[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] HOUSING AFFORDABILITY AND AVAILABILITY ======================================================================= HEARINGS BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS FIRST SESSION __________ MAY 3, 22; JUNE 21; JULY 17, 2001 __________ Printed for the use of the Committee on Financial Services Serial No. 107-14 _______ U.S. GOVERNMENT PRINTING OFFICE 72-406 WASHINGTON : 2002 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 HOUSING AFFORDABILITY AND AVAILABILITY HOUSE COMMITTEE ON FINANCIAL SERVICES MICHAEL G. OXLEY, Ohio, Chairman JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts Chair PAUL E. KANJORSKI, Pennsylvania DOUG BEREUTER, Nebraska MAXINE WATERS, California RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York PETER T. KING, New York MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut BOB BARR, Georgia DARLENE HOOLEY, Oregon SUE W. KELLY, New York JULIA CARSON, Indiana RON PAUL, Texas BRAD SHERMAN, California PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas CHRISTOPHER COX, California GREGORY W. MEEKS, New York DAVE WELDON, Florida BARBARA LEE, California JIM RYUN, Kansas FRANK MASCARA, Pennsylvania BOB RILEY, Alabama JAY INSLEE, Washington STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas DOUG OSE, California STEPHANIE TUBBS JONES, Ohio JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi VITO FOSSELLA, New York JOSEPH CROWLEY, New York GARY G. MILLER, California WILLIAM LACY CLAY, Missouri ERIC CANTOR, Virginia STEVE ISRAEL, New York FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona MELISSA A. HART, Pennsylvania SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont MIKE FERGUSON, New Jersey MIKE ROGERS, Michigan PATRICK J. TIBERI, Ohio Terry Haines, Chief Counsel and Staff Director Subcommittee on Housing and Community Opportunity MARGE ROUKEMA, New Jersey, Chair MARK GREEN, Wisconsin, Vice BARNEY FRANK, Massachusetts Chairman NYDIA M. VELAZQUEZ, New York DOUG BEREUTER, Nebraska JULIA CARSON, Indiana SPENCER BACHUS, Alabama BARBARA LEE, California PETER T. KING, New York JANICE D. SCHAKOWSKY, Illinois ROBERT W. NEY, Ohio STEPHANIE TUBBS JONES, Ohio BOB BARR, Georgia MICHAEL E. CAPUANO, Massachusetts SUE W. KELLY, New York MAXINE WATERS, California BOB RILEY, Alabama BERNARD SANDERS, Vermont GARY G. MILLER, California MELVIN L. WATT, North Carolina ERIC CANTOR, Virginia WILLIAM LACY CLAY, Missouri FELIX J. GRUCCI, Jr, New York STEVE ISRAEL, New York MIKE ROGERS, Michigan PATRICK J. TIBERI, Ohio C O N T E N T S Page Hearings held on: May 3, 2001.................................................. 1 May 22, 2001................................................. 53 June 21, 2001................................................ 105 July 17, 2001................................................ 155 Appendixes: May 3, 2001.................................................. 193 May 22, 2001................................................. 317 June 21, 2001................................................ 372 July 17, 2001................................................ 524 ------ WITNESSES May 3, 2001 Courson, John A., Vice President, Mortgage Bankers Association of America, on behalf of the Mortgage Bankers Association of America........................................................ 38 Crowley, Sheila, President, National Low Income Housing Coalition 10 Menino, Hon. Thomas M., Mayor, Boston, MA; Chairman, U.S. Conference of Mayors Advisory Board............................ 33 Nelson, Kathryn P., Economist, Office of Policy Development and Research, U.S. Department of Housing and Urban Development..... 7 Nielsen, Robert, President, Shelter Properties, Reno, NV, on behalf of the National Association of Home Builders............ 35 Reid, Robert J., Executive Director, National Housing Conference and the Center for Housing Policy.............................. 9 Rubinger, Michael, President and Chief Executive Officer, Local Initiatives Support Corporation................................ 13 Thompson, Barbara J., Director of Policy and Government Affairs, National Council of State Housing Agencies..................... 39 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 194 Oxley, Hon. Michael G........................................ 196 Grucci, Hon. Felix J......................................... 199 Kelly, Hon. Sue W............................................ 197 Miller, Hon. Gary G.......................................... 203 Courson, John A.............................................. 280 Crowley, Sheila.............................................. 231 Menino, Hon. Thomas M........................................ 260 Nelson, Kathryn P............................................ 206 Nielsen, Robert.............................................. 267 Reid, Robert J............................................... 219 Rubinger, Michael............................................ 254 Thompson, Barbara J.......................................... 274 Additional Material Submitted for the Record Crowley, Sheila: Low Income Housing Profile................................... 243 Courson, John A.: Letter to Hon. Marge Roukema, May 3, 2001.................... 288 ``Impact of FHA Rental Housing Shutdown,'' May 2001.......... 290 Page Nelson, Kathryn P.: U.S. Ownership Rates by Income and Household Type............ 218 Written response to a question from Hon. Barney Frank........ 216 Reid, Robert J.: Written response to questions from Hon. Gary L. Ackerman..... 230 National Affordable Housing Management Association, prepared statement...................................................... 295 National Association of Realtors, prepared statement............. 300 National Leased Housing Association, prepared statement.......... 305 ------ WITNESSES May 22, 2001 Page DeStefano, Hon. John Jr., Mayor, New Haven, Conn., Second Vice President, National League of Cities, on behalf of the National League of Cities............................................... 90 Flatley, Joseph L., President and CEO, Massachusetts Housing Investment Corporation, Boston, MA............................. 71 Hinga, William T., President, Bank One Community Development Corporation, Columbus, OH...................................... 63 Kaiser, Mary F., President, California Community Reinvestment Corporation, Glendale, CA...................................... 66 Patterson, Randy S., Executive Director, Lancaster County, PA Housing and Redevelopment Authorities, on behalf of the National Association of Counties, National Association for County Community and Economic Development, National Association of Local Housing Finance Agencies, National Community Development Association, U.S. Conference of Mayors on Housing Affordability Issues........................................... 94 Reilly, Joseph F., Senior Vice President, JP Morgan Chase Community Development Group, New York, NY...................... 68 Skinner, Raymond A., Secretary, Maryland Department of Housing and Community Development, on behalf of the Council of State Community Development Agencies................................. 91 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 318 Oxley, Hon. Michael G........................................ 322 Kelly, Hon. Sue W............................................ 323 Jones, Hon. Stephanie T...................................... 329 Sanders, Hon. Bernard........................................ 327 Velazquez, Hon. Nadia........................................ 325 DeStefano, Hon. John Jr...................................... 347 Flatley, Joseph L............................................ 340 Hinga, William T............................................. 344 Kaiser, Mary F............................................... 331 Patterson, Randy S........................................... 352 Reilly, Joseph F............................................. 335 Skinner, Raymond A........................................... 359 Additional Material Submitted for the Record Roukema, Hon. Marge: Dear Colleague letter on H.R. 1629, May 17, 2001............. 321 Letter to HUD Secretary Mel Martinez, May 17, 2001........... 320 Skinner, Raymond A.: Written response to a question from Hon. Marge Roukema....... 367 ------ WITNESSES June 21, 2001 Page Johnston, Michael, Director of Leasing and Occupancy, Cambridge Housing Authority, Cambridge MA; on behalf of The Council of Large Public Housing Authorities............................... 120 O'Hara, Ann, Associate Director, Technical Assistance Collaborative, Boston, MA; on behalf of the Consortium for Citizens With Disabilities Housing Task Force.................. 148 Olsen, Edgar, Professor of Economics, University of Virginia, Charlottesville, VA............................................ 121 Poppe, Barbara, Executive Director, Community Shelter Board, Columbus, OH................................................... 146 Renahan, Steve, Section 8 Director, Housing Authority of the City of Los Angeles, CA; on behalf of the National Association of Housing and Redevelopment Officials............................ 116 Roman, Nan P., President, National Alliance to End Homelessness, Inc., Washington, DC........................................... 144 Sard, Barbara, Director, Housing Policy, Center on Budget and Policy Priorities, Washington, DC.............................. 114 Ziegler, Roy, Assistant Director, New Jersey Department of Community Affairs, Division of Housing and Community Resources, Trenton, NJ; on behalf of the National Leased Housing Association.................................................... 118 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 373 Carson, Hon. Julia........................................... 375 Green, Hon. Mark............................................. 378 Kelly, Hon. Sue W............................................ 380 Johnston, Michael............................................ 433 O'Hara, Ann.................................................. 499 Olsen, Edgar................................................. 439 Poppe, Barbara............................................... 490 Renahan, Steve............................................... 410 Roman, Nan P................................................. 483 Sard, Barbara (with attachment).............................. 394 Ziegler, Roy................................................. 425 Additional Material Submitted for the Record Israel, Hon. Steve: ``Childhood on Hold,'' Newsday............................... 382 Kelly, Hon. Sue W.: ``Housing Challenges Businesses,'' Journal News, May 25, 2001 392 Olsen, Edgar: Written response to questions from Hon. Marge Roukema and written clarification of testimony to Hon. Barney Frank, with attachments, June 28, 2001............................ 448 Cambridge Housing Authority, prepared statement.................. 518 R. Carter Sanders, prepared statement............................ 510 WITNESSES July 17, 2001 Page Baumgarten, Jane O'Dell, Member, Board of Directors, AARP........ 166 Felgar, Lee J., Senior Vice President, Development and Acquisitions, Volunteers of America National Services.......... 185 Monks, Janice, LSW, Executive Director, American Association of Service Coordinators, Columbus, OH............................. 183 Slemmer, Thomas, President, National Church Residences, Columbus, OH, on behalf of the American Association of Homes and Services for the Aging.................................................. 164 Thomas, Harry, Executive Director, Housing Authority, City of Seattle, WA.................................................... 181 Yoder, Robert P. Sr., Vice President, Yoder Builders and Warrior Run Development, on behalf of the Council for Affordable and Rural Housing.................................................. 168 APPENDIX Prepared statements: Roukema, Hon. Marge.......................................... 525 Oxley, Hon. Michael G........................................ 528 Israel, Hon. Steve........................................... 529 Lee, Hon. Barbara............................................ 530 Baumgarten, Jane O'Dell (with attachment).................... 541 Felgar, Lee J................................................ 582 Monks, Janice................................................ 576 Slemmer, Thomas.............................................. 531 Thomas, Harry................................................ 569 Yoder, Robert P., Jr......................................... 563 Additional Material Submitted for the Record Healthcare Financing Study Group, prepared statement............. 606 Mutual Housing Approach to Affordable Housing Ownership and Retention, prepared statement.................................. 603 NCB Development Corp., prepared statement........................ 593 HOUSING AFFORDABILITY AND AVAILABILITY ---------- THURSDAY, MAY 3, 2001 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 9:35 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], Hon. Mark Green, [vice chairman of the subcommittee], and Hon. Sue W. Kelly, presiding. Present: Chairwoman Roukema; Representatives Green, Kelly, Ney, Miller, Cantor, Grucci, Frank, Carson, Lee, Schakowsky, Jones, Capuano, Waters, Sanders and Watt. Mr. Green. [Presiding.] At least for the next few minutes, I am Marge Roukema, the Chairman of the Housing Committee. Our Chairwoman will be delayed slightly. She is in a mark-up right now in the Committee on Education and the Work Force. I understand it is her amendment that is up, and she will be there obviously for the conclusion of that, and then she will be joining us I believe shortly. In my capacity as Vice Chair of this subcommittee, she asked that I begin the hearing on time so that the Members and witnesses will have an ample opportunity to discuss this very important issue of housing affordability. Today is merely the first in a series of hearings that will take place on this complex issue of affordable housing. Mrs. Roukema and I and many others in this subcommittee have expressed our desire to have hearings that would allow a variety of viewpoints, observations and suggested approaches and solutions to our housing crisis. It is no secret that some of our most needy families, typically defined as earning 30 percent or less of an area median income, have the most difficult time finding suitable and affordable housing. I am alarmed, as I am sure many others are here today, at some of the statistics that we have seen in today's testimony. More than 220,000 teachers, police, and public safety officers across the country currently spend more than half of their income for housing; 13.7 million Americans pay more than half their incomes for housing or still live in sub-standard housing. These are just a few of the statistics that I personally find alarming. We are very fortunate today to have a number of distinguished experts in the field of housing as witnesses. Their testimony will begin to outline the problem among various income sectors, and lay out some of the perceived causes. Additionally, issues such as local barriers to development that increase the cost of housing and other factors affecting the supply of housing will be explored. I also hope to hear testimony on the role of HUD's multi- family housing programs in providing affordable housing. On a personal note, at the State legislature back in Wisconsin, I worked in housing issues and was instrumental in enacting a State statute to require a review of policies and legislation that affects the cost and supply of housing. I am very interested in the testimony today that proposes a housing impact statement for Federal regulations. I think it is a first step in addressing the issue of affordable housing. At this time, the Chair would recognize Mr. Frank, Ranking Minority Member, for an opening statement. Mr. Frank. Thank you, Mr. Chairman. We face a very serious crisis in housing in much of the country. It is one of those issues which, because of the physical nature varies, to some extent, from region to region. And there are, I am sure, regions where existing housing programs make a very useful addition to the goal of helping people find housing affordably. But in much of the country, market forces have had the effect of driving up housing prices. The housing area is probably the best example of the inadequacy of the notion that the rising tide, which is supposed to lift all boats, can't be trusted as the way to deal with our social problems. Some people can't afford boats. And the rising tide is not good news for them. In fact, it is not only that some people are not helped by the rising tide, they are damaged by it. If you are standing on tiptoes in the water, the rising tide is not good news. And that is what has happened. I represent an area, the Greater Boston area, where the combination of globalization, deregulation, technological change, have had wonderful economic effects. Much of the Greater Boston area, the wide Greater Boston area is prospering as a result of these trends, but not everybody in the region prospers. And what happens is that the general prosperity from which most people benefit drives up the price of housing. And those who are not direct beneficiaries are not only left out of the general increase, they are worse off. We have had a problem. The Ranking Member of the Full Committee and I and others on the Republican side joined last year in the House, to try to make some special provision for teachers, police officers, firefighters. People said ``Well, why should they get special provisions in terms of the eligibility requirements for the Federal Housing Administration?'' The answer is that in many municipalities, certainly in the part of the country that I represent, these employees are, by local ordinance, required to live in the city where they work, but they can't afford to live there. That is why we singled them out. There are teachers and firefighters and police officers who have not benefited from the general prosperity, and in fact, where you have high housing costs and a very tight supply of housing, the voucher program has two effects. One, it does add to equity. There is no question. People who were too poor are now allowed to get into the mix to some extent. But it has another effect. The voucher program is, as a result of the actions of this Congress, very strictly a year- by-year program with the exception of those efforts where we are taking care of expiring use contracts where there are prior commitments. Any new voucher comes with only an annual requirement. No one builds housing, no one gets a loan to build housing based on an annual stipend. Any bank which gave a developer a loan, based on a series of 1-year Section 8s, with no assurance whatsoever of renewal, would probably be up before another one of our subcommittees for improvident lending. So what we have done is this: We have added to the demand for housing through the voucher program, but in a way that is very, very unlikely to add to the supply. And the free market economic answer is very simple; we raise the price. So the voucher program has both the good effect of adding equity, but the negative effect of raising price. In some parts of the country, that may not be a problem. In parts of the country where there is relatively slack demand for housing--and I don't think there are too many of those--it will have less of an impact. In the parts of the country where there is a very, very tight situation, where housing demand already has pushed prices up because it has outpaced supply and demand has increased in a number of ways, and one of the ways demand is increased is, when the incomes of a certain sector of the population go up, they can bid up the price. Their capacity has gone up. What we do is we exacerbate the situation to some extent. So I think it is absolutely essential that we begin to get into a housing production program. I think the results of an objective study would be very clear. That the voucher program is a useful but hardly a sufficient nationwide solution to the problem of affordability. Indeed, there is one production program that is still going on, other than the limited one for housing for the elderly, and that is the Low Income Housing Tax Credit, one which this subcommittee does not have jurisdiction over. And that is a very popular program. The popularity of the Housing Tax Credit, the demand we are getting here from States to increase the allocation of tax credits, demonstrates, I think, the importance of a housing production program. So that is what I will be making my goal, and I think the goal of many of us on our side, namely, to make it clear that we need, at least in parts of the country, a housing production program and to move forward to shape one. Thank you, Mr. Chairman. Mr. Green. I thank the gentleman for his thoughtful comments. I think there is much that we can work on together to meet these challenges. Without objection, all Members' opening statements will be made part of the record. Hearing no objections, it is ordered. I would turn at this time, to the gentleman from California, Mr. Miller, for any opening remarks that he might have. Mr. Miller. Yes. Thank you very much, Mr. Chairman. Mr. Frank said many things that I have to agree with, and that is dealing with market forces driving up housing costs, and dealing with the rising tide, those who are not helped by that, and the concept of prosperity drives up the cost of housing. Teachers and firefighters and law enforcement agencies are not living in their local communities. But I think the point at which we disagree and where we go in different directions is that what we do in Government, especially with vouchers and Section 8, is we see a sore on an individual and we place a bandage over that sore, rather than determining what caused the sore. I have been a developer for over 30 years, and Government housing is a very, very small part of the overall marketplace. And when you are dealing with market forces, and what causes housing prices to increase by market forces, it is not what we think it might be; it is Government regulations and red tape in many cases that drives up those costs, and impact the overall marketplace. When you have a community that is providing housing, new housing costs directly impact the cost of resales. Whatever a new home is selling for in an area, you will notice that in the community around it, their housing prices tend to move up into the same price range and price bracket of those new homes that are being sold. And when you consider the outrageous costs of housing, due to the Government costs imposed upon contractors and builders, those Government-related costs have a direct impact on the affordability of the market overall. And when we are talking about a rising tide, the tide is rising because of the heavy weight of Government at the bottom end causing it to rise. For example, if you take a glass of water and you drop a bucket of ice in it, the water in that glass is going to rise. The ice in this example is the cost of Government. Yet, Government provides options for itself that it does not guarantee for the private sector. As an example, you can have a piece of property in the community that can be denied the right to develop under local ordinance and local criteria. Yet, that individual property owner can make application to the U.S. Department of Housing and Urban Development to build a HUD project. That means you are going to rent or sell to the low-income levels that meet HUD criteria. In HUD, the Federal Government has the authority to usurp local control and they can actually permit a project that has been denied locally, and they will even inspect the project, certify the project, and issue occupancies on the project. And yet, when we try to look at it legally and say we need to provide some nexus between the cost of Government and the service that is supposed to be provided based on the fees being charged to the developer, we all say, well that is a local issue, we should not get involved in local issues. But, yet, through HUD, we do get involved in local issues. The problem with housing affordability, if you are trying to provide entry level housing that is affordable, is that it is impossible to do if the market forces keep driving up the overall cost of housing in other areas. I mean, you could have an individual move into a low-income house, and never be able to move out of that, because the price of the next home up is so great. This example, due to the cost of legality dealing with such States as California, Arizona, and Nevada, it is impossible to build attached housing anymore. In California, for the last 10 years, you have seen an absolute exit of condominiums and town homes, because tort reform is so out of control that if you build a condominium or town home, you are going to end up in court, no doubt about it. And those entry level houses that we should otherwise be providing by building condominiums and townhomes are not being provided and thereby we are creating, in and of itself, a housing shortage. We want to deal with vouchers, we want to deal with HUD programs that are Section 8, yet we are unwilling to deal with the base problem that is causing the housing shortage and the crisis in housing affordability in this country, which is Government regulation and the concept of property rights having been thrown out the window. For example, people buy a piece of property and they are unsure whether they can even develop that piece of property. I agree with Mr. Frank. We need to deal with the problem and we need to deal with it outside of Government. Mr. Green. Mr. Miller, if you would sum up, please. Thank you, Mr. Miller. Thank you for your comments. The Chair, at this time, would recognize Ms. Carson, for any opening comments that she might have. Ms. Carson. Yes, thank you very much, Mr. Chairman. In the absence of the Chairman in terms of giving us an opportunity to explore ways that perhaps we can impact the growing demand for affordable housing among American citizens, I think added to that, it would be wise if the subcommittee could probably examine ways in which this crisis has been accommodated in some parts of the country, in terms of whether there are self-help opportunities where persons attempting to acquire homes can use a little sweat equity in terms of obtaining homeownership, and whether hopefully this subcommittee would be willing to underscore, in a bipartisan way, the need for the policymakers at our level of Government would underscore the need for the continuation of supportive type vouchers and supplements to enable to assist families live in affordable and decent housing. Of course, the challenges are myriad, and I am sure that as time goes on, we are going to have to raise a cry on behalf of the many families in America who seek housing opportunities, both purchase and rental. I know as a Member of Congress, Mr. Chairman, I am finding it increasingly difficult to afford rental housing right here in Washington, DC., and I have a fairly decent salary that far outpaces that of Americans across this country. And for Members of Congress not to be able to afford rental property here in the Washington, DC. area, I mean, gives rise to the belief that there is, in fact, a problem that we need to be addressing. Thank you very much. Mr. Green. Thank you. The Chair at this time, would recognize Mr. Nye for any opening comments he might have. There is none at this time. And the Chair then turns to Ms. Jones, please, for any comments she wishes to make. Ms. Jones. Good morning, Mr. Chairman, Members of the subcommittee. I am glad to be here to discuss the issue of housing affordability. For me, housing is probably one of the most important issues that people in our communities across this country face, and they have different issues based on their geographical or regional areas. Coming up next week, the Congressional Black Caucus Foundation will be hosting a housing summit in New York. Last year we hosted one in Oakland, the year before, North Carolina. And each of the areas that we go to present different issues for housing affordability. I hope that through the speakers that we will have this morning, they will give us different information to help us continue to set the policy that will be important for developing affordable housing across this country. One of the things I would ask them to do is to present matters that might help us think outside the box. Because many times, when we start talking about housing, we think of traditional ways of providing housing for folks. I was talking with my colleague, Marcy Kaptur the other day, and we began to discuss the import of housing, how it affects children going to public schools and how the transition of people moving from place to place may cause students not to perform appropriately when they move from one school system to another. And maybe what we need to consider, in the course of dealing with housing, is the possibility of vouchers to families to get them to stay in a location to allow their children to complete a year in one school system, rather than moving around and around. I appreciate the opportunity to be a part of this hearing, Mr. Chairman, and look forward to the statements of the various witnesses who will present this morning. Thank you. Mr. Green. For further opening statements the Chair at this time would recognize Mr. Watt, if he would have any opening comments? [No response.] Mr. Green. Thank you. At this point, the Chair would ask unanimous consent to submit for the hearing, statements that have been submitted by three organizations: The National Leased Housing Association; The National Affordable Housing Management Association; and The National Association of Realtors. Seeing no objections, it is done. [The materials referred to can be found on page 295 in the appendix.] Mr. Green. At this point, we will move to our first panel of witness. Panel 1 has Ms. Kathy Nelson, an economist with the U.S. Department of Housing and Urban Development; Mr. Robert Reid, Executive Director of the National Housing Conference; Ms. Sheila Crowley, President of the National Low Income Housing Coalition; and Mr. Michael Rubinger, President and CEO, Local Initiatives Support Corporation. Ms. Nelson, would you care to begin, please? STATEMENT OF KATHRYN P. NELSON, ECONOMIST, OFFICE OF POLICY DEVELOPMENT AND RESEARCH, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Ms. Nelson. Thank you. I am delighted to be here. I am going to summarize the three main conclusions of my written testimony in six charts. If somebody could put the charts up, please. Basically, I am here because I spoke on the same panel as Clinton Jones, and he asked me to basically repeat the testimony I gave then before the National League of Cities. The question they posed was, what do we know about shortages of affordable rental housing? As the press claims, are supplies affordable to low-income renters dwindling, and are shortages of affordable housing worsening? That is basically my question. The six charts summarize my three main conclusions. First, that during the 1990s, the number of units affordable to low-income, as is it usually defined for HUD rental assistance programs, actually increased. But the number of units affordable to extremely-low-income renters dropped. Mr. Frank. What is the percentage of median income that is low? I think it would help at the outset if you gave us what the numbers are for low- and extremely-low. Ms. Nelson. Right. The first chart basically has four ranges of income that are all under the so-called low-income cutoff which is below 80 percent of area median income. When I talk of ``low '' income, I am talking about incomes between 50 percent of median and 80 percent of median, and those are the two left-most bars on the chart. As you can see, numbers of units affordable to those incomes grew during the 1990s. What I am talking about as ``very low'' is incomes below 50 percent of median. ``Extremely-low'' incomes are below 30 percent of median income. When I say that the main loss was in units affordable to extremely-low-income renters, I am referring to the right-most bar there, where, as you see, there was a loss of almost a million units during the decade of the 1990s. That is my first conclusion. I will go back to it in a minute, but I wanted to start off by summarizing my three main conclusions. First, that losses in affordable units were for extremely- low-income renters, not for ``low-income'' renters. Second, that the worst shortages of housing that are affordable to renters come among housing affordable to extremely-low-income renters, below 30 percent of median. And third, that the extent of these shortages varies greatly around the United States. As I said, my first chart is basically the basis for my first statement. You will see there that during the 1990s, the fastest growth, a gain of about 600,000 rental units came in the range between incomes of 50 percent of median and 65 percent of median. This is the range for most housing supplied by HOME (HOME Investment Partnerships Program) and the Low Income Housing Tax Credit, which are our two major supply programs. The two bars on the right show changes in housing affordable to very-low-income renters. As I said, it is for the housing affordable to extremely-low-income renters where there was the sharpest decrease in the 1990s. Now if you could turn to the second chart. So far, I have just talked about changes in numbers of rental units. The issue is often phrased in terms of shortages, i.e., comparing numbers of units affordable below an income cutoff to the numbers of renters in that income group needing them. And this chart summarizes shortages as the relationship of supply to demand below four different income cutoffs; 80 percent of area median income, 65 percent, 50 percent, and 30 percent of area median income. As the two left bars show, below incomes of 80 percent of median income and 65 percent of median income, there were, on average, wide surpluses of affordable housing compared to renters. The chart shows the number of affordable units per 100 renters below an income cutoff. For incomes of 80 percent of median and 65 percent of median across the United States, there were more than 140 units for every 100 renters below those income levels. So rather than a shortage, there was, at least technically as it is usually measured, extreme surpluses of housing. This occurs in part because almost all rental housing stock--85 percent--is actually affordable to 80 percent of the median. Mr. Green. Ms. Nelson, if you could wind your testimony up, we would appreciate it. Ms. Nelson. OK. Mr. Green. Thank you. Ms. Nelson. The bar on the right shows that the only income range in which there is a shortage of affordable housing is for extremely-low-income, below 30 percent of median. In that income range, there are only three affordable units for every four renters needing them. The next chart shows that extremely-low-income renters--on the left--are the income group most likely to have severe housing problems. And the follow-up charts show that the shortage of housing affordable to those extremely-low-income renters has been worsening during the decade of the 1990s. Thank you. [The prepared statement of Kathryn P. Nelson can be found on page 206 in the appendix.] Mr. Green. Thank you very much for your testimony. Next we will turn to Mr. Robert Reid. Welcome. STATEMENT OF ROBERT J. REID, EXECUTIVE DIRECTOR, NATIONAL HOUSING CONFERENCE AND THE CENTER FOR HOUSING POLICY Mr. Reid. Thank you, Mr. Chairman. I am here representing both the National Housing Conference, commonly referred to as NHC, and its research affiliate, the Center for Housing Policy. Last year, NHC released a study called ``Housing America's Working Families.'' That study tested a simple premise---- Mr. Green. Excuse me, Mr. Reid. Could you pull the microphone a little bit closer to you? Mr. Reid. Yes. Thank you. That study tested a simple premise that working families should have access to decent, affordable housing. With the Chair's permission, I would like to submit a copy of that report for the record. For most of the last 20 years, Federal housing policy has implicitly or explicitly linked the housing problems of American families to issues of poverty and welfare dependency. In 1997, nearly 14 million families had a critical housing need. Either they spent more than 50 percent of their income for housing, or they lived in substandard housing. By 1999, that figure had grown to over 15 million families. Twenty-two percent of those families, over three million households, are working families earning between the minimum wage, which is about $10,700 a year, and 120 percent of the area median income. These working families defy the stereotypes that too often surround discussion of housing policy. Over half were homeowners. More than half lived in the suburbs. This group included police officers, firefighters, teachers, as well as service workers. The number of working families with critical housing needs grew by 17 percent between 1995 and 1997, or about 440,000 households. Between 1997 and 1999, the number of families grew another 500,000, or an additional 17 percent. So the problem continues to grow. Now please don't misunderstand, this is not a zero sum game. NHC is advocating the need for more resources, not a reallocation of current meager resources. Let me suggest some solutions. Programs and tools that have proven records for producing and preserving affordable housing must be strengthened and provided with significant additional resources. Low Income Housing Tax Credits, private activity bonds, and HOME are proven winners. Better use of other proven tools which can work in conjunction with the aforementioned programs, such project- based Section 8 vouchers would facilitate the expansion of mixed-income projects. FHA must improve its programs, particularly multi-family. The Community Reinvestment Act must be preserved and appropriately strengthened. NHC supports stronger roles for the Government Sponsored Enterprises. Exit tax relief for owners of assisted properties would ensure preservation of valuable affordable housing stock. We should make better use of the tax code for lower income homeowners. NHC's recent publication ``Expanding the Dream of Homeownership,'' examines various proposals for expanding access to affordable homeownership opportunities. With the Chair's permission, I would like to submit a copy of this report for the record. Mr. Green. Without objection. Mr. Reid. Ultimately, it is local taxing, planning, and zoning decisions that determine what is done or not done about affordable housing. We must fashion Federal incentives that will encourage communities to support the production and preservation of affordable housing. In conclusion, this Nation faces unprecedented affordable housing shortages and challenges. Some would contend that current conditions rival those faced by this Nation's leaders over 50 years ago, when the landmark 1949 Housing Act was passed. After 50 years, we know what works to produce and preserve affordable housing. We are not lacking in programs or expertise. What we are lacking is sufficient resources. What we are lacking is the will to meet this challenge head on. Mr. Chairman, on April 2nd of this year, 20 of NHC's corporate and association members, who are key players in providing affordable housing in this Nation, and some of whom are testifying here today, sent a letter to you and your colleagues in the House and the Senate calling on the Congress and the Administration to provide the necessary resources and incentives to encourage expansion of the affordable housing supply. With your permission, I would like to enter a copy of that letter in the record. Mr. Green. Without objection. Mr. Reid. Thank you. [The prepared statement of Robert J. Reid can be found on page 219 in the appendix.] Mr. Green. Thank you for your testimony. At this time, I would like to introduce and welcome Ms. Sheila Crowley. STATEMENT OF SHEILA CROWLEY, PRESIDENT, NATIONAL LOW INCOME HOUSING COALITION Ms. Crowley. Thank you, Mr. Chairman. I am happy to be here today. Thanks very much for the invitation to come and talk about what the National Low Income Housing Coalition refers to as the problem of housing unaffordability. Mr. Green. Please speak into the mike. I cannot hear you. Ms. Crowley. Oh, OK. The National Low Income Housing Coalition is dedicated solely to ending the affordable housing crisis in America, and we believe that this is a solvable problem. We believe that Americans have the knowhow and the ingenuity to do this. It is simply a matter of putting the resources to work. Housing policy can be unnecessarily complicated, but housing is quite straightforward. Everyone needs a basic, stable, safe, fair and clean place to live and the capacity to pay for it. Some may need additional services to assure stability. That is the social minimum. In the absence of a national commitment to this standard, we think it is foolhardy to expect people to succeed as workers, as parents, as citizens, or as students, because without attending to the social minimum in housing, we undermine the potential to achieve other desired social objectives, and we undermine the foundation of our housing system. The dimensions of the affordable housing crisis are well documented and widely known, and each of us today will offer our way of how we see the numbers, but at the end you will come to the same conclusions. I would like to place in the record, if it is possible, a report from the National Low Income Housing Coalition called ``Out of Reach.'' Mr. Green. Without objection. Ms. Crowley. This report documents the gap between income and housing costs in every jurisdiction in the country and is the source of what has become a much-cited refrain by housing advocates and by public officials and that is, there is no jurisdiction in the country where a full time minimum wage worker can afford to pay the fair market rent. We examined a variable that we call the housing wage and that is what wage a full time worker must earn in order to afford the fair market rent. In Sussex County, New Jersey, where Mrs. Roukema is from, the housing wage is $16.77 an hour. Looking at it another way, a household in Sussex County must bring in 130 hours of minimum wage work a week to afford a modest two-bedroom unit. That is the equivalent of 3.25 minimum wage jobs per household. Mr. Green, in Green Bay, Wisconsin, the housing wage is $10.46 an hour and one must work 81 hours a week at minimum wage work to afford the fair market rent. In Massachusetts, the housing wage is $18.83 an hour. The most expensive region in the country is San Francisco, where the housing wage is $28.06 an hour. I would like to add to Ms. Nelson's analysis about where the housing gap shortage is with a second analysis from the National Low Income Housing Coalition that I would also like to place in the record. Mr. Green. Without objection. [The information referred to can be found on page 243 in the appendix.] Ms. Crowley. And these are from 1999 National Housing Survey Data, and they don't tell the story of every community because they are national data. But here quickly we will run through it. Of the 34 million renter households, 7.7 million have extremely-low-incomes. That is 30 percent of the area median or less, or in Sussex County, New Jersey, that is $22,000 a year. In the aggregate, there are only 4.9 million units of rental housing that are affordable to these households, thus an absolute shortage of 2.8 million units. However, only 2.3 million of these 4.9 million units are actually occupied by households within this range. The rest are occupied by higher income households. So therefore there is a shortage of 5.3 million units affordable for the poorest renter households. Further, when we apply this analysis up the income scale, we find that we do not lack units of rental housing that are affordable for households in the upper tier of the definition of low-income, that is, 50 to 80 percent of area median, or $36,000 to $58,000 annually in Sussex County, New Jersey. Indeed, there are 7.3 million renter households in the 50 to 80 percent of median income range, and 13.9 million units. Nonetheless, there is an overall shortage of units affordable to this income group of 1.2 million, again because half of the units affordable to them are occupied by people in other income groupings. That is, either higher income households who pay much less than 30 percent of their income for their housing, or lower income households are paying a higher amount. Mr. Green. Ms. Crowley, if we could ask you to sum up, please. Ms. Crowley. OK. Investment in more housing that is affordable for the more prosperous, but nonetheless low-income households would expand the household supply but not alleviate the shortage of households at the lowest level. However, if we expand housing for the lowest income households, we can expand it for everybody. I would like to close by saying that the National Low Income Housing Coalition supports a multi-pronged housing strategy that includes increasing income, expanding housing vouchers, preservation of our existing housing stock, but also moving into the production of new housing. And we support the establishment of the National Housing Trust Fund which would provide the resources to supply 1.5 million new units of housing for the lowest income people over the next 10 years. Thank you, Mr. Chairman. [The prepared statement of Sheila Crowley can be found on page 231 in the appendix.] Mr. Green. Thank you very much for your testimony. There is a vote on the floor, apparently a motion to adjourn has been called. Assuming it isn't successful, we will be back here. Mr. Frank. But if it is successful, Mr. Chairman, we can be back and be---- Mr. Green. That is true and perhaps serving refreshments. But I would ask Members to return as quickly as possible. Mr. Rubinger, my apologies. We will pick up with your testimony at that point. We stand in recess. [Recess.] Mr. Green. I thank everyone for their patience. Obviously, we have not adjourned, and we may have votes coming up. We are in recess subject to the call of the Chair. It is regarding the budget resolution, so we may get called out without warning. I appreciate the patience of the panelists. What I would like to do is resume the testimony of panel one, and at this time turn to Michael Rubinger for his testimony. Mr. Rubinger, welcome. STATEMENT OF MICHAEL RUBINGER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, THE LOCAL INITIATIVES SUPPORT CORPORATION Mr. Rubinger. Thank you very much, Mr. Chairman. And I would like to thank both you and the Members of the subcommittee for inviting me here this morning. I do head an organization called LISC--the Local Initiatives Support Corporation--and we are in the business fundamentally of assisting locally based, non-profit development organizations in their efforts to revitalize their neighborhoods. And we do that through a variety of ways of providing financial and technical resources. Mr. Frank. Mr. Rubinger, I think maybe you ought to push the mike away a little bit. Mr. Rubinger. Oh, OK. I am just trying to learn from experience. Obviously, I got it wrong. I would like to make three points this morning. One you have already heard, and that is that America's housing shortage is getting worse. Second, that affordable housing, while desirable in its own right, has also been very much the driver in a great deal of the rejuvenation of low-income communities that we have seen throughout the 1990s. And third, the good news is that we do know how to expand the affordable housing supply. We just need to do more of what works. For the past 20 years, we at LISC have been privileged to at least be a part of that solution. Over those two decades, LISC has provided $4 billion in private capital to Community Development Corporations, building over 110,000 affordable homes, 14 million square feet of commercial and community space of all kinds, and creating over 40,000 jobs. Last year alone, we provided over $600 million to these locally based, non-profit organizations to develop nearly 10,000 affordable homes. The result is that for the first time in a generation, in the community development world, we are not talking about anecdotes any more, not just about a successful project here, or a renovated block there, but rather the transformation of entire neighborhoods. And the impact is clearly demonstrable in physical revitalization, and I am sure many of you have seen that in your own cities. But in addition, the data shows clearly that crime is down, employment is up, property values are up, investment of all kinds, public and private, is up. In community after community, there is a demonstrable improvement in the quality of life. And this, we believe, is a powerful story of hope and accomplishment. And affordable housing production has been very much at the core of that story. And yet, ironically, as you have also heard, this hot economy has contributed to a growing housing crisis by driving up rents and sales prices. The good news is, on the other hand, that the Federal budget surpluses make it possible to invest more in affordable housing. And let me suggest three areas of possible recommended action. First, we must preserve existing rental housing whose affordability is increasingly threatened. Federal subsidy contracts are expiring on well over a million privately owned apartments and many other affordable apartments are aging and need rehabilitation. Preservation of existing stock needs to be a central priority at the Federal and State levels, as well as the local, in order to prevent displacement of long-term existing residents and the rolling back of so much progress over the past decade. Second, we must produce more new housing to offset worsening shortages, rising rent and price inflation, and revitalize low-income communities. Two programs that we believe have been particularly effective in this regard are the Low Income Housing Tax Credit and the Home Block Grant program, and we would recommend that both of those be expanded. Taken together, they have very much been at the heart of this stunning neighborhood rebirth that I described earlier. And third, we must expand homeownership and use it to build individual assets and strengthen low-income communities. We therefore enthusiastically support the Bush Administration's proposal to create a new single-family housing tax credit modeled on the Low Income Housing Tax Credit for rental properties. In short, during the past 10 years, America has learned an historic lesson about how to help communities build back up from abandonment, neglect, underinvestment, and decay. At the center of that process has been the production of high quality, affordable housing. Today, we have both the opportunity and the responsibility to reinforce our commitment to developing and preserving affordable housing, both for its own sake and as a vehicle for bringing about broader community revitalization. Thank you very much. [The prepared statement of Michael Rubinger can be found on page 254 in the appendix.] Mr. Green. Thank you, Mr. Rubinger. The Chair will begin with questions. Mr. Rubinger, for you, you talked about three steps that we should, as policymakers, take, and I think certainly in the abstract we are very supportive of them and the goals you have outlined. I am particularly interested in the area of housing production. You talked about the Low Income Housing Tax Credit and the Home Block Grant. What other ideas would you like to see considered as we talk about a new production style program, A; and, B, can you tell us what the scope of the need is in the area of housing production? What kind of numbers are we talking about? Mr. Rubinger. Well, I think in the first instance, in terms of numbers, I think some of the other panelists cited that. Clearly, we are, at the moment, losing more than we are producing. I think that is the message for me. As we look at the expiring use issue, expiring Federal subsidies and the like, the possibility is that we could lose as many as a million units over the next 5 years of affordable housing. And when you look at the total production from organizations like ours and others working in this area, it is considerably less than that. So I think we are talking about, from our point of view, a considerable expansion, perhaps even a doubling of the availability of tax credits and HOME resources. I think, in terms of other programs, I think this new recommendation for a tax credit for homeownership is one of the more interesting proposals that we have seen in the past several years, because it moves beyond the rental into homeownership. And I think what we find, in terms of revitalizing neighborhoods and the agendas of the non-profit groups that we work with, that increasingly, as they have rebuilt the stock, using the Low Income Housing Tax Credit, is a desire now to bring in more mixed income and provide homeownership opportunities for lower income people as well. So I think in terms of a new program, that would be the one that we would want to push for the most. Mr. Green. You haven't spoken much about efforts to decrease the cost of producing new homes. And the builders that I talk to, whether it be single-family or multi-family, are constantly complaining about the regulatory barriers, the holding costs that they have that make it impossible for them, in their minds, to produce affordable housing, low-income affordable housing. Have you taken a look at that at all? Does your organization have any recommendations on how we might tackle that side of it, the cost side? Mr. Rubinger. We certainly take a look at it as an organization. I didn't mention in my remarks that we are active today in 38 cities and some 60 rural communities. And on the ground--I think Bob Reid mentioned this before-- a good deal of these issues are local. And we find a large number of the factors that drive up prices are on the local level, like land assembly, for example, can be a very difficult and time-consuming, heavily bureaucratic and political process that drives up costs at the local level. So that is an area, for example, where many of our local staff on the ground in different cities, are working to try to reform land disposition processes at the local level, and other kinds of regulatory issues at the local level. And that is where we see the real potential for bringing prices down. Mr. Green. Is there anything that we can do on the Federal level to attack those costs? I mean, my concern is that unless we get our arms around those types of costs, what we may undertake at the Federal level may have diminished effect. The intentions may be good coming out of Washington, but if the costs of production remain as high as they have been, we will fall short in meeting some of the targets that you and other panelists have outlined. Do you have any recommendations for what could be done at the Federal level? Mr. Rubinger. I don't off the top of my head, but I will certainly look into that, and I would ask my fellow panelists if they have any. Mr. Green. Ms. Crowley. Ms. Crowley. One of the ideas that has been surfacing, of late, because this is obviously a serious concern of folks who work on housing for the very lowest income people, because we hear, as you said, that there is a very difficult time siting that kind of housing. One of the ideas that we have had, and it is in the very beginning stage, is how is it that you link the receipt of Federal dollars to progressive practices at the local level? So, for example, if a community has enacted an inclusionary zoning ordinance, which will then help move to make sure that affordable units are included in all housing developments, then there is some value that can be added to that. Or other kinds of things that localities should do. I think that from our perspective, some of the proposals that would get at what people perceive as Federal regulatory barriers, like environmental issues or, in some cases, civil rights issues, I think it is a mistake to start to whittle away at those things. But I do think that the Federal Government can incentivize local government to do a better job. Mr. Green. Thank you. I appreciate your comments. At this time, Mr. Frank, questions you might have? Mr. Frank. Thank you. Ms. Nelson, I have had a chance to read the rest of your testimony, and I realize you didn't get a chance to present all of it. When you talk about affordable units, that is based on the notion that 30 percent of your gross income, including utilities, is the cutoff for affordability. So I have a couple of questions. You talk about geographical disparities here, but you talk about geographical disparities in your written statement essentially with regard to extremely-low-income shortages. And I have this concern. With regard to low-income people particularly in the 50 to 80 range, you don't here talk about regional variations. And my strong view, based on the knowledge of the area I represent, and in Ms. Lee's district at her request, and I think it is true certainly out there, I believe we have shortages, as defined here, in the low-income as well. Below 80 and very-low-income. Now, what do you have about regional variations with regard to low-income and very-low-income? Ms. Nelson. Actually, in the very next chart---- Mr. Frank. I need you to pull the mike closer too. Ms. Nelson. Sorry. There are regional variations in supply versus demand as well in the higher income categories. Mr. Frank. Excuse me. But those are extremely-low-income, ELI. I understand that. I have read your statement. I want to know about low-income and very-low-income. Ms. Nelson. Yes, but in the chart the lowest bars are extremely-low-income shortages; the intermediate bars compare very-low-income units to renters, showing that in each region except the west, there are more units than renters; and the highest dark bars show that in every region there are many more units affordable below 80 percent of median than renters with these low incomes. And as you see, there are regional differences in each of the bars. Mr. Frank. Ms. Nelson, if I could see that from here, I could do a lot of other things too. Ms. Nelson. Oh, I am sorry. Mr. Frank. Unfortunately, the charts are not in with your presentation. I recommend you add them in the future, because I didn't get a copy in here. Ms. Nelson. Oh, well I am sorry. They were in the presentation I gave to the Congressional---- Mr. Frank. Yes. They didn't manage to incorporate the change. Oh, I take it back. They are scattered within. Ms. Nelson. Yes. The short answer is that the same patterns of differences across regions and States tend to occur. For instance, in Massachusetts, shortages are worse than average. Mr. Frank. I understand that, but here I want to get to-- your testimony is basically that the only problem is with extremely-low-income on the whole. Ms. Nelson. My testimony's basically that those with extermely low income have the worst problem, but it is not the only problem. Mr. Frank. But you know we are not here only to deal with the worst problem. You don't characterize whether there is a problem or not, and yes, we all agree there is a terrible problem with extremely-low-income. But what I find lacking is an analysis of the problem for low- and very-low, particularly with regional variations, because that is really the crux of the policy question we face. I believe that there are many areas of this country where, certainly for very-low and probably for low-income people, vouchers aren't going to do it. And that is what I don't see here. So what have you got in terms of, for instance in Massachusetts, is there some indication what is the shortage of rental units, or what is the status of rental units for people in low-income and very-low-income, say in the Greater Boston area? Would I be able to find that somewhere? Ms. Nelson. I don't have Boston with me, but in Massachusetts, where there were only eight affordable units for ten renters below extremely-low-income in 1990, supply and demand were almost evenly balanced for very-low-incomes, with 104 units per 100 renters. And there were 140 units per 100 renters below low-income. Mr. Frank. 1990? Ms. Nelson. Well, these data come from the decennial census. Mr. Frank. Are all these data from 1990? Ms. Nelson. No. All of my regional data are from 1999. Mr. Frank. Will I offend you if I tell you I don't much care about 1990, it being 2001. And someone calls me up and says, ``Geez, I haven't got a home.'' I can't tell them to move to 1990. I don't have a time machine. Let me be very clear. I think you are underestimating, in your testimony, by omission, the severe pattern of shortage in many regions for low- and very-low-income renters. You concede there is a problem with extremely-low, and you give a national view that says there is not a problem for low, but I believe there are severe regional problems that I don't see adequately discussed here. Ms. Nelson. Problems are not as severe for households with low- and very-low-incomes as they are among households with extremely-low-incomes. In the longer work I have done, I have looked at all the income levels. As Sheila Crowley correctly said, in many cases there are problems for very-low-income. Mr. Frank. But let me turn to Ms. Crowley. If you have got further data, I would ask you if you could submit some data on particularly the regional problems, because some regional problems work out, but telling people to move isn't too easy. So I would be interested in your analysis of the regional problem in that regard. [The information requested can be found on page 216 in the appendix.] Mr. Green. Ms. Crowley, if you could answer quickly, then we will have to move on. Ms. Crowley. Part of the dilemma is that we are talking about data from the 1999 American Housing Survey, which is our latest source, and that does not get us down to very small, jurisdictional kinds of questions. So that is part of the problem. But the other piece--and go back to my testimony and the Low Income Housing Profile that the National Low Income Housing Coalition submitted, the other problem is that you are right, there is a lack of units when somebody goes out to actually try to find a place, there is a shortage. But if you look at the number of units that actually exist that are affordable to people within that income range, once you get up to 50 to 80 percent of AMI, there is, in fact, a surplus of those. They are simply not occupied by people in that income range, they are occupied by higher income people. And they are occupied by lower income people who are paying much higher percentages of their income than 30 percent for their housing. So our thesis is that if you expand the supply, if you are going to make strategic decisions about expanding the supply, if you expand the supply for people at below 30 percent AMI, then you will, in fact, expand the supply all the way up, because that group of people is now occupying something and it is housing that they can't afford. So I hope that explains---- Mr. Frank. Well, the suggestion is that we should only be worrying about expanding production for people below 30, I think it is a seriously mistaken view socially, politically, and economically. Ms. Crowley. Well, we are not saying that solely, but we are saying that if you are going to say that there is a limitation on what you can do, and you want to move it all---- Mr. Frank. Well, from your example, you shouldn't be buying into that too soon. We are cutting taxes by $1.3 trillion. Mr. Green. Let us move on. Thank you, Mr. Frank. Thank you for your testimony. At this time, Chairwoman Roukema has joined us. She has the dubious distinction of being in two places at once today, so you will see her jumping back and forth, but we welcome her back. Mrs. Roukema. [Presiding.] Thank you. I want to especially thank Vice Chairman Mark Green for doing this for us today and doing it so well. And I apologize for not being here, but the Elementary/Secondary Education Act has had some rather remarkable high profile amendments that had to be voted on this morning, and I will be leaving again. I apologize for not hearing all the testimony and perhaps, oh, Mr. Frank has just left, Barney. I am going to follow up with perhaps questions that you have already asked, but it has to do certainly with what the reaction is to the legislation that Mr. Frank and I have presented, the FHA Multifamily Housing Mortgage Loan Limit. Mr. Frank. Would the gentlewoman yield? Mrs. Roukema. Yes. Mr. Frank. I appreciate that. My problem, as yours is, the Government Affairs Committee is dealing with an FBI matter involving Boston, and I am supposed to be there for at least a few minutes. So I have, I appreciate that, and I am glad that the gentlewoman will be doing that. I will be back in about 20 minutes. Mrs. Roukema. All right. Well, I just wanted to see if there was any reaction that you have to that principle of raising the loan limit, the Adjustment Act, and it would go along with inflation, and so forth, but it is an FHA Family Housing Mortgage Loan Limit Adjustment Act. And, by the way, the initiative is supported by Secretary Martinez. However, I don't think they have the capacity, either financially or at this point, the administrative capacity to deal with the problem. But I was wondering if one of you, any one of you could make a comment or an observation on that subject. And if not, you better go and study it. I am sorry. Is there anyone? Mr. Reid, did you have a comment? Mr. Reid. Well, certainly we would support the direction that you are going on it, and so there is no question about that. Mrs. Roukema. Yes, go ahead. Mr. Reid. We have a lot of concerns, currently, as far as FHA, we have a lot of concerns on the multi-family side where we think there is a lot more room for improvement, and certainly their asking for a 25 percent increase in the limit was helpful. It is not nearly enough. And at the same time, they are also raising some fees which I think is going to be counterproductive. And the credit, the expiring credit, or the running out of the credits on the FHA is a very, you know, I believe somebody said we are out of business as of May because of lack of credits on the FHA multi-family. Mrs. Roukema. Did I know that? Did I know that? Did I? Mr. Reid. I am sure some of the later, the next panel will probably have more to say on that. Mrs. Roukema. We know that FHA has received a focus from our subcommittee studies and staff work and the Administration as well, but we will have to work together on this. But I do believe that this is a goal that we have in mind. I don't know whether or not we have to wait until March of 2002 and review the Millennial Housing Commission Report. Mr. Reid. I would hope not. Mrs. Roukema. Pardon me? Mr. Reid. I hope you don't wait for that. Mrs. Roukema. I hope we don't wait for that, not singularly, and that we can move ahead in some of these areas. Anyone else have a comment to make on this, particularly the HUD? Ms. Nelson. [No response.] Mrs. Roukema. Anyone, any comment? Ms. Nelson. I am a civil servant so I really shouldn't be commenting on the policy issues. I believe that HUD is supportive of it. I would like to mention though that it is my understanding that in many locations, the higher FHA limits would support apartments whose rents would still be below the fair market rent. And I think, as an analyst, I would say that it is, in terms of Federal responses, it is very important to increase the availability of housing that is below the existing fair market rent because it helps keep down everything else on the cost scale. Mrs. Roukema. I am sorry. I have been notified that there is a vote going on in the committee, and I will have to leave now, but if there are further comments you would like to make, I am sure Mr. Green would permit it, or you could put it in writing for the record on this subject. Thank you very much. I will be back shortly, I hope. Mr. Green. [Presiding.] Thank you and good luck. Next for questions, Ms. Stephanie Jones, please. Ms. Jones. Good morning. Ms. Nelson, how are you? Ms. Nelson. Fine, thank you. Ms. Jones. My question is, when you define affordable, what do you mean by affordable? Ms. Nelson. It isn't what I truly consider affordable, but the rule of thumb is paying 30 percent of income for housing, and basically that comes from the fact that in the 1981 Reconciliation Act, the expected contribution of assisted tenants to their rent was raised from 25 percent of gross income to 30 percent of income. And so that is the approach that is used. Ms. Jones. What do you really think? Ms. Nelson. I really prefer an approach called ``shelter poverty'' which tries to take into account how much a family needs for all of its other expenses. That approach shows that many extremely-low-income households, particularly large families with children, cannot afford to pay 30 percent or even 25 percent of income for housing. Instead, for housing to be really affordable, they should pay less than 25 percent. The recommendations of the National Academy of Sciences with regard to changing the poverty level try to take this problem into account. And I think it is something that should be pursued. Ms. Jones. So when you make the statement that almost all rental--something to the effect that almost all rental property was affordable, when you factor in what you think really should be considered, what does that do to whether all rental property is affordable or not affordable? I mean, that is your statement or something similar to that, right? Ms. Nelson. I said that almost all of the rental inventory is affordable to the incomes of 80 percent of median. And that means almost all of those rents are less than 30 percent of 80 percent of median. Ms. Jones. OK. I don't want to put words in your mouth. So what does that do to that statement if you look to what you now--just for purposes, I am not trying to jackpot you or anything--for purposes of our discussion about affordable housing, and using what you said should be used to determine what is affordable, what does that do to that statement? Ms. Nelson. Well, the implication would be that a much lower proportion of units with many bedrooms are affordable, because my preferred statement is basically that since families with children can afford only to pay less and families with children need large units. Rents on two or three bedroom or more units already tend to be higher, not surprisingly. There is more pressure on that part of the rental stock. Ms. Jones. Thank you very much, and lest I be accused of being engaged in a tirade, I want to just cut your questions and go to the next witness. Thank you very much for your statement. Mr. Rubinger, my question to you goes to the issue that I raised with regard to schools and housing and the movement of students or families such that students tend not to be in any school system for any period of time, because they are moving around. Do you have any position, one way or the other, about what housing vouchers might do to stabilize students in school? I know it is a new concept I am throwing out here, but I am just curious as we walk down this road. Mr. Rubinger. It is not altogether that new, and I think most people in my side of the business, which is more generally speaking community development, as opposed to housing per se, believe that schools, in the long run, are going to be the answer as to whether or not these neighborhoods survive or not. I think our position on this is that if you can--whether it is with vouchers or whether it is with tax credits, or however you do it, if we can increase the supply of affordable, decent housing in these neighborhoods, and begin to deal with the school issues as well, I mean, I guess my belief is that good schools are the result of stable neighborhoods, not the other way around. And if we stabilize those neighborhoods in any way we can, the schools are going to get better. Ms. Jones. I would like to let all of you know that the next Congressional Black Housing Summit in 2002 is going to be in Cleveland, Ohio. And if you have any interest in participating, I would like to invite you to participate. We have a significant community development--I am almost done with my statement--we have a significant community development of opportunity and network in the City of Cleveland that I would love to be able to showcase some of the things we have done. But look to move forward to covering a lot of things we