INTRODUCTION

My name is Virginia Thomas. I am a Senior Fellow in Government Studies at The Heritage Foundation where my mission is to help the Congress and taxpayers focus on government accountability through the use of performance-based management techniques and effective congressional oversight. I must stress, however, that the views I express are entirely my own, and should not be construed as representing any official position of The Heritage Foundation. Although I am not a specialist in HUD, your invitation has given me the opportunity to review HUD's reports concerning FY 1999, as well as related reports from the Congress, GAO and the Inspector General's office.

Your effort today to focus on what is working and what is not working at HUD is an commendable one that has the potential to elevate policy debates about HUD's performance.

NOBILITY OF HUD'S MISSION AND PURPOSE

Created in 1965, the U.S. Department of Housing and Urban Development was formed for a noble purpose - to respond to growing urban crises and a concern for the emergence of an impoverished urban underclass characterized by low educational achievement, high unemployment, family dissolution, high crime, poor health and inadequate housing.

After 35 years of federal, state and local spending of over $7.7 trillion¹ aimed at the "War on Poverty," it is clear that we know precious little about the actual effectiveness of federal and state investment in addressing this noble purpose. In fact, there are many who believe that this public investment may have had the unintended consequences of accelerating the decline in urban life, resulting in: greater social disruption, higher marital dissolution, higher crime, greater dependency on government, and other negative outcomes.

Because available facts can arguably support both sides of this debate, this is a very frustrating state of affairs for those of us who are interested in effective and responsible stewardship of hard-earned taxpayer dollars. It is here at the core of this sort of policy debate that performance-based management can play a crucial role. But first, HUD, the Administration and the Congress must provide objective, honest and relevant information.

PROMISE OF PERFORMANCE-BASED MANAGEMENT

Seven years ago, when Congress passed and President Clinton signed the Government Performance and Results Act (the Results Act), few realized the practical consequences that this law could have on our government. The Results Act requires that agencies prepare Annual Performance Reports that include:

• A description of the agency's actual performance compared with the performance goals set in the latest annual Performance Plan for the applicable fiscal year (FY 1999 in this case);

• An explanation of which goals were not met and why;

• A description of what the agency will do in the future to achieve unmet goals; and

• A description of actions to address performance goals that proved to be impractical or infeasible.²

The first set of these reports were due this last spring.

Performance measurement need not be a mere paperwork exercise, or an exercise in gimmickry. Instead it should focus policy-makers on how the government can deliver higher quality, more effective assistance to more people at less cost.

Measures that would best judge HUD's success

We would like to have vibrant healthy communities, where residents feel safe to work, play and have leisure. Before reading HUD's Performance Report, I anticipated seeing HUD use measures such as:

• Adequate numbers of housing assistance available for those eligible for assistance or number of low income families with Section 8 vouchers who are unable to find housing. [adequate quantity of housing]

• Reduced maintenance backlogs in public housing [adequate quality of housing]

• Reduced maintenance complaints [adequate quality of housing]

• Reduced number of government dependents/beneficiaries [self-sufficiency]

• Reduced numbers of Americans in poverty [self-sufficiency]

• Educational assessments of children while in public housing [increased education]

• Educational drop out rates [increased education]

• Educational truancy rates while in public housing [increased education]

• Increased number of two parent families [social predictors]

• Reduced out of wedlock births [social predictors]

• Reduced unemployment [income]

• Reduced underemployment [income/self-sufficiency]

• Reduced crime (rape, murder, assault, property damage) in public housing

• Reduced drug or alcohol dependence in public housing

• Customer satisfaction surveys of low or moderate income Americans who interact with HUD

• Measures for administrative efficiency in providing service

• Reduced amount of money spent on activities not directly assisting low and moderate income Americans [maintaining HUD's focus]

• Reduced fraud and overpayments

• Reduced blood levels of lead in children

• Reduced foreclosure rates [to help ensure that those who buy homes are in fact able to keep them]

• Reduced default rates for FHA loans

• Effectiveness measures for Empowerment Zones could be whether or not they are: (1) attracting more private investment, (2) generating job growth, (3) stimulating business openings and expansions, (4) constructing new housing, (5) expanding homeownership opportunities for the targeted audience and (6) stabilizing neighborhoods with reduced crime and other measures.

