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Congressional Testimony

Statement of James C. Kearney
Former Housing Programs Administrator

Before the House Subcommittee on Agriculture, Rural Development and Related Agencies

Mr. Chairman and members of the Committee, thank you for this opportunity to testify on the President's Fiscal Year 2001 Budget Proposal.

The Department of Agriculture's Housing Programs (Housing Programs) assists rural America in a variety of ways. Our loan and grant programs promote healthy rural communities through decent and affordable housing as well as essential community facilities, such as fire protection, health care centers, and child care centers. By way of partnerships with the private, public, and nonprofit sectors, Housing Programs provides financial and technical assistance to low-income families and rural communities. Housing Programs helps those who are unable to obtain credit elsewhere. Many rural markets are too small and isolated to provide effective access to credit. We also help make credit affordable to low-income families and communities that otherwise could not afford rent, mortgage, or other debt service payments.

The $6.7 billion program level supported by this budget request will provide assistance to over 81,000 households for single family homeownership or repairs, construct over 8,600 new rental housing units, and provide rental assistance to over 43,000 very low-income rural renters. It will also provide support for over 200 new or improved health care facilities, over 100 new or improved fire and rescue facilities, over 100 new or improved child care facilities, and create or preserve over 60,000 jobs in rural America.

In this era of unprecedented economic prosperity, Housing Programs programs ensure that some of rural America's most vulnerable members, including low-income elderly, children, farmworkers, and Native Americans get to share in our Nation's good fortune. Let me show you how we plan to continue to do that under the President's fiscal year 2001 budget.


In December 1999, Housing Programs celebrated the 50th anniversary of the Section 502 direct loan homeownership program. During the past 50 years, the program has made tremendous strides in improving the overall quality and affordability of the Nation's rural housing stock. Our customers are happy with their homes. According to a new Economic Research Service (ERS), report "Meeting the Housing Needs of Rural Residents," 90 percent of recent Section 502 direct loan borrowers think that their current home is better than their last one. These same satisfied customers are people whom the private market has difficulty serving. Twenty-nine percent are members of minority groups as compared with 15 percent of all recent low-income homeowners, and 32 percent are female single parents, as compared with 12 percent of all recent low-income homeowners. In addition, 15 percent of Section 502 households have at least one member with a disability. Almost three-quarters of the borrowers surveyed were first-time homeowners.

ERS found that the typical Section 502 financed house is a six-year old, detached single family dwelling with three bedrooms and one bathroom. The median purchase price was about $64,900. The borrowers estimated that their homes have appreciated about 8 percent since purchase.

The President’s proposed budget of $5 billion will promote rural homeownership with $1.3 billion being directed through the Section 502 direct program to low-and very-low income residents who have no other hope of achieving homeownership. The $5 billion will enable about 64,000 low- and moderate-income rural Americans to become homeowners. Based on the estimates used by the National Association of Home Builders, the President’s budget will help create or preserve nearly 44,000 jobs through the construction of new homes.

The President’s budget provides for a $12 million increase in Mutual and Self-Help Housing Grants to a program level of $40 million. By allowing families to earn “sweat equity” by helping to build their own homes, the Self-Help program makes housing affordable for many hard-working, very low-income families who otherwise would never be able to own their homes. About half of the program’s participants are members of minority groups, and a significant portion are farmworkers. The program requirements are tough: participants must complete construction of at least 60 percent of their homes. But because owning a home is so important to them, these families are willing to work at their regular jobs during the day and then put in as much as 35 hours a week on building their houses. Thanks to generous funding increases provided by the Congress, we have been able to expand the program to almost every state in the country. The funds proposed in the President’s budget will allow Housing Programs to make approximately 46 new technical assistance grants in those areas that do not have a Self-Help program. This, in turn, will enable 2,200 families to build their own homes.

