Mr. Chairman, Senator Gramm, and members of the Committee, I am Raymond Skinner, Secretary of the Maryland Department of Housing and Community Development. I am testifying today on behalf of the National Council of State Housing Agencies (NCSHA), which represents the Housing Finance Agencies (HFAs) of the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands.
First, I want to thank you, Mr. Chairman, and the many other members of this Committee who cosponsored and helped enact legislation last year to increase substantially the caps on tax-exempt private activity bonds (Bonds) and the Low Income Housing Tax Credit (Housing Credit) and index them for future inflation. With this increased authority, tens of thousands of additional low income families each year will buy their first home or rent a decent, affordable apartment.
Unfortunately, even with these increases, many people qualified to receive Bond and Housing Credit help still do not get it. Three obsolete federal requirements prevent it:
Senators John Breaux (D-LA) and Orrin Hatch (R-UT) have introduced S. 677, the Housing Bond and Credit Modernization and Fairness Act of 2001, to fix these problems. Forty-seven senators already have cosponsored that bill. More than half of all House members have cosponsored an identical House bill, H.R. 951.
The National Governors Association and nearly 20 other major state and local government, public finance, and housing groups have endorsed this legislation, including the National Association of Home Builders, the National Association of Realtors, the Mortgage Bankers Association of America, The Bond Market Association, the U.S. Conference of Mayors, the National Association of Counties, and the National Association of Housing and Redevelopment Officials. Twenty-four governors believe so strongly in the importance of this legislation, they have personally written the President, the congressional leadership, or their own congressional delegations to urge its immediate enactment.
Thank you, Senator Allard and the many other members of the Committee who have cosponsored S. 677. We urge all senators to cosponsor S. 677 soon and to press your leadership and Finance Committee colleagues to include it in a tax bill at the earliest possible opportunity.
Federal Housing Investment Is Woefully Insufficient
Congress did much more than increase the Bond and Housing Credit caps last year. You also recognized the need to adjust those caps annually for inflation, so they would never again be robbed of their purchasing power as they were over the past 14 years.
Regrettably, Congress has made no similar provision for federal housing spending programs. Todayís HUD budget is a third of what it would have been had it kept pace with inflation since 1976. Had the HUD budget been increased even just to keep up with inflation over the past 27 years, the federal government would have invested $1 trillion more in affordable housing and millions more needy families would have received housing help.
The HUD budget has remained flat in nominal terms over the last 27 years, barely growing from $29.2 billion 1976 to $30 billion in 2002, and losing nearly two-thirds of its purchasing power. During the same period, total federal discretionary budget authority has grown from $194 billion to $635 billion, a three-fold increase, narrowly outstripping inflation.
Although created little more than a decade ago, the HOME program dramatically illustrates the toll inflation has taken on federal housing funding. Congress authorized HOME at $2 billion in 1992, because it believed that amount was necessary for HOME to accomplish its housing production goals. However, Congress appropriated only $1.5 billion for HOME in 1992 and has funded HOME since below its authorized level, at amounts steadily outpaced by inflation.
If Congress had funded HOME at its authorized level of $2 billion and adjusted that amount annually for inflation, HOME today would provide nearly $3 billion to states and localities, more than one-and-a-half times the $1.85 billion Congress just appropriated. Even if HOMEís original $1.5 billion appropriation had been increased annually just to account for inflation, HOME funding by now would have reached $2 billion.
The federal housing funding shortage is exacerbated by the increased diversion of resources to maintenance of effort activities. More than half of the FY 2002 HUD appropriation will be devoted to renewing rental assistance contracts and preserving existing assisted housing. By comparison, virtually none of HUDís budget in 1976 funded such activities.
Though these investments are crucial to the continued provision of tenant rental assistance and the preservation of our precious and scarce affordable housing stock, Congress must recognize that these activities crowd out funding for new affordable housing production and assistance as long as total HUD funding remains relatively stagnant.
Critical Housing Needs Persist
While new federal housing investment shrinks and is increasingly devoted to preservation activities, the number of low and moderate income families with critical housing needs remains startlingly high. One out of every eight American families has a critical housing need, according to Harvard Universityís Joint Center for Housing Studiesí 2001 report, The State of the Nationís Housing. Thatís 14 million families, including homeowners and renters, ranging from the very poor to the solidly middle class.
Indisputably, families hardest hit are those with the least income. Of the more than 14 million families with critical housing needs, 84 percent earn 50 percent of their areaís median income (AMI) or less. A stunning two-thirds have incomes of 30 percent of AMI or less.
Meanwhile, we are not even maintaining our affordable housing stock, let alone increasing it. HUDís 2001 Report on Worst Case Housing Needs in 1999 reports that the number of rental units affordable to extremely low income households (with incomes of 30 percent of AMI or less) dropped by 750,000, and the total number of units affordable to very low income households (with incomes of 50 percent of AMI or less) fell by 1.14 million between 1997 and 1999. HUD found that in every region of the country, rental housing affordable to extremely low income renters was in shorter supply than housing affordable to other income groups.
