Congressional News

March 14, 2003
 

• HUD FY04 Budget Proposal Panned in Congress
• Rep. Watt Introduces HOPE VI Reauthorization bill
• Rep. Frank demands HUD provide immediate relief from 30% cut

I.  Congress Considers HUD FY04 Budget Proposal
 

During testimony before one House Committee and two Senate Committees last week, HUD Secretary Mel Martinez discovered that HUD’s proposed budget for FiscalYear 2004 is coming under great scrutiny from both sides of the aisle.  The discussion at all of the hearings focused primarily on the dramatic cuts to the public housing and Section 8 accounts included in the Administration’s Fiscal Year 2004 budget proposal. The concerns raised by Members at the hearings include the following:

• imposing a higher minimum rent on public housing and Section 8 tenants
• block granting the Section 8 rental voucher program to the States
• once again reducing the Public Housing Capital Fund
• ignoring the public housing operating subsidy crisis
• eliminating funding for the highly successful HOPE VI   

The hearings were held by the Senate Committee on Banking, Housing and Urban Affairs, the Senate VA-HUD Appropriations Subcommittee and the House Financial Services Committee. In addition to questioning the adequacy of the HUD budget, Members asked Secretary Martinez questions about the impact of the President’s proposal to cut taxes on corporate dividends on the low-income housing tax credit (LIHTC) and the adequacy of HUD’s data systems.  Clearly, the lines of questioning show Congress’s concern about the dwindling federal commitment to affordable housing programs.

HOPE VI

At the Senate Banking, Housing and Urban Affairs Committee hearing, several Senators questioned the wisdom of the Administration’s proposal to end funding for the HOPE VI program, the award winning grant program that has successfully revitalized severely distressed public housing developments across the country.  When Senator Allard asked for an explanation for the elimination of HOPE VI, Secretary Martinez replied there were unspent program funds from previous years and grantees are not spending money expeditiously, thus there was no need to appropriate more money.  This is a dubious assertion as HUD’s own data shows that over one-third of HOPE VI sites have completed all of the public housing units and the time between execution of the HUD Grant Agreement and construction has decreased 300 percent in recent years. Moreover, as Senator Sarbanes pointed out, all of the remaining HOPE VI money has been committed to local projects that are currently underway.  As a result, there are no funds available for additional awards.  Nonetheless, the Secretary argued that in tough budgetary times, even successful programs might not be continued.

The Secretary faced even more questions regarding HOPE VI at the House Financial Services Committee hearing.  In his opening statement, the Chairman of the House Subcommittee on Housing and Community Opportunity, Rep. Bob Ney (R-OH), signaled that the budget’s proposal to eliminate HOPE VI was not the end of the debate, but that the Committee would also look into continuing the program, perhaps with some modifications.  Throughout the hearing, a bi-partisan group of Representatives criticized the cut and expressed support for the successful program, including House Financial Services Committee Ranking Member, Barney Frank (D-MA), Housing and Community Opportunity Subcommittee Ranking Member, Maxine Waters (D-CA), author of HOPE VI reauthorizing legislation, Melvin Watt (D-NC), Michael Capuano (D-MA), Rahm Emmanuel (D-IL), David Scott (D-GA), as well as Chairwoman of the Oversight and Investigations Subcommittee, Sue Kelly (R-NY), Chris Shays (R-CT) and Katherine Harris (R-FL).

The bi-partisan support for HOPE VI was also clear at the Senate VA-HUD Appropriations Subcommittee hearing.  In his opening remarks, Chairman Sen. Kit Bond (R-MO) stated that he was disappointed by the proposal to eliminate HOPE VI.  Reminding Secretary Martinez that he was largely responsible for the creation of HOPE IV, Bond said that despite repeated requests, he had no meaningful dialogue with HUD about the future of this successful program.  He was particularly troubled that the HOPE VI cut comes on the heels of elimination of the anti-crime initiative, Public Housing Drug Elimination Grant program (PHDEP), and an undisputed $22 billion backlog in public housing capital repairs, which makes public housing even more susceptible to the ills that require the HOPE VI program.  The other parent of HOPE VI, Ranking Democrat Sen. Barbara Mikulski (D-MD), also expressed her disappointment in the Administration’s proposal stating that elimination is not only $600 million reduction to the public housing program, but it further reduces other investment in these communities that is generated by HOPE VI.

