Committee on Banking and Financial Services

FY 2001 Budget Views

February 16, 2000

Committee Overview

A continued disciplined congressional fiscal policy and pragmatic stewardship of monetary policy by the Federal Reserve Board has created the longest peacetime growth in modern American history. America enjoys a federal budget surplus for the third straight year, while enjoying increased employment opportunities, as well as a decline in welfare cases.

American banking and financial services have been the keystone for continued economic expansion. It is the belief of the Committee that financial services modernization will ensure America's international preeminence in financial markets, provide billions of dollars in savings annually to consumers resulting from greater competition, and expand access to sophisticated financial products across the country.

Last year, one of the highest budget-related priorities of the committee was debt relief. The Committee approved legislation (H.R. 1095) authorizing bilateral and international organization debt relief for up to 45 of the poorest countries of the world. Such debt relief will help qualifying countries to achieve sustainable development and sustainable debt servicing levels as well as provide essential social services. Approximately one-third of proposed debt relief was funded in the FY 2000 omnibus appropriations bill. Working with faith-based organizations, the Administration, and the Senate, the Committee will assess approaches to comprehensive funding for this initiative in coming months.

Debt relief for countries afflicted with the catastrophe imposed by HIV/AIDS is not enough. In Africa, a human tragedy has been unfolding on a scale terrifyingly reminiscent of the plagues that swept through Europe during the Middle Ages. With only 10 percent of the world's population, Sub-Saharan Africa has 70 percent of those who have contracted HIV/AIDS. To address this calamity on both a public health and economic development scale, the Committee expects to take up in March a bill (H.R. 3519) directing the U.S. government to seek the establishment of a special AIDS trust fund at the World Bank. The fund would support AIDS education, prevention, treatment, and vaccine development in the world's poorest countries, especially in Sub-Saharan Africa, the Caribbean, and parts of Asia where the disease is fast moving. The legislation authorizes U.S. contributions of $100

million a year for five years, beginning with FY 2001, in hopes of leveraging contributions from other governments and business donors to reach $1 billion a year for the trust fund.

As in previous years, the most significant FY 2001 budget costs under the jurisdiction of the Committee are found within Department of Housing and Urban Development (HUD) programs, which are discussed in detail below under the heading "Housing and Community Opportunities." Important initiatives the Committee intends to take to the Floor will expand homeownership (H.R. 1776) and increase the availability of affordable homeowner insurance in disaster prone areas (H.R. 21). The Committee also intends to pursue enactment of remaining provisions in H.R. 202 relating to affordability of housing for seniors and individuals with disabilities. Finally, the Committee expects to take to the Floor early this year H.R. 1073, the "Homeless Housing Programs Consolidation and Flexibility Act."

Housing and Community Opportunity

OVERVIEW

The Department of Housing and Urban Development (HUD) proposes a budget of approximately $32 billion - a 22 percent increase in discretionary budget authority over FY 2000 - with spending increases for every program area in the Department. In addition, HUD is proposing nine new program initiatives at a cost of $221 million.

In describing its proposal, HUD states that "the Administration has proposed the strongest HUD budget in over 20 years." The Committee will carefully review the Administration's request with philosophical differentiation in the size of spending to be expected. From a priority point of view, there appears to be general consensus that government resources should focus on programs that reach those most in need. Vouchers that afford low-income families choice in assisted housing, and community development programs that provide local communities with flexible renewal opportunities, are at least two areas where serious consideration should be given to focus federal resources. Helping working families achieve the American dream of homeownership, particularly among minorities and younger Americans, will remain a priority.

The Administration has again proposed an initiative designed to bring more private capital into economically distressed or severely underserved areas through "America's Private Investment Companies" (APIC). In light of APIC's $5 billion federal liability over five years and HUD's limited program monitoring and oversight capacity, this initiative must be

Another new initiative worthy of consideration is the proposal to encourage states and localities to create mixed-income assisted living environments for senior citizens. The Committee is pleased that HUD has responded to Congressional emphasis on focusing resources on strategies that provide a variety of federal tools for public-private partnership initiatives at the local level. HUD proposes this same approach be used to bring together portable housing vouchers, FHA multifamily mortgage insurance, and the Low-Income Housing Tax Credit (LIHTC) for affordable housing production. While not under the jurisdiction of the Committee, it is widely recognized that the LIHTC is a tremendous tool to combine private sector dollars with public funds. The LIHTC leverages about $7 billion in investment each year to produce approximately 75,000 apartments that rent at prices affordable to low income families.

For the remainder of the 106th Congress, the Committee will pursue legislative initiatives to expand homeownership opportunities and economic revitalization efforts throughout America's communities. Last Congress, the House passed the H.R. 3899, the "American Homeownership Act of 1998." The Committee intends to consider similar legislation in this Congress, H.R. 1776, the "American Homeownership and Economic Opportunity Act," and urges Administration support.

The Committee intends to build on 1999 efforts to preserve existing affordable housing for seniors and other low-income families displaced through "Section 8 opt-outs." The Section 8 project-based program assists almost a million and a half low-income families, the overwhelming majority of whom are seniors or individuals with disabilities. H.R. 202, "Preserving Affordable Housing for Seniors and Vulnerable Families into the 21" Century" passed the House in September 1999 by a vote of 405 to 5, and components of the legislation were enacted into law through the appropriations process. The provisions enacted into law allow existing residents of "Section 8" project-based affordable housing to continue living in their homes even if the project owner chooses to leave the Section 8 program through enhanced vouchers. In addition, the Act encourages owners to renew their subsidy contracts with the federal government to preserve the existing inventory of affordable housing.

