By Eugene T. Lowe
February 3, 2003

The Community Development and Housing Committee, chaired by San Francisco Mayor Willie L. Brown, Jr., met on January 23 at the 71st Annual Winter Meeting, and heard from Federal Department of Housing and Urban Development (HUD) officials and several advocates and experts of the housing community. Most of the committee discussion centered, however, on a recently HUD announced cut in the public housing operating subsidy.

Roy Bernardi, HUD Assistant Secretary for Community Development and Planning, briefed the mayors on President Bush's efforts to increase minority homeownership and the administration's fiscal year 2004 budget. Assistant Secretary Bernardi said that HUD's goal is to add five and one-half million first-time minority home buyers to the homeowner category by the year 2010. He said that HUD found that this would "add more than a quarter of a trillion dollars to the housing market."

Public Housing

Michael Liu, HUD Assistant Secretary for Public and Indian Housing, appeared before the committee to clarify HUD's position on the agency's notice to make a substantial cut in the public housing operating subsidy. Assistant Secretary Liu said that the issue of the public housing operating subsidy was due to several reasons. The law, Mr. Liu, said stipulates that HUD must obligate money without the benefit of having the budgets of public housing authorities. HUD, Assistant Secretary Liu continued, has also developed a practice of "taking money from a future year to take care of prior years- shortfalls without clearly notifying Congress." When these practices were discovered, "they could not be ignored, and HUD's management team began taking steps needed to correct them." Mr. Liu said further: "Without question, HUD had to inform Congress of these issues within the context of the $250 million shortfall for those PHAs which began their fiscal years on October 1, 2002, and what we call the so-called fourth quarter PHAs." In addition, Assistant Secretary Liu said that HUD anticipated (before the Senate passed its bill) that "an extra $200 million or even possibly $300 million for special assistance (would be needed) to federalize state-built affordable rental housing in New York and Massachusetts." Mr. Liu concluded: "This is in brief why we advised PHAs that their initial funding levels would be at 70 percent of their last year's budget. We were clear in that notice. We were clear that this funding level was temporary and not the final proration level for the year, that the final proration level would have to wait until we received our '03 budget from Congress and their budgets. We did what was prudent and responsible. And as Congress has moved closer to granting HUD's requests in the 2003 budget, we were able to inform the PHAs of our intent to fund at or near 90 percent of their budgets for fiscal year '03."

Sunia Zaterman, Executive Director of the Council of Large Public Housing Authorities, and Saul N. Ramirez, Jr. followed Assistant Secretary Liu and took issue with a number of points in his remarks. Ms. Zaterman said "HUD is being extremely optimistic that the cuts will be in the 90 percent range." She added: "we think that the cuts will be certainly in the 80 percent range." Ms. Zaterman explained what the cuts would mean to private investment in public housing. She said: "the bedrock of private investment is having a reliable operating subsidy. There is no other way to meet operating costs. Housing authorities are required by law to limit the rent they collect to 30 percent of the family's adjusted income. They're not allowed to raise the rents. The only other place They're allowed to get funding to meet their needs is through the operating subsidy. And we have already started to hear the tremors in the private investment community about the stability of these appropriations and the decisions they-ll make about further private investment of public housing." Ms. Zaterman also took issue with Assistant Secretary Liu's point that there have been other years where the operating subsidy has been as low as now. She said:"We have looked at the history of funding of public housing. The two years that Secretary Liu pointed out are two anomalous years. In the last 15 years, there have only been two years where the funding has been that low. For most of the 10 of the last 15 or 16 years, the funding has been between 98 and 100 percent of the operating need."

Mr. Ramirez said that "the funding that Assistant Secretary Liu speaks of being carried over and paid out of the following fiscal year has simply been the final adjustment that is made for things such as utility spikes, labor agreements that are negotiated during the course of the year, and other incidental expenses that are incurred as a result of public housing operations and need to be covered because there was a fixed agreement upon the percentage that they would get reimbursed for that fiscal year." This is the reason the funds come out of the next fiscal year.

Mr. Ramirez also reminded the committee of the $350 million cut in the Drug Elimination program, which he said "was complementing a lot of the security efforts and After-School programs of housing agencies." He said that the cut of the drug program was to be absorbed in the operating subsidy fund.

Housing and Economic Stimulus

Nicolas P. Retsinas, Director of the Joint Center for Housing Studies at Harvard University, briefed the committee on the importance of housing as part of an economic recovery/economic stimulus package. Mr. Retsinas said "housing has always been the linchpin of economic recovery." He said further that the "data is clear. For every 1,000 new homes that are constructed in the United States, 2500 construction jobs, full-time construction jobs, are created. Every time someone buys a home, whether as an existing home or a new home, they spend about $8,000 on furnishings. They go to the Lowes. They go the Home Depots. They go the appliance stores. It is a very stimulative sector."

Minority Homeownership

David M. Dworkin, Vice President for Regional Management and Housing Partnerships, of Fannie Mae spoke about Fannie Mae's $700 billion initiative to increase minority homeownership. He told the committee that the initiative was built around a 10-point plan which included 100 faith-based homeownership programs, partnerships with employers to create employer assisted housing, a rescue mortgage product that will help bring people our of predatory loans, and a program that will assist public housing authorities used Section 8 vouchers for down payment assistance toward homeownership.

Craig Nickerson, Vice President for Community Development Lending at Freddie Mac also focused his remarks on minority homeownership. He briefly described a new program at Freddie Mac called "Catch the Dream.": One of the features of the program is developing a better outreach to the minority home buyer. Mr. Nickerson said:" We can't assume that the minority home buyer is going to walk into that local lending institution. There is intimidation at bay there. There are fears. There are mis-perceptions. We need to dispel myths, front and center." Another aspect of "Catch the Dream" is making automated underwriting systems available to local community based nonprofits, so that they can "tell the minority household within a matter of seconds not only can they get a mortgage, but how much they can get, and what products and what lenders would be most suited to their needs." Catch the Dream is also developing mortgage products which will reach "those with blemished credit, those with no credit, and those with lack of cash for a down payment."