The Joint Centerís report also reveals that, "the total number of unsubsidized units affordable to extremely low income households is just 1.2 million. With 4.5 million unsubsidized renters earning less than 30 percent of the area median income, the shortfall in affordable housing for the very poorest now stands at 3.3 million units. These numbers in fact understate the shortage because higher income households occupy 65 percent of the units affordable to extremely low income households."
In 2001, HUD reported that 4.9 million poor households suffered "worst case housing needs" in 1999, defined as paying more than 50 percent of their income in rent and/or living in severely substandard housing. HUD also documented that only one of every three extremely low and very low income households eligible for federal housing assistance actually receive it, leaving 9.7 million poor households in desperate need of housing help.
In the face of growing housing need among extremely low income families, state housing agencies report increased difficulty housing them. Though the GAO reported in 1997 that Housing Credit properties with additional subsidies were reaching families with average incomes of 25 percent of AMI, state agencies simply do not have sufficient subsidies to begin to meet the need. With the victory of the Credit cap increase has come the realization that states will be increasingly limited in our ability to invest Credits in housing serving extremely low income families without significant increases in subsidy dollars that can be combined with the Credit.
My State of Maryland has acute unmet housing needs, particularly among very low and extremely low income families. We estimate that about 70 percent of all extremely low income renters in Maryland pay more than 30 percent of their income in rent, and about half pay more than 50 percent of their income in rent. The National Low Income Housing Coalition estimates thirty-nine percent of Maryland renters pay more than 30 percent of their income in rent.
Even with the Housing Credit cap increase, requests for Credits exceed our supply by a four-to-one ratio. Maryland also exhausts its private activity bond cap annually, and it too is vastly oversubscribed. Pressure on the Bond cap will continue to build as the Ten-Year Rule increasingly prevents us from recycling MRB mortgage payments into new mortgages, forcing us to use new cap authority to finance new MRB loans. We estimate the Ten-Year Rule will cost Maryland over $400 million in MRB mortgage money over just the next five years.
Our HUD monies are also woefully insufficient. For example, this year, we received requests for more than two times our homeless assistance funding.
Demand for our HOME funds also exceeded their supply. We estimate we could commit an additional $12 to $13 million in HOME funds in just the next six months. This includes $9 million for multifamily projects that are ready to go forward and are currently waiting for funding and $3 to $4 million for rehabilitating single-family homes and financing group homes for the disabled, persons with mental illness, and persons with AIDS.
While not a housing program per se, the Community Development Block Grant (CDBG) program has provided flexible funding for housing-related activities for low income people for more than 25 years. States spend approximately 20 percent of their CDBG funds on housing. In Maryland, we have used about 30 percent of our CDBG funds for housing activities. Total CDBG requests exceed available funds by more than two to one. This year, Congress cut the formula allocation for the CDBG program by $60 million, or 1.3 percent. From October 2000 to October 2001, the country's inflation rate was 2.1 percent. While these percentages seem small, in real terms, the formula program would have needed an increase of about $90 million for the FY 2002 budget to keep things where they are. For FY 2003, the formula portion of the CDBG program would need to increase by about $250 million to offset this year's cut and inflation.
Some will propose more tenant-based vouchers as the answer to our affordable housing needs. Vouchers are an important tool, and we certainly need more of them. In Maryland and many other states, however, vouchers are of no use in a number of areas where there is simply no affordable housing to rent. In Howard County, for example, the county housing department reports the rental vacancy rate is .57 percentóthere are only 57 vacant rental units for every 10,000 rental units in the county. Preliminary 2000 census figures show that a number of counties in Maryland have vacancy rates below two percent. More vouchers will not address the lack of available units. Simply put, we need to produce more units.
Make Federal Housing Resources Work Smarter, Go Farther
Unquestionably, Congress must find a way to devote substantially more federal resources to affordable housing if we are to even begin to meet our countryís housing needs. But, we must also recognize that whatever increased investment our collective best efforts might produce will not be enough to solve the dire housing problems we confront. So, it is essential that we make the most of every housing dollar the federal government provides.
This requires eliminating unnecessary and outmoded federal rules and regulations that slow the delivery of funds, increase costs, and frustrate results. The changes we propose to the Bond and Housing Credit programs in S. 677 are just a few examples of the kinds of changes in federal housing programs that are sorely needed to maximize dollars spent and to reach as many eligible families as possible. NCSHA has proposed to the Millennial Housing Commission many more recommendations for streamlining HOME and other HUD programs to make them work more effectively and efficiently both separately and together. We are hopeful that the Commission will include these recommendations in its report to the Congress next spring, and you will swiftly enact them.