Much of H.R. 202, including provisions providing common sense reforms and flexibility to HUD's senior and disabled housing programs administered by non-profits, remains to be conferenced with the Senate. Specifically, H.R. 202 provides for the modernization of project financing, streamlined refinancing, the creation of mixed-income senior and disabled housing environments, the conversion of senior housing projects to assisted living facilities for "aging in place," and greater flexibility for provision of supportive services to vulnerable families. The bill also includes a matching grant to states and qualified local governments for the preservation of federally assisted units that would otherwise pre-pay or opt out.

Finally, the Committee also appreciates support from the Administration for legislation designed to increase the availability of homeowners' insurance in disaster-prone areas, H.R. 21, the "Homeowners' Insurance Availability Act." In the aftermath of natural disasters

from California to Florida in the early 1990s, families living in coastal areas or earthquake prone regions have found it difficult to obtain adequate insurance coverage for their homes. The Committee expects that the Congress and the Administration, working together, can agree on a fiscally responsible solution to address the needs of unprotected homeowners, while working to reduce losses and financial exposure through mitigation efforts.

CHOICE-BASED HOUSING

Of particular interest to the Committee is HUD's request for $690 million for an additional 120,000 affordable housing vouchers. The President has appropriately noted that housing vouchers enjoy bipartisan support. The Committee strongly supports vouchers and the independence and choice they afford assisted families.

In 1998, Congress provided the authorization and reform legislation for new housing vouchers in the public housing reform bill, the "Quality Housing and Work Responsibility Act." Since 1998, Congress has increased funding for new vouchers by $630 million, providing 110,000 more families with greater affordable housing opportunities. Housing vouchers and non-public housing project-based assistance are funded under the Housing Certificate Fund. From FY 1995 through FY 2000, Congress has provided nearly $56 billion in such assistance.

During the mid-1990s, there was agreement that an increase in vouchers should be linked to much-needed reforms of HUD's housing certificate and voucher programs. For example, under "take one, take all" provisions of the program, private development owners who accepted any families with housing vouchers had to accept all qualifying families with vouchers. Owners were also faced with an "endless lease" circumstance, which effectively prevented owners from refusing to renew the leases of assisted residents, even in cases where the individual was disrupting resident life. Finally, assisted families were subjected to different requirements, depending on whether they received housing certificates or vouchers, leading to an administrative nightmare. In addition, the HUD Office of Inspector General had found that internal control weaknesses within HUD resulted in an inability to ensure that subsidized housing units were occupied by eligible families and that those families were paying the correct rents.

Following the enactment of fundamental reforms of the housing certificate and voucher programs brought about by the "Quality Housing and Work Responsibility Act," Congress appropriated $283 million for 50,000 new housing vouchers on top of the $10.3 billion it provided for the Housing Certificate Fund for housing assistance contract renewals. Last year, as part of the FY 2000 budget, Congress provided $347 million for 60,000 new housing vouchers, in addition to the $11.4 billion in total for the Housing Certificate Fund

The Committee notes that HUD advocates targeting the use of incremental vouchers for specific populations, such as welfare-to-work and homeless populations. Federal micromanagement of local housing programs, as this clearly is, oftentimes is counterproductive. Prior to our reform of the public housing system, for example, we learned that federal policies requiring that certain populations be given preferences for admission resulted in an increased concentration of poverty. This policy unintentionally fostered enclaves of poverty, crime and hopelessness that few families could then escape. Rather than trying to direct local housing policy at the federal level, the Committee believes the preferable approach would be to allow localities greater flexibility to allocate vouchers based on what they perceive their needs to be. This greater local discretion will lead to a more efficient use of housing resources, maximizing the return to society and the taxpayers.

EXPANDING HOMEOWNERSHIP OPPORTUNITIES

According to the Census Bureau, after a period of stagnation in homeownership during the early 1990s, homeownership rates increased from 64.2 percent in 1995 to 66.9 percent in 1999. Much of this success can be attributed to the strong American economy which resulted from federal fiscal restraint, and the enterprising spirit of American working men and women. The Committee notes that changing demographics have also had a major impact on the increase in the homeownership rate. Today, there are more than 33 million Americans age 65 years and older. By the year 2020, that number will grow to almost 53 million, or one in every six Americans. Currently, Americans between 65 and 74 years of age enjoy a homeownership rate of over 82 percent which has served to raise the overall rate of homeownership. However, there are sectors of the population for whom homeownership remains unattainable, particularly in the African American and Hispanic American communities whose homeownership rates are 46.7 percent and 45.5 percent respectively.

H.R. 1776, the "American Homeownership and Economic Improvement Act," encourages local governments to reduce barriers to affordable housing and homeownership that arise from unnecessary and excessive regulation. H.R. 1776 provides local governments with additional flexibility and tools to help fashion homeownership programs for low-income citizens, including teachers, police officers, firefighters, and other municipal employees who add to the social capital of a community. H.R 1776 provides added financial flexibility within existing federal programs, such as HOME and the Community Development Block Grant (CDBG) program, allowing the creation of "mixed-income loan pools" and loan guarantees. The bill allows greater use of Section 8 subsidies in homeownership programs, so that instead of paying rent a low-income recipient of such assistance can use it as part of a mortgage, building assets and capital.