The following are PHADA’s prepared remarks before the House Subcommittee on Housing and Community Opportunity concerning H.R. 2, the Housing Opportunity and Responsibility Act of 1997. PHADA’s testimony was provided by John Hiscox, Executive Director of the Macon Housing Authority in Macon, Georgia. He is Chairman of the association’s Committee on Legislation. The subcommittee is chaired by Rep. Rick Lazio (R-NY), the author of the legislation.
Mr. Chairman, members of the subcommittee, my name is John Hiscox. I am the Executive Director of the Macon, Georgia Housing Authority, which serves over 4,000 families who will be vitally affected by your work today. I am testifying today in my capacity as Vice President of Legislation for the Public Housing Authorities Directors Association (PHADA). As you may know, PHADA represents the professional administrators of about 1,650 housing authorities from all over the United States. On behalf of the organization's entire membership, thank you for giving us the opportunity to testify before this esteemed panel.
Mr. Chairman, you and other members of this subcommittee and your counterparts in the Senate worked diligently to enact comprehensive public housing reform legislation during the previous congressional session. You eschewed tinkering at the margins and instead proposed bold restructuring of the public housing programs, which is sorely needed. Unfortunately, you ran out of time near the session's close and were forced to put the legislation on hold until 1997. To the credit of you and your staff, you have produced a new bill quickly and are moving ahead full steam in an effort to complete action on the legislation as early as possible.
PHADA appreciates the attention and effort you have dedicated to this important legislation. Our members want to work with you and the Senate throughout the current session as you seek enactment of a comprehensive public housing authorization bill. PHADA has already supplied you with our technical commentary on the legislation, and I would refer you to that document for a more thorough report outlining our positions on specific sections of the bill. Rather than repeating all of the intricate details mentioned in that paper, I would instead like to focus my remarks today on the broader policy considerations Congress should take into account as it begins formal deliberations on the bill. I will go through the issues in the order in which they appear in H.R. 2.
The first point I want to touch upon concerns resident participation on housing authority boards of directors/commissioners. Our members oppose federal requirements that would supersede state or local law and mandate that housing authorities (HAs) have at least one elected resident on their board of directors/commissioners. Before proceeding further, I need to make it clear that PHADA does not object to the principle of resident participation on Boards. Indeed, for several years now, PHADA has been a leading advocate for greater resident participation in all aspects of public housing affairs. My own Authority has had a resident commissioner for the last fourteen years and it has been a most rewarding and useful addition.
Rather, our opposition stems from the belief that such matters should be decided at the state and local level, which is certainly consistent with the underlying philosophy and objectives of this legislation. In our view, the bill contradicts its stated intent by actually taking authority away from localities, preempting state laws that direct the chief government official to appoint commissioners.
We are also concerned with the mechanics associated with the provision, particularly as regards elections. Elections politicize the entire process, which contaminates both the governance of the HA and healthy resident organizations. Any legislation which prescribes the selection method also plays havoc with existing laws in many states that already provide for resident Commissioners. For this and many other reasons, we think it would be better to retain the current appointment procedures, which give the local governments the authority to decide who serves on boards using methods established by state law. The same criteria and methods should apply to resident commissioners for the same reasons.
I next want to point out that PHADA strongly supports Section 104, which gives housing authorities the discretion to determine income exclusions and exempt portions of a family's unreimbursed medical expenses from rent calculations. We think this is a vast improvement over the current system, which creates disincentives for residents to seek work and move up the ladder of self sufficiency. This is an issue in which PHADA's members have a profound interest, and I will talk a little more about it in a few minutes.
Moving on to the next major section, PHADA has many concerns about the eight hour work requirement and the self sufficiency contract. First and foremost, we are highly skeptical whether HAs will have the time and administrative capacity to run these programs without additional federal funds. This plan will be particularly difficult for small HAs to administer since they are already over-burdened and understaffed. Remember, more than 50 percent of the country's 3,400 HAs have 100 or fewer units, which in turn typically means a total staff of a single administrative employee and perhaps two maintenance employees .
PHADA wishes to make it clear that we generally support the concept of a work requirement for families that are receiving public assistance. We believe, however, that the legislation is no longer needed because of the enactment of comprehensive welfare reform during the 104th congressional session. Under that historic statute, virtually every resident who is not already employed will be required to perform some type of work in return for public assistance. Language in paragraph (3) on page 27 of H.R. 2 specifically states that persons are exempt from the work requirement when they are "otherwise complying with work requirements applicable under other public assistance programs." Thus, HAs may end up exempting almost everyone from the requirement, but will still be forced operate and keep records for a redundant shell program. In short, we believe the provision in H.R. 2 is rendered moot because of welfare reform, and therefore request that the work requirement be removed from the bill.