One sure way to deliver federal housing resources more efficiently and target them more effectively is to devolve greater responsibility for their administration to the states. During the last three decades, state housing agencies have assumed a primary role in financing affordable housing. Our success in blending business-like efficiency with accomplishing our public mission has earned us the respect of the Congress, our states, and the community at large.
Congress, in turn, has entrusted states with the administration of the Bond and Housing Credit programs, the only federal programs dedicated to financing lower income first-time homebuyer mortgages and low income apartment construction. Congress has also empowered the states to administer the HOME program, FHA-HFA multifamily risk-sharing, and Section 8 restructuring and contract administration and to borrow funds directly from the Federal Home Loan Banks. Employing these and other programs and resources, state agencies administer the full range of affordable housing programs, including homeownership, rental, homeless, and all kinds of special needs housing.
State agencies have strong management, broad experience in underwriting and finance, and expert staffs, which number as many as 300 in the larger agencies. We have issued nearly $140 billion in Bonds to finance homeownership and apartment construction without a single default and with foreclosure and delinquency rates far lower than industry averages.
State housing agencies have achieved significant results, but we do not work alone. We have built strong partnerships with local governments, nonprofits, the private sector, resident and community groups, and service providers to address the unique and diverse housing challenges we confront. The results are dramatic. We have financed more than 2 million first-time, lower income homebuyer mortgages and more than 1.8 million apartments, including more than 1.2 million through the Housing Credit.
State housing agencies have also been strong and successful partners with HUD, when HUD rules have permitted us to use our talent and expertise to do the job. Most recently, 35 HFAs have assumed HUDís responsibility for the administration of 750,000 Section 8 project-based units.
States have accomplished these results because Congress has empowered us to employ federal resources flexibly and leverage them to meet a variety of affordable housing challenges. As you well know, housing needs and conditions vary dramatically among and within states. One-size, Washington-driven housing solutions simply donít fit all. Thatís why programs like the Housing Credit and Bonds are so successful. They let states and our partners respond effectively, efficiently, and imaginatively to our most pressing housing needs.
Establish and Fund a New Production Program
Clearly, existing resources are insufficient to meet the nationís affordable housing needs, particularly those of extremely low income renters. That is why one of NCSHAís highest legislative priorities and a priority of the National Governors Association is the creation of a new, state administered rental production program, targeted in significant part to extremely low income families. We want to work with you to design a program that builds on the success of programs like Bonds, the Housing Credit, and HOME, utilizes the existing, proven state delivery system, and is integrated with existing state housing allocation plans and funding systems.
We know that builders are willing to build affordable rental housing if funds are available. The demand for the rental housing programs we operate bears this out. For example, we received about $12.5 million in state funds this year to provide rental housing. Developers requested $47 million in state funds, almost four times the amount available. As mentioned, even with the increase in the Low Income Housing Tax Credit cap, demand exceeds supply by almost four to one. We received $7.9 million in Credits this year and had requests for $31 million in Credits.
States are in the best position to combine new, flexible funding with Bonds, Housing Credits, and other resources and to target limited funds to our most critical needs. We know our housing needs and markets and have proven delivery systems in place that can provide one-stop shopping to the development community. State administration will also assure that the impact of whatever limited funding Congress makes available is not diluted by the distribution of funds to hundreds of local communities, as under the HOME program.
A new program will only work, however, if states are given the flexibility we need to tailor innovative solutions to our unique and varied housing problems. HUD regulation must be limited to that which is necessary to assure nondiscrimination and accountability for the use of funds to achieve the goals Congress sets. Irrational and unnecessarily burdensome rules, regulations, and reporting requirements frustrate states and our partners, smother creativity, increase costs, and delay results.
We propose that the new funds be allocated by state housing agencies, subject to a state allocation plan, modeled on the Housing Credit qualified allocation plan. The plan, developed with extensive pubic input, would identify the stateís priority rental housing needs and strategies for using the funds to address them.
States should be empowered to use funds for a wide range of activities, including tenant and project-based assistance, new construction, rehabilitation, preservation, and operating assistance and to deliver funds through an array of capable partners, including the public and private, and nonprofit and for profit entities. Funds should not be encumbered with program set-asides.
Finally, it is essential that any new programís income, rent, and other rules be compatible with those of other federal housing programs, for its combination with them will almost always be necessary to reach extremely low income families.
In conclusion, we have a long way to go to close the ever-widening gap between housing need and housing resources, and there is no single, simple answer. But, clearly, three steps would make a significant difference: housing program funding at least sufficient to keep pace with inflation; the deregulation and devolution of existing programs; and new, flexible state-administered resources to help fill the gaps, particularly in our ability to house our most needy families.
Thank you for the opportunity to testify today. NCSHA and our member state housing agencies are very grateful for your enthusiastic and sustained support of affordable housing. We stand ready to assist you in any way we can.
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