Chairman Reed and Subcommittee members,
My name is Carolyn Federoff, and I am President of the American Federation of Government Employees, Council of HUD Locals. We represent approximately 6500 bargaining unit employees throughout the Department of Housing and Urban Development. Thank you for providing us with an opportunity to present the views of HUD employees on those areas that GAO continues to identify as "high risk," including HUDís staffing crisis and its oversight of HUD contractors.
In addition to gathering input directly from HUD employees, we have also reviewed GAO reports on HUDís designation as "high risk" and the government wide human capital management crises. Our testimony is presented in two parts, the first focusing on human capital management, and the second on HUDís oversight of its contractors in the single-family and rental housing assistance programs. Nonetheless, it should be noted that we believe that GAOís focus on improvements needed in the single-family and rental housing assistance programs is integrally related to and exacerbated by HUDís human capital management.
Because of the impending retirement of the Baby Boom generation, every American employer faces the potential for a human capital crisis. HUD, however, faces a crisis imposed by both demographics and politics. Both agency management and Congressional critics have, in their turn, starved the agency for needed staff. HUD programs are designed to be implemented and to operate over long periods of timeóin FHA programs, an average of 30 to 40 years. These time periods exceed the normal career span of most workers. Setting these programs in motion necessitates a commitment to ensure quality staff will be available over the life of the program. Additionally, it is unacceptable to merely plan to contract the work out; contractors still need quality oversight by employees who are familiar with the program from inception to close.
HUD will need to recruit. But it will also have to work hard to retain the employees on board. The results of a recent Office of Personnel Management survey reveal a HUD workforce whose morale is generally below that of their private sector counterparts. Only 47% of responding employees are satisfied with the organization, compared to 63% in the private sector. Issues fueling dissatisfaction include lack of involvement with decisions affecting work, lack of information received from management and lack of training received for the job. (See attached copies of HUD intranet.)
We offer the following recommendations to help HUD meet its staffing challenges and its obligation to preserve the public trust:
We are pleased to testify that Secretary Martinez, through Deputy Secretary Jackson, has worked with us on several of these issues. He has expressed a commitment to reject costly contracting out, provided a management directive supporting implementation of telecommuting, and directed his staff to investigate loan forgiveness.
We hope to be able to testify next year that, with open Congressional support, the administration has made progress towards achieving the recommendations set forth above.
Human Capital Management: GAOís four Human Capital Cornerstones and HUD.
In its report "A Model of Strategic Human Capital Management," GAO sets forth four Human Capital Cornerstones (GAO-02-373SP). GAO intends these Cornerstones to provide guidance in assessing an agencyís Human Capital strategy. For each Cornerstone, there are two Critical Success Factors. The GAO report sets forth examples of behavior it identifies as Level 1, 2 or 3 in connection with each Critical Success Factor. Level 1 is the worst, while Level 3 is the optimum according to GAO. We address each of the four Cornerstones at they apply to HUD separately:
1. Leadership: The agency has a Human Capital crisis because throughout the 1990s
HUD devalued human capital and Human Capital Resource managers.
HUD goes through organization charts the way a person with a cold goes through Kleenex. On some level, this constant shifting devalues human capital. But between the years of 1994 and 1998, the agency actively undertook reforms that exacerbated the human capital crisis and precipitated the virtual elimination of human capital resource management at HUD. We offer two examples from many:
In 1995, the agency reorganized the Office of Administration, severely slashing HUD Human Resource Departments in the field by consolidating ten personnel departments into three. The goal was to reduce the ratio of HR staff to HUD staff from 1:60 to 1:100. Access to personnel specialists became more difficult for managers, supervisors and employees. Personnel records have been poorly maintained.
Also in 1995, the magic 7500 number was the focus of much attention. As confirmed by GAO and HUD IG reports, this number might as well have been drawn from a hat; the agency had no basis for believing this was the optimum number of staff. The contracting out problems we face today are a direct result of this baseless FTE goal.