If the House is intent on including the work requirement in the bill, then we request certain modifications. First, please consider adding the word "volunteer" before "work" in all appropriate places in the bill. Second, we believe that you should specify that residents are permitted to self-certify compliance in order to relieve HAs of excessive record-keeping burdens. Third, and most importantly, we strongly believe that families who are exempted from state workfare requirements must also be automatically exempt from the requirement in H.R. 2, or the state exemption process is both subverted and the burden shifted to HAs. Surely this is not the intent of your legislation.
For many similar reasons, we oppose the inclusion in the bill of a self-sufficiency contract for virtually all residents. While there is no question that the intent is laudable, we view this as a major new unfunded mandate that will create significant administrative burdens for HAs. Moreover, there is no realistic way this plan can be operated without a massive infusion of funds from Washington. We know this from our practical experience in administration of the Family Self-Sufficiency Program, which imposes similar requirements. Based on our review of FSS, we estimate that this program's potential costs may exceed $9 per unit month. Extrapolated to a national level, this new mandate would cost HAs (and HUD) about $129 million. Clearly, this requirement simply is not feasible given current budgetary projections for public and assisted housing programs. Again, we ask you to consider the administrative and financial impact on the very small housing authorities, with their tiny staffs and "no margin" budgets.
Most importantly, we feel that the need for a self-sufficiency contract, like the work requirement, has been negated in the wake of last year's welfare reform law. As I mentioned a moment ago, that new statute will require all families to engage in some form of work in return for public assistance. The law also sets up a maximum five-year term of benefits for recipients and gives states the flexibility to create their own local work requirements and time limits. Finally, all states will require the equivalent of a self- sufficiency plan as a condition of receiving benefits. In light of all this, we strongly recommend that this section be eliminated from the bill.
Moving on to the Low-income Housing Management Plan (LHMP), we believe this part of the legislation is in need of a significant overhaul. Specifically, we are concerned that H.R. 2 could unintentionally create more administrative burdens for housing authorities rather than streamlining the program. I mention this because so many additional requirements are placed on HAs to compile new types of data that will be subject to HUD review and approval. I refer you to our technical comments for some specific examples.
If the Congress determines that the LHMP is needed, we believe that it could be significantly improved by altering the submission and approval process. Rather than requiring HUD review, we suggest letting HAs self-certify their plans. Self-certification can then be policed by requiring further review through the independent public audit (IPA) and allowing HUD to investigate in appropriate circumstances. This preserves program integrity while allowing HUD to focus its review resources using the same "risk management" methods the Department uses on most compliance issues now.
We hope that the Congress will realize that HUD can not possibly perform a professional or timely review of the oncoming avalanche of LHMPs with their existing staff resources, much less when HUD is reduced to 7500 employees. Far better to have a reasonable system controlled by post-audit than the inevitable rubber stamp (perhaps punctuated with the occasional arbitrary application of authority) which would certainly result. The IPA system is already in place and, if necessary, an even stronger IPA could be designed to ensure accountability.
If you do not accept this position, then at least the timing and submission procedures in
the bill must be refined. As we envision the plans, they are to be submitted in conjunction with
the start of each HA's fiscal year. Going in reverse order from the time the agency submits the
final plan to HUD to when it must commence planning, let's look at the timing for an agency
with a fiscal year that starts on January 1:
October 1 -- Submit plan to HUD in time to give the Department 75 days to review and get approval before the start of the HA's fiscal year.
September 25 -- The HA's Board of Commissioners approves the final LHMP.
September 20 -- LHMP is revised to take into account citizen and local government input.
August 1 -- LHMP subjected to local review, resident input, and public hearing.
July 30 -- Agency Board of Commissioners approves publication of LHMP.
May 15 -- Work begins on the LHMP and the accompanying budget.
Under this scenario, the HA will have to begin work on its plan at least by mid-May, almost six months before the coming fiscal year's appropriations are known. This will make it very difficult for the HA to accurately plan for the coming year when it HAs no idea of how much funding it will receive. We believe this is all the more reason for letting HAS self-certify their plans. This will give them more time to prepare their LHMP and will eliminate the 75-day requirement for HUD to review. As I mentioned, due to diminished resources and capacity, HUD will not be able to adequately review all 3,400 LHMPs in any event.
