clarify this conflict.
Also flat rent, in my opinion, should be capped potentially something like fair market rent of the unit in that particular community so as not to put undue pressure on the residents of public or assisted housing developments.
I realize there is a lot of sympathy for the plight of extremely poor residents, but at the same time in order to protect the housing that millions of Americans depend on, including those extremely poor residents, a stable financial system must be established. It is painfully obvious to all of us that the Federal Government no longer has the political will to fully fund operating subsidies for housing providers, and this is our best chance.
Finally, let me go to something the IG was talking about and that is Title V of this act. Title V, when coupled with the provision that allows residents of a troubled housing authority to opt out, is a strong and, I think, effective set of tools to help HUD to take the actions it justifies should be taken to help correct poor performance in public housing. For too long HUD has been rewarding failure instead of success, and this perverse mentality must be stopped.
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There is one thing I think you should add to the accountability feature of your bill and that is to place greater emphasis to the role of independent public auditor. This is the person currently selected by the Public Housing Authority from anyone licensed in their State. I believe instead this should come from someone who has been preapproved by HUD as a qualified auditor.
HUD could easily put a notice in the Commerce Business Daily and invite any and all auditors to submit their qualifications for HUD approval. The housing authorities would then select an auditor from that list. The auditors would be tasked not only with completing a financial audit, but also with reviewing predetermined programmatic compliance issues. This would ensure greater integrity in the system and less chance of collusion between housing authority leadership and the auditor. With shrinking staff, there is only so much HUD can do. They currently do not have the staff to adequately review all the paper that crosses their desks and this could be a major relief item. Obviously HUD, the HUD IG, and GAO should retain the right to audit on an exception basis.
In conclusion, once again, let me thank the subcommittee, especially Chairman Lazio, for this opportunity to appear before you. And obviously, I am ready to answer any questions you may have.
[The prepared statement of Mr. Schiff can be found on page 452 in the appendix.]
Chairman LAZIO. I want to thank the panelists. I would like to reserve my questions and if I can turn to Mrs. Kelly. Do you have any questions?
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Mrs. KELLY. Yes, thank you, I do. I just want to say to Mr. Schiff that that is a very interesting comment about the outside auditors and something that I think we may want to, certainly I want to, think about.
I would like to go back and ask Ms. Gaffney, one of the things that I am interested in about the way that our public housing is handled is, what do you do when you have competing tenant groups who are fighting? I mean, how do you handle this when you have got a tenant group who is not going to speak to another tenant group, this tower not to that tower, or one tenant group says, ''We are the duly elected,'' and the other people say, ''We have been appointed by the mayor''?
I mean, this is a problem I think and it is not going to go away no matter what we do as long as we have our housing. I want to know if you have had that kind of problem and dealt with it, and I would like to hear your suggestions about it.
Ms. GAFFNEY. I am aware that HUD has had those problems. It is my understanding that HUD has a process for designating the tenant organization but I will tell you I personally have no expertise in this area and therefore would not offer recommendations. But, if you would like us to take a look at that issue and get back to you, we will.
Mrs. KELLY. Yes, as a matter of fact, I kind of would because I think this is something that we may very well need to take a look at.
Mrs. KELLY. Is there anybody else there on the panel who would like to take a stab at that?
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Mr. SCHIFF. Mrs. Kelly, in the past when I was in HUD as Assistant Secretary, when we had a situation like that, we would have an independent third party police an election and we would recognize the elected group resident leaders rather than an appointed group by whomever the appointee may be.
Mrs. KELLY. And if the elected group refuses to meet with the third party, then what?
Mr. SCHIFF. The elected group will represent the residents of that development.
Mrs. KELLY. Without their being and the other parties would be involved with them would not have any representation; is that what you are saying?
Mr. SCHIFF. Obviously, you try to get coalition if you possibly can. If you can't, the scenario that you are drawing it would seem like you depend upon whoever won the election.
The unfortunate reality is in most public housing elections that I am familiar with, there is even a worse turnout than in the election we have every other November. So although one group may truly recognize a majority of votes cast, they may not represent a majority of people who really live in that particular development. But I don't know frankly how you get people to come out and cast a vote. I am sure that that is something that some Members of this body----
Mrs. KELLY. I think it is something we really need. One of the problems in troubled housing is this representation on these tenant boards, and I think it is something we do need to kind of have a look at.
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The other thing I wanted to ask is, as we are talking about cycling people up, if we can manage to put this bill together and get it through, and we talk about helping people get out of the public housing situation by helping them have equity in this home so that they can then move up and out. Would you then think about a former Member being a part of the housing subcommittee? Because how would you know how to get up and out?
In other words, if you are moving up and you are moving up, how are you going to balance it whether somebody has such a stake and somebody else has no stake at all? How are you going to balance these boards? I would be interested in your dealing with that whether or not also you would like to see a former tenant on board; do you think that might be beneficial?
Mr. SCHIFF. I think it is better, frankly, to have current residents on the boards. If you are talking about the property has been sold to the residents, the property owners having a greater stake than they did as tenants, which I happen to agree with the concept. In most of the cases I am familiar with, the properties have been sold in their entirety, so you don't necessarily have that much of a mix between owners and tenants in that situation. You have got one owner trying to help his neighboring owner sustain the overall value of the development because they both have a vested financial interest in that development.
You can have mixed situations, and I am sure they exist in some situations, but most of the cases I am familiar with are either all rent or own.
Ms. GAFFNEY. I think that is a great idea. I saw that in the Richmond, Virginia, housing authority where they brought former residents back--not to be on the board--but actually working in the housing authority and they conveyed a message of what is possible in a way that other people can't. They care about it differently.
