these boards? I would be interested in your dealing with that whether or not also you would like to see a former tenant on board; do you think that might be beneficial? Mr. SCHIFF. I think it is better, frankly, to have current residents on the boards. If you are talking about the property has been sold to the residents, the property owners having a greater stake than they did as tenants, which I happen to agree with the concept. In most of the cases I am familiar with, the properties have been sold in their entirety, so you don't necessarily have that much of a mix between owners and tenants in that situation. You have got one owner trying to help his neighboring owner sustain the overall value of the development because they both have a vested financial interest in that development. You can have mixed situations, and I am sure they exist in some situations, but most of the cases I am familiar with are either all rent or own. Ms. GAFFNEY. I think that is a great idea. I saw that in the Richmond, Virginia, housing authority where they brought former residents back-not to be on the board-but actually working in the housing authority and they conveyed a message of what is possible in a way that other people can't. They care about it differently. Mrs. KELLY. Thank you. I have a sister who lives in Richmond and I thought that was so in the city. Thank you very much. Chairman LAZIO. I thank the gentlelady. The gentleman from Massachusetts. Mr. KENNEDY. I thought that all of you had interesting testimony. Ned, I would like to come back to one of your points because I think we are going to have to leave here for a vote very quickly, so maybe I would take 2 or 3 minutes. I want to commend Ned Epstein for the work that he has done in terms of trying to come up with an alternative to how we can professionalize management of public housing. I think this is an innovative and creative approach. There are some issues pertaining to how the Fair Housing Act would come in in terms of how the tenants would do this sort of site-based selection process and the like. If you wouldn't mind, though, Ned, since we will have some discussions about this, I want to come back to one of the points that the IG made. In discussing Secretary Cuomo's intent on what he would like to accomplish, he has made it very clear that he takes very seriously the concerns that have been outlined in, for instance, the GAO report as well as some of the reports that you have done. I wonder if you could just highlight for us as what you see the top sort of two, three, four, whatever number is appropriate, issues pertaining to HUD management issues that you think we ought to be concerned about and look for leadership on? Ms. GAFFNEY. I think he has made it very clear that he sees three top priorities. One is getting HUD's financial systems in shape. And, truly, you cannot imagine how bad that situation is. And he has a plan now for getting there which we have been with out for some time. Mr. KENNEDY. Are you satisfied with that plan? Ms. GAFFNEY. At this point, what he is proposing to do is performance-based contracting. And so, the details aren't there yet. In terms of an overall approach, yes, I think he is right. HUD has been spending an enormous amount of money for body shop kind of contracting for systems development and we are moving at a snail's pace. The second major priority is public housing, changing the whole delivery system and the management systems, along with legislative changes like H.R. 2. The third priority is mark-to-market portfolio reengineering to address the Section 8 contract crisis, renewal crisis. And, do I think he is right about those priorities? I certainly do. Mr. KENNEDY. You do. Ms. GAFFNEY. And it is an absolutely different view of the world that we are hearing from Mr. Cuomo. Mr. KENNEDY. And with regard to FHA in general, would you say that the kind of mark-to-market approach will end up providing solvency within that over the course of the next several years, or are you concerned about that? Ms. GAFFNEY. What I am terribly concerned about is that portfolio reengineering could solve the situation today, at one point in time, but unless we put safeguards in that program going forward, we could end up in the same situation down the line. HUD can reinsure the projects, and we still don't know how they are going to set rents, and so they could get back into excessive rents in these projects. But the other thing is, I think we really need to consider how we can introduce some more market incentives for the owners to maintain these properties over the long term. We have really insulated them in the past pretty much totally from market pressures. Mr. KENNEDY. Thank you very much. I appreciate it. Thank you, Mr. Chairman. Chairman LAZIO. I thank the gentleman. Mr. Epstein, part of the rationale in replacing the Housing Act of 1937 with H.R. 2 is a practical one to change the way business is done throughout the industry, to uproot all of the HUD rules and handbooks that have been floating around and may date back longer than we care to think about, to get people who are managers of housing and are housing advocates to take advantage of the provisions in H.R. 2 and to be futuristic in their perspective, to look for new opportunities, joint venturing, collaboration, even the possibility of more entrepreneurial opportunity within the confines of public housing. I am concerned that if we wait