Lastly on the plan, PHADA strongly supports modifying the requirements for small HAs. We also support the language in Section 107 that eases HAs into the new system by requiring that HUD accept Comprehensive Grant Program (CGP) plans as the HA's initial LHMP. Unfortunately, the language does not help those in the most need of assistance, namely HAs with fewer than 250 units, since they do not currently participate in the CGP. We therefore suggest that this be addressed by giving small HAs an extra year to comply with the requirement. It could then be phased-in like the CGP was during its initial implementation.
Next, in Section 204, we appreciate that you have counted an agency's good performance in the formula equation. This will help reward well-run HAs, something PHADA has long recommended. Similarly, we support the provision allowing HAs to keep non-rental income without any fear of a reduction in formula allocations. This is the kind of incentive we need to ensure that all housing authorities try to do an even better job with limited resources. We believe that the bill should also include similar assurances for rental income. Similarly, PHADA applauds the insertion of language making it clear that HAs should be given incentives under the new operating formula to increase their income by attracting families "with a broad range of incomes."
Still in the same section of the bill, we are concerned about splitting the interim formula 50%-50% between operating and capital funds. Right now, operating funds are at $2.9 billion, while capital funding is $2.5 billion, making the total for the two programs $5.4 billion. Under H.R. 2 then, only $2.7 billion would be available for operating purposes, far below what HAs need to efficiently operate. Accordingly, we suggest that you strike the 50-50 split and instead insert a change that would ensure that HAs receive the same ratio of operating and modernization formula funds that were available to them immediately prior to H.R. 2's enactment.
In addition, as indicated on page 75 of the bill, the interim calculation should take all small HAs' (those with fewer than 250 units) modernization needs into account since those agencies do not receive comprehensive grant formula funds. In a related matter, I want to point out PHADA's position that small HAs should be included under any capital grants formula program that is ultimately devised. Like their larger counterparts, small agencies need a steady supply of modernization dollars to upgrade their properties. Whatever new block grant formula is developed must take this factor into consideration. At a minimum, there should be adequate small HA representation on the negotiated rulemaking task force that will develop the criteria for the operating and capital formulas.
By following the sequence of policy issues in the order they appear in the bill, its easy to understate the importance of this issue, but we must not. PHADA urges in the strongest possible terms that the entire Comprehensive Grant formula must include PHAs with less than 250 units and the formula must realistically reflect their proportionate share of capital improvements needs. The current situation is scandalous; while some very large housing authorities are spending more than $150,000 a unit on HOPE VI, many well-managed small HAs can't even accumulate the funds to replace leaking roofs or burned out combustion chambers in old furnaces. In my state of Georgia, for the total allocation of CIAP funds for the 152 Housing Authorities with less than 250 units total only $15 million, while the application for emergency modernization alone was more than double that. The sum of all modernization applications from this group was over $172 million, reflecting a tremendous backlog of need.
It is also useful to contrast these numbers where the situation in some of our largest housing authorities. Until recently, the largest PHA in our state had an unspent backlog of Comprehensive Grant Program funds (not counting HOPE VI) which approached $100 million, more than six times the total allocation for CIAP for the whole state. This same PHA is also struggling to digest tens of millions of dollars of recent HOPE VI grants. Despite this, we are aware that HUD central office policy staff is actively considering a rewrite of the Comprehensive Grant Program formula, not to redress this fundamental equity, but rather to shift a still larger percentage of the scarce modernization resources to the largest PHAs. Even though my own authority (we are about the 80th largest in the country) might stand to benefit, we know that it is fundamentally wrong. Knowing the recent history and HUD's intentions on the matter, we strongly recommend that the Congress prescribe the formula and do so in a manner that protects the interest of all.
Looking back to the long-term subsidy formula, we again applaud the intent to use negotiated rule making. There are nevertheless many unresolved policy issues of great importance. Because these bear an inseparable relationship to rent policy, I will discuss those issues along with rents a bit later in my remarks.
The income targeting provisions included in Section 222 are one of the most critical elements in the entire bill. PHADA generally supports the House's current version of income targeting for the public housing program and we appreciate that the new bill clarifies that the targeting requirements apply to the HA's entire population, not just to new admissions.
PHADA suggests two changes to the bill. First, we think the targeting requirements should be fungible throughout the entire inventory of the agency's programs. In other words, HAs should be allowed to distribute its targeting among all of its programs so that, in totality, it meets the overall goals called for in the legislation. This would allow a healthier demographic mix in public housing and somewhat ameliorate the economic and social ghettoization of the poor which former Secretary Cisneros often identified as public housing's worst problem. At the same time, this would be balanced by more aggressive targeting of Section 8 to the poorest families, who could then choose more affluent neighborhoods, better schools for their children and so forth. In both instances, the cause of better neighborhoods and housing opportunities would be served.