Does Congress know which HUD programs are most and least effective? Do you know whether HUD is doing all it can to remove any existing barriers for states, local governments or non-governmental entities to solve community housing problems? Are HUD properties on a schedule of maintenance and repair that ensures properties are best maintained?

Improved performance-oriented congressional oversight may reveal that programs are duplicative and do not aid those for whom the programs were intended. And, most importantly, such oversight may well deliver real results for those for whom programs were originally created.

PORTRAIT OF HUD

In Fiscal Year 2000, HUD received $30 billion (in budget authority) for over 328 federal programs. It has 10,400 employees who work in 81 field offices throughout the country.³ Although HUD reduced its civil service workforce by 8% since 1984, it has dramatically increased its contract workforce by 224%.⁴

Low Income Housing Assistance

• Provides about $18 billion to subsidize rentals and to operate and modernize residences for 4.5 million lower-income households through some 2800 public housing authorities.

• Oversees some 30,000 privately and non-profit owned multi-family projects.

Community Development Block Grants

• Provides $4.8 billion in assistance to over 4000 communities to: (1) benefit low and moderate income persons; (2) help prevent or eliminate slums or blight, or meet other urgent community needs that pose immediate threats to public health.

Mortgage Insurance

• Responsible for managing over $454 billion in insured mortgages or guaranteeing mortgage financing through its Federal Housing Administration's loan portfolio.

• Responsible for managing more than $531 billion in guarantees of mortgage-based securities through the Government National Mortgage Association.

Efforts to ensure equal housing opportunity

• Responsible for ensuring that housing discrimination is minimized or eliminated. 

Anecdotes: HUD Performance Problems

• Overpayments. About 156,000 low income families could have had Section 8 housing assistance if HUD hadn't wasted some $935 million in overpayments.⁵

• Confused Evictions. A contractor for HUD, Golden Feather Realty Services, Inc. who was hired to straighten out sales of foreclosed homes went in and emptied out furniture and a home's contents, including family keepsakes. They changed the locks and put a "For Sale" sign in the window of a man who had had a stroke a few months before - Robert Mitchell. Unfortunately, the HUD foreclosed home was actually a few blocks away and they had the wrong address.⁶

• Questionable Payments. HUD paid $1.78 million to the negligent landlord of three housing complexes in Cleveland, Ohio plagued by rodents, roaches, lead-based paint, and crime. They were the subject of over 8,600 health and safety violations from the City of Cleveland. "A disabled child screams in the night as cockroaches crawl over his body and into his ear. A mother and her three children, without heat in December because of a broken furnace, stay in a room warmed by an electric water bed and space heaters. A baby girl living in a lead-contaminated apartment is poisoned."⁷ This was home to more than 1400 poor families. The recipient of these taxpayer dollars had contracted with HUD to find new owners but failed to do so, yet the company was released by HUD from any civil and administrative claims relating to their ownership and operation of HUD insured and subsidized properties, while providing them a generous payment. Those living in the complexes were left with little or no recourse and without improvement in their living conditions.⁸

• Poor Contracting. As HUD dramatically downsized its staff, its oversight of real estate asset management was neglected. Inventory increased, sales to homeowners declined, the age and the condition of FHA properties deteriorated, revenue was lost and holding costs increased. HUD then contracted with Intown Management Group for outsourcing the bulk of new management and marketing contracts with an estimated 5-year cost of $367 million. Intown then went bankrupt leaving 87 contractors in 22 states looking for payment for their services. ⁹

• Puerto Rico. The Puerto Rico Public Housing Administration, the 2^nd largest public housing authority (PHA) in the nation with 327 housing projects with 56,585 units, improperly withheld and used $17 million for inappropriate disaster relief expenses, including tickets to a local Christmas play.¹⁰ Among the many other scandals at this PHA, in May 1998, it purchased 21,428 nineteen gallon water heaters for $2,365,437 only to find that years later most had notbeen installed due to the fact that these heaters  required two water lines and most projects had only one.¹¹

• District Waste. HUD provided $2.8 million to the District of Columbia to help residents in 28 housing complexes become self-sufficient. The money was found to have been siphoned off to a handful of consultants who made promises but never delivered for the residents of these DC complexes. Said one DC resident, "A lot of people got robbed and nobody stopped it."¹²

• Escalating problems for 203(k) program. GAO and the HUD IG have identified the 203(k) Home Rehabilitation Mortgage Insurance program, which has been heavily marketed and promoted since1994, as "highly vulnerable to waste, fraud and abuse" because it encourages risky property deals, overstated property appraisals, and phony or excessive fees. ¹³ At the end of the Fiscal Year 1994, there were some 6,183 active 203(k) loans, while at the end of Fiscal Year 1998 that figure ballooned to 43,794. Losses have increased to over $11 million since 1994. As of FY 1998, HUD had $3.6 billion in insurance on 44,000 outstanding 203(k) loans.

