Subcommittee on Housing and Transportation

Hearing on the HUD Section-8 Opt-out Crisis

Prepared Testimony of the Honorable John F. Kerry (D-MA)
United States Senator

9:30a.m., Thursday, July 1, 1999

Mr. Chairman and colleagues, thank you for the opportunity to testify this morning. I am extremely encouraged to see the enthusiasm and support for affordable housing that this illustrious panel represents.

The stated subject of the hearing is the important issue of preventing section 8 opt-outs. We tend to fall quickly into the jargon here, Mr. Chairman, so let me explain what that means very briefly.

When project-based section 8 rental subsidy contracts expire, as they will in the thousands over the next 5 years, owners will have the option of whether or not they want to renew these contracts and continue to serve their current low income, elderly, and disabled residents. In certain communities with "tight" housing markets, communities such as Boston, Denver, Salt Lake City, Burlington (Vermont) and others, including in rural areas with little or no adequate housing, market rents may be so high that an owner can do better by refusing to renew his contract -- that is, by opting out -- and removing the property from the affordable housing inventory.

All of us want to prevent this outcome as much as possible.

In 1997, this Committee crafted a good piece of bipartisan legislation that was designed primarily to take these section 8 properties with above market rents, and reduce those rents to market levels. We passed that legislation with the help of Senators Bond and Mikulski, who have been our very effective partners in passing housing legislation in the past couple of years.

As part of that legislation, commonly known as the "Mark-to-Market" legislation, I included a provision that authorizes HUD to raise rents to prevent the opt-outs in these high cost areas for two reasons, to paraphrase my floor statement at the time: first, we want to avoid displacement of the low income residents. But, equally important, we want to preserve this valuable affordable housing resource for the long term.

Since that legislation passed, I have been working with my colleague Barney Frank and HUD to develop a good proposal for meeting these goals. I believe that the Department has achieved this goal with its new rule and I want to extend my congratulations and my thanks, especially to Massachusetts native Bill Apgar, the Assistant Secretary of Housing, for engineering this effort. HUD has taken the authority the Congress provided, and worked hard and creatively to provide real protection, in a targeted way, to those projects -- and the residents of those projects -- most at risk. In Massachusetts, this could save about 5000 affordable units this year alone. Nationally, that number runs to the tens of thousands.

Let me add that if the Administration wants legislation to memorialize this effort, and to provide additional authorities that may give HUD even more ability to meet this need, I would be anxious to work with them.

Mr. Chairman, HUD has done its work. Now, we must do ours. We must provide the funding needed to allow HUD to save these properties and protect these families and children. Earlier this year, we raided $350 million in section 8 funds to pay for assorted other programs -I know that the Chairman and Ranking Member of the Appropriations Subcommittee have always tried to protect these funds. Nonetheless, we must now restore this money -- and more -if we want HUD to carry out the policy we worked so hard to get over the long haul.

In addition, Mr. Chairman, the new HUD policy largely meets the concerns of the owners of section 8 housing. Now, I ask these owners to hold up their side of the bargain and agree to accept the new, higher rents and stay in the program. I understand that it can be difficult at times to work with HUD. Still, the Department has come far, far more than half way. We should expect the owners to take the last step and continue in the program.

HUD's aggressive and, I expect, successful efforts to solve the opt-out problem is only one part of the broader solution. There is another whole class of properties that are very likely to be lost through prepayment of subsidized mortgages. With prepayment, owners of these properties relieve themselves of all obligations to serve poor and working families. Massachusetts has already lost over 3000 units of affordable housing this way, and thousands more are threatened every day as markets tighten and values increase.

We need to start addressing this set of issues, as well. Today, Senator Jeffords and I along with Senators Sarbanes, Grains and Wellstone will be introducing legislation, called the "Affordable Housing Preservation Act of 1999" to begin this process. The legislation would establish a matching grant program that provides money to states and localities that are willing to put up some of their own funds for the purposes of preserving existing affordable housing. In order to receive a grant under this program, the owner would have to commit to maintaining the existing affordability restrictions for a minimum of 15 years.

In addition, Mr. Chairman, the legislation will encourage transfer of ownership of these properties to non-profit housing corporations that work closely with residents. We believe that non-profit ownership will, in the long run, ensure the maximum possible commitment to affordability at the lowest possible cost. The current ownership structure for assisted housing constantly puts us in this bind of having to provide more and more money just to keep what we have already built and paid for. With non-profits, we will not face the constant dilemma of optouts, prepayments or expiring affordability restrictions. Nonetheless, private owners who want to continue to provide affordable housing will be eligible under this bill.

Finally, this hearing has been called to discuss preservation of affordable housing. But the real problem in many cities around the country is that there is not enough production of new housing We need to find ways to fund the construction of new, affordable, multifamily housing for low income and working families, and we need to fund the 100,000 additional vouchers we authorized in last year's public housing bill. This is not just a poor person's issue. In many states around the country -- Massachusetts, Nevada, New York, Connecticut, New Jersey, Alaska, and others -- a family would need to work as many as three full-time jobs at $7 per hour, well above the minimum wage, just to afford the rent on a typical 2 bedroom apartment. This is unsustainable economically, and it is simply not fair.

In sum, Mr. Chairman, HUD has a good proposal for addressing the immediate crisis; the Jeffords-Kerry bill builds effectively on that proposal. Now, we need to provide the funding to make sure these efforts can move forward, as we consider longer term solutions in the months ahead.

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