Comparison to the GAO Critical Success Factors Table (GAO-02-373SP at p. 10) demonstrates that with regard to its staff, the agency was at Level 1óthe agency viewed employees as "costs to be cut rather than as assets to be valued." The agency was below Level 1with regard to the role of the Human Capital Functionóhuman capital management was so severely reduced that it could not even be described as a support function.
It is our opinion that the past devaluation of the Human Capital function is critically interfering with the current administrationís ability to evaluate and address the Human Capital crisis at HUD. Among other things, it interferes with recruitment and retention. For example, the agency has consistently been 300 FTE below ceiling for several years. Despite what we generally agree are good efforts to recruit and hire staff, agency projections indicate that we will continue to be below ceiling at the end of this fiscal year. Additionally, we have proposed, and the administration has expressed interest in, several retention strategies such as a loan forgiveness program. Lack of adequate Human Resource staff has delayed rapid review and implementation of this and other retention programs.
Agency managers, supervisors and employees need a commitment from Congress and the Administration to rebuild the Human Capital Management function at HUD. We need Human Resource employees to evaluate staffing needs, actively recruit, create retention strategies, and to otherwise assist employees, their supervisors and managers in the accomplishment of HUDís mission.
2. Strategic Human Capital Planning:
No data to drive Human Capital Decisions
Agency management has little or no data with which to make Human Capital decisions; they no longer receive staffing lists, information on accessions and separations, nor retention rates for special hires; and estimates of needed staff are suspect.
It was not always so. Attached are excerpts from the last "Monthly Staffing List" of which I am aware. It is dated September 1990 and covers Region I. It is an example of the kind of data that used to be routinely available and provided to field managers and union representatives. It includes a summary of staff on board, hires, separations, and projections for the coming month. It discloses the total number of employees authorized versus those actually appointed in each office and each program area. It provides information on total number of permanent, temporary, part-time, and summer help. The sample page is a detail from the Office of Counsel, showing total number of staff, vacancies, temporary appointments (EXC APPT NTE 08-11-91), and duty stations other than Boston (D/S: Manchester). The total report includes similar pages for each program area in Region I.
Sometime shortly after 1990, the agency stopped providing the Monthly Staffing List. With the loss of this single report, managers in Region I no longer had the information necessary to firmly determine if staff turnover continued to be 17%, or one in six, as it had been the previous year. They would no longer clearly know that their ceiling had increased 20 positions since last year, or that they were 46 employees, or 10%, under ceiling. Having this data helped managers focus on potential problem areas in Human Resource management, such as retention issues and recruitment needs. But this sort of data no longer exists, or is no longer shared.
We suspect that it simply no longer exists. During the past six months, we have asked HUDís Labor Relations staff to please provide quarterly reports on accessions and separations from the bargaining unit. We just want to know who has joined HUD and who has left during a quarter. Labor Relations has been unable to meet our request, because the information systems do not support this simple retrieval of information.
The fundamental lack of data hampers this administrationís ability to address the Human Capital crisis. We continue to make decisions in the dark.
For example, the union has raised concerns with the dependence on intern programs to meet hiring needs. Based upon anecdotal evidence, we are concerned that interns may have lower retention rates than other employees hired under traditional civil service authorities. To explore this, we have asked the Office of Human Resources to provide data comparing the retention rates of the last major intern program that occurred in 1989 and 1990, to the retention rates for other employees hired through traditional means during the same time period. The agency has been unable to provide this data. The agency is putting all of its hiring eggs in one basket without sufficient knowledge of the strengths or weaknesses of that basket.
