Mr. PATTERSON. Thank you, Mr. Hendricks. Now, we have Mr. Benitez. STATEMENT OF A. WILLIAM BENITEZ, DIRECTOR, DIVISION OF COMMUNITY IMPROVEMENT, METROPOLITAN DEVELOPMENT AGENCY, TAMPA, FLA. Mr. BENITEZ. Thank you very much. I am A. William Benitez, the director, Division of Community Improvement in the city of Tampa, Fla. I appreciate this opportunity to address the committee, and I have submitted a written statement that I wish to have included in addition to my comments. Community development funded housing rehabilitation has been very effective in Tampa. We have developed direct grants for emergency repairs, deferred payment loans to address poverty level-income persons, and a low-interest loan program similar to section 312 to address low-income persons. In order to leverage community development funds we have also developed a leveraging program that involves tax-exempt borrowing and 100 percent leveraging, that is, we don't put up any type of deposit in order to generate the funds that we borrow. We do view leveraging as an excellent tool in conjunction with community development. However, I think it is important in developing the leveraging techniques that we realize it is only workable for moderate-income persons, and when attempts are made to develop leveraging programs to address low-income persons they wind up to be as costly as the direct lending of funds, such as through the section 312 program. We have also used section 312 very successfully in Tampa since 1968. We presently have over 800 outstanding section 312 loans with two defaults since the 1968 inception. We support actively the continuation of section 312, and we feel that consistent funding in an amount of $250 million a year is important so that all of the problems that must be addressed with this program can be addressed. In Tampa, contrary to the national regulations, we do impose income limits, low- and moderate-income limits on section 312, and I believe this should be encouraged for use by other communities. Section 312 is very important in conjunction with the community development program because it is supportive of the community development activities, and it releases more of the housing allocation funds. for use with leveraging techniques. Community development is a good program; however, I feel that not enough is being expended on housing activities. In the city of Tampa approximately 10 percent of the total community development allocation is used to address housing assistance activities, and communities are able to use most of the funds in other than housing activities. Therefore, I believe that new housing assistance legislation is important, and this legislation should address all areas and all income limits, poverty through moderate income, and include programs to address the investor-owner. These programs must be flexible and have a heavy emphasis on rehabilitation but must include some new construction to address directly the problem, the continued problem, of condemnation and demolition of substandard houses. It should also include administrative costs for rehabilitation programs. I don't think that we can continue to depend solely on community development funds for this purpose. And most importantly, it must include an active training program to assist communities just getting started in rehabilitation with developing staff's that will conduct rehabilitation in a manner which will assure the quality work that is essential to long-range rehabilitation. I think community development can be improved promptly by taking several steps. First of all I feel that an additional emphasis is necessary on the use of community development to assist low- and moderate-income persons. I see a trend developing, a gradual trend developing away from this. Second, more flexibility is essential in the targeting of areas. This is especially important to smaller communities that on many occasions cannot effectively target areas for rehabilitation. Long-term funding is also essential, with a minimum of 3 years' assured funding, so that a community can develop some comprehensive, long-range plan to use community development funding. And finally, more direction from the Federal Government is necessary to assure the use of more community development funds for housing assistance. Again, I would like to say that I appreciate the opportunity to address this committee. Thank you very much. [The prepared statement of Mr. Benitez follows:] 86-085 77 pt. 230 HOUSING REHABILITATION ASSISTANCE A General Statement written and submitted by: A. William Benitez, Director Tampa, Florida 33602 Rehabilitation of existing housing has finally been recognized nationally as a major tool in the maintenance of a standard housing stock. Rehabilitation is not a substitute for new construction. It is a complimentary technique and plays an especially important role in increasing the inventory of standard housing available to low and moderate income families. Many families continue to live in substandard housing because they cannot afford the present inflated cost of new housing. This problem is further complicated by the continued condemnation and demolition of substandard housing as a result of