PUBLIC HOUSING OPERATING FUND

At the Senate Banking, Housing and Urban Affairs Committee hearing, Senator John Sununu (R-NH), obviously concerned about the operating fund shortfall caused by HUD mismanagement subsidies, wondered how HUD would avoid the shortfall next year.  Senator Elizabeth Dole (R-NC) was even more pointed.  Given the nearly $1 billion appropriated to HUD for information systems over the last three years, Sen. Dole questioned why there was not additional improvement in HUD’s capacity to sufficiently monitor the Operating Fund.

 In the House hearing, Rep. Nydia Velazquez (D-NY), demanded to know from the Secretary when HUD would provide the promised supplemental operating subsidies to partially offset the 30 percent cut.  HUD said they would increase the pro ration level to “about 90 percent” within four weeks.  That answer raised even more questions by the Members.  Rep. Frank, who earlier called the 30 percent cut an unconscionable “fiscal storm”, said that if Enron had tried to do this, “they would have been in jail even more than they’re going to be”.  He reiterated that he could not understand how HUD, who had enough information to provide a 70 percent operating subsidy allocation to PHAs, needed to wait four weeks to get enough information to provide 90 percent allocation.

SECTION 8

There was a fair bit of disagreement among the Members of the Senate Banking Committee regarding the wisdom of the Administration’s undefined proposal to block grant the Section 8 program to the states. Chairman Richard Shelby (R-AL) began his hearing by offering his support for the Administration’s Section 8 block grant proposal, which he called a “bold initiative.”  He said that he hoped the proposal would increase coordination with other social services administered at the state level and would increase the efficiency of the program.  Chairman of the Senate Subcommittee on Housing and Transportation, Wayne Allard (R-CO), also expressed his support for the idea, although he wanted to review the proposal in more detail once it was provided by the Administration.

In opposition, Senator Thomas Carper, (D-DE), recalled his experience as a governor implementing the welfare state block grant program to question the wisdom of turning Section 8 rental vouchers into a block grant to the states.  As he described, states will be reluctant to take over the program unless they had assurances that they would be adequately funded, since block grant programs are easier to cut.  Ultimately, he said he supported the proposal to block grant welfare to the states because there was a reduced need.  With steadily increasing real estate prices and an eroding economy, he expressed serious doubt that there will be a similar drop in need for affordable housing.

Both the House Financial Services Committee and the Senate VA-HUD Appropriations Committees were more skeptical about the idea of a state-run Section 8 block grant.  The lack of enthusiasm was particularly evident among members of the Missouri delegation whose state has already relinquished its Section 8 rental voucher program.  In the House Financial Services Committee hearing on the Budget, Rep. Lacy Clay (D-MO) said, that based on his experience as a state legislature, the state had insufficient resources to take on additional Federal burdens.  Former Missouri Governor, Sen. Bond, now chair of the Senate VA-HUD Appropriations Committee, simply stated that the block grant proposal was “premature.”

HUD officials did not give a timetable for when a defined proposal with legislative language would be submitted to Congress.

PUBLIC HOUSING CAPITAL FUND

Expressing alarm at the volume of cuts proposed by the administration in the FY 2004 HUD budget, the Ranking Member on the Senate Banking, Housing and Urban Development Committee, Sen. Paul Sarbanes (D-MD) asked Secretary Martinez if he felt the budget’s provisions of resources was sufficient to maintain the nation’s public housing stock.  Secretary Martinez argued that the resources provided in the budget, including increased power to borrow money, would allow PHAs to maintain and improve their housing stock.   Upon further questioning by Sen. Sarbanes, it was revealed that the proposed lending is dependent on fully funding Section 8 vouchers, which is not ensured.

In the House Financial Services Committee hearing on the budget, Rep. Michael Capuano (D-MA), pointed out that the $90 million proposed cut to the Capital Fund is one of many cuts faced by public housing in the Administration’s FY 2004 proposed HUD budget, and that strongly suggests that the White House intends to abandon public housing and the affordable housing needs of the country.  As noted earlier in the context of HOPE VI, Senate VA-HUD Appropriations Subcommittee Chairman expressed disappointment in the cut to the Public Housing Capitol Fund, in part, because every other area of the public housing budget is cut, leaving nothing to take up the slack.  Not noted, but equally important, a cut to the Public Housing Capital Fund undermines public housing borrowing initiatives.

The House VA-HUD Subcommittee will hold its hearing on the proposed Fiscal Year 2004 HUD Budget on March 19th.