have not accomplished in the City of Cleveland. Thank you, Mr. Chairman. Mr. Green. Thank you. At this time, the Chair recognizes Mr. Miller. Mr. Miller. Thank you, Mr. Chairman. I really enjoy these type of hearings because we talk about problems, we discuss numbers, and one of the last comments that was dealt with was vouchers, not that vouchers are bad, but it is kind of like paying the neighborhood bully not to beat you up, and not enforcing the law and putting the neighborhood bully in jail. I mean, we are not dealing with the problem; we are dealing again with the bandaid. Mr. Rubinger, you said you are trying to reform local regulations and practices. What did you mean by that? Mr. Rubinger. I am sorry? Mr. Miller. One of your previous statements was that you are trying to reform local regulations and practices relating to housing. What did you mean by that? Mr. Rubinger. Well, I was talking specifically about issues like land assembly. Mr. Miller. How are you doing that? Mr. Rubinger. Well, we are working with municipalities in several instances, Detroit, for example is a good one, where we are working directly with the city to try to find ways to make the land disposition process more efficient because we are talking about lowering housing prices. If we can get larger tracts into the hands of developers, you know, in a form that is ready for production, you are going to lower the cost down. Mr. Miller. That is what I was hoping you were leading to, and that is an issue I think we are not addressing federally. Now, Ms. Nelson, you said there is an increase in rental units and much of it was in the low- to middle-income brackets. In the States of Colorado, Nevada, Arizona, and California, there is a lack of attached product that is being built in those States, because of the litigation associated with it through tort law that requires you to be legally responsible for a unit for 10 years. One of the largest builders in California, who is a friend of mine, who is the major stockholder in K&B right now nationally, is going back into building again this coming year and instead of building condominiums and townhomes for people to move into, because of the tort issue, he is building apartments. They are getting density bonuses for low-income people which means they can build more units. And, they plan to hold those units for 10 years and then convert those units, filing new CC&Rs (Covenants, Conditions and Restrictions), and forming homeowners' associations, and sell them on the market as condominiums and townhomes, because they cannot do it today, they can't even buy liability insurance that covers them against litigation associated with building attached product. So many of the numbers you are showing up there nationally, especially in high developed areas, are being skewed because the lack of our willingness to attack the issue of tort reform and defects issues that face this Nation. So I think we are looking at numbers that are not genuine and not realistic. The problem we have today is that developers have become cash cows for local government. You can't avoid that, especially in the San Francisco area. Mrs. Lee, you and I talked about that, the associated cost of trying to build in these areas is outlandish. You deal with the normal cost associated with it, and the local government will even take the impact of the intersection three miles from your small project and say, what is the impact of your project on that intersection, and assess you a fee to mitigate that impact. And when you add those local assessments up, the costs are absolutely outrageous. Prior to 1972, most infrastructure was put in place by government; local cities, communities, counties, whatever. Since 1972, infrastructure is put in by the developer. Everything's placed on the developer and the new homeowner is paying those fees. I had a project I started in 1987 in the City of Rialto, which is Congressman Joe Bachus' district, a low-income community. I made about 3,000 units. I had probably another 500 units approved for apartments, but the fees associated with those apartments were the same as the fees associated with the houses. I had to zone change those apartments. I could not build those apartments for people of lower income levels to live in, because the cost of Government was greater than the cost of the land. I mean, you could buy land cheaper than you could pay the fees to Government. Until we address these types of local issues, nothing is going to change. And there is going to be a crisis in affordable housing until we realize that affordable housing relies on the move up marketplace. If there is noplace for people to go in lower income housing, if they can't move up, there is going to be a crisis in that bottom end, because people cannot afford to move out of their lower income housing since they can't afford the higher priced houses. But the biggest issue we have with affordable housing is most communities don't want it. And people in low-income housing come in all colors, so it is not a matter of race. It is a matter of people saying, we just don't want those people in our community. An example, the City of Claremont, which is a very nice college town in Southern California, I knew a developer who had a piece of property for 3 years, and he wanted to build apartments that people could afford to live in in this area because there were no apartments. He could not get the City of Claremont to approve an apartment complex, because people did not want those people in their neighborhood. So what he did, he circumvented the local control, went directly to HUD, got a HUD project approved. HUD inspected the project, issued the certificate of occupancy, and now people are living in affordable housing in Claremont because the Federal Government allowed them to do that. But all the vouchers in the world are not going to provide housing. All the subsidies in the world are not going to change the problems we are dealing with in most States. California is a great example. The Endangered Species Act. First of all, we look and say, where are the endangered species? Mr. Green. Gary, I am going to need you to finish your question. Mr. Miller. I am going to wrap up. And then we say, what habitat do they need? Then, by the time we set aside the habitat, it looks like a checkerboard, and if you don't have an endangered species you have habitat. So my question is altogether different. MBA's (Mortgage Bankers Association) blueprint for reform, which outlines their position on various issues relating to houses, in its documents, MBA advocates talked about modernizing the mortgage process through comprehensive reform. What would MBA's purpose be in doing this, and would it help in improving housing affordability in this Nation? Does anybody have an idea? [No response.] Mr. Miller. Thank you very much. Mr. Green. Thank you for your testimony. Mr. Watt is recognized. Mr. Watt. Thank you, Mr. Chairman. I want to try to get at the two extremes here, Mr. Rubinger and Ms. Nelson. I think I agree with both of them that certainly Mr. Rubinger has indicated that there are a number of very successful housing production things going on. But Ms. Nelson has indicated that those housing production things are not getting to the lowest income people. And that is certainly the experience that I think we are having in at least parts of my congressional district and at least the Charlotte, North Carolina part of my congressional district. Tax credits and HOPE VI are doing some good things, but those things are not getting housing produced at levels that are affordable for the very-low-income people. In fact, HOPE VI, the HOPE VI projects that have been done in my community have reduced the number of units that are available. Now I understand the reason is to create a more vibrant neighborhood, create some homeownership, do neighborhood development, and I endorse that. I am not critical of that. The question I have though, Mr. Rubinger, is are you aware of any patterns, any places where the problem that Ms. Nelson has described--assuming that it is legitimate, and I understand Representative Frank's concerns with her thesis--but assume that her thesis is correct. Are there any programs that have been successful that have really gotten to this lowest of the low-income housing production? And how do we get to a policy that addresses those very-low, what is ELI? Ms. Nelson. Extremely-low. Mr. Watt. Extremely-low. I am sorry. Ms. Nelson. That is all right. Mr. Watt. I hate to differentiate between extremely-low, very low, low. But let me talk about the extremely-low. Are there projects that you are aware of that have been successful in going directly at that extremely-low population? Mr. Rubinger. Yes. I don't mean to be glib about this, but I think both the Low Income Housing Tax Credit, and the HOME Program have more than 40 percent of each of those programs ended up housing people making less than 30 percent of median income. Mr. Watt. Well, I am not as familiar with the Low Income Housing Credit, but I can tell you that in the HOME program, you don't have a HOME program unless you are decreasing income, extremely-low-income housing density. The whole theory was to get rid of the concentrations so you may end up housing 40 percent of the people going back into their community who may be extremely-low-income. But at some point, 100 percent of the people in that neighborhood were extremely-low-income. And it is hard for me to tell the 60 percent, whose houses have been destroyed to make a nicer neighborhood, that HOME solves their problem. It doesn't. I understand what you are saying. If you disagree with me, tell me. Mr. Rubinger. Well, I do to this degree. That the HOME program has been very important in many cases in making the Low Income Housing Tax Credit program work. Because in many instances, the tax credit is not enough, there is still a gap in the cost, and in many instances, the HOME program has filled that gap. Now I can't speak for Charlotte, because I am not familiar with Charlotte. But there certainly are lots of instances of that. And HOPE VI, I think also it is true that HOPE VI, in many cases, decreases the number of units. And I can't argue with that. But in terms of who it ends up housing, I think it does end up housing the very lowest income, and I think that the issue in both cases is, is more. That is the position we are taking, that both of these programs, the Tax Credit program and the HOPE VI program do get to very-low-income people, they just don't get to them in the numbers that we would like to see. Mr. Green. Thank you for your testimony, Mr. Watt. Your time has expired. The Chair now recognizes Mr. Grucci for questions. Mr. Grucci. Thank you, Mr. Chairman. I am sorry I wasn't here for our opening statements and I would just ask that I do have a statement that I would like to make part of the official record of today's hearings. Let me just ask the panel their opinion on a couple of things. I come from a region of the country where the cost of living is higher than in most places. Home sales are higher than in most places. The average price of a home in my district, 1,100 to 1,300 square foot, probably about $160,000 to $180,000 with a tax burden of about $6,000 to $8,000, the cost of land being extremely high. To try and build multi- family units, or to build any kind of housing, could run anywhere from $75,000 to several hundred thousand dollars an acre. Now that is the good news about the district that I live in. The bad news about my district is that it is not exempted from people who need affordable housing. Our young families that are starting out, people who are working that are trying to make ends meet, they can't afford those types of houses. And affordability, I guess, is within the eye of the beholder. What would be considered affordable in my area may not be considered to be affordable in other areas or may be considered to be very affordable in certain areas. We have an enormous problem with our income levels being as high as they are, and trying to equate that into the formula that has been established for eligibility into affordable housing. For example, I believe now--it was at 80 percent of median income--it has been cut back from that level. What are your feelings about adjusting that level from 50 percent to some number higher, possibly as much as 120 percent of the area's median income? And along those same lines of trying to get people into affordable housing and to try to make affordable housing available, we have mandated certain things from the Federal Government down through into local government that has to be met in order for people to qualify for Section 8 vouchers, for example. One of them is the lead-based paint removal. And while I agree 100 percent with the initiative and the need for that to be done, do you believe that we should be making that mandate without providing funding? Do you believe there should be some sort of incentive for the removal of lead-based paint to happen? So let me get your responses to those two, and if I have time left, I would like to ask a couple more. Anyone can take a shot at it. Mr. Reid. On your first comment about extending the limits, National Housing Conference, when we did our study on Housing America's Working Families, and this was one of the disturbing things we found, is how far up the income scale the affordable crisis had risen. Our mandate basically is people between zero income and 120 percent of area median. Now it is absolutely true that the number of families, working families at risk up in the 100, 120 percent, are much fewer and their plight much less than the people at the very, very lowest. And I don't want to overstate that because the people at the very, very lowest are, as Kathy had said earlier, are the worst, worst, worst case. However, I think we cannot ignore the problems in the communities and we are talking about policemen and firemen and a lot of municipal workers and people in incomes where it is hard to believe that 120 percent of income, they are having serious housing problems. They are spending 50 percent of their income for housing. So I think it is an area that certainly needs to be closely examined when we are looking at our housing policies as to how wide the net goes. Mr. Grucci. I tend to agree with that, and it is not specifically the firemen and the teachers, because where we come from, they do pretty well. We have volunteer firemen out where we are, but the paid firefighters in the city do rather well and can probably afford it. I am more concerned about our young families, our young kids, our children, our grandchildren, who want to stay in our communities, want to be part of our communities, who are not making $60,000 and $70,000 a year, but are struggling trying to live on $30,000 a year. And while that may sound like a lot of money in some parts of the country, I can assure you that that is near poverty level where we come from to the extent that they can't afford to live in quality homes. They live in basement apartments where they get their electricity from an extension cord coming down from upstairs. That is not what I believe our housing stock should provide, and I am eager to find out how we could be more helpful to making those types of affordable housings available. The last question that I would have deals with the FHA adjustable rate mortgages. Why should Congress support HUD's initiative to expand the FHA adjustable rate mortgage line to include the hybrid, the ARMS, (Adjustable Rate Mortgages), I am sorry, and how would that product encourage homeownership? Mr. Green. We will need a quick answer to that. Ms. Crowley. That is probably a question the second panel can field. Mr. Green. OK. Unless anyone would like to express a position on that. Ms. Crowley. Can we go back to the last question? Mr. Grucci. Sure can. Ms. Crowley. The lead question? Mr. Grucci. The lead question, fine. Ms. Crowley. It is a very serious issue, and within the low-income housing community, we grapple with that a great deal because obviously when you put more stringent lead safety requirements on landlords, you can reduce the number of units that are available for people to use with the Federal housing vouchers. So it is a serious issue. The position that we have ended up taking is that from a public policy and a public health perspective, it is not acceptable for Federal tax dollars to be spent on renting housing that has the potential of causing serious harm to small children. And in any event, landlords should be aware that that is something that can limit their marketability under any circumstances. The new requirements that have come out are part of very extensive work that has been done to move beyond---- Mr. Green. If you could wind up your remarks? Ms. Crowley. ----complete lead abatement to get to something that we now call lead safety that is a much less expensive, a much less time-consuming way to go about trying to manage the lead problem. But I do think that, from a public health perspective, it is something that we need to take very seriously. Mr. Grucci. I agree with that. Thank you. Mr. Green. Thank you. Thanks for those questions. The Chair next recognizes Ms. Lee for questions. Ms. Lee. Thank you, Mr. Chairman. Let me ask a couple of questions, and I want to start by just mentioning a little bit about the Bay Area, the Oakland Bay Area which you know is one of the highest cost areas in the country. I notice now we have a housing wage of $28.06 an hour, and I would say that in the Oakland Bay Area, probably $10 to $12 an hour, $30,000 to $40,000 a year is probably about--I won't say average, but many, many people make about that amount of money. Yet the cost of a house, a two bedroom house, $300,000 I think is probably on the low side, so between $300,000 to $450,000. The American dream of homeownership in the Bay Area is the dream deferred, if not ever to be realized, unless we create more affordable housing. So one of the questions I wanted to ask you is, and we talked a little bit about this last week in terms of housing production, the $3 billion plus that FHA and Ginnie Mae are projected to have, either as surplus or profit or reserves or whatever it is called, what is the problem with using that money to create housing, land trusts, or using some of these profits or reserves or surpluses for affordable housing production? That is the first question I would like to ask probably Ms. Nelson, or any of you who could respond. And then second, I wanted to ask you just a little bit about the Federal Government's role in what we can do to address the issue of gentrification. Because many people, not only in my district, but I know in Congressman Frank's district and many of our areas throughout the country where these housing costs are so high, are renting houses or apartments and are quickly, as a result of the economy, the economic boom, are quickly being displaced as a result of landlords now seeing a way to make more money from their property. One area in my district, for example, is an area that is very desirable. Eighty percent of the residents there, primarily people of color, are renters. These properties are owned by other people living outside of the city, but now they see they can make a huge profit in moving these people and selling the homes. So I would just like to ask if there is a role for the Federal Government in this, and if so, what you think we could do to make sure that people who have lived in a community all of their lives are able to stay there and not be run out. Ms. Nelson, could you answer maybe the first question with regard to Ginnie Mae---- Ms. Nelson. I think actually Sheila is better equipped to answer that than I am. Ms. Lee. Ms. Crowley, OK. Ms. Crowley. Our position on the use of the surplus in the FHA program and the Ginnie Mae program is that it can be directed into other good housing uses, and we support the establishment of a national housing trust fund with dedicated sources of revenue, and those would be the first two that we would see would be directed into that trust fund. Attached to my testimony is our proposal that we would like to see considered in the House, and we expect to see legislation similar to that introduced in the Senate shortly. So our position is there is no problem with doing that. Ms. Lee. Thank you. Now let me ask anyone to respond to the issue of gentrification. How do we provide incentives for landlords not to move tenants out in areas that have really benefited from the economic boom that we have experienced in the last 8 to 10 years? Ms. Nelson. Well, the general problem is just that there are not enough resources for housing. I mean, I didn't mean to sound obtuse in my answer to Representative Frank, because higher income people do definitely have problems, particularly in the tightest housing markets, because there is so much demand, everyone would like a good buy. So that a general solution that is absolutely essential is more resources for housing in general, and production, in my personal opinion. Mr. Frank. When you are talking about high income, and I appreciate your comment there, we are talking about, you know, higher than extremely-low. We are talking still about the lower median. Ms. Nelson. Right, right, right. Mr. Frank. Sometimes people walk in and haven't heard the context, right. Mr. Rubinger. Can I add one quick thought to that. Our approach to this has been to get these properties in the hands of non-profit organizations who are going to keep them affordable in perpetuity. And so whether it is new production that has set-asides for non-profits, or it is figuring out ways to move properties for for-profit ownership into non-profit ownership, in our experience, even in hot markets, that is the way that you keep housing affordable. Ms. Lee. So where there are areas where homes are owned by individuals, not non-profits, though, are there recommendations that you have that would incentivize this transaction, I mean, so that it would be appealing for the property owner to either sell to the tenant or to enter into some long-term reasonable rental agreement or lease agreement? Mr. Reid. I would think that from a Federal standpoint, that would be pretty problematical, because we are back to local issues here. But I think Ms. Nelson hit on--the problem is a shortage of affordable units. If there weren't the shortage for affordable units, gentrification wouldn't be a problem. You know, we will always have some gentrification and movement of housing areas and neighborhoods. But if there is an adequate supply of housing, the problem takes care of itself. So the core thing is to have more affordable housing production. Ms. Lee. Thank you, Mr. Chairman. Mr. Green. Thank you. You might have noticed that we have a floating membership in the subcommittee right now. We are all in lots of different committees at the same time, so I appreciate everyone's patience, and we are trying to go in order of those who first arrived, although with coming and going, that is hard to do. At this point, the Chair would recognize Mr. Capuano for questions that he might have. Mr. Capuano. Thank you, Mr. Chairman. It is hard to come up with questions, because I kind of agree with most of the general talk that we have had here. I guess, Ms. Nelson, what I would like to see though--I have tried to peruse your testimony here--honestly, when it comes to income levels, that is all well and good, but for me, it is more about percentages of income that go into housing than it is about specific income levels. And I would like to see some data, at some point, relative to both regional and national numbers, as to who is paying how much of their percentage of income for housing costs. Because it is my guess that that is on the rise. That people are paying a higher percentage of their income for housing costs, particularly low-income people. And I am not sure about that, and I would like, at some point when you get a chance, if you could provide us with some data on that matter to see if I am right or wrong, and if so, how so. I guess, I am not even sure I really have any questions except to get down to some nitty gritty. I mean, we are talking here about doing some more. And I presume that each and every one of you have reviewed the budget proposal that is about to be before us maybe today, maybe tomorrow, who knows when, and what it proposes for the housing world relative to Federal involvement, direct Federal subsidies. And I guess I would like to hear if any of you agree that we should be cutting out, oh, say, $700 million for capital improvement in public housing. By a show of hands by the panel, are there those of you who agree that we should to that? [Show of hands.] Mr. Capuano. Gee, what a surprise. I guess, along the same lines, I guess I would be wondering, I presume that we are not just talking about a building, because I hope that those of you who are in the business of providing affordable housing know that a home is more than just a building. A building is fine, you have to start with that, but it is also a quality of life issue. My presumption is that none of you would advocate for poor quality housing for poor people, just because they are poor, give them junk. My presumption is that you don't want all poor people living in one area with no police protection, with no social services, so therefore, I presume, and again if you disagree with me, I would like to see it, like to hear it, would any of you advocate for a $70 million cut in the drug elimination grant that goes toward public housing. What a surprise. I presume that none of you would advocate for a $25 million cut in the rural housing production program that is in this budget? Gee, I am very, very shocked here. And the bottom line is that it is all well and good to advocate, and I appreciate you being here today and telling us what you believe. But the truth is, I mean the real decisions that we can impact are really going to be made on the floor of that House within the next 2 days. And all this talk is for nothing if the budget that was submitted to us is enacted. In my estimation, not only are they real cuts, but even the few programs--and there are a handful that do go up--they are not anywhere near where anybody in this room should be proud of. No matter how you measure it, no matter what you think, no matter how you say it, if you believe in affordable housing, and I would have some differences of opinion as to where it should be targeted, I happen to think it shouldn't just be targeted to the lowest income and that is why I would like to see some of the other numbers. I happen to think it is a continuum, it is a ladder or continuum of how you help. If you only help the lowest income people, you are going to keep them dependent on Government subsidies forever. I think you also have to help moderate income people into homeownership, which we haven't really discussed too much today; it seems like we are mostly talking about rental, and that is fine. But at the top of the rental ladder, especially in my district, and you are going to hear from the Mayor of Boston later on, and I have no idea what he is going to talk about, but I have no doubt he is going to tell you how expensive it is in Boston. He is on top of this issue as well as any mayor I have ever known, and having been a former mayor, I know quite a few of them. And that is all well and good. We can subsidize people and subsidize people and subsidize people on their rents, but there are an awful lot of people, if they can get into a little down payment assistance, can then buy a home. And then, to me, if we don't talk about that level, then we are really just talking about subsidizing people forever, which those are the kinds of programs that there will never be enough money for. The ultimate goal, I think, should be trying to get people into their own homes, especially for those people on the borderline. So I guess the only other issue that I would like to talk about, I know it is not really the subject today, but is geographic targeting. I want to make sure, in every place I go I want to make sure that people don't think about affordable housing as only an urban area issue. It is not. It is a rural issue, it is a suburban issue, and I believe it is a growing suburban issue, and again that is why I would like to see some of those numbers. I grew up in a city. Most of my friends that I grew up with moved to the suburbs, and now their kids cannot afford to buy a home in their suburb which is why they went there because they couldn't afford to buy a home in the city. And that is why, again, as a percentage of income, it is really the most important measure. I would also like, I guess I would like to ask a question. Mr. Green. Mr. Capuano, if you could---- Mr. Capuano. The very first paragraph of Ms. Nelson's commentary relates to a 1981 change which, I was a mere babe in 1981, talking about changing the expected tenant contribution toward rent will raise from 25 percent to 30 percent of income. Would any of you argue against the notion that it should be a national priority to reduce that percentage. That 30 percent to me just strikes as an arbitrary figure sounding good, probably needed the money at the time, but is there any reason why 30 percent is some magic number that you would advocate for? Ms. Crowley. There is no magic to 30 percent, and as Ms. Nelson has said, there is a better analysis that gets at something that is much less than that. I just would caution you about the proposal to reduce it back to 25 percent in the absence of expanded resources, because what will happen is that we will serve many fewer people. Mr. Capuano. I absolutely one million percent agree with that. Ms. Nelson. I would like to respond to your question about changes over time. In the last 20 years, the main increases in housing cost-income ratios have come among owners. Among the group that the National Housing Conference has identified, people who are very-low-income and low-income who are paying more than half of their income for housing, the increase has occurred more among owners, not in renters. And I am sorry I didn't say this to Mr. Grucci, but even though most of the work I do is with renters, I consider the idea of increasing low- and moderate-income homeownership important too. But I think there is one very mistaken practice in some current Federal policies and more in many State policies. And that is that programs to increase homeownership usually use an income limit that is not adjusted for household size. The impact of that is to discriminate against families with children. I have with me ownership rates by income and household type from 1978 through 1999. The basic finding is that in all income groups except incomes above 120 percent of median, families with children still have lower ownership rates than they had in 1978. The increase in homeownership that we have heard so much about has occurred mainly among the elderly, but second it has occurred among unrelated singles, and families without children who, in my opinion, don't need homeownership as much as families with children. Mr. Capuano. I love you, Ms. Nelson. Thank you. Mr. Green. Thank you, Ms. Nelson. Perhaps if you could supply that for the record, we could enter that into the subcommittee record. [The information requested can be found on page 218 in the appendix.] And at this point, the Chair would adjourn this panel. I thank all of you for you for your testimony, your input and your willingness to answer questions, and we will call our next panel up. Mr. Frank. Mr. Chairman, can I say that this was a very useful discussion, and I thank you for a break from the norm. [Pause.] Mrs. Kelly. [Presiding.] I want to thank the second panel for being here. We have the Honorable Thomas Menino, Mayor of Boston, Massachusetts. Mr. Capuano. Mr. Capuano. Thank you, Madam Chairwoman. I just wanted to welcome the mayor. I mean, I have known Mayor Menino for many years now. I was the mayor of the city that immediately joins Boston. I have the pleasure to represent a huge portion of Boston, though not the mayor's home specifically. But his home- away-from-home is close enough to me. And as you will hear in a few minutes, Tom Menino is very much involved with the housing issue in Boston. It is a major, major problem in our area because we are fortunate to have so many people that want to live there. We are unfortunate enough to have so little land to develop and the costs there are incredibly high. So I welcome the mayor. I thank him for everything he has done already, and for what he is about to do. Mr. Frank. If the gentleman would yield to me briefly, I also want to say I appreciate, we had arranged with the mayor for him to testify. He is here not just as the mayor, I believe, but in his leadership capacity in the National Conference of Mayors, and that is entirely fitting because he has been a real leader in trying to make our urban areas more livable, and we are very pleased to have his testimony. Mrs. Kelly. Thank you very much. Mr. Mayor, my son lives up there, so you take good care of that city. Next, we have Mr. Robert Nielsen, President of Shelter Properties of Reno, Nevada on behalf of the National Association of Home Builders. Next, we have Mr. John Courson, Vice President of the Mortgage Bankers Association, and President of the Central Pacific Mortgage Company in Folsom, California. And last, but not least, Mrs. Barbara Thompson, Director of Policy and Government Affairs, the National Council of State Housing Agencies. We thank all of you and we appreciate the fact that you are willing to take your time and appear before us today. Let us start with you, Mayor Menino. STATEMENT OF HON. THOMAS M. MENINO, MAYOR, BOSTON, MA; CHAIRMAN, U.S. CONFERENCE OF MAYORS ADVISORY BOARD Mr. Menino. Thank you, Chairperson Kelly, and let me thank my two colleagues, Congressman Capuano and Congressman Frank, for those good words. And I will need them this year, I am up for reelection, so they are going to have to bail me out of all my disasters. And I want to thank you for taking this opportunity to speak with you about issues that dramatically affect people in cities and towns across our country. As Chairman of the U.S. Conference of Mayors Advisory Board, I want to bring you the message that the comeback of our cities will not be complete until we have a national commitment to quality housing for everyone. Affordable housing is an issue that I deal with on a daily basis. Every time I visit the neighborhoods for a ribbon cutting on a new business, the opening of a new park, or attend a little league game, I meet constituents who are being priced out of their homes in the neighborhoods where they hoped to raise their children. Each story is different. It reminds me that prosperity has a price, and for cities like Boston, that price is high. We risk becoming a place where only the very rich and the very poor can afford to live. I know that mayors across the country will agree with me when I say that the comeback of our cities has helped our country grow stronger and helped more Americans live better lives. Cities are the economic engines of our country. The new census data shows what many city leaders already know, that our cities are more diverse than ever and that we are gaining strength from that. We have to keep our cities diverse. We have to make sure that everyone has the opportunity to share in what cities have to offer. One way to keep our cities growing is to make housing a top priority from Boston to Burbank. The challenges cities face today are different from the ones we faced 8 years ago. Back then, we had high unemployment, high crime rates, and high interest rates were forcing many foreclosures on family homes. But today, there are 22 million new jobs, crime has dropped to a 25 year low, homeownership is at the highest rate it is ever been, and foreclosures continue to drop. This is our chance to build on our success. We must extend the range of choices so that everyone, not just the fortunate, have access to a better life. Cities like Boston are thriving in our new economy. In Boston, we have created 120,000 new jobs in the last 8 years. The quality of life in our neighborhoods has never been better. One of Boston's greatest challenges is a direct result of our new prosperity. We simply cannot produce enough housing to meet the demand. It is hard to believe that in this time of record surpluses and record employment, working men and women who make a good salary are having a hard time finding an apartment or a house they can afford. In Boston, the median mortgage is $1,625 dollars a month, and the median price on a two-bedroom apartment is now $1,600 a month. When you apply the standard of using 30 percent of a worker's income to go toward housing, here is what some individuals have to spend: A minimum wage earner, $322; a janitor, $456; administrative assistant, $724; and a computer programmer, $1588. Those numbers show that even a computer programmer making $63,000 a year has trouble finding an affordable place to live. And I don't think any of us here today can imagine the anguish of trying to find a place to live with $322 in our pocket. Affordable housing isn't just about assisting the poor and building more public housing. It is about working people. It is about people who make a decent living and search the Sunday real estate section and shake their heads and wonder how this happened. It is about parents who wonder if their children can afford to live in the neighborhood they grew up in. I am proud of what we have done in our city to produce more housing. We have set aside $30 million in city resources for housing. Last year, we added more than 2,600 housing units. We saved 1,400 units from being converted to market rate. We announced a new 3-year housing strategy to increase housing production. We will use $8 million in gap financing to renovate and fill 1,100 units of vacant public housing. And since it was announced, we have permitted 1,997 more units and more than 1,000 of those units are affordable. I would like to submit to you, for the record, a copy of our new housing strategy ``Leading the Way.'' While we have accomplished a great deal, we are approaching the limit of what we can do. We will keep moving forward, continue to come up with creative ideas, but our heartfelt efforts will never be enough until the Federal Government and statehouses across the country return to the business of housing production. Unfortunately, this year's budget for HUD does not show an adequate commitment to the issue of affordable housing. It cuts investments in public housing. Mrs. Kelly. Excuse me, Mr. Mayor, but I am going to enforce the 5-minute rule and I am going to ask you to sum up, please. Mr. Menino. What I want to basically say is that we have to get back into the business. We have walked away from housing and it is a crisis in every city in this country. And you know, we just can't tell we are going to give tax cuts. Tax cuts to the rich doesn't help the poor. And cities have to build medium income housing for working people. We are not doing it. And cities can't do it alone anymore. All of you must represent parts of cities, and you see the problem we have. I see the way we are doing very creative strategy, but we need help. We are not looking for a handout, we are looking for a help out. We are looking for the Congress to help us drive those issues. It is so, so important for the future of our cities and our country. Thank you. [The prepared statement of Hon. Thomas M. Menino can be found on page 260 in the appendix.] Mrs. Kelly. Thank you very much. Next, we have Mr. Robert Nielsen. STATEMENT OF ROBERT NIELSEN, PRESIDENT, SHELTER PROPERTIES, INC., ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS Mr. Nielsen. Good morning, Madam Chairwoman and Members of the subcommittee. My name is Bob Nielsen and I am a homebuilder from Reno, Nevada. I am President of Shelter Properties, Incorporated, a company which builds and manages affordable multi-family properties. I appear today on behalf of the 203,000 members of the National Association of Home Builders (NAHB) in the hopes of getting your support for a number of initiatives to address critical affordable housing needs. I commend you for initiating this hearing to raise awareness of the housing affordability needs. The numbers speak for themselves. 13.7 million Americans pay more than half their incomes for housing or still live in substandard housing. That number is too high. I want to start by thanking the Chairman of this Committee and the Ranking Member for introducing H.R. 1629, legislation that would increase the statutory mortgage limits for FHA multi-family insurance by 25 percent. One factor contributing to the shortage of affordable housing, especially in high cost areas, is the fact that the mortgage limits for multi-family insurance have not been increased since 1992. We also hope that we can work with you, as the bill moves through Congress, to include a provision which would allow indexing for future inflation. Again, this will help foster the development of affordable housing, particularly in high cost areas like the Mayor just talked about, and ensure that programs can continue to meet demand without additional interruptions. Second, and of more immediate concern facing FHA multi- family insurance programs, is the need for credit subsidy. In order to remain functioning, appropriations need to be set aside for all insurance programs. Based upon projected activities in each of these programs, it is estimated that FHA will require about $255 million in credit subsidies to operate the multi-family insurance programs for fiscal year 2001. However, only $101 million was initially appropriated and that money ran out in April. This shortfall translates to a loss of 50,000 units of affordable rental housing that will not be produced. In the short term, we seek a supplemental appropriation. Over the long term, NAHB joins many others in supporting H.R. 1481, the FHA Shutdown Prevention Act, introduced by Representative LaFalce. H.R. 1481 would allow the negative subsidy to be used in the event of a future shortfall in credit subsidy. NAHB strongly supports removing regulatory barriers that affect housing affordability. We are working with Congressman Green toward a legislative proposal which would require relevant agencies to designate a staff position to monitor the rulemaking process to determine whether a particular rule would have a detrimental impact on housing affordability. We commend Representative Green for his leadership on this issue. And now, Madam Chairwoman, another critically important issue is an administrative obstacle which has been thrown in the path of a very successful affordable housing program, the Low Income Housing Tax Credit. Since its inception, the Tax Credit has been the key part of the financing of nearly all of the affordable rental housing built in the last decade. The Internal Revenue Service has issued five technical advice memorandums, TAMS, which have been applied industry- wide. These TAMS establish standards for determining what costs are includable in eligible basis for the purpose of calculating the tax credit. They are creating a program-wide disruption in the allocation of credits and the development of housing, for they are changing what has become the industry-wide practice for the last 14 years. The TAMS have the effect of reducing the level of equity financing available for each project making a number of existing affordable housing properties financially infeasible and weakening the economics of those that still pass minimum underwriting standards. The TAMS also have created uncertainty among investors as to whether the credits for which they have paid will be realized. Therefore, the TAMS threaten to reduce the amount which investors will be willing to pay for each tax credit. The loss of efficiency hurts both low-income tenants and the taxpayer by further reducing the amount of housing that can be produced from a given amount of tax credits. Representative Nancy Johnson has agreed to introduce legislation that would allow certain development costs which have been included in tax credit eligible basis as generally- accepted industry practice to continue to be includable in basis eligible for the Low Income Housing Tax Credit. We realize that this subcommittee does not have tax writing authority, but we hope you can support Representative Johnson in her efforts to move this legislation quickly. And lastly, we need to think about a new production proposal, multi-family housing production program that would meet the needs of households with incomes between 60 percent and 100 percent of median income. This new program would serve those who are not currently served by Federal or other publicly supported housing programs. Mixed income projects should be encouraged and set-asides of funds for the production of housing for elderly, small projects and rural housing development opportunities should be considered. Lower or very-low-income residents could be supported through increased fundings for vouchers, tax credits, home or community development block grant funds. NAHB also recommends that the new housing production program provide a very low, 1 percent fixed interest rate. The Section 236 program could be used as a basis for design of this program, but the new initiative should incorporate greater returns, especially for small projects. Greater flexibility for commercial space. And vouchers for elderly and other special need populations. To assist in any financing gaps, the new program should be compatible with existing housing---- Mrs. Kelly. Excuse me, Mr. Nielsen, but I am going to ask you to sum up. Mr. Nielsen. OK. And community development programs such as CDBG, HOME, and FHA. Thank you for the opportunity to address the subcommittee on the critical needs for affordable housing. NAHB stands ready to assist the subcommittee in any way they can. Thank you. [The prepared statement of Robert Nielsen can be found on page 267 in the appendix.] Mrs. Kelly. Thank you very much. Mr. Courson. STATEMENT OF JOHN A. COURSON, VICE PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF AMERICA, ON BEHALF OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA Mr. Courson. Thank you, Madam Chairwoman. Today, in spite of a decade of economic growth, as we discussed, there are millions of Americans who find they are unable to obtain decent, affordable housing. But this crisis, as we have talked about, reaches even beyond low-income families and is affecting even increasingly moderate and middle income families. While the situation is certainly worse in certain parts of the country, the problem exists throughout our Nation. Between 1997 and 1999, the number of moderate income families who pay more than 50 percent of their income for housing or who live in severely dilapidated housing, increased by 74 percent. There are a number of reasons for this worsening crisis I would like to discuss. As we have heard their proposal, the Administration proposes to increase the FHA multi-family limits that have not been increased since 1992 by 25 percent. We certainly support that and we applaud both Chair Roukema and Mr. Frank's H.R. 1629, which, in fact, would support the increase of the multi-family housing limits that are supported also by the Secretary. Second, Congress should expand the FHA adjustable rate mortgage product line. One of the priorities of the Administration and Secretary Martinez is to increase homeownership, particularly among minorities. One way to achieve this goal is through more flexible mortgage products. In the fiscal year budget of 2002, HUD would authorize a new ARM product called the hybrid ARM for FHA. These ARMS have an initial fixed interest rate of at least 3 years and adjust thereafter. They carry interest rates that are lower than fixed rate loans, and certainly are less risky than the 1-year ARM currently authorized. Third, Congress should take action to halt the shutdown of the FHA multi-family project. On April 26th, HUD announced a shutdown of the multi-family new construction and substantial rehabilitation insurance programs. All new projects will be on hold for the rest of the year unless Congress provides additional credit subsidy funds. This shutdown will stop the development of more than 50,000 desperately needed units in 33 States that total more than $3.4 billion in federally-insured mortgage loans. These funds are critical to alleviating the current shutdown in the multi-family new construction program. We certainly support President Bush's and HUD Secretary Martinez' efforts to strengthen the economy, but without these funds, projects will not be built, and an opportunity to provide an immediate economic stimulus and produce thousands of construction jobs will be lost. Specifically, we would ask that Congress take the following actions: Urge the Administration to release the $40 million of already-appropriated credit subsidy that was included in the Legislative Appropriations Act of 2001 and passed in December of 2000. Second, to appropriate an additional $115 million in fiscal year 2001 to provide sufficient funding to keep the FHA programs operational for the rest of this fiscal year. And lastly, to support legislation that would allow the use of profits generated from these programs to offset those who need credit subsidy or loss reserves for their implementation. And we certainly applaud Representative LaFalce and Representative Frank for introducing H.R. 1481, the FHA Shutdown Prevention Act, which leads us down the path of solving this credit subsidy issue. I would like to, if I may, ask permission to enter for the record a letter, which we have submitted to the Staff, and a chart, which will be going to Members of this subcommittee, of the Senate Banking Committee and the House and Senate Appropriations Committees, that deal with the impact of this shutdown of the multi-family and substantial rehabilitation programs. Mrs. Kelly. So ruled. [The material referred to can be found on page 288 in the appendix.] Mr. Nielsen. And I would also like to submit a list of all the projects in the country, the $3.4 billion of projects that would be adversely affected by this shutdown. I thank you for providing Mortgage Bankers Association the opportunity to share our views with the subcommittee and look forward to working with you and other Members of the subcommittee as we implement these solutions. Thank you, Madam Chairwoman. [The prepared statement of John A. Courson can be found on page 280 in the appendix.] Mrs. Kelly. Thank you very much. Now we are going to move to Ms. Thompson. STATEMENT OF BARBARA J. THOMPSON, DIRECTOR OF POLICY AND GOVERNMENT AFFAIRS, NATIONAL COUNCIL OF STATE HOUSING AGENCIES Ms. Thompson. Thank you. Chairwoman Kelly, Representative Frank, and Members of this subcommittee, I am Barbara Thompson, Director of Policy and Government Affairs for the National Council of State Housing Agencies. I am testifying today on behalf of NCSHA. NCSHA represents the housing agencies of the 50 States, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. I would like to begin by thanking you, Chairwoman Kelly, Representative Frank, and the many Members of this subcommittee who, in the last Congress, cosponsored and helped enact legislation to increase the caps on housing bonds and the Low Income Housing Tax Credit. Now tens of thousands of additional lower income families every year will have the opportunity to buy their first home, or rent an affordable apartment. Unfortunately, many people qualified for housing credit and bond help still will not get it; obsolete program rules prevent it. Representative Frank, we especially want to thank you for your early cosponsorship of H.R. 951 which fixes these problems. We urge all subcommittee Members to join Mr. Frank in co-sponsoring that bill, and we ask you to encourage your leadership and Ways and Means Members to include it in a tax bill this year. With your extraordinary leadership and sustained support, we have made some important affordable housing gains, won some important battles in recent years. But we are still not winning the war. HUD's budget is half of what it was two decades ago, and the Bond and Credit Cap increase, as I just mentioned, though of a size no one dreamed possible, are not beginning to restore the purchasing power of those vastly over-subscribed programs. Meanwhile, as we have heard from many panelists this morning, many American families, one out of every seven, in fact, has a critical housing need, from the very poor to the solidly middle class. Indisputably, though, families hardest hit are those with the least income; 80 percent of those with critical needs are very-low-income; 60 percent, extremely-low-income. Meanwhile, the number of rental apartments affordable to them continues to drop. In the face of growing need among extremely-low-income people, State HFAs (Housing Finance Agencies) report uniformly that they are having a great deal of difficulty housing them. In 1997, the General Accounting Office reported that housing credit properties were actually reaching people who made 25 percent of area median income or less with other subsidies, but that is the problem. Other subsidies often are not available and they are necessary to reach lower income families with the housing credit. Some might suggest that we need to address rental housing needs across the income spectrum as high as 120 percent of area median income. We urge you, however, while we have a scarcity of resources, not to divert them from those who have the most acute housing needs. We ask you to reject proposals to increase income limits on existing programs such as HOME and the Low Income Housing Tax Credit. Still, existing resources clearly are not enough, and that is why one of our highest priorities at NCSHA and among the States is the creation of a new State-administered rental production program targeted, in significant part, to extremely- low-income families. We want to work with you to design a program that builds on the success of programs like Bonds and the Low Income Housing Tax Credit, utilizes the existing, proven State HFA delivery system, and is integrated with existing State allocation plans and funding systems. The program will only work, however, if States are given the flexibility to tailor their housing solutions to varied housing problems. HUD regulation must be limited. We propose that funds be allocated by State HFAs subject to allocation plans like the Housing Credit Allocation Plan. States should be empowered to use funds for a wide variety of uses. Finally, it is essential that any new program's income, rent, and other rules be compatible with those of other Federal programs. It is combination with them will almost always be necessary. A new program, regardless of its size, is not the whole answer. We want to work with you to continue to improve existing programs that work through increased funding, deregulation, and, where possible and practical, devolution of their administration to the States. NCSHA and our member State HFAs are very grateful to you all for your enthusiastic and constant support of affordable housing. We will continue to do our very best to use Federal affordable housing funds efficiently and creatively under the conditions unique to each State, and to earn the trust that you have placed in the States. Thank you. [The prepared statement of Barbara J. Thompson can be found on page 274 in the appendix.] Mrs. Kelly. Thank you very much, Ms. Thompson, and thank you for staying in your time limit. I really am happy to hear you talk about an integrated solution to the problem, rather than one that is demanding of Federal intervention, because I am not convinced, from what I have heard, that that is necessarily our answer. So I am very happy to hear you talk about that. I want to ask a few questions. One is for the whole panel. If we assume that, to some extent, some of you may not have reviewed the existing programs. I would like to know what your observations are about the HOME program that was created 10 years ago that was to provide housing for low-income families. If you have visited, I would like to know why you think that HOME isn't providing the necessary production we originally thought that it would, or perhaps that is a misperception and it is about housing production capacity. There is a third part to my question. What about the other existing programs, like the 30 percent set-aside and the McKinney-Vento Homeless Assistance Act? So I am asking essentially three questions here. Do you want me to repeat them? I want to know if you have visited the housing production created by HOME 10 years ago. And if you have, or even if you haven't, why HOME isn't providing the necessary production that we originally thought or is that a misperception about the housing production capacity? And I want to know what about the other existing programs, like the 30 percent set-aside in the McKinney-Vento Homeless Assistance Act. So there are three parts to that question, and you can take them, whichever, whoever wants to own them. Mr. Nielsen, you are going to own some of it. Mr. Nielsen. Let me start with the HOME program. It has been my experience, and I have been building tax credit projects since the program began, that HOME fills a gap, a gap that is created between what is necessary and what other programs can provide in that, at least in our States, and in the State of California and Arizona, I can tell you that HOME plays a critical role in filling that gap. And I don't know what the original legislative debate included concerning the original numbers that HOME would generate, but I wonder if many times, we count HOME units by the number of specific HOME units that are in a particular property without counting the entire property which HOME may have been critical in filling the gaps to get that property built. So I am not sure that that answers both sides of your question, but I think the key is that we need HOME, we need additional HOME funds to continue to fill those gaps in projects that are being built today. Mrs. Kelly. Thanks, Mr. Nielsen. I just want to say that from my understanding of the HOME funding, the idea was to provide for housing production for low-incomes; it was not really a gap program, it was simply to provide for production. Get those units up. So your viewing it as a gap program is very important information for us. Mr. Menino. In the City of Boston, we use the HOME funds also as gap financing, and then we go to the State for the tax credits and the issue there is the State doesn't have enough tax credits to build the affordability into the housing. We use it as gap financing also. Mr. Nielsen. Excuse me. If I could respond to your comment. I really believe that HOME is critical in getting many of these affordable housing projects built. So I think it is a matter of counting, the way we count. Mrs. Kelly. I am still looking for the answer to the third part of it. What about the other existing programs? I mean, if you are viewing HOME as a gap program, what about these other existing programs, and why, in your estimation, are they not there? We have got the McKinney-Vento, the Homeless Assistance Act. I mean, why is that not working? There are so many possibilities here, there are so many programs. My interest in asking this question is to establish whether or not the existing programs should be rehabbed and whether or not, in fact, we need new legislation. So anybody there can have a hand at that. Ms. Thompson. If I could respond, Chairwoman Kelly, I would like to say a few things about the HOME program. It is an enormously successful program, about 37 HFAs around the country run it. It is most frequently used as gap financing, often with Low Income Housing Tax Credit properties. It simply isn't enough money, doesn't provide enough subsidy to do stand-alone HOME financed deals, unless they're small properties, usually rehab. The problem with the HOME program is simple; there is not enough money in it. It is $1.8 billion. That is the most Congress has ever appropriated. More than a decade ago, when this subcommittee and the Senate side got together and created HOME, you thought it ought to be funded at $2 billion. It has never reached that authorization level. It would require that today just to make up for the purchasing power it has lost to inflation since the early 1990s when it was first funded. You also have to bear in mind that the HOME funds are divided up today among about 595 State and local jurisdictions. It is hard to have a big bang with those bucks, because it is not a big pot and it is so divided up, as I said, among hundreds of communities. And finally, there are some structural limitations to the HOME program. We are very excited to learn your subcommittee may be looking at the individual programs, like HOME, because we can give you some specific recommendations for changing some of the rules to make it work better. But HOME will not be the whole answer unless the Congress is prepared to put several more billion dollars into it. Mrs. Kelly. Thank you very much. My time is up. We will go now to Mr. Frank. Mr. Frank. Picking up from there, I was here when we did the HOME program. Henry Gonzalez was a major figure then, and it was not intended to be a production program. For one thing, as Ms. Thompson just said, it is kind of an entitlement divided up among a lot of municipalities, which means that no one is going to have that large amount of money, and remember you also are talking here about annual amounts. You don't build a project, you don't get a loan from a bank. Once you get any bank that lent too much on this annually, I think they would be in trouble. So it is a valuable program, but it was not meant to be a production program. There is one point that has come out of this today that is very important. And I hope, and I will be approaching Mrs. Roukema, Mr. Oxley. One of the things that both parties have been guilty of has been to allow a jurisdictional rift to keep the Low Income Housing Tax Credit program too separate from the housing programs. And they ought to be made more fully and more easily interoperative. And it is true that people have used the HOME program, but I am hoping that we will be able to sit down with a kind of a joint effort. You know, in the hopes that we might be in power, I had been talking to Mr. Rangel about that, and the fact that the party didn't change doesn't mean that we can't work that out, so that is something we have to do. The next point I want to make, though, is that, and I think this is very clear. I am pleased to have, in the two panels that have been speaking in favor of a housing production program in part, a number of people in the business community, people from the Home Builders. We have statements from the realtors, we have the mortgage bankers. Because one argument has been, well, Government can't do housing right. And I think it is time for us to confront an inaccurate, cultural lag. It is true that when we decided, particularly in the post-World War II period, as a society, to house poor people cheaply, we built uninhabitable buildings called ``public housing.'' The poor never asked to live in Columbia Point, or Cabrini Greene. They never thought it was a great idea to put about 800 of them into a small, crowded space with no facilities. We did that because we didn't understand fully the sociology, and so forth. We have learned from that. The time has come for people to stop citing these acknowledged failures, which we have learned how to avoid, as an excuse not to go forward with a mix of public and private sector flexible programs. We have learned that. There are few areas in American Government, in my experience, in American society, where actual on-the-ground cooperation among Federal, State, local, private sector people has worked so well. The Low Income Housing Tax Credit program, Assisted Housing, there are wonderful examples of this. Now, again, we have in people's minds old public housing projects being demolished, but people are not fully aware of this. So I think we are at the point now where we have the need. And I appreciated Ms. Nelson's acknowledging that, yes, the real crisis was with the extremely-low-income people. But in various parts of the country, as the mayor has pointed out, for the very-low and the low-income people, there are also crises. Somebody mentioned well, you know, yesterday's housing is available for the poor people. Unfortunately, other people are living in them. Well, eviction is not likely to be one of our programmatic tools here. And it is important for a city not simply to have extremely-low-income people; yes, we want to have the low- income people and the extremely-low-income people better housed. We have learned that we do them no favor if we exclusively build for them alone and segregate them. So we want a range of buildings. We are not going to build luxury housing. We have the need, we have the resources in this wealthiest society in the history of the world, and I believe this is what some people have misunderstood. We have, in fact, the knowledge, we have the experience. You give the resources and--one of the things, I was talking to Congressman Green when he was here, one of the things we probably ought to do is to recognize the regional differences in this country, and create Federal housing programs with increased resources that give some flexibility. There may be areas where they want to do all vouchers. There may be areas where they want more public housing. There may be areas where they want to emphasize affordable housing which is going to be a mix with public and private. I think what we need to do is, one, increase the resources so we don't have people resisting any flexibility because it is coming out of their hides; we don't want to have a zero sum game. And then give each municipality, each region of the country in which people have learned to work together, the flexibility. I think, again, we have the need, we have the resources, and we have the knowledge. The only question is whether we have the political will, and that is what we will have to determine. Let me just say, lastly, with regard to the FHA, I hope we will move quickly on the bill that Chairwoman Roukema and I have introduced. She took the lead to increase the multi-family limits, but at the same time as part of the way of dealing with the shutdown, we have an FHA fund that is in very good shape financially. We had a hearing in which the Congressional Budget Office and OMB and everybody else came and said, GAO, every alphabet agency you can think of that is in charge of fiscal stability, came in and said it is in very good shape. It is inconceivable that we would have an economic downturn so severe as to endanger that fund. Therefore, and, in fact, every other assumption we are making in the U.S. Government today goes directly counter to the view that there would be an economic downturn of that magnitude. So the time has come to give more flexibility to the FHA as well, so they can use the increased revenues, the solid surplus in some areas, to help in other areas. There is no need for shutdown and there is no need for fee increase. Within the FHA's pot of money, totally, fiscally, responsibly, they can rearrange things, and we will be pushing for that as an amendment giving them the authority to do that as part of this FHA Multi-Family Increase. Thank you, Madam Chairwoman. Mrs. Kelly. Thank you, Mr. Frank. Next we go to Mr. Watt. Mr. Watt. Thank you, Madam Chairwoman. Every once in a while, one of my colleagues will ask a question and I will be tempted to raise my hand to answer it, and then somebody will answer the question. And I want to start by thanking Ms. Thompson for answering the Chairlady's question. It is absolutely apparent to me that we do not solve a problem in this body by authorizing legislation to solve it. If we don't put some appropriations behind the authorization, then we can't expect, at the end of a 10-year cycle, to say ``Well, what is the problem? Didn't we solve this problem by authorizing the HOME program?'' And I just want to resonate the answer one more time. Yes, the HOME program was a good program to authorize, but if we had not appropriated a dime to implement the HOME program, none of the results that we have gotten out of HOME would have ever been achieved. And if we had appropriated what we should have appropriated, then maybe we wouldn't have a housing problem now, or at least we would be a lot further down the road. Now I take it the same is true for the McKinney-Vento Act. It is an authorized piece of legislation. Have we ever appropriated enough money to solve the problem that it was designed to--maybe we should go one-by-one on these programs, and finally maybe somebody will get the message that it is not about not having programs out there; it is about not having money out there. And Representative Frank said, we have got the resources. Well, we do have the resources if we appropriate them. That is where the political will that he was talking about comes in. What do we use the resources for. So maybe I should ask the question: How much more money do we need in the HOME program appropriated for the HOME program for it to really fulfill its mission? Maybe Ms. Thompson can help me on that. Ms. Thompson. Well, I think we certainly need much more money in HOME. In fact, our organization is advocating $2.25 billion for fiscal year 2002. And that is not nearly enough to meet the need. Mr. Watt. And how does that compare with the what the President's budget? Ms. Thompson. The President has proposed level funding; we would argue the Administration has actually proposed a cut in the HOME formula grants to State and local governments by virtue of the fact that it proposes a set-aside of $200 million within HOME for a special downpayment assistance program. So we feel that is actually a reduction in funding from the current year funding of $1.8 billion. But I do---- Mr. Watt. So, if I hear you correctly then, even if you treated this $400 million or $200 million as appropriately in HOME, then we would still be $400 million, $500 million short of what you think---- Ms. Thompson. What we think ought to be achievable? Mr. Watt. Ought to be achievable. Ms. Thompson. And that isn't what is needed. Mr. Watt. And that is not what's needed. Ms. Thompson. What is needed is more. But I do want to point out, I think this is really important, and I didn't mention in my earlier remarks, that the HOME program also is for single family housing. I agree with Mr. Frank, it was never really designed to be a rental production program. Forty percent of the money goes to single family housing. Mr. Watt. Well, you anticipated my next question. How much are we short on the other programs that we need to really address the housing shortage, affordable housing shortage in this country? Ms. Thompson. Billions of dollars short. Mr. Watt. And what are the programs? I mean, what is your funding level that we ought to be striving for for some of the other programs? Ms. Thompson. We believe what is needed is a new program, Congressman. That doesn't mean that the existing programs aren't playing a useful role. But we think it is very important that we take the experience we have under the Low Income Housing Tax Credit and build off of that program, which has caused the private sector to get involved in the production of affordable housing. It works well, it gives the kind of regional and State flexibility that Mr. Frank mentioned is important. The only thing that is missing is extra resources to be coupled with it to reach lower incomes to the extent we need to. And maybe we need to look at the question of 60 to 80, as well. Mr. Watt. How much extra resources are we talking about? I am trying to give the Chairlady a picture of what---- Ms. Thompson. We are looking for a block grant to States probably of several billion dollars in size. Mrs. Kelly. I am extending you a little extra time. Mr. Watt. Say that again? Ms. Thompson. A block grant to States of several billion dollars in size. I think we need to change the conversation about money. Mr. Watt. Is any of that in the President's budget? Ms. Thompson. Is it anywhere in the President's budget. Mr. Watt. Any of that in the President's budget? Ms. Thompson. No, it is not. Mr. Watt. All right, I yield back. I rest my case. Mrs. Kelly. Thank you, Mr. Watt. Next we go to Ms. Carson. Ms. Carson. Thank you very much, Madam Chairwoman. I