housing code enforcement efforts. Many of these units can be restored to standard condition for occupancy by low-income families. Well-administered rehabilitation assistance programs can fill this void and serve both the individual low-income families and the community as a whole. Every dwelling unit saved from demolition and rehabilitated to standard condition is one more unit on the standard housing inventory. And these rehabilitated units will remain affordable to low and moderate income families. Rehabilitation is a complex process involving a great deal of knowledge and experience to administer successfully. It is essential that the federal government be supportive of rehabilitation assistance efforts by providing funding for rehabilitation programs and expertise to assist communities that are just beginning to recognize the importance of housing rehabilitation. The political and administrative officials of local communities must be provided with sufficient direction so they will endorse and actively support the establishment of housing rehabilitation programs. The public must also be made aware that rehabilitation is not a "stepchild" to new construction, but a necessary method to improve housing conditions. The Community Development Block Grant (CDBG) Program can provide great impetus in the housing rehabilitation assistance effort. However, it should not be viewed as a panacea to solve all our housing ills. Nor can we continue to depend solely on existing housing assistance programs such as Section 235 and Section 8 to address the housing problems of low and moderate income families. It should be quite obvious that these programs fall short of meeting the needs. New legislation to address the myriad of existing housing problems is essential. Such new programs must encompass the direct loan concept. The many programs presently available involving mortgage banking work well in the open market, for the middle class, but they have proven unresponsive to the housing plight of lowincome families. The need for new legislation is great, but the first step should be to save existing programs that have proven effective. In spite of harassment by OMB and an attempt by the previous administration to have it rescinded, the Section 312 Rehabilitation Loan Program has emerged as a highly successful and frequently emulated program. It should be extended indefinitely and funded at a level of 250 million dollars per year. Section 312 has an excellent record with respect to delinquency and defaults even during a time when these rates are at an all-time high. Even with its limited funding over the past few years it still returns over 1.5 million dollars per month into the federal coffers. Such a program merits continued support. Leveraging of loan funds from local lending institutions is essential. Programs of this type are beneficial to moderate income persons who are unable to afford market-interest financing for the rehabilitation of their homes. Tampa has developed a program that leverages these bank funds without the necessity of bad debt reserves or partial guarantees. The city borrows funds at 5.5% per annum interest and loans these funds to moderate-income persons at 7% per annum interest. Repay ment to the bank is guaranteed from CDBG funds if the city fails to repay. The program is legally acceptable to the bank, the city, and HUD. It is especially attractive because it generates 100% leveraging. Based on this program, legislation should be developed to provide loan insurance for communities instead of individuals. A process similar to that presently used by FHA for individuals can be used to insure repayment to local banks from communities. This would overcome any resistance that banks may have to involvement in leveraging programs. Communities need only pay a modest insurance premium for this coverage. This type of program would generate the highest possible leveraging ratio with the lowest subsidy costs. The actual subsidy would be the revenue loss in taxes because the interest income from the loans to communities would be tax-exempt. This cost is lower than the cost of direct subsidy of existing loans. The actual repayment of the bank loans can be made from funds generated by the repayment of the individual rehabilitation loans from this program and the direct loan programs that the community has established. The repayment process could be shortened significantly by the development of a secondary market to purchase the 7% mortgages after two or three years of satisfactory payment. The federal government should view this as a viable program because it does not have an immediate impact on the national budget. An extension of this same program can address investorowned residential property and could be used in conjunction with the Section 8 program. Condemnation and demolition of unrehabitable residential structures is a problem in hundreds of communities. In Tampa, the number of demolitions resulting from code enforcement has exceeded the number of new dwelling units for several consecutive years. These units should be replaced promptly with new units that are affordable to low-income persons. Some form of financing should be available to