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Mrs. KELLY. Thank you. I have a sister who lives in Richmond and I thought that was so in the city. Thank you very much.
Chairman LAZIO. I thank the gentlelady. The gentleman from Massachusetts.
Mr. KENNEDY. I thought that all of you had interesting testimony. Ned, I would like to come back to one of your points because I think we are going to have to leave here for a vote very quickly, so maybe I would take 2 or 3 minutes.
I want to commend Ned Epstein for the work that he has done in terms of trying to come up with an alternative to how we can professionalize management of public housing. I think this is an innovative and creative approach. There are some issues pertaining to how the Fair Housing Act would come in in terms of how the tenants would do this sort of site-based selection process and the like.
If you wouldn't mind, though, Ned, since we will have some discussions about this, I want to come back to one of the points that the IG made. In discussing Secretary Cuomo's intent on what he would like to accomplish, he has made it very clear that he takes very seriously the concerns that have been outlined in, for instance, the GAO report as well as some of the reports that you have done. I wonder if you could just highlight for us as what you see the top sort of two, three, four, whatever number is appropriate, issues pertaining to HUD management issues that you think we ought to be concerned about and look for leadership on?
Ms. GAFFNEY. I think he has made it very clear that he sees three top priorities. One is getting HUD's financial systems in shape. And, truly, you cannot imagine how bad that situation is. And he has a plan now for getting there which we have been without for some time.
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Mr. KENNEDY. Are you satisfied with that plan?
Ms. GAFFNEY. At this point, what he is proposing to do is performance-based contracting. And so, the details aren't there yet. In terms of an overall approach, yes, I think he is right. HUD has been spending an enormous amount of money for body shop kind of contracting for systems development and we are moving at a snail's pace.
The second major priority is public housing, changing the whole delivery system and the management systems, along with legislative changes like H.R. 2.
The third priority is mark-to-market portfolio reengineering to address the Section 8 contract crisis, renewal crisis. And, do I think he is right about those priorities? I certainly do.
Mr. KENNEDY. You do.
Ms. GAFFNEY. And it is an absolutely different view of the world that we are hearing from Mr. Cuomo.
Mr. KENNEDY. And with regard to FHA in general, would you say that the kind of mark-to-market approach will end up providing solvency within that over the course of the next several years, or are you concerned about that?
Ms. GAFFNEY. What I am terribly concerned about is that portfolio reengineering could solve the situation today, at one point in time, but unless we put safeguards in that program going forward, we could end up in the same situation down the line. HUD can reinsure the projects, and we still don't know how they are going to set rents, and so they could get back into excessive rents in these projects.
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But the other thing is, I think we really need to consider how we can introduce some more market incentives for the owners to maintain these properties over the long term. We have really insulated them in the past pretty much totally from market pressures.
Mr. KENNEDY. Thank you very much. I appreciate it. Thank you, Mr. Chairman.
Chairman LAZIO. I thank the gentleman.
Mr. Epstein, part of the rationale in replacing the Housing Act of 1937 with H.R. 2 is a practical one to change the way business is done throughout the industry, to uproot all of the HUD rules and handbooks that have been floating around and may date back longer than we care to think about, to get people who are managers of housing and are housing advocates to take advantage of the provisions in H.R. 2 and to be futuristic in their perspective, to look for new opportunities, joint venturing, collaboration, even the possibility of more entrepreneurial opportunity within the confines of public housing. I am concerned that if we wait another 5 years, for example, before the PHAs get around to implementing changes in that interim period there will be some people that litigate based on what they believe are existing rules and thus will thwart the mission that we are trying to set HUD upon.
I am wondering if you could comment on the whole replacement issue?
Mr. EPSTEIN. Well, if I understand you correctly, what I think the process of doing business differently means, is that housing authorities must look at their collective assets; their projects, their subsidy contracts, and their modernization funds, and within the context of affordable housing needs at the local level, determine what are the best uses of these assets. If they do this, housing authorities will find that some assets don't make sense to continue.
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If you are really pouring money down a drain trying to make a non-viable project work, that money can be freed up in order to do some other creative entrepreneurial-types of other housing activities in the locality. But I think the first piece really begins with the housing authorities looking at their assets and understanding that they are assets and managing these assets instead of managing the authority on an authority-wide basis. It is a separate business.
Chairman LAZIO. Does it make sense in that context to replace the Housing Act of 1937 with concepts in H.R. 2?
Mr. KENNEDY. If you answer that Ned, you are out of here.
Mr. EPSTEIN. That is certainly very controversial, I can tell you that much----
Chairman LAZIO. That much I know.
Mr. EPSTEIN. I first must say that my own partners and I disagree on this.
I think that from the standpoint of symbolism, replacing the Housing Act of 1937 is important. Replacement is important in terms of a new way of doing business, a new direction. That is my personal opinion. My partners do not agree with me on that. But I think that it is very important to have symbolic, new direction, so that is my answer.
Chairman LAZIO. Thank you very much.
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The bell is going off. Unfortunately, we have three votes in a row. If I may, I would like to ask a few questions for the record I didn't have a chance to ask both Mr. Schiff and the Inspector General. I hope you can bear with me.
I want to thank you again for very constructive input and some of the concepts both in terms of PHMAP and certainly in terms of self-auditing that I want to evaluate, and even the flex grant proposal. This is an invitation for us to look at ways in which the subcommittee can meet some of the current concerns that are expressed here by the panel, at the same time move in the direction that I think Mayor Goldsmith outlined, we think is a very positive direction.
I want to thank you for being here today and wish you all a very safe journey home. This hearing is adjourned.
[Whereupon, at 5:03 p.m., the hearing was adjourned.]