have heard a lot of the testimony because I have been out here meeting with constituents and all that, we are doing both. But I was particularly interested in hearing the Mayor's comments about the impact of rising housing costs on a community such as yours. Would you kind of give me your spin on that, and the impact it has had on your community? Mr. Menino. Let me give you an example of what the rising housing costs are doing in our society. I met a couple out in one of the neighborhoods of the city just recently. A year ago, they were paying $750 a month rent. Today, they are paying $1,500 a month rent. The taxes in the City of Boston haven't gone up, the water and sewer bills haven't gone up, it is just the landlord is looking to make as much as he can out of that housing unit because you have a housing crisis. Housing is at a premium. We are not producing any housing when it comes to affordability. We did 1,000 units in our city last year. That is outstanding for any city in the country. But we need the Federal, we need the help. We need help and the U.S. Conference of Mayors, of which I am the Chairman of the Advisory Board, recommends on the HOME program $2 billion for HOME and $2 billion for new housing production. Congressman Watt asked that question, so the U.S. Conference of Mayors is on record for $4 billion. But how do we do it? Why do we have this problem? We have, you know, cities are hard commodities. Everyone's come back to cities. And we just don't have the resources. And public housing, public housing developments are places where people could be proud to live in, if we continue do what we do with the HOPE VI program. We have two HOPE VIs in the City of Boston and people are proud to live there. We give them a back door and a front door. We give them, you know, something that they can be proud of. We are going to continue to do that. What is happening now is we are putting all kinds of resources together. I am putting $30 million of surplus disposition funds, which the city has never done in its history, to provide for affordability. We are selling off land in the City, you know, giving it away for the most part to get development. But still the HOME funds we just talked about as part of the about $50 to $1,000 per unit helps us cut down the cost, and we have to go to the State and get tax credits. What we need is a comprehensive plan. We need help. We do have a housing crisis. We don't need it 5 years from now. We need it now. We desperately need it. You know, cities can't be just the rich and the poor. There also has to be the middle class. And, you know, we are driving them out. Besides housing, there are other issues out there, but we have to continue to work hard and try to produce housing in our city; it is not easy, but obviously we have made it a priority, and we are doing it slow but sure, but we don't have the subsidies that the Federal Government could supply us if they really cared about housing. Mrs. Kelly. Thank you very much, Ms. Carson. We now go to Mr. Capuano. Mr. Capuano. I guess I am going to pretty much stick to the same tack as I had in the last. I guess I would like to see, by a show of hands, those of you who think it is a really good idea to cut $700 million out of the capital improvement program for public housing? Or $70 million out of the drug elimination grant? Or $25 million out of the rural housing production program? Or basically, I agree with you, Ms. Thompson, that it is a de facto cut. I don't buy earmarks or carve outs, as they are called here. On the HOME program, do you think there is anywhere near enough money in any of the HUD budgets to address any of the real needs we have expressed here today? Mrs. Kelly. Will the gentleman yield? Mr. Capuano. Sure. Mrs. Kelly. Let the record reflect the fact that no one has raised their hands. Mr. Capuano. Thank you, Madam Chairwoman. I guess the other question I do want to ask, especially since we have two people from business, we do have significant tax cuts before the Congress at the moment, and there are some people that think that somehow there is going to be an economic stimulus, and I am not one of them, but that is beside the point. I mean, I understand tax cuts are fine on some levels. But on these issues, is there anything in the current tax proposals that are before us that you think will help housing production, changes in marginal rates or changes in the estate tax? Voice. The answer from our point of view is no. Mr. Capuano. Thank you. Voice. If the President has a proposal for a new, single family housing credit program, we support that. But it is not in the bills that are moving forward, and we doubt it will be in the 1.35 package that is ultimately passed by the Congress. We urge you, though, to help us get the Congress to include this bill I mentioned earlier, because if they are going to do a big tax bill, we hope it could contain something for housing, such as H.R. 951 to fix the impediments in the Low Income Housing Tax Credit Program and the Bond Program, so we get full use of those cap increases you gave us last year is very important. Mr. Capuano. Many of us are going to try. Mr. Courson. And the mortgage bankers would support that. We certainly support H.R. 951. Voice. That is terrific, thank you. Mr. Nielsen. The other thing, as I mentioned in my testimony, and we realize that this subcommittee can't do a whole lot about it, but you as individual Congressmen certainly can and that is the TAM issue which could cripple the Low Income Housing Tax Credit program, so it is extremely important to us that that get fixed too. Mr. Capuano. I guess what my whole questioning is going toward is really one of the members of the earlier panel said something about there aren't enough resources, and I believe you. Ms. Thompson, said something about a resources crisis. I totally disagree with that. It is not a resources crisis, it is a priorities crisis. And I will be honest that it is a priority crisis. It is not just in the people who run the Congress and the White House today. It is not just the Republican Party. It is the Democratic Party as well. As you will see if you take a look at any of our national statements, as far as a party goes, housing is not mentioned. Housing is not mentioned. It doesn't seem to show up on the political radar screen. And I guess for me, that is the most difficult thing I have had down here. It is not so much finding people that agree with me, but people who are willing to stand up and put it as a priority and an important issue. I happen to think that housing is probably one of the most important things America can do is to help people get into homeownership and those who can't afford it to at least give them reasonable decent shelter. And I guess I know you are here asking for help and I know I will do as much as we can; I think most people here today will. But at the same time, I am also asking for your help as well. Testifying in front of this subcommittee is great, and I appreciate you coming today, but it is not enough. You know, we need you to spread the word in Nevada and to spread the word in other places across this country to people to understand that this is not an urban problem, this is a national problem, and that the Federal Government has an appropriate role to play and that we are not doing it now. And with that, I know the Mayor wanted to have something else to say. Mr. Menino. Congressman Capuano, the drug elimination money has gone a long way in public housing over the last several years, and to remove that money just makes us go backward in public housing. I don't know why we want to go backward. It doesn't make a lot of sense to me. But to eliminate these funds, you know, it makes good headlines, but it doesn't do anything for the human development issue that we all care about as elected officials. We have got to get back to human development, and let us not talk about cut, cut, cut, because I see the progress we have made in public housing over the last several years. And to take the drug elimination money out of public housing will not do any good to anyone; it will just let those public housing tenants be treated as second class citizens once again. Mr. Courson. Congressman, if I may, the other is, and I talked a little bit about credit subsidy in my testimony, and if, in fact, and we at MBA are working with OMB, if, in fact, you look at credit subsidy in the dollars of those programs that are profitable, and those programs that do need subsidy, and look at those as an insurance fund, as we would in business, you don't need an appropriation. So there is an area where Congress is appropriating where frankly we don't believe they need to appropriate, because the sharing of risk, if you will, which is what FHA is, an insurance fund, doesn't need that appropriation. So there are dollars appropriated that aren't necessary. Mr. Capuano. I agree. Thank you very much. Mrs. Kelly. Thank you very much, Mr. Capuano. We go now to Ms. Waters. Ms. Waters. Thank you very much. I really don't have any questions. And I am sorry I was not here to hear the first panel. I would like to thank Congresswoman Roukema for holding this hearing, and this is what I would expect Barney Frank to do, and I thank you, Mrs. Kelly, for chairing this hearing today. I mean, I think you are very courageous. I think the Republicans are very courageous because you are doing it in the face of the budget cuts that are in the budget. I mean, I don't know what else I can say about how outrageous it is to cut the drug elimination program in housing projects. It just speaks for itself. I don't know what to say about the reduction in Section 8 subsidies. I mean, it just speaks for itself. We know what we need to do. Again, I thank you, because just by holding the hearing, you highlighted and it points us in a direction, and I think it sends a signal that some of you are willing to do something about it. I just hope you can convince a few other people. We got it over here, we know. We understand what must be done. I am one of the spenders. I want to spend some money on poor people and housing and a better quality of life for people, and I just hope that the housing crisis is understood so that we can reverse some of the potential damage of this budget. So I thank the panelists for being here today, and again I thank my colleagues on the other side of the aisle for holding this hearing. All it takes is, you know, a little will and some money, and we can get it done. I yield back the balance of my time. Mrs. Kelly. Thank you, Ms. Waters. We all know, we all know this is not a partisan thing. We know what it takes to create good communities in this Nation. We need good housing, we need good schools, and we need good community support in various ways with regard to jobs and so forth, and safe streets. You put those things together, those four things, and we have wonderful communities, and it is not about politics. It is about good public policy and I think it is one of the saddest things to witness here today that Ms. Waters feels that this is a remarkable hearing, because this is remarkable in one sense. We are finally trying to get our arms around a tough problem. So thanks for your kind words. Next we go to Mr. Sanders. Mr. Sanders. Thank you, Madam Chairwoman. I would not one hundred percent agree with your previous statement in that I think this issue is one hundred percent about politics and it is about national priorities. And I appreciate very much you and Mrs. Roukema holding this hearing and for highlighting the crisis in affordable housing. But as I think everybody who has spoken has indicated, that one of the ways we address this crisis is to put money into housing. We could talk theory all that we want, but by definition, affordable housing is going to need Government help. And where the politics unfortunately comes in is, as a Nation, we have got to decide whether we provide hundreds of billions of dollars in tax breaks to the wealthiest one percent while cutting back on affordable housing programs. That is politics, that is national priorities. What saddens me very much in the national discussion on housing is that the people who are most in need of affordable housing are very often the last people who will come to Washington to attend $100,000-a-plate fundraisers. In fact, in many instances, these are the people that don't even vote. And I think in Washington, these are people who are seen as easy targets. We can cut back, because who cares about those people; they don't vote, they don't contribute to political parties. I think it is a national disgrace that millions of people are being asked to pay 40 or 50 percent, and in some cases, more per month for their housing. It means that they don't have money left over to take care of other basic necessities. I think it is absolutely right for the United States Government to say that every person in this country is entitled to decent, safe, and affordable housing, and I would hope that you will join with us to fight for national priorities that say that it is outrageous that we give tax breaks to billionaires, and at the same time, cut back on affordable housing. So I want to thank the panelists for their excellent testimony without exception, and look forward to working with you so that the day will come, sooner or later, when everybody in this country lives in the kind of housing that they are entitled to and that especially our children have safe and affordable housing. Thank you very much. Mrs. Kelly. Thank you very much, Mr. Sanders. No doubt you have written statements, and without objection, your written statements will be made part of the record. As the Chair notes, some Members may have additional questions for this panel, and they may wish to submit them in writing, so without objection, the hearing record is going to remain open for 30 days for Members to submit written questions to the witnesses and to place their responses in the record. I thank you very much. This hearing is adjourned. [Whereupon, at 12:35 p.m., the hearing was adjourned.] HOUSING AFFORDABILITY ISSUES ---------- TUESDAY, MAY 22, 2001 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 9:30 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding. Present: Chairwoman Roukema; Representatives Bereuter, Ney, Kelly, Miller, Cantor, Grucci, Tiberi, Frank, Velazquez, Lee, Schakowsky, Jones, Capuano, Waters, Watt, Clay, and Israel. Chairwoman Roukema. I am Congresswoman Marge Roukema. We will call the hearing to order and open. I don't know whether or not you heard my comment to Mr. Frank as he came in. I said ``Good morning,'' although then I facetiously said ``I don't know what is good about it.'' But the rain is good about it, right? We need it, and I certainly hope it is raining in New Jersey. We desperately need that. But it is a good morning to have you all here today, and I appreciate your being here. It is important issues that we are dealing with, and we are so pleased that these panelists are willing to be here and share their time with us and their intelligence and experience with us. This is the second hearing planned by this subcommittee on the issue of affordable housing. Certainly the country is facing a growing affordable housing crisis for low- and moderate-income families, which I believe is recognized on a bipartisan basis. Despite the fact that more and more people are sharing the American dream of home ownership, many working families are finding it more difficult to find affordable housing, whether rental or personal ownership. Through these hearings, I hope to better define the problems faced by many of our families and find solutions that we may use in addressing the crisis. That may not be an easy goal to accomplish, but we are going to try, and hopefully be able to resolve it on a bipartisan basis. The growing economy has created a major dilemma for an increasing number of working class and low-income Americans. In many areas, our better economy means higher rents and these hard working Americans are suddenly finding they can't afford housing and they can't even afford housing available that is geared supposedly to their income levels. The problem certainly is a complex one, and since the causes may vary, depending upon the peculiarities of the particular real estate market, local markets are highly individualized, which we have learned recently, differing very dramatically from Houston, Texas, to Manhattan, to Portland, Oregon, or Detroit, Michigan. We will not belabor the issue there. But I can give you a specific example that relates directly to Federal housing policy. In some areas, existing Federal programs such as the use of Section 8 vouchers may be working very well, but in other areas voucher utilization rates are very low, because, as we are all becoming convinced, in order to address the problem successfully we will need to consider a variety of approaches and explore why not even vouchers are helping. We don't know whether we should develop a production program to encourage the production, the manufacture, of the supply of housing, whether we need to change existing Federal programs that will help to foster production and improve the delivery, and provide other forms of, and I hate to use the word subsidy, but other forms of support or subsidy for housing rental systems. The high cost of construction and the shortage of land force many builders to focus only on the high end of the market, and we must look for ways to remove these barriers. I say that with great caution, because I come from a State, the State of New Jersey, where local zoning is of paramount importance. But the local zoning has a lot to do with the high cost of building because of the zoning questions. Last week, Congressman Frank and I, the ranking Democrat on this subcommittee, asked the Administration to release the $40 million in credit subsidy for the FHA Multifamily Housing Program. Releasing these funds will allow us to resume lending under the FHA Multihousing Loan Guarantee Program, while providing Congress with the time necessary to determine the best way to proceed in funding this important program through to the end of this fiscal year and hopefully over the immediate years to come. I would like to also ask my colleagues to co-sponsor the legislation that Congressman Frank and I have introduced, H.R. 1629, which would raise by 25 percent the existing FHA multifamily loan limits. It is extremely expensive and difficult to build multifamily projects that produce moderately priced units, and the resulting rents are often higher than many families can afford, so in the current situation it is not really applicable and there is no reality there to the FHA loans. Without the assistance of FHA, builders are building fewer and fewer multifamily projects, exacerbating the grave shortage of affordable rental housing. Since 1992, construction and other costs have increased significantly and the preliminary survey by the National Association of Homebuilders shows that land costs increased by an average of 25 percent over the recent past 9 years. That is pretty significant. In areas such as New York City, Philadelphia, Boston, San Francisco, it costs more, just to name a few, to construct or rehabilitate moderate cost housing units than the current mortgage limits. The FHA loan limits were never intended to exclude certain regions of the country. We would hope that H.R. 1629 will fix that problem, and I urge my colleagues to take it under consideration and co-sponsor this legislation. Finally, last year Congress passed legislation to increase the cap in both Low Income Housing Tax Credit and private activity bonds. Congressman Houghton and Congressman Neal have introduced legislation to finish the modernization of these important programs. H.R. 951, the Housing Credit and Bond Modernization and Fairness Act, is their bill. I think we should look at it very positively, but, unfortunately, even with the increases outlined in this legislation, and the increases that were enacted last year, many qualified to reach housing help under these programs are not getting it because of a few obsolete program provisions enacted 20 years ago. So, that is what H.R. 951 makes, three simple low-cost non- controversial tax changes. I will not go into that now, but except to note that the National Governors' Association has recognized the importance of this legislation by endorsing its enactment, and I urge my colleagues to add their names as co- sponsors to this important legislation. Getting to our hearing today on the contributions that will be made before us today, we are fortunate to have a number of distinguished experts in the field of housing as witnesses, and there are many organizations working together through public- private partnerships. It is more than terminology here, it is actual operations, public-private partnerships, which I would like to see expanded, to provide affordable housing throughout this country. Today we have several of those organizations who will share with us their experience and recommendations for addressing the growing crisis. I am particularly interested in hearing the ways that we can reform current programs. So I welcome you here today. Thank you for being here. With that, I seek the comments and observations of our Ranking Member, Mr. Frank. [The prepared statement of Hon. Marge Roukema can be found on page 318 in the appendix.] Mr. Frank. Thank you, Madam Chairwoman. I am very pleased to note that I am in very substantial agreement with the substantive points in your opening statement. Indeed, I think probably the only difference in how we would have said that is the New Jersey accent. I have one and you don't, even though I moved away. You managed to avoid it. Chairwoman Roukema. The accent, is that what you are talking about? Mr. Frank. I have a New Jersey accent and you don't. Chairwoman Roukema. That is true. I am a true New Jerseyite. Mr. Frank. But we are blessed in this country with the best economy that the world has ever seen. The United States economy, private sector, has performed in this last decade at a pace that really people had not thought possible. We had lower unemployment with virtually no inflation, great productivity, and that is a good thing. The problem is that some people think that that is all we need to do, and as the Chair pointed out, for some people, the good economy is not only not good news, it can be bad news. Because if you happen to live in an area where a large number of people are benefiting from the new economy, if you are one of those people for whom the world is a new market and you are in those areas where the United States has dominated the world in biotechnology, in software, in the provision of medical services and a whole range of other areas, you are doing very well. You are doing well enough so that you can bid up real property to the disadvantage, not that you intended to be that way, but nonetheless to the disadvantage of teachers and firefighters, factory workers, hospital workers, others, who are not directly participating in this new economy. So we have the problem of people being worse off as the economy gets better. Now, that is an easily solvable problem, because here we have a situation where the very cause of the problem, the increased economy, provides us the resources if we have the sense to use them to resolve it. Precisely because this economy has performed so well, this society has the money to deal with the housing problems that are faced by people who have been disadvantaged by the prosperity. So what we have here is a failure of will, plain and simple. We have a decision to make as a society, will we turn our backs on people who need housing? Twenty years ago there would have been an argument that said: ``Well, whenever the Government tries to help housing, it messes it up.'' I think it is important to deal with that, because there is this cultural lag that interferes with our reference. People still see Pruitt-Igoe and Cabrini Green and the Old Columbia Point in Boston, people see a hundred towers being imploded. Yes, 40 years ago this society built housing badly for very poor people, apparently out of a desire to do it very cheaply. We know now without dispute how to build housing, how to help the private sector build housing, get the public sector get better housing, with variety, with a great deal of intelligence. The proof of that, by the way, is the waiting lists that we all know about for much of the existing subsidized housing for the elderly, for people who are disabled. One of the things society did years ago was to end, to some extent, the process of automatically institutionalizing people with mental illness. We have been trying hard to treat people with mental illness better. The Chair has been a leader in the effort to make sure health insurance is fair to people with mental illness. One of the things we haven't done is to provide the housing stock that is necessary to make the deinstitutionalization process work humanely, because you have a disproportionate number of people with mental illness among the homeless, because we have shut down some of these institutions and have not done enough to find replacement institutions. As I said, we know how to do this. There is a whole range of programs. There a need for flexibility. As the Chair points out, in some areas of the country a voucher program will work well. In others areas, it will not work well. We have a mix of tax credits, of public housing. There is a whole range of need and there is a range of programs, and in area after area in this country, we know how desirable that is. I wanted to stress one point on the desirability, because again we run into this myth. We know we have a need for housing. We know we have the resources to help with it. We also know, by the way, when you help anybody with housing, you are helping everybody to some extent, because there is a chain here. So as you increase the stock, you help everybody some. Obviously you help primarily those for whom the stock is directly aimed, but you help everybody some. But, one of the things that the Government did in the 1960s in particular was to do a couple of programs, Section 221(d)(3) and Section 236s they were called, which were public-private collaborations, whereby the public sector subsidized the cost of multifamily rentals, and a large number of people moved into those. For those who think the Government can't do housing well, look at what we have been preoccupied with in the last few years. We have been preoccupied with meeting the demand of the residents of those federally-subsidized housing developments to preserve them as their homes. In other words, by the best possible test, consumer satisfaction, this country has learned that the housing programs of the 1960s and 1970s, while I think the financing mechanisms were not as good as they could have been, were, as physical and social facts, overwhelmingly popular. Even at a time when this Congress was cutting back on housing funds elsewhere, we had virtual unanimity out of this subcommittee, the committee and the floor of the House and Senate, in preserving the housing developments built with public funds years ago. Having done that in the 1960s and 1970s, having had the people who live in those units tell us by their insistence that we protect and preserve the units, that they were successful, we have the model for going forward. So I appreciate what the Chair said, and I also particularly want to reiterate in closing, our agreement on getting more out of the FHA. I do want to point out to people again, we had a very good hearing, the Chair convened a good hearing, our first hearing in this year, with the Office of Management and Budget, with the Congressional Budget Office and the General Accounting Office. There were more accountants in this room than most people could keep track of. The unanimous conclusion was that the FHA fund is at this point in very solid financial shape and that it is hard to think of an economic calamity that would call it into question. In other words, without being reckless, being totally actuarially sound, we can go forward and make better use of the FHA. We ought to begin with that right away and get back to some housing being built and go on from there. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you, Mr. Frank. I appreciate the fact you underscored the point that I believe I neglected in my opening comment about the first hearing, that the FHA is actuarially sound, and the point was made over and over again by both the GAO as well as other accountants in the field. I appreciate that. For all our Members here, I want to remind you of the rules, and the rules are that we will hope that--well, everyone will have to keep their opening statements to 3 minutes, and I am going to have to enforce that, considering the number of people we have here and how we will be going into some voting sessions in the near future, and we do want to hear this panel this morning. So I am going to adhere to the 3-minute limitation. For those of you who want to simply ask unanimous consent to have your statement included in the record, that will be done. Now we will hear Mr. Miller. Do you have an opening statement? Mr. Miller. Thank you, Madam Chairwoman. Many things that Mr. Frank says I totally agree with. He talked about people not participating in the economic boom and we have the money to deal with the housing problem. The only problem I have with that is we are dealing strictly from a Government perspective and dealing with taxpayer funds. He talked about the history of housing, how there used to be affordable housing. In post-World War II there absolutely was a boom in housing, housing was affordable, but the problem between today and then is at that point in time, Government was not causing the housing boom. When I first went into the building industry a little over 30 years ago, you could submit a tentative tract map, and by law we respected the principles of property rights, and in 58 days the Government had to say yes or no to a tentative tract map application, and if they didn't respond in 58 days, 59 days later it was approved by law. But then we started the EIR (Environmental Impact Report) process and CEQA (California Environmental Quality Act) and other processes that Government has created for the benefit of people. And I give you an example, I had a specific plan in a community I started in 1989 that the local agency finally approved in 2000; 11 years later. It has no endangered species, has no flora, fauna and habitat that supports endangered species. Because of the EIR process and the changes in the concept of property rights, Government agencies can protract the process to such a degree that unless a property owner owns the property, a banker knows that they will foreclose 5 or 6 or 7 times on that piece of property and nothing will ever occur. As much as I enjoy what Mr. Frank says, and I do agree with most of it, I disagree that Government is not the resolution to the problem. Government is the problem, and if Government would get out of the way of the housing industry as they did in post- World War II, we would not have a housing shortage today, we would not have an affordable housing shortage today, in fact, we would have a boom in move-up housing, and affordable housing would be available, and poor people wouldn't be looking for houses that they can't afford. In post-World War II, an individual bought a $100,000 home, and $35,000 of it would not be in fees to Government as it is today; then that individual could simply buy that home for $65,000, instead of paying $100,000. Thank you, Madam Chairwoman. Chairwoman Roukema. Mr. Israel. By the way, I am acknowledging and recognizing--excuse me, excuse me, I would hope that the Members would listen and give courtesy to our other colleagues. I am recognizing people in the order in which they have arrived. Mr. Israel. Mr. Frank. Madam Chairwoman, I would just like to note Mr. Israel gives his statement happily in the presence of his Chairman, whom we are happy to welcome. Mr. Israel. Thank you, Mr. Frank, and thank you, Madam Chairwoman. I represent an area where affordable housing has truly become a crisis. A significant percentage of my constituents are now paying over half of their incomes on housing costs. The median price of a home in my area is now near $200,000, home prices increased 16 percent last year alone by one estimate, and affordable rentals are all but absent on Long Island. Yesterday our colleague, Congressman Earl Blumenauer and I toured areas of my district to talk about how we can make housing more accessible, more affordable and more livable. I look forward to hearing today how we can create more partnerships, how we can use tax policies to encourage more housing, and how we can solve this problem on Long Island and throughout the country. I thank the Chairwoman and yield back. Chairwoman Roukema. Thank you. With that we will recognize Mrs. Kelly from New York. Mrs. Kelly. Thank you, Madam Chairwoman. I really want to thank you very much for agreeing to hold the hearing on affordable housing. It is a problem facing our Nation and it is the lack of affordable housing that is not really, I think, solely the matter of importance to the working poor, it is an issue that affects every single level of the communities. In my home county of Westchester County, the median price of a house is $412,000. That is the median price of a house. HUD has declared that a fair market rent for a 2-bedroom apartment is $1,144 a month. That is higher than in New York City. As of February 8, there are 13,207 people on the Section 8 waiting list, and there is simply no product available to those people that is affordable to them to get into. The county and the communities really are not able, unfortunately, to use all of their Section 8 vouchers, because of a combination of a lack of these housing units and the inability of Section 8 vouchers to cover the fair market rent for the area. One of the things I hope we are going to be looking at is a regionalization of some of these applications. But in looking for remedies for this situation, I don't think we can solely look to the Government. As this is an issue of real importance to the entire community, we have to look to private community groups and institutions for a combination of public-private efforts. It has been from these initiatives that I have witnessed some of the best work in my region that goes toward long-term solutions. In my opinion, any legislation looking to make serious progress toward a solution has to include public- private partnerships. But the need to engage multiple entities is certainly a drag on the housing market. In addition, one of my foci is to hear what you think that Congress might be able to do to strengthen existing programs that are having positive results in addressing this need for affordable housing. With most legislation, a balanced approach is necessary. We should continue to work together to ensure that effective programs are going to receive all the support they possibly can get and deserve. I want to thank the distinguished panel of witnesses for taking time out of their busy schedules to be here to discuss these issues with us. I look forward to working with my colleagues on both sides of the aisle, and I yield back the balance of my time. Chairwoman Roukema. I thank Mrs. Kelly. Now we have Mr. Watt of North Carolina. Mr. Watt. Thank you, Madam Chairwoman. I doubt that it would be an effective use of the subcommittee's time to find a different way to express what the Chair and the Ranking Member and Mrs. Kelly have adequately described as real problems that exist in my congressional district. I am looking forward to hearing the suggestions of these witnesses and witnesses on the second panel about how to innovatively address these problems. With that, I will yield back the balance of my time. Chairwoman Roukema. I appreciate your consideration. Now we have Mr. Ney of Ohio. Mr. Ney. I will pass. Chairwoman Roukema. Thank you. Ms. Lee of California. Ms. Lee. Thank you, Madam Chairwoman. I thank you for holding these hearings and for a real focus on housing affordability on this subcommittee. I mentioned this a couple of times with regard to my district and the Bay Area as being one of the most least- affordable areas to live in the country. The Congressional Black Caucus, along with the Congressional Black Caucus Foundation, has sponsored three housing summits, one in North Carolina, another one in Oakland, California, last year, and very recently in New York. One of the issues, of course, that keeps coming up is the gap in terms of home ownership rates between minority families, African American families, and the general population at large. So we are looking at how to try to close that gap while at the same time ensuring that minority families who want to purchase homes do not have to worry about the predatory lenders that are out there in terms of utilizing financing mechanisms to be able to purchase their homes. Of course, equity in one's home has been the basis upon which African American families have been able to send their kids to college, start small businesses. This has been the primary means of accumulation of wealth. So it is very important for us to look at how the affordability issue can be really addressed in areas where we have large numbers of minority families. Finally, let me just say in terms of gentrification, one of the concerns I have always had and continue to have and see as being very prevalent right now is gentrification. As the economy gets better, in many areas absentee landlords own homes and apartment buildings which now are becoming unaffordable for tenants. I know that one of the solutions is to increase production, but until we increase production, I would like to hear from the panels how we mitigate against the huge numbers of families now that are being run out of our urban areas as a result of the ability now to make huge profits out of real estate. So, thank you, Madam Chairwoman, for this hearing. Rental assistance and homelessness assistance strategies, I think, are very important also, not only home ownership, that we need to look at. Thank you. Chairwoman Roukema. I thank you. Mr. Tiberi is the next to be recognized. Mr. Tiberi. I yield back the balance of my time. Chairwoman Roukema. Is there anyone else on this side who has an opening statement? Mr. Grucci. Mr. Grucci. Thank you, Madam Chairwoman. Affordable housing is a very big issue for all of us. As you heard my colleague from Long Island, Steve Israel, talk about the high cost of housing, it is indeed a real problem as we watch as housing prices go higher and higher, and the affordability of being able to own a home or being able to rent a home all but escapes those young families that are just starting out in life. There are plenty of opportunities for these folks to stay with us. The job market is fairly strong, but not strong enough to allow them the down payment or being able to carry the carrying cost of a $200,000 to $225,000 home. I am hoping to hear from the panel today for ways we might be able to figure out in areas of our country where there is a higher cost of living than in other areas, how do we go about setting the levels of affordability? I guess affordability is kind of like artwork, it is in the eye of the beholder. What is affordable in one section of our country may certainly not be affordable in another section of our country, but yet the need for that home is very real. We have young families earning $25,000, $30,000 a year, but can't afford to find a home. We need to be able to place them into those homes. I am hoping to be able to hear from you today on ways that this panel and this Congress might be able to figure out ways to make that happen. Lastly, before I yield back my time, I have a couple of ideas that I would like to run by you, and obviously this is not the time for questions, but I hope you might be able to address this in your presentations, if there are ways to incentivize the process by which developers and owners are able to make more of their properties available for affordable housing. The market is strong, they can get better rates on the outside, there are more burdens that Government places on them, such as regulations, paperwork, the whole issue of lead removal, which obviously is something we have to do and it is very important we do. But there might be ways you might think of that would help to defer the costs on these so that the rents do become affordable and those properties do become available to the people who truly, truly need them, which is our young folks and people who are living on less than $50,000 or $60,000 a year. I thank you for that. I hope you can incorporate some of those thoughts into your responses today, and I yield back the remainder of my time. Chairwoman Roukema. Thank you. Ms. Schakowsky of Illinois, do you have any opening statement? Ms. Schakowsky. Very briefly, Madam Chairwoman. Thank you. I represent Chicago and some of the northern suburbs. We have a crisis as well. Between 1990 and 1999 we lost about 53,000 rental units. Right now we are about 153,000 rental units short. That was as of 1999. It is getting worse. Owners of project-based Section 8 are opting out. We have the problem, and I associate myself with the remarks of Ms. Lee, gentrification is a problem in many of our communities. I know the number one barrier to production really is funding. I believe in public-private partnerships, but I believe that public subsidy is needed to fill the gap between what families can afford and the cost of development and maintenance of housing. I am a very strong supporter of a national housing trust fund and look forward to hearing the panel. Thank you. Chairwoman Roukema. Thank you. Others on this side, on the Republican side? Others on this side? If there are, Stephanie Tubbs Jones is the next to be recognized. Mrs. Jones. Thank you, Madam Chairwoman. Chairwoman Roukema. Please restrict your comments to 3 minutes. Mrs. Jones. OK. It will be less than that. I just want to thank you for your leadership on the issue. I am glad we are having the hearing on this. I would like to welcome Mr. Hinga from Ohio to our hearing. I want to welcome all of you, but I am from Ohio, so I am directing my welcome to him as well. In Cleveland, we have had a great success with community development corporations building and developing affordable housing, but we still have a gap in the City of Cleveland as well. I am looking forward to hearing from each one of you with regard to ideas that you have with regard to housing affordability, and the next Congressional Black Caucus Summit on Housing is in Cleveland. I look forward to you having input there. Thank you. Chairwoman Roukema. Mr. Capuano, do you have an opening statement? Mr. Capuano. Just briefly, Madam Chairwoman. Again, I would like to add my voice to thanking you for holding these hearings. I hope the final result of all these hearings is actually doing something, as opposed to hearing the problems, because many of us already know the problems. I also want to welcome Mr. Flatley. He has done fantastic work in the greater Boston area. He is living proof that the public and the private entities can get together. He is well respected on both sides, and I would heed each and every member of this panel to listen to his wise and effective counsel. Chairwoman Roukema. All right, thank you. Ms. Waters. Ms. Waters. Thank you very much, Madam Chairwoman. I am appreciative for these hearings today. We have a housing crisis. The economic expansion of the last years has been accompanied by skyrocketing home prices and rents, and there is a severe shortage of affordable housing and in many areas any type of housing. I just have to put on the record that in my home State of California, about half of renter households pay more than the recommended 30 percent of their income toward shelter. However, 91 percent of low-income renter households with annual incomes under $15,000 spend more than 30 percent of their income toward rent. These low-income households outnumber low-cost rental units by a ratio of more than 2-to-1, both statewide and in Los Angeles County. Statewide, there is a shortfall of almost 600,000 affordable units. I have a lot more information about what is happening in California, but what I will do is place my complete statement in the record and discontinue my comments at this point. Chairwoman Roukema. I thank the gentlewoman. Now last is Ms. Velazquez from New York. Ms. Velazquez. Thank you, Madam Chairwoman. I am very appreciative that you are paying so much attention to this issue. I come from New York City. I remember 10 years ago it was crime that was driving people out of New York. Now it is the shortage of affordable housing. We are facing a crisis in New York when it comes to affordable housing, especially low- income communities. I am very pleased that we are having this hearing today, and I look forward to the presentation from our panelists. Chairwoman Roukema. Thank you. I thank all the Members here, and certainly Mr. Frank. I will say to our panelists that you should understand that the representation here, the attendance here, I should say, is exceptional for a subcommittee hearing, and it is a visual demonstration of the intensity of this subject and the interest on both sides of the aisle on this subject. With that, I do want just for the record unanimous consent that the two letters that Mr. Frank and I have sent on this subject, both of May 17, regarding the FHA multifamily housing and H.R. 1629, be included in the record. [The information referred to can be found on page 320 in the appendix.] So, we welcome you here today. Our panelists, William Hinga from Bank One Community Development Corporation. By the way, all of you have the same background and experience, years of experience in the field, so you are not just speaking from theory, you are speaking from your practical experience. Certainly Mr. Hinga has 20 years of experience with commercial real estate, lending and investment banking. He has been with Bank One since 1990. Certainly Bank One's Community Development Corporation has a national reputation. So we are very eager to hear from you, Mr. Hinga, please. STATEMENT OF WILLIAM T. HINGA, PRESIDENT, BANK ONE COMMUNITY DEVELOPMENT CORPORATION, COLUMBUS, OH Mr. Hinga. Good morning, Chairwoman Roukema, and Members of the subcommittee. I am Bill Hinga, President of the Bank One Community Development Corporation, and I appreciate this opportunity to appear before you and share Bank One's involvement with affordable housing. Bank One Corporation, headquartered in Chicago, is the Nation's fifth largest bankholding company and has a domestic retail banking presence in 15 States. Our Community Development Corporation, which I run, is based in Columbus, Ohio. It is comprised of a team of 38 professionals strategically located in seven offices across Bank One's footprint. Our sole mission is to provide debt financing and equity investments for affordable housing and community development. Bank One Community Development Corporation alone has provided over $850 million in investments and community development loans across our markets, financing over 15,000 units of affordable housing. I am also here as a board member of the National Association of Affordable Housing Lenders, or NAAHL, as we are more commonly known. It is the association devoted to increasing private capital investment in low- and moderate- income communities. The past 10 years have seen a major transformation in the formation and delivery of capital for affordable housing. Some history may be helpful here. As Federal subsidies declined and FHA's share of its multifamily housing market has dwindled, private sector organizations have had to become creative in finding solutions. Over time, plain vanilla debt financings, such as straight mortgages, were no longer enough to fill the Nation's affordable housing needs. Other financing vehicles were needed. So were other partners. What were once pioneering partnerships among insured depository institutions, like Bank One, and non-profit providers of affordable housing, often involving State, Federal and local subsidies to make the housing units economically viable, are now really the norm in the way we do business. Perhaps at this point several examples of the partnerships needed and the multiple financing layers required would help illustrate this point. I think my two examples really point out what the Chairwoman's opening comments were about--the need for public and private partnerships, and also the multiple layers of financing needed today to address our needs. My first example is a project we are doing in Steubenville, Ohio. We are partnering with the Ohio Capital Corporation for Housing to provide $3.7 million in equity capital for a 77-unit low-income housing tax credit development in that market. The balance of the capital for this project will come from other bank financing which is utilizing the Rural Housing 538 program, and $600,000 in HOME funds through the State of Ohio. The development entity here is a partnership of a non- profit social service provider in the market and a for-profit developer. There are several unique features to this development. There has been no affordable housing in this market for over 5 years. Everything that is already there and is affordable is 100 percent leased. Twenty percent of the units here will be set aside to single mothers with children. Thirty-nine of the units at the end of the tax credit compliance period will be offered for home ownership opportunities at prices that will be very attractive to the renters. So this will offer a rental option and then at the end potential home ownership. Another example is in Chicago, where we are partnering with the Enterprise Social Investment Corporation in providing $4.2 million in equity capital for new construction of a 107-unit mixed income development. This is an interesting point here, because in this project, we are going to address this a bit with Congressman Frank, what he was saying earlier, is this development is going to have--25 percent of the units are going to be public housing replacement units. The balance of the financing of this is really multilayered. There is FHA-insured tax exempt bonds, tax increment financing, Chicago Housing Authority HOPE VI funds, and City of Chicago HOME and Empowerment Zone funds. Bank One is not alone in working with partners. Loan consortia, non-profit lenders, community-based development corporations, secondary market players and others are all a vital part of the affordable housing field today. Banks finance affordable housing in a variety of ways, depending on their geographies and the bank's own business strategy. Many bring their underwriting expertise to the construction lending. Some offer permanent mortgages. Others, like Bank One, are major low-income housing tax credit equity investors. Although data is hard to come by, bank participation appears to have increased significantly in each of these areas. Today, financing affordable housing and community development requires an intricate array of financial instruments and players. Subsidy providers like to spread their finance resources around and obtain the greatest possible leverage in each transaction. With a variety of subsidies involved in any one project and the varied requirements of each subsidy provider, the cost and fees of underwriting, understanding and complying often reduces the actual funds available to build units. A streamlining of results and paperwork requirements in all Federal and State housing programs would help put more dollars into the housing and less into professional fees. It is clear that if the Nation is to move forward with providing decent affordable housing for our communities, Congress must look at ways to increase the Federal Government's subsidy for affordable housing. There are a range of possibilities, such as: proposals for an affordable housing trust fund, for increasing the FHA multifamily mortgage loan limits, and the FHA credit subsidy, increasing HOME and other grant programs, and for a new single family housing tax credit program. We ask you to look at all of them. I thank you for your time and attention today. [The prepared statement of William T. Hinga can be found on page 344 in the appendix.] Chairwoman Roukema. I thank you, Mr. Hinga. I neglected to identify you as the President of Bank One Community Development Corporation. I will say for all of you there is a 5-minute rule. However, understanding the importance of your testimony, I will try to be a little relaxed about it. We will be watching the clock. Until I use the gavel, you won't have to worry about your time commitment, all right? Ms. Kaiser is President of the California Community Reinvestment Corporation. I understand you have a 25-year banking executive experience, and you are experienced in delivering financial services for especially affordable housing. You are a board member of the National Association of Affordable Housing Lenders and President of the Board of Trustees of the United Way of Ventura County. I would fully expect that you have a contribution to make, not only in private funding, but also public-private partnership. Mr. Frank. We have to say when you think they have a contribution to make in private funding in this room. Chairwoman Roukema. No, I don't apologize for that, not at all. Do you? No, they are all shaking their heads. No. Thank you. You see the bipartisanship here. You understand that. Ms. Kaiser. STATEMENT OF MARY F. KAISER, PRESIDENT, CALIFORNIA COMMUNITY REINVESTMENT CORPORATION, GLENDALE, CA Ms. Kaiser. I understand that. Thank you, Madam Chairwoman, and good morning. My name is Mary Kaiser. As Madam Chairwoman just indicated, I am President of the California Community Reinvestment Corporation (CCRC). Chairwoman Roukema. Excuse me, could you pull the microphone a little closer? Ms. Kaiser. I am also short, so this is kind of tough. I am also a certified community development financial institution, which is a CDFI, and we have been doing this for the last 11 years in the State of California. I want to thank the Financial Services Committee this morning for the opportunity to speak about some of the successes we have had in meeting affordable housing challenges and needs in the State of California, but to also make you aware, which apparently you are very much aware, of the challenges that lie ahead and how Congress might address those challenges along with us. We are certainly all in agreement on the magnitude of the problem. By way of background, CCRC is a multi-bank funded non- profit lending consortium. We were formed actually by the Federal Reserve Bank of San Francisco and some senior banking executives of California-based banks back in 1989 to address the lack of mortgages for affordable housing developers. The Federal Government had just created the Low Income Housing Tax Credit Program, and permanent long-term mortgages to finance those units subsidized by that program were all but absent in our State. The perception of high risk in this type of lending led to the formation of this mitigated risk pool concept where all member banks would participate in each loan originated by CCRC. At the time when CCRC was launched, the world of affordable housing was quite different than today. Eleven years ago I think the perception of the risk of this community development type lending was excessive. The system for financing affordable housing in California, and I suspect elsewhere in the country, was generally fragmented. The pooling concept that our organization offered seemed to be a great innovation, allowing banks to meet their CRA (Community Reinvestment Act) requirements, and provided a much needed private capital financing vehicle for affordable housing. CCRC's member institutions have committed in excess of $250 million to this cause through today. Since 1989, at least 10 other consortia have been created similar to the CCRC concept. In our particular business, which is underwriting tax credit, multifamily rental units, we pioneered ways of underwriting and developing effective partnerships with non-profit and for-profit developers, local municipalities and State agencies to increase the production and rehabilitation of rental housing for low-income families. Our deals look very much like the ones Bill just described, multiple layers of financing, lots of different rules, lots of different documents. In the last 11 years, we have originated over $300 million in mortgages secured by projects containing over 15,000 units of affordable housing. While 100 percent of our portfolio represents units affordable to people making 80 percent of those around them, simply more than half of our portfolio represents affordable housing units to those making only half of what people around them make. Through our willingness to create innovative loan structures tailored to each project's needs, we succeeded in doing what I described as the cutting edge, hard to do deals that have helped increase the supply of affordable housing in California, and we have proven it is not as risky as people thought 11 years ago. Since inception, our losses have been extremely low, less than 0.32 percent, or only $622,000 of all loans originated. This is comparable to the performance of a good portfolio of investment grade bonds. I might say our member banks have taken no losses on loans originated by this consortium. We are proud of our contributions to affordable housing. In fact, we recently received the Financial Supporter of the Year Award from the Southern California Association of Nonprofit Housing Developers. This is a group that is always keeping banks on their toes in terms of their commitments to affordable housing. So we have become a part of a very strong infrastructure in which lenders, non-profit organizations, commercial investors and State and local governments work together. Our experience in multifamily housing has also allowed us to meet community needs in other ways. Ms. Lee was talking about her concerns about low-income tenants being driven out of communities where nobody really wanted to be 10 years ago. One of the projects that we have developed is an acquisition rehab lending program to inner city investors, much like the Chicago model, where individual owners and rehabilitators are given equity private capital to rehab and continue to provide these units to low-income tenants at affordable rents. We have also developed a tax exempt bond program whereby our investors buy directly tax exempt bonds for their private holding. This allows rural projects to have access to tax exempt bond financing at a lower cost. We have also done direct investments in affordable housing projects. Mr. Frank was talking about and others were talking about the issue of preserving what we have. I mean, let alone what we need to build. But the preservation of expiring use projects is a big issue in California. So CCRC has also provided equity to preserve those expiring use Section 8 projects. But despite this and everything else we are doing, we simply don't have the resources to keep up with the soaring demand for affordable rental housing. The 1999 American Housing Study conducted for HUD, just released this month, noted that of the 112 million year-round housing units, 30 percent are renters. The overall vacancy rate of rental units nationwide is 8 percent, and in California it is less than 5 percent. California accounts for seven of the eight least affordable rental housing markets in the country, and my numbers are even higher than Ms. Waters in the sense that I show that rental units available to low-income, there are more than four low- income housing renters for every one unit of housing in California. That, coupled with the housing wage in California-- -- Chairwoman Roukema. Ms. Kaiser, excuse me, can you sum up now, please? Ms. Kaiser. We are only adding one housing unit for every five jobs in California. We have got to put public and private partnerships together. It takes your money and ours. At $12,000 a year for people earning only 30 percent of the area median income, it is going to take a deep subsidy to make units affordable to all in California. [The prepared statement of Mary F. Kaiser can be found on page 331 in the appendix.] Chairwoman Roukema. I thank you. Mr. Joseph Reilly is the Senior Vice President at JP Morgan and Chase Community Development Organization and has been with them since 1989. I believe that you manage an extensive staff of professionals that deal with the Community Development Corporation Real Estate Lending Group, and you can contribute now to our understanding of how these programs work and how effective they are. Thank you. STATEMENT OF JOSEPH F. REILLY, SENIOR VICE PRESIDENT, JP MORGAN CHASE COMMUNITY DEVELOPMENT CORPORATION, NEW YORK, NY Mr. Reilly. Thank you. Good morning. My name is Joseph Reilly, and I am a Senior Vice President in the Community Development Group at JP Morgan Chase. I am responsible for managing a staff of 40 people who provide financing for affordable housing and commercial real estate projects in areas that are served by JP Morgan Chase. JP Morgan Chase has been a leader in providing financing for affordable housing and other community development projects for many years. Over the past 5 years, JP Morgan Chase has provided over $2.6 billion in community development financing. We continue to seek new and innovative ways to provide financing which will strengthen the communities we serve. In 1988, JP Morgan Chase was one of the founding members of NAAHL (National Association of Affordable Housing Lenders), in an effort to accelerate the growth of a sustainable flow of private capital to housing, small business and other community development activities in low- and moderate-income communities. I have been fortunate to see the issues surrounding affordable housing development from a variety of perspectives, as I have worked in the field of community development and affordable housing finance for over 23 years. For the past 12 years, I have worked at JP Morgan Chase and its predecessor institutions. Prior to my experience with JP Morgan Chase, I worked for the New York City Department of Housing Preservation and Development for 6 years, where I worked on providing subsidized financing for affordable housing development. Prior to that, I spent 6 years working as a community organizer for the Northwest Bronx Community and Clergy Coalition. I am sure you have already seen the considerable data documenting the problems American families are facing in finding decent, affordable housing. While much has been done to meet these needs, there remains much to be done. Many high-cost areas like New York suffer from a profound shortage of both rental housing and home ownership opportunities, not only for very low-income families, but also for low-income and moderate-income families. We have a growing crisis that requires ongoing attention of policymakers and both short-term and long-term measures to achieve our national goal of a decent home in a suitable living environment for all Americans. Over the past 10 years what our industry has experienced is a dramatic strengthening of the system for financing affordable housing. We know what it takes to provide affordable housing. We have come to work together cooperatively in new types of partnerships. We have developed creative new tools and techniques for financing and producing affordable housing for low-income families and communities. We have coped with the often conflicting requirements of Federal, State and local programs we need to do our work. We have built the infrastructure necessary to have a major impact on housing needs. ``We'' includes government at all levels, for-profit and not-for-profit developers, lenders, investors and community leaders. The result is that we are building affordable housing that is sustainable, that is financed with the resources of the private market and leverages public resources effectively. Our success has ensured that private capital is readily available to leverage public subsidies. In addition, last year the U.S. Treasury reported that from 1993 to 1998, the amount of mortgage lending to low- and moderate-income communities and borrowers by CRA-covered lenders rose 80 percent. In 1998 alone, Treasury reported at least $135 billion in mortgages to these borrowers made by insured depository institutions. As good as these solutions are, they come nowhere near to meeting the need. The public non-profit and for-profit organizations that have mobilized and partnered to provide affordable housing face three major constraints in our ability to deliver more decent affordable units. First, Federal funds are often encumbered by well-meant legislative and regulatory constraints that often limit needed flexibility to community needs. Sometimes something gets lost in the translation of housing policy when it is regulated into practice. For example, Congress last year enacted legislation to encourage project- based Section 8 rental assistance vouchers to promote mixed- income housing. However, HUD prohibits the use of this tool in neighborhoods with at least 20 percent poverty when local community development strategies often call for mixed-income housing in these neighborhoods. And inevitably the more tightly the subsidies are targeted to the most in need, the greater the financing gap and the harder it is to make the deal economically viable. Second, we could finance more affordable housing if we had more resources. The past decade has confirmed that there is no magic to the provision of affordable rental housing. Additional housing can only be built if public subsidies fill the gap that exists between what families can afford to pay and the cost associated with the construction and maintenance of decent affordable housing. Federal programs such as HOME, CDBG (Community Development Block Grant) and the low-income housing tax credit have played valuable roles in helping to fill the gap, but rarely do it alone. For example, many housing credit deals and low-income communities require additional subsidies to fill financing gaps, but funding levels for all Federal programs have failed to keep pace with the rapidly growing need, and these programs come with complex requirements that slow or even discourage the development of new units. Third, in some States there is a scarcity of permanent financing for multifamily affordable housing. These projects often involve subordinated debt and low-income tax credits that make these loans ``non-conforming'' for sale to the secondary market. In the short term, the more we can simplify the regulations, processes and paperwork of Federal assistance, the more we will increase the efficiency of the programs and private sector participation. Simple, flexible funding sources that have real impact with maximum efficiency include the old Nehemiah Program, the Affordable Housing Program of the Federal Home Loan Banks, and the Community Development Financial Institutions Fund. Chairwoman Roukema. Mr. Reilly, you will have to sum up, please. Mr. Reilly. OK. I think in the short term what we need to do is simplify the regulation and in the long term look for additional subsidies, consistent, sustainable subsidies, and perhaps some sort of a housing trust fund, something that is there, is available on a readily available basis to encourage the development of a pipeline so that projects can be developed. [The prepared statement of Joseph F. Reilly can be found on page 335 in the appendix.] Chairwoman Roukema. I thank you. I am trying to be fair about this, so each person that goes over time, I am letting them go over time equally. Thank you. I believe now that Mr. Frank will take the opportunity to introduce Mr. Joseph Flatley of Boston, Massachusetts. Mr. Frank. Thank you, Madam Chairwoman. I have had the privilege of working with Joe Flatley for more than 20 years on housing. He is one of the real leaders in getting housing built. He is someone to whom I turn when we are talking about how we can improve public policy, and I am delighted that he is now going to share really the great wealth of knowledge and experience he has accumulated in this field with the rest of this committee. Chairwoman Roukema. Mr. Flatley. STATEMENT OF JOSEPH L. FLATLEY, PRESIDENT AND CEO, MASSACHUSETTS HOUSING INVESTMENT CORPORATION, BOSTON, MA Mr. Flatley. Thank you, Madam Chairwoman and Congressman Frank. My name is Joe Flatley. I am the President and CEO of the Massachusetts Housing Investment Corporation (MHIC). It is a private organization that finances affordable housing and community development in Massachusetts. MHIC was created in 1990, about 11 years ago, as a collaboration between the State's banking industry and community leaders. Today we have 25 corporate investors including banks, insurance companies and the Government Sponsored Enterprises. We are a Section 501(c)(3) and a certified CDFI. I also serve as Chairman of the National Association of Affordable Housing Lenders, from which our board members are well represented on your panel today. We have over 200 member organizations, and NAAHL is the premiere association devoted to increasing private investment in low- and moderate-income communities. I would like to commend you, Madam Chairwoman, and the House Financial Services Committee for holding hearings on the Nation's affordable housing needs, and thank you for the opportunity to give you my perspective on this issue. I have worked in the field of affordable housing and community development for more than 30 years. The organization I now head, the Massachusetts Housing Investment Corporation, last year provided over $100 million in private capital to finance the development of 45 affordable housing projects in Massachusetts. Over the span of my career, I have seen both the good and the bad in affordable housing. The good news, as Congressman Frank noted, is that we have learned a lot. The affordable housing industry has evolved and matured in learning how to produce decent affordable housing for low- and moderate-income families and communities. We have learned how to do it right, how to build affordable housing--rental housing and home ownership--that creates a mix of incomes, that is built with the discipline of the private market, that uses resources responsibly, that is of high quality and lasting value, that consumers wants to live in, that stays affordable over the long return, and that people are proud to call home. It is important to make this point about the fact that the programs work, because it is not widely recognized. The problems and difficulties are very visible when affordable housing doesn't work. It is an eyesore and a problem. The eyesores of many years ago are well known. When we do it right, it is, by definition, invisible. If you do affordable housing to be successful, and you want it to be successful, you don't want anybody to know that it is an affordable housing project. Unfortunately, most of our great successes are not visible. We have achieved these successes because in large measure we have been able to attract substantial private capital. My organization has raised over $500 million in private capital. We have had zero loan losses in our 10-year history. We have never had a loan loss, knock on wood. And we have earned a respectable return for our investors. In the face of all we have achieved, we have to recognize a central and indisputable fact. The need for affordable housing has never been greater. As has already been discussed by Members of the subcommittee, the need for affordable housing and the problems created by the lack of affordable housing are enormous, so I won't go into much more detail on that, but I would say that it effects all segments of our economy. It effects not only the very lowest income families, but also working families and businesses trying to attract workers in Massachusetts. We have learned that different solutions work in different places. In some places like Chicago, affordable units are produced each year by small private ``Ma and Pa'' owners, and they can find financing from consortiums like my own and like Mary's, a bank, or perhaps an NHS with little or no subsidy. But in high-cost areas like Boston, the cost of new construction and renovation remains high, and the number of units remains low. The underlying problem is a result of a mismatch between demand and