demolish the old home and replace it with a new home on the same lot. Relocation is an extremely expensive situation and communities cannot afford to provide relocation replacement housing benefits to families affected by code enforcement. An extension of the programs proposed for housing rehabilitation could provide the financing necessary to rebuild on the same property at a reasonable cost. The low interest and favorable amortization of these loans would make the new home affordable. Such a program can be effective in dealing with abandoned and vandalized units by making them standard and available for purchase with a low-interest, long-term loan. A direct grant program similar to the Section 115 Grant but with a higher maximum would be of great help to poverty-level homeowners. Poverty-level families cannot afford loan repayments in any amount. A grant may well provide standard housing to a family who would never have the opportunity otherwise. Grants should be used only as last resort financing. Grants of this type can be used in conjunction with loans. CDBG should continue its flexible monitoring of individual CD programs; however, more control in some form should be exercised over the percentage of the CDBG funds that are expended to address the housing problems of low and moderate families. Target area requirements under CDBG should permit some housing assistance funds to be used outside of targeted areas when necessary to assist individual low and moderate income persons. Many persons live in substandard conditions in census tracts that are not considered eligible for CDBG funds. In addition, counseling programs to address home maintenance and repair on a selfhelp basis should be developed. Many persons want to make their own repairs, but need technical assistance and the proper tools to do the work. Finally, in support of rehabilitation assistance activities, administration costs should be available as part of any new legislation to avoid complete dependence on CDBG. No one program will ever resolve these problems mentioned above. Flexible programs are essential to address the multitude of complex problems existing in the field of low- and moderate-income housing. Legislation should also support existing programs that have been effective and eliminate those programs that have proven to be ineffec Mr. PATTERSON. Thank you, Mr. Benitez. We appreciate the testimony of all of the members of the panel, and just before we get into questions of you, we would like to at this time. introduce the Lieutenant Governor of the State of Massachusetts who has a statement for us, Lt. Gov. Thomas P. O'Neill III. If you would come forward. Earlier this morning we had you on the agenda, and Congressman Paul E. Tsongas of your State made a fine introduction but had to excuse himself to go to another hearing. And we welcome you here on behalf of the Members of Congress from Massachusetts, and we welcome you as other Members of Congress, and are delighted to have you here. STATEMENT OF HON. THOMAS P. O'NEILL III, LIEUTENANT GOVERNOR OF THE COMMONWEALTH OF MASSACHUSETTS, REPRESENTING THE COALITION OF NORTHEASTERN GOVERNORS Mr. O'NEILL. Thank you very much, Mr. Chairman. I'm sorry I missed Congressman Tsongas' introduction. I will be brief. I know that you interrupted a line of questioning, and I appreciate that very much. Along with the Governor of the Commonwealth, Mike Dukakis, I am also representing the Governors of the Northeast Coalition of Governors made up of eight different States in the Northeast section of the country. In her testimony last week, Secretary Harris quoted Tocqueville, who said that America is great because it is good, and that we will cease to be a great Nation if we cease to be a good people. Mr. Chairman, the essence of America's goodness is its spirit of reform, a reform which directs aid to what needs it most, be it a jobless individual, a moribund neighborhood, or a depressed region. The intent of the coalition of Northeastern Governors is in the mainstream of American political reform, to direct aid to an economically troubled region not for a regional dominance, but for equity with the rest of the Nation. The Northeast was built first, in housing, in neighborhoods, in sewers, roads, and park facilities, the network that allows a city to function. And not surprisingly, the Northeast's network of functioning is first in need of renovation. That is why I welcome the opportunity to represent the views of the Coalition of Northeastern Governors on the subject of housing and community development, for HUD's programs in community development are America's central methods for improving the quality of life in its cities. The community development block grant program can be a critical tool for the rebirth of Northeastern cities, but thus far the block grant program has not reached its potential. The current formula for allocation contributes to a perverse pattern of Federal aid, a pattern out of concert not only with the intent of the community development program, but also with the spirit of American reform. The block grant program directs too much aid to areas which do not need it, and not enough to areas which need it most. |