HUD Testimony

Statement by The Honorable Mel Martinez before the U.S. Senate Committee on Appropriations Subcommittee on VA, HUD and Independent Agencies

March 13, 2002

Chairwoman Mikulski, Ranking Member Bond, Distinguished Members of the Committee:

Thank you for the opportunity to join you this morning to outline the proposed Fiscal Year 2003 Budget for the Department of Housing and Urban Development (HUD).

The $31.5 billion HUD budget represents a funding level increase of 7 percent over FY 2002. At a time when dollars are especially precious, and the cost of homeland security is consuming many Federal resources, this shows the President's commitment to improving housing and communities.

By helping Americans become homeowners, ensuring affordable housing opportunities for those who rent, renewing communities, and preserving a safety net for the most vulnerable, this budget will enable HUD to make a tremendous difference in the lives of millions of Americans.

The housing market in 2001 was extremely vigorous, and we entered the new year with homeownership at a record high. Because we know that homeownership gives families a stake in their communities and creates wealth, the HUD budget makes owning a home a viable option for even more Americans. President Bush and I are committed to expanding homeownership - especially among minorities.

As a first step, our budget quadruples the American Dream Downpayment Fund, to $200 million. This Presidential initiative will help an estimated 40,000 first-time homebuyers a year overcome the high down payment and closing costs that are significant obstacles to homeownership.

A new tax credit for developers of single-family affordable housing will promote homeownership opportunities among low-income households by supporting the rehabilitation or new construction of thousands of moderately priced homes in low-income urban and rural neighborhoods. This credit of $1.75 per capita matches in size the existing Low-Income Housing Tax Credit and like the existing Credit would be administered by the States. As these new homes are occupied by people who were previously renting, their old apartments will become available for others to rent, thereby effectively increasing the supply of affordable rental apartments in many locations.

Our budget proposes tripling funding for the Self-Help Homeownership Opportunity Program (SHOP) to $65 million, as committed to by the President last spring. That will make possible the construction of an additional 3,800 homes for disadvantaged Americans. SHOP is an excellent example of government maximizing its resources by working with private-sector partners like Habitat for Humanity.

Another exciting homeownership initiative targeted at low-income families will allow them to put up to a year's worth of their Section 8 rental vouchers toward a home down payment. Because we consider housing counseling a valuable tool for prospective homebuyers and renters, we propose funding the program at $35 million - a $15 million increase over the previous fiscal year. The increase in sub-prime lending has made financial literacy more important than ever; armed with the facts, a consumer is far less likely to be victimized by predatory lending.

While we consider homeownership to be an important goal, we recognize that it is not an option for everyone; therefore, our budget preserves HUD's commitment to expanding the availability of affordable housing for the millions of Americans who rent their homes.

The Section 8 tenant-based program today assists nearly two million families. Our budget provides an additional 34,000 housing vouchers, an increase of one and one-half percent. The budget also dedicates $16.9 billion to protect current residents by renewing all expiring Section 8 contracts.

To encourage the production of moderate-income rental housing in underserved areas, the HUD budget would reduce the mortgage insurance premium for Federal Housing Administration (FHA) multifamily insurance.

Three times over the last eight years, HUD has been forced to shut down our multifamily mortgage insurance programs because of lack of credit subsidy.

We made a commitment to a comprehensive review of the credit subsidy program. Through our review, we were able to lower premiums, create a self-sustaining program, provide the industry with stable financing at a much lower cost, and provide thousands of new opportunities for rental housing across the country.

Today, I am happy to report that our FHA business is strong, both for single family and multifamily housing. In fact, business is so strong that if our insurance commitments continue at the current rate for the rest of the year, we may exceed the currently appropriated limitations for both the MMI Fund and the GI Fund.

If that continues, I will have to come back here and ask Congress to raise the statutory ceilings enacted last October.

I am particularly pleased with our multifamily business this year. Through the first five months of the fiscal year, FHA has issued insurance commitments totaling close to $1.4 billion - compared to $900 million for the same period a year ago. That is up 50 percent.

Many in the industry and some in Congress were worried that raising the insurance premium would damage the multifamily industry. Clearly, that has not happened.

The 2003 budget gives HUD new resources to further our mission of supporting the nation's most vulnerable. This includes low-income families, homeless men and women, the elderly, individuals with HIV/AIDS, victims of predatory lending practices, and families living in housing contaminated by lead-based paint.

Let me highlight just a few of our proposals.

To better coordinate the work of the many Federal agencies that reach out and provide a continuum of care to homeless men, women, and families, the budget calls for doubling HUD funding for the newly reactivated Interagency Council on the Homeless. Additionally, converting three competitive homeless assistance programs into a consolidated grant will eliminate the workload and expense of administering three separate programs. More importantly, it will give local jurisdictions new discretion in how those dollars are spent.

HUD's Lead Hazard Control program is the central element of the President's effort to eradicate childhood lead poisoning in ten years or less. The HUD budget will fund the program at $126 million, a substantial increase over the previous year.

The budget also proposes spending $251 million under HUD's Section 811 program to improve access to affordable housing for persons with disabilities. And many of the additional 34,000 Section 8 housing vouchers will aid non-elderly, disabled individuals.

Initiatives such as the HOME Investment Partnerships Program and the Community Development Block Grant (CDBG) address the nation's critical housing needs and stimulate economic development and job growth. Combined, these two programs will distribute an additional $200 million in formula funding to State and local governments.

We have increased CDBG formula grants next year by $95 million, to $4.4 billion. In addition, we have proposed changing the distribution of CDBG formula funds by reducing the size of grants going to the wealthiest communities. This will help bring dollars into those areas where they can do the most good.

I am excited about a brand-new concept to address the large backlog of repair and modernization projects in public housing. The Public Housing Reinvestment Initiative represents a new way to leverage the value of public housing by allowing public housing authorities (PHAs) to borrow funds to make needed capital improvements. This will unlock the value of public housing assets by allowing PHAs to convert public housing units to project-based vouchers. The PHAs can obtain loans by borrowing against individual properties - similar to private-sector real estate financing.

Innovative thinking like this represents a departure from the way things were done so often in the past - but being effective does not have to mean spending more money. Government works best when government serves as steward and facilitator, and measures success through results. By facilitating the involvement of new local partners, the Public Housing Reinvestment Initiative will breathe new life into public housing communities.

I am proud of the HUD budget and the way it reflects the Administration's commitment to efficiency, accountability, and the principles of excellence expressed through the President's management scorecard. When government spends efficiently, the funds go much further. We reach more citizens. We help to change more lives.

The people of HUD know that the American Dream is not some unattainable goal, because we see it achieved every day, so often by families who never imagined owning their own home or reaching economic self-sufficiency. Through our budget - and the continued commitment of President Bush - citizens will have tools and opportunities they can put to work improving both their lives and their communities… as they travel the road to achieving their own American Dream.

I would like to thank each of you for your support of my efforts. The Subcommittee's guidance throughout the appropriations process last year was invaluable. I look forward to working with you in moving the Fiscal Year 2003 HUD budget forward, and I welcome your continued counsel as we work together on behalf of the American people.

Thank you.