supply. We need to recognize that fact. That results in escalating rents and housing prices. Demand-side subsidies, such as Section 8 certificates, will not solve the problem on their own. Clearly we need to add to the supply. Even with a lot of support and with an experienced non- profit developer, and a mortgage lender all working together, additional units can only be provided if there are subsidies available to fill the gap. Unfortunately, over the last decade, funding levels for Federal housing programs have fallen short of what is really truly needed. If we are to make progress, we need to add new sources of subsidy to expand the supply of available units. With only modest levels of new public investment, you will leverage enormous investment by the private sector and by State and local governments. As Congress considers solutions to this affordability crisis, the most effective long-term measure would be to develop a new Federal financing resource with the capacity and flexibility to at the very least double the production of affordable rental housing if we are to have a real impact. Such a resource should provide a stable, predictable source of capital, ideally free from the uncertainties of the Federal appropriation process, that would ensure providers a dependable stream of revenue for leveraging the substantial sums of private capital today available for lending and investing in affordable housing. Dependable, predictable funding is critical if we are going to create solutions to the housing affordability crisis that really work for the long run. These solutions depend on hard work over many years, on community outreach and planning, and entrepreneurs who are willing to devote themselves to a multi- year effort with some reasonable expectation of ultimate success in the end. This cannot be accomplished with on-again, off-again public programs. Programs such as the proposed National Housing Trust Fund with a dedicated revenue stream will leverage private resources many times over. Most importantly these programs will rekindle a sense of community throughout America. Similarly, expanding home ownership is a critical element of most communities' revitalization strategies. The President's budget this year proposes a major new single-family housing tax credit. The ``Renewing the Dream'' tax credit would make a huge difference for low-income families and low-income communities by attracting nearly $2 billion of private investment annually for the construction and rehabilitation of homes in low-income communities. We strongly support this tax credit and urge you to include it in any tax package enacted this year. Thank you for the opportunity to testify and for your interest in exploring solutions to the Nation's affordable housing problem. Chairwoman Roukema. Thank you. You stayed right in my time limit. Mr. Flatley. Thank you. I tried hard to do that. [The prepared statement of Joseph L. Flatley can be found on page 340 in the appendix.] Chairwoman Roukema. I will call on Mr. Miller for our first line of questions. Mr. Miller. Thank you very much, Madam Chairwoman. Ms. Kaiser, you talked about rental units and multifamily rentals. Do you do any multifamily for sale? Ms. Kaiser. No, we do not. Mr. Miller. Why is that? Ms. Kaiser. I think primarily what we have tried to do is niche our products where there were not other products available, sort of go somewhere no one wants to go. And the for-sale market seemed to be heavily supported by either the mortgage or the banking industry, so ours is primarily the rental units, which require deep operating subsidies. Mr. Miller. Do you know of any multiattached products for sale even being built in your area? Ms. Kaiser. Being built? No. We are doing rehab on a lot of those. The economics of getting them at a per-unit cost, at a reasonable cost to be able to put rehabilitation dollars in is a challenge in California. Mr. Miller. The problem with that is today not a builder in California can get liability insurance to build an attached product, because I don't know of one attached product in the last 10 years built in California that has not ended up in litigation, which is really having a dramatic impact on the marketplace. And also you said that we are only building one unit for every five jobs being created out there, and you are exactly right on that. Mr. Reilly, you said first Federal funds are often encumbered by well-meant legislation and regulatory constraints that often limit needed flexibility to meet community needs. What would you propose to do to solve that? Mr. Reilly. I think that certainly on a local basis, decisions can be made as to what the best needs, what the best use of the funds could be. I think that sometimes the restrictions that go along with the funds just sort of come down, and those are the rules. And there is not enough local involvement in making a decision as to how best to use those funds locally. Mr. Miller. And you talked about the scarcity of funds for permanent financing or multifamily housing projects. Why is that? Mr. Reilly. I think in some instances, not all, but in some instances and some locations the availability of permanent financing is quite limited, and it is partly because affordable housing projects typically are not what I would call cookie- cutter deals. There are a number of subsidies. There may be Low Income Housing Tax Credits. They may actually be better loans. They may actually be better and more secure loans and investments. However, since they don't fit in a particular conduit or secondary market model, they do not necessarily end up in those pools of loans that are sold into the secondary market. So, I think that is something that should be considered, and perhaps there is a role for FHA to play in that arena going forward. Mr. Miller. Mr. Flatley, you said that demand-side subsidies, such as Section 8 certificates, are not workable solutions because certificate holders cannot find units with rents that qualify, and that leads me to a question. I had a project in a city called Rialto, California. I had about 2,600 units. I sold the last 50 of those last year, and I tried to sell them to a non-profit that does mainly HUD repos, foreclosures, and goes in and provides buyers assistance programs, thinking that this would be a great opportunity to be able to provide buyer assistance to the new housing market. Yet when we figured the fees that they had to pay to the Government, the fees were greater than the land and improvement costs associated with building the home. What do you see as a solution to this problem if, in fact, you say Section 8 certificates are not a workable solution? Mr. Flatley. I think the fundamental problem is an imbalance between supply and demand. I think we need to add new units. I think you have identified some obstacles to adding new units. I think the perspective I would add is we have been most successful when we have worked in strong partnership with communities, with neighborhood governments, local governments in getting housing built. Frequently that does take a lot of time in negotiating with local governments. But, I think that most of the issues, those restricting development, that you raise really are with local government. It is not the Federal Government, it is not the State government, it is the local governments who get most involved in permitting development. I think the only real solution to that is working effectively to create partnerships at a local level to demonstrate that these projects are successful, can be successful, and getting the community's support. I think it is only through winning their support that we are ultimately going to achieve success. Mr. Miller. The only thing I disagree with is that you said it is mostly local government. I believe predominantly local government, but as an example, and as you are familiar, in California the Fish and Wildlife Department last October slated 2,900,000 acres just in southern California for possible habitat for three listed endangered species, which takes 2,900,000 acres off the playing field for housing, plus the properties next to it are thereby categorized as associate habitat, which also takes those areas off the playing field. But if we could get Government somehow out of the process of inflating the prices artificially, do you believe as a panel that the affordable housing crisis might be resolved in the near future? Mr. Flatley. I do not think that would work by itself. We get free sites already zoned in cities that we work in. The costs are still way beyond what any even median-income family could afford. So the cost of just constructing a new unit on a permitted free site is greater than what somebody at 100 percent of median-income could afford. Mr. Miller. But you are strictly associating that with just inner-city parcels dealing with specific low-income groups in those communities. As we know, in California that is not necessarily applicable because of the huge State and the way it grows. Would you agree, Mary? And I thank you, Madam Chairwoman. Chairwoman Roukema. Yes. If any of the members of the panel would like to submit for the record, as well as to personally to submit to Mr. Miller, Congressman Miller, here, feel free to do that and submit your statement for the record in response to his final question there. Mr. Frank. Mr. Frank. I would like to continue that line. I gather the gentleman was agreeing that with regard to inner cities, there would still be that problem. Of course, as I said, the worst housing problem does come from the poorest people in the inner cities. Let me ask all of the witnesses as well to answer the question that Mr. Miller asked Mr. Flatley. What would you think of the solution in which the Federal Government simply got out of everything that had to do with housing? Of course, we have no control over local zoning, and I don't assume there was a proposal here to deal with local zoning, but do you think we would be better off in the building of affordable housing if the Federal Government simply withdrew from the arena as has been suggested? We will start with Mr. Reilly. Mr. Reilly. I would say no. On the Federal level I think there needs to be a readily available, sustainable source of subsidy to bridge the gap in between construction costs and what people can afford to pay. That will vary from location to location. The fact of the matter is it costs more to build a unit than people can afford to either pay to buy it or to rent it, and there needs to be some readily available sustainable source or subsidy in order to encourage that development. I think it is important to keep in mind that the gestation period for an affordable housing project can be 2, 3, 4 years. You need to build a pipeline of these projects in order to encourage that development to happen. Mr. Frank. Ms. Kaiser. Ms. Kaiser. I feel the same way as Joe. Two things. One, you just need to do the math to know that to acquire, build and operate the real estate for affordable housing costs the same as market rate and sometimes higher, because of income certifications of low-income people to comply with tax credits. So there is obviously a gap right there. The lower the income is, the lower the rents are. Mr. Frank. Let me add here, we tried to avoid that. This is how we get into problems. Originally Federal housing, we said these are poor people. Let's build them poor housing in effect. We tried to significantly save per unit on what we built. And when you do that, you get real problems. Ms. Kaiser. You get what you pay for. And the second issue about incenting developers. We do need to incent more developers to do these deals, which are not the easiest deals to do, and I think incentivizing developers has to do with streamlining programs, not only access to subsidy, but streamlining local municipality issues with regard to zoning requirements that keeps them out of the affordable housing. Mr. Frank. At the Federal level--and, Mr. Reilly, I think you say this, too. I think we agree. We should make these programs more easily interoperable, the tax credit and other Federal subsidies. We should reduce some of the restrictions. Mr. Hinga. Mr. Hinga. Congressman, I would agree with the comments of my fellow panelists. Without the Federal participation many of these projects would not get done. Even the simplest project that we might even say is plain vanilla any more may be a new construction project targeting 60 percent of area median income, the high end of the tax credit. It is virtually impossible to get that done without at least some HOME dollars or something involved, because if you don't you can't make those numbers work. Or there is so little developer fee left that the developer says it is not worth it, they will do something else. Mr. Frank. The figure $150,000 was mentioned, that these homes were homes available for $150,000. Let me ask particularly the two private lenders, what are the income-- somebody comes in to get a loan to buy a $150,000 house, what income does he have to show? Ms. Kaiser. I don't do single families. Mr. Hinga. We are really multifamily folks. I cannot give you an example at this time. Mr. Frank. Joe, would you have a sense---- Mr. Reilly. I am trying to do the math in my head here. Mr. Frank. For unsubsidized regular loan. Mr. Reilly. It depends on what the interest rate is. Let's say you can get a 95 percent mortgage. You get a $140,000 a loan. It is about $1,200 per month. Mr. Frank. And to pay $1,200 per month you would have to have an income of? Mr. Reilly. Multiply that by 40. About $50,000. Mr. Frank. I think that is the problem. Even if we have these $150,000 homes without restriction, you need $40,000 or $50,000 to pay for them and we have people who obviously make less than that. So I believe in this and I think the suggestion that getting the Federal Government out of it is the answer is simply wrong. We have local zoning problems. There is nothing we can do about them. But, Madam Chairwoman, and I appreciate the witness list you have put together here. We have four witnesses in the housing business. Two of them are from non-profit so maybe they are a little suspect. But there are two certified, very non- socialist witnesses here, one from Bank One and one from JP Morgan. When we have Bank One and JP Morgan telling us we need Federal funds to get affordable housing, I think the marxist element and the communitarian element has certainly been minimized. So I am glad to be here in recognizing the importance of a public role with Bank One and JP Morgan, and I salute his specter, Mr. Morgan, wherever he is. Chairwoman Roukema. Is that a demonstration of how far we have declined in private enterprise? Mr. Frank. They are your witnesses, Madam Chairwoman. Chairwoman Roukema. Now, Mrs. Kelly. Congresswoman Kelly, please. Mrs. Kelly. Thank you. I am glad the Ranking Member recognizes the new tone in Washington. I want to ask Mr. Flatley, you said something about the fact that it takes 2 to 3, 3 to 4 years to get approvals through. Do you want to go on record and talk about that? Why? Mr. Flatley. Part of it is building the partnerships and the relationships in the community. Part of it is getting through a local approval process. Part of it is dealing with the neighbors and abutters to a site. If you were living in your community and someone was proposing a 100-unit project next to you, you would want to have some discussions with them about the design of that project. They typically are real construction issues. Part of what has happened in many of the communities we work in, these are communities where the easy sites have all been developed over time. We are now to a point where you are either redeveloping a site that was developed before where there is maybe some real environmental issues, or you are developing a site which is hard to develop. Then there is the process of applying for funding, and part of the problem is created by the lack of Federal resources. What happens in terms of tax credits, for example, is typically people apply two or three times and have to go through several rounds of tax credit applications before the tax credits are approved, because there is kind of a queue of projects waiting for resources. So it is all of these issues, and I think some of the time you could take out by having more resources available, but some of the time is inevitably there, because you have both substantive site issues you need to deal with, as well as you have legitimate neighborhood concerns which you can't rush through. You have to deal with it in a deliberative way. You have to have the discussions with the community. It makes for a better project in the long run to have the community on board. The groundbreakings we go to where projects are completed-- the neighbors are there, the community is there in support. That has a very positive impact on the long-term success of the project. Mrs. Kelly. Thank you. I think it is good to clarify that. Certainly we do not want the Federal Government going in and subsidizing housing in neighborhoods where it is not wanted. On the other hand, I certainly also believe that there must be ways we can work together with localities to try to speed the process and I appreciate your putting that on record. Mr. Reilly, I want to next go to you and first of all I want to complement you for the quality of your testimony. It is one of the most concise, precisely presented ones I have seen in a long time, and I appreciate it, because we have a lot to read and going through it was very quick and easy and I really do thank you very much for doing that. I wanted to ask you, you talked about the fact that things like Section 8 vouchers can't be used in some neighborhoods and of three constrictions that are on the Federal monies that are available. Can you describe some of the other problems that we have at the Federal level that are by definition at the Federal level preventing some of these projects from coming out of the local level? Mr. Reilly. I think there are certainly some. I am trying to think of others. That particular example is one where if you look at the challenges in New York City, certainly there are a lot of areas where we need to work on preservation as well as the development of new housing. It is not just how much more we can build, how many units of for-sale housing we can build, or rental housing we can build, but in preserving housing. And those types of subsidies that are mentioned in testimony would be extremely helpful in areas where we need to work on preservation, to restrict the outside use of those to certain neighborhoods and basically exclude them from many of the neighborhoods where we need to work on preservation as opposed to development. Mrs. Kelly. Preservation and rehabilitating other units, I see, Mary, you are nodding your head. Do you want to talk about that also? Ms. Kaiser. Well, certainly while we appreciate the increase in the cap for Low Income Housing Tax Credits and tax exempt bonds, you cannot build it fast enough when the back door is open and we are losing to market existing low-income rental units. So the preservation issue is huge. And having worked with a few of those with developers, the issues working with HUD and prepaying mortgages and all the red tape and the notification period, it really is no wonder why some of these folks do not want to stick with the program any more. So it really is easier to go to market and just obliterate those. So, I think the preservation issues and the restrictions put on getting out of the RDA is another program. There is some expiring use RDA programs and it requires some very interesting financing that I don't think private capital is going to want to be attracted to. So the more we can think about these partnerships when we build the programs up front, knowing that private capital can come in, I think the better chance we have of not only getting them built, but preserving them for the long run. Mrs. Kelly. Thank you very much. I yield back the balance of my time. Mr. Miller. [Presiding.] Thank you, Mrs. Kelly. Mr. Watt. Mr. Watt. Thank you, Mr. Chairman. Mr. Flatley, I am trying to determine whether I have some organizational enterprise that is comparable to yours in North Carolina since you seem to have been so successful. Mr. Flatley. No, but we would love to help you start one. Mr. Watt. You have in Massachusetts also a housing finance agency? Mr. Flatley. There is. Massachusetts is rich with a history of organizations. It is sometimes confusing. There is a State Housing Finance Agency. Mr. Watt. That is connected to the State. You are not connected to the State or a local government? Mr. Flatley. That is correct. We are totally private. Mr. Watt. OK. You say that you are a Section 501(c)(3) non- profit, yet you also talk about a respectable return to your investors. Those two things seem inconsistent with each other. Can you elaborate a little bit on how you are structured? Mr. Flatley. We manage pools of investments. We are a Section 501(c)(3), but we have subsidiary for-profit funds which we manage for the investors in those funds and it is both tax credit funds and what is essentially a mortgage company where we manage those funds and businesses for the investors in each. Mr. Watt. So most of your investments have been into those subsidiary funds that are profit funds and return an investment, a return to the investors? Mr. Flatley. That is correct, and that is how we raise money. We would find it hard to raise money if we could not provide a return to our investors. Mr. Watt. And the bulk of your $500 million over the 10- year period has been from what sources? Mr. Flatley. It is primarily banks. It was really started through a collaborative effort between the State Banking Association and community leaders in Boston. That is how we got started in 1990, but there are two pooled insurance company initiatives which are also investing and also Fannie and Freddie have been investors. Those are the primary investors. Mr. Watt. Investors in the sense that they are looking for a return also; this is not just putting money there that they are not expecting a financial return on? Mr. Flatley. Correct. We do not seek any philanthropic funds. Even though we are a Section 501(c)(3) non-profit, we have never raised funds from philanthropic sources. Our whole philosophy is to try to attract private capital back into these communities and show that it can be done profitably so that additional capital will flow into these communities. Mr. Watt. What kind of return would you normally be talking about when you refer in your last sentence on the first page to a respectable return? I am not trying to put your business in the street. I am just trying to figure out how to replicate this. Mr. Flatley. The returns have varied over times as financial markets have changed. On tax credit investments which we do, the returns probably right now are in the 7.5 percent range. The return on our lending program is right now probably around 5.25 percent. So those are respectable returns given that we manage the businesses for them. And that includes all of our costs in managing those businesses for those investors. Mr. Watt. What are you talking about when you talk about lending? Mr. Flatley. We lend money to developers to develop affordable housing, and we provide the loans. We also provide tax credit equity capital. Mr. Watt. Are you also a developer? Mr. Flatley. No. Mr. Watt. So you are not developing; you are just kind of facilitating all of these people coming together and providing ongoing expertise from project to project to project so that people do not make the same mistakes over again? Mr. Flatley. Correct, and we help people assemble the resources and figure out how to make a project successful and put the resources in to get a project done. Mr. Watt. All right. I think I would like to, if I could, get some more information about how you all are set up. That would be very helpful to me. Mr. Flatley. I would be glad to do that. We were started, I would note, with help from other consortiums. New York and Chicago came to Boston to help us get established, so I think it is the tradition of the industry to help other places start similar organizations. So we would love to help you. Mr. Watt. We have plenty of resources. They say in my part of the country, we have plenty of banks and things. But this sounds like something maybe we could get jump started in North Carolina. We certainly need it. Are you statewide? Mr. Flatley. Yes, we are. Mr. Watt. The bulk of your activity is in Boston? Mr. Flatley. I would say about 60 percent is outside of Boston. About 40 percent is in Boston. Mr. Miller. Your time is concluded. Mr. Watt. I have done as much as I can do. Thank you, Mr. Chairman. Mr. Miller. Mr. Grucci. Mr. Grucci. Thank you, Mr. Chairman. Mr. Reilly, coming from New York City and having a great, long and rich history in that great city, and you probably know very well the economy not only in the city, but in the surrounding area, in order to capture more of the folks that are in the metropolitan area that are in dire need of affordable housing, what do you think that the eligibility level should be as a percentage of median income? Mr. Reilly. That is a good question. I think that I think it is important to keep in mind that there are shortages of what I will call affordable housing at various income points: very-low-income, low-income, moderate-income and also in middle-income categories, as well. I think that right now there is a need for affordable housing for very poor people, as well as working families. So to say at what particular points, I am not sure that there is a particular point. Mr. Grucci. Let's concentrate on the working families for a moment. In that bracket that you have identified as working families, what do you believe would be a good number to work with? Do you think it is 50 percent of median income, 100 percent, 150 percent of median income is eligible for the affordable housing programs? Mr. Reilly. Now I would have to qualify this by saying I think it varies from location to location, based on construction costs and maintenance and operating costs, as well. But with that in mind, if you look at some of the middle- income housing that is being developed in New York City and probably in some of the surrounding areas you might have a two- wage-earner family earning somewhere in say the $50,000 to $70,000 range. Finding decent affordable housing for people in that income range, it can be difficult, and that is in excess of median income. That is $100,000 to say $120,000. That is not to say that is the only need, but that is, in fact, a need. Mr. Grucci. Would you think that number would hold true for out in Long Island? I am sure you know the Long Island market as well as the New York City market. Mr. Reilly. My recollection is the median income is about the same on Long Island, but my guess is that the cost of housing is a little bit less. So there might be some reduction there. Mr. Grucci. Second, how do you think, and I guess I could open this up to the panel as well if we have time for responses, what do you think this level of Government can do to assist in making affordable housing truly affordable? And that would cover a wide range of thought process, whether it is paperwork reduction, whether it is incentives, whether it is working with local municipalities. I mean as a former supervisor I remember 30 people would walk into a town hall meeting and drop the town board to their knees in fear of losing an election, because the people came out and ranted over affordable housing complexes, feeling that it was going to degradate their community. So I would be interested in your thoughts on how this level of Government can facilitate affordable housing. Mr. Hinga. Well, I think some of that, Congressman, is as you address, that maybe the fears or anxieties is--you know, there is quite an emphasis throughout the States really on mixed income. I think generally when the community sees what is going to be built, if you build a high quality project and have a variety of income levels in that property, I think sometimes that puts aside some of those fears. It is also good for the project, because you do have an economic strata in there that is good. My example in Chicago, which I raised, is that 107 units near the South Side of Chicago, will have 25 percent of the units for public housing tenants. You are also going to have what we would call tax credit tenants, and they are at 50 and 60 percent of area median income, and then you are also going to have a portion of the project that is going to be market rate tenants. Now this does not work in every locale. I understand that. Particularly in metro areas it works better, where affordable housing options are just not available at all. But I think blending does help, versus putting all the low- income tenants together, which we have done in the past. It doesn't always work. I think the HOPE VI model is a good example of how you are blending home ownership plus rental in one revamped community and you are getting a lot of income stratas in there. That program I think has been very good. We have participated in that program. Mr. Grucci. Thank you, Mr. Chairman. Mr. Miller. Thank you. Ms. Lee. Ms. Lee. Thank you, Mr. Chairman. Let me ask two questions. One is let me reference my city, Oakland, California. There is a program right now to bring 10,000 new residents to downtown Oakland. One of the issues of course is at what income level and how can people afford to live now in downtown Oakland because of the cost of housing. One of our strategies of course has been to look at a percentage of affordable units in each development. However, the developers with whom I have talked with have indicated that, you know, 30 percent of affordable units in the development would be cost prohibitive. They cannot get the financing for it. What percentage do you think makes sense to, I guess short of insisting on suggesting, developers do for affordable units in any new development where affordable housing is an issue and how can the financial institutions work with the developers to make the percentage, whether it is 25, 30 or 40 percent affordable? That is the first question. The second question I want to just ask any of you in terms of the role of non-profits, they seem to be able to provide more sustainable long-term affordable housing stock in certain parts of the country, I know certainly within my own community, and I wanted to see what you think are--what makes that possible in terms of non- profits versus the profit making developers. Why are non- profits more successful in terms of the production of affordable housing? Ms. Kaiser. I would like to address that, Congresswoman Lee, because I think your first and second question in your marketplace are very related. I think some of the more successful programs where we have seen the housing element addressed in the low-income component is when for-profit developers partner with non-profits and allocate a certain percentage of the project to affordable housing and let them work together to determine what percentage based on the size of the project, whether it is seniors or families, unit mix, that kind of thing. So you are right. You have a lot of strong non- profit developers up there who have worked very closely with market rate developers in building mixed income communities. I think one of reasons non-profits are probably very successful with this type of product is they can hold their breath this long. A lot of the market rate developers may not wait the long process that both Joes accurately explained. But we have a lot of for-profit developers who are also motivated to develop affordable housing. So I don't know that it is always the non-profit versus the for-profit mission. They are both motivated by profit. One just has a stronger mission and perhaps knows the infrastructure of multiple layered financing better than a market rate developer who may not put up with it. Ms. Lee. Let me ask what percentage of affordable units is reasonable for a for-profit developer, and I know it depends on a lot of factors, regional factors, the income level, the community ordinances. What seems to be standard nationwide? Is 25 percent, 30 percent, is that too much to ask? Mr. Flatley. Are you talking about doing that without subsidy; in other words, internally subsidized within the project? Ms. Lee. Right. Mr. Flatley. I think I have seen that sort of inclusionary zoning that was in the 10 to 20 percent range, which was pretty broadly acceptable. I think when you go beyond that it is really going to depend on the economics of a project. So I think 30 percent is probably aggressive; 15, 20 percent would probably be more standard. I guess that is my sense. Mr. Reilly. An 80/20 split seems to work pretty well in New York, but they work because there is a tax abatement associated with it and that is an important part of the subsidy to the project. That is an encouragement, an enticement for the developer to move forward with that structure. They want the tax abatement. Ms. Lee. Is there anything we can do to increase from 20 to 30 percent? I think that that 10 to 15 percentage points would help in many communities increase the availability. Mr. Reilly. I would go back to my earlier comments. I think you need more subsidy in order to do that. Ms. Lee. Federal subsidy. Mr. Reilly. Wherever it comes from. You need some cash to offset the reduction in revenue. I mean if it is an 80/20 rental and you want to make it a 70/30 rental, somehow you have to come up with the cash to offset the reduction in revenue, whether it is Federal or local subsidy, or maybe the tax abatement is sufficient to do it. Whatever it is, you need something to bridge that gap. Ms. Lee. Now, if a non-profit---- Mr. Miller. Ten seconds, Ms. Jones. Ms. Lee. Thank you, Mr. Chairman. How does a non-profit, however, bridge that gap because non-profits seem to get to 30 percent more easily than a profit making developer? Mr. Hinga. I think many of these subsidy funds are available to the non-profits and aren't available to the for- profits. So they are very successful in seeking out and getting those funds for the property. Ms. Lee. OK. Thank you, Mr. Chairman. Mr. Miller. I apologize for calling you Ms. Jones, Ms. Lee, but Mrs. Jones was next. But she is no longer here. So Ms. Waters. Ms. Waters. Prior to any question I may have I just simply say I came this morning because I wanted to hear us say over and over again how bad it is and how we need Government help. There is nothing in this budget that will help this situation, and I don't know what the Chairlady anticipates, as the Chair of this subcommittee. I don't know what she will do about this. Again we are putting on the record and we are documenting how bad it is. I just want to perhaps find out what has happened to the HUD subsidized units where the owners prepaid the mortgages at the end of the expiring use period so it opted out of the programs. I thought there was some attempt to keep some of those units on the market, and I thought something was being worked out so that non-profits, I guess, could manage them or gain access to them. What has happened to those units? Do any of you have any idea? Are any of you involved in trying to acquire some of those units and keep them on the market for low-income, moderate-income? Maybe you can answer, Ms. Mary Kaiser from California. Ms. Kaiser. I do think there are many efforts afoot, certainly more on the non-profit or the private sector side, to capture those. Number one, it is hard to find and identify who owns them and who you talk to and who the decisionmakers are in terms of prepaying the mortgage and keeping them at affordable levels. The market issues in some markets in California or elsewhere in the country are just too tempting not to take them to market. The non-profits are having to find multiple layers of subsidy to rehabilitate the projects. And so to be able to move quickly on those projects sometimes is difficult when you need a lot of different subsidies to make them work. Ms. Waters. I think someone mentioned to me that some properties were in great need of repair and rehabilitation, but I don't think there was any Government assistance to do that. Do you know anything about that? Ms. Kaiser. You can certainly reapply for tax credits. That is one of the issues of needing to make the pie bigger, not just cut it differently. Some of these projects are going in for tax credit financing, either tax exempt bond or 9 percent tax credit financing, to provide the injection of capital equity to allow for the projects to work, underwriting that rehabilitation cost. On their own it is really hard to take them, prepay the mortgage and keep them affordable. You have to apply for either local subsidy, State subsidy or some sort of tax credit program to provide that gap financing. Ms. Waters. Just in case I missed something I would like to hear from any or all of the panelists, do you have any magical answers, do you have any formulas, do you have anything other than testimony that basically concludes that we need some help in helping to develop units for low- and moderate-income people and that the Government could be very helpful, Federal Government could be very helpful in doing this? Do you have any other answers? Mr. Reilly. I think it is important to keep in mind that we have built an infrastructure, and the infrastructure is there to build housing, to finance housing. The developers are there. The lenders are there. There are many instances where we just can't make the numbers work. So we are back to the original thought, which is you need some sort of funding to bridge that gap. But the infrastructure is there. I think that the capacity is there to build the affordable housing that is needed. But sometimes the numbers just don't work. Ms. Waters. You need money? Mr. Flatley. I just wanted to comment on one program that is working pretty well, which is the Section 8 mark-to-market program, and that program actually is being very effectively utilized to preserve a lot of this housing where the market rents are much higher than the rents that they are originally underwritten at. And HUD is allowing those rents to rise up to the current market rent. And in Massachusetts that is helping to support either the continued ownership by a for-profit owner or sale to a non-profit and the housing remaining affordable. Ms. Waters. That doesn't expand much. Mr. Flatley. I thought you were raising the question of preserving the units that were done. You are right. Additional expansion, as we have all said, I think you have partners ready to work with the Federal Government as additional resources are made available, and I think the scale of the problem demands not just a small increase, but a very major increase in resources. Mr. Miller. Your time has expired, Ms. Waters. Ms. Waters. Thank you very much. Mr. Miller. The next would be Mrs. Jones. Mrs. Jones. Good morning, still, I guess. I kind of missed some of the testimony coming and going. Of all the programs that you have worked with or programs that the Federal Government has done with regard to affordable housing, would you assess for us the best practices, for lack of a better term, and I ask that to all four of you and we have 4 minutes. So you get a minute apiece. Mr. Hinga. I think the Low Income Housing Tax Credit has worked very, very well. You have seen from the testimony billions of dollars of private capital flow in and to be managed by professionals like Joseph Flatley's group, and those investments also made directly by banks. I think, you know, knock on wood, there haven't been any major problems with that program. Mrs. Jones. Let me ask you this question, and this will cut off on some of our time, that Low Income Housing Tax Credit program, for what period of time does it last? Mr. Hinga. The project has to stay, at a minimum, affordable for at least 15 years, and then almost every State in their allocation process makes you commit to another 15 years. So, typically it is at least 30 years of affordability. Mrs. Jones. So I guess in 1999, that was when I first came to Congress, there was a real dilemma about a number of those 30-year properties coming to the end of their 30 years and going now back into market rates that gave us part of the dilemma we have with the lack of affordable housing across the country? Mr. Hinga. What you are describing there is a lot of HUD programs where the contracts are expiring and then that leads to what are you doing with housing now? Does it go to market or can you restructure it and keep it affordable? Mrs. Jones. Would you suggest then that perhaps what we need to do with the Low Income Housing Tax Credit is to have an option for us to extend it another 10 years at the end of 30 or not? Mr. Hinga. You almost have that now, Congresswoman. Almost every State is going to make you do that anyway, because it is so competitive to get the dollars awarded to you that in their allocation plans they are almost across the board making you keep it another 15 years anyway. Ms. Kaiser. In California it is 55 years of affordability. So I think we will see a long time before those are at risk. I think the answer really is if we increase the ability to build new projects by increasing the cap of both of those programs you will see more and they will have long-term affordability with them. Mrs. Jones. Mr. Reilly, what program for you? Mr. Reilly. I would say the Low Income Housing Tax Credit program has worked very well. We are a very large investor in the program. We like it from an investment standpoint, and I think that the quality of the housing has been generally very good. So I think that we are meeting the need for or at least some of the need for affordable housing and we are also involving the corporate sector as investors and investors seem to be interested in the returns. I think the returns are a little bit low right now, but I think that given the increased supply over the next couple of years they will probably go back up. Mrs. Jones. Mr. Flatley, let's step outside the box a little bit. Is there something else we might do to enhance affordable housing? Mr. Flatley. I think the home ownership tax credit idea in the President's budget is not a bad idea. I think that would, in fact, expand the supply of units. I don't think there is any magic bullet other than money. Mrs. Jones. Or incentives. Mr. Flatley. I think the incentives have to be fundamentally financial if you are going to bridge the gap. When you look to other things you are really avoiding the fundamental responsibility, which is a financial one. Mrs. Jones. I have a constituent, and this is my last question, Mr. Chairman, who called me and said I have a daughter who is 30 years old and disabled. She is finally out and working on her own. Her dilemma is that once she leaves the job as an established disabled person where she is working for some minimum amount of wage and she comes past that, then she needs to go to--if she goes to regular minimum wage that kicks her out of the ability to have housing under housing disability programs. Are any of you familiar with any of those programs, and what suggestions do you have with regard to--well, my suggestion is they raise the dollars that they are able to make in order to be able to stay in the facility. Do any of you have experience with housing for the disabled in the course of affordable housing? Ms. Kaiser. There are a lot of non-profits who deal specifically with special needs housing, and Shelter Plus Care, for instance, is a program that provides operating and rental subsidy to special needs tenants. One of the difficulties for the private sector to deal with those kinds of fundings is they are typically on annual contracts and you need long-term mortgages to make this work. And so to the extent that we can count on those programs year-in and year-out and what the rules and requirements are I think it will make it easier for the private sector to underwrite those federally-funded---- Mrs. Jones. To the special needs program. Thank you, Mr. Chairman. Mr. Miller. Ms. Velazquez. Ms. Velazquez. Thank you, Mr. Chairman. I want to thank all of you for being here today. This is important, especially coming from New York City. I represent a district in Brooklyn that is so far from Manhattan it was like a foreign territory 10 years ago. Well, now when the market in New York went up in New York City, so people are discovering Brooklyn, Williamsburg Bridge, they are getting there, gentrification is taking place. Mr. Reilly, you spoke about the need for lawmakers to develop a new Federal financing resource, funding--I'm sorry, Mr. Flatley--and have you thought about how much money we need to finance such a funding? Mr. Flatley. Well, what I suggested in my testimony is that with the scale of the problem, to have a real impact would require effectively doubling the level of resources presently available. I think I mean the problem outstrips what we are doing by so much that if we increase only by 10 or 15 percent what we are doing, the problem is getting worse at a rate faster than what we are building. We are losing more units, and we are losing more families in terms of their ability to afford units at a rate much faster than we can respond. Ms. Velazquez. And you spoke to such funding to be separate from the application process. Mr. Flatley. It would be best if it could be done outside that process. Ms. Velazquez. And I agree with you. Mr. Flatley. I think the issue is dependability and getting people motivated to spend the 2 or 3 years in order to actually create a pipeline. And it will also create more efficiency for the Federal Government. You will get more for your money if you do it in a way that is dependable, so that it is not sort of on again, off again. Ms. Velazquez. So how would you finance such a trust fund? Mr. Flatley. I don't think I am in a position to recommend where the resources come from. There was a proposal last year by Senator Kerry to create a housing trust fund financed out of the FHA surplus and an FHA insurance fund. I think the testimony since then has been that there really isn't much of a surplus or maybe it should go to other purposes. I think the question is: is there a way to provide a trust fund which provides predictability so that people like ourselves and developers can look at it and say, yes, the resources are going to be there on an ongoing basis. Ms. Velazquez. How do you feel about using the surplus from FHA? Mr. Flatley. That would be great if it is available. I don't really know that much about the availability. I am not an actuary and I don't really know whether there is, in fact, a real surplus there, or whether people think that money should go back as rebates to the policy holders. I think that is a legitimate argument. I don't want to set it up as sort of robbing Peter to pay Paul. I think you are really going to need to find resources and inevitably it is likely to be new resources. I think to try to somehow try to pull it out of the little bits of money that may be in different hiding places in the Federal Government is probably not going to be on a scale to really address the problem. Ms. Velazquez. Thank you. Mr. Frank. If the gentlelady would yield, let me say, as the Chair, Mrs. Roukema, indicated, we had a very good hearing at her initiative in which the Congressional Budget Office, the General Accounting Office and the Office of Management and Budget testified specifically on the FHA fund and the unanimous conclusion was that there is a surplus, that it is, in fact, enough so that no foreseeable economic downturn could call it into question. And the use to which it is being put now is to not give a rebate to home buyers or anybody else, but to go into the general revenue so it is available for tax cutting. So the answer is yes, there is an FHA surplus. That does not answer the question of whether that should or should not be used for this, but I wanted to be clear we have a significant FHA surplus and right now it is counted on as part of the general governmental surplus. Thank you. Mr. Miller. [Presiding.] Mr. Clay. Mr. Clay. Thank you. Let me preface my remarks by first stating that I represent the City of St. Louis, which is an older urban center with a housing stock somewhere between 80 and 100 years old on average. I live in a home that is about 80 years old. Do you see that there are quite a few problems in historic preservation? Any of you can tackle this question. Do you see a real need for historic rehab tax credits? Has anyone addressed that yet? Mr. Hinga. I can tell you, Congressman, that our direct investment strategy, where we are doing tax credit deals directly and not through funds, we really look and seek out historic tax credits. Most of the time you are going to see those in one of two fashions: They are going to be combined with the housing component, or they are going to be a commercial retail component. We look to make sure it is in a designated targeted area, that it is going to really be economic redevelopment, and so forth. Frankly, it is a great program. The yields from an investment standpoint are actually better than just the Low Income Housing Tax Credit. It is really something that is out there that is not probably utilized as much as it could be by the investment community, and I think it has picked up lately because it is a very attractive product, and it really can make something, again, happen in certain areas, because it does provide a little bit higher level of equity coming into the deal and it is typically a 5-year compliance period. So from an investment standpoint, it is pretty attractive. Mr. Clay. Do you think more emphasis should be put on helping people who are renters transition into home ownership? Do you think that would help as far as availability of housing units? Mr. Hinga. Through the historic? Mr. Clay. No, just in general, to help people transition from rental units to owning their own homes? Mr. Hinga. I think across the board there are always exceptions, but generally I think that is absolutely great, because home ownership strengthens the community; it also provides equity buildup for that owner to eventually be able to use that equity in their house to build private wealth for their family, finance college. I think it is a great. That is why Mr. Flatley mentioned earlier the proposed tax credit for single-family housing, I think, is an interesting opportunity. If it could end up being as successful as the Low Income Housing Tax Credit for rental units, it may be a real home run-type project. Mr. Flatley. One thing I would add, quickly, is that one of the best ways to increase home ownership is to relieve some of the excessive affordability burdens on renters. One of the obstacles to renters becoming homeowners is if they are paying more than 50 percent of their income for rent, they are not going to be able to save for a down payment. So many times you get caught in this debate between rental versus home ownership. Well, one of the best ways of getting more people into home ownership is by creating programs, rental programs, which create the mobility, so people can, in fact, save the down payment and move on and become homeowners. Mr. Clay. Thank you. Let me also ask anyone on the panel about successful models. In St. Louis, we rely a little bit on Habitat for Humanity and another program called Youth Build, mostly sweat equity programs. Have you seen any models that may be worthwhile and worth shopping around the country for? Anyone on the panel can attempt to address that. Mr. Reilly. I think those are two very good examples. But I think they are part of the strategy. I think that you need to use all of the different resources that are available to meet the need. I think that requires employing the private sector as it relates to the private development community as well, to build housing. It can't just be on a volunteer basis. I think that is one strategy. I think it is a good strategy, but I think that we need more than that right now. In terms of models, I think that in New York we have the New York City Housing Partnership, which has built thousands of units of affordable for-sale housing, and I think that that is one that certainly requires subsidy and certainly is replicable if subsidy is available in other locations. Mr. Clay. Thank you very much. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you. I do apologize. I believe this now has concluded the questioning of this panel. You have given us a lot to think about. By the way, I do apologize for having to leave. There was an important debate on my other committee on the floor with historic legislation, and I had to be over there for a few minutes. But you have been an excellent panel. You have contributed a lot of information to us. Of course, you haven't told us how we are going to be able to pay for these things, but we will take that under consideration. First we have to get our priorities straight. But I do appreciate it, and the fact that I didn't have questions does not reflect negatively on you, it reflects positively on you, because I think all four of you explained yourselves very well and gave us a lot to think about and to take under consideration as we move toward legislation. Thank you very much. The next panel, if Panel II will take their positions. I think we are in very good position to be able to hear your testimony and question this panel without any interruptions from voting on the floor. At least I hope we have planned that well. Panel II, I want to welcome you. The Honorable John DeStefano, Mayor of New Haven, Connecticut. And Mayor DeStefano is here on behalf of the National League of Cities, representing them. Welcome, Mr. DeStefano. Mr. Raymond A. Skinner is Secretary of the Maryland Department of Housing and Community Development and is here representing the Council of State Community Development Agencies. We certainly welcome you. Mr. Randy Patterson. Mr. Patterson is Executive Director of the Lancaster County, Pennsylvania, Housing and Redevelopment Authority. Obviously, all three of you have considerable experience in the field and can give us the benefit of your practical and pragmatic understandings of the problem and what the potential alleviation of those problems is. I thank you, and we begin with the Honorable John DeStefano. STATEMENT OF HON. JOHN DeSTEFANO JR., MAYOR OF NEW HAVEN, CT; ON BEHALF OF THE NATIONAL LEAGUE OF CITIES Mr. DeStefano. Thank you, Madam Chairwoman. It is good to be here with you and Members as you have patiently sat through all of this. I have enjoyed listening to it as well. I am the Mayor of New Haven, Connecticut. I also am Second Vice President of the National League of Cities (NLC). The League represents 1,700 cities and towns across America and is the largest and oldest organization of American communities. I want to make a distinction about how you are having this discussion about affordable housing. I think it exists on two levels. One is the issue of access, which is the issue of access of anybody at low- and moderate-income levels to housing of their choosing. However, I think there is a second part of affordable housing that speaks to a greater need, which is those populations which not only do not have access to housing, but are also characterized by joblessness, low educational attainment, single-parent head of households, the sum of which those characteristics create neighborhoods that have cultures and problems that are far deeper than just housing. Having said that, the problem that we have today in America around affordable housing is to my point of view one that we have chosen to have. I say we have chosen to have it, because I believe in large measure the private sector has, for reasons that have to do with where profit margins exist, chosen not to go there, and Government, for reason of where there are other priorities that exist, has chosen not to go there as well. You all represent districts that have, to some varying degree, these problems. I would make some specific suggestions. First, do no harm. Do nothing to weaken CRA lending in America. I would urge, suggest to you strongly, that if you did, whatever private-sector investment goes into this problem will disappear. Second, do not walk away from public housing in America. The budget that has been submitted to the Congress has a $700 million cut in the capital fund, which is the major modernization fund for public housing. It is incredible to me that this older housing stock would be subjected to further disinvestment by our partners in Washington who encouraged us to build this housing in localities. Third, I would speak to flexibility. As the prior speakers have said, this a funding issue, not a regulatory issue. However, rules that limit placement of Section 8 certificates in high-impact, high-poverty neighborhoods, frankly works against rehabilitation of some of these units. Fourth, support programs that work. CDBG and HOME are wonderful programs that every speaker that was up here in this last panel will tell you were part of any deal they did to do affordable housing in their communities, and they speak directly to the gaps in these projects that anyone who has tried to put any of these together faces. Support what works: HOME and CDBG. I want to say a word about local zoning. I do not expect the subcommittee to engage in local zoning. I would tell you, though, as of right now, zoning on an acre of land in New Haven is 22 units per acre. I am surrounded by communities that have minimum building lots of 2- and 2\1/2\ acres. Often times, local zoning is no longer used just to prevent affordable housing, but to prevent any kind of multifamily housing. At its root it is often caused by prejudices and ignorances. However, seeing some of the ways we have maintained public housing, I certainly understand some of the fears about it. The best way to overcome those fears is to build housing that works, and we do that by investing in it. Finally, I would just say to you, this is a larger issue than building decent housing. I come from a community that tried to rebuild itself in the 1960s by massive slum clearance. When we did slum clearance, we tore apart the fabric of neighborhoods, relationships among neighbors and among institutions of neighborhoods like churches and businesses. What you are investing here as well is not just access to decent housing, but to the strength of our neighborhoods. Everyone who has spoken to you has spoken to you about the need to invest. That means add money. Governance is about making choices. Congress is about to make a choice about a tax cut. When it makes a choice, it will also be making a choice about affordable housing. Thank you for listening to me. [The prepared statement of Hon. John DeStefano Jr. can be found on page 347 in the appendix.] Chairwoman Roukema. Thank you. You really adhered to the 5- minute rule. We appreciate that. Mr. Skinner. STATEMENT OF RAYMOND A. SKINNER, SECRETARY, MARYLAND DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT, ON BEHALF OF THE COUNCIL OF STATE COMMUNITY DEVELOPMENT AGENCIES (COSCDA) Mr. Skinner. Good morning, Chairwoman Roukema, Representative Frank, and Members of the subcommittee. My name is Raymond Skinner. I am the Secretary of the Maryland Department of Housing and Community Development. I am delighted to be here this morning. I am here today in my capacity as President of the Council of State Community Development Agencies, or COSCDA. COSCDA supports the common interests and goals of States with a major emphasis on community development, affordable housing, local economic development and State-local relations. COSCDA's members administer a wide range of Federal and State programs focused on housing and community development, many of which you have heard about this morning, including the Low Income Housing Tax Credit program, mortgage revenue bonds, the HOME program, CDBG, and so forth. Before I begin, I want to thank you for holding this hearing and for recognizing the need to address the dramatic problem of affordable housing in America. COSCDA's members very much appreciate this subcommittee's efforts to expand housing opportunities for low-income people. I am here today to discuss with you the tremendous need for affordable housing and to discuss our ideas for solving the affordable housing crisis as it has already been characterized. First, the need for affordable housing in Maryland and around the country has been documented in newspaper articles and many reports around the Nation. One of the most notable such is HUD's report on Worst Case Housing Needs. HUD's Worst Case Housing Needs study shows that the number of rental units available for very-low-income households fell by more than 1 million units from 1997 to 1999. Even more alarming, the study noted that the number of units available to extremely-low- income households, households earning less than 30 percent of the area median income, dropped by 750,000 units. The loss of these units, coupled with the dramatic increase in the cost of housing, has created an affordable housing crisis throughout the country. Although the need for affordable housing is staggering, there is some good news, and that is that we know what works. As you have heard from a number of witnesses this morning, there are currently a number of programs that address the housing needs of some American families, but we need additional resources to more adequately address the problem. I would like to mention just a few of the successful programs that my agency and others like it around the country currently administer. First, the HOME Investment Partnership Program. The HOME program provides a proven, successful model for the development of affordable housing for low-income people. HOME provides State and local governments with the flexibility to meet the unique needs of local communities. Nationally, the program has assisted in the development of more than 580,000 units of affordable housing, with a substantial number of rental units produced serving extremely- low-income people where there is the greatest need. Additionally, the HOME program has a proven record of fostering successful community partnerships--again you have heard about that this morning--leading to community support and the leveraging of funds. In fact, for every dollar of HOME money invested in a project, more than $3.50 of additional financing is leveraged. This program works well, and we ask Congress to increase appropriations for it. In Maryland, we use 65 percent of our allocation of HOME funds for rental housing. Forty-five percent of the tenants in the rental developments we have financed using HOME funds earn less than 30 percent of the median income, and all earn less than 50 percent. Second, the Low Income Housing Tax Credit is a tremendously successful tool, again as you have heard from previous witnesses this morning. The tax credit is administered by States, and the program has made possible the development of more than 1 million units of affordable housing. Frequently used in conjunction with other programs, including HOME, the tax credit serves as a major source of funds for the development of affordable housing. While we appreciate the increase in the tax credit passed last year, it is still not enough to address the need or demand for affordable housing. For example, in our latest tax credit competitive round in Maryland, requests for funds outnumbered funds available by 4-to-1. Another tool generally not associated with housing, but in fact, States and local governments are using for housing, is the Community Development Block Grant program. CDBG has served as a flexible resource of housing funding and housing-related activities for low-income people for more than 25 years. While the program provides resources for a variety of projects, States in general spend about 20 percent of their CDBG funds directly on housing. In Maryland, that figure is about 30 percent. CDBG has aided in the production of hundreds of thousands of affordable housing units and remains a vital tool for the development of affordable housing. Lastly I will mention the McKinney-Vento Homes Assistance Programs, which includes two programs, Shelter Plus Care and the Supportive Housing program, which provide for permanent housing. These programs are effective tools for housing homeless people; but, again, the resources are not sufficient for meeting the need. We strongly support efforts to shift the renewals of Shelter Plus Care program and the Supportive Housing program into the Housing Certificate Fund. While all of these programs are very effective and have proven track records, we believe that there is a real need for a new rental housing production program which focuses on extremely-low-income households, meaning people earning less than 30 percent of the median income. COSCDA supports the creation of a new rental housing production program administered by State agencies and modeled after the highly successful HOME program. A new rental housing production program is greatly needed to support the production of more affordable housing. Nationwide, production levels are far below what they have been historically. Production in the late 1990s was less than half of what it was in the early 1990s, despite our extremely strong economy. The case for new production is strengthened further by the fact that while housing vouchers are vitally important, there are many areas around the country, including some areas in the State of Maryland, where there simply are not units available for people with vouchers to rent. We believe that any new production program should primarily serve people at 30 percent or less of the median income. Chairwoman Roukema. Excuse me, can you conclude, Mr. Skinner? Thank you. Mr. Skinner. Additionally, COSCDA believes the new programs should be compatible with existing programs, including HOME and the Low Income Housing Tax Credit, and eligible uses for the new program should include new construction, substantial rehabilitation, and preservation. In closing, the argument for more affordable housing in this country is clear and convincing, as you have heard from many witnesses today. The programs and policies required to effectively and efficiently meet the needs are largely in place. At this point, State and local governments need additional resources to partner with housing developers and community organizations to increase the supply of affordable housing for extremely-low-income American families. I appreciate the opportunity to share our views with you, and I would be happy to answer any questions you have. [The prepared statement of Raymond A. Skinner can be found on page 359 in the appendix.] Chairwoman Roukema. Thank you. Mr. Patterson. STATEMENT OF RANDY S. PATTERSON, EXECUTIVE DIRECTOR, LANCASTER COUNTY, PENNSYLVANIA HOUSING AND REDEVELOPMENT AUTHORITIES Mr. Patterson. Thank you, Madam Chairwoman and Members of the subcommittee. I am appearing before you today on behalf of five national associations which represent local elected and appointed officials. We appreciate the opportunity to share our views with you and our recommendations on the issue of housing affordability and the role that Federal programs may play in addressing this issue. I have prepared a written statement for the record, and that statement highlights some of the national affordability issues. I would like to describe a little bit the experience in Lancaster County, a more rural community rather than an urbanized area, with a central city of 55,000. In Lancaster County, housing affordability is also a serious issue. In order to afford a 1-bedroom rental unit renting at fair market rents in Lancaster County of $466, a person making just over the minimum wage of $7 an hour must work 51 hours a week to afford that rental unit. For a 3- bedroom unit, that same person would have to work 83 hours a week, or earn a minimum of $14.83 an hour. As a further illustration, we have run into issues with the Low Income Housing Tax Credit and the affordability. The average 3-bedroom unit in Lancaster County has a 3.5 person occupancy. The Low Income Housing Tax Credit rent is $666 a month, but the average family residing in these units only earns 36 percent of the Lancaster County median income, and they are therefore paying 45.5 percent of their income for rent. The same lack of affordability falls to 1- and 2-bedroom units. In Lancaster County, a family of four earning 50 percent of the area median could afford to purchase an $85,000 home, but the average price of a single-family home is $127,000. We have been asked to comment on the effectiveness of several Federal programs to address some of these issues, including HOME and the Community Development Block Grant Program, to expand affordable housing opportunities and to undertake neighborhood revitalization efforts. The HOME program has been a catalyst in spurring new affordable housing development since 1992. It is useful when providing funding for housing production, particularly as gap financing for rental projects. The flexibility of the program allows local participating jurisdictions to use the program funds in combination with other funds. According to cumulative HUD data, as of the end of March 2001, HOME has helped to develop or rehabilitate over 583,000 affordable homes for low- and very-low-income families, including 252,000 for rental and 331,000 for ownership units. Targeting in the program is deep. More than 82 percent of HOME assisted rental housing was benefiting families at or below 50 percent of area median income, while 41 percent was helping families with incomes at or below 30 percent of median income. For each HOME dollar, $3.87 of private and other funds is currently being leveraged. In Lancaster County, our leverage rate exceeds $5 per $1 of HOME money. Clearly this demonstrates the efficient and effective use of HOME dollars by local governments. The Bush Administration is proposing a $200 million set- aside within HOME for a down payment assistance program to be administered by State housing finance agencies. We are opposed to this set-aside. HOME funds may already be used for down payment and/or closing cost assistance, as may Community Development Block Grant dollars. Since 1992, $1.06 billion in HOME dollars have been used for this purpose. We do not believe there is a need to create a separate program for this purpose, for it would result in a $200 million cut in formula grants. During the 106th Congress, there were a couple of proposals to create a new housing production program primarily targeted to households at or below 30 percent of area median income. Rather than this approach, local officials proposed a housing production element be incorporated within HOME, because the infrastructure is already in place. Our proposal would provide grants for new construction, substantial rehabilitation, and preservation of multifamily housing. Mixed-income projects would be encouraged. All of the resources made available under a proposal must benefit households at or below 80 percent of median income, with at least 25 percent benefiting those at or below 30 percent of median. Funds would be apportioned 60 percent to local participating jurisdictions, and 40 percent to States, using the formula that measures inadequate housing supply. We would be pleased to work with the subcommittee on crafting a production program. The Community Development Block Grant program is another Federal domestic program which is quite successful at the local level, primarily because of its maximum flexibility to address our local needs. Legislation has been introduced, H.R. 1191, that we believe would fundamentally change the nature of the program and destroy the program's current flexibility at the local level and effectively eliminate area benefit activities. Instead of being a program or a tool for expanding affordable housing opportunities and encouraging neighborhood revitalization, we believe it would be turning the program into an anti-poverty program, something Congress never intended. There are several refinements to both the HOME program and the CDBG program that we have included in our statement, which we submit for the subcommittee's consideration. We also seek a funding level of $5 billion for the Community Development Block Grant program and a funding level of $2.25 billion for the basic HOME program and an additional appropriation of $2 billion for the rental production program. Thank you for the opportunity