goes up, not down. I don't see any light at the end of the tunnel, do you? Secretary PIERCE. Well, I certainly hope so. I really believe this has to be done, and I think we're going to have to face this. I don't know- Mr. SCHUMER. Well, you've been facing it admirably. Mr. SCHUMER. You know, from that perspective you have, from $30 billion to $6 billion, you've been facing it, but no one else is. I mean, maybe our country would be a lot better off, if you and Caspar Weinberger switched positions. [Laughter.] Secretary PIERCE. I don't know about that. I may be caught like Caspar. You know, they used to call him "Cap the Knife," because he cut everything? Mr. SCHUMER. Yeah. Secretary PIERCE. He doesn't do that now, does he? [Laughter.] Mr. SCHUMER. He doesn't. That's why I hope there's a switch. [Laughter.] We'd cut the Defense budget, and we'd have some housing again. Let me ask a couple of substantive questions, just on some issues that I'd like to get your opinion on. One, my colleague from Staten Island, Guy Molinari, has been pushing legislation which allows an economic mix in public housing, middle-class and low-income families together. In New York City, at least, our experience has been, when there is a mix, the housing lasts longer and everybody does better, the very poor and the middle income alike, they're role models, et cetera. It seems to me that given HUD's view for public housing ownership, homeownership, you know, to try and privatize this public housing, that there be even more of an imperative to have a mix from an economic as well as social point of view. Do you have any position on Congressman Molinari's bill? Mr. SCHUMER. I would ask you to. I think it has nothing to do with the economic problems that you face in balancing the budget, or whatever. And it could do a lot of good in terms of public housing throughout the country. So, if we might, could we leave the record open, Mr. Chairman, and have the Secretary respond to Congressman, the good Congressman, Republican Molinari's bill? Secretary PIERCE. All right, we'll comment on it. [At the request of Congressman Schumer, the following additional information was submitted for inclusion in the record by Secretary Pierce:] RESPONSE RECEIVED FROM SECRETARY PIERCE The Department is currently in the process of reviewing the ceiling rent proposal introduced by Congressman Molinari. We expect to make a statement on this proposal soon. [Subequently, the following letter, dated May 10, 1985, was received from Secretary Pierce containing comments on Congressman Molinari's bill:] 48-671 0-85-10 EPARTMENT OF HOUSING AND URBAN U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT THE SECRETARY May 10, 1985 Honorable Henry B. Gonzalez Committee on Banking, Finance and House of Representatives Dear Mr. Gonzalez: At the hearing of the Subcommittee on Housing and Community Development held on March 13, Congressman Schumer asked that I comment on the public housing "ceiling rent" proposal introduced by Congressman Molinari and co-sponsored by several other members. The provision to which you refer is embodied in H.R. 153, entitled the Public Housing Rent Stabilization Act. A similar, but not identical, provision appears as Section 102(a) of H.R. 1. This provision would restore the authority of public housing authorities, which was repealed in 1981, to fix "ceiling rents" in order that higher-income occupants of public housing may pay a lesser percentage of their adjusted income as rental contribution than the 30% otherwise required by Section 3(a) of the United States Housing Act of 1937. Specifically, it would authorize the local authority to establish an "appropriate" rent for a family residing in a public housing unit. The statute would prescribe no minimum amount of such rent, but would provide that the "appropriate" rent for the family could not exceed a maximum amount that (1) is approved by the Secretary, (2) is not more than the amount otherwise required by Section 3(a), and (3) is "based on (i) the unsubsidized monthly rents for comparable dwelling units in the area involved; (ii) the average monthly amount of debt service and operating expenses attributable to dwelling units of similar size in public housing projects owned and operated by such agency; or (iii) other relevant factors approved by the Secretary." (The third factor quoted above is as it appears in H.R. 153. In Section 102(a) of H.R. 1, only the "economic rent" factor described in clause (ii) above is referred to. I take the H.R. 153 version to be the later, now-current version of the proposal, and it is to it that my remarks are directed.) It is necessary to consider this proposal against a somewhat broader context. The principal thrust of housing assistance policy in recent years, supported by both the Executive and Legislative branches, has been to target assistance to the most needy, whether defined exclusively in terms of income level or also in terms of other housing problems. This was reflected in the abandonment of the Section 8 new construction and substantial rehabilitation programs, which was motivated in part by the extent to which those programs, particularly when coupled with tandem financing and tax-exempt bond financing, subsidized projects where only a portion of the units would be occupied by assisted families, in favor of direct affordability assistance through Section 8 Existing Housing Certificates and vouchers. The thrust is evidenced more directly by the adoption in 1981 of Section 16 of the United States Housing Act of 1937, and in Congressional adoption of preferences for admission to assisted housing in 1979 and further in 1983. The depth to which this targeting thrust has pervaded our assisted housing policy can also be seen in the way in which the Senate Appropriations Committee, for example, has approached the subject. I'm sure that you are familiar with the approach that has been followed by that Committee during the last few years: one of defining the extent of the needs of the "worst cases" and charting a path for meeting that need over an eight-year period. The Committee defines the "worst cases" in a manner that is similar to the statutory preference provisions I mentioned before: those families below 50% of area median income who are living in substandard units and paying more 30% of their income for rent (or have an income so low that they cannot afford the Section 8 Existing Housing Fair Market Rent at 30% of income) or who are living in standard units but are paying more than 50% of their income for rent. It is the Committee's estimate of the number of families in this category remaining unserved which has determined the Committee's recommended funding level for incremental units. The focus of our low-income housing assistance policy, therefore, is a consumer-based program directed at affordability and targeted to those most in need. Nothing