Secondly, PHADA strongly recommends that any targeting count as "very low income" any family that is working substantially full-time at or near minimum wage. This distinction is necessary because of the arbitrary limitations of any system based on median income. As in all states, both the minimum wage and welfare benefits are uniform throughout the state, but they very widely as a percentage of median income. In Atlanta, for example, full-time employment at $5.15 per hour is less than 25% of median, while it equals a little less than a third of the median in Macon. In the poverty stricken rural areas of the state, however, full-time minimum wage employment brings a family to about half of median income. This is far from an isolated circumstance, being common to rural areas all over the deep south, Appalachia and parts of the southwest. Surely the intention is not to deny housing to the minimum wage worker in a poor county while only fifty miles away a worker earning more than twice as much is still receiving the benefit of targeting. The bill allows HUD to establish income ceilings higher or lower than 30% of median based on unusually high or low family incomes, but we believe that a cleaner method would be to automatically include minimum wage families under the lowest income targeting category.
PHADA's proposal is consistent with Congress's intent of giving working families more incentives to seek employment and move upward on the ladder to self sufficiency. In addition, it will help HAs create better income mixes within their developments, something which all experts agree results in more stable and secure environments for the public housing agency and the community at large. Moreover, this important change would help improve the fiscal health of housing authorities and enable them to become less reliant on federal subsidies.
PHADA strongly supports Section 224, which gives HAs the right to adopt flexible local preferences. Housing authorities that have implemented local preferences temporarily authorized under the last two appropriations acts are already experiencing many positive benefits. However, a survey of our membership reveals that many agencies are reluctant to change their preference systems, fearing that Congress will not extend the repealer beyond the current fiscal year. These reservations are addressed in H.R. 2 and should give HAs the confidence they need to move forward to establish their own local preferences.
I next want to discuss the all-important issue of rent-setting, which is included in Section 225, and related subsidy issues. While PHADA still maintains its support for repeal of the Brooke Amendment, we recognize the political reality of the situation. We would therefore support legislation somewhat similar to the plan embodied in H.R. 2, which establishes Brooke as a ceiling and allows HAs to set flat rents under certain conditions. Despite our support for the concept in the bill, we have some concerns about the particulars.
It would be helpful at this point to analyze how the system proposed by the bill would work in practice. Residents would have a choice between their Brooke rent and the HA flat rent. Since the rational customer will always choose the lower price for the same product, this means that the HA established flat rent is, in effect, a ceiling rent with a different name.
Regarded as a ceiling rent, the method proposed in the bill poses few problems. We particularly applaud the partial decoupling of ceiling rents from operating costs, since the market value of the housing (and customer behavior in relationship to it) bears no relationship whatsoever to the authority's cost. Any system that pegs the ceiling rent above the market value will find no takers; any that places it below market value will cost rent and subsidize the unit to excess. For that reason, PHADA would support removal of any reference to operating cost in this portion of the bill, including that which states that the flat rent shall not exceed operating costs.
The potential difficulty with flat rents lies not in their use as ceiling rents, but rather in their relationship to other proposed rent reform measures and the ultimate disposition of the operating subsidy formula yet to be devised. When flat (i.e., ceiling) rents are set at or near market, they do serve to encourage working low income families to stay in public housing and they have some effect encouraging secondary wage earners and two parent households. In almost every computer scenario we have calculated, however, market-based flat rents do not come into play when a family moves from welfare to entry level minimum wage employment. This means that flat rents do not offer in themselves any incentive to move from welfare to work. This can be addressed easily enough by lowering the flat rent below market, but this comes at the expense of lost rental income. A better way to eliminate the employment disincentive for families choosing to go to work is through deductions from earned income. In both cases, there is a short term price to pay in lost rental income.
This brings us back to the connection with subsidy. Section 204 of the bill lists a number of factors to go into a new subsidy formula, including rental income, but doesn't describe how the system would work. In PHADA's view, there are only two sets of alternatives, both quite exclusive. The first is the existing Brooke/PFS model. When HUD took away PHA control over rent setting, they also bought the responsibility for covering a Housing Authority's deficits against a formula based allowable expense level. In time, we have come to see that the other side of the coin is also true: the federal government cannot dare surrender to PHAs the authority to set their own rents as long as Uncle Sam is on the hook for any extra subsidy which results. Thus, federal control of rent setting and a PFS-type deficit funding subsidy system are Siamese twins, inextricably linked for life.