to address this issue. [The prepared statement of Randy S. Patterson can be found on page 352 in the appendix.] Chairwoman Roukema. I thank you. Let me first observe, as Congressman Frank commented to me and I should have made specific reference, particularly when Mr. Skinner mentioned the McKinney-Vento Homeless Assistance Act, Mr. Frank and I both served on this Congress and this subcommittee with both Mr. McKinney and Mr. Vento. They were magnificent leaders on a bipartisan basis, and unfortunately they died prematurely, but having left this in their memory for all those and left a standard of accountability for us, a standard whereby we should be reaching. I appreciate the fact that Congressman Frank mentioned that. Mr. Frank. Thank you. Chairwoman Roukema. I would say, first I have got to make a statement here about local zoning. You are speaking favorably about overriding local zoning, and I have just got to tell you, not on my watch. Not only New Jersey, but I just happen to believe that the Federal Government should not be involved in local zoning. There are incentives there that we may want to establish, but that should not in any way have any command over local zoning. Mr. DeStefano. You misunderstand me, Madam Chairwoman. I would make an observation about local zoning, that it is often driven by ignorance and fear, and the best way to overcome that is to build affordable housing that anyone would welcome as a neighbor. Chairwoman Roukema. With the local people making that case for either approval or disapproval at the State and local level. Mr. DeStefano. Right. I think at some point we have to figure the larger issues do apply here about acting reasonable. However, I think that people will give up their pocketbooks before their prejudice. So I consider this as a pocketbook discussion. Chairwoman Roukema. I think you have to understand New Jersey and me in order to know how absolutely opposed we are to that. But more importantly, more directly, I did want you to expand a little bit more on the HOME program. Perhaps it was inferred and implied and essential to your statements on the HOME program, but I don't understand quite why it is not providing the necessary production that we originally thought. Is it a deficiency in the program or is it a missed perception about what we thought was the housing production capacity that it embodied? Mr. Skinner, or whoever? Mr. Skinner. I think, first of all, I don't think the HOME program was necessarily intended as a production program per se. For example, there are a number of other uses for the HOME program, some of which you heard about today. For example, many States and local governments use HOME for down payment assistance. They use it for single-family rehabilitation, for direct tenant assistance and for special- needs housing and so forth. So that really dilutes the HOME program in terms of its availability for present rental housing production programs. Chairwoman Roukema. Are you finished, Mr. Skinner? Mr. DeStefano. There is not a problem with the program. I would just tell you in my community, and I think many of the communities we represent at NLC, I could double-program what we get. Chairwoman Roukema. I am sorry, I didn't understand you. Mr. DeStefano. If we had twice the money, we could commit that level of funding to development of affordable housing. So it is not a program issue, it is a resources issue. Chairwoman Roukema. Well, we will have to go over this, and I will study your comments. If you can, aside from the funding question, if you can help us in any way to improve the program, if necessary, beyond the funding question. Mr. Patterson, did you have a comment? Mr. Patterson. I agree. The issue is not the program itself. In Lancaster County, we use the HOME program primarily as a financial tool for housing production of new housing or the conversion of vacant and underutilized facilities to housing. But, because of the funding levels, we are still only permitted to fund approximately one 60-unit project per year. Our needs far outstrip that availability of funding. That is why the project includes Low Income Housing Tax Credits, the Federal Home Loan Bank Board, and local housing funds from a trust fund that we have developed. [Mr. Randy Patterson submitted this additional information at a later date: [Lancaster County, PA, has used 68 percent of the $10,233,000 in HOME dollars received since 1993 to produce 355 units of rental housing. Of these 355 units, 259 units were for family housing and 96 were reserved for elderly housing. An additional 10 percent of the HOME dollars were used to provide downpayment and closing cost assistance for first-time homebuyers. Remaining HOME dollars were used to renovate single family homes and provide short-term rental assistance for families. The HOME subsidy required to produce housing at a reasonably affordable rent requires the county to provide an average subsidy of $1,200,000 to construct a 56-unit multi-family rental project with a total development cost of more than $5,700,000. In addition to the HOME dollars, an average project such as this often requires a mortgage provided by a local bank using Federal Home Loan Bank funds, a subordinate mortgage through the county's housing trust fund and Federal Low Income Housing Tax Credit.] Chairwoman Roukema. Thank you. I appreciate your comments and I will look into this in more detail myself. But if you mentioned anything about faith-based groups and the partnerships there, I didn't hear it. Now, I happen to be one who has had a lot of experience with faith-based groups. I do not believe that there is any problem with separation of church and State. In the State of New Jersey, we have had some exceptional housing programs that have been partnershiped with faith-based groups. Have any of you had experience or can you give us some insights or understanding, or do you have any recommendations to make? Mr. Patterson. We have worked with several faith-based organizations in Lancaster County, not only from the housing production side, but also from the provision of services to very-low- and extremely-low-income persons, to help them save for that down payment that they need, or for closing costs, to help them go through the process of pre-purchase counseling and post-purchase counseling. We have worked with a local housing partnership that includes bankers, developers, builders, municipal officials, and faith-based institutions in a local partnership to provide down payment and closing cost assistance and the new construction of housing. [Mr. Randy Patterson submitted this additional information at a later date: [Although Lancaster County has not provided HOME dollars to faith-based organizations to rehabilitate or produce affordable housing, the county has provided local housing trust fund dollars to faith-based organizations to renovate and resell properties, build new single-family townhouses, and create transitional housing for female heads-of-household who have been through drug rehablitation programs.] Chairwoman Roukema. I am glad to hear that. Any further comments? Mr. Skinner. Likewise in Maryland, we have worked throughout the State with a number of faith-based organizations, non-profit organizations, in the development of affordable housing, both rental and for home ownership, using both the Federal resources as well as State appropriated dollars that we have available, and it has worked very well. Chairwoman Roukema. Thank you. Mr. DeStefano. CDBG and HOME funds have been used that way for years. The faith-based organizations do just that; they provide a level of support for these families that recognizes this is not just a housing transaction, it is moving people into a different kind of housing than they are used to, and helps provide them support in becoming a member of the community. Chairwoman Roukema. If you can provide and submit for the record and for me personally any recommendations you could make as to how we can expand and improve on this kind of a partnership based on your own experiences, I would greatly appreciate it. I appeared at a housing panel that was part of a program on faith-based initiatives, what, last month--within a few weeks. And it was amazing how many people were there from both the private sector as well as the faith-based sector that were endorsing it based on their own experiences, and also assuring that in a very simple way we can keep the separation of church and State and not be evangelized or promoting religious factors, but actually producing housing. I thank you. Congressman Frank. Mr. Frank. Thank you, Madam Chairwoman. I apologize for being on the phone to everybody but Mayor DeStefano, because I was talking to Rose DeLauro. As far as faith-based groups are concerned, I think the point is very important. I worked closely with the archdiocese in Massachusetts, Father Mike Groden. We built some housing there. My nominee to be the co-chair of this new commission we have on elderly housing is Ellen Feingold, who runs Jewish Community Housing for the Elderly. I think the point is very clear. Under existing law, there is no obstacle whatsoever to faith-based groups doing this. We don't need to change the law. It does mean if they are prepared to do this like anyone else, they can do it. We get the benefit of that. Obviously they don't discriminate in who they let in, and they don't proselytize. What they need, I think, is just an expansion of the program. But, yes, we already have this, and I think that makes the point; there is no need to change the law to allow faith-based groups to give us the benefit of their commitment and expertise if they do it in the same way others do, and we have benefited from that very much. I appreciated all the testimony. I particularly appreciated your reference to CRA, because if you want to have the private sector participate, then Community Reinvestment Act strictures are very, very helpful. I was especially pleased to see in all three that you are speaking, I gather, not just personally, but for the organizations you represent. I think what we see is an overwhelming consensus among people who are concerned with housing availability, whether they are consumer groups, whether they are the lenders, whether they are the municipal officials, whether they are the people in the business, the mortgage bankers, the homebuilders, the realtors, we need a larger Federal role. There simply has to be if we are going to deal with this, not all by itself, but among other things, Federal help. But I also appreciate having three officials who work at the actual State and local level who administer these programs, acknowledging, if I get it correctly, that we have achieved the kind of flexibility on the whole we need. We can make some improvements. But the old image people have of inflexible programs that you can't use, you don't believe that is true of CDBG and you don't believe it is true of HOME. We have made progress with the tax credit. So I do think, and I was pleased to hear this, that the single biggest thing we need is additional resources. I have a particular question to Mr. Skinner on this, because we did have a legitimate dispute with Secretary Martinez. He maintained, when he testified, that the lack of utilization of Section 8 reflects on poor housing authority management and that good housing authorities are able, in fact, to utilize them. Let me start with Mr. Skinner; and then, from the expression on his face, I am going to go to Mr. Patterson. Mr. Skinner. Mr. Skinner. I think it really depends on the area of the country. I can only speak very directly and specifically about my experience in Maryland. But just in talking with my colleagues around the country, I think it really depends. Part of the problem we have in many areas of Maryland is just the availability of rental units. Mr. Frank. No matter how good the housing authority would be in some places, you just couldn't use the Section 8's at the current level. Mr. Skinner. I don't think the housing authority is the issue. Thanks. Mr. Frank. That is a specific point, and that is important, because the argument for a production program in part has to be that the voucher program with the best efforts in the world won't work. Mr. Patterson, you looked like you had something? Mr. Patterson. As the executive director of a local housing authority, I take great exception to the statement it is the administrative issues. Our housing authority has always been above the 95 percent lease-up rate until the last year-and-a- half. There were several issues that created that, in our opinion. One is the lack of affordable rental housing outside of the city of Lancaster, in the county, that people can afford when they are limited to paying 40 percent of their income and going out and trying to find a unit that is affordable to them. Those units simply are at a shortage in Lancaster County. The second issue is that we have really created with the targeting to persons with incomes 30 percent of the median income, we have restricted the usage of vouchers. We have a significant number of people now on our waiting list between 30 and 50 percent of median that we cannot serve because of the targeting rule of 75 percent for those 30 percent and below. Mr. Frank. What you said is you went from a 95 percent rate to a lower rate? Mr. Patterson. Our rate is currently 85 percent. Mr. Frank. That is about in a year-and-a-half. Mr. DeStefano. Oftentimes the problem is inflexibility imposed by the Federal Government. We can't place Section 8 certificates in poverty high-impact neighborhoods. Well, try to find a census tract that has multifamily housing. It doesn't. Mr. Frank. I just want to ask all of you, and I gather you are saying implicitly--let me make it explicit--it is not that there has been in the past year-and-a-half a deterioration in the quality of the work of your housing authority; that if we are going to look for a reason it dropped, it must be something else. Mr. Patterson. My staff would be extremely disappointed if I would stand here and say that it was. Mr. Frank. I will ask all of you, because this is a very critical question, and we had this discussion with Secretary Martinez, and he quite explicitly said that it is up to the housing authority and ruled out the notion that it was the kind of problem I think you gentleman are mentioning. If you choose to elaborate on that, I think that would be very helpful. Again, the Section 8 voucher program in some parts of the country is a good one, and it ought to be part of the program wherever we do it. But the notion that it is sufficient and you don't need a production program is really central to the debate we are having, and I would appreciate anything you have to say on that. Thank you all. Chairwoman Roukema. I believe Congressman Watt has some questions. Mr. Watt. Thank you, Madam Chairwoman. I want to applaud these witnesses for coming and being forthright in their assessment of the problem, and to help us reinforce something we have said over and over and over again, that even the most committed of the Members on our subcommittee sometimes lose sight, such as the Chairman and Mrs. Kelly, for example. You can't just authorize a program and have that solve the problem. If you don't commit the resources to carry out that authorization, it does not work. I know we don't commit resources in this subcommittee. We think once we have authorized a HOME program, the concept is fine, that solves the problem. But when the appropriators or the policymakers or the President chooses to use the funds in some other way and not make the financial commitment to it, then the problem still exists. In fact, some of the programs that we authorize can be counterproductive to housing, and HOPE VI in particular in my community has resulted because of decrease in concentration. I support the program, a great program. But when you decrease concentrations, unless you rebuild low-income housing somewhere else, what you have is a net loss of housing units. When you have the problems that you have, as I do in parts of my congressional district, not in other parts, with Section 8 vouchers, then you can't transfer those people over and allow them to use Section 8 vouchers to solve the problem. So some of our own authorized programs sometimes have unintended consequences. Let me try to reconcile, since we are trying to get information that will help us authorize programs that work, there seems to be a difference of opinion between Mr. Patterson and Mr. Skinner, and maybe it is just I am reading into it. Mr. Patterson, on page 3 of his prepared comments says: ``We note that the Bush Administration proposes a $200 million set-aside within HOME for a down payment assistance program to be administered by State housing finance agencies. We are opposed to this set-aside.'' Mr. Skinner says: ``COSCDA supports the creation of a new rental housing production program administered by State agencies chosen by the Governor and modeled after the highly successful HOME program.'' Are you all in conflict with each other, or can you help me reconcile what you all are saying, so as we start to write legislation we are clear on what it is you are saying? Mr. Skinner. No, I don't think there is any disagreement. What I was saying, two things: One is that we, COSCDA, believe that we need a new housing production program. But, second, the HOME program has been a very effective program, and I actually agree with Mr. Patterson's view that there should not be a set- aside within HOME. As he indicated, HOME currently can be used for down payment assistance, and both State and local governments do that now. I don't think there is any dispute at all. Mr. Watt. We are talking about authorizing a program here that the President--or the possibility of authorizing a program that might have an unintended consequence, if I understand what Mr. Patterson is saying. If you set aside $200 million of HOME money for down payment assistance, and you don't replace that $200 million for production of new units, am I missing something here? Mr. Patterson. You are correct. Mr. Watt. That is your problem with it. Mr. Frank. You are missing $200 million. Mr. Watt. That is right. And that is your problem with it, Mr. Patterson. And you agree with that, Mr. Skinner? Mr. Skinner. I agree. Mr. Watt. You agree with it, Mr. DeStefano? Mr. DeStefano. Why you wouldn't let us make those decisions locally is beyond me. Let us make them locally about allocation of HOME funds and CDBG funds. Mr. Watt. All right. But if you are interested in production of new low-income house---- Mr. DeStefano. Put more money into it. Mr. Watt. That is my primary concern, and I am not always happy with the decisions that get made on the local basis because they think it is great, the greatest thing since sliced bread, to do down-payment assistance and do other things. I keep saying we have got to produce more housing, otherwise this is not going to work. Mr. DeStefano. But if you are paying for it by taking resources away from, let's say, modernization from public housing, or from our ability to rehab other units, it ends up netting the same. I think it just comes down to a resource allocation issue. If you feel that strongly, then do create a new $200 billion dollar program for housing production. Mr. Watt. I like that B as opposed to an M. Chairwoman Roukema. Mr. Watt, have you concluded? Mr. Watt. I am finished. Chairwoman Roukema. OK. So, in other words, it is ``show me the money.'' Mr. Watt. Show me the money. That is part of the problem. Chairwoman Roukema. All right. Now we have Congresswoman Jones from Ohio. Mrs. Jones. Thank you, Madam Chairwoman. Again I want to compliment you on hosting these hearings on affordable housing. Good afternoon, gentleman. I want to go first to the mayor. You spoke about not walking away from public housing. At a prior hearing with our Secretary of Housing, I raised the question of the reduction of the drug elimination program. What impact will that have on public housing in your communities? Mr. DeStefano. It diminishes the quality of life. It provides less security in these developments, makes them less attractive for people to live in, and it writes down the value. Again, I would think a cornerstone of any affordable housing program in America would be support of our public housing developments. Mrs. Jones. I agree wholeheartedly with you, but I wanted somebody else to be on the record saying the same thing I was accused of saying. Mr. DeStefano. I speak for 3,000 families back in New Haven. Absolutely. Mrs. Jones. I hope I can frame this question. I want each of you to respond to this. Is changing the percentage of median income that qualifies a family for some of these programs enough to provide for greater affordable housing in our communities? Solely changing; I guess that is the question I wanted to ask. Mr. Patterson. Are you speaking short of additional appropriations? Mr. Jones. Short of additional appropriations. Mr. Patterson. In my opinion, simply changing the level of median income would not resolve the basic issue. A perfect example, quite honestly, is the Section 8 home ownership initiative. We really are having a difficult time finding banks to participate, because you are really talking about a subsidized mortgage with a Section 8 home ownership program based on an annual appropriation, and you are looking at putting people in homes with very varied median-income levels. So the issue of simply raising the median income would not resolve the issue of lack of dollars to provide additional units. Mrs. Jones. Hold on one second. I want to follow up. You were saying the banks are having a problem with the subsidized mortgages. What are they saying they need to be supportive of a program? Mr. Patterson. The Section 8 program is based on an annual appropriation. You are asking a bank to commit to a 30- or 20- year mortgage with an annual appropriation. They are having a difficult time reconciling those two issues. Mrs. Jones. Section 8 is supposed to be solely for down payment assistance. Mr. Patterson. Actually, the Section 8 rental assistance can be used as a mortgage payment. The current proposal is to also permit the use for down payment. But the existing legislation permits you to use Section 8 for a mortgage payment. Mrs. Jones. OK. Mr. Skinner. Mr. Skinner. I agree. If I understand the question correctly, it is changing the median income requirement really doesn't help on the production side, as Mr. Patterson just said. Mrs. Jones. Speak to the whole problem of lack of affordable housing for very-low-income people, just again for the record for me, would you please? What suggestions, other than the programs that you have, other than your statement, do you have? Mr. Skinner. I think all of the studies that have been done throughout the country, including what we have seen in Maryland, indicates that the greatest need is in families at 30 percent of median or less. Many of those families pay an exorbitant percentage of their income, 50 percent or more, for housing, and in many cases live in conditions that are not up to standards. So I think that is where the need is, and that can be met either through a new production program or expansion of some of the existing programs that can be targeted to the extremely-low-income. Mrs. Jones. Lastly, Mr. Mayor, you made a statement that the issue is a larger issue than solely building more housing. Do you want to elaborate on that for a little bit? Mr. DeStefano. Did you ever walk through a neighborhood where people are poor, but they are working, and then walk through a neighborhood where people are poor and they are not working? There is a difference. When you walk through a neighborhood that is characterized by not just poor housing, but also lack of employment, lack of ready access to retraining, lack of access to, frankly, what we would consider middle-class role models is the only way I could put it, you get a different kind of neighborhood and you get a different set of expectations in that neighborhood. It just is not a housing problem at that point. At some level, particularly in those kinds of neighborhoods--you mentioned drug elimination grants. Well, you know, it doesn't take a rocket scientist to figure out what makes for a good neighborhood, you know? It has got to be safe, it has got to be clean, it has got to be orderly, it has to have some social fabric, businesses and churches. That is why I am sure we have all cut ribbons in our political careers on housing and then come back 5 or 10 years later and say, something misfired here. Mrs. Jones. In the course of my work in my congressional district, one of the things that I have said, I am for community economic development, which is more than just housing. When I was a kid, I could walk to the corner and there were 25 businesses on the main street from my house, and therefore I saw people who were at business and people had little jobs doing different things. It doesn't exist anymore. We need to develop communities. I agree with you and I thank you very much, Madam Chairwoman. I am on time. OK. Chairwoman Roukema. Thank you. Will we bring those communities back? I don't know. That is a good goal and a good picture, vision, a vision for us. I would like to thank all of you for being here today. I think this has been a very productive hearing. It is the second hearing of our subcommittee, and I truly believe, as you have heard or as you saw originally, there was more representation here of Members than we have had on different subjects before the full committee and other subcommittees, which shows the intensity of interest in this subject. So I fully expect we are going to be able to work toward some sort of bipartisan agreement with legislation, hopefully in this Congress, if not this year. I would like to think it would be this year, but it may be delayed until next. But in any case, you have made a valuable contribution to this, and I do want you to know that you have, I believe, 15 days to submit for the record any additional information, after-thoughts or expansion, because of the time limitations, that you have not been able to expand on some of your answers and some of the data that you presented to us. So there are 15 days open to you to submit for the permanent record so that it will be available to each Member of the subcommittee, and it will be part of the permanent record. With that, I thank you, and the hearing is adjourned. [Whereupon, at 12:25 p.m., the hearing was adjourned.] HOUSING AFFORDABILITY ---------- THURSDAY, JUNE 21, 2001 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 9:35 a.m. in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding. Present: Chairwoman Roukema; Representatives Green, Barr, Kelly, Miller, Grucci, Tiberi, Frank, Carson, Schakowsky, Jones, Capuano, Waters, Watt and Israel. Chairwoman Roukema. Thank you. I believe we will get started. I am hopeful there will be more Members here shortly. But I will call this hearing to order. The Subcommittee on Housing and Community Opportunity. This discussion will of course be the third in a continuing series on housing affordability. I will read an opening statement and then see if we have other opening statements from Members of the subcommittee. I certainly thank all of you for being here today. This is the third, particularly for those panel members and those who are listening today in the audience--this is the third in a series of hearings that this Subcommittee has scheduled. Our first hearing on May the 3rd witnesses defined the parameters and the complexities of the problem and outlined some potential solutions. At least they gave us some idea of the problems. At the second hearing on May 22nd, our witnesses testified regarding the public-private initiatives that address housing affordability, which of course I believe that there is a good constituency in this Congress for exploring further public-private initiatives. But in any case, we also want to work with community development block grants and home investment partnership programs, the so-called acronym of HOME. And I think those have lots of possibilities in developing and expanding home ownership and rental opportunities. Today's hearing will focus on the underutilization of Section 8 vouchers as well as the specific problems faced by the homeless and disabled populations in finding affordable housing. And here I'd like to acknowledge, and I think Mr. Barney Frank will acknowledge as well, the fact that we had worked for numbers of years and certainly I worked closely with our deceased colleague, Bruce Vento, who was such a wonderful leader in this area. This country is obviously facing a growing affordable housing crisis for low- and moderate-income families and for those with special needs. Through these hearings, I hope to better define the problems that are faced by many of our families and to determine solutions, if not solutions, at least improvements directing us down the correct path to build a foundation for reaching those solutions. I would hope--and we shall see how realistic it is--I would hope that we could come up with a bipartisan approach to this, not that we'll all agree on everything, but at least we sometimes can agree to disagree and in the end have a bipartisan solution which is somewhat of a compromise that complements each other. The Section 8 program, as we all know, provides direct financial--I'm sorry, Federal housing assistance to low-income Americans and it serves more than three million Americans. The program provides subsidies in two forms: Tenant-based assistance, which is the Section 8 vouchers, and assistance to owners to develop and maintain Section 8 projects, those so- called project-based assistance. The Section 8 voucher program provides vouchers to families to rent a residence in the private rental market. In certain communities, voucher underutilization is a significant problem and seems to be growing. Underutilization of vouchers has been attributed to various causes, including the tight rental market, poor performance of public housing authorities, and the targeting of a large percentage of voucher to very-low-income individuals, low Fair Market Rents, and the rent caps of 40 percent of adjusted monthly income. I think we're going to have to go through those in detail with our panelists. But in any case, we don't pretend to understand fully why this has been--well, we understand why it's been a growing problem, but how we can positively and constructively address these different components, we shall look forward to hearing from this panel, particularly our first panel, and trust that their experience in the field will be more than just theory, but will be actual proven understandings of what happens in the field. And so we will look for your suggestions to help us determine, with specificity I hope, how we can improve the voucher program. The witnesses on the second panel will share with us information on the problems faced by the homeless and disabled in our country. I know that we are keenly aware of the growing homeless crisis facing this country and it is interesting that in some areas of the country it hasn't seemed as though it's a growing problem, but without question, across the country it is a growing problem, although not quite as serious I don't believe as when we first started down this route in the mid- 1980s to correcting the problem. It is astonishing to note that according to some estimates, between 2.3 and 3 million people are homeless, at least some part of the year. It seems that there are chronically homeless of probably 200,000. It seems as though the reasons for these are the demolition of existing units and the neglect of public housing authorities and there doesn't seem to be the kind of upkeep that is necessary and the high cost of housing. The effect of a relatively good economy has been that there has been acute shortage of moderate to low-income housing and the dramatic rise in expensive housing. Now the individuals that need housing are not only poor, as we will hear from the second panel, but they also suffer from some of the chronic health problems such as mental illness, alcoholism, drug abuse and/or HIV/AIDS problems. Secretary Martinez has signaled an interest in shifting responsibility for the care of the homeless with mental health substance abuse problems to HHS. I don't know how realistic that is, but it has been out there as an idea, and I look forward to working both with Secretary Martinez and Secretary Thompson. By the way, I haven't yet discussed this with Secretary Thompson, but I fully intend to. But we look forward to working with both of those cabinet members determining the appropriate way to deliver the services so desperately needed. Finally, I would like to take a moment to recognize the leadership of our Vice Chairman here, Mr. Mark Green. Last year, Congressman Green authorized a provision that was passed by Congress as part of the Lazio bill that would expand the Section 8 home ownership rule to make the program more accessible to people with disabilities. His provision--I won't go into it. Maybe he'll want to make reference to it in his opening statement, but his provision provided a 3-year pilot program for disabled individuals to use Section 8 housing. And yesterday, the President announced that HUD would be moving forward to implement Congressman Green's provision, and we were very happy to hear that. In any case, we look forward to this hearing. There are no easy answers, but we will be looking for your advice and counsel based on your experiences in the field. And with that, I will turn to our distinguished Ranking Member, Congressman Barney Frank. Mr. Frank. Thank you, Madam Chairwoman. Let me point out to the witnesses and others who are interested that while I can't say that hearings focusing on poor people ever have the drawing power than fights between extremely rich people grouped in various competing businesses, we sometimes do better than this. The problem is that we're on a new schedule in Congress. We don't have votes before 6:00 on Tuesday and then we have no votes after 6:00 on Thursday, which means that the days on which Members can come together when we have to interact have now shrunk to two. And this has caused a severe--I think people haven't fully understood this. We used to have three and even 4-day weeks. We now have 2-day weeks in terms of our ability to schedule things. And I regret that for a number of reasons. But one of them is it means that Members are unduly squeezed, and that's why fewer Members are now at these kind of important hearings. This is a particularly important hearing. I'm especially pleased that we have the people who have the commitment and willingness to actually administer these programs. I think that the people who serve the country by administering housing programs in various ways are heroic. They have been doing a very difficult job in this society with too little resources. The resources have been shrinking, and I am glad that they are having a chance to speak, particularly since--and my fundamental difference that's emerged so far with the Secretary of HUD is his insistence that the problems with the Section 8 program are virtually exclusively the fault of poor management. He has specifically said that he just believes that a good management can deal with it and rules out other factors. I think that's quite wrong for a couple of reasons, and I'm glad we have people who will be able to address that. There were two substantive points I want to add. I notice just leafing through some of the testimony, people quite correctly say, well, if you were to do X then you would, within the current context, reduce Y. And that is true. If you accept the current budgetary allocation for housing as something that we can't change. And I realize if you're out in the field, yes. That's given to you. Then it is true, increasing fair market rents could mean a decrease in the number of people who benefit, and so forth. What I think this demonstrates is the economic and moral insufficiency of the current housing budget. We all agree that we have serous housing problems. The gentlewoman from New Jersey just talked about our increasing homeless problems. Money doesn't solve everything. I understand that. But what I've noticed is when people denigrate the notion that we should increase funding for a particular program with the cliche, you can't solve a problem by throwing money at it, they are almost always talking about a problem with which they are not too concerned. I have heard very few people in this institution say that we cannot make America stronger by throwing money at the Pentagon. Indeed, when the budget process starts, if you get between the Congress and the Pentagon, you are likely to be hit by projectiles as the amounts in large degree are thrown at them. In fact, money means resources, and resources are a necessary but not sufficient condition. Certainly it is true that if you spend money unwisely, you may not help the program nearly as much, although I did note quite correctly I think, it was in Mr. Olsen's testimony, he said look, if you've got a problem of an insufficient utilization rate on vouchers, if you increase the number of vouchers, you're going to increase the number that are used. I mean, the fact is, money always helps. It helps much more if it is used well. And so in the richest country in the history of the world, a society which has created wealth fortunately through our free enterprise system which has worked so well at a greater pace than any of us thought possible, it is simply morally unacceptable that we do so little to help people who are in need of basic housing. And when we talk about helping children and leaving no child behind, we should understand that when you insufficiently fund public housing and other housing programs, wholly innocent children are among the major victims. They are the ones who are forced to live in inadequate conditions, and living in inadequate conditions and the tensions that are thereby generated contribute to the problems that we face when they show up at school to be educated. Secondly and correlated to this, I want to make things work better, but I object very much to the double standard that we have. People say well, you know, everything would be fine with the money we have for housing if every housing program were administered perfectly by paragons of absolute virtue. I will admit that people who run the housing programs are not perfect. Neither am I, so I don't condemn them for that. But we have this notion where we hold people in the business of trying to help the very poor to a very high standard. And if, in fact, they fall short of perfection we say, see? It's their problem. We don't apply that to NASA. We don't apply that to the Pentagon. We certainly don't apply that to agricultural programs. Yes, when complex human problems are being addressed, people will do them imperfectly. But to use that as an excuse to insufficiently fund the program is unacceptable. And I will just add as I began, in my experience, the people who have volunteered to work in public housing authorities, to administer public housing, to administer the Section 8 program, to work with people who need housing, are dedicated and intelligent people who do a very good job. And the notion that, because given this very hard job to do, they aren't always able to do it perfectly, is somehow a justification for reducing or holding back on resources is one I reject. I would say I think that the hearings that we have held so far--and I thank the gentlewoman from New Jersey, the Chair, for doing this--I have been impressed by the wide variety of people from various points of view who have said that we need to get into a production program and increase the resources available for housing while at the same time making the voucher program work better. So I am glad to have this chance to have this hearing, because I think those are the points that need to be emphasized. Chairwoman Roukema. I thank my Ranking Member. Now in order in which they have arrived, do any of my colleagues have opening statements? Vice Chairman, Mr. Mark Green. Mr. Green. Thank you, Madam Chairwoman. Let me begin by thanking you for your kind remarks in your opening statement. I appreciate it very much. Also I would like to commend you for holding these hearings on housing affordability. You've demonstrated once again your great interest in finding ways to make housing more affordable, more accessible to people across the spectrum. I think the hearings that we have had on housing affordability to date have been very productive. And I think along with the hearing today they will provide us with some good ideas, a good map for the direction in which we can move. You were kind enough to make reference to legislation which we passed last year designed to help people with disabilities better use Section 8 dollars for housing affordability. And I was very proud to have President Bush reference that just recently along with his signing of the Olmsted Executive Order which I believe will go a long way to helping people with disabilities. I appreciate the remarks of the gentleman from Massachusetts when he talks about how we do need more resources in order to meet our housing challenges. I agree with that. But I also believe it is not just the resources that we provide. It is making sure that how we provide them is done so in a flexible way, in a way that makes sense and can be tailor made to the particular problems of the people we're trying to help. And that's part of what we did last session with respect to people with disabilities in housing. Right now in the general population, about 70 percent of the general population has home ownership. And yet, as we've all discovered, that among people with disabilities of working age, that home ownership rate hovers around 5 percent. And so we tried last session to look at what the barriers are that prevent them from having that chance at the American Dream of home ownership and tried to make slight changes to the Section 8 program to do so. So what I'm looking forward to working on under the leadership of our good Chairwoman in these coming months is not just making sure that the resources are there, because they must be there if we're going to meet our challenges, but also making sure that we think in an innovative and creative manner and take some of the programs that we have and adjust them and make them flexible so they can meet local needs and the needs of particularized sectors of the population. I think that there are some great changes that we can make, and I'm excited again about these hearings, and I'm very excited about the great panels we have lined up today. I believe it'll be an informative, productive hearing. Thank you, Madam Chairwoman. [The prepared statement of Hon. Mark Green can be found on page 378 in the appendix.] Chairwoman Roukema. Thank you. I will remind our Subcommittee Members that we have a 3- minute rule for opening statements and you will see the yellow light kind of warn you at the speakers' table, the panelists' table that your time is almost up. Thank you. Mr. Watt, do you have a 3-minute opening statement? Mr. Watt. Thank you, Madam Chairwoman. And I'll try to take less than 3 minutes. I think I have made to everybody on the Subcommittee, probably not the panelists, but everybody on the Subcommittee is aware of my concerns about some of the problems that Section 8s are having in my congressional district. And the unique thing is that in some parts of my congressional district, Section 8 vouchers are working as they were intended to work and serving a very, very important purpose. The problem is that we tend to think of Section 8 vouchers as being the greatest thing since sliced bread, and that they will solve all problems. And in some parts of my congressional district, they simply are not working. They are not working because demand is so much higher than supply that rents have been driven up well beyond the Section 8 voucher limits, and there's just no space available to use the Section 8 vouchers. They're not working in those parts of my district because what tends to happen is the Section 8 vouchers are used primarily in vulnerable, primarily African-American neighborhoods that themselves are in transition and the people coming out of public housing using Section 8 vouchers make the communities more vulnerable. In some parts of my congressional district, you can't use a Section 8 voucher in what is a ``white neighborhood.'' So Section 8 vouchers tend to further segregate an already segregated housing situation in parts of my congressional district. So I'm anxious to get some good ideas about how we solve some of these problems and retain the value that Section 8 vouchers are having in lower demand, lower cost sections of my congressional district, but also solve the problems that they are presenting in the higher cost, higher demand parts of my congressional district. And with that, Madam Chairwoman, I'm sorry I did take 3 minutes, but not much more. I yield back. Chairwoman Roukema. Thank you. We'll forgive you for that. Let me now call on--I'm calling on Members in the order in which they've arrived. Congressman Grucci. But may I also say I neglected to say at the beginning that the record will be kept open for all Members' opening statements to be inserted into the record if you so choose. Congressman Grucci. Mr. Grucci. Thank you, Madam Chairwoman. It's a pleasure to be here again and to listen to this panel. It's going to be very enlightening. Certainly affordable housing and access to it, whether it's affordable housing or affordable rentals, is a very important issue for all of us throughout the country, and specifically in the region that I come from, where the cost of living is higher and therefore the access to affordable housing becomes even more difficult, because sometimes they don't meet the parameters that have been set out as far as accessibility to the program goes. And I'm hoping that we'll hear a little bit about that today. And one of the things about our Section 8 program that I remember from being a supervisor of a town that administers the program is simply the enormous waiting lists of people who need the help and the limited amount of help that's available to those Section 8 programs. And I'm encouraged by this panel, and I see some of them are prepared to talk about that today. So I look forward to the discussion. I'm going to have to step out of the hearing for a short period of time. Unfortunately, there is a scheduled Science Committee hearing that I'm a Member of as well, and I'd like to hear the briefing from the Secretary of Energy on the energy problems, but I will be back, Madam Chairwoman, and I thank you for giving me this opportunity to speak this morning. And I yield back the remainder of my time. Chairwoman Roukema. Thank you very much. Mr. Israel, Congressman. Mr. Israel. Thank you, Madam Chairwoman. I would like to submit into the record a series of Newsday articles that appeared this week on the issue of homelessness and children on Long Island. [The information referred to can be found on page 382 in the appendix.] Mr. Israel. I'd like the subcommittee to note that there are nearly 1,500 homeless children in Nassau and Suffolk Counties, 1,100 in Suffolk County alone. Over the past 4 years, Nassau and Suffolk social services departments recorded a 93 percent increase in the number of homeless children. As we continue to look at housing affordability issues, we must look at the devastating impact that this crisis is having on our children and our families. Because fair market rent on Long Island for a two-bedroom apartment is $1,200 a month, a family would need to earn an annual income of $46,000 a year or more than four times the minimum wage to meet their rental costs. Many people just can't afford their rent, causing immediately homelessness with many living day-to-day out of motels. I thank the subcommittee, the Chairwoman and the Ranking Member for exploring these issues, and I look forward to hearing today's testimony. And I yield back. Chairwoman Roukema. Thank you very much. Congressman Miller. Mr. Miller. Thank you, Madam Chairwoman. I agree with Mr. Frank on one thing, that we are here a few days a week. But I'm also convinced that if we were here 7 days a week and just continued to talk about a problem rather than addressing the problem, it wouldn't make any difference at all, and all we tend to do is talk about the problem on the surface and yet never deal with the cause of the problem. We talk about Section 8 vouchers, and that's good. There's a place for Section 8 vouchers. But many of the problems we have in housing are the result of Government red tape. Until we're willing to address that, nothing is going to change. Many problems in housing availability are related to the loss of property rights. I mean, courts have changed what the law really was intended to be on property rights where it's such that if a property owner is denied the use of his property, as long as there is some value left in the property, the court has ruled that that's not a taking. And if a property owner disagrees with that, it takes 8 years to get into Federal court for him to have his hearing, and most people can't even afford to get into Federal court. We need to consider issues of fish and wildlife that we've never addressed. We tend to focus on inner city housing and inner city housing is good and there is a need for it. But we also need to understand that property within inner cities is very expensive, and in most cases, to utilize property within inner cities takes redevelopment agencies to put tax dollars into it and Federal dollars also have to follow that in order to be able to build a product that individuals can live in within an inner city area that is affordable. We have never attempted to address the concept--we've talked about it--that in order to have an affordable housing market, you have to have a move-up housing market. I mean, people have to have someplace to move to in order to be able to find housing that's affordable in some areas. And yet we have done nothing from the Federal perspective to reestablish the principles of property rights and enable builders who want to provide housing at affordable rates to be able to build those homes. But you can't have a situation where a property owner makes application with a tract map and he waits 8-, 10-, 12- or 15 years to get approval. And then we sit back and say ``why are houses so expensive to buy?'' And until we address the true cause of the lack of affordable housing and the crisis we face, we're never going to do anything except put Government bandaids over the problem and try to give Section 8 vouchers to put people in housing that they just can't afford without other than Federal help or local help from the redevelopment agencies. So Madam Chairwoman, I'm looking forward to getting to the day when we debate the real issues. Mr. Frank. Would the gentleman yield? Mr. Miller. My time is up or I would. Mr. Frank. I doubt that. Chairwoman Roukema. That having been said, I think there will be a lot of time after the panel testifies for that continuing dialogue. Mr. Frank. The gentleman had 20 seconds left, I may note. Chairwoman Roukema. May I now call on Congresswoman Kelly. Mrs. Kelly. Thank you very much. I appreciate the fact that we're holding the hearing today, and I appreciate the fact that the panel is willing to spend their time. In my home county, the median price of a house is $412,000. That's up 32 percent from $313,000 in the first quarter of 1999. HUD has declared that a fair market rent in my home county for a two-bedroom apartment is $1,144. That's higher than New York City. As of February 8th, there are 13,207 people on the Section 8 waiting list, yet the county and communities aren't able to use all of their Section 8 vouchers because of a combination of a lack of available housing units and the inability of the Section 8 vouchers to cover the fair market rent for the area. I can't help but feel frustrated when I think about that problem. We have a program in place with extra vouchers to assist families, and we have a very long list of families who have applied for the assistance, but they're not able to use it because they're priced out of the market. The dilemma poses a very real problem for the working poor and the businesses in my area. I have an article here from one of my local papers, the Journal News, from May 25th. I'm going to ask unanimous consent to have this made part of the record. [The information referred to can be found on page 392 in the appendix.] Mrs. Kelly. The headline of this article is, and I'm quoting: ``Housing Challenges Businesses.'' In the article, it quotes a real estate person as saying that housing prices deter some companies from even considering relocation in this county. The article goes into detail about the lack of affordable housing. One of my foci today is to look at what else Congress could be able to do to strengthen existing programs that are having positive results in addressing the need for affordable housing and especially the need for veterans' affordable housing. With most legislation, I believe a balanced approach is necessary. I think we've got to continue to ensure that effective programs receive all the support they deserve. But I really do think we've got to make sure that those programs are focused in a more regional way. I thank you very much, Madam Chairwoman, for holding this hearing and I yield back the balance of my time. [The prepared statement of Hon. Sue W. Kelly can be found on page 380 in the appendix.] Chairwoman Roukema. Thank you. I appreciate everyone has been quite cognizant of our time limitations here. And now we are ready to hear from our first panel. I am going to introduce you each individually as it is your turn to testify, but I would like to remind you of the rules of engagement here. Your written statements will be made part of the record, your full written statements. But you will be recognized for a 5-minute summary of your testimony. And then of course there will be questions from our Members to the total panel after each one of you has testified. And with that as introduction, I would like to recognize Barbara Sard who has requested that she be the first to testify because she has another engagement. Barbara Sard is the Director of Housing Policy for the Center of Budget and Policy Priorities. The Center's housing work focuses primarily on the intersection of housing and welfare reform and the voucher program. Ms. Sard, you are an attorney, as I understand, and represent Greater Boston Legal Services. Ms. Sard. That was my prior job. Chairwoman Roukema. So maybe you're acquainted with Mr. Frank here. All right. Ms. Sard. He's my Congressman. Chairwoman Roukema. Thank you. Ms. Sard, you have the floor for 5 minutes. STATEMENT OF BARBARA SARD, DIRECTOR, HOUSING POLICY, CENTER ON BUDGET AND POLICY PRIORITIES Ms. Sard. Thank you very much. And thank you very much for holding this hearing. I think it is remarkable and encouraging that this subcommittee is looking into what can actually be done to improve the effectiveness of the voucher program rather than everyone just complaining about it. It is important to recognize that the increased difficulties that families are having in some areas, as many of you have addressed, in using vouchers, particularly in better neighborhoods, as Representative Watt mentioned, have a number of different causes that require a range of solutions. This is not a one-size-fits-all kind of problem or solution. In some areas if one looked at the data, it looks like there are enough units that people with vouchers could afford so that vouchers should be able to be more effective. But the problem is that families are not able to find efficiently the units that are available or there are not enough owners who are willing to participate in the program. Owners in certain neighborhoods may hold their units out of the program for reasons that may have to do with how they think the program operates and in some cases for reasons that really may be a cover for racial or other discrimination. In other areas, again, there are units, but they're too expensive. Many of you mentioned that there have been escalating prices, and the voucher program has not kept pace. And I will talk a little about what some of those rules are and what some of the solutions might be. And in still other areas where there are such low vacancy rates that paying any amount for a voucher is not going to get someone a unit, we simply need to produce more housing, as some of you have mentioned. My written testimony contains a wide range of proposals designed to address these four really quite different situations and many things HUD could do within the existing statutory framework. HUD may need a prod from this subcommittee. It may be important for the subcommittee to encourage HUD to take certain steps or to require them. Other measures can only be accomplished by some statutory changes. What I'd like to focus on in my few minutes remaining is to illustrate that the problems can be solved by making more housing available to poor families. It is not necessary to try to solve the problem by making families pay more when they use a voucher or by redirecting the program to serve higher income families. And I'm afraid that we didn't quite blow this chart up enough, but we've given each of you copies. Chairwoman Roukema. Yes. We each have them. Go ahead. Continue. Ms. Sard. What I've done is develop an example based on the Trenton metropolitan area in New Jersey, which is the median cost area in terms of rents under HUD data for New Jersey. It has the fair market rent set at the 40th percentile. You'll hear some of my colleagues address that. For a two-bedroom unit, that fair market rent is $862 a month. You can see that a family making $13,000 a year--that is an extremely-low-income family--can rent a $900 unit under the program, though they have to pay a little more out-of-pocket than the standard 30 percent. They have to pay 34 percent of their income. But they are not allowed to rent the $1,000 unit because of the effect of what's called the 40 percent cap: that a family is not allowed to pay more when they first rent a unit than 40 percent of their adjusted income. Now if the word ``adjusted'' in the statute were just changed to ``gross'' so that that rent cap was measured by gross income rather than adjusted, this $1,000 unit would be within the family's reach. And in general, more of those $900 units even would become available to families if agencies were able to do more to help families search and to bring more owners into the program. But, if the agency raised its payment standard to 110 percent--which is allowed under current law, but only about a third of the agencies are at 110 percent or more--then the $1,000 unit would be available to them, and even the $1,100 unit would come within their reach if the 40 percent cap was changed from adjusted to gross income. Most significantly, if the law were changed or HUD policies were changed so that the agency could set its payment standard at 120 percent of FMR, all of these units would be available to this poor family. I'm about to run out of time, so I won't take you through the example with the family with double the income. But if you look at Chart B, if the family has $26,000 of income instead of $13,000, it can reach a few more units. But the important point is, you don't have to go there. You can keep the program targeted at the families with the greatest housing needs if you give agencies the ability to increase the amount that is paid by a voucher. Thank you. [The prepared statement of Barbara Sard can be found on page 394 in the appendix.] Chairwoman Roukema. Thank you. Thank you very much. You made your point very directly and within the 5-minute time limit. Our next panelist is Steve Renahan. Mr. Renahan has worked for the Housing Authority of the City of Los Angeles and he is testifying before us today in his capacity as the Vice President for Housing for the National Association of Housing and Redevelopment Officials. He has extensive experience with the national low-income housing issues as a member of the Crisis Task Force and the Housing Coalition Section 8 Task Force. Mr. Renahan. STATEMENT OF STEVE RENAHAN, SECTION 8 DIRECTOR, HOUSING AUTHORITY OF THE CITY OF LOS ANGELES ON BEHALF OF THE NATIONAL ASSOCIATION OF HOUSING AND REDEVELOPMENT OFFICIALS Mr. Renahan. Thank you, Madam Chairwoman. Good morning. My name is Steve Renahan and I administer the Section 8 program in Los Angeles, California. Chairwoman Roukema. Excuse me. Could you speak a little closer to the microphone? Mr. Renahan. We administer over 40,000 Section 8 vouchers in Los Angeles, California. I am testifying today in my capacity as the NAHRO Vice President for Housing. NAHRO members administer over 93 percent of housing vouchers in the country. Thank you for this opportunity to offer our remarks regarding Section 8 utilization. Section 8 is a market program, and it needs to respond to market changes.And I'd like to focus on two initiatives that would go a long way to achieving full utilization of Section 8 in the country. First of all, we've been through a major change in Los Angeles in the rental market in just the last 3 years. Three years ago we had a 10 percent vacancy rate and Section 8 was very popular with landlords. Now we're down to a 3 percent vacancy rate, which means there are fewer units available, and landlords have a lot of other choices. What that's meant for Section 8 voucher holders is that 3 years ago, 90 percent of the families we issued vouchers to successfully used them. Now only 45 percent of the families we issue vouchers are able to access units and get a Section 8 subsidy. What has changed is not a lot of program rules, not the Administration, not the need of the voucher holders. What's changed is the market. And the program needs to respond to those market changes. Now fortunately, we do have examples of efforts that work. We administer a lot of special-purpose versions of Section 8. Section 8 vouchers for homeless families, for families whose children are in the foster care system and can be reunited, an after care program for persons with disabilities. And what we do with those programs is partner with non-profits and other Government agencies who can provide supportive services to help the families who receive those vouchers overcome the barriers to using those vouchers. What the families will need will vary, and often it is landlord outreach and negotiation with landlords. We may need to do some credit repair. May need to motivate the family to keep searching even though they have heard no over and over and over again. We may need to help with security deposits, with moving expenses, with transportation, with child care while the family is searching. What's needed will vary family to family, but what is clear is that it works. While the success rate on our regular Section 8 program where families don't have access to those kind of services is down to 45 percent, in our special programs where the families have the toughest barriers to overcome, our success rate remains close to 90 percent. So it is clear that when those kind of services are provided, Section 8 utilization, high utilization results. Now NAHRO recommends that you don't need a new appropriation to fund those kinds of services. In instances where housing authorities are underutilized, that means that housing authorities have housing assistance payments money that they're not using because they're not fully utilized. If housing authorities who are operating at less than 100 percent utilization were allowed to convert some of that housing assistance payments money into services money, whether provided directly by the authority or in partnership with non-profits and faith-based organizations, you will see a major dramatic increase in Section 8 utilization, even in tough markets. But tough markets and rising markets are the areas where Section 8 utilization is the most difficult. And the fair market rent is crucial in making the Section 8 program work. The fair market rent is supposed to in most areas calculate the 40th percentile for non-luxury housing. It is a difficult calculation for HUD to do. I believe that in general what it does is calculate the 40th percentile on average for rental units in the area. But voucher holders are not looking for an average rented unit. They're looking for a unit that's available for rental today. And in up markets what that means is that what the landlords are demanding for a unit will be far above what the average is for units in the market. And we've seen historically that the fair market rent changes that HUD publishes lag behind increasing markets. So a simple, straightforward fix for this that NAHRO recommends is changing nationwide the calculation from the 40th percentile to the 50th percentile. That does not mean that the cost of every Section 8 voucher will go up. Housing authorities do a rent reasonableness test, a comparability test for every voucher contract we do so that we are not paying the landlord more than the landlord could get in the open market, and we will continue to do that. What that increase will do is allow voucher holders access to more units and allow the program to work better in changing markets. Thank you for the opportunity to testify, and I welcome any questions. [The prepared statement of Steve Renahan can be found on page 410 in the appendix.] Chairwoman Roukema. Thank you very much, Mr. Renahan. I appreciate your compliance with the time limitations, and you've given us a number of things to think about. Now we have Mr. Roy Ziegler. As a Member from the State of New Jersey, since Mr. Ziegler is from the New Jersey Department of Community Affairs, I want to welcome him particularly here today. Mr. Ziegler is the Assistant Director of the Division of Housing and Community Resources in the New Jersey Department of Community Affairs, and certainly he has a wealth of knowledge. With my own experience in the State of New Jersey, I know of his wealth of knowledge on this subject of Section 8 vouchers. Welcome, Mr. Ziegler. STATEMENT OF ROY ZIEGLER, ASSISTANT DIRECTOR, NEW JERSEY DEPARTMENT OF COMMUNITY AFFAIRS, DIVISION OF HOUSING AND COMMUNITY RESOURCES ON BEHALF OF THE NATIONAL LEASED HOUSING ASSOCIATION Mr. Ziegler. Thank you, Chairwoman Roukema. And good morning Ranking Member Frank and distinguished Members of the subcommittee. I really appreciate this opportunity to speak with you on behalf of the National Leased Housing Association today about the Section 8 housing voucher program. My name is Roy Ziegler, and I am Vice President of the National Leased Housing Association and presently Assistant Director of the Division of Housing and Community Resources at the New Jersey Department of Community Affairs. I am accompanied today by NLHA counsel Charles Edson who is behind me. The Section 8 voucher program is really a critical part of our overall housing policy for the country, and it allows low- income families the opportunity to use a portable subsidy to rent decent, safe and sanitary housing, either an apartment or a single-family home. And nationally over 1.5 million families are currently benefiting from this participation in the program. In New Jersey, our Department of Community Affairs administers 18,000 housing vouchers. Over the years, the Section 8 tenant-based programs have improved dramatically. We have had your assistance in consolidating regulations, removing barriers to landlord participation, and also adding flexibility to enable voucher holders to find apartments with the aid of the program, and also to use family self-sufficiency programs and home ownership opportunities recently to provide additional housing for families. For example, in New Jersey, the Department of Community Affairs currently has 1,200 families in our family self- sufficiency program. Over half of those families have already obtained employment and have established escrow savings accounts totaling $3.2 million. An additional 150 families have already successfully completed that program, and astonishingly, 90 of those families have purchased their first time home buyer situations. They are currently owners of their own homes for the first time. What is remarkable about this is that with the aid of the self-sufficiency program, the Section 8 program and network agencies, half of those families were homeless when they entered the Section 8 program and are now homeowners. NLHA's members really appreciate your interest, the interest in this Subcommittee in helping us to sustain and improve this voucher program. And we really are seeking high utilization rates and top rate efficient programs. But as has been mentioned earlier, there continue to be a number of barriers which we hope you can help us with. PHAs and other administering agencies in many communities are faced with outpaced rents that Steve Renahan had mentioned earlier. As a result, there are more vouchers out there in some cases than there are landlords who are interested in accepting those vouchers. And consequently, many agencies have had to issue three or four vouchers to get one successful family placed in a Section 8 program anticipating turnbacks. Theoretically in reality, you can have 95 percent success rate in Section 8 as a program of utilization, but still have a 75 percent success rate overall in your program. And this is frustrating to families who are waiting for assistance. Not only frustrating for families, but it raises the cost of this program because it creates additional burdens and workload for PHA administrators. You have already taken the important step of raising some of the rents in the country to the 50th percentile. What we are asking you to do is to really urge HUD to expand its 50th percentile authority to all the PMSAs in the Nation. And Congress can also take steps to improve the ability of families to successfully use their vouchers by amending the statutory provisions of the payment standard. Generally, PHAs set the payment standard at anywhere from 90 to 110 percent of the FMR. And we can go up to 110 percent of the FMR without HUD approval. What we are asking is the additional flexibility to do a statutory amendment here to allow administering PHAs to increase that 110 percent to 120 percent of the FMR that we currently have. This would significantly increase the number of units available in our communities. Also the 40 percent cap has been mentioned, and I believe the 40 percent cap is another barrier to families in this Section 8 program. Take, for example, an elderly couple where one of them is deceased and the other remaining member suddenly has an incredible decrease in their annual income. That particular person would qualify for the Section 8 voucher, but under the 40 percent cap, if they are paying 41 percent of their income for rent. And after that income decreases, that family would not be eligible for Section 8. And as a result, try to explain to somebody who has been living in an apartment for many years that they can't afford this apartment because they are paying 41 or 42 percent of their income for rent with a voucher, then they lose their voucher and wind up paying 60 to 70 percent of their income for rent. Now this is really a barrier to many families in the program. Also the 40 percent has been mentioned as far as the income. And our solution is to calculate the 40 percent using gross income instead of adjusted income, as Barbara Sard had said. This would also open a number of opportunities for families who cannot afford the program at the 40th percent rate. The current fee structure for administering the agencies is often inadequate to allow intensive tenant counseling, landlord outreach, addressing special populations. All these things that could be done with the current administrative fees. Formerly HUD had allowed us a preliminary fee. And we are asking that HUD restore this preliminary fee to allow us to do counseling and referral to get families into a better market and to expand the landlord base. This has been proven with the Regional Opportunity Counseling Program in New Jersey which with this counseling under the Regional Opportunity Counseling Program, our success rate has increased to 95 percent. Thank you very much. [The prepared statement of Roy Ziegler can be found on page 425 in the appendix.] Chairwoman