DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND INDEPENDENT AGENCIES FOR FISCAL YEAR

1996

FRIDAY, MAY 19, 1995

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 9:36 a.m., in room SD-192, Dirksen Senate Office Building, Hon. Christopher S. Bond (chairman) presiding.

Present: Senators Bond, Burns, Mikulski, Lautenberg, and Kerrey.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

OFFICE OF THE SECRETARY

STATEMENT OF HENRY G. CISNEROS, SECRETARY

ACCOMPANIED BY:

DWIGHT ROBINSON, ACTING DEPUTY SECRETARY

BRUCE KATZ, CHIEF OF STAFF

NICHOLAS RETSINAS, ASSISTANT SECRETARY FOR HOUSING— FEDERAL HOUSING COMMISSIONER

JOSEPH SHULDINER, ASSISTANT SECRETARY, OFFICE OF PUBLIC AND INDIAN HOUSING

ELIZABETH K. JULIAN, ACTING ASSISTANT SECRETARY, OFFICE OF FAIR HOUSING AND EQUAL OPPORTUNITY

OPENING STATEMENT OF SENATOR BOND

Senator BOND. Good morning. The hearing of the VA, HUD Appropriations Subcommittee will come to order.

I

When I assumed the chairmanship of the Veterans Affairs, HUD, and Independent Agencies Subcommittee earlier this year, thought I had a pretty good idea of the magnitude and the responsibilities and the issues facing us. I knew that the looming Federal deficit and the budgetary crisis posed a dramatic challenge to this subcommittee. That is why we began earlier this year with a series of special hearings on the housing programs of HUD.

Unfortunately, as we continue to assess the magnitude of unfunded housing commitments and obligations and add the details of further budget reductions contained in the budget resolution, the fact that my initial concerns have been confirmed is of little comfort. Frankly, I am still wondering when we will get to the bottom

of this incredible programmatic, administrative, and budgetary sink hole.

Mr. Secretary, you will recall that in January I said that since the Department's detailed budgetary and programmatic proposals had not been presented, we would delay the hearing until later this year. One-third of the year has passed, nearly one-half the time we have to consider and pass your budget before the upcoming fiscal year, and despite your best efforts, I am still not sure what the administration is recommending.

The President recently announced his intention to veto the rescission bill recently agreed to by the joint House-Senate conference committee. As I understand it, he objected to rescissions proposed for HUD. Now, I think that is outrageous. The President still wants to take a mouthful of popular political rhetoric on budget constraint and responsibility, but he cannot bring himself to inhale. You cannot stop spending until you halt the growth in programs which generate it. This stuff may be hard to swallow, but unless we get beyond the posturing, our Nation and our economy are going to gag on the unpaid bills of irresponsibility.

Now, HUD is being cut more than $6.3 billion, nearly three-quarters of a total rescission of $8.5 billion for the subcommittee. The cut is roughly proportionate to the Department's available budgetary resources. Although HUD received new appropriations for fiscal year 1995 of $25.7 billion, about 39 percent of the funding for our four major agencies, it also carried into this fiscal year $35.2 billion in unobligated prior year balances. In other words, it more than doubled its total available budgetary resources with the massive influx of unspent, unobligated funding.

We have to cut the HUD budget and we have to begin now if there is to be any hope of surviving the very constrained freeze minus future for discretionary spending reflected in both the House and Senate reported budget resolutions. The Congressional Budget Office analysis of the cost of the President's original budget submission for subsidized housing showed a 50-percent expenditure increase over the next 5 years. Unless we act now to curb the spiraling growth in outlays, we will have to make truly draconian cuts in the future.

I think the solution is simple. We have to turn off the pipeline of new subsidized units. That is the fundamental focus of the rescission bill. We have also restored cuts proposed by the House in CDBG modernization and operating subsidies and redirected available resources toward another urgent aspect of restoring budgetary sanity to this out-of-control spending pattern, and that is, we provided the funds to demolish the failed housing developments and put the rest on a sound footing to survive the competition and subsidy reductions coming down the pike.

Now, amid all the debate over the future of HUD, it is important to keep in mind that over 4.8 million families receive Federal housing assistance, and over one-half of them are elderly or disabled. It is also important to note that such housing assistance is expensive. As I said, $26 billion in fiscal year 1995 outlays and current costs are rising. In fact, with the long-term contractual commitments previously made by HUD, the Government is currently obli

gated to pay over $187 billion over the life of these contracts, some of them stretching out for 40 years.

Given the long-term nature of the obligations and commitments, halting the budgetary growth of the Department can only be accomplished with a focused, determined multiyear effort. Unless we begin now with the rescission bill, we are going to lock ourselves into another multibillion dollar chunk of long-term budget obligations.

I think this is only the first step, one of many in which we will go beyond the limited fixes and cuts that can be accomplished in a rescission bill. We have to enact major reform legislation later this year, but I believe the rescission package is a good and necessary beginning.

