This morning, the Subcommittee on Housing Opportunity and Community Development is holding a hearing on the status of implementation by the Department of Housing and Urban Development of its so-called "HUD 2020" Management Reform Plan.
Let me say at the outset that I commend Secretary Cuomo for his commitment to reforming HUD's management and operations. He made reform a high priority at his confirmation hearing last year, and he followed up by devoting substantial resources of the Department to that effort.
In recent years, the National Academy of Public Administration, the General Accounting Office, HUD's own Inspector General and Congress have pointed to a "dysfunctional" HUD unable to manage its own resources or protect its interests and those of beneficiaries, communities and taxpayers. In January 1994, the General Accounting Office designated all of HUD a "high-risk" agency because of long-standing, Department-wide management and staffing problems that make the agency vulnerable to waste, fraud, abuse and mismanagement. As recently as March of this year, the HUD Inspector General's audit of HUD's fiscal 1997 financial statements found continuing, serious material weaknesses in internal controls, financial systems and resource management.
On June 26, 1997, Secretary Cuomo announced the "HUD 2020 Management Reform Plan," which is the latest in a series of efforts in recent years to address HUD's shortcomings. The plan calls for major staff downsizing, modification of HUD's field office and headquarters organizational structure, consolidation of HUD's programs and activities, and significant changes in the way HUD does business. Perhaps the best known aspect of the reform plan was its goal of downsizing HUD's staff from 10,500 to 7,500 by the year 2002.
I believe that the stated goals and objectives of HUD's reforms are commendable, and that reform is absolutely critical to HUD's future. However, the success of the plan is still based on a huge number of assumptions, which were made in the absence of a clearly defined business mission. It is far too early to judge the potential effectiveness of the new organizational structure, HUD's capacity to implement the reforms, or even the potential effectiveness of those reforms once implemented. If the plan is based on correct assumptions and all of the contingent actions occur, then HUD will be much better able to fulfill its mission. If, on the other hand, the plan is based on faulty assumptions, or is executed poorly, then at the end of the day HUD may be in a worse condition than it was before the reforms were implemented.
My review of the HUD 2020 plan has raised a number of concerns in my mind, which I hope can be addressed today.
First, the reform plan states that the success of the reform effort depends, in part, on the efforts of HUD's partners in Congress. Under HUD 2020, significant program repeals and consolidations are proposed and numerous statutory changes are recommended to enable the reforms to be administered more efficiently. Further, many assumptions behind HUD's staffing needs are based on significant programmatic and policy changes. However, HUD is sending decidedly mixed signals as to whether it needs -- or even wants -- legislation it once said it needed to accomplish the reforms.
Second, the entire Department has been designated as "high risk" by GAO, largely because it lacks adequate internal controls and its program information systems are either unreliable or lack the data needed to manage HUD's programs. However, both GAO and the Inspector General have recently found significant problems with HUD's Section 8 financial management and budgeting systems. I am referring specifically to concerns about shortcomings in the Section 8 accounting system, which have led to substantial overestimates of future funding needed for amendments to existing project-based contracts. It is unclear, based on the testimony of both organizations, whether the reform plan and the development of an "off-the-shelf" core financial system adequately address this material weakness in HUD's information systems.
Third, the management reform calls for the Department to reduce staffing to 7,500 employees by 2002. Both the GAO and the Inspector General have found that this 7,500 number was not based on a systematic assessment of needs, and they have raised concerns about HUD's capacity to function effectively once the reforms are in place. It is not my intention to question whether the number of 7,500 is too high or too low. The number is not nearly as relevant as whether the staff is adequately trained and effectively deployed, and whether the adequate support systems such as information management and contracting systems are in place to make up for the reduced staff. I am, however, very concerned by the apparent lack of serious workload analysis that was conducted before the Department embarked upon a massive buyout, reassignment and retraining of its personnel. This may expose the Department to a serious mismatch in the future between needs and resource capacity in several critical areas.
Finally, a lack of in-house staffing resources has led HUD to rely extensively on outside assistance to perform many activities. With downsizing, HUD's reliance on outside contracting services will likely increase. Recently, an Inspector General review of contracting practices stated that "the lack of adequate planning, needs assessment, good initial estimates, monitoring and control of costs has made HUD vulnerable to waste and abuse." The report goes on to say that "Departmental managers have for all practical purposes abdicated their procurement and contracting oversight responsibilities with costly consequences." I am very concerned about the pace of HUD's efforts to improve its contracting and procurement practices and whether it will be able to ensure that its contracting reforms will adequately protect the interests of the public and taxpayers.
There is no going back on HUD reform. The goal of this subcommittee is to assess whether the reforms are going in the right direction, and to monitor and address potential problem areas that will impede the implementation of appropriate reforms. Let me add parenthetically that I will personally consider HUD's success in implementing the "mark-to-market" portfolio restructuring program enacted by Congress last October as one critical measure of the success of the HUD reform effort.
I look forward to the testimony of our witnesses and to a constructive exchange of views.
Our first witness is the Secretary of Housing and Urban Development, the Honorable Andrew M.
Cuomo. He will be followed by Judy A. England-Joseph of the General Accounting Office, and
Susan Gaffney, the Inspector General of HUD.
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