Baker. Thank you, Mr. Ziegler. Now we have Mr. Michael Johnston, who is today testifying on behalf of the Council of Large Public Housing Authorities and is Director of the Cambridge Housing Authority Office of Leasing and Occupancy. He is an attorney and former CEO of a property management and real estate development company, and so you bring to this panel a little private sector understanding of the problems. I thank you very much for being here, and please adhere to the time limits. We are most anxious to hear you. STATEMENT OF MICHAEL JOHNSTON, DIRECTOR OF LEASING AND OCCUPANCY, CAMBRIDGE, MASSACHUSETTS HOUSING AUTHORITY ON BEHALF OF THE COUNCIL OF LARGE PUBLIC HOUSING AUTHORITIES Mr. Johnston. Thank you, Madam Chairwoman, and I would like to thank the panel for having these hearings on behalf of us in the industry. I would like to thank also Congressman Frank for his remarks regarding public housing authorities in general and the support of our programs. It is much appreciated. We, just like my colleagues here on this panel, are faced with the same problems. We have escalating rents. We have kind of a unique situation in the fact that we've recently lost rent control approximately 5 years ago. And our vacancy rate right now is about 2 percent. Individuals receiving Section 8 vouchers from our agency face the task of going out and trying to find units in a market where market rents right now average for a two-bedroom apartment approximately $1,800 a month. HUD defines in our area, as far as what they consider the Fair Market Rent, they define it in our area at $979. We have an exception rent from HUD. We can actually go to $1,175 for a two-bedroom apartment in the city of Cambridge. But obviously, $1,175 does not make to the $1,800 level. Our contention is that the 40th percentile, the numbers that HUD is currently using, are not real. Certainly 40 percent of the units that come on the market are not available to individuals at a rent of $979. We would agree that a move to the 50th percentile would be certainly needed. But beyond that, there needs to be a look at how these numbers are calculated. How is HUD coming up with the numbers, the actual number of the 40th percentile, the 50th percentile? Why is there a necessity to go to 110 or 120 percent? There needs to be some thought in how to come up with these numbers. In the fall we have actually seen proposed new FMRs for this coming fall. In our area we are seeing about a 7 percent jump in Fair Market Rents. But when you factor in the fact that rising utility costs are going to eat up about half of that increase, we're really only going to see about a 3 percent increase in Fair Market Rents. And it's certainly not going to be enough to cover what we need in our area. We are, as a high-performing housing authority, we're actually a participant in what's called the MTW deregulation demonstration program with HUD. And in this program, we're actually allowed to kind of redesign the program to try to make it work, to make it more flexible for our area to meet our local needs. We have worked very hard in the past couple of years to try to find out how to make this program work in our area. We've actually surveyed landlords, we've surveyed participants. We've asked them, why did you find a unit? Why did you not find a unit? And the bottom line is, whether it's a landlord, whether it's a participant, the bottom line is Fair Market Rents. You're not paying enough for the units in todays' market. Flexibility, you need to be more flexible. You need to be less burdened with regulations and bureaucracy. We've tried to develop our program to rebuild our program to kind of cover some of this. In my written testimony we've covered some of these issues. But we actually have the ability to go over 120 percent of FMR when we need to. We still need to do rent reasonableness calculations, and we use this ability very sparingly. We do allow tenants to pay more than 40 percent of their income toward rent. And the rationale behind that is so that a family can preserve their current housing. We actually have situations where, because of the loss of rent control, families come to us paying 60 or 70 percent of their income to rent and after getting a voucher, it actually drops to 45 percent of their income to rent. But they can stay in their home. They can stay in their home where they've been for many years. Just to sum up, as a Moving to Work authority, we found that the flexibility under that particular program has been very beneficial to us. In the past year we've actually added 108 new units onto our program through landlord retention and basically landlord outreach. Thank you. [The prepared statement of Michael Johnston can be found on page 433 in the appendix.] Chairwoman Roukema. Thank you. Thank you very much. Mr. Ed Olsen is the final panelist here today. Mr. Olsen is a Professor of Economics at the University of Virginia, but has an extensive background, bipartisan background I might note, in housing policy. During the Nixon Administration, Professor Olsen was an analyst at the Housing Policy Review Task Force, as I understand it, and led an investigation into Section 8 certificate program. But he also worked as a visiting scholar at HUD during the Carter Administration, and he helped to evaluate and review the Section 8 program. We welcome you, Mr. Olsen. STATEMENT OF EDGAR OLSEN, PROFESSOR OF ECONOMICS, UNIVERSITY OF VIRGINIA, CHARLOTTESVILLE, VA Mr. Olsen. Thank you, Madam Chairwoman. I welcome this opportunity to talk with you and Members of your Subcommittee about housing voucher policy. I speak from the perspective of a taxpayer who wants to help low-income households, albeit a taxpayer who has spent the last 30 years studying the effects of low-income housing programs. My oral testimony will focus on three questions: Should the policies for determining Fair Market Rents be changed? Should the current targeting of assistance to extremely-low-income households be modified? And what role should housing vouchers play in the system of housing subsidies? Changing the policies for determining Fair Market Rents requiring 75 percent of vouchers to be targeted to households with extremely-low-income and limiting tenants to paying no more than 40 percent of their income on rent will affect voucher success rates and hence the workload of housing authorities. This may justify a change in the level of administrative fees. However, if housing authorities respond appropriately to changes in the program's regulations by altering the extent to which they overissue vouchers, the changes will have no effect on voucher usage rates. The changes in regulations will also affect other important aspects of program performance, and these effects should be the primary bases for judging the desirability of changes. For example, increasing Fair Market Rents would reduce the number of households that could be served with a given budget. Since the available evidence indicates that Fair Market Rents are considerably higher than necessary to rent units meeting the program's standards, and 70 percent of households below the poverty line are not currently offered housing assistance, and more than a million of our poorest households are in seriously inadequate housing, homeless shelters or on the streets, we should not be considering changes in the Section 8 voucher program that reduce the number of recipients. Indeed, we should move in the opposite direction, namely, decrease Fair Market Rents and use the money saved to serve the poorest unassisted households. If Congress decides to make more money available for housing assistance, and I am not at all averse to that, it should be used to provide additional vouchers rather than larger subsidies to current recipients. In 1998, Congress required housing authorities to target 75 percent of vouchers to households with extremely-low-income. The available evidence suggests that this rule will increase the program's success rate. But even if this is not true in every locality, it will have no effect on the voucher usage rate if housing authorities respond appropriately. Since I favor focusing limited housing assistance on the poorest of the poor, I urge you to retain this provision or even strengthen it. The most important evidence concerning housing vouchers relates to their role in a system of housing subsidies. Many argue that we should use a mix of vouchers and production programs to deliver housing subsidies to low-income households. Currently there are calls for a new HUD production program. The systematic evidence comparing the effects of different housing programs lends no support to this view or this proposal. Five major studies have estimated the cost-per-unit and the mean market rent of units provided by housing vouchers and certificates and important production programs, namely public housing, Section 236 and Section 8 new construction. They are unanimous in finding that housing certificates and vouchers provide equally desirable housing at a much lower total cost than any project-based assistance that has been studied. We do not need production programs to increase the supply of units meeting minimum housing standards. The Experimental Housing Allowance Program demonstrated without any doubt that the supply of units meeting minimum housing standards can be increased rapidly by upgrading the existing stock even in tight markets. This happened without any rehabilitation grants to suppliers. It happened entirely in response to tenant-based assistance that required households to live in units meeting the program standards in order to receive the subsidy. The available evidence also shows that housing vouchers enable us to move eligible households into adequate housing faster than any construction program under any market conditions. The consequences of using costly construction and substantial rehab programs has been that several million of the poorest households who could have been provided with adequate housing at an affordable rent with the money appropriated for housing assistance have continued to live in deplorable housing. We should learn from our past mistakes and not heed the call for a new HUD production program. I appreciate the willingness of Members of the subcommittee to listen to the views of an ordinary taxpayer whose only interest in these matters is to see the tax revenues are effectively and efficiently used to help low-income households. [The prepared statement of Edgar Olsen can be found on page 439 in the appendix.] Chairwoman Roukema. All right. Thank you. Thank you, Mr. Olsen. You went to the subject that I had in mind, and I'm not quite sure whether or not we can get anyone else on the panel to either agree or disagree with what has been said here. But my point to the other panelists before you made the explicit assertion was how are we going to pay for this? Now your assertion is that we really don't have to do this, raise these FMRs. You are stating that the units are there. I don't know where they would come from, but your implication is that if you upgrade existing stock. So I hear you. I don't know if you want to talk more about the production side of it or the existing stock for just a moment, and then I'll go on and ask our other panelists related questions. Mr. Olsen. One thing I can say about that relates to experience from the housing allowance experiment. Chairwoman Roukema. Excuse me. The what? Mr. Olsen. The Experimental Housing Allowance Program was conducted from the early 1970s to 1981. In current dollars, it cost a half a billion dollars. About 40 percent of that was for research. The program was an entitlement housing program operated in two moderate size metropolitan areas, the Green Bay area and the South Bend area. About 20 percent of the population in each of those areas was made eligible for the program and any eligible person who came in would get the subsidy. It was just like food stamps. One of the reasons that we had these full-scale programs operating in two markets was to determine whether there would be a rent inflation from them. The answer is definitive: No. What did happen was that many units which were slightly below the standards were very rapidly upgraded to meet the standards. That's why even with low vacancy rate it works. You can get these units upgraded. Even under the current Section 8 program, about 30 percent of the people qualify in place, many of them by upgrading the units. Chairwoman Roukema. Let me give you the opportunity for the permanent record to respond to my observation. You're referencing a time and place and a housing market that is very different from the existing housing market. But if you can substantiate that. We don't have any more time now. But please substantiate it and direct your data response to me. Mr. Olsen. Fine. Chairwoman Roukema. Will you do that? Mr. Olsen. You mean not now verbally, but in writing? Chairwoman Roukema. In writing, yes. Yes. Not only for my own information, but I will include it in the permanent record. Mr. Olsen. These two places were chosen to have different vacancy rates. One was 4 percent and one was 7 percent. So 4 percent is pretty low, but I'll do that. Chairwoman Roukema. All right. Now I have questions for Mr. Renahan. I was very interested in your testimony, and certainly Mr. Ziegler. I don't know how you necessarily can substantiate your statements, but I hope you're right. What can we do or how do we get Mr. Martinez and our own budgeting process to give us the new appropriations which I believe would be necessary, Mr. Renahan? Or are you denying that there would be new appropriations necessary in order to meet the vacancy rate requirements under your testimony? I didn't hear any reference to the new costs involved. Mr. Renahan. Madam Chairwoman, clearly there would be an increased cost when the Fair Market Rents are increased or if you use the approach that Barbara Sard proposed and giving housing authorities more flexibility to go to 120 percent of the 40th percentile. There would be a cost associated with that. What I am suggesting is that the way to calculate that cost is not to take the percentage increase and multiply it by every Section 8 voucher in the country. Because that cost would occur only in those areas where the housing authority and tenants need access to those higher amounts in order to be able to successfully use their vouchers. Even within the city of Los Angeles, that's not all of my voucher holders, it wouldn't even be most of my voucher holders. Because housing authorities do a rent reasonableness test, a comparability test before we enter into Section 8 contracts with landlords. And most of the contracts that we do on behalf of Section 8 voucher holders come in below the current payment standard. We need the increase to make it possible for more of our voucher holders to be able to move to lower poverty neighborhoods, to access units with a larger number of bedrooms and so forth. Chairwoman Roukema. Can you document that for the record? I mean in actual numbers and not just generalities, but with specificity. Mr. Renahan. I would be happy to document that. Chairwoman Roukema. And also you made a reference--and I guess my time is up, but you did make a reference and I want to acknowledge it if you have just a brief response--about how we can control these costs with partnerships with non-profits and faith-based. I don't think we've explored that nearly enough, and I would appreciate your experience in this and your recommendations in that regard. Mr. Renahan. Well, what we've been able to do in Los Angeles is with limited numbers, been able to partner with non- profits that have other funding sources and are helping families with an array of needs and issues to use vouchers successfully. And it works. What we're suggesting is that without an additional appropriation, if housing authorities that are underutilized, which means they're not spending all the money they've been appropriated and are under contract with HUD to spend, to use a portion of the unused money to provide those kinds of services that are proven to work. And that alone without an additional appropriation---- Chairwoman Roukema. Through the non-profits and the faith- based organizations? Mr. Renahan. In Los Angeles we do it partly with non-profit and faith-based and partly directly with housing authority staff. So you would want to provide the flexibility for the local needs. Chairwoman Roukema. Any further information you can give us on that for the permanent record, please direct it to me and we will see to it that it gets in the record. Thank you very much. Mr. Frank. Mr. Frank. Mr. Olsen, you were talking about your opposition to production programs. I would assume that logic would lead us also then to end existing production programs? Mr. Olsen. Existing production programs? Mr. Frank. Yes. Should we stop funding Section 202 and repeal the Low Income Housing Tax Credit? Mr. Olsen. I think you should--when the term of the use agreement comes to an end on these various projects. Mr. Frank. No, I'm talking about building new ones. Mr. Olsen. Yes, we should stop funding them. Mr. Frank. So you would no longer fund the Section 202 housing for the elderly? Mr. Olsen. I don't think I've given that enough thought. Mr. Frank. Well, it seems to me you have. Mr. Olsen. I'm not sure. It hasn't been studied carefully. That's what I'm telling you. Mr. Frank. But Mr. Olsen, here's the point. I mean, if production is not the answer, it just does not seem to me intellectually valid to say well, we shouldn't increase it. I mean, I don't understand where the logic is. We just happened by luck I guess to pick the right number. I mean, given your argument that it's much more expensive per unit to do production, it doesn't seem to me--it seems to me you have given that a lot of thought and that your conclusion has to be get rid of the Low Income Housing Tax Credit and stop the Section 202 production program. I mean, how can that not be the case? Mr. Olsen. Certainly, I agree that we should get rid of the Low Income Housing Tax Credit. Absolutely. Mr. Frank. I wasn't just asking you if you agree with me. I was asking you if you agree with you. Mr. Olsen. What? Mr. Frank. I was suggesting that you agree with you in being against the program. I'm not for that. [Laughter.] Mr. Olsen. Oh, OK. Mr. Frank. But you would abolish the Low Income Housing Tax Credit? Mr. Olsen. I would. Mr. Frank. OK. Now what about Section 202? How do you justify supporting an existing Section 202, which is a housing production program? Mr. Olsen. I'm just not quite sure how well the private sector would respond to housing disabled people. Mr. Frank. Oh, I'm sorry. So Section 202 is for the elderly, not disabled. You would abolish the Section 202 housing program? Mr. Olsen. No. Mr. Frank. OK, the disabled, I understand. All right. Mr. Olsen. The program for the elderly is now called 811. Mr. Frank. All right. Thank you. Last question. You mentioned the programs in South Bend and Green Bay. And you said the current cost would be half a billion. Would that be if you nationalized this and made it a national entitlement? I mean, I gather from what you said---- Mr. Olsen. I'm telling you if you take the cost of the experiment at the time and you increased it by the inflation that has occurred since---- Mr. Frank. All right. That would be just for Green Bay and South Bend? Mr. Olsen. For those two cities. Mr. Frank. So it would cost a half-a-billion dollars a year for Green Bay and South Bend. If we, in fact, used that as the model for a national housing program and made it I gather an entitlement. You told me it was an entitlement if you lived in Green Bay or South Bend. Mr. Olsen. It was an entitlement, but for a much lower fraction of the population that are currently eligible for HUD assistance. Mr. Frank. But I thought you were saying---- Mr. Olsen. It's the poorest 20 percent. Whereas, almost 40 percent of the population are currently eligible for HUD assistance. Mr. Frank. Your proposal is that housing policy, we get rid of the Low Income Housing Tax Credit, we get rid of housing for the elderly production, and we take this and make it an entitlement to that kind of help for the lowest 20 percent of the population. What would that cost roughly nationally right now? I might be for that. Mr. Olsen. I don't know the answer to that. Mr. Frank. But it would cost a half a billion if you did it just in Green Bay and South Bend. Mr. Olsen. Well, 40 percent of that was for research. The rest of it was for allowance payments. Mr. Frank. So $300 million, it would cost us $300 million to do it for South Bend. It sounds like a great idea, but I---- [Further clarification on this matter from Mr. Olsen can be found on page 448 in the appendix.] Mr. Frank. That's enough. I have to get to some other questions. But I am skeptical about its economic feasibility. Let me go now to the others. Secretary Martinez has been very clear that the problem with low utilization rate in Section 8 is you guys. What's your answer? I mean, he says it's not affordability, it's not the market situation. He said explicitly, a good housing authority can use all the Section 8's. He said that on the record. So are you guys not good housing authorities? What's your problem? Mr. Renahan. The vast majority of housing authorities are well managed and well run. There are of course exceptions. There are a lot of housing authorities around the country, and there are some that need to do a little bit better administering their programs. I think the response that I would give is the Los Angeles experience that we've had in the last 3 years. The market has gone from a 10 percent vacancy rate to a 3 percent vacancy rate. That's had a devastating impact on the success rate of Section 8 voucher holders. We're the same administrators. I'm the same guy. The rules are essentially the same. What's changed is the market. Mr. Frank. That's a very good point. Let me ask Mr. Johnston now. You heard Mr. Olsen suggested the voucher program by itself without any production program will be not only able to house people, but will be an incentive for a significant upgrade in the quality of the housing stock. What's your experience in Cambridge, a pretty tight housing market, in terms of the incentive effect of offering people Section 8's? Mr. Johnston. Someone with a Section 8, they have a very difficult time in Cambridge obviously finding units. Mr. Frank. I'm talking about the owners. Have you found-- because what Mr. Olsen said was that these Section 8s, properly administered, are a great incentive for improving the property. Mr. Johnston. It's a disincentive. I mean, the bottom line is that the Section 8 program is a regulated program. It requires things that are much different than a market rate tenant. If I went to a landlord and a Section 8 tenant went to a landlord, there's more of a disincentive to rent to the Section 8 tenant, simply because---- Mr. Frank. Should we do away with those things that are disincentives? Mr. Johnston. We're doing that in Cambridge. To answer your prior question, we are a high rated housing authority. Because of our rating, we actually became an MTW participant. Mr. Frank. Let me ask a question. Do you see a way that we could administer the Section 8 program? My problem is the Section 8 program is a year-by-year program. We don't have this kind of entitlement that we had in the thriving, teeming metropoli of South Bend and Green Bay, but we were in Boston and New York and Chicago and these similar municipalities. Would it be an incentive for people to upgrade their property if we gave them an annual contract for Section 8? Mr. Johnston. No. Mr. Frank. Thank you. Chairwoman Roukema. All right. Thank you. Mr. Little. I'm sorry. I'm sorry. Mr. Miller. Mr. Miller. I'll change my name, Madam Chairwoman. Thank you very much. Chairwoman Roukema. Sorry about that. Mr. Miller. I want to clearly state that I am not opposed to the concept of Section 8 vouchers. I'm not opposed to the concept that some people need help in life, but we have a welfare system that deals with that. But I am absolutely opposed to creating any system that creates a situation where people have to rely on Government day after day, year after year, decade after decade to exist in this country. And that's the problem we have. Ms. Sard, you stated that voucher assistance has not kept pace with housing costs. And then you said we need to produce more housing for poor families. And I'm going to come back to that. I want you to think about who ``we'' is and how production occurs. Mr. Renahan, you talked of providing various expenses, moving expenses and many other options for people to help them to get into houses. And you stated that landlords demand more for rent than renters can afford, and you said that vouchers should be increased and you said that we are down to 3 percent vacancy in apartments in the L.A. Basin, which means we're 100 percent rented out, because 3 percent of 100 units is going to be recarpeted or refinished or painted or under repairs waiting for somebody else to move in while somebody moves out. And Mr. Ziegler, you mentioned that there are more vouchers than landlords are accepting. And my concern here is in the Los Angeles Basin area. We have created an environment in local government where we have allowed the concept of property rights to be usurped, allowed radical environmentalists to put pressure on local city council members by threatening them with recall, threatening to oppose them in their next election. Many city council members--and I have a lot of good friends who are on city councils--are afraid to approve housing projects in the community, because they're afraid they're going to be thrown out of office by a few people who create rumors and stories that are untrue about them in order to get them thrown out of office. We need to reinforce the principles of property rights in this Nation to generate new housing construction for people, and remove the pressure applied by radical environmentalists on people who are trying to address local needs by serving on city councils. Barney Frank and I agree on many things. I think he has the historical perspective that it's been tried in the past and he supported it in the past to enforce zoning rules and regulations and there wasn't support here in Congress to deal with it. And my frustration is more directed at us in our inability and unwillingness to do what's right to resolve this problem. And instead of doing that, we just increase Section 8 vouchers and try to get people by from day-to-day, rather than addressing the cause of the problem. But Ms. Sard, you said we need to produce more housing. Who are ``we'' and who is doing the production? Chairwoman Roukema. Excuse me. Mr. Miller. Oh, she's gone now? Chairwoman Roukema. Yes. Mr. Miller. Mr. Renahan, you talked about the 3 percent vacancies and landlords demanding more rent than people can afford. What do you propose doing about it? Mr. Renahan. Well, NAHRO does support a production program, because clearly there are markets in the country where there just aren't enough available units. Mr. Miller. Do you not agree with the idea that the private sector is far more capable of producing reasonable, low-rent units than the Government is without subsidies? Mr. Renahan. I believe the problem in high-cost areas is that it just doesn't pencil out for a private-sector developer to produce housing that's affordable for families working at or above minimum wage. In Los Angeles, the wage that would be needed by a family to afford decent housing that's not overcrowded is $17 an hour. So that means that that family would need at least three full- time minimum wage earners in order to be able to afford an apartment without a subsidy. Mr. Miller. You're right. But I'll give you an example. I live in the city of Diamond Bar, California, and you know where that's at. People at church last Sunday came up to me and said they lived in the Daisy Apartments on Grand Avenue right up the street from the church and their rent is being increased to $1,200, and just a few years ago it was $800. And the reason for the increase in their rent is there is not an apartment being built in our area, because nobody will approve the construction of new rental units. And no matter what we do, no matter how we increase the Section 8 vouchers, no matter how much we make people more reliant on Government to have a place to live, until we address the core problem that we're facing, and that's reasonable use of their property by property owners and a reasonable timeframe in which the process must occur for approvals, we are never ever going to solve the problem of housing affordability and availability. All we're going to do is charge taxpayers taxes who work very hard so that Government can give it to people who need it, and that's socialism, and I'm absolutely opposed to it. We need to address the needs of communities by addressing issues that will lead to the production of new housing for the people you are trying to help. And until we do our job here in Congress and we're willing to take the burden and the onslaught that we're going to receive by doing our job, this Nation is never going to help low-income people get into affordable housing, because the requisite housing units will never be built. And my time is up, Madam Chairwoman, I believe. Thank you very much for your patience, because you are a most patient Chairwoman. Chairwoman Roukema. I'll give you 20 more seconds if you'd like. Mr. Miller. There are so many things we're not addressing here. Mr. Olsen, you were exactly correct in many things you stated. We Representatives considered and acted upon the intent of the Founding Fathers for this Nation and for Government, we would not have this problem. And if we could get the California Department of Fish and Game to read an EIR in California, rather than drafting letters that say that you did not address this issue, which is in part clearly laid out in the EIR--if we could get them to do their job--we could produce much more housing in California. Thank you, Madam Chairwoman. Chairwoman Roukema. All right. Thank you. Congressman Watt. Mr. Watt. Thank you, Madam Chairwoman. Members of the panel, I regret that Ms. Sard left, because I had some questions for her. She seems to think that--in her testimony she says, in fact, I agree with Secretary Martinez' statement that a central cause of the current underutilization of vouchers is inadequate administration of the program by some PHAs. I'm not going to get you to comment on that part, but I do want the two gentlemen, Mr. Johnston and Mr. Renahan, who are actively directly involved with administering these programs to get your comments on some of what she has suggested. One thing she suggests is that the number of administrative agencies is too high so that you have an average of more than 50 administering agencies per state. Texas has more than 400 according to her. The number of administrators who need to learn complex program rules and policy interactions is multiplied, economies of scale are not obtained, dah, dah, dah, dah, dah. And then in her recommendations she said program reforms should be designed to reduce the number of administering agencies. Can we do that at the Federal level? If local communities have housing authorities, does HUD now or should HUD have the authority to say we're going to contract-- we're going to deal only with a regional concept as opposed to a city-by-city or housing authority-by-housing authority process? Does HUD have that authority now? Mr. Renahan. Congressman, I believe HUD has that authority when housing authorities are not performing to standard. I agree with Barbara Sard and NAHRO agrees with Barbara Sard on much of her analysis, but on this one she's a little bit off. There are a lot of advantages to having locally based housing authorities administering the Section 8 program. The Section 8 program enjoys local support throughout the country in large measure because it is administered locally. And the statute does allow some flexibility in the local administration of the program. It makes it possible for us to make the kinds of partnerships I described earlier with non-profits and other organizations to address the special needs of Section 8 voucher holders. In particular, it's made it possible for housing authorities across the country to administer successful family self-sufficiency programs. Mr. Watt. Sir, I understand you're talking about the advantages of local. She's talking about the disadvantages of this localized system. I'm talking about something between those two things, and that's the practicality of it. Can we, should we as a Federal Government be saying to local communities, we won't allow Section 8 vouchers to be administered by small housing authorities because we don't think you have the expertise? Maybe we should set up one per state, an administering body state-by-state or one for each SMSA. I don't know. Is that practical? I'm not criticizing what she's saying. I'm trying to decide whether this something that we ought to be looking at as a practical possibility in this subcommittee. Mr. Johnston. Congressman, I guess my response to that would be in our area we actually have various regional housing authorities in addition to the PHAs, the public housing agencies. And we actually--you run into problems when you start having large regional housing authorities because you're dealing with a much larger bureaucracy. Individuals coming up on the waiting lists. It's harder for them to get through the system. It's harder for them to get access to the services which they're supposed to get. It's harder for them to be mobile. I mean, if you're dealing with a regional housing authority that's located, for instance, in our State in Boston, and someone is coming from North Adams which is completely on the other side of the state, you would run into problems. The Section 8 program works well because it does meet the local needs of the community. It houses the people that are in that community that need the services from the housing authority, and that housing authority builds a rapport with the community. We've built a rapport with our landlords. We've done outreach. We know our community. Chairwoman Roukema. All right. Mr. Watt. Thank you, Madam Chairwoman. Chairwoman Roukema. I believe that Congressman Frank has a comment in this context. Mr. Frank. Yes. I think that's a very important line of questioning. And one thing I've found because I have--I don't represent the city of Boston. I represent a number of communities. And we know we have difficulty sometimes in getting landlords to participate. The local housing authorities are often better at getting local landlords who after all can say yes or no to participate. There would be a reluctance to deal with a large metropolitan authority. And you've got some very good local housing authorities that are local people. And I have found that that's a help in trying to get the voluntary participation we need. Chairwoman Roukema. I might also comment that I'm sure New Jersey is not alone in this respect, but in New Jersey, for example, local control, zoning ordinance control, is extraordinarily important. And if we took that away, I believe that we'd eliminate--I mean, it would be a minus for any public housing or any voucher program. So it would have a reverse effect, an unintended consequence. Mr. Watt. Madam Chairwoman, I just wanted to make clear that I'm---- Chairwoman Roukema. But it's an important issue to be raised. Mr. Watt. I wasn't being critical of any of this. I think the reason we have these hearings is to try to figure out whether there is some approach that can be a better approach. Chairwoman Roukema. Exactly. Mr. Watt. But when somebody just represents that you can-- -- Chairwoman Roukema. It was a very important question to ask. And if there's an ambiguity in the statute, we should address that. But I don't believe there is. But it is something we should investigate. Thank you very much, Mr. Watt. Mr. Barr? Mr. Barr. Thank you, Madam Chairwoman. Mr. Johnston, I apologize. I got in here late because of some other hearings. And I didn't get to hear your testimony, your initial testimony. But I was looking through your testimony. Your written testimony happened to be the first one I picked up here. And I'm just leafing through it. I have to tell you, it's right on point on a number of areas. When I meet with public housing officials in the 7th District of Georgia, the points that you mention in here are those that I hear from them and they're the same points that I hear not just from the public housing authority officials, but also from local investors who want to participate in the program, but the oppressive paperwork and regulations drives them away. So even though there are a lot of landlords out there that would like to--or investors out there that would like to invest in housing and make them available for Section 8, they can't. We had a series of meetings just a couple of weeks ago in our District, and the one specific aspect of all this regulation and the lack of flexibility that I heard about more than any other was the lead-based paint regulations. If you could--and I apologize if this is repetitive. Could you just talk a little bit--I don't know how much detail you went into in your prepared remarks--about some of the regulations that we could be looking at to provide a little more of the flexibility? Or is there any way of doing this short of, as you say, is necessary, a complete overhaul of the program? Mr. Johnston. Well, thank you for your comments, Congressman. But I guess to answer your question, we have redesigned the program in our housing authority. Because we've been given the flexibility by HUD under this demonstration program in which we participate. And the flexibility allows us to alter the length of time of our leases. It allows us to pay over 120 percent if absolutely necessary to save a unit. Typically we tie that into a longer lease. What we do is we actually front-end load annual adjustment factors to give a landlord more of an incentive to basically take a Section 8 participant. We've shortened the amount of time that it takes to get inspections done. We have reduced the amount of paperwork for owners. We've actually redrafted leases. We've made the whole process much easier. I mean, the lead paint issue is a touchy issue, because I think everyone agrees that lead paint is a very serious concern, and we certainly don't want to get back into the problems we've had with lead paint in the past. But I guess my problem---- Mr. Barr. The context that I heard about it on the latest round of meetings that we had is with regard to senior housing, affordable housing for seniors. That's a serious problem in many of our communities and probably in other parts of the country as well. The presence of some lead-based paint in some of these older homes would not seem to present the same safety hazard to senior citizens who need those affordable housing as it would to affordable housing that's made available with children. Yet there doesn't seem to be any flexibility that would allow for a different standard based on the circumstances that don't present the same sort of danger. Is that something that could be looked at or should be looked at? Mr. Johnston. It should be looked at. I guess in general, for instance, the State of Massachusetts has a very stringent lead paint law. And our real concern is that we're now putting owners through an additional burden to go with Section 8 that they don't have taking a market rate person, whether it's an elder or a family. And it's only going to hurt utilization. Utilization will be impacted. You know, other states may not have as stringent lead paint laws as we do. And I think it's a State issue. I think it's an issue that needs to be looked at by each individual State versus the Government in general. Mr. Barr. What I'd like to do, if you don't mind, is correspond with you, write you. And I'd like to get if you have some additional material with some additional details on what you've done within the framework of the existing restrictions to make a program work a lot better than it has been, if you have some material. I'd like to receive that so I could look at it and also share it with some of our folks down in Georgia. Mr. Johnston. I'd like to share that with you. Mr. Barr. Thank you. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you. Next Mr. Capuano. Mr. Capuano. Thank you, Madam Chairwoman. I guess I'd like to just start off by first of all thanking the panel for coming today. But at least three of you I think will go away unhappy, because I can pretty much guarantee you there will be no housing production program this year. Just yesterday, this House decided to rescind authorization for over $100 million worth of Section 8 certificates. So that's not a great record to begin on. But, Mr. Olsen, you will go home happy. You're getting what you want. I guess some of the questions that have been asked--I mean, I got here late because on many of these issues, I was the mayor of my city beforehand, and I have pretty firm opinions on these things, though I respect your opinions, you're probably not going to change mine too much just because I've lived through it. But I do want to ask a few questions as a follow-up to what Mr. Miller asked. Mr. Johnston, I live in the next town to where you work. You know that. Cambridge has produced an awful lot of housing in the last 20 years. They have produced thousands of units at North Point--hundreds of units at North Point, thousands of units in East Cambridge, a couple of thousand units around Harvard Square. During any of that construction, have rents gone down? Mr. Johnston. No. Mr. Capuano. I knew that answer, but I just thought I'd ask. Have housing prices gone down? Mr. Johnston. No. Mr. Capuano. I'm not going to ask, because I'm not going to put you on the spot. But I know the answer. I don't know if you realize that Cambridge and its surrounding area is probably one of the most densely populated areas in the country. Right now Cambridge is around 14,000 people per square mile. Somerville was about 18,000. Boston is around 14,000. Belmont, right next to the west of you, is about 10,000 people per square mile. Are there are lots of open tracts of land somewhere in the Greater Boston area that I've missed? Mr. Johnston. No. Mr. Capuano. Do we have an opportunity to build a whole lot of new housing, though we'd like to? I mean, where are we going to put it? Mr. Johnston. No, we don't. Mr. Capuano. Except to build high rises. And there are those people in the world, a few of us, who may not want to live in high rises. We don't mind two- and three-family homes, which is by far the bulk of our housing stock, but there's certain limits to what we want, and it goes back to what the Chairwoman said earlier, that some people want some control over what happens next door to them. I think that's fair. So I don't buy all this nonsense in some areas. And again, I don't speak to every neighborhood. And I actually think that the argument that we need to break this down, these rules and these regulations down on a much more localized level, because even with the SMSA, our housing issues in the Greater Boston area are not the same as some of the areas just outside of Boston, 20 miles out. The SMSA is pretty big. So it's not the same. And it should be different. And in some levels, HUD has started to go in that direction. But I was actually most interested in some of your written testimony--I don't know if you did it verbally--on the actual rents. Even with HUD bending over backward and giving Cambridge and a couple of the other communities in that area the opportunity to go above the Fair Market Rent numbers to the tune of 20 percent above, we're still $700 a month below what an average two- bedroom apartment is. Now I don't know why the rents are all that high. It's actually kind of nice on one level that everybody seems to want to live in my District. [Laughter.] Mr. Capuano. That's great. But that drives housing prices up. And I guess, you know, Professor Olsen, it's nice to hear you say that you're an average American, but though I come from a place that has 31 degree-granting colleges and universities, still my average constituent is not a professor of economics. So I don't mean to be disrespectful, but you're not the average taxpayer. The average taxpayer is a truck driver or a bus driver or a cop or a firefighter or a teacher or a tenant in public housing, not a professor of economics at a university. And I guess--I'll put a little challenge out to you and to any one of your professors--full blown, I don't know--I assume you're a full blown professor, a tenured professor at the University of Virginia. I would ask that on your--whatever it is you get paid, I'm sure it's above the average pay of my constituent, I would ask you, I would challenge you to come to my District and whatever house you're living in, whatever apartment you're renting in Charlottesville or its neighborhood, to come to my district and find anything near comparable for whatever it is you're paying. And if you can do that, you might change my opinion. Until that time, the rents in the real world are a lot different than in the ivory tower. And I strongly challenge you to get out of it and go see the people that these people service. Go talk to my mother, who lives in subsidized housing. And you explain to her and to the seniors across this country why they haven't deserved the opportunity to live in decent, affordable housing when they did everything they were asked to do by society. To say that to me is--and I know you don't mean to be--but it's very offensive to me. I think this Congress has not paid enough attention to the needs for affordable housing. I think we need to make the right to decent, affordable housing a top priority in this country. We haven't done it. And to say anything less than that I find offensive to most of my constituents and to the people who care about their well being and the well being of their children and their mothers. Thank you, Madam Chairwoman. Chairwoman Roukema. Congressman Capuano, I see that you understand you time is up. You do not have a specific response in mind here. Is that correct? Mr. Olsen. Was that a question? Mr. Frank. But don't register to vote there. [Laughter.] Chairwoman Roukema. I didn't hear that, but---- Mr. Olsen. I favor serving more low-income people. Chairwoman Roukema. We've opened the record for any specific response that any of the panel members would like to make for the written record. But I would like to point out to all those who have just recently arrived and did not hear the rules that I outlined at the beginning of the hearing that we'll try very desperately to limit our questioning period to 5 minutes apiece, and I've been trying to enforce that regulation, especially since we hope to be able to conclude this hearing today before we are interrupted on a regular basis with votes on the floor. So let's try to get not only through this panel, but the next panel that is waiting to be heard. And with that having been said, Congresswoman Schakowsky is the next. Ms. Schakowsky. Thank you, Madam Chairwoman. I'd like to associate myself with the comments made by Congressman Capuano and feel also very strongly that the United States Government does have an important role to play. And I think that there is not a family in the United States that would declare themselves to have a surplus if they didn't have a good roof over their head. And this American family has done just that and has not made providing or even helping in a public-private partnership sufficient housing for millions of Americans. Many of those Americans live in Chicago. We have a 4.2 percent vacancy rate in Chicago below HUD's 6 percent vacancy tight housing market definition. And in my district we face rising real estate prices, as many communities do, and you've talked about that in your testimony. And a number of project-based Section 8 units that are talking about opting out right now. I wanted to ask you about a specific proposal. When a building opts out, the tenants receive vouchers. And as long as the building stays a rental unit, we now have enhanced vouchers in parts of our community. But if the building goes condo, the tenant will still get the voucher, but it won't maintain its enhanced status. So they have to often be looking for places outside the community. And let me just put as a footnote, we're short about 150,000 affordable housing units in the Chicago area. And it is really a crisis. I wanted your reaction to a proposal that these enhanced vouchers be extended to the wider community so that a person in that building that goes condo would be able to take an enhanced voucher in a broader area to shop around for housing. Anyone? Mr. Renahan. That is a big issue for housing authorities across the country. In Los Angeles we've assisted over 1,000 families who've been in the situation where the owner prepays or otherwise opts out and we administer then the tenant-based Section 8 voucher. It works when the building owner or new building owner wants to continue in the rental business. The enhancement has been crucial because the buildings where owners opt out are the ones that are in appreciating markets that are normally beyond the reach of Section 8. And what that means for tenants who have to move, either because the building has gone condo or for any other reason is that even though they've gotten a voucher, they will be moving to a higher poverty neighborhood in all likelihood. Their accommodations will not be the same as what they had before the owner opted out or prepaid. And that's just the economics of it. Because owners of buildings that aren't in such good shape that are in lower income neighborhoods don't opt out. They don't prepay. It's only the properties that will do better on the open market. So in those cases where tenants are forced to move, it's very, very difficult. And I should point out that a majority of the tenants that we've dealt with in this situation are senior citizens. And it's a very traumatic experience for them. So allowing the enhancement to be used outside of the subject building makes a lot of sense to me as a human gesture to the families who thought their affordable housing situation had been remedied for life, particularly the senior citizens thought that they--one aspect of their life they didn't have to worry about was their affordable housing. And then they go through this upheaval. Ms. Schakowsky. I am going to propose legislation to that effect. I know that this has been---- Chairwoman Roukema. Excuse me. Ms. Schakowsky. Oh, am I done? I'm sorry. Chairwoman Roukema. Go ahead. You have a few more seconds. Ms. Schakowsky. OK. Well, one of the things that I'd also like to explore, in Chicago we have the Chicago Affordable Housing Trust Fund. We just this week had the 11th annual meeting of that. And one of the comments made by landlords, by tenants, by lenders, is that it's so easy to access. That there's none of the bureaucratic hurdles. And it seems to me that what I hear from landlords--it's just that it's not--that it's so hard to deal with HUD. That it's just a hassle. That even, all other things being equal, that they might consider opting out because they've done their 20 years and they have had it already. And it seems to me that if we could sit down and figure out and I think that others on the panel have been asked--and Members, if we could figure out ways to at least diminish if not eliminate those bureaucratic hurdles that we'd step forward. I guess that's a comment. I'm done. Chairwoman Roukema. Perhaps the panel could feel free to address that particular question and submit it in writing for the record, please, not only for Ms. Schakowsky, but certainly to my attention as well. Chairwoman Roukema. Congresswoman Kelly. Mrs. Kelly. Thank you, Madam Chairwoman. I'd like to ask this panel what suggestions they have for increasing the number of property owners that will accept Section 8 in their housing, particularly in a really tight market like Westchester County. When landlords really are able to find tenants easily, they are not--they are seemingly unwilling to open some of those units. I'd like to ask what your suggestions would be to get those units open. Mr. Renahan. Well, Congresswoman, one thing that has to be there is an adequate Fair Market Rent that will allow us to pay a fair amount to the landlord so they don't take a financial loss for participating in the program. Mrs. Kelly. Excuse me, sir. But having been very familiar with the rental market in that county that I'm referring to, I also know that in some areas Section 8 drove up the cost of housing when it went in, and it can still occur. So I'm not so sure that we're talking Fair Market Value here. So can you-- every single person that I heard on this panel simply said the answer is more money. I'm wanting something beyond asking for money. Mr. Renahan. What also is necessary and works is the kinds of creative approaches that I had described that we used with our special needs households. An important component of that is outreach to landlords. There are landlords in Los Angeles who are wiling to participate in Section 8 for a family for a family with a person with a disability. There are other landlords who participate in the Housing Opportunity for Persons with AIDS Program. There are others who have helped when we administered the welfare-to-work program. Landlords can respond to a human approach, to a request that they offer one unit or two units in a large apartment complex for a family that strikes a chord. Mrs. Kelly. So you feel that outreach is going to answer--I don't mean to interrupt you, sir, but I don't have a whole lot of time and I need to get to the meat of this. In other words, you feel that landlord outreach is going to resolve this problem? Mr. Renahan. It's part of the solution. It's part of the solution. Mrs. Kelly. Mr. Ziegler, do you have anything you want to say to that? Mr. Ziegler. Yes. I think the answer is to treat the landlord in a Section 8 program like the landlord would be treated by anybody else who is not in a Section 8 program, which means you need to look at the rent structure, but you also need to look at service to landlord. In New Jersey, for example, we established a Landlord Liaison Office that will troubleshoot problems with landlords with regard to paperwork, inspections, and so forth. I think when you do this kind of thing the owners understand that you're working with them, not against them. I think that's a real important part of this. And it's increased the number of--we have 17,000 families in our Section 8 and 14,000 landlords. And with the Regional Opportunity Counseling Program that I mentioned earlier with even educating landlords as to what kind of assistance is available to them. We have tons of mom-and-pop owners in New Jersey who have two-family houses and rent one of the units out. And a lot of them don't even understand landlord-tenant law. So getting education to landlords with regard to State services, landlord- tenant issues, lead-based paint. The New Jersey Supreme Court, for example, has ruled that it's illegal in New Jersey to refuse a Section 8 voucher. And working with the New Jersey Apartment Association has been very important in showing them that we are there working with them, and it has produced a tremendous amount of benefits and increased the numbers of landlords in the program. Mrs. Kelly. What about building? I mean, is there any impetus to try to get landlords to when they build new apartment buildings to include with the idea of having mixed housing so we have some Section 8 people mixed in with other people that are paying full rent? Is there any kind of an outreach in that direction? Mr. Renahan. There is a statutory provision that allows a portion of Section 8 vouchers to be project-based. And HUD right now is working on a new rule that will make that a little more flexible and make it possible for localities to do exactly what you're describing. Mr. Ziegler. And on the project-based issue, if I may add, there's a large number of non-profit organizations who are very interested in working with the project-based program. They have services, they provide services. But they need operating costs. And the assurance of Section 8 voucher for their particular buildings will increase the number of families they can serve. And they're serving essentially the homeless and very-low- income families. Mrs. Kelly. I would also like to ask what extent the current regulatory scheme contributes to the housing affordability and availability. Do you feel that the regulations are actually a chill factor? Mr. Ziegler. I don't understand the question. I'm sorry. Mrs. Kelly. There are regulations controlling what you do with Section 8. Are the regulations a chill factor in your ability to deliver Section 8 housing to the people who need it? Mr. Ziegler. Yes, in some situations they are. And I think we mentioned them earlier. Certainly the ability to address the rent structure that's set in the community and to deal with owners on a one-to-one basis, to do inspections in the units carefully, to allow some flexibility in repairs with the units, if we're in the 30-day period of time. To make the Section 8 program essentially work like the other non-Section 8 rental units in the community. Those regulations that we can strip away that would do that would certainly help the program work better. Mrs. Kelly. Thank you very much. I'm out of time. Thank you, Madam Chairwoman. Chairwoman Roukema. I thank you. Now we have Congresswoman Carson. Ms. Carson. Thank you very much. A lot of the Members of Congress have already raised some of the issues that I have. In my particular city of Indianapolis, Indiana, we find myriad problems with persons who are Section 8 eligible getting placed. And I think a lot of it is perception. Landlords don't want Section 8 people, because there is some perception that they're criminals, that they will destroy your property and all of that. And I was wondering if any of you have some process in your communities that sort of allay some of those fears that would enhance the possibilities of persons with Section 8 being placed, and whether you know of any creative kinds of things that are underway in your community that will elevate the opportunities for low- and middle-income people in terms of getting placed in housing that they can afford. In Indianapolis we went to a major historic preservation kind of effort. And the consequence of that was devastating for low-income people. People that had been living in low-income communities woke up and found that their blocks had been put on the landmark and historic places, and the consequence of that was devastating for low-income people. I mean, they couldn't afford the right paint. They couldn't afford the right design on a new door that they needed on their house, and the tax rate just skyrocketed. And it caused all kinds of problems just overnight. And these people were here minding their own business. But in my neighborhood, which, you know, I always declare that the only historic part about my neighborhood is me, and I don't want to be on the landmark and historic places. [Laughter.] Ms. Carson. In deference to the neighbors in my particular neighborhood, the home that I live in--I've been there 35 years. I bought it for $6,000. And over the years, we fixed it up and painted it and my house, the one that I bought for $6,000 35 years ago, is now appraised at $300,000. And the tax rates, of course, skyrocketed as a result of it. That's why I hang around Congress so I can afford it. Since there are only 435 of us, not everybody can come to Congress to afford to live in most neighborhoods around this country. Do you know of any creative efforts in your local communities that accommodate--that have been started up that accommodate the people with this kind of need in terms of-- well, they've already talked about living in a place that turned into a condominium. But in neighborhoods where you can enhance the supply of affordable housing. What do you do to reach that mark? Mr. Ziegler. What has really worked for us in our State is openness to the community, openness to landlords. Just about every complaint that we get about a Section 8 situation, when we investigate it, it turns out to be not a Section 8 family. Section 8 families are painted with a very wide brush. And we are open to community organizations, homeowners associations who question, who criticize and say your Section 8 families are the worst families in our development. And when we go out and actually look at the address they give us, they're not Section 8 families in more than 95 percent of the time. I think when owners understand how the program works and how the families are selected for the program. For example, we prioritize persons with disabilities for our program, persons who have $6,000 income, for example, at a maximum, and will have that probably for life, because they have severe disabilities or chronic mental illness. These are people who will never be able to live without some kind of support. We also prioritize families in self-sufficiency programs. So if you look at the overall scope of 18,000 families, roughly about 20, a little less than 20 percent of those families are families who have welfare or tenant's assistance. The rest are disabled persons. The rest are working poor families. Some who are working their way out of the program with self-sufficiency benefits, and some who will need the services on an ongoing basis. And when owners understand the kind of families that we're assisting, they're much more acceptable to working with the program. When the understand the entire picture. We have monthly meetings in our offices with landlords. We bring the landlords in and answer any questions and resolve any problems. And with an ongoing to liaison to work just with landlord issues that arise, we have been able to develop the number of owners that we have in the program, which now exceeds 14,000 landlords. This is something that I'm seeing other housing authorities duplicate, and I think as that happens, we're going to get much more acceptance of the program. Mr. Johnston. If I could continue. I agree with the landlord side of outreach, because we certainly do the same thing. But at the same time, you need to look at how is the participant marketing themselves? How are they going out and portraying themselves to the landlords? We found that we actually have an allocation of vouchers strictly for individuals with disabilities. And for those individuals we actually supply housing search services. We've contracted with a non-profit to assist those individuals in going out and finding units. And the success rate for those individuals--and these are individuals with some type of a disability and low-income--the success rate is actually higher for these individuals than it is for our family participants that are going out without any assistance. So it has to do not only with how you're approaching your landlords as an agency and how you're selling the program as an agency, but it really has to do with how is the participant approaching the landlord? How is the participant selling the program? And I think that's where housing search services are important. Ms. Carson. Yes, but I think there's just such a bad image of Section 8 because people misunderstand who it is that's causing the problem. They're not Section 8 recipients. My aunt is 85 years old. She still sings in the choir. I don't know how well, but she still sings in the choir. She can't get any housing in Indianapolis with a Section 8 voucher and she's 85 years old, because people don't want Section 8. Mrs. Kelly. [Presiding.] Thank you very much, Ms. Carson. Next we have Ms. Jones. Ms. Jones. Thank you, Madam Chairwoman. To the panel, I was talking to State legislators and mayors before at a session this morning and I missed what you all had to say, but we were talking about housing and affordable housing at the session we were in as well. My first question is to Mr. Johnston. How are you, sir? Mr. Johnston. Good. Ms. Jones. Good. Totally different subject, but has to do with housing. I'm just curious. What impact did the reduction of or elimination or what impact will the elimination of the drug elimination program have on your housing authority? Is that something over which you have some jurisdiction? Mr. Johnston. Yes. It's more going to impact public housing. Ms. Jones. You don't do public housing, sir? Mr. Johnston. Well, I do. I do tenant selection for public housing. Ms. Jones. OK. Mr. Johnston. And certainly I think our agency has worked very close with the local police department in putting together police details. We actually have a security force that handles complaints and issues that happen in public housing. And the elimination will certainly have an impact on the housing authority in how we can protect the residents and of our developments. Ms. Jones. Thank you. I don't know what I did I with my list of where you guys come from. I apologize. What about the impact on New Jersey, Mr. Ziegler? If you're familiar. If you're not, you can say no. Mr. Ziegler. We operate only a Section 8 program, so it doesn't have any direct impact. Ms. Jones. OK. Great. Was it you, Mr. Ziegler, that said that the New Jersey or some court just found it to be illegal to refuse a Section 8 voucher? Mr. Ziegler. Yes. In New Jersey, like Massachusetts, the Supreme Court has ruled that it's contrary to the Fair Housing Act for a landlord to refuse to accept a Section 8 voucher solely because it's a Section 8 voucher. I mean, the owners are still able to refuse families if they don't pass the regular application standards that owners normally accept. But in cases where it's just that I don't accept Section 8, it is illegal for most owners in the State to do that. Ms. Jones. Do you remember what the facts were in that particular case? Mr. Ziegler. It's a source of income act, Chuck tells me. Mrs. Kelly. Excuse me, could you speak up a little louder on the last point that you made? I didn't quite hear that. Mr. Ziegler. Yes. The Supreme Court ruled that it's contrary to the source of income, discrimination as a result of a source of income whereby the owner cannot refuse a Section 8 voucher. Ms. Jones. OK. Thank you. Mr. Edson. I would like to add something. Mrs. Kelly. Excuse me, yes. Ms. Jones. I don't mind. Mrs. Kelly. Excuse me. I think in response to your question there is another point to be made here. Ms. Jones. Please come forward and tell us your name. Mr. Edson. Madam Chairwoman, I'm Charles Edson, counsel to Leased Housing Association, and I did participate in that New Jersey case so I'm quite familiar with it. Many states have what is called a source of income law which says you cannot discriminate against a potential tenant because of the source of income. New Jersey had such a law. There was a real question of interpretation of whether it also meant to include Section 8 vouchers. It originally was intended to deal with alimony payments, welfare payments and the like. The New Jersey Supreme Court extended that to Section 8 payments. So in New Jersey, you in effect have a take none/take all. In other words, every owner in effect is obligated to accept vouchers. I believe several other states have reached that conclusion. Some courts have taken an opposite view. Chairwoman Roukema. Ms. Jones, I'm very glad that you asked that question. I feel as though I was derelict in my own responsibility being from New Jersey that we didn't observe that earlier. So I appreciate your questioning. Ms. Jones. Not a problem, Madam Chairwoman. The only further thing I would say is I don't want to be repetitive in the responses or in my questions that my other colleagues haven't asked, but I am a supporter of affordable housing. I come from the city of Cleveland, Ohio. We've done a pretty good job with our community development corporations developing housing, but we need a lot more. And I just would thank you for coming, encourage you to continue to work on providing affordable housing, because I believe that having a safe house and a decent house is the beginning of having a decent lifestyle and making a decent living. And I would just encourage you to continue to do the work that you do. And on another occasion I might ask you some more questions. Thank you. I yield the balance of my time, Madam. Chairwoman Roukema. I thank you. Congresswoman Waters, I believe you were next. Mr. Tiberi does not have a question. Ms. Waters. Thank you very much, Madam Chairwoman. I don't know what else can be said. The fact of the matter is, this budget eliminated the drug elimination program, cut the capital fund, cut the HOME program, cut CDBG and reduced Section 8 reserves from 2 months to 1 month. Everybody knows that. We also know there is a housing crunch. We also know that the vouchers are buying less and less. The message is clear. We could have 100 more hearings. It's documented that we have a real crisis, and this budget exacerbates that crisis, and we need to get on with the business of trying to do something about this problem and this housing crisis. Let me just ask about the reduction of Section 8 reserve from 2 months to 1 month. Can somebody tell me what that means? Mr. Renahan. What that means is that housing authorities who are trying to lease to 100 percent to assist as many families as possible who are faced with changes in their average housing assistance payment, which can occur because rents are going up in their area so that their contract rents are coming in higher, or if the family incomes are decreasing so the family portion gets smaller and the housing assistance payment gets higher, will have to be more concerned that if they aim for 100 percent lease up that they will run out of money at the end of the year and not be able to make payments to landlord and be in violation of their contract with HUD. So what it will mean is that the utilization rate across the country will be adversely affected by a cut and the program will work less well and serve fewer families in precisely the housing markets where families need it the most, the housing markets where rents are accelerating and it's tougher to use Section 8 vouchers. Ms. Waters. So in addition to all of the other problems that you have, this reserve, as you are describing it, significantly impacts your ability to utilize what you already have? You have to live in fear that if you utilize your Section 8 to the max that you could run into trouble and not be able to pay the landlord? Mr. Renahan. That's precisely it, Congresswoman. And the 2- month figure was arrived at under a negotiated rulemaking which involved HUD and housing authorities and advocates and others interested in the program. And initially going into that, to be frank, I was arguing for a 6-month reserve. But HUD hired an accounting firm. They went through the numbers nationwide looking at the possible impacts on urban authorities, suburban/ rural authorities, big authorities, small authorities, and it turns out that 2 months is adequate to make it possible for housing authorities to shoot for 100 percent utilization without living in fear that they're going to be in violation of their HUD contract and we really didn't need more than a 2- month reserve. But less than a 2-month reserve will result in a lot of housing authorities either getting in trouble or not utilizing as much money as they could and not assisting as many families as they could to avoid getting in trouble. Ms. Waters. Thank you very much. Let me just say that to those of you who are managing these large public housing authorities, I salute you. You have a lot of problems, and many of you are doing a very good job despite the fact that the resources are not there. Someone asked today how can we solve these problems without money? You can't. It costs money to manage these housing authorities and deal with all of the problems. I am still of the opinion that we need to have social service agencies inside all of these large public housing authorities that deal with not only people representing public welfare and probation, parole, health, all of that. Some of these large public housing developments are like little cities. And all of the problems that any city would have that is basically a city of poor people of limited income folks, and you're