The other set of alternatives, equally inseparable, are local rent control and block granted subsidy. In this set, localities would receive subsidy based on a formula that did not take into account their rental income except for original baseline purposes. Thereafter, subsidy would not rise and fall based on short term variations in a Housing Authority's rental income. Any incentives the HA gave from residents would come from its own resources; any long term increases in rental income that resulted would benefit the authority. Within the broadest of guidelines, it would be understood that the rental income from the resident body must be sufficient, when added to formula subsidy, to operate the authority.
Again, please understand that local rent control and block granted subsidy are just as inseparable as Brooke and PFS. To mix and match produces certain disaster. Local rent control combined with a PFS-type deficit funding system will bankrupt the federal government. Likewise, federal rent control matched with block granted subsidies will bankrupt the housing authorities. There is no middle ground; you must choose one or the other.
The point of the previous discussion is this: it is not at all clear exactly where we wind up with H.R. 2, especially as regards the interim subsidy formula, but it appears that we have a hybrid system. Brooke is in place, but we have some local discretion on deductions from earned income and flat rents. The subsidy formula, yet to be decided, takes rental income into account, but we don't yet know how. The formula appears likely to include both block grant and PFS-like elements. We are glad that the bill proposes to subject the formula to negotiated rule making, but we believe that the hybrid nature of the system may doom it to failure.
Of the two broad classes of options, PHADA strongly supports block-granted subsidy paired with local control of rents (within the broadest of guidelines, similar to methods used for tax credit projects). As introduced, last year's bill would have accomplished this goal. If the political reality is such that local rent control/subsidy block granting isn't feasible at this time, then it is imperative to preserve the PFS-type subsidy system and the full funding thereof. If Uncle Sam controls the income side and then disavows responsibility for the resulting deficit, the housing authorities go broke. This is what happened in 1975 just before PFS was established and its what will happen again.
I want to further point out that PHADA endorses H.R. 2's minimum rent provision as well as the optional hardship protections. The bill gives HAs the kind of flexibility they need to ensure rent equity, and allows them to exempt those families who truly cannot afford even a modest minimum rent.
I next want to briefly touch on the income disregard that is also included in Section 225. As I indicated earlier, PHADA strongly supports providing incentives for residents to seek employment. However, we believe the 18-month earned income exclusion is misguided. Our basic point is that a temporary income disallowance is not a substitute for true and meaningful rent reform. In our opinion, there are much better ways, such as permanent deductions from earned income, to remove work disincentives and help residents move toward self sufficiency.
There are a number of serious difficulties with a temporary 100% disallowance. First, it does nothing to address the core problem of disincentives. By paying 30% of their gross income as rent, public housing residents with earned income are actually paying almost twice as much of their net cash income (42% vs. 23%) as welfare recipients. As PHADA has repeatedly documented in the past, this is a powerful negative incentive to employment, one which an eighteen month disallowance postpones rather then fixes.
Secondly, an eighteen month disallowance will undoubtedly encourage movement to employment, but neither the Authority nor the resident will benefit in the long run. When residents exhaust the eighteen month disallowance and are struck with the sudden massive rent increase, they will generally react as many do now: moving out, quitting the job or taking the offending family member off the lease. With eighteen months of work history, a somewhat larger percentage might be expected to move out as opposed to the other two options, but the net impact on the neighborhood would be the same. In the meantime, the housing authority (and the Federal government) will have derived no benefit from any increased rent.
Finally, we have strong reasons to believe that the institution of a 100% disallowance will actually ratchet PHA operating income downward and HUD operating subsidies upward in proportion. This is because of the employment dynamics within a typical public housing community. While the number of working and non-working families may remain relatively constant over a period of time, public housing residents move in and out of the workforce, on and off welfare, much more rapidly than the population as a whole. Facing discrimination and lacking skills, they're often the last hired and the first fired. Their employment is often in unstable high turnover industries, particularly in the services sector. In this environment, it is certain that families exiting the job market will continue to claim their rent reductions under Brooke, while those entering will claim the disallowance. Average rents will be driven downward and subsidies will rise, further bankrupting the system.
Is there a role for temporary disallowances? The answer is yes, if properly used as a supplement rather than a substitute for real rent reform. PHADA recommends that Congress consider allowing HAs to exempt up to 50% of a newly employed family's income. For ease of administration, the period of exemptions should be until the second annual reexamination after the employment starts, a period that could vary between thirteen and twenty-three months.
The next topic I want to address is one that PHADA's leadership has spent a considerable amount of time deliberating. I believe our position probably will not enjoy much support inside Congress, HUD, or among other housing organizations. Nevertheless, we feel strongly about this matter.