another 5 years, for example, before the PHAS get around to implementing changes in that interim period there will be some people that litigate based on what they believe are existing rules and thus will thwart the mission that we are trying to set HUD upon. I am wondering if you could comment on the whole replacement issue? Mr. EPSTEIN. Well, if I understand you correctly, what I think the process of doing business differently means, is that housing authorities must look at their collective assets; their projects, their subsidy contracts, and their modernization funds, and within the context of affordable housing needs at the local level, determine what are the best uses of these assets. If they do this, housing authorities will find that some assets don't make sense to continue. If you are really pouring money down a drain trying to make a non-viable project work, that money can be freed up in order to do some other creative entrepreneurial-types of other housing activities in the locality. But I think the first piece really begins with the housing authorities looking at their assets and understanding that they are assets and managing these assets instead of managing the authority on an authority-wide basis. It is a separate busi ness. Chairman LAZIO. Does it make sense in that context to replace the Housing Act of 1937 with concepts in H.R. 2? Mr. KENNEDY. If you answer that Ned, you are out of here. Mr. EPSTEIN. That is certainly very controversial, I can tell you that much Chairman LAZIO. That much I know. Mr. EPSTEIN. I first must say that my own partners and I disagree on this. I think that from the standpoint of symbolism, replacing the Housing Act of 1937 is important. Replacement is important in terms of a new way of doing business, a new direction. That is my personal opinion. My partners do not agree with me on that. But think that it is very important to have symbolic, new direction, so that is my answer. Chairman LAZIO. Thank you very much. The bell is going off. Unfortunately, we have three votes in a row. If I may, I would like to ask a few questions for the record I didn't have a chance to ask both Mr. Schiff and the Inspector General. I hope you can bear with me. I want to thank you again for very constructive input and some of the concepts both in terms of PHMAP and certainly in terms of self-auditing that I want to evaluate, and even the flex grant proposal. This is an invitation for us to look at ways in which the subcommittee can meet some of the current concerns that are expressed here by the panel, at the same time move in the direction that I think Mayor Goldsmith outlined, we think is a very positive direction. I want to thank you for being here today and wish you all a very safe journey home. This hearing is adjourned. [Whereupon, at 5:03 p.m., the hearing was adjourned.] Chairman Rick Lazio Subcommittee on Housing and Community Opportunity Opening Statement Creating Communities of Opportunity "Personal Responsibility and Accountability in Our Communities" H.R. 2 The Housing Opportunity and Responsibility Act of 1997 The hearing will come to order. February 25, 1997 On January 7, 1997, I introduced H.R. 2, The Housing Opportunity and Responsibility Act of 1997 -- a bill designed to reform our public housing system so that we can begin to create and foster communities of opportunity instead of maintaining isolated communities of despair. H.R. 2 continues a process that began in the 104th Congress with the introduction of H.R 2406, The United States Housing Act. H.R. 2406 would have reformed this nation's public housing system and begun the process of renewing America's neighborhoods. While H.R. 2406 passed the House with overwhelming bipartisan support, we ran out of time while Senate and House staff tried to iron out many of the technical issues between the House and Senate versions in conference. Today's hearing is intended to be a discussion of general principles of personal responsibility, accountability, mutuality of obligation, and the importance of recognizing the unique nature and dynamics of individual neighborhoods and communities. Recognition of these principles and their importance should govern how we in Washington design federal housing and community development programs. It is these principles, I believe, that are at the heart of H.R. 2. Let there be no doubt - the current system is obsolete and irrational. Public housing residents remain locked in poverty by ineffective, outdated policies. We must all realize that the problem of our communities goes beyond housing, and that the answer is not just to spend more money on these same programs. What we face is greater than just a real estate problem, and we must change the policies that have led to the current situation. Our public housing communities are racked by crime, drugs, unemployment --, an overall lack of social structure that is commonly referred to nowadays by the phrase "the breakdown of civil society." And while I believe that irrational federal policies have contributed to many of the problems we face today, I do not believe that simply eradicating programs ends these problems. The federal government must play an important role in addressing these issues. I believe that our efforts, though, should be concentrated on helping to create, foster, and encourage the formation of "social capital" in our neighborhoods. The people who fight hard to maintain a community, the small |