• Community Wasters. HUD diverted precious dwindling staff resources into a new, controversial and ineffective program. 800 Community Builders' mission was to help individuals, local governments, non-profit groups, businesses and others understand and benefit from HUD programs dealing with housing, economic development, job creation and training, community revitalization, and other areas. Yet, they had "few measurable results" according to HUD's own Inspector General. In a survey, Community Builders were asked to list their greatest accomplishment. They included:
• A Community Builder in Detroit stated that he has "received respect for himself," while another one from Knoxville, TN believed her greatest accomplishment was working with communities to show that "HUD is human."

The Community Builders Fellows program was terminated, effective September 1, 2000, by an Act of Congress.

• Over-promises. HUD promised 300 new homes on the poorest Indian reservation in America - Pine Ridge, South Dakota - but only 20 have been built, and only 6 of those occupied. Yet, they spent an unknown amount on departmental travel, brochures and videos promoting the fact that HUD cared - while the median income is $2600 a year and 84% of the people living on that reservation are unemployed.¹⁴

CONSEQUENCES OF FAILING IN HUD'S MISSION

Failing to maintain a laser-like focus on the noble purpose for which HUD or anti-poverty programs were created will inevitably result in diluted or non-focused programs. HUD appears to want to extend benefits to a higher percentage of Americans. Yet, diluting HUD's efforts is just as harmful as turning your back on a neighbor most in need.

HUD cannot afford to squander resources on programs that are ineffective or actually harmful.Congress should be most focused on whether or not HUD is unintentionally increasing  dependency on government, preventing those covered by HUD programs from reaching their own potential.

In addition, HUD's funding is subject to increasing fiscal pressures even in an era of surpluses. The discretionary budget - an increasingly pressurized portion of total federal spending - is being squeezed. In examining federal budget projections, entitlements will continue to take a growing percentage of total federal spending (47.1% in 1980 to 66.6% projected in 2005), with defense spending decreasing (22.7% in 1980 to 15.6% in 2005), interest payments on our national debt fluctuating (8.9% in 1980 to 14.7% in 1990, 12.3% in 2000 and 7.7% in 2005) and the discretionary budget is being squeezed from 21.3% of the federal budget in 1980 to only 10.1% in 2005.Congress will have no choice in the near future but to scrutinize HUD's budget based on  these common sense performance concepts.

In addition, HUD's wasteful spending can be translated into the number of un-served households in America. HUD's poor performance can alter the course of someone's future.

PARTNERING WITH KEY ALLIES TO ACHIEVE MISSION

HUD's performance management needs to be done in conjunction with others in government who are addressing the same or similar problems such as the Departments of Agriculture or Defense, who also manage federal housing programs. The Department of Treasury also administers numerous related tax provisions. At the end of a coordinated government focus on performance, Congress should be able to see which tools of governance are the most effective in solving specific or similar problems.

Other federal housing programs

• Mortgage interest deduction for owner occupied homes

• Deductibility of State and local property tax on owner-occupied homes

• Capital gains of up to $500,000 on home sales are exempt from taxes

• The ability of state and local governments to issue tax-exempt mortgage revenue bonds, whose proceeds subsidize purchases by first-time, low and moderate income home buyers

• Installment sales provisions let some real estate sellers defer taxes

• Low income housing tax credit provides incentives for constructing or renovating rental housing that helps low income tenants for at least 15 years

• USDA's RHS rental assistance grants for low income rural households

HUD'S FIRST PERFORMANCE REPORT

It is difficult to track HUD's actual performance in FY 1999 with their 1999 goals since there seems to have been many shifts in goals and measures. Yet, for FY 1999, HUD had 14 goals and 47 performance measures. [A chart showing each and their result is attached to this testimony.] 