Mr. Secretary, the program reforms and initial reductions contained in the rescission bill are desperately needed to avoid a budgetary train wreck in HUD. I hope you can work with us to seek prompt resolution of these questions.

This hearing, of course, is focused on what should be done next for fiscal year 1996 and beyond. I understand the Department is putting the finishing touches on its mark-to-market multifamily housing reform proposal. We have been reviewing your legislative submission for transitioning existing categorical programs into block grants. We look forward to exploring these issues as well as their significant budgetary implications.

With that, it is my pleasure to turn now to my ranking member, Senator Mikulski.

STATEMENT OF SENATOR MIKULSKI

Senator MIKULSKI. Thank you very much, Mr. Chairman. Good morning to you and also to Secretary Cisneros. We welcome you here this morning.

I know that this hearing will focus on the fiscal year 1996 appropriations, but since we are discussing the rescission package, I believe we were all clear that the President was concerned, as was I, that the FEMA urgent supplemental was being funded out of one subcommittee and primarily one agency, recognizing the validity of your concerns about the possible runaway spending and the runaway obligations on the new starts.

So, many of the issues that you raised absolutely do have validity, but I do know that the President was concerned about the timing and the pacing on how to deal with this. We will see how that drama unfolds.

But what I am pleased about today is that we are getting to the end of a very long march. As you know, when I chaired this subcommittee, I struggled mightily with two administrations over the need to reform the management of HUD, consolidate its programs, focus on housing and community programs focusing on housing and community, less on rules and more on results.

We commissioned a study by the National Association of Public Administrators to help chart a course for Congress and the administration, and I believe it will take us a long way to improving the management of HUD and making the Nation's housing programs more effective.

Secretary Cisneros, I know you produced a plan to reinvent HUD and much of that plan is embodied in your fiscal year 1996 budget request. I cannot endorse the program in its entirety, but I do believe you have done a great deal to move the ball forward to real reform of HUD.

Mr. Chairman, I believe you deserve credit for helping us get to the end of this march. Your op-ed in the Washington Post in April certainly complements many of the plans that NAPA suggested, that the Secretary is suggesting, and I believe if we focus on our results, we will be able to achieve significant objectives.

Based on your op-ed, there are a number of areas where I believe you and I can find a common ground with the Secretary's plan, the need to streamline and consolidate HUD's 240 different programs and set-asides, the need to work in partnership with State and local officials, the need to create a public housing block grant, the need to remove those preference rules that create ZIP codes of pathology, but allow local authorities the flexibility to provide a greater mix of income in assisted housing and to reward work, the need to create an assisted housing block grant, and the need to consolidate the block grant and the community development area.

Mr. Chairman, there are several areas, though, where you and I would disagree with the Secretary. I do not want to voucher out all of public assisted housing. I believe it will be too expensive and unpredictable in terms of its effect on the housing stock.

HUD's mark-to-market proposal could have unintended impacts on existing multifamily housing, and I know you have been greatly concerned about that and I believe your concerns are on the right track.

Finally, I believe it would be a mistake not to retain existing housing programs for the elderly, the disabled, and the housing opportunity for people with AIDS.

We should also be very careful about what we do with the homeless. They should not be abandoned by the Federal Government, but again reform would be helpful.

As we consider the ways to reform our housing programs, we cannot lose sight of the people we are trying to serve and the need to restructure housing assistance and help move people out of poverty, dependency, and I believe promote home ownership.

Mr. Chairman, there is more that I could say about how this Iwould tie in with welfare reform. Too often HUD has been AWOL in that debate. But I believe we have such significant fiscal issues and management reform, I look forward to focusing our hearing on this, and that when we pass the fiscal year 1996 appropriations, we will be passing a new, reinvented HUD that really promotes home ownership and lets people out of poverty and dependence to where subsidized housing is a way to a better life but not a permanent way of life.

Thank you, Mr. Chairman.

Senator BOND. Thank you very much, Senator Mikulski, and thank you for your very constructive statement, as well as the continuing cooperation and good leadership you show.

Senator Burns.

STATEMENT OF SENATOR BURNS

Senator BURNS. Thank you very much, Mr. Chairman.

I too want to associate myself with the words of Senator Mikulski. I cannot elaborate too much more on what has already been said by the chairman and the ranking member, but I can say that both have been really great to work with and I appreciate their leadership.

Secretary Cisneros, I welcome you this morning.

I do want to raise one issue and then I will have my statement put in the record. But I am sort of concerned-well, not sort of concerned, but more concerned about the advance notice of proposed rulemaking issued last summer, 59 Federal Register 41995. That was in August of last year. HUD announced its intentions to impose broad new Federal regulations on property insurers to address the discrimination in the provision of insurance.

I want to say up front and very strongly that I oppose any kind of discrimination on property insurance practices. However, I am perplexed why this Department has taken on the issue that was currently being handled through State regulatory agencies.

Mr. Chairman, I have a copy of the State laws governing unfair discrimination in insurance, and I ask unanimous consent that they be inserted in the record.

Senator BOND. Without objection. [The information follows:]