I first want to make it clear that we support the stated intent of Section 262, which allows HAs to demolish obsolete public housing, and then revitalize properties by constructing new units or offering residents tenant-based assistance. To achieve these objectives, the bill basically extends the HOPE VI program for severely distressed public housing. The provision sunsets on September 30, 2000. That's not soon enough.
Our quarrel is not with the intent here. PHADA is a strong proponent of demolishing the worst public housing and creating new housing choices for low-income families. In some cases, the HOPE VI program HAs been a success in this regard. With that said, however, we do not support the program as it is presently being administered. In our view, some of the grants have not been used wisely and some may have been awarded primarily because of politics. Specifically, we are aware that some HAs are spending well over $150,000 per unit to rehabilitate distressed housing, several times the cost of either gut rehabilitation or private market replacement. This simply is not a prudent use of scant resources.
We also observe that some HAs are not using grants just to replace housing, but rather to develop exotic mixed use real estate projects of questionable value. In areas where the troubled public housing is sitting on top of desirable land, it may indeed be possible to attract private investment and support mixed income housing, but we strongly urge the Congress to take a good look at the federal share of the cost in proportion to the number of very low income families being served. I don't know whether or not golf course communities could play a part in the redevelopment scheme for a neighborhood that includes public housing to be demolished, but I do recognize that there is some potential for it all to wind up on 60 Minutes if it is not handled very carefully. Given the past track records of some of the Authorities receiving very large HOPE VI grants, its not difficult to imagine that such could happen.
This brings us to the issue of administrative capacity to handle ambitious and expensive HOPE VI projects. To be perfectly blunt, some of the largest grants have been made to housing authorities that are historically mismanaged, politically influenced and PHMAP troubled. A number have received substantial HOPE VI grants just before or just after being seized by HUD or put into receivership. Several are classified as "mod troubled" because of their inability to administer their existing Comprehensive Grant Programs and a number have very large backlogs of unspent CGP money. Even if the plans are sound, we question whether it is wise to put almost a quarter of the total capital improvements pot for public housing into such hands. I would further question whether such projects, even if properly executed, might eventually slide back into decline because of the lack of ongoing management capability. In short, we question the wisdom of continuing to reward failure.
Our key point is that our limited public housing capital improvement funds need to be better channeled to address their intended purpose. To realize this objective, we strongly recommend that the HOPE VI funding be folded into the general modernization account instead of awarding funds through the current grant application process. Housing authorities should then be permitted to use their Comprehensive Grant Program funds for purposes currently allowable under HOPE VI, including demolition, replacement housing and mixed use developments. Housing authorities could then decide how best to use their funds as part of the comprehensive planning process, a process that would then be disciplined by a common sense necessity to balance the cost of HOPE VI with their other needs. When combined with the other reforms we have recommended (namely including PHAs with less than 250 units in the Comprehensive Grant formula), this would result in a rational system for preserving and, when necessary, recycling the nation's $90 billion capital investment in public housing.
With respect to the choice-based housing component of the bill, I would note that PHADA has offered several technical recommendations in our earlier correspondence on the bill. In the interest of time, I will not go into those issues now. I do want to specifically point out, however, that we strongly support the payment standards incorporated in H.R. 2. The flexibility (80%-120% of FMR) ) is very much appreciated. Still, we recommend that (c) on page 188 be eliminated. This provision gives HUD unfettered power to review an HA's payment standards when a "significant percentage" of families are paying more than 30 percent of their income toward rent. Given that HUD has already expressed its opposition to local flexibility, the potential for micro-management is all too prevalent.
PHADA opposes the "Home Rule Flexibility Grant Option" in Title IV for several reasons. To be sure, block grants directly to local governments are infinitely preferable to block grants to the states. Certainly, many local governments, lacking any alternate administrative structure, would continue to contract with HAs for management services. PHADA is also on record in favor of collapsing numerous small categorical grants and "boutique" programs into equitable formula grants to local authorities. But we question the necessity of the approach in H.R. 2.
The existing housing authority system works because it strikes an excellent balance, in most cities, between local control and insulation from the daily rough and tumble of local politics. To take a typical controversial issue in most cities, such as locating low income housing, the state government is far too removed and arbitrary (keep in mind the general insensitivity of state highway departments when they attempt to push highway construction through residential neighborhoods). On the other hand, city councils are usually far too close, unleashing partisan passions to the detriment of low income families.
In the current system, most housing authorities are well integrated within their communities. Through their appointed Board structure, they are responsive to community needs and concerns while also responding to the congressional mandates. The vast majority of HAs deliver a high quality of service with little if any public controversy. Only 3% are on HUD's troubled list.