What HUD measures is what will get done. Government has a tendency to measure what's easiest for them - process. This is the case with HUD and their first efforts toward performance-based management as well. Yet, government must get more comfortable taking responsibility for the results or outcomes of programs, not just intentions and activities. Americans don't care if government is training more people, getting more money to local communities, or even helping more Americans buy their first home if there is no proof that this is resulting in better lives, safer neighborhoods, better and more harmonious communities.

On the other hand, just as government is leery about measuring outcomes, they are tend toward claiming credit for outcomes to which they have minimal connection. Aiding HUD's performance successes were a strong economy, low interest rates, and sustained job growth.

HUD's seemingly penultimate goal is increasing homeownership. Increasing the number of homeowners would be the goal for mortgage bankers, homebuilders, developers, and realtors and perhaps our most generous parents, but this is not why HUD exists. This is an over-inclusive measure when it comes to understanding whether America is effectively addressing poverty. Measuring Americans with homes may be similar to measuring Americans with cars, televisions or Nike tennis shoes. Whereas homeownership may instill certain values that accompany private property. Such a focus misses the mark of measuring the effectiveness of federal programs in bringing low income Americans into financial or self-sufficiency.

Measuring the number of homeowners using government assistance may have the unfortunate consequence of increasing dependency, thwarting entrepreneurship from the private sector and displacing a function better performed by a non-governmental entity.

Measuring by race and ethnicity in policy can, without intention, further exacerbate race and ethnic tensions. More importantly, populations are most often living according to income and personal choices. HUD policies could, with further aggression, end up being as disruptive and counterproductive as busing was in the 1960s - disrupting neighborhoods, families, friends and school ties - things that are intangible but which comprise a functioning neighborhood.

Congress and HUD should be able to demonstrate success in solving Department's serious management problems - those problems that have landed HUD on GAO's "High Risk" list (federal programs most apt to be subject to massive fraud and mismanagement) and those problems that have been identified by the Inspector General as serious to impeding HUD's progress. Yet, the Performance Report does not provide sufficient information to ensure HUD is solving these fundamental internal management problems. The Congress, and in particular, the Senate Appropriations Committee, has expressed serious concern with HUD's inability to demonstrate it is using accurate and timely performance measurement data which meets sound data quality standards.¹⁵

Noteworthy Performance Measures at HUD

	Worst Example	Best Example
Accountability	"Restoring Public Trust" -- There are no numbers for these 14 performance measures.	None noteworthy
Responsibility	Self-sufficiency for the homeless is measured by various forms of assistance provided.	# of jobs created from programs
Common sense	Reducing disparities in homeownership among racial and ethnic groups.	% of funds used for low/moderate income
Honesty	(1) Targeting to low income is done through self-reported income, a condition highly susceptible to fraud.16 (2) Virtually no discussion of performance data verification and validation is evident. (3) GAO identified that HUD reported more success in # of inspections done than the number HUD reported to GAO.17	None noteworthy

CONCLUSION

HUD's first report on its performance with taxpayer dollars missed an opportunity to provide the Congress and the public with a truthful, objective depiction of what is working and what is not working at HUD to reduce poverty in America. Six years ago, a study of HUD's ineffectiveness and inefficiencies by the National Academy of Public Administration stated that, "If after five years, HUD is not operating under a clear legislative mandate and in an effective, accountable manner, the President and Congress should seriously consider dismantling the department and moving its programs elsewhere."¹⁸

We can only hope that future Performance Reports will live up to the expectations that Congress, in its wisdom of passing the Government Performance and Results Act, had.

To improve upon this initial effort, I would recommend that Congress and the Administration:

1. Reduce the number of measures at HUD to maintain a focus on increasing self-sufficiency and independence amongst low income Americans. Having too many measures is the equivalent of having no measures or priorities at all.

2. Improve the credibility of HUD's data for policy-makers. Truth matters.

3. Coordinate with other federal offices who are also focused on the same goals and outcomesand use similar or the same measures wherever possible. Policy-makers  should know which tools of governance work best: tax incentives, grants, loans, educational campaigns, training or subsidies.

4. Ask HUD management questions such as:

• Have you developed the right measures to assess a program's success?

• Which of these are achieving or failing to achieve their objectives?