expected to manage them, keep them going, keep down the crime, keep the renovations up, keep the place looking decent when you're faced with all these cuts and all of these problems, I don't know when we're going come to grips with what it takes to provide housing and to deal with this crisis. I salute you. And we're going to do everything that we can to help you. We don't think we have an ear in the White House. We think that some of the Members on the other side of the aisle are sympathetic and they would like to do something. We want to work with them to try and get something done. But just keep championing the cause and keep your voices out there. Hopefully, we'll be able to undo some of the cuts that have been wreaked upon you with this wrongheaded policy. Thank you. Chairwoman Roukema. [Presiding.] Thank you. I do want to express my appreciation for this panel. And not that we're trying to get rid of you quickly, not at all. However, I'm looking at the clock and I've been advised that there will be a series of votes up in the near future and hopefully we can get to the second panel. But again, I ask that you submit in writing your additional responses if you haven't had a chance to elucidate and amplify on your answers. And obviously we're going to be going through these issues again as we go through the appropriations process this year I'm quite confident. Again, I'd like to have our member of the panel who is very sensitive to the cost effectiveness and to the budget priorities as well as those here on the panel who are concerned about the implementation, the proper implementation of the law under existing financial circumstances and whatever improvements we can make for greater functioning, greater efficient functioning in the future. I thank you very much. We'll stay in close dialogue and communication. The next panel, please. I will take the opportunity to introduce each of the panel members as I did on the previous panel individually when it is your turn to testify. I would also like to remind you I believe you were here when we opened the hearing, but remind you that we'll try to limit each introductory statement to 5 minutes The Members then will have 5 minutes in which to question you. And hopefully, we'll complete this before there are any interruptions from the floor. Now this panel is representative of a good number of consumer groups and public interest groups, and we're happy to have you today. Nan Roman is the President and CEO of the National Alliance to End Homelessness and a leading national voice on the issues connected with homelessness. Certainly the Alliance, as I understand it, the National Alliance is the country's largest non-profit, non-partisan membership organization. And so we're very anxious to hear from you, particularly with charitable work that you're doing, as well as your on-the-ground, in-the-field operations. Thank you very much. STATEMENT OF NAN P. ROMAN, PRESIDENT, NATIONAL ALLIANCE TO END HOMELESSNESS Ms. Roman. Thank you so much, Madam Chairwoman. I want to thank you for your concern about housing affordability and for holding these hearings and also I want to thank you for the subcommittee's past leadership on the issue of homelessness. I've been asked today to address the extent to which homelessness is a housing issue. And the answer there is simple. Homelessness is caused by the lack of affordable housing, notwithstanding all of the other problems or illnesses or disadvantages that homeless people might have. They are homeless because they can't afford a place to live. If there was housing that they could afford, there wouldn't be widespread homelessness. Is there some special type of housing homeless people require? The answer to that question is yes and no. There are two major groups of homeless people, and I think it's important to recognize that when we're assessing the impact of housing affordability on homelessness. Eighty percent of people who become homeless enter and exit the homeless assistance system relatively quickly and don't come back. These are people who are having a housing crisis. It can be said that the homeless assistance system in one way is managing the churn in the bottom of the housing market. This 80 percent of people are largely indistinguishable from other poor housed households in terms of their mental health, their substance abuse, their education levels, numbers of children and so forth. But they are families and individuals who have had a housing crisis, and they need somewhere to go while they are resolving that crisis. The homeless assistance system is providing such a place. Taken as a whole, this group, 80 percent of the homeless population, does not need any special type of housing. They just need housing that's affordable. The remaining 20 percent of people who become homeless in the course of a year--and I should say about 3.5 million people become homeless in the course of a year--have a different experience and have different needs. This group tends to be homeless for a much longer period of time, living in the homeless assistance system, sometimes interspersed with stays in hospitals, jails, prisons or on the streets. They virtually all have chronic disabilities: mental illness, chronic substance abuse disorders, physical ailments or HIV and AIDs are the predominant ones. Because of their illnesses, permanent supportive housing, housing that is affordable and also linked with services, is the most cost-effective and successful housing model for them. And as you mentioned in your opening statement, we estimate that there are 200,000 to 250,000 units of such housing needed to essentially end chronic homelessness. In summary homelessness is a housing affordability issue and notwithstanding all of the other problems that homeless people might have if there were an adequate supply of appropriate affordable housing, there would not be widespread homelessness. Based on this, the following are our recommendations. First we recommend that we need a housing production program that will significantly address local shortages of affordable housing units. Second, if there are not enough resources to meet the housing needs of all people up to 120 percent of area median income, as has been recommended by many previous witnesses in your housing affordability hearings, we must respectfully request that there be substantial targeting of housing assistance to meet the needs of people who are most severely impacted by this affordability crisis, even to the point of becoming homeless. Third, we believe that 200,000 units of permanent supportive housing could end chronic homelessness. Resources are available to provide this housing via the HUD Homeless Assistance Grant Program, but only if two things are done. The first is to ensure that 30 percent of these funds are spent on permanent supportive housing for chronically homeless people. The second is to renew such housing from a source other than the Homeless Assistance programs. This subcommittee has in various ways and on a bipartisan basis, over the past few years recommended these steps. Based on your approach, the appropriators have included provisions that address these issues in the last several appropriations bills. But it would be preferable to have these provisions authorized. Finally, much media attention has been given recently to Secretary Martinez's suggestion that homeless people are the responsibility of HHS. We concur that, for the disabled group in particular and for other homeless and very poor people, services are best delivered by HHS using HHS resources. Housing, however, is the root of the problem for homeless people, and housing is best delivered by HUD. We support getting HHS to assume its proper responsibility to pay for services with its funding, freeing up the Homeless Assistance Grant Program money to pay for housing for the 3.5 million people who have become homeless because they don't have it. We do not support transferring the HUD money to HHS to pay for services. HHS is not the only agency responsible for homeless people. Madam Chairwoman and Members of the subcommittee, we are grateful for your concern and your leadership and we are anxious to work with you to make progress on this issue. [The prepared statement of Nan Roman can be found on page 483 in the appendix.] Chairwoman Roukema. Thank you very much. The next panelist is Barbara Poppe. Ms. Poppe has been the Executive Director of the Community Shelter Board in Columbus, Ohio since 1995. That gives you considerable experience. The Community Shelter Board is a nationally-recognized non-profit organization charged with funding and planning coordinated access to shelter and essential services. And evidently you have been an advocate for the homeless since 1985. So you have some experience up and down and up again. Thank you very much, Ms. Poppe. STATEMENT OF BARBARA POPPE, EXECUTIVE DIRECTOR, COMMUNITY SHELTER BOARD, COLUMBUS, OHIO Ms. Poppe. Thank you, Madam Chairwoman, Members of the subcommittee. I am pleased to be here today. I wanted to let you know about our experience in Columbus and Franklin County, Ohio where we operate as a true public-private partnership to provide a collaboration of funding, services and coordination to assist anyone who has a housing crisis resolve that. We are the Community Shelter Board committed to ending homelessness in our community, and we work toward that end. My Board of Trustees includes corporate executives from banking, insurance, retail, manufacturing and the home building industry. So we have a strong business presence. Along with our partner agencies and our public funders we have created an infrastructure in Columbus and Franklin County that meets the immediate needs of homeless people, providing a roof over their head, food and health care. Our efforts have been successful. We do believe it is unacceptable to turn any family or single adult away from our sheltering system, and we continue to work toward that end each day. But unfortunately, as hard as we have worked, the Franklin County homeless system cannot end homelessness. Why? Well, the system doesn't control the number of people who become homeless. And second, while most people exit the homeless system quickly, others virtually live in it. And for people who are chronically disabled and very poor, emergency shelters have unfortunately become their home. We concur with the assessment of the National Alliance to End Homelessness that so far we have accomplished much, but the end is not yet in sight. Homelessness is a major problem in Columbus and Franklin County. I want to report to you that since 1990, more than 100,000 different households have been homeless in our community. We did a random telephone survey and we found that 10 percent of all people in Franklin County had experienced homelessness. Another 18 percent had a family member who had experienced homelessness. The annual number that we've sheltered in the last 5 years I am happy to report is finally on the decline. Since 1995 to 1999, we decreased family homelessness by 50 percent. That decrease was possible, though, because we put substantial resources into our Homeless Prevention Initiative. The number of single homeless women has remained relatively constant, and we've been able to decrease the number of single homeless men by about 3.5 percent in our community. However, there is still much to be done. Our system works well for those 85 percent who have a short-term homeless problem, but there are 15 percent of our homeless people who have chronic entrenched problems that our system is simply not resolving. Toward that end, we have committed that our community will be targeting for priority expansion, the strengthening of permanent housing options with services for the hardest to service populations in our community, those persons with chronic disabilities. Some of the innovative features in our Franklin County community are, as I mentioned, our Comprehensive Homeless Prevention Program which annually serves 1,100 households preventing them from becoming homeless. We also have worked to improve our emergency shelter safety net so that people who have short-term needs can get back on their feet and out of it. What we've done is to disperse our facilities throughout the community. Not all are located concentrated downtown. We've put in place rigorous shelter certification standards and a requirement for good neighbor agreements. We also are providing on-site employment resource centers. As part of a new initiative, we are developing 800 new units of permanent supportive housing for long-term homeless people. And finally for families, we're focusing on a direct housing initiative that quickly moves families out of shelter into permanent housing but provides transitional services. That program has been 95 percent successful in working with all families, and none of the families in our 2-year operation have ever returned to shelter. But despite this impressive and innovative continuum of services, we still lack the most important component to end homelessness. That is accessible and affordable housing. Homeless families and individuals are a subset of very poor households in Franklin County who cannot afford decent, safe housing. A typical homeless family, while more are working than ever before, still has an average income of only $630 a month. They need an apartment that rents for less than $200 a month, and that does not exist in our community. We are a model community in terms of the level of cooperation and coordination among providers and funders both public and private. We know what works. We can document success. We are committed to ending, not just managing homelessness. But we really do need a strong Federal partnership so that we can be successful. We believe that what we need is affordable housing production. We also need subsidies. This is not an either/or circumstance for Franklin County. We need to both produce affordable housing and to have the subsidies to make it possible. Homeless people are earning around 15 percent of the area median income in our community. So without the type of operating support available through the Section 8 program, we simply won't be able to move forward. We do believe strongly in these public-private partnerships. There's no deal in Columbus that gets done without investment from our private community as well as the Federal, the State and the local governments being partners. We would like to work with you in any way that we can to solve homelessness across the Nation and also in our community in Ohio. Thank you. [The prepared statement of Barbara Poppe can be found on page 490 in the appendix.] Chairwoman Roukema. Thank you very much. Now, Ms. Ann O'Hara, a co-founder and now the Associate Director of the Technical Assistance Collaborative, Inc. She has over 23 years of experience in the development and administration of affordable housing programs at both the national, State and local level. I believe also, Ms. O'Hara that you have a national reputation for working with affordable housing opportunities for those people with disabilities, whether physical or mental disabilities if I understand it. We're very interested in hearing of your experience and your recommendations for us. Thank you. STATEMENT OF ANN O'HARA, ASSOCIATE DIRECTOR, TECHNICAL ASSISTANCE COLLABORATIVE, BOSTON, MA; ON BEHALF OF THE CONSORTIUM FOR CITIZENS WITH DISABILITIES HOUSING TASK FORCE Ms. O'Hara. Thank you, Madam Chairwoman and Members of the subcommittee. I would also like to thank you very much for holding this very important hearing on the critical housing affordability problems that people with disabilities, including homeless people with disabilities, face today in the United States. I'm here today to testify on behalf of the Consortium for Citizens with Disabilities Housing Task Force. They are a Washington-based coalition of over 100 consumer advocacy provider and professional organizations who work for and on behalf of people with disabilities of all ages and their families. The CCD Housing Task Force includes the Alliance for the Mentally Ill, Paralyzed Veterans of America, Easter Seals and many other groups. I want to mention a few key points from my written testimony, including data on housing affordability that we are just coincidentally publishing today, some discussion of the need, and then some critical housing policy issues. Today the Technical Assistance Collaborative, and the CCD Housing Task Force are releasing findings from a new study entitled ``Priced Out in 2000.'' It's a comprehensive analysis of housing affordability for the poorest of our Nation's citizens, those people with severe disabilities who are receiving SSI benefits. In 2000, these Federal benefits were equal to $512 a month. Today, over 3 million adults with disabilities are receiving SSI benefits. This study compares SSI to HUD's Fair Market Rents in all housing markets of the United States and shows that the housing problems, the affordability problems of people with disabilities have never been worse than they are today. People with disabilities receiving SSI benefits continue to be the poorest people in the Nation and on average across the country have an income equal to only 18.5 percent of the one-person median household income. As a national average, people with disabilities receiving SSI have to pay 98 percent of their monthly SSI benefit in order to rent a modest one bedroom apartment which is priced at the HUD Fair Market Rent. That leaves $11 a month left for all other essentials like food, clothing, transportation and over- the-counter medications. In the year 2000 there was not one single housing market area in the United States where a person with a disability receiving SSI could afford to rent a modest studio or one bedroom apartment and pay 30 percent of their income toward that rent. So I will echo the comments of my two colleagues here to say that it is absolutely essential that for the poorest people, people with incomes below 30 percent and particularly below 20 percent of median that we need operating subsidy funds or project-based assistance or vouchers in order to make the housing affordable. Just before Secretary Cuomo left office, he released the latest worst-case housing needs report. That housing needs report showed that while housing needs had declined by 8 percent from 1997 to 1999, that decline occurred in elderly and family households. It did not occur in households representing people with disabilities. HUD's data show that housing need among people with disabilities actually went up between 1997 and 1999. So in line with those needs figures, what we need to do is look at what the critical policy issues are and make recommendations. One problem we have is that the supply of subsidized housing, housing with an operating subsidy or a project-based subsidy for people with disabilities continues to decline. That decline began in 1994 with elderly only policies and continues to this day. Each year housing authorities designate thousands of units for elders, and that means that people with disabilities no longer can access that housing. We estimate that as many as 200,000 units have been lost and only 40,000 Section 8 vouchers have been created to make up that loss. Another problem we have is the public housing authorities, not all, but many public housing authorities are not applying for new Section 8 vouchers to help people with disabilities get into housing. PHAs also have difficulty knowing how to modify their programs and their policies so that the Section 8 program can be effective for people with disabilities. It's difficult to use Section 8 to find accessible units. It's also difficult to get exceptions from HUD on these policies. There are some housing authorities doing a good job. We need to export their practices, such as the State housing authority in New Jersey, and the housing authority in Cambridge, Massachusetts. We need to take what they have done for people with disabilities and make that information available to other housing authorities. I want to speak also just briefly about the Section 811 program. As the need for housing for people with disabilities has increased, the appropriations for Section 811 have gone down by almost 50 percent. The program also needs reform so that lower density and more integrated housing can be developed. Currently, the Section 811 program is full of red tape and bureaucracy. It has components such as the single- purpose corporation requirement that really are a disincentive for non-profit organizations to work with the program. I also want to mention briefly that the HOME and CDBG programs typically do not target people with disabilities. Again, that's because neither of those programs is used in connection with an operating subsidy or project-based subsidy in most cases. We support the National Low Income Housing Coalition's production program with very-low-income targeting. We also support the National Alliance to End Homelessness recommendations to put at least 30 percent--and ideally much more than 30 percent, of the McKinney Homeless Assistance funding at HUD into permanent supportive housing to resolve homelessness for people with disabilities. [The prepared statement of Ann O'Hara can be found on page 499 in the appendix.] Chairwoman Roukema. All right. I thank you very much. I don't quite know how to begin this except to make an observation, and you do not have to be compelled to answer me. But we'll have to work on this together because I have a background where I've worked directly not only on homelessness, but also on all kinds of disabilities, particularly mental health disabilities, alcohol and drug abuse disabilities. And it seems to me as though you're all pointing in the direction as though there's no difference in needs here. In fact, I believe Ms. Roman said we do not need special housing. And then of course you reference, Ms. O'Hara, the 811 and I'm not quite sure exactly how that gets defined in the real world of the local community. But I'm just saying that I believe it is much more, much different from low-income housing needs, much different. Because if these people were able to deal with their disabilities--I'm not talking about the physical disabilities. I'm talking about drug abuse, alcohol abuse and mental health problems. They wouldn't be in such dire financial straits, of course. So I think it's a combination of things. But I also believe that there's a requirement here to, as I said in my opening statement, to work with HHS as well as HUD to get the kinds of service needs and the treatment needs that are necessary. We can't ignore it. And that's where I want to direct my attention in terms of this component of our problem. If you have a quick response, particularly Ms. Roman, since I used your name, we shall do that. But then we'll turn to our Ranking Member here. Yes, Ms. Roman? Ms. Roman. I just wanted to clarify that I said that 80 percent of people who become homeless essentially are just poor people who are having housing crisis. But 20 percent of the homeless population is disabled with mental health and substance abuse disorders for example, and is chronically homeless. They do need a special kind of housing, and that is supportive housing that's connected with services. Chairwoman Roukema. Then I totally misunderstood you. Ms. Roman. I'm sorry. Chairwoman Roukema. I took your statement out of context evidently. Go ahead. Continue. Ms. Roman. And they also need low threshold entry points into that system because most people are not going to go from the street into housing, so there have to be low threshold shelters or safe haven models where people can enter into the system. Chairwoman Roukema. Thank you. I appreciate that. Ms. O'Hara, very briefly. Ms. O'Hara. I think we're all starting from the same point in terms of how the housing resources work. And the issue of how you link services I think is very different depending on the extent of the disability as well as the nature of the disability. But service provision is an overlay to the basic issue of can you afford the housing. And I think that's where we're having the difficulty. The services are actually easier to--well, some people may disagree with that. Chairwoman Roukema. And I note that Ms. Poppe has nodded her head in agreement. All right. Thank you very much. Our Ranking Member, Mr. Frank. Mr. Frank. Thank you. I apologize for my absence. I had a previously scheduled commitment to address the constituents of our colleague, Ms. Capps, on housing issues. This is very useful testimony. First of all, I welcome what seems to me the unanimity that one of the things we have to do, by no means the only, though, but one of the most important things is simply to increase housing production programs for low-income people. And as you know, there have been people who have argued that the voucher program will take care of it, and I think you helped make the point the voucher program is almost irrelevant for many of the people you're here worried about. And, yes, we clearly have to increase the production program, and this very wealthy country has the resources to do it. I do have some specific issues, though. Intellectually that's an easy one. Politically it's harder. So I do want to talk, and I appreciated, Ms. O'Hara, the question of disability. And I was very concerned. There was an unstoppable tide for taking people with disabilities out of elderly housing. And frankly I think, yes, it is hard to justify that people who have got emotional or other kinds of problems should be housed among part of the population probably least able to cope. That's why we created at that time that separate program for the Section 8 disabilities. Now I am hoping that Secretary Martinez is going to reconsider the zero funding of that. And that's of course a minimum. But I appreciate your pointing out some problems with that. And I hadn't fully realized this. One of the things it seems to me you were suggesting on page 6 is some PHAs don't take advantage of it. Have we not made it, or if we haven't it seems to me we should, make it a condition that if you, in fact, are going to designate some of your elderly housing to exclude the disabled, then you must as a condition of that be willing to apply for and administer the Section 8's. Is that not the case? Ms. O'Hara. No, it's not the case at the moment. It's an option, but it's not a requirement. Mr. Frank. Well, I am prepared to insist. And I will try to do that legislatively. That's an oversight on our part. We should have done that. Maybe I thought we were doing it. I don't remember. But yes, I do think that ought to be a condition of a housing authority designating units as elderly only. They then have to agree to provide this. I also was impressed with your argument, and presume the others agree, that the 811 program ought to be pumped up. And I was struck when you note that in the CDGB and HOME and other programs, people don't do enough for the disabled. And I'm wondering, you know, there is this tendency to want to get the biggest bang for your buck. Doing the disabled programs right, as you point out, might be more expensive per unit. For example, the elderly like living together, the disabled don't. One of the legislative ways to deal with that might be to give a bonus so that in effect there is now a disincentive to use some of these programs for the disabled because the per unit cost is higher and you would at a given level have fewer units. And I am prepared if you'd like to work with us to suggest some--I don't know whether we're going to get this done right away or what the situation is--but I would be prepared to offer a bonus to communities who incurred a higher per cost unit program to the extent that they had a higher per cost unit program because they were adequately housing disabled people that they be held harmless against that in their allocation. Does that seem to you? Ms. O'Hara. Yes. I think that's an excellent suggestion. And I also think that communities that have agreed to target the lowest income people, including homeless people, like Boston, they've created set-asides in their HOME programs, and they find developers are very willing. Mr. Frank. And I guess they ought to be doing that for the homeless in general. But as I think you've all pointed out, there's a subset of the homeless population that is the disabled homeless population. The general homeless population should be taken care of by appropriate targeting and proper funding of a production program. The disabled population has special needs in this case, literally. There is where I thought you might want to give some kind of incentive. Let me just ask in terms of the people who have been homeless, one of the things we changed a few years, and I'm wondering how well this has worked and whether they have to do more, it turned out that you couldn't get into family public housing unless you were more than one person as a family. And I do remember that we changed that, I mean in the bizarre way in which legislative counsel referred to it, we decided that one person was a family. Because obviously one of the real problems for those who think that economic progress in the gross domestic product is an undifferentiated blessing for all, I started my political career representing the Back Bay and Beacon Hill of Boston in 1972 and my staff director for us on this side, Kay Gibbs, was in the South End, and we have seen in those neighborhoods economic progress drive out what was a very important housing source for people who are now homeless in many ways, the single room occupancies, a very appropriate form of housing for some people who weren't either ready or willing or able to live in more than that. The single room occupancy. The loss of that has been a terrible downside of progress. Now one of the things we then found was that these people were excluded from public housing if they lived alone, and we did change the law so they would be eligible for family public housing. I'm wondering if that's something that was worth doing? Is it something we should be improving on? In some cases you have some waiting lists. In some cases we had vacancies in the family public housing. Let me just ask for a response to that last question if I could. Ms. O'Hara. Briefly, Congressman Frank, the biggest problem---- Chairwoman Roukema. There is a vote on the floor, so we'll quickly get this response. Ms. O'Hara. The biggest problem is that most of the units in family public housing are two-bedroom and three-bedroom units. So that to have one person---- Mr. Frank. And you can't deny that to a family, I agree. Ms. O'Hara. That's a problem. Ms. Poppe. Our experience in Columbus was that was a very positive change because we had senior high rise public housing that was not being fully utilized. We've now been able to convert some of that into mixed population housing that has both working households as well as disabled folks living together under a good rent structure. Mr. Frank. Well, I thank you. Let's work on those other issues. I would be glad to do that, particularly, and I would welcome your support in changing the law so that you have to apply for those disabled Section 8's, if we can get the Secretary to reinstate them, if you're going to segregate the housing. Chairwoman Roukema. All right. Now let me ask Mr. Frank and your colleagues on your side of the aisle here. We have no more questions on this side. Do you want to return after this vote? Mr. Watt. Madam Chairwoman, I'm perfectly willing to pass in the interest of allowing our witnesses not to have to sit here and wait on us. Chairwoman Roukema. All right. Thank you. Yes? Ms. Jones. Just for the record, Madam Chairwoman, I'd like to welcome Ms. Barbara Poppe to the Hill. We were scheduled to have a meeting after this. And unfortunately, I'm not going to be able to do that. But my staffer is here and this is the area that I'm particularly interested in. Angela over here will be talking with you. And thank you so much for coming up. It's an important issue for Cleveland as well. Thanks. Chairwoman Roukema. Thank you. I think you can tell by the level of questioning we have here that you have met with a lot of approval and a lot of sympathy and understanding and empathy for what you have to deal with and what we'll all have to deal with in trying to improve this program, so that we will conclude this hearing, but also invite you if you have subsequent additions to make based on any of these questions or perhaps any misunderstandings you think there have been or additional recommendations, please direct them to Mr. Frank and myself and we'll include them in the record for all the Members. We greatly appreciate it. We're not dismissing you, but this happens all the time in the Congress and we're just fortunate that we were able to hear you in full before the bell rang. Thank you very much. [Whereupon, at 12:15 p.m., the hearing was adjourned.] HOUSING AND AFFORDABILITY ISSUES ---------- TUESDAY, JULY 17, 2001 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, DC. The subcommittee met, pursuant to call, at 9:35 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding. Present: Chairwoman Roukema; Representatives Miller, Grucci, Frank, Carson, Lee, Schakowsky, Jones, Watt, and Israel. Also present: Representative Jim McDermott. Chairwoman Roukema. Good morning. I will officially call this hearing to order. I'm Congresswoman Marge Roukema, the Chairwoman of this subcommittee. And I must acknowledge the fact that scheduling it so early on a Tuesday when we haven't had any votes as yet has diminished the number of Members here at the hearing. But I do want you to know that all the statements will be made part of the record and certainly will be widely distributed to Members. I am sure that they will, because they are Members of the sibcommittee and have an intense interest in senior issues, they will brief themselves and become familiar with the record, and we will not diminish in any way the importance and the significance and the contribution of those who are here today. But in any case, I will make an opening statement and we will hear from other subcommittee Members. And without objection, all Members, either present or those that are not yet present, all Members will have their opening statements made as part of the record of this hearing, without objection. Now I thank everyone for coming this morning, and certainly my colleague Mr. Frank and our colleague, Congressman McDermott, from whom we'll hear very shortly. But in any case, this is a panel, a fourth in a series of hearings that this panel is scheduled on the subject of affordable housing and a whole panoply of issues related to housing. At the first hearing which we held which was in May, early May, May 3rd, witnesses defined the parameters and the complexities of the problem and outlined a wide range of potential or possible solutions. At the second hearing in the latter part of May, the 22nd, witnesses testified regarding-- and I thought this was especially close to my interest level-- regarding public-private initiatives that address affordable housing and community development block grants in the HOME investment--HOME the acronym--investment partnership programs. They I believe are particularly constructive in leading us into the future here, and I would hope that we would have more emphasis on public-private initiatives. The third hearing focused on the underutilization of Section 8 vouchers as well as the specific problems faced by the homeless and the disabled populations in fighting affordable housing. I might also interject here that the first hearing that we held really in the committee was with Secretary Martinez where we discussed the budget questions that are connected with the housing issues, and Secretary of HUD Martinez did stress some of his priorities in the context of the budget hearings, and so we will continue to keep in close communication with him. Now today's hearing is, as you know, focusing on elderly housing and the difficult problems faced not only in finding suitable, affordable housing, but also coordinating with the services that are so urgently needed. According to the Department of Commerce and the Bureau of the Census, the statistics document what we all know through our own family and community experiences, and that is that the aging population, that is, the number of 65 and over, is growing exponentially. And although it's 35.5 million now, we fully expect it to be at least, in the next 30 years, well over 70 million. People are living longer and really healthier than ever before in history, but that gives us an added responsibility here. The HUD statistics also indicate that only one-third of the low-income citizens who are in need of affordable housing actually receive it. Furthermore, the high cost of housing is the most widespread housing problem for older Americans. Now we talk loosely about partaking in the American Dream. Well, that is not only for young families, but it is also, in my opinion, the American Dream of affordable housing for senior citizens as well, and all Americans. But along with decent housing, seniors need the supportive services and the lack of options such as assisted living for low-income seniors who want to age in place in their communities, which I think is a positive goal for all of us, but this is a real and obvious problem and one that we want to focus on today and in the near future. Clearly, legislation in this area is inadequate, although over the years non-profits and faith-based organizations have worked with HUD to develop creative ways to meet the needs of the vulnerable in our society. But our population continues to age exponentially as we said, and we need to develop new ways of meeting those needs. There's no doubt that we must do more to increase production and to preserve existing elderly housing stock, renovation, and so forth. But the solution to this fundamental goal will not be easy, and it deserves our deliberate consideration. It's not only cost, it's a number of policy questions that we have to deal with, the whole range. First, we must look at the existing HUD programs, as is very obvious, and this panel today will help us with that. And I believe we need to have greater flexibility in the programs in order to maximize their utilization. We'll ask our people here today for some advice and counsel based on their own experience in that regard. We need to make sure that HUD has the trained staff and tools to properly administer the programs. I'm going to repeat something here that has been talked about a lot, particularly by Members on my side of the aisle, and that is the question of bureaucratic red tape that often slows the process and frustrates the recipients. And I know that Secretary Martinez, because we have discussed this, is committed to this goal, and certainly we here stand ready to work with him and really inspire him and give him incentive to accelerate the process of reducing the bureaucracy and red tape. We know that it's more cost effective to provide services such as meals, transportation, personal care and health care to the elderly in their homes rather than moving them into costly nursing facilities. So it's not only good for them mentally, but it's good for them physically as well as being economically sound. Now, last year, the committee recognized the need to address the crisis and it created--and I want to stress here-- it created the Commission on Affordable Housing and Health Care Facility Needs in the 21st Century. This commission was very well devised for the purpose to provide an estimate of the need for affordable housing, assisted living facilities, and so forth, as I've already outlined, that whole range of issues. But it was also to identify methods of encouraging private sector participation and investment in affordable housing for the elderly. Unfortunately, the commission, which was scheduled to submit a report to Congress on its findings this June I believe, unfortunately, the commission members were not appointed until just recently, and 2 weeks ago this committee approved legislation to extend the life of the commission so that they could complete their important work. I know all of us look forward to receiving that report when it is completed, and I speaking for myself now and I'm sure other Members of this Subcommittee and full Committee will be doing everything we can to help them expedite an in-depth study and make that report to us. Well, I don't know what happened to my friend, Mr. Frank, but--all right. Mr. Frank, the Ranking Minority Member, Democrat on the Committee I understand has yielded to Congressman McDermott, our colleague and friend who has a constituent of his from Washington--Seattle--here, and so I will yield to Mr. McDermott, Congressman McDermott. [The prepared statement of Hon. Marge Roukema can be found on page 525 in the appendix.] Mr. McDermott. Thank you, Madam Chairwoman. I walked into this room today and felt reminiscent of when I used to sit down in that chair way down there in the third row. Chairwoman Roukema. You remember that well. Mr. McDermott. You are to be commended on having this hearing. I think it's an issue that's going to grow and grow and grow. As members of the public look at this congressional panel up here, anybody who looks about my age has been struggling with this problem. It used to be that when you got to be 60 or 65 or something, you didn't have to worry about your parents. My mother and father--my father died just a year or so ago at 93, and my mother is 91. And I have been through the search in Seattle for housing. So the issue that you are raising here is extraordinarily important to Members of Congress as well as to everybody else. And I think you couldn't have anybody better here to talk about that than Harry Thomas. Harry has been--I was one of many who suggested that he be the head of--the Executive Director of the Seattle Housing Authority back in 1987. And with the exception of 4 years that he spent in the Governor's office, when Mike Lowry was Governor, as the housing expert, he has been the Director of the Seattle Housing Authority. At the same time, he has also been on the Board of the Federal Home Loan Bank, was Chairman from' 95 to' 99, and still is on the Board. He has been the recipient of the 1995 Distinguished Alumnus Award from the University of Washington and the 1999 National Institute of Senior Housing Sidney Spector Award. So he has been recognized nationally for what he is, which is a strong and very powerful advocate for senior citizens. And if the rest of your panel is up to that level, you've got a really strong panel here, and it is my great pleasure to introduce Harry to the subcommittee. Thank you. Chairwoman Roukema. Yes. It is my understanding that you couldn't remain for the second panel, Congressman McDermott, but we do appreciate your introduction and appreciate the fact that you have helped us get this kind of informed witness here today. Yes, Mr. Frank. Mr. Frank. Mr. McDermott has to leave to get back to Ways and Means in the hopes of trying to retain some money in the Federal Treasury so that we can build housing, although the odds are against him in that regard in the current context. I thank you, Madam Chairwoman, for convening this latest series. I think what we have had under your direction is a very important series of hearings that are I think constructing a very useful record. I have been struck time and again by the great degree of agreement among the witnesses; namely that increased production efforts must be a part of an effort to deal with the housing crisis. There has been an acknowledgement that the very prosperity which has been of such great benefit to the country as a whole and to so many individuals has exacerbated the housing crisis in many ways, because it has driven up the price. And second, that a production program is an important part of it. So I look forward to hearing further testimony along these lines, and I look forward to our then working together to come up with a program. And I do have to say, I was particularly pleased to note that testifying on behalf of the Association of Homes and Services for the Aging, a very important group, and as Mr. McDermott pointed out, one of the things we need to do is to develop a better range of services for people who are somewhere between a nursing home and complete independence. But I was very pleased to see that the spokesperson for that is the president of the National Church Residences. Because there are people who have argued that until and unless we pass the faith- based initiative, churches wouldn't be able to participate in social services. And I'm glad to have strong evidence that under existing law and existing practices, there is a very vital role for faith-based institutions. And I'm delighted that a representative of a faith-based institution association is here speaking before us today. Thank you. Chairwoman Roukema. Thank you. I'm glad you made that point, because I am one of those who do not--because of the experience we've already had with faith-based organizations in a whole range of issues, particularly in housing--do not understand why the question is now being raised as to whether or not this is Constitutional. But we won't go into that now. Mr. Frank. Well, not Constitutional, but you just did raise it, and I do have to respond. And the answer is, what we object to is not funding faith-based institutions, which is being faced, but empowering them to ignore anti-discrimination policies. And if that can be resolved, then this is a non- controversial issue. Chairwoman Roukema. I don't think--well, that's the point. But that was not raised initially. It was a comprehensive. Mr. Frank. Well, no, excuse me, Madam Chairwoman. No, excuse me. I have a procedural---- Chairwoman Roukema. I'm sorry. Excuse me---- Mr. Frank. No, I'm sorry, Madam Chairwoman. I am sorry. You cannot use the privilege of the Chair to raise a debating point and then shut off debate. There's nothing in the rules that allows you to do that. You can't make unilateral interventions and then announce that they're not to be discussed further. The fact is that the bill introduced does empower people to discriminate, and that's what we're going to be debating. Chairwoman Roukema. Mr. Miller, please. Mr. Miller. Thank you, Madam Chairwoman. I'm glad to see my good friend Mr. Frank is just as calm as ever, and not passionate about any of these issues. He talked about increasing production efforts, and I absolutely agree with him. I think many of the problems we face today in production of housing units are directly associated with the Government. In fact, I am firmly convinced that the problems today we have with production are Government. And we need to be more creative. The creative use of Section 8 vouchers is a great opportunity for us. There are people who qualify for Section 8 vouchers and who are going to use Section 8 vouchers, yet we limit those to rental housing. And I think we need to be broader in concept. Why shouldn't such people be able to use a Section 8 voucher to buy a home? We have, for some reason, determined that we are going to lock people into the rental housing market when there should be more creativity on Section 8 vouchers that are used so that in 3 to 5 years an individual or family will become an active participant in the housing market and become empowered by that involvement. I know in the 1980s in the early stages of the congregate care concept, I was doing a lot of work in that area and I developed for over 30 years. And the thing I found in housing that most merchant builders, as you would call them, have is entitlement. And I seem to be very good at entitlement working with Government agencies. So most of my work through the 1980s and 1990s was basically getting entitlements on projects so merchant builders could go out and build affordable housing. But senior housing has changed dramatically from when I was a child. When I was a kid, you thought of people in their sixties as old. I'm 52. People in their 60s today are not old, and when I was involved in congregate care in the 1980s, you had to design a product for individuals who did not necessarily want to own their own home anymore, but were very mobile. And basically, we were designing cruise ships on the land that provided all the services that people would receive on a cruise ship, but they received such services as part of their lifestyle. They were active, yet they did not want to live independently, but they were completely ambulatory. And we have a huge growing crisis, I believe, in the housing market. There is a huge crisis in affordability, and much of that crisis is directly due to the impact Government places on property owners wanting to develop their property, such as habitat set-asides. I have some friends in Southern California that want to develop 640 acres in an area that should result in affordable housing, but for them to develop the acres, they have to set aside 5,000 acres in some other location as habitat. It's very difficult to go out and purchase 5,000 acres to develop 640 acres and then at the same time produce affordable housing. And that's something we're going to have to deal with. And with an aging senior population, the demands are growing, and we're going to have to be able to address that proactively, and we're doing a very poor job being reactive to the crisis I believe Government has caused and allowed to exacerbate over the years. And I'm encouraged by some of my friends and colleagues on the other side of the aisle, on the other side of the Chairwoman here. Is my time up, Madam Chairwoman? Chairwoman Roukema. Yes. I'm afraid it is. Mr. Miller. You are so patient with me, but I thank you very much for that patience. Chairwoman Roukema. Thank you. And by the way, I will simply repeat that for those that weren't here at the beginning that I have unanimous consent that the opening statements of all Members will be included in the record. In order of your appearance, Congresswoman Schakowsky is next. Ms. Schakowsky. Thank you, Madam Chairwoman. First I would like to associate myself with the remarks of Ranking Member, Mr. Frank, particularly in regard to the need for production of affordable housing. Production, production, production. And Madam Chairwoman, I would like to say to you that I would very much like to work with you on the issue of bureaucracy. Many of the developers that I talk to, people in the private sector, are very concerned about this, and I've been promising them and would like to fulfill that promise to work on the issue of reducing some of the paperwork involved. So I hope I can participate with you on that. A couple of things I wanted to say. Seniors all across the country and in my district too are asking the very same questions: Will I able to stay in my home? In my district we have the expiration of project-based Section 8 contracts, and people are wondering where they're going to go, will there be affordable and safe housing in my community? Will I be able to get the services I need to remain independent? Will I be able to get home-based services or access to a quality assisted living facility if necessary? For senior citizens and their families, these are not problems to be solved in the future. They are today's problems and they need immediate and effective answers. I hope this hearing and the activities of the Subcommittee and the dedication of housing advocates around the country will help us get to those answers. As the Chairwoman has already pointed out, today more than one in four households that receive Federal housing assistance is headed by an older person, yet only one in three low-income seniors in need of affordable housing is getting assistance. Older women are particularly hard hit, not only because they live longer, but because their median income continues to lag behind that of older men and the rest of the population. Even those older women who own their own homes face enormous challenges just to hang onto those homes, to avoid the trap of scam artists and predatory lenders, to cover expenses such as maintenance, property taxes, and any physical modifications they need as they age in place. As the older population grows, in particular the number of persons over 85 years of age, this problem will only get worse. We need to recognize that the older population is not monolithic. That a healthy 65-year-old has different housing and support needs than a frail 90-year-old. That's why I'm glad that we're looking at a continuum of housing and support needs today. We need to make sure that financial assistance, services and protections are in place to allow senior citizens to remain in their homes and in their communities. As we move toward greater emphasis in naturally occurring retirement communities and assisted living, we need to promote resident rights and guard against potential abuses. Meeting the housing needs of older Americans is a multi- level challenge that starts, but clearly does not end with the need for creating additional housing stock that is affordable, safe and accessible. Expanded information and financial counseling, transportation, housing, nutrition and other needs must be part of the mix. We need a national commitment to implement an affordable housing policy, and I look forward to hearing from the witnesses on how to meet that goal. Thank you, Madam Chairwoman. Chairwoman Roukema. All right. I thank you. Now Congresswoman Carson, please. Ms. Carson. Thank you very much, Madam Chairwoman. I would like to thank you for convening the hearing today. I would like to thank all the witnesses and welcome them for their input. Since we began this series of hearings earlier this year, virtually everyone agrees that we face an affordable housing crisis nationally in every region of the country. Similarly, we are aware of HUD's annual reports that have shown a steady rise in worst-case housing needs. While Social Security and other programs have done a great deal to alleviate poverty among the elderly, the elderly remain more likely than any other adults to be poor or near poor. In addition, the proportion of the elderly in the population is increasing, creating a need for a more comprehensive approach to housing and caring for the elderly. We need to focus on affordable options to keep seniors in their own homes or in enriched housing such as in assisted living. This helps seniors maintain independence and avoid the lower quality of life and higher costs that are often associated with nursing home care. For seniors, housing is much more than just a roof over their head. It allows them the dignity and respect that they deserve. Perhaps the most powerful lesson I learned, Madam Chairwoman and Members of the subcommittee, was before I was elected to Congress is I served in the Office of Senate Housing Trustee in Indianapolis, which handled poverty for that particular township. We learned poverty can truly happen to anyone. One person in particular comes to mind, an elderly person now, well educated, white, male, once rich and very powerful lobbyist. I remember him giving lavish parties that impressed even the leaders of the community's political and financial institutions. But tragically, this young man had a stroke, lost his job, his house, his cars, and all of his fancy friends left as a result. He now lives in Government-subsidized housing which I acquired for him, and on occasion he still calls me and asks for money to enable him to survive for another few weeks because he is too embarrassed to ask anyone else. If the people who feel that poverty only happens to unwed mothers could have seen the embarrassment in his face or heard the humiliation in his voice as he asked for a few dollars to help him get through the month, they wold have realized that a social safety net is important for all members of our society. We never know when we ourselves may become the least of these. It is for this reason that I have fought and will continue to fight to ensure that affordable housing is available to all, especially the elderly And as my dear friend Jan Schakowsky pointed out earlier, women, and particularly minority women, face a crucial situation in terms of their poverty levels and their lack of affordable housing accommodations. Last year we passed a number of innovative policy provisions to give us more tools to meet the growing challenge. Yet the proposed Administration funding level for elderly housing is apparently static. With the rising costs of construction, this means fewer affordable housing units will be built under Section 202, with the same being true for Section 811 disabled housing programs. As rental prices increase, Madam Chairwoman, as our elderly population grows, we should be expanding not contracting our efforts. I appreciate again, Madam Chairwoman, the time that you are taking today, the interest that you have demonstrated in this very crucial issue that faces our Nation's elderly, and trust that we as a committee and as a Congress will be able to counteract the growing shortage of affordable housing for our elderly. Thank you very much, Madam Chairwoman. I yield back the balance of my time. Chairwoman Roukema. Thank you very much. Congressman Watt. Mr. Watt. Thank you, Madam Chairwoman. I will be very brief. I really hadn't intended to make an opening statement on the issues before us. I did, however, walk into the middle of your discussion with Ranking Member Frank about the faith-based initiative. And I hope that the Chairman will aggressively look at the proposal that is being advanced I think this week on the floor. The faith-based initiative debate is not about whether the Government will be involved in or whether religious institutions will be involved in providing services that the Government provides. Religious institutions do that now, and they do it without impediment, other than having to set up a 501(c)(3). This debate is not about that. If that were what the debate was about, there wouldn't be a debate. There would be a 435-to- 0 slam dunk. This debate is solely about whether religious institutions will be allowed to discriminate in employment in the delivery of the Government services. And there are some of us who feel strongly that we should not be called upon to vote to allow religious institutions or anybody, any institution, to use Government funds to discriminate in employment. And so I hope the Chairlady will look very carefully at the proposal that is being advanced and look beyond the rhetoric. The rhetoric is where you and Mr. Frank were engaged in the debate. But the substance of the bill is not about whether religious institutions deliver services. They already do that. The substance of the bill is about whether religious institutions will be allowed to discriminate in the delivery of those services in their employment practices. I yield back the balance of my time. Chairwoman Roukema. That debate will take place at the appropriate time in the appropriate venue. Congresswoman Barbara Lee. Ms. Lee. Good morning. Thank you, Madam Chairwoman. And I would like to welcome our panelists today. The problem that we are discussing is very, very critical. The fastest-growing segment of our population, the elderly, actually pitted against a severe housing crisis throughout the country, and particularly in urban areas like for instance in my district, the City of Oakland and Berkeley in California. From the testimony submitted, I understand that one-third of the 1.3 million people living in public housing are elderly or disabled. This is another reason why of course some of us were outraged when the Administration cut funding for the Public Housing Drug Elimination Program, which really does directly impact the safety of our elderly and the disabled. The housing crisis is terrible for everyone in my district in the Bay Area, and it is more devastating for the elderly who are on fixed incomes, burdened with of course as you know increased energy costs, and are really less able to move about and deal with transient housing options. So I look forward to your testimony today so that we can hear what your opinion is on how effectively our Federal housing programs are working for the elderly and how we can improve them. Now I know that there are many model communities around here with regard to affordable housing for our senior citizens. One community, for example, which I have the privilege to visit quite often is Sun City, Arizona. But in Sun City, Arizona, of course, there are many--or the majority of senior citizens, they can afford to live there, and so they have these options. But they do have wonderful affordable housing actually in that area. Some of the housing is intergenerational, which I think makes a heck of a lot of sense as we look at how we develop affordable housing for senior citizens. One thing actually rings clear from every one of our hearings on affordable housing, and that is the need for subsidized programs of housing production. Now funding of course is critical for housing production. So I support using the excess FHA and Ginnie Mae funds as well as increased appropriations to address this issue which is really crippling our communities. I urge this Subcommittee to really look at viable and well- funded housing production plans that are very creative, as I mentioned earlier, some that we know that are working in our country, as we move forward to ensure that our elderly have decent and affordable housing. I thank the Chair for conducting this hearing, and I look forward to the testimony. Chairwoman Roukema. I thank you. Now it is my understanding there are no other Members who wish to be heard. And with that, we will welcome our first panel, and they are at the table. But first I would like unanimous consent to insert into the record written statements submitted to us by the Health Care Financing Study Group who are not here today to testify, but they have submitted a statement, as well as the National Association of Housing Cooperatives. Without objection, their testimony will be submitted to the record. I welcome the panelists here today. I will not spend the time giving lengthy introductions. But I do want to acknowledge that in each case we have members--panelists here who are experienced and highly knowledgeable on these subjects from a very practical, in-the-field experience. Mr. Thomas Slemmer has been with the National Church Residences for the past 25 years, a long experience, and served as its President and Chief Executive Officer and has been the Chief Executive Officer since 1989, as I understand. He s a member of the Board of Trustees of the National Affordable Housing Trust and is very active with the American Association of Homes and Services. And you are testifying for them today. Mr. Slemmer, will you please continue, and understand that the full text of your testimony will be in the record. However, if you can, please limit your oral statement to 5 minutes. Thank you. STATEMENT OF THOMAS SLEMMER, PRESIDENT, NATIONAL CHURCH RESIDENCES; ON BEHALF OF THE AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE AGING Mr. Slemmer. Madam Chairwoman, Members of the subcommittee, thank you very much for inviting us. I am here today representing the American Association of Homes and Services for the Aging. I might say that I am on the Board of Trustees and Chair of the Housing committee this year. Mr. Watt. Madam Chairwoman, could you get him to pull the mike a little bit closer to him? Mr. Slemmer. AAHSA's members, as you may know, operate 300,000 units of housing, mostly federally assisted. Over 50 percent of our members are faith-based, and we're proud of the record that we have of basically being the organization that serves most of the Section 202 sponsors in this country. It has been a very successful program working with AAHSA members. We think not-for-profit housing sponsorship really makes a difference. We represent members that represent seniors in their communities and are really an enduring presence in their communities for housing needs. We have a lengthy written testimony that I'll just refer to. But after listening to the opening remarks, I think the mathematics are simple. There is doubling of the senior population that's going to happen in the next 30 years. There is low production. The Section 202 program is only funded at around 5,000 units a year. We're really disappointed in last week's mark of the appropriations bill where they kind of leveled the funding for Section 202 again next year. We're concerned about that. But more importantly, there's a loss of senior housing units going out of the system. We don't have exact breakdown on this, but there are estimated to be about 300,000 affordable housing units that have been lost in the last 2 or 3 years due to opt-outs and cancellations of contracts. This is a crisis. You talk about production. I'm not sure production is the biggest issue. The loss of this kind of housing is very, very significant and very discouraging. If you think about what's going to happen in the next 30 years in this country where we've talked about the largest demographic shift in any country in history. The AARP has just conducted a study about the Section 202 program alone, and I believe that they are showing nine people on the waiting list for every Section 202 unit. I can tell you from my 25 years' history, that's the largest waiting list that we've ever seen. It's getting worse, and we really urge your attention to that. So the solutions? Well, again, we're disappointed with the appropriation levels on Section 202. We really encourage you to look at that. How can we double the population of seniors and not do something about production? In 1995, there was $1.2 billion allocated for Section 202, and it's down now, I think down to 679. We're really encouraging you to consider a 10 percent increase. Let's get on with more housing production. And also redoing all the Section 8 contracts. That's been something that you've been doing. We certainly need to not take our eyes off that very important piece of legislation. Not only production, but the modernization is really important. Think of the number of housing facility units out there for seniors that are getting older. You expand that out for the next 30 years and you've got some really serious situation. The low income elderly 236 portfolio is in dire need of renovation and retrofit and rehab. AAHSA is recommending let's get started with this. Let's recognize this is a problem, and let's allocate at least $250 million this year toward that effort. I think one of the most critical issues, however, and perhaps maybe the quiet issue facing us is preservation of affordable housing. There are again a loss of significant number of affordable housing. We worked in California last year, Congresswoman Lee and Congressman Miller. The city of Pacifica, California, City Manager Dave Carmody came to us and asked whether we would participate in trying to preserve his senior housing facility that was built in a prominent location in Pacifica that has been serving low income seniors for 20 years. That community experienced a new owner buying that facility, issuing eviction notices at 3:00 a.m. in the morning to the senior residents there. And that city, to their credit, decided to really fight that. They took the property through eminent domain, spent over $300,000 in legal fees, and we were able to participate with the county and the city and the State to preserve that as affordable housing for seniors. Where would those seniors have gone? In California, it could be 60, 100 miles away before you could find other affordable housing. So the preservation is a really important issue that's affecting senior housing right now. We have to get HUD concentrating on preservation. We've got to make sure our legislation focuses on preservation. In many ways, it may be the bigger issue than production even this year. We also worked with the city of Manhattan, Kansas on a similar project. Twenty-year-old senior citizen building downtown Manhattan, Kansas, owner opting out. And the city is really concerned about the loss of that housing. We heard a disturbing report out of Michigan 3 days ago that in the midst of all of the housing production issues, there are over 500 units of affordable senior housing that were just foreclosed on by HUD, lost forever to the low-income portfolio. We urge you to consider production, modernization, preservation as well as the social service coordination. We think those four components really make a big difference in doing what we need to do to provide quality housing for our seniors in the next 30 years. Thank you. [The prepared statement of Thomas Slemmer can be found on page 531 in the appendix.] Chairwoman Roukema. Thank you. Now we have Ms. Jane O'Dell Baumgarten. Ms. Baumgarten is here from North Bend, Oregon and is a member of the Board of Directors of the AARP, for whom she is testifying today. She has also formerly served on the Governor's Commission for Senior Services and was a delegate in 1995 to the White House conference on aging. We do appreciate your being here today and look forward to your testimony. STATEMENT OF JANE O'DELL BAUMGARTEN, MEMBER, BOARD OF DIRECTORS, AARP Ms. Baumgarten. Good morning, Chairwoman Roukema, Ranking Member Frank and Members of the Subcommittee on Housing and Community Opportunity. In addition to serving on AARP's Board, I am also privileged to serve on the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century. Today, my remarks will represent only the views of AARP. AARP appreciates the tradition of strong, bipartisan support for housing programs serving older Americans that has characterized this Subcommittee's work. We hope that the same bipartisan spirit will extend into the future as the Subcommittee examines and prepares to address issues associated with housing affordability and availability. There are powerful demographic forces at work in our Nation. Projections by the U.S. Census Bureau estimate that by the year 2020, the number of persons aged 65 and older will grow to over 53 million people, up from 34 million estimated for 1998. Changes in the age distribution of the Nation's older population are also occurring. Presently, the age of the older population is driven by large increases in the number of persons age 75 and older. Housing affordability and availability are major problems for many older Americans, and especially for those who rent. AARP's analysis of the 1999 American Housing Survey indicates that approximately 25 million households were headed by a person age 62 or older. Of these, nearly 5 million or 20 percent were renters. The same survey analysis indicates that 57 percent of the older rental households paid 30 percent or more of their income on housing, compared to 39 percent of younger renter households who paid 30 percent or more on their housing. And many of these older persons, especially those who live alone, eventually will need some supportive services to remain independent in their homes. The availability of these services varies widely due to the residential distribution patterns of older Americans. Such dispersion presents formidable challenges to the efficient delivery of services such as transportation, in-home health care, home-delivered meals, and other necessary services. It is especially relevant for the purposes of today's hearing to recognize that as the elder population increases, the proportion who have difficulty performing one or more basic activities of daily living, such as bathing, dressing or eating, will also be increasing. The Census Bureau's 1995 Survey of Income and Program Participation indicates that approximately 40 percent of persons age 62 or older live in subsidized rental housing units and have at least one activity of daily living limitation, such as moving around the room, transferring from a bed or chair, bathing, eating, dressing, and using the toilet. Or they have one instrumental activity of daily living limitation such as telephone, using the telephone, keeping track of bills, preparing meals, taking medicine, and getting outside the home. This compares with 28 percent of older persons in unsubsidized rental property and 19 percent of older persons in owned homes. These figures capture the essence of the challenge before us. The experience of the Section 202 supportive housing program for the elderly helps to illuminate issues, challenges, and most importantly, the need for supportive services. It also helps to demonstrate the importance of viewing housing as the