At Congressional direction, the agency is working towards better estimation of staffing needs. But employees, supervisors and managers remain unconvinced that accurate estimations will be produced by either REAP or TEAMóResource Estimation and Allocation Process and Total Estimation Allocation Mechanism. REAP was intended to provide a benchmark for staffing needs, while TEAM is intended to periodically update the benchmark. However, despite hours of review, many of us cannot understand what REAP has actually measuredódoes it measure what staff should be doing, or what staff are actually doing? The process for both REAP and TEAM asked staff to record what they are actually doing. It seems obvious that we would have enough staff to do that which staff are doing. But the question remains, do we have enough staff to do that which we are supposed to do by law, rule or regulation? Do we have enough staff to protect the publicís interest and deliver the mission of the agency? We remain unconvinced that REAP or TEAM achieve this.
To this Administrationís credit, the Deputy Secretary has specifically advised managers to provide staffing projections based upon REAP or any other supportable evidence. To our knowledge, REAP is being used as a floor, not a ceiling. But we urge Congress to also consider REAP as a floor
Comparison to the GAO Critical Success Factors Table for this cornerstone (GAO-02-373SP at p. 11) indicates that the agency is at or below Level 1óagency managers and supervisors lack fundamental information that can help them determine human capital needs and strategies for effective recruitment and retention, much less how human capital approaches link to organizational performance objectives.
Agency managers, supervisors and employees need a commitment from Congress and the Administration to rebuild sources of data concerning human capital resources at HUD. Additionally, we need wide spread sharing of data, so that managers, supervisors and union representatives can hone in on problems before they become crises.
3. Acquiring, Developing, and Retaining Talent:
Bureaucracy persists in HUDís approach to Human Resource Management
As employees of HUD, we can commiserate with HUDís clients about HUDís proclivity for bureaucracy; we are its daily victims, driving down employee morale. Although the 1994 HUD program reorganizations included strategies to focus HUD employees on results not processes, on finding solutions not red tape, Human Resources has not consistently adopted this same strategy. Managers, supervisors and employees too often hear, "it canít be done that way." The "canít do" philosophy is at striking odds to the "can do" philosophy HUD employees endeavor to apply to HUDís programmatic work.
A small example: Some Human Resource offices have advised supervisors that they may not authorize the accumulation of credit hours for travel. They cite restrictions on the use of overtime for travel, equating credit hours to overtime despite the fact that credit hours are specifically excluded from the definition of overtime [see 5 U.S.C. Section 6121(6)]. Being able to authorize employees to accumulate credit hours helps supervisors better accomplish the agencyís mission while preserving resources; if a field review takes six hours, and travel will take four, a supervisor can authorize the employee to accomplish the work in one ten hour day, rather than ordering the employee to take two days and authorizing the use of scarce travel dollars for hotel and per diem. These simple solutions, however, are withheld from agency supervisors and employees.
Comparison to the GAO Critical Success Factors Table for this cornerstone (GAO-02-373SP at p. 12) indicates that the agency is at or below Level 1óthe agency has yet to explore the range of tools and flexibilities available under current laws and regulations.
Agency managers, supervisors and employees need a commitment from this administration that it will bring to Human Resources the same "can do" spirit other areas of HUD are encouraged to display. Working together, we can craft solutions that meet HUDís mission and employeesí needs.
4. Results-Oriented Organizational Cultures: The Human Capital crisis makes it
less likely employees will focus on results rather than processes.
GAO has identified "empowerment and inclusiveness" as key components of a results-oriented organization. The agency took steps to empower and include supervisors and employees in the 1994 reorganization. Program employees were specifically authorized to remove impediments to the accomplishment of organizational goals when the employee could determine that an alternative process would meet both client and agency needs.
Comparison to the GAO Critical Success Factors Table for this factor (GAO-02-373SP at p. 13) indicates that in the mid-1990s, the agency hovered between Levels 2 and 3óthe agency was lessening its reliance on standardized approaches and was encouraging employees, supervisors and managers to work together towards innovation and problem-solving.
Before a person can run, however, he must first be able to walk. Similarly, before employees can innovate and explore alternative processes, they must first be adept at the current process, understanding the whys and wherefores. When they understand why a rule is in place, they can better craft a solution that meets the agencyís and clientís needs simultaneously.