• Can you specify why each of your programs were initially established - what they were designed to address or solve?

• For each program, can you specify the magnitude of the problem, the seriousness of the problem and the numbers of the population affected who are to be impacted by your program?

• For each program, do you know what other public or private entities are attempting to solve the same or similar problem, if they are effective and what you are doing to coordinate with these other entities if appropriate?

• For each program, can you demonstrate whether or not it has been proven to be effective in achieving its results? If not, can you give us a schedule by which such methodologically sound evaluations will be conducted to ensure that we are not wasting taxpayer dollars on non-productive or even counter productive programs?

• For each program proven to be effective by an independent, credible authority, can you demonstrate that it is using the most cost efficient techniques to accomplish its goals?

• Can you describe the success, in human terms, of your programs and how you will be able to tell if you are developing short or long term self-sufficiency in people touched by your program?

Public office holders or candidates should refrain from asking the federal government to do more than it can possibly, realistically achieve. This is particularly true based on the coming budgetary squeeze on discretionary spending in Washington. With tenacious, persistent, results-oriented congressional oversight, government can be reformed, downsized, streamlined and improved based on credible, objective information about program results.

Thank you for your time and attention. I look forward to any questions you may have of me.

Virginia L. Thomas  is Senior Fellow of Government Studies at The Heritage Foundation.

 

Endnotes 

 

Endnotes

¹ Heritage Foundation update from Robert Rector and William F. Lauber, "America's Failed $5.4 Trillion War on Poverty" The Heritage Foundation, Washington, DC, 1995.

² 31 U.S.C. 1116.

³ HUD's number of federal programs it administers has risen by 450% since 1980, from 54 to over 300 (Sources: FY 2001 Budget documents and U.S. Department of Housing and Urban Development, OIG Audit Related Memorandum, No. 98-HQ-179-0801).

⁴ Paul Light, The True Size of Government (Washington, D.C.) Brookings Institution Press, 1999, p. 198.

⁵ Updated figures of overpayments from GAO (September 2000) and Susan Gaffney, Inspector General, U.S. Department of Housing and Urban Development, statement before the House Budget Committee, February 17, 2000, pp. 2-3.

⁶ Russell Grantham, "HUD's Evictors Empty Wrong House: Family's Angry; Golden Feather Won't Respond," The Commercial Appeal (Memphis, TN), December 26, 1999, p.E-9.

⁷ Dave Davis and Michael O'Malley, "Roaches, Awful Conditions Still Plague Projects: HUD Ignored Rules, Let Landlords Collect Subsidies Without Proper Monitoring," The Plain Dealer, May 16, 1999.

⁸IG testimony, February 17, 2000, p. 9.

⁹ George Archibald, "FHA Chief Blames File Clerk in Bad Pact," The Washington Times, November 4, 1999.

¹⁰ Inspector General of the U.S. Department of Housing and Urban Development Audit related memo No. 00-AT-201-1801, March 9, 2000.

¹¹ HUD IG, Puerto Rico Public Housing Administration Procurement Management,00-AT-201-1003, March 6, 2000, p 8.

¹² Carol D. Leonnig, "Housing Grants Misused, Audit Says," The Washington Post, May 9, 2000.

¹³ GAO, Homeownership: Problems Persist with HUD's 203(k) Home Rehabilitation Loan Program, GAO/RCED-99-124, p. 1.

¹⁴ Jerry Seper, "IG at HUD Seizes Records on Failed Indian Housing," The Washington Times, January 21, 2000.

¹⁵ Special Report: Government Performance and Results Act of 1993, Committee on Appropriations, U.S. Senate, 106th Cong., 2nd Sess., July 18, 2000, p. 83.

¹⁶ U.S. Department of Housing and Urban Development, OIG report: Attempt to Audit the Fiscal Year 1999 Financial Statements, 00-FO-177-0003, March 1, 2000, p. 25.

¹⁷ Letter Report to Senators Fred Thompson and Joe Lieberman from U.S. General Accounting Office, Observations on the Department of Housing and Urban Development's Fiscal Year1999 Performance Report and Fiscal Year 2001 Performance Plan, B-285487, June 30, 2000, p.30.

¹⁸ National Academy of Public Administration, Renewing HUD: A Long-Term Agenda for Effective Performance (Summary Report), July 1994, pp. vii-viii.