effective point-of-service delivery. I would like to briefly summarize several key findings from a recently released extensive AARP-sponsored study of the Section 202 program. Comparisons of the 1998 Section 202 survey findings with those of the 1988 survey document that: Section 202 units for older persons continue to be in high demand, as suggested by low vacancy rates--1 percent for one- bedroom units--and have long waiting lists--9 applicants waiting for each vacancy that occurs in a given year. Residents are older and frailer than was indicated in the earlier research. The average resident age increased from 72 in 1983 to 75 in 1999. And 39 percent of those residents were over the age of 80. Capital reserves were generally viewed by managers as inadequate---- Chairwoman Roukema. Ms. Baumgarten, can you summarize your remarks? Ms. Baumgarten. I'm going to. Chairwoman Roukema. Yes. Thank you. Ms. Baumgarten. If you would just let me finish this one, two sentences? Capital reserves are generally viewed by managers as inadequate for retrofitting projects to meet the changing needs of aging residents. Section 202 housing needs to meet the changing needs of residents, because for them, the critical difference is remaining in their apartment, in a supportive community, with their belongings or admission to more expensive nursing home care. And I thank you for this opportunity to testify, and we look forward to working with the subcommittee. [The prepared statement of Jane O'Dell Baumgarten can be found on page 541 in the appendix.] Chairwoman Roukema. Thank you, Ms. Baumgarten. May I just ask you, you held up that report. Do you want that submitted for the record? Ms. Baumgarten. I believe we have submitted this. Chairwoman Roukema. All right. Ms. Baumgarten. And if not, we will see that it is submitted. Chairwoman Roukema. With unanimous consent, that will be included in the record. Mr. Robert Yoder is with us today, and he has had extensive experience for the Warrior Run Development Corporation, right? Where you have developed and managed more than 1,400 low- and moderate-income rental housing units in Pennsylvania. You are testifying here today as a representative of the Council for Affordable and Rural Housing. And I believe you were Past President of the Council for Affordable and Rural Housing, and that's a component of this discussion that we must hear from. Thank you very much, and we yield. STATEMENT OF ROBERT P. YODER, SR., VICE PRESIDENT OF YODER BUILDERS AND WARRIOR RUN DEVELOPMENT ON BEHALF OF THE COUNCIL FOR AFFORDABLE AND RURAL HOUSING Mr. Yoder. Madam Chairwoman and Members of the subcommittee, the Council for Affordable and Rural Housing, CARH, C-A-R-H, and I thank you for the opportunity to speak and for the subcommittee's interest in the needs of rural America and our elderly citizens. The real issue that faces America is how to facilitate efforts to provide decent, safe and affordable housing. We believe that this an ongoing process that requires us to adequately maintain the existing affordable housing stock, provide for development of new housing in areas that need it, and provide services for elderly people typically in need. As a rural developer myself, a lot of my portfolio has in the past been financed by the Rural Housing Service or the U.S. Department of Agriculture, the past Farmer's Home Administration. First of all, the Rural Housing Service in the early 1990s, had a budget of $972 million, to this year which has declined to $114 million. And what that relates to in what housing can be produced is that in 1990, that money produced about 16 projects in Pennsylvania for housing for both low-income families and elderly. Today it produces less than one. The problem is--and as a matter of fact, this year it produced zero in Pennsylvania. The competition--there will be no Rural Housing Service projects in Pennsylvania. One of our concerns is is that the money be, at least some of the money be restored to the rural areas. Because the Rural Housing Service is the entity that finances projects in areas that are below 20,000 population. Second, in light of the shortage of funding, we have analyzed ways to utilize Federal funds to achieve maximum financial leverage. Our best suggestion, outside of restoring the budget funds, is to leverage Federal appropriations through new programs under the Federal Home Loan Bank System. The banks and their members are an appealing source for financing, because members are largely located in or near rural areas. In our experience, members also tend to be familiar with the development of rural housing. Third, making the tax credit program more compatible with the Rural Housing Service program and more flexible to meet rural housing needs. Fourth, provide targeted Section 8 vouchers to rural areas to actually produce housing. Number five, restore unified standards to the Rural Housing Service. Today the Rural Housing Service States operate as a separate entity. The State directors answer to the Undersecretary and not to the Administrator. We are asking that at least it be looked at as HUD does as it has a chain of command where the Administrator actually can be Administrator to the States rather than the Undersecretary, which we lose communications in that chain. And remove the financial barriers such as exist today, as you heard other panelists talk about, the transfer, which is the exit taxes from private investors under the IRS Code. Exit taxes are extremely high. And also the prepayment restriction that was levied in the early 1980s for owners that are seeking to continue affordability. Those two really go together, because if you can't refinance it to take out the people that are there, the problem is is that we end up with a project that keeps going downhill. I appreciate the opportunity to present our concerns, and I would be happy to answer any questions. Thank you. [The prepared statement of Robert P. Yoder Sr. can be found on page 563 in the appendix.] Chairwoman Roukema. I thank you, Mr. Yoder. I don't have a specific question, but I do want to make an observation here. Certainly you've made a case on the rural housing, something we will have to look into. And I will personally be looking into what the implications are of your recommendation with respect to the Federal Home Loan Bank Board. I will observe that and look into it and see about those regulations that were changed during the Clinton Administration, as you have identified them in the last year or two. But I would also like to point out that in any way we cannot look forward to a huge burst in spending, but we've obviously have got to recognize the cost effective case that has been made very definitively here, and that it is very cost effective if we are to meet the housing needs of the elderly as well as the incentives for not only production and modernization, but also for treatment in the homes and living assistance that is highly cost effective. There's no question about that. So I will simply observe that I'll be more than happy to work with you. I don't know how we make the case in terms of not only the authorizing of new programs, but also the appropriation of money to--the funding of that money. But we'll try. The case is there, and our hearts and souls are with you. Now we have to put our minds to work on getting the money and proving the cost effectiveness of the programs. And with that I'll yield to Mr. Frank. Mr. Frank. Thank you, Madam Chairwoman. And let me pick up where you left off, because I agree we have an obligation, all of us, to do the best we can within the current budget. And I salute the ingenuity and determination of the people who are represented here to do that. But it is also clear from this hearing as in the previous ones that we achieved what we called a surplus to be able to afford a tax cut that we put through in part by squeezing housing programs. We've heard this kind of testimony about the reductions, rural housing down from, what, 600 million to 100 million at a time when inflation alone would have sent you in the other direction. Section 202 being cut back. The preservation program. Mr. Slemmer correctly pointed out that one of the problems has been that we've been losing affordable housing, and we've been losing it partly because of budget constraints that were imposed on the preservation program. I wish they hadn't designed those programs the way they did years ago that allowed developers to opt out. The courts have made it very clear that the rights that developers acquired to opt out and to change were basic legal rights that couldn't be simply abrogated, they had to be paid for if we were going to get them to change them. And this Congress did, and this Subcommittee took the lead in putting into place programs that would have minimized displacement and prepayment, and then those were changed when control of Congress changed, and money was withheld. So I think we should be very clear. Yes, we want to spend this money thoughtfully. But the single biggest problem we face here is a national decision to withdraw resources from the production and rehabilitation and preservation of housing for the elderly, and that's what has exacerbated this crisis. Now it's fashionable for some people to blame the Federal Government and say, ``Well, what we need to do is let's just cut back and free up the resources.'' In some cases, that works well. In the area of housing production for older people, I think it has not worked well. And that doesn't mean everything should be 100 percent Government. It means the private-public cooperation. But you can't have private-public cooperation if there is not on the part of the public sector some money brought to the table. And housing for older people is an especially important point in the debate we have philosophically over the role of the Federal Government. Those who talk about the Federal Government is always making things worse. People who believe, as Ronald Reagan said in his first Inaugural, that Government was not the answer to our problem, but the problem. People who like to point to Government's failures have a real problem when it comes to housing for older people. Because the Government has, the Federal Government has helped build a good deal of housing for older people over the years, some directly through public housing, through Government, Federal-local. Some through Federal-private. A whole range of things. And judging by consumer satisfaction, the Federal Government's efforts in the field of housing for older people are one of the most successful things in our society. Someone gave the figure out, nine people on the waiting list for every unit. Who gave that? Somebody had that figure. Who had that? Ms. Baumgarten, you had that figure? Would you repeat that? Ms. Baumgarten. Which figure are you talking about, Senator? Mr. Frank. There was a figure about 9 people on the waiting list for every unit. Ms. Baumgarten. Yes. Mr. Frank. Would you repeat that for me? Ms. Baumgarten. Yes, of course. It was in the summary. I'll read the statement again if it's OK with you. Mr. Frank. Fine. Chairwoman Roukema. Could you speak into the microphone, please? Ms. Baumgarten. Oh, yes. I'm sorry. Chairwoman Roukema. We're running out of time here, so go ahead. Mr. Frank. The one thing you never have to apologize for in these halls is repetition. Please go ahead. [Laughter.] Ms. Baumgarten. The Section 202 units for older persons continue to be in high demand, as suggested by low vacancy rates, and that was 1 percent for one-bedroom units, and long waiting lists. Nine applicants waiting for every vacancy that occurs in a given year. Mr. Frank. Thank you. That's all I needed. Because remember, we are talking now about a Federal program funded with Federal dollars. And I think that is the most direct repudiation of people who assume that the Federal Government can't be helpful, that it is possible to get--consumer demand tells us that there is a great deal of satisfaction with this program. So we have a need, a need that's going to get worse with the demographics. We have the resources in this wealthy Nation to do it. We have a track record of the Federal Government doing it well. And the only thing that stands in the way is the political refusal of the executive branch and the legislative branch to make the resources available, and I hope that people will continue to insist that we reverse this policy and in fact make the resources available with great success. Thanks to the panel. Chairwoman Roukema. Congressman Miller please. Mr. Miller. Thank you, Madam Chairwoman. I think some of the Government programs we are implementing currently are working because we are absolutely unwilling, as a Government, to deal with the problem. So when we're talking about placing a bandaid over a sore rather than addressing the problem that caused the sore. Yes, you can say that some Government programs are certainly very successful and Government can continue to subsidize housing programs, thereby creating more affordability. And in essence, you can say that Government is successful in what it is doing. But we are unwilling and have been unwilling to deal with the source of the problem. You, Ms. Baumgarten, talked about housing affordability and the problems we face with that. One of the speakers talked about the City of Oakland getting involved in a project to guarantee affordable housing. Mr. Slemmer, were you the one that we talked about it? Mr. Slemmer. Pacifica. Mr. Miller. I've done projects in the San Francisco Bay Area and the fees are the most outrageous and the costs are the most outrageous in the State of California. And you cannot go out as an independent builder and build affordable housing in the San Francisco Bay Area, because it's impossible based on the fees they charge you to build in those areas. So, yes, you can come in and we can say, Government can subsidize and Government can help create affordable housing, and that will create affordable housing for people, and I'm not arguing that Government has to do it, because Government has created such a disproportionate field for the building industry to work within that they cannot produce affordable housing. Now, Mr. Yoder, you said targeted Section 8 vouchers are necessary to produce housing. You don't produce housing with Section 8 vouchers, you create demand with Section 8 vouchers. Not a dime of Section 8 vouchers goes to produce housing, so your verbal statement was incorrect and I think you made a mistake that Section 8 vouchers are necessary to be able to put people into affordable housing. But it takes Government subsidies to rectify the problem created by Government. For example, I had a 500-unit apartment project in the San Bernadino County area. I wanted to build low- to moderate housing units for people. I could not do it, because the local government there charges the same fee for an apartment as they did for a single family residential home. I could not build 500 affordable housing units in a community that needed those housing units, because Government fees were so outlandish that you could not afford to build them. Yet, we continue to put a bandaid over the problem. I support the Section 8 voucher program, because there's no resolution to the current housing availability crisis until we deal with the problem, and that is the unreasonable demand placed on property owners by Government, such as the Endangered Species Act--you see what it's done to California and many other States. You can't build on your property, because in order to develop 600 hundred acres, they want you to buy 5,000 acres somewhere else to set aside for habitat. You cannot purchase 5,000 acres for habitat and build on 640 acres, and then create affordable housing. It's impossible. Yet, through Government enforcement of the Endangered Species Act, we've eliminated a huge sector of property out there that we could use for affordable housing. I support programs we have today to help people who cannot help themselves, but the problem we have is that Government has created the demand and the need in the affordable housing sector, because they place such outrageous regulation on property owners who cannot create affordable housing. Until we are willing to look at the causes of the problem, and understand that the cause of the problem is Government--and I will sit with any Member of this subcommittee with a group of property owners and developers and show them exactly what Government has done to create the problem. Until we are willing to address that, yes, we have to move forward with the Section 8 vouchers, but we need to be creative with those vouchers so people can use vouchers as an incentive to buy houses. But the problem needs to be addressed in this Nation, and part of the problem is that builders and property owners have become cash cows for Government, like it or not. In many cases, there's no nexus between the fee charged to the builder and what the builder is doing. Until we are willing to face the fact that property rights no longer exist, because you can't prove a taking in Federal court, if you leave any value to the property, and you, as a property owner, know that Government can say, ``Well, you can graze cattle on your property, so your property's still worth something even though you can't build on your property.'' That's outrageous, it's criminal, and we need to resolve the problem we have allowed to occur. And until Government's willing to do that, we are going to sit here year after year and listen to the needs of people who need help, and we need to help, but we are unwilling to be proactive and deal with the causes of the problem. We're just being reactive to a situation we have allowed to occur. And God bless each of you who are trying to create affordable housing for people who need it, because seniors and young people are facing a crisis today, and that is, where do they live? Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you. Mr. Slemmer, did you want to react or comment on the specific concern expressed by Mr. Miller, and keep it brief. Mr. Slemmer. Yes, I wouldn't mind saying a few words. There are several concerns there. Part of it is bad Government can escalate the cost of housing, but good Government can do a lot to solve it. The City of Pacifica, for example, saw the need. Developing Pacifica is not a matter of governmental problems, it's a matter of the really high price of real estate. High-priced real estate drives out low income folks. That happens not only in California, but along both coasts. That's the reason good Government needs to step in and really help out. Madam Chairwoman, you talked about the cost problems, that you couldn't spend money, a lot of money on this. And I would suggest that it doesn't cost a lot of money to direct HUD to really participate in this preservation effort. It doesn't cost a lot of money to modernize your existing housing stock. It's a lot less expensive than new production. I'd really encourage you to look there. Chairwoman Roukema. I want to explain the only reason I called on Mr. Slemmer in reaction to Mr. Miller, who took his full 5 minutes and more, was the fact that Mr. Slemmer was addressed by name. Mr. Miller. I had a lot of questions, but I ran out of time, Madam Chairwoman. Chairwoman Roukema. I know, and isn't that too bad. Five minutes goes awfully fast when you're having fun. Thank you. Now, Congresswoman Schakowsky. Mr. Frank. Would the gentlewoman yield to me for just ten seconds? I just want to say with regard to the gentleman from California, that the Endangered Species Act is, of course, a Federal program, but in order to be clear, as he talked about these problems, the fees, and I would assume zoning, most of the problems in the area I represent are local, not Federal. So the question then is, when we talk about intervention, is the Federal Government going to step in and further regulate local affairs. I'm for it, but I'm not sure exactly how much support we're going to have because, as I said, while the Endangered Species Act can be a contributing factor in some cases, overwhelmingly, the problem I hear from developers has to do with local zoning and the question of fees. That's entirely local. So the problem as to what extent is the Federal Government going to step in and overrule some local activity, I'm not sure he and I are going to be the most popular people in the world when we propose that. Chairwoman Roukema. Reclaiming my time. Ms. Schakowsky. I just wanted to comment on the surplus question. There's not an American family who would say they, in their family budget, have a surplus if their parents or grandparents have no place to live. Yet, as an American family we have said that. We haven't acknowledged this basic need before we've declared ourselves as having surplus money that we can return to people who need it, who need it least. The issue of preservation I would agree with you production and preservation are important. And in that regard, I wanted to ask both of you, Mr. Slemmer and Ms. Baumgarten, you talked about the study that for every available housing unit, there are nine people on the waiting list. Mr. Slemmer, you advocated a $760 million increase in Section 202. Would that reduce the waiting list, or would it merely help us keep pace and maintain it, or how much would it reduce the number of people that are waiting for that affordable housing? Mr. Slemmer. What we're recommending I believe is a ten percent increase in the Section 202 production to get started with what we see as a tremendous problem that's going to be facing this country as we look out 30 years with housing stock coming out of production and with the escalation in the senior housing population. So it would increase production, but frankly it's a drop in the bucket. It's the right drop to get started in this problem. Ms. Schakowsky. So there might be a ten percent reduction in the number of people on waiting lists. Is that what you're saying? Mr. Slemmer. No, it would be much, much less than that. That would produce a few more units and---- Ms. Schakowsky. What would it take to eliminate that waiting list? Mr. Slemmer. I guess if you multiplied nine times the Section 202 portfolio, which is about 300,000 units, you would get a couple of million housing units. Obviously, that's not going to happen in the near future. That's why we're suggesting that we really increase incrementally, that we look at keeping a good, solid production program going; at the same time really looking at preserving this housing stock so we don't lose it. You can lose it a lot faster than you're building it, and you can preserve it at a lot less cost than it costs to produce new. Ms. Schakowsky. One other question about preservation. I've been very involved in the issue of predatory lending and I'm wondering if AARP has looked into this issue on how the elderly are impacted by this growing problem, really exploding problem, of predatory lenders that are forcing some people, particularly older, more low income people, into foreclosure. Ms. Baumgarten. AARP has done quite a bit of work on predatory lending. And we are very, very concerned about consumer protections in that area. If you wish, I can have the people on our staff who work directly with that issue contact you and fill you in. Ms. Schakowsky. I would appreciate it. Today, I'm going to introduce the Save Our Homes Act that deals with predatory lenders. I would appreciate it if you would do that so we perhaps could work together on that. And finally, the Older Women's League, we're talking about regulations that Mr. Miller and Mr. Frank were talking about. The Older Women's League has identified local zoning laws as possible obstacles for innovative approaches, such as manufactured housing, and so forth. Have you found--looked at that at all and found that some of the zoning laws themselves are a problem and have any recommendations on how to deal with that? Ms. Baumgarten. At this point, AARP is not making any recommendations, because you have several things happening at the same time. You have two housing commissions, the Senior Housing Commission and the Millennium Commission, you have this subcommittee that's working, and this is the time to look at all of the issues and with the task force hearings that will be going on with the Senior Housing Commission, to find out what's happening out there and get the issues and the ideas and look at everything that's possible. It's rather premature at this point to say one thing or another thing would be the solution to the problem, because many of these things are interrelated--and certainly, manufactured housing is something that would need to be looked into also. Ms. Schakowsky. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you. Congressman Grucci. Mr. Miller. Would the gentleman yield, please? Mr. Grucci. Yes, I would. I have no questions, Madam Chairwoman. I yield to Congressman Miller. Mr. Miller. Mr. Frank and I agree on I think the concept of property rights, and I want to be more specific on what I was talking about relating to the Endangered Species Act. In California, specifically, we used to have the Subdivision Map Act, which gave you 50 days to respond to an application for a tract map. Then, because the State decided that Government needed oversight, just as the private sector needs oversight, they created CEQA, which is the California Environmental Quality Act. Then the Sierra Club sued in court, with the position that if it's good for Government, it should apply to the private sector too. And now in California, because of the EIR process and CEQA, an application process can last 12, 15, 20 years on a piece of property for development, and the applicant can do nothing except wait for Government to act. That's causing a huge crisis in California. I was a developer for 30 years. I know most of the major builders in this country, and specifically in California. The problem they are having, if they make application for a project, when they get through with the EIR application process, and they finish with Fish and Wildlife, and finish with all the locals, if they get that approved, then the Sierra Club or some other environmental group is going to challenge them in court, and they do it repeatedly. In fact, they all know it's going to happen. All of these things are adding to the cost and affordability and availability of housing. As a developer, I recently hired a zoologist, a person who majored in zoology. Why would you do that? Because he wrote his thesis on the gnat catcher. The gnat catcher is a huge problem in California. Yet, if you go down to South America, there's countless millions of these critters, but the environmentalists say, ``Well, those are only cousins to the California gnat catcher.'' Well, my cousin's still a human being. And I think the gnat catchers are lost in California. We need to put them in little cages and ship them back where they came from in South America and preserve those puppies. But, if you look at last year's Fish and Wildlife proposal for habitat preservation for three species, a rat, a fly, and a longhorn sheep, it's 2.9 million acres in California. That does not mean that the species are on the property. It only means that the habitat on the property could sustain that species. And it looked like a checkerboard. And if you didn't own habitat, you owned associated habitat, and does that have an impact in housing in California and this Nation? Absolutely. And anybody who's unwilling to address this issue is being unreasonable if they are serious about doing something about the current crisis in housing availability and affordability. I have two specific plans I've been working on for 12 years. I have no habitat for endangered species, I have no endangered species, I have no endangered flora and fauna on the property. Yet, because of the process one must go through, and the EIR process, the city never has to address a project. One continues day after day, and the costs increase day after day, and a developer cannot produce affordable housing. We have to address this, and we have to stop blaming local government and we have to enact laws that guarantee individuals the right to due process on an application whereby the burden is taken off the locals. Local officials should not have to worry about being recalled for approving a few houses in the community or being voted out of office, because a bunch of radical environmentalists go out and tell all these terrible stories about them. Until we remove that burden from local elected officials, they're going to be forced to do the wrong thing time and time and time again, because of pressure from a few people that do not understand the needs of people to have a place to live. Mr. Frank. Would the gentleman yield, from New York yield? Mr. Grucci. Yes, I'll yield. Mr. Frank. I'd like to ask my friend from California-- that's very interesting--is he proposing then, he says that the problem is the local governments exercising their current authority are too pressured and we need to pass a law to take the burden from them. Is he proposing a Federal law that then regulates what the local zoning people do and take some authority away from the local zoning people so they don't have to face local political pressures? Is that a Federal law he's calling for. Chairwoman Roukema. Excuse me, you have 43 more seconds. Mr. Miller. James Madison, in the Bill of Rights, said that individuals should have the right to own and exercise the use and benefit from their property. Mr. Frank. So it's a Federal law overriding local zoning. Mr. Miller. We have allowed the rights of property rights to be diminished---- Mr. Frank. Answer the question, Gary. A Federal law to override local zoning? Mr. Miller. A Federal law guaranteeing the rights of property owners to the use of their property, yes. Mr. Frank. Overriding local zoning? Mr. Miller. No, it doesn't override local zoning. Chairwoman Roukema. All right. Now Congresswoman Julia Carson. Ms. Carson. I need to know whether, I'm still concerned about these Section 8 vouchers. Is there a reticence among landlords to even accept them for fear that they'll be left holding the monetary responsibility of the unit? Do you know what I'm saying? Mr. Slemmer. I've heard that. I'm not sure how true it is, but I certainly have heard that. I think the bigger issue with landlords is that they don't get as much rent out of the Section 8 vouchers as they can get in the open marketplace. Ms. Carson. They don't get as much rent? Mr. Slemmer. Right. More red tape, less rent. Why bother? Ms. Carson. Guaranteed money. Thank you. Chairwoman Roukema. I believe now Congresswoman Lee is next. Ms. Lee. Thank you, Madam Chair. First let me just say, in response to my colleague from California, I personally believe that the Federal Government should be the safety net for the most vulnerable in our country. And yes, I believe we should look at some kind of law that guarantees the fact that vulnerable individuals, especially low income and the elderly, have a right to affordable and decent housing, whatever that means. If that means looking at local ordinances and fees that prohibit that, then maybe we ought to do that. I also want to say that in my area, in the Bay Area, the problem with the cost of housing is quite frankly the high priced real estate and the fact that in the last few years, private property owners have been able to make huge profits as a result of either selling their property at huge enormous rates of return, or increasing the rental because of the fact that there is a tight market and not enough production. Where we have our non-profits in partnership with developers we're able to build affordable and decent housing, and keep the rents at a reasonable level or the purchase prices at a reasonable sales price, but that's because quite frankly huge profits aren't being made. Reasonable rates of returns are being made, but not huge profits for private property owners. So there are strategies that can be used, I think, and I've seen this occurring in the Bay Area where senior citizen housing is developed and remains affordable. I wanted to just ask one of our witnesses, I guess Mr. Slemmer, what you think in terms of strategies we should look to with regard to Section 8 housing once landlords decide to convert Section 8 housing for the elderly to market rate housing, because you noted that in your testimony. I have seen senior citizens being forced out of their rentals because the rent quite frankly has doubled because the market dictates that the rent can be doubled, and there are individuals with money who can pay that rent. The basic bottom line is what do we need to do to ensure that if in fact landlords do double the rent, which they have a right to do I guess, given the nature of property ownership in this country, how do we ensure that elderly aren't kicked out of their places. Mr. Slemmer. I think there are several things that you can do. First of all, to encourage transfer to stable not-for- profit environments is what you want to do. I'm not sure it costs a lot of money. We are recommending that you look at eliminating the exit tax so that when a for-profit decides to transfer to a not-for-profit, they don't have the exit tax problems which is really often time the barrier to that transfer. The other thing is HR 425 establishes a matching grant program that helps encourage that transfer into a stable environment. So you incentivize the for-profit owner to transfer. That can be helpful. The other thing you certainly have to do is we have to keep pace with the vouchers so that when somebody does double the rent that there are vouchers in place that will help at least on a temporary basis. In Pacifica, that was the enormous problem. The voucher- holders could not pay the rents that were going to be charged, so they really would have been displaced. And as you know, in the Bay Area, there's tremendous demand for affordable housing. You could be displaced for ten, 20, 50 miles before you could find other affordable housing. So HR 425 and that exit tax strategy really helps to stabilize that. I really encourage a proactive stance from HUD to really get behind preservation efforts with all the vehicles they have available to them, because I think that's a lot less expensive than new production, especially in the high-priced areas like California. Chairwoman Roukema. Thank you, I appreciate that. Now we have Congresswoman Tubbs Jones. Ms. Tubbs Jones. Madam Chairwoman, good morning. I come from the City of Cleveland where we have what we believe is one of the greatest community development corporation networks going on for housing, and we build a lot of housing, but we still need a lot of housing, particularly affordable housing for seniors. There's an organization in the City of Cleveland called the First Suburbs Consortium, and it's made up of all the entering suburbs, the older suburbs with the older housing. And one of the things that they recently did was to hire a consultant to see if they could retrofit some of--Cleveland has much more housing than apartments, as compared to New York or Chicago-- but, retrofit some of these small bungalows that were built back in the 1930s and 1940s for senior citizen housing because they are no longer large enough for families with small children. So they've hired a consultant to see, one of two reasons, to try and keep people living in the first suburbs or the entering suburbs, but second also to hopefully provide for affordable housing for senior citizens. So I'm hoping that works out to be able help us deal with the shortage of housing, affordable housing for senior citizens in my congressional district. The second thing that I wanted to raise, in conjunction from AARP, I'm sorry, Ms. Baumgarten, in my community, as well, I had a discussion with someone from the Jewish Family Services who has submitted an application for rent that had been funded to provide for a social service person to come into this apartment dwelling to assist senior citizens to stay independent. If someone maybe comes in and coordinates their doctors visits, coordinates the food services and the like. And what she said was that the owners of the building were happy to have someone who came in to assist them because it took away from the responsibility of the landlord to try and assist seniors in being involved in independent living. Is that some of the dollars that might well come from the Section 202 dollars that you were speaking about earlier for elderly housing or not? Are you familiar with that program at all? Ms. Baumgarten. What I was going to say was, in 1990 and 1992, legislation, payment for service coordinators, was possible for housing, and now I think you have about 37 percent of the units that have service coordinators. That was a step that was made earlier that has really helped, because service coordination is extremely important. Sometimes it's done with the service coordinator there in the complex; sometimes it's done by utilizing the services that are in the community, but either way, putting the residents in touch with it. There's a variety of ways it can be done, but the recognized need is that services need to be coordinated. You need to provide services. Housing, as a part of those services, is important because your citizens are older, more frail, and they're going to get older and they want to age in place. Ms. Tubbs Jones. Thank you very much. Mr. Yoder, any comments on what I raised or anything else you would like to say? I don't think I heard you say anything other than your opening statement since I came in the room. Mr. Yoder. Thank you. One of the issues that you just raised about the supportive services under the Rural Housing Service, which takes care of a lot of the very rural areas, small towns with less than 20,000, the Rural Housing Service, in their budget, will not allow for supportive services. They tell us it's against the regulations to spend money out of the operating budget to either hire supportive services or even to use it to coordinate supportive services which, in rural areas, we have found in larger cities that there is the ability to hire a service group that will provide the services. In rural areas the services are there, but they are scattered and you need to have somebody to coordinate the services, not to actually supply them, but to coordinate them. Ms. Tubbs Jones. So you're suggesting that there needs to be some amendment to whatever legislation or regulation that exists to allow them to be able to do that type of thing? Mr. Yoder. Yes. In my written testimony, that's one of the things that we talked about under rural housing services amendments. Ms. Tubbs Jones. I would be supportive of that. There's no much rural stuff in Cleveland, but I would be supportive because it's important for all the elderly to be able to access services. I see my time is up, Madam Chairwoman. Thank you very much. Chairwoman Roukema. Thank you. I would just observe that I'm going to be looking into that certainly with a number of us, but I don't know whether that's a discretionary decision that's been made within the department, or whether that's compelling by the legislation. You were not clear on that, or did I not hear you? Mr. Yoder. We are being told that it's legislative. Chairwoman Roukema. Is that right? We'll look into that, thank you. I believe that concludes the questioning for this panel. We appreciate your patience and your forthcoming and beneficial testimony. We shall take it under advisement and get back to you if there are further questions. Thank you very much. Now, if the next panel will come forward. Hopefully, we'll be successful enough--if the next panel will come forward, I'll be here to call us to order in 2 minutes. [Recess.] Chairwoman Roukema. Thank you, I appreciate your patience. It is my understanding that Congressman Frank will be back within a short while, and we will continue with this hearing. I appreciate the second panel being here. I'll introduce you as you are ready to testify. Mr. Harry Thomas here is currently the Executive Director of the Seattle Housing Authority, which we heard about earlier with Congressman McDermott giving you a warm welcome, and of course he has served as the Executive Director of the Neighborhood Housing Incorporated, which is a non-profit social service agency. Actually, you have a lot of experience with Seattle garden communities through the HOPE program, as I understand it. Mr. Thomas is currently serving as a member of the Commission on Affordable Housing and Health Care Facility Needs of Senior Citizens in the 21st Century, the Commission that I originally referred to. Unfortunately, I'm sorry that you're not going to be giving a report to us sooner than December 2002. Hopefully, Mr. Thomas, with your help, we can expedite that Commission report. Thank you. We appreciate your being here. If you'll take your 5 minutes, please be sensitive to the time commitments. STATEMENT OF HARRY THOMAS, EXECUTIVE DIRECTOR, HOUSING AUTHORITY, CITY OF SEATTLE, WA Mr. Thomas. Thank you Madam Chairwoman, Members of the subcommittee. I really thank you for inviting me to share some of my experiences. I offer my thoughts today around two main issues: The importance of maintaining public housing as a part of the existing supply of housing for the elderly and strategies for meeting the special needs of elderly residents so they can remain in their housing as they get older, as it outlined in the ``Elderly Plus'' plan. The Federal Government plays an important role in housing low income older Americans. Nearly 3.7 million Americans, aged 62 and older, receive some form of housing assistance. You're quite familiar with the Section 202 program, but what we sometimes overlook is that about one-third of the 1.3 million public housing units in the country house elderly or disabled people. Unfortunately, the need for elderly housing has grown rapidly while the resources for modernizing and maintaining this housing stock are really shrinking. You know about the needs and the increasing population of elderly people. We've talked to that. So in the face of this, Madam Chairwoman, we must be good stewards of our existing public housing stock, which you may know is now valued at over $90 billion. We must continue to invest in the long-term maintenance and the capital needs of this valuable asset. I know that many of you have heard this theme recently in discussions on the VA/HUD Appropriations Bill. However, I must still call attention to its importance. For so many of our seniors, capital improvements are not about fresh paint. Let me try to give you one real life example from the City of Seattle. Mr. Don Williams is an elderly resident of Jefferson Terrace. This is a 34-year-old building. He uses a wheelchair and he lives on the seventh floor. When the building's outdated elevators were broken recently, the fire department had to come every day and carry him down and then back up the stairs, because he had to go to ElderHealth. This is the adult day program in the building where he eats his daily meals, so it is essential for his well being. Due to limited mobility, the elevators in our buildings are really his lifeline. Elevator repair and replacement is a key item in our capital budget. And that may have to be postponed if the Public Housing Capital Fund is actually cut, as is recommended by the White House. Approximately 70 percent of the elderly residents in public housing live in buildings that are between 30 and 50 years old. Many buildings do not conform to ADA standards, so we must preserve the existing stock of low income housing and modernize it to better meet the needs of seniors and the disabled. The Elderly Plus program can do this. We want to keep our older residents living independently as long as possible. A minor injury which sends a resident to the emergency room may eventually land them in a nursing home because of the lack of in-home services available in public housing. Subsidizing low-income residents in a nursing home is much more costly than bringing needed services to them in public housing. A number of housing authorities are pioneering innovative models to serve the needs of the elderly in our developments. The most successful of these combine resources across Federal programs. They bring in local resources and assemble a patchwork of services to create the wraparound care that is necessary. I'd like to tell you about one program in Seattle. As a part of our HOPE VI redevelopment, we are building the Elder Village. This is a 318-unit campus that's being built in partnership with Providence Health Systems and the Retirement Housing Foundation. These are well-known, non-profit agencies that specialize in housing and care for the elderly. The facility will be close to services, it will consist of three apartment buildings plus a common area which will feature a large dining room, community facilities, and offices, all centered around an atrium with a skylight. How do we achieve this kind of integrated model nationwide? With continued imagination and flexibility and with a commitment from the Federal Government to explore ways of facilitating innovation as outlined in the Elderly Plus proposal. Last year, the House considered HR 4664. That's a bill to implement Elderly Plus. It combines the upgrading of existing buildings with health-related and congregate care services that address the needs of the elderly. In closing, I do want to stress that public housing has played an important role in housing our low income residents. We need to continue to support those successes. Our inventory is a very valuable asset which we cannot afford to neglect or abandon. I think if we do this, we'll be much better off and our people will be much better off, so I thank you. [The prepared statement of Harry Thomas can be found on page 569 in the appendix.] Chairwoman Roukema. Thank you very much for that articulate and concise statement. Now we have Ms. Janice Monks, who is founder and Executive Director of the American Association of Service Coordinators. I'm most anxious to hear from you, Ms. Monks. You have had extensive experience in designing coordinated service programs, and that is our focus not only on this panel, but integrated, as you've already heard, with the physical needs of housing projects, so we're most anxious to hear from you and your experience. Thank you very much. STATEMENT OF JANICE MONKS, EXECUTIVE DIRECTOR, AMERICAN ASSOCIATION OF SERVICE COORDINATORS, (AASC), COLUMBUS, OH Ms. Monks. Thank you very much, Madam Chairwoman, and Members of the subcommittee. It's quite an honor to be here and to represent our more than 700 members. Before I get started, I want to mention the fact that service coordination provides much more than a quality of life issue, it's an economic issue. I am very pleased that this subcommittee is interested in investigating other areas in addition to the quality of life areas of service. Every day AASC members serve literally hundreds of thousands of low-income residents. Our members represent not only Section 8 housing, but also public housing and tax credit funded developments. More than 20 percent of our members come from the private market housing industry, and recognize that service coordination is part of doing good business, and that it saves money for the owners as well as provide residents with a longer stay in their apartments. While service coordinators shoulder a wide variety of responsibilities and duties, their work mainly is focused on helping our most vulnerable Americans, maintaining their independence. They also assist them in avoiding costly and often premature higher levels of care, linking them with appropriate and sometimes lifesaving health, social and other services, locating child and adult care, and other family and intergenerational services, as well as cross generational services, implementing job training, employment, and transportation programs, and developing a wide range of educational opportunities for residents' families and staff. Service coordination goes beyond assisting elderls, which we believe is also part of the future we should consider supporting, such as intergenerational as well as cross- generational programs that provide people the opportunity to stay longer in their homes. Service coordinators do much, much more than was originally anticipated. We thank you, Congress, for your wisdom in passing the Cranston-Gonzalez Act of 1990 which initiated this vitally important program. It is estimated that there are as many as 4,000 service coordinators in the country today. It is a consumer interest to remain independent for as long as possible. I think everybody here would probably agree to that. But also, service coordination is about doing good business in that it reduces tenant turnover, it reduces damage to apartments, it reduces evictions, it lessens the amount of stress on staff, and provides training to staff which can reduce the cost of staff turnover. It also reduces the number of off-hour emergency room and paramedic runs, and could influence lowering the number of hospital stays of elders. There is no national study that identifies these issues, but we do have anecdotal information to assist us in showing that this is the case. Overall, management is pleased to have a service coordinator on staff, and if we are going to continue to assist residents to maintain independence, self-sufficiency and empowerment, because we must consider that service coordination is about helping people serve themselves. In order to maintain the integrity and affordability of Section 8 housing, public housing, and tax credit housing, then we must invest our time and efforts into providing more service coordination in order to keep people more independent and to keep them out of costly, premature institutionalization. We recommend that the cost of service coordination, or I should say, the funding for service coordination, be increased to allow owners to apply for grants, and reduce the regulatory concerns or issues that limit owners from being able to put the position in the operational budget. We request the 120 percent FMR requirement be eliminated and allow service coordination to be put into the older facilities. Also, to provice a set-aside within public housing funding specifically for service coordination that is not linked with the FSS program or the Ross program. It would be best to appropriate funds in the amount of anywhere from $50 to $75 million to increase the number of service coordinators overall. Also to allow the tax credit programs to apply for service coordinator grants. One of the problems for the tax credit-funded facilities is that in the first 3 years, the operational OPM budget of tax credit programs is that they do not have the money to provide services. But you could have owners provide in-kind resources to contribute to the implementation of the program. Chairwoman Roukema. Ms. Monks, can you summarize, please. Thank you. Ms. Monks. Finally, we ask that the Section 811 program be included in applying for service coordinator grants. In conclusion, AASC urges Congress to seriously consider these very few cost-effective, but vital steps that can be taken now to improve our Nation's service enhanced housing efforts. We're asking that the same investments you made in 1990 be extended with the Cranston-Gonzalez Act to provide additional funds to make this a viable and growing program for the future of elderly housing as well as family housing. Thank you. [The prepared statement of Janice Monks can be found on page 576 in the appendix.] Chairwoman Roukema. Thank you very much. We will go over in detail your extensive testimony that you submitted here with recommendations. The next panelist, Mr. Felgar, we welcome you here today, as the representative from the Volunteers of America National Services. As Senior Vice President, you have been responsible for an extensive quantity and quality of activities in housing facilities, multi-family housing, senior and long-term care facilities, and we appreciate all that you've done extensively across the country with 220 housing facilities which that's extensive. So we appreciate your experience here and look forward to your advice and counsel. STATEMENT OF LEE J. FELGAR, SENIOR VICE PRESIDENT, DEVELOPMENT AND ACQUISITIONS, VOLUNTEERS OF AMERICA NATIONAL SERVICES Mr. Felgar. Thank you very much, Madam Chairwoman, Members of the subcommittee. I'm Lee Felgar, Senior Vice President of Development and Acquisitions for Volunteers of America National Services. The Chair has mentioned that we do have 220 health care senior housing and family facilities across the United States. We've been in that particular sector since 1968. Clearly, as a Nation we have a problem here of extraordinary scale and urgency as the housing programs and social service programs we have in place today will not keep pace with the situation. Somehow this elder housing and long- term care crisis must come from a comprehensive policy that cost-effectively integrates programs, then calls for some reasonable programs for the sharing of costs from the individual adult children, along with State and national governments. The needs of elders are many and persons of lower income have an even more challenging environment. We at Volunteers of America sponsor an elderly housing development. We must not only build the structure, we must find a way to create or bring social service support programs to our developments. Our typical resident of a HUD Section 202 property is a 75- year-old female living on some very modest savings and Social Security income. For this person, a $20 emergency is problematic. These elders are living at the economic edge, even with the HUD Section 202 housing assistance. Accordingly, they simply cannot afford any type of assistance with their daily living as they age in place. Accordingly, we've worked to find no cost or very low cost programs to provide meals, transportation, medical screening and the like. Each development is unique as each town or city has its own resources and programs. Typically, our residents fare better in larger cities that have economic power and commitment to helping others. However, most of the communities we serve do not have these programs in place, and we try our best with our limited resources that we have to make some programs a reality. Elders in rural communities face even more challenging circumstances. We at Volunteers of America encourage this subcommittee to consider the following issues that we've laid out in our testimony with a series of recommendations to help solve this problem. We start out by fully endorsing the HUD Section 202 program. It's one of the finest programs we've seen developed by Government. It is fair, it's administered well. We think that the number of housing units should be doubled and soon. Our second recommendation to the subcommittee is that we believe that within the existing stock of HUD Section 202s, there are many that have the capacity to provide some measure of assisted living services. Congress and HUD have previously provided some demonstration of program funds for the physical conversion of some of the units for physical asset changes only. We appreciate that effort and would ask the subcommittee to seek to expand the funding for both physical asset conversion and for services, as the residents simply cannot pay for them themselves. Our third recommendation, we continue to ask your support for those programs and initiatives that preserve project-based rental assistance for affordable housing and low and moderate income persons. Recommendation number four. We at Volunteers of America recommend and thank you for your support of the increase in the amount of tax credits. We applaud this subcommittee's work as it relates to mixing tax credits with Section 202s, but there are some things in the capital markets that we need to let you know of that are working against further production. We are now seeing the capital markets come to non-profit sponsors asking for significant guarantees for the completion of the construction, and also for financial guarantees for the life of the project. In my testimony, I state an example of what we're doing in St. Louis with the HOPE VI property developing only 40 units. That one 40-unit project requires Volunteers of America to place up to $600,000 guarantees for its life. We feel that we can handle that as a sizable, non-profit, but we can't continue to have those kinds of guarantees imposed on us. So we want you to be mindful that the capital markets are asking for those kinds of guarantees, and although there are more tax credits available, those guarantees work against further production. Across the country also we see qualified allocation plans that allocate tax credits on a state-by-state basis have a real bias against elderly housing. Few really endorse and promote elderly housing. Most of them are geared toward multi-family. We'd like to see that changed. We also see a narrowing number of tax credit investors and we see a demand for higher investment yields. Again, this works against more production of elderly housing. Our fifth recommendation. We believe that HUD should consider the merits of allowing project-based social service programs to be an allowable project expense, particularly as it reviews rent and debt levels and the portfolio re-engineering and refinancing programs. Recommendation number six. We believe the subcommittee should create a new set of Government agency expectations and directives that require agencies to work collaboratively to develop arrangements to provide resources for protective and supportive services. Recommendation number seven. We ask the subcommittee to support personal incentives for the purchase of long-term care insurance and that includes assisted living as part of its coverage. Our eighth recommendation to you is that we would like to see greatly improved coordination between Medicare and Medicaid with a blanket allowance for use of Medicaid funds in homebound and assisted living settings. Recommendation number nine. We see a need for better enforcement of laws that protect consumers against housing discrimination such as the Fair Housing Act and the Americans With Disabilities Act. Recommendation number ten. We would also ask this subcommittee to ask HUD and the USDA to find ways to greatly simplify the process whereby non-profits make application for the transfer of ownership of housing developments from for- profit owners to non-profit owners. Right now, it is an overly administratively challenging process. In summary, let me state that America's non-profits cannot meet these demographic changes with the resources and programs that are in place today. Today's funding levels, capital market conditions and program parameters are inadequate to the task we face as a Nation in providing affordable housing and social services for our aging population. We'd encourage this subcommittee to examine the scope of the elder housing and social support situation in its entirety and that it direct Government agencies to work collaboratively to create simplified and standardized housing and health care programs that can be implemented successfully in all States and all locations whereby non-profit housing and service providers can develop housing and provide the services without undue administrative and financial hardship. Thank you. [The prepared statement of Lee J. Felgar can be found on page 582 in the appendix.] Chairwoman Roukema. Thank you. I appreciate this panel's contribution to our understanding of the complexities of the problems that we're facing here. Obviously it's been apparent to all of us, with the testimony here today and what we've seen leading up to this, that we have to do a lot of catching up. If we can't catch up quickly, we're going to have an enormous expansion problem that would be a disgrace for our American democracy and a country as rich and diverse as we are here. So I want to pledge my intention--not that I can wave a magic wand here and find all the answers or all the money that we need--but I particularly appreciate your contribution, and I have no specific questions for any of you, but I do want to especially thank Mr. Felgar for the fact that he has opened up the question of the financial concerns, particularly tax credits, and whether or not there should be other investment incentives and the capital markets guarantees that you alluded to. Obviously, I think we should be reaching out to some people on the Ways and Means Committee and integrating our thinking with theirs as far as investment concerns and investment incentives, and to integrate them into our own approach. Obviously, they've been neglected. I particularly paid attention, aside from the capital markets question and the investment incentives and tax credits, I particularly observed your comment regarding long-term care insurance. Now I'm not too familiar with that, but it's something we definitely should integrate into our whole study of the question. I thank you. Any comments? Mr. Frank. Mr. Frank. Thank you, Madam Chair. I apologize that a conference called me away briefly, but I had a chance to review the testimony. Mr. Thomas, I'm particularly indebted to you. I hadn't really known for sure that more older people are housed in public housing than in any other housing program. That's important, not to the denigration of the other programs, but because one of the great myths that we face is this notion that public housing is all Cabrini Green and it's all unattractive and dangerous. And in fact, it's certainly been my experience that public housing for the elderly is a highly prized resource for the people who live there and for the people who would like to live there, and this is very important. In that regard, let me ask you, there's reference in your testimony to the Public Housing Capital Fund. The budget that has been proposed for this year, that was unfortunately just voted out of the Appropriations Subcommittee, reduces that. Could you comment a little bit about the effect that will have on public housing? Mr. Thomas. Thank you very much, Congressman Frank. The proposed reduction in the Public Housing Capital Fund would really be disastrous for us. As you correctly point out, there are over 3400 housing authorities in the country. Yet, when the Administration cut back the Public Housing Capital Program, it used a series of unfortunate examples and described what they felt were delays in actually using those funds and contracting for those funds. There may be a handful of authorities who have that difficulty, but the vast majority of housing authorities are very well run. They serve large cities, small cities, and rural areas. And to take a 30 percent cut in our capital budget against already known and well-known backlog of several billion dollars is really going to be disastrous. I understand that the Secretary feels that, in fact, he may have said that not a roof will go unrepaired, and so forth. But, we plan several years in advance. All of our buildings have life cycles. We plan very carefully and we would suffer dramatically. Mr. Frank. I think this is a case of victimizing the victim, and then blaming the victim, because when you put that kind of a shortfall and you make planning very difficult, then you blame people for its absence. Again, it's very clear as I read this that the biggest problem is that this very rich country has decided not to spend the money that we can well afford here, and the question is, where are the resources? Well, we know where they are, they're in the tax cut. They're in parts of the tax cut unfortunately that haven't yet taken effect. They're in the parts of the tax cut that will be very helpful to very wealthy people, and I think will exacerbate our ability to do something about this situation. Mr. Thomas, I'm not sure this is one of your subjects, but you come so highly regarded by Mr. McDermott that I'm figuring that you'll be able to tell me this. One of the big issues we've had is Section 8 not just for the elderly, but Section 8 in general. One of the arguments we've had is that some of us have felt that the Section 8 rents have been too low in certain areas where housing costs have spiked upward. The response from HUD has been, no, the only problem with Section 8s is the poor administration by many housing authorities. I wonder if you would like to address that issue? Mr. Thomas. Yes, thank you very much. The effectiveness of the Section 8 program is highly local; that is to say, in areas where there are relatively few units available in a market place, it makes it even more difficult. But again our experience, particularly in Seattle, is that even with a low vacancy rate, we've been quite successful in being able to utilize those. But our biggest burden again comes in the payment standards. I think other people have addressed that as well. We are simply trying to find available units in a very hot marketplace in many areas of the country. And the payment standards and the way that HUD calculates them and the speed with which HUD gets around to making those adjustments really keeps us three or 4 or 5 years behind. Mr. Frank. One of my colleagues suggested that the real problem is not a lack of Federal funding, but the Endangered Species Act and other things. I'm just wondering if we were in fact to increase Section 202 funds and made some public housing construction funds available, would the Endangered Species Act keep you from being able to use them, Mr. Felgar? Mr. Felgar. I think in isolated areas, but not nationally. Mr. Frank. In general, you'd be able to put the money to use? Mr. Felgar. Yes. Mr. Frank. Mr. Thomas, do you have endangered species problems in Seattle? Mr. Thomas. The most endangered species we deal with are the elderly people struggling to find a place to live. We in fact own all of our properties so we don't have to--we would like to redevelop them or expand them, we don't have to acquire new sites. So we would go a long way before we were impacted by the Endangered Species Act. Mr. Frank. Thank you. I am pleased, though not surprised, by your responses. Thank you, Madam Chairwoman. Chairwoman Roukema. Thank you. I don't know whether that was planned---- Mr. Frank. It's serendipitous. [Laughter.] Chairwoman Roukema. Thank you. Yes, Congresswoman Schakowsky. Ms. Schakowsky. Thank you, Madam Chairwoman. I really appreciate very much the testimony, particularly the detailed recommendations, all of which we will carefully scrutinize. Mr. Thomas, we just had a discussion. It would seem to me that first our mission ought to be to do no harm, and as you've just talked about, the proposed budget actually makes the situation worse and not better. So even as we look to correcting some of the problems, I hope that we could also look at making sure that we aren't exacerbating it by short-changing the programs that we now have. And I thought that this example of this elderly resident Don Williams and his inability, I mean, the fact that he has to be carried up and down seven flights, is so unacceptable that we have to address this kind of crisis. I wanted to tell you, one of the bills I introduced when I was in the State legislature, we keep coming back to the issue of having to retrofit housing so that people can age in place. And I think there's a program in Atlanta. And I had introduced legislation in Illinois that got out of committee, but that's as far as it went, that said that new spec housing had to have some accessibility features built in. There's no magic to the size of a doorway right now, a door frame, you know. Why it's smaller, rather than larger, as we build housing, but we could make grab bars or at least the possibility of grab bars reinforcing walls so that they could be there if they were needed. There's no magic about the place that light switches are put. They could be lowered easily when we build in public housing and in affordable housing. As we build it, are there requirements now to have these accessibility features? If not, wouldn't that be an obvious thing to do so we don't have to go back and spend money later on? Question to anybody. Mr. Thomas. Yes. I need to jump in because I represent public housing in the areas where we are redeveloping, and HOPE VI is a good example of that. Yes, ma'am, we do. Where we build new units, we find that it's only marginally more expensive to bring those units to the contemporary standards. So if you're building a new house, putting a grab bar in only costs the cost of the material. But if you have to go back and retrofit, then you have to tear out work. Yes, we do that now. Having said that, there are not that many public housing authorities around the country that are actually participating in the HOPE VI program because of the limitations. So wherever we have those capital dollars, we can make those investments. And they are, in my judgment, ma'am, sound investments. Ms. Schakowsky. Is it required, when you build new, to have those accessibility features? Mr. Thomas. We do have local building codes. The State building code applies to us as well, but we find it advisable. Ms. Schakowsky. What about the ADA? Mr. Thomas. Our units that have family housing, we try to go to what we call visitable standards. Even though there might not be a person using a wheelchair in that immediate family, we try to build our rental housing for the long term, so sometime over the next 30, 40, 50 years, there's likely to be a family that will need a wheelchair. So we make sure our doorways are accessible, the bathrooms are accessible, all of that of course in our new construction. So if we're talking about a production program, then we can build those things in. It is more difficult to go back and retrofit. Mr. Felgar. All of our new Section 202s are accessible and complying with ADA. The problem that the new construction of Section 202s represents is that there is no allowance there for features that are more closely aligned to assisted living. There's no commercial kitchen allowed in a Section 202 building, or we think that makes a lot of sense to put in some kind of kitchen facility that could prepare meals there over time. We don't think it's a huge design change or a huge cost increment, but we really believe the Section 202s should be built with this assisted living option available to them downstream, because we think that makes the most economic sense. Ms. Schakowsky. With the demographic changes, it just makes sense for us to be thinking ahead as we get into production or even retrofitting, that we make these changes now rather than have to spend even more money down the road. Mr. Felgar. The Section 202 paradigm has been independent living with a modest amount of services. And what we are suggesting to the subcommittee is that that vision has to be broadened to include the possibility of doing more in that setting than has historically been done. Ms. Schakowsky. Thank you very much, all of you, for your recommendations. I look forward to working with you to implement them. Chairwoman Roukema. I thank you. Unless the members of the panel--do you have any summary statements that you want to leave us with? Ms. Monks. I'd just like to mention the fact that if you look at service coordination, there's been questions about HUD being a bricks-and-mortar department of Government, and if you would consider that the service coordinator is the mortar that holds the bricks and sticks together. Chairwoman Roukema. A very good point. I appreciate that. This has been very helpful today. I think that we have a bipartisan intention here of moving ahead aggressively. We may not agree on all the elements of the program, but we certainly agree with the fact that both panels have more than adequately outlined the intense need that's a growing need and it will be getting if not fast out-of-hand already, it will be growing and intensively necessary for us to act now in a realistic way. By realistic, I mean, understanding that there are certain financial limitations, but at least we can get our priorities set up and move in the right direction, whether it's through the actual housing authorities and the HOPE program, the existing programs or through creation of new programs and financing. Particularly, I'm going to be interested in looking at creative financing through tax credits, and so forth. So we thank you very much. Again, please feel free to contact us and give us again the benefit of your advice and counsel. With that, the hearing is adjourned. 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