It might be instructive to take a look at some of the most notable exceptions, a handful of very large, high-profile, chronically troubled housing authorities. It appears to be mainly the troubles of those HAs that are driving the perceived need for structural change in this area, but what do their stories really tell us? From PHADA's point of view, it appears that it is not lack of home rule but rather excessive local political interference which HAs caused or exacerbated the difficulties of these authorities. Does any one seriously believe that New Orleans, Chicago or Washington, D.C. got into serious difficulty because of lack of involvement from the local political power structure. Does anyone seriously believe that the answer to the Washington, D.C.'s Housing Authority's problem lies in more involvement from the Mayor's office?
PHADA strongly believes that there are better ways to address the same problem. As already mentioned, we do favor consolidation of boutique programs and set-asides into formula grants. PHADA is also on record of favoring compliance and performance accountability. If the existing governance of a local housing authority is not performing, HUD should exercise it's powers under the Annual Contribution Contract to force a change. HUD seizure of troubled HAs is an option we applaud, particularly if it is designed to force real change rather than a pretext for allocating more money. PHADA also supports the provisions in last year's bill and in H.R. 2 that would allow HUD to fire an ill-governed local housing authority as the local manager of HUD subsidized programs. All of these speak directly to the problem at hand without opening a broad door for myriad unintended consequences.
Perhaps the most beneficial portion of the "home rule" portion of the bill is the program flexibility that would be granted to local governments. PHADA believes that this is a worthy goal, though not without some risks. We point out, however, that it is not necessary to force a change in the governance structure of the program in order to give these ideas a fair trial. This kind of flexibility was included in the Moving to Work (MTW) demonstration in last year's bill, H.R. 2406, which PHADA supported. One low risk way to field test these concepts would be for Congress to enact the MTW demonstration that was in H.R. 2406 during the 104th Congress.
Title V authorizes a study of different oversight models that might be used to assess housing authority performance. We appreciate, Mr. Chairman, that you have incorporated industry suggestions to perform a study that would examine accreditation as one potential form of oversight. We are also grateful that you have added language requiring that the study specifically explore whether independent public auditors could be more effectively used as an accountability check on housing authorities. As I mentioned earlier, PHADA believes that an expanded IPA audit is probably the best tool as far as monitoring HA performance. This is particularly true when you consider that HUD's resources will continue to diminish in the foreseeable future.
The main point PHADA wants to make on accreditation is that HAs should not be subject to two or three different "masters." We believe that after the study is completed, Congress, in consultation with HUD, HAs, residents and other interested parties, should determine which single entity (HUD, the Accreditation Board, the Independent Public Auditor, etc.) is best equipped to monitor housing authority performance. In the end, however, there must only be one regulatory institution to whom HAs report.
Please understand that the "two masters" problem arises only if the Accreditation Board employs staff and assumes a direct review role. The problem may be avoidable in its entirety if the Accreditation Board sticks to the business of setting measurable performance standards to which housing authorities should be held in the administration of their programs. Reporting against these standards should be the responsibility of the housing authority, a process that is kept honest by HUD review and a strengthened IPA audit process. If it is deemed that the Accreditation Board needs a direct tie to this process, the most plausible way is to play a role in establishing the audit standards and certifying IPA auditors, as opposed to sending accreditation teams to 3,400 Housing Authorities every few years. Such a system would be functional without the creation of an expensive and redundant new bureaucracy.
We have some other suggested changes to the accreditation provision. Section 501, for instance, states that the study will examine whether any accreditation models are applicable to the institution of public housing. The bill further states that the study should "evaluate the effectiveness of establishing an independent accreditation and evaluation entity to assist, supplement, or replace the role of the Department of Housing and Urban Development..." Despite this wording, a new federally-charted Accreditation Board is automatically established in Section 521. The Board would not commence any functions until Congress gives it statutory authorization. We question why the Board is automatically established and members are appointed when one of the study's main purposes is to explore whether an Accreditation Board would be advisable. Consequently, we think the Board's formation in Section 521 might be premature.
Lastly on the issue of accreditation, we are not sure whether the Board should be a part of the executive branch, or for that matter, any part of the federal government. Consequently, we suggest that the study at least look at the feasibility of making the Accreditation Board a non-federal independent entity. It works for the lawyers, CPAs, architects, colleges and hospitals.