II. Bi-Partisan Bill to Reauthorize HOPE VI Introduced

On March 4, 2003, Rep. Melvin Watt (D-NC) re-introduced his legislation to reauthorize HOPE VI, an award winning federal grant program that enables public housing authorities to transform distressed projects into revitalized communities.  Not only does the program help PHAs leverage private investment in neighborhoods, but also it provides funds for social service programs to support residents in their efforts to become self-sufficient.

The bill revises the grant selection criteria designed to improve HOPE VI and enable even more communities of different sizes to participate.  Specifically, to address the concern that public housing residents are displaced from revitalized housing, the HUD Secretary would be required to consider as part of the application process (1) the extent to which applications minimize temporary and permanent displacement, (2) makes project-based units available to persons eligible to live in public housing and (3) gives priority to existing residents of public housing to return to the revitalized site.  Addressing the Administration’s criticism that HOPE VI funds should be spent more quickly, the bill would require that the Secretary to consider the ability of applicants to commence and complete revitalization expeditiously.  Finally, in order to ensure that every PHA has a chance to receive a HOPE VI award, the bill strikes the requirement that grants be only for “large-scale” developments.  The bill would reauthorize the program with these new criteria through Fiscal Year 2005.

Despite the Administration’s proposal to end HOPE VI, the bill already has a bi-partisan roster of 24 cosponsors, including ranking Democrats on the Housing and Community Opportunity Subcommittee and the full Financial Services Committee, Rep. Maxine Waters and Rep. Barney Frank (D-MA), respectively.  Also cosponsoring are: Ed Case (D-HI), Jim Cooper (D-TN), Harold Ford (D-TN), Charles Gonzales (D-TX), Michael Honda (D-CA), Sheila Jackson-Lee (D-TX), Barbara Lee (D-CA), Gregory Meeks (D-NY), Eleanor Holmes Norton (D-DC), David Price (D-NC), Christopher Shays (R-CT), Bennie Thompson (D-MS), Wm. Lacy Clay (D-MO), Artur Davis (D-AL), Luis Gutierrez (D-IL), Jesse Jackson (D-IL), Stephanie Tubbs Jones (D-OH), John Lewis (D-GA), Brad Miller (D-NC), Donald Payne (D-NJ), David Scott (D-GA), and Rob Simmons (R-CT).

III.  House Members Demand Relief from the HUD Imposed 30% Cut to Public Housing Operating Funds

On March 6, 2003, Rep. Maxine Waters (D-CA) and Rep. Nydia Velazquez (D-NY) joined Rep. Barney Frank (D-MA) in a letter to HUD Secretary Mel Martinez demanding that he provide immediate relief to PHAs that have suffered a 30 percent cut to their federal operating subsidies since the beginning of 2003.  HUD provides PHAs with operating subsidy on an annual basis to help pay for some of the cost of operating, maintaining, and providing utilities in public housing units.  Because public housing serves mostly very low-income tenants who pay no more than 30 percent of their adjusted income for rent, adequate operating subsidies are essential if PHAs are to provide decent, safe, and affordable dwellings.

On January 6, 2003, in response to the misallocation of $250 million caused by HUD mismanagement and the uncertainty of Congressional appropriations, HUD announced that it would only provide 70 percent of operating subsidies to PHAs until sometime this summer after it collected and reviewed additional financial information.   In response to a firestorm of media inquiry and ridicule, HUD issued another notice in which it promised to eventually provide approximately 90 percent, not 70 percent, of operating subsidy after the fiscal year 2003 VA/HUD Appropriations Bill was passed.   Despite the fact that the 2003 appropriations bill was enacted into law over three weeks ago, PHA operating subsidies have not been increased. As a result, some PHAs have been forced to cut social services, delay maintenance and layoff staff.

At the House Financial Services Committee hearing on the HUD FY 2004 budget proposal, Rep. Frank asked why relief had not been provided since Congress has finally passed its appropriations bills.  HUD officials argued that they had to wait for PHAs to submit their budgets.  Noting in the subsequent letter that HUD had “enough information to calculate and fund an individual housing authority at 70%”, the authors wondered why HUD could not simply use the same information to fund agencies at 90%.  Representatives Frank, Waters and Velazquez conclude, “we see no reasonable explanation why this increase cannot be effected immediately and ask you to do so.”

 For more information, please do not hesitate to contact Bernard Fulton or Sharon Geno at (202) 783-2800.