HUDís Human Capital crisis threatens this capability. Daily, we are losing the employees that know the whys and wherefores. Our programs typically include 40 year commitments between HUD and the client. Even if programs are eliminated, they are only eliminated as to future clients. Our relationship to current clients continues for that program. We need staff expertise for a period of time greater than the normal career of any one employee. Succession planning must be the norm, not the exception for an agency such as HUD.
Additionally, the nature of HUD programs tends to result in an ebb and flow of problems; if thereís a problem, itís likely to manifest itself either at the beginning or at the end of its 40 year term. For example, problems associated with a new development will either happen shortly after it begins renting up (i.e. problems with projected market-share, etc.) or will happen towards the end of its involvement (i.e. tenants need alternative affordable housing options, development has physical problems associated with its age, etc.).
Succession planning at HUD is hard! Making sure that we always have the quality and quantity of staff to be results-oriented is hard! It takes commitment from both Congress and the administration.
HUD clients deserve nothing less.
HUDís continuing "High Risk" designation in the Single-Family and Rental Housing Assistance programs relate directly to HUDís Human Capital Crisis
In its January 2001 report entitled "Major Management Challenges and Program Risks" (GAO-01-248) (hereinafter January 2001 Report), GAO identifies the need for improvement to reduce HUDís single-family mortgage insurance risk and to effectively and efficiently use HUDís rental housing assistance programs. We believe that HUDís Human Capital crisis has directly contributed to these program problems. The lack of human capital has prompted HUD to contract out work without regard to cost, effectiveness or efficiency. Continued loss of staff capacity has lead to poor contractor oversight. We will consider examples of this in each of these programs.
Contracting Out Single Family Mortgage Insurance Work:
Employee warnings go unheeded.
The GAO report briefly describes the downsizing history of Single-family Housing; in 1994, the agency began to consolidate its Single-family function, culminating in the 2020 Management Reform Plan establishment of four Homeownership Centers. This consolidation reduced the total staff dedicated to Single-family programs by about 50%. Some of this reduction was achieved through increased efficiencies or program changes. A significant portion was accomplished through contracting out. (January 2001 Report at p. 15.)
The Office of Single-Family always had a high level of contracting out, and most of this contracting out was appropriate. For example, when a bank foreclosed on a property and returned the title to HUD for the mortgage insurance proceeds, HUD became the property owner. As such, we became responsible for being a good neighbor, keeping the yard and house maintained while new owners were found. HUD employees agree that this was a positive use of contractor dollars.
But even then, GAO and the HUD IG reported that HUD lacked staffing resources and travel funds to monitor its contractors (see, for example, GAO/RECD-98-65). Unfortunately, HUD was not always a good neighbor.
How did HUD respond? Instead of increasing contractor oversight, HUD contracted out more functions. Previously, HUD would market the properties, seeking always to use this resource to further multiple objectives such as promoting safe neighborhoods and affordable housing for working Americans (i.e., the Officer Next Door program), while working to maximize return on the sale of the properties.
In 1999, HUD contracted out this marketing function. The result? In January 2001, GAO reported a projected cost of $997 million over 5 years (at p. 14). Six months later, GAO reported that FY 2000 year cost alone was $390 million, for a projected five year cost of $1.9 billion or twice as much as the original 5 year projection (see GAO-01-590 at p. 3). In exchange for the high expenditures, HUD has seen a mere net increase of Ĺ% in the recovery of sales (January 2001 Report at p. 18). Weíve also seen an increase in the number of for-profit investor owners. Prior to 1999, we understand that HUD sales to owner-occupants averaged 65%. Since 1999, it has generally decreased and is now as low as 34% in Cincinnati.
This is not a result of poor contractor oversight. This is the result of contracting out. The contractor does not have the same incentive to pursue policy objectives as HUD employees have. Monetary incentives cannot replace commitment to the mission.
