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The following are excerpts from PHADA President James Tabron's testimony before the House VA/HUD Appropriations Subcommittee. The testimony was presented on April 13. As was the case last year, PHADA understands the kind of budgetary challenges created by the recent Budget Resolution. We all remember that last year deep cuts in public housing operating subsidies and capital funding were quite possible, but HUD and the Congress were able to work cooperatively to raise the funding for public housing.
Then came the mandate for across-the-board cuts government-wide, and concerns again were raised regarding the HUD position on public housing. We communicated these concerns to Secretary Cuomo and, under the leadership of Public Housing Assistant Secretary Harold Lucas, HUD ultimately implemented the required cuts without further affecting the public housing program. Unfortunately, it seems we might expect a comparable dilemma this year, and we sincerely hope the needs of thousands of families, seniors, and the disabled in public housing will again receive due consideration. As you know, these are persons who have few, if any, reasonable housing alternatives. Let me simply begin by summarizing PHADA's positions on several of the issues most important to public housing. Then I will elaborate a little further on each one in my statement. In addition, Mr. Chairman, there are several areas that are not specifically budget-related, but that have, or can have, budget and financial consequences for the public housing authorities.
Public Housing Assessment System (PHAS)
Lead-Based Paint Rule
Deconcentration of Poverty in Public Housing Now, if I may, let me provide just a bit more detail on each of the recommendations referenced above.
Operating Fund
In addition, HUD staff themselves acknowledged that the operating subsidy is running more than $200 million short each year because of the way the allowable expense level (AEL) under-calculates employee benefits at the housing authorities. Utility costs increased by 6 percent last year, well above HUD's 1 percent estimate, and for this year, HUD is estimating a 4.9 percent decrease. Given the current state of energy costs, HUD's estimate seems questionable to PHADA. In a recent hearing before this very committee, the Department could claim no confidence in the utility estimate since it is "given" to them, but at the same time the Deputy Secretary expressed complete confidence in the overall estimate. With PHA utility costs running at nearly a quarter of the operating budget, there would seem to be a contradiction. In addition, HUD has projected increases in rental income of $163 million for FY 2001. The main justification HUD offers this year for the estimate relates to income deconcentration requirements and income targeting. The committee will recall, further, that the Quality Housing and Work Responsibility Act requires the phasing in of any rent increases so that the full effect is not realized for more than two years. It appears to PHADA that the Department has not projected a realistic operating fund estimate for FY 2001 in order to meet basic performance funding system requirements, even without addressing shortfalls of some $300 million over the past three years. The operating fund is the heartbeat of public housing administration. These funds are absolutely essential for the PHA to meet the administrative, maintenance, utility, and insurance costs among others, in order to make up the difference between what residents can pay in rent and the actual costs of running the program. As you might expect, the operating fund is PHADA's number one budget priority, and we urge you to adequately fund this critical portion of the public housing budget. PHADA's recommended appropriation of $3.55 billion would fund the standard PFS calculation (to include reasonable rent increases estimates, utility cost projections, and inflation factors).
Capital Fund
PHADA remains convinced that HUD's administrative expenses should appear in HUD's administrative budget, not taken from funds meant to improve the living conditions of public housing residents. At the outset of the negotiated rulemaking process for the capital fund, HUD engaged a consultant study, by Abt and Associates, to do an assessment of public housing modernization needs. At a recent housing forum, staff of this appropriations subcommittee pointed out that the study did not address true modernization needs, but really only captured "deferred maintenance needs," since the consultant report simply tallied up the amount of money needed to "repair to original condition." The consultant study found the need for $20 billion to fund deferred maintenance alone, exclusive of the funding needed to fully modernize public housing to current standards. (Please note here that we mean no criticism of Abt and Associates who only did what the Department asked them to do.) Modernization funds are basic to quality of life issues for the residents our member agencies serve, providing safe and decent shelter to families in need. Over the last 60 years, Congress has made a $90 billion investment in the country's housing stock and it is essential that stock be kept in safe and sanitary condition. The Department has placed a high priority on additional assisted housing, and PHADA suggests that the same sense of urgency be placed on preserving housing that might otherwise be lost. PHADA's own estimate of modernization need, based primarily on past history and what we know of current conditions, is an annual appropriation of $4 billion. This amount would cover the on-going accrual of new needs due to normal aging and wear-and-tear on the existing stock. In addition, this amount would provide for true upgrades to current, higher standards for housing. However, this amount would not cover the $20 billion estimated need for deferred maintenance -- about $2 billion a year for ten years. At the same time, we realize that such amounts are probably not realistic, given the current budget climate. Nevertheless, we are strongly committed to our recommendation of $3.5 billion for FY 2001 as a major step in the right direction, and we urge your consideration of that recommendation.
Public Housing Drug Elimination Program (PHDEP)
Under the formula distribution of PHDEP funds required by QHWRA, smaller housing authorities and PHADA members have already lost funding or will lose funding in the future. The PHADA recommendation of $410 million for FY 2001 will help level the playing field for those many smaller PHAs.
120,000 New Vouchers PHADA's position on the new vouchers would be to use the funds requested to bring the operating, modernization, and drug elimination programs to full funding first, then use the remaining funds to raise the fair market rent (FMR) back to the 45th percentile, which would attract non-participating owners and landlords into the program, make it possible for more families to find suitable properties, and help reduce the recapture problem.
Budget Impact Items
The Public Housing Assessment System (PHAS) Section 564 of QHWRA requires HUD to evaluate the extent to which the housing authorities are providing "acceptable basic housing conditions" and by reference, the statement refers to the existing housing quality standards (HQS) that have worked for many years. Out of that simple statement, however, HUD has created a complex system of detailed deficiencies, weights, severities, criticalities, and algorithms confusing to nearly all but the HUD experts who designed it. At one point the Department estimated the workload burden on local housing agencies would amount to some 780,000 staff hours. From what we now know of the system, including night hours and weekend time trying to access the REAC computers, that estimate may have been low on a nationwide basis. Some have suggested that it has only been the "low-score" PHAs that have complained, but that is really not the case. Good HAs have gone from high performers to troubled in less than a year under the advisory process -- some with the same inspectors on the same properties -- which suggests that PHAS is unpredictable. The booklet recently published by PHADA on the subject does a far better job than I can here of describing the workings and problems of PHAS. Ironically enough, we have had HUD staff and even REAC inspectors request copies of the booklet to help them understand the system. I would like your permission to submit the booklet for the record along with my statement.
The Lead-Based Paint Rule I spoke earlier about the problem with Section 8 fund recaptures. PHADA and many in the industry believe that there could well be a departure of landlords from the program when they learn about the wipe-test, laboratory analysis, paint stabilization, encapsulation of work areas, security of resident property, relocation of residents and other requirements. Also as I mentioned earlier, PHADA believes the rule constitutes an unfunded mandate, since it is estimated to be quite costly, but only "eligible" for capital fund uses with no additional funds provided. We are concerned that only new legislative action can roll the issue back to what the law actually requires and we urge you to review these requirements before the rule takes effect in September 2000.
Deconcentration of Poverty in Public Housing However, PHADA is convinced that the process will have a negative effect on vacancy rates, vacancy turnaround times, and rental income. It is entirely possible that units will remain vacant longer than necessary, families will be skipped on waiting lists to reach other families that fit the proper profile, and management will be unable to tell maintenance with any accuracy which unit should be turned next. The effect of the process on reduced rental income and increased operating costs should be incorporated into the budget estimating process. 
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