On the issue of pets in public and assisted housing, PHADA is unalterably opposed to the part of the bill requiring HAS and private landlords that run project-based units to admit families that own "common household pets." We oppose this plan because: 1) We do not think that Washington should dictate to housing providers whether they should or should not allow pets. Such government interference would never be considered in the private rental market, where pets are often prohibited; 2) The provision will definitely dissuade private landlords from participating in the Section 8 housing programs, thereby reducing the available supply of affordable housing; 3) Contrary to the opinion of Ralston Purina, Americans do not possess an inalienable right to own pets; 4) What animals fall under the definition of "common household pets?" Would HA's have to admit families that own pit bull terriers? Or twenty-five cats? 5) The potential safety and sanitary problems that could result from this proposal are too innumerable to detail here, but they will be quite serious in any case.
Last but not least, Congress should consider the rights of residents who don't want pets in their development. Consider the family who lives next door to an apartment where a dog barks all night while its owner works the night shift. Consider the residents of a high rise building who are forced to use an elevator that smells of animal urine. At the very least, the Congress should allow a democratic referendum in project-based developments through which the residents themselves are given the opportunity to democratically decide whether or not they want to allow pets.
It is sometimes easy to dismiss housing authority concerns with this measure simply because of its ostensibly benign nature. The fact remains, though, that this new federal requirement will create major problems that could have profoundly negative effects on the state of public and assisted housing. The biggest problem is that it will ultimately hurt low-income families because it will undoubtedly lead to a diminution in the number of available affordable housing units around the country. Simply put, some private landlords will drop out of the Section 8 program because they do not want to deal with the headaches created by this federal mandate. In the final analysis, the very people Congress professes to help will instead be hurt because they will not be able to locate suitable housing.
For all these reasons, PHADA strongly believes that this issue should be decided at the local level and is not a matter with which the federal government should be concerned. We believe Section 622 should be deleted from the bill.
On the issue of public housing security, we strongly support the proposed Community Partnership Against Crime (COMPAC). Please accept our recommendations for refinements. Our proposal is as follows:
Our recommendations above not withstanding, PHADA believes the core ideas of COMPAC are fundamentally sound. COMPAC will do a reasonably decent job of routing scarce resources to HAs with needs and administrative ability. It follows a sound middle ground between two opposite, competing ideologies, both of which you will undoubtedly hear again.
The first of these is the recommendation that the formula should be reworked to allocate funds based primarily on need, HA size, or any other convenient index that would result in shifting even more of the resources to the largest cities, despite the fact that some small localities (south Texas, south Florida, small HAs in large metro areas, etc.) have intense drug problems while some larger HAs have comparatively few. There also appears to be no positive correlation between the size of the PHA and its ability to put together and administer a coherent plan.
The opposite competing ideology holds that all drug elimination funds should be put into a pot and distributed on a per unit basis to all HAs, whether or not they have ever documented a drug problem or even applied for a PHDEP grant. Of the two the opposite ideologies, this is far and away the most dangerous.
A formula grant that includes all 3,400 HAs would destroy coherent drug elimination strategy in any individual HA by radically diluting the total resources available. If the currently available dollars were spread on a per unit basis among all 3,400 Housing Authorities, the larger PHAs would lose the ability to run an effective program. Smaller HAs would be given so few funds that they would have no practical possibility of a program at all, even to the point of paying a single policeman or youth worker.
In general, PHADA has consistently championed formula grants over competitive grants, but as Emerson observed "A foolish consistency is the hobgoblin of small minds." COMPAC is the right place to make an exception, primarily because the current system works very well. It is a fundamentally fair system and one which would only be improved when COMPAC introduces multi-year plans and multi-year funding. We urge the Congress to resist the temptation to be blown off course in either of the two alternate directions that may be offered.
No matter which methodology Congress ultimately opts to enact, we want to note our unqualified support for continuing the program well into the future. H.R. 2 would evidently sunset the program after 1999. Given the tremendous success of the drug elimination program, we think this would be a mistake, one which would allow many good neighborhoods to slide back under control of the drug gangs.
Finally, PHADA strongly supports the proposed treatment of occupancy standards in H.R. 2 and we particularly appreciate the clear guidance provided to HAs in this section. We agree that State and local governments should be responsible for this matter. While we strongly support efforts to combat discrimination against families with children, we also support decent living conditions for everyone. Overcrowding is wrong wherever it is found. Please don't forget that the modern movement for better housing had its origins early in this century when the great social reformers like Jacob Riis documented the horrid conditions in the slums of America's great cities. The wretched overcrowding of the tenements was usually cited as the chief substandard condition, one which we can ill afford to repeat.
That concludes my formal testimony. Once again, I want to thank the committee for giving PHADA a chance to share our views with you before you mark-up the legislation later this month. As always, PHADA remains committed to working with the committee to develop the best housing bill possible. I would be happy to answer any questions.