Despite contracting out and downsizing, HUD employees have been vigilant in protecting, or seeking to protect, the mission of the agency. HUD employees advised the HUD IG of the "flipping" scandal reported by GAO in its report at page 20. HUD employees continue to report issues to the HUD IG about duplicate payments to contractors, vandalism of HUD properties, and interference with their ability to report fraud, waste and abuse directly to the IG. Employees recognize that a change of administration results in delays in responding to the issues identified by employees. But it has now been 18 months, and employees want to know when their voices will be heard. Single-family employees are experiencing serious morale problems because of the loss of program integrity and job satisfaction.
Contracting out Rental Housing Assistance Oversight:
No benefit for tenants or taxpayers, only state and private bureaucracies.
The January 2001 GAO report states that "to ease staffing shortages caused by staff reductions," HUD contracted for third-parties to administer project-based Section 8 housing assistance payments contracts (at p. 36). GAO indicates that the estimated cost was $200 million annually. This contract was awarded solely because of staffing shortages and without regard to cost. In fact, before even one contract was signed, HUDís IG reported that the agencyís cost projections were faulty and the contracts "could adversely affect the integrity of the Section 8 program." (See HUD IG 99-PH-163-0002, at p. 17.)
HUD has awarded 41 of 52 available contracts. With incentives, these contracts cost $220 million annually--$20 million more than originally estimated. If the remaining contracts are awarded, the cost will increase by $61 million, or 40% more than originally estimated.
But whether the cost is $200 million or $281 million, it is far in excess of the cost of hiring staff to meet the staffing shortages fueling these contract awards. According to inflated staffing figures rejected by HUDís Inspector General, HUD would need 1400 staff to do this work (IG Report at p. 16). HUDís Office of Budget reports an average cost per HUD employee in 2002 is $88,000. This would put the maximum cost at $123 million, or less than half the cost of these contracts.
Finally, the real tragedy of these contracts is borne by Section 8 tenants and families waiting for Section 8 subsidies. The cost of these contracts comes from the Section 8 budget. $158 million would fund an additional 31,200 Incremental Vouchers in the FYí03 budget. And in exchange for a loss of Section 8 funds, current Section 8 tenants are left to work with multiple bureaucracies, including HUD, the contractor, and in some instances, a subcontractor.
The January 2001 GAO report focuses on the challenge HUD faces in closing the gap between the number of households eligible to receive housing assistance and the availability of assistance (at p. 27). Congress needs to step to the plate and provide HUD with the means to close the gap; Congress needs to provide HUD with the funding to hire the staff necessary to forego the Section 8 Contract Administration contracts.
There will be mounting pressure for Congress to allow this wasteful spending to continue. Contractors in their states are making ludicrous amounts of money under these contracts. For example, MassHousing (formerly the Massachusetts Housing Finance Authority) makes $13 million annually to replace the work done by 20 staff in HUDís Boston Office. Rather than bowing to the pressure of contractors, Congress should consider the 2220 families in Massachusetts that could be receiving rental assistance in 2003, and the 31,200 nationwide.
Frequently with Congressí support, HUD has maintained a history of ineffective human capital management. Consequently, the crisis that faces all American employers with the impending retirement of the Baby Boom generation is exacerbated at HUD. And because HUDís programs are implemented and operated over a 30-50 year period, HUD needs time for departing staff to mentor new staff. We cannot replace journey-level experienced staff with entry-level staff. It takes years to learn the programs sufficiently that employees can take educated risks to meet client needs while meeting HUD program objectives. This level of expertise cannot be replaced by contractors. Even if it could be replaced by contractors, it defies explanation to replace it at costs far in excess of hiring staff.
Finally, to compete against the rest of the marketplace hungering for workers to replace Baby Boomers, HUD must think and act innovatively and flexibly by offering programs such as loan forgiveness, child care subsidies and telecommuting; HUD must empower its employees by providing them with information, training and involvement in the decision-making process. HUD must show that it is a responsive employers. And Congress must support HUD in these endeavors.
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