raises the fundamental question of how public housing fits within this strategy more starkly than the ceiling rent proposal. I recognize the desirability of maintaining an occupancy in public housing having a "broad range of incomes," as directed by Section 6 of the '37 Act. This is evident in HUD's administration of Section 16, which recognizes "local commitment to attaining an occupancy having a broad range of incomes" as a basis for admitting families having incomes in excess of 50% of area median income into the project-based subsidy programs, including public housing. For example, at Mayor Koch's request I recently granted an exception to the New York City Housing Authority from the regulatory limits on admissions of families over 50% of area median income into projects which have opened for occupancy since 1981. Under the exceptions, the Authority is authorized to admit families whose incomes fall between 50% and 80% of area median income into up to 30% of the units in nonelderly projects and into up to 15% of the units in elderly projects. These exception levels are authorized until September 30, 1985, at which time we will consider extension in the light of information regarding the impact of the exceptions on very-low income families on the waiting list. (At the same time, I denied a request for a similar exception in the Section 8 Existing Housing Program. The policy arguments in favor of a broad range of incomes do not, in my mind, apply to the FindersKeepers program in the same manner as they apply to the projectbased subsidy programs.) However, I believe that the ceiling rent proposal goes further than is necessary to achieve the objective of maintaining occupancy by families having a range of incomes across the lowerincome spectrum. This seems to me to be at least implicit in the exceptions request that was made by Mayor Koch on behalf of the New York City Housing Authority. More importantly, I believe that the proposal is inequitable in that it would grant a greater degree of subsidy to higher-income tenants than to lower-income tenants, and that it is unduly prejudicial to the interests of needier, applicant families remaining on the waiting list. Accordingly, I oppose enactment of the ceiling rent proposal embodied in H.R. 153 or in Section 102(a) of H.R. 1. To elaborate the Department's position in further detail: 1. Even if a ceiling rent proposal were acceptable in principle, the "economic rent" level suggested as one criterion by H.R. 153 (and as the only one by Section 102(a) of H.R. 1) appears inordinately low. It would violate an historic principle that, subject to "Brooke Amendment" ceilings based on percent of income, higher-income public housing tenants must, to some extent, make up for the net loss suffered on rentals to lowerincome tenants. Although these higher-income tenants may "crosssubsidize" lower-income tenants, they are still being subsidized. The amount of subsidy they receive is equal to the difference between the rent they would have to pay for a comparable unsubsidized unit and the rent they actually pay in public housing. (The next paragraph addresses the circumstance where the unsubsidized rent is less than the tenant's public housing rent.) Further, by basing the "economic rent" on an authority-wide average rather than on a project basis, occupants of newer projects with higher debt service (and probably better physical condition) would receive an even greater benefit than occupants of older projects. Finally, the formulation is unworkable in any event, because most authorities lack data from which they could relate authority-wide operating expenses, much less debt service, to unit size. 2. While a ceiling rent related to the "unsubsidized monthly rents for comparable dwelling units in the area" may appear more equitable, this formulation also raises more sharply the question of the fundamental rationality of the proposal. For purposes of analysis, assume that the "unsubsidized monthly rents for comparable dwelling units" are equal to the Section 8 Existing Housing Fair Market Rents. Those amounts represent that level of rentals below which one finds the rentals charged to recent movers for 45% of all standard units in the market area. A family that can pay the FMR with 30% of adjusted income or less is a family whose income is too high to be subsidized under Section 8. What theory of the purpose of public housing justifies increasing the subsidy of a family at this income level - or higher in order to provide it an incentive to remain in public housing while needier families remain on the waiting list? 3. Further analysis of the relationship between Section 8 Existing Housing FMRS and median incomes suggests that the "pricing out" effect of the 30% rent-to-income ratio, if it occurs at all, is likely to affect only the very top of the "lower-income" range (i.e., at or close to 80% of area median income, if not above). (It should be remembered that while there are statutory income limits on admissions, there are none for continued occupancy. Families whose incomes rise above 80% of area median income are not forced out automatically by that fact but only by rising rents.) While in most areas a family at 80% of area median income can meet the Section 8 Existing FMR with less than 30% of adjusted income, at 65% of area median income that is roughly equally likely not to be the case. Of the 56 metropolitan areas included in the American Housing Survey, a three-person family at 80% of area median income, adjusted for family size, could meet the Section 8 Existing FMR for a twobedroom unit with less than 30% of adjusted income in 53 areas, and a three-person family at 65% of area median income, adjusted for family size, could meet the FMR with less than 30% of adjusted income in 34 areas. 4. It is important to translate the foregoing data into terms relating to working families. The income level of the lowest-paid working families generally falls in the lower half of the band between 50% and 80% of area median income, not the upper half. In fact, the American Housing Survey and Current Population Survey data show that many households with incomes between 30 and 50 percent of area median income have income based on earnings and two adults in the family the traits conducive to contributing to social and physical stability of public housing that are sometimes erroneously described as limited to higher income families. If the point at which families tend to be "priced out" of public housing is where their income-based rents become roughly equal to the Section 8 Existing Housing FMR, then we can see that this occurs, in most areas, at a point somewhat above the income level of the poorest working families. The ceiling rent proposal, therefore, is not necessary in order to achieve the objective of retaining occupancy by a fair representation of working families. |