The success of this program speaks for itself. In San Joaquin County, California, the average cost of an existing house is $140,000, and low-income housing is scarce. However, in the town of Ripon, the Self-Help program is providing opportunities to a number of local residents. One participating couple with a one-year-old child had been living with their parents before joining the Self-Help program. Others were in crowded quarters. None of these families could have afforded to buy a home on their own. By working long hours and helping to build all the homes for the group, these homeowners earned “sweat-equity,” which kept the cost of their homes affordable.


As the ERS study indicated, homeownership can have a tremendous impact on families’ lives and on the strength of rural communities. However, Housing Programs cannot address this issue alone. We must work with partners. Leveraging has become an integral part of how we do business. In response to the President’s Homeownership Initiative, Housing Programs is collaborating with a number of private and public partners to meet the housing needs of low-income families and individuals. For example, the Rural Home Loan Partnership (RHLP) has grown into an important delivery method of providing homeownership opportunities throughout rural America.

Housing Programs originally established the RHLP as a pilot project initiated with the Federal Home Loan Bank System (FHLB) and the Rural Local Initiatives Support Corporation. Now, Housing Programs has expanded the RHLP to include other partners. In the RHLP, a local non-profit or community development corporation partners with a local lender and Housing Programs to provide homeownership education and single family mortgages to very low-and low-income rural residents. In FY 1999, the RHLP produced 644 new homeowners using $34.9 million in Housing Programs loans, $10.8 million from other lenders, and an additional $3 million in grants. For every dollar Housing Programs invests in affordable housing, an RHLP partner contributes another 40 cents. The first year’s success began with 10 local partnerships and expanded to its current level of 177 partners.

In Henderson County, North Carolina, Housing Programs is partnering with private and non-profit sectors to offer alternatives to help rural residents achieve homeownership. Under one program, a homeownership incubator program, renters in apartments managed by the Housing Assistance Corporation pay 30 percent of their income for housing. The apartments rent for $270-320 and the remainder is saved towards the purchase of a home. Participating families must attend a comprehensive homebuyer’s education program. Housing Programs assists applicants by leveraging Section 502 loan funds with other locally available funds such as the Self-Help Credit Union, and a forgivable mortgage through NC's First Time Home Buyer (FHP) program.


Although the Housing Programs housing programs have been successful, many rural residents still live in substandard housing. According to the Housing Assistance Council’s recent report, "The State of Rural Rental Housing," more than 900,000 rural rental households, 10.4 percent, live in either severely or moderately inadequate housing. More than one million rural renter households are “worst case needs” households, which the Department of Housing and Urban Development defines as being below 50 percent of the area median household income, extremely cost burdened or inadequately housed, and receiving no Federal housing assistance. Of those rural renters with worst case needs, 92 percent pay more than one half of their income, about $6,000, for housing costs.

Together, Housing Programs’s Section 515 Rural Rental Housing program and Section 521 Rental Assistance (RA) program provide decent, safe, and affordable housing to those families who need it most. The Section 515 program provides loans at an interest rate of 1 percent to build affordable housing, while the Rental Assistance program ensures that tenants pay no more than 30 percent of their income for rent.

The average annual income of our Section 515 tenants is just under $7,700. Forty-two percent of our 426,330 tenant householders are elderly, 14 percent have a handicap or disability, 25 percent are members of minority groups, and 72 percent are women. The President’s proposed budget of $120 million for Section 515 housing will help build more than 1,400 much-needed new Section 515 units and repair or rehabilitate another 4,100 units.

The President’s $680 million for the Section 521 rental assistance program is essential to ensuring the viability of the Section 515 Rural Rental Housing and Section 514/516 Farm Labor Housing loan and grant programs. Ninety-three percent of our RA budget will guarantee that 42,800 RA contracts are renewed and that the people living in these units can remain in affordable housing. The remainder of the RA funding will be used for newly constructed Farm Labor Housing units and to keep rent affordable when repair and rehabilitation are needed for existing units.

Housing Programs has been working diligently to improve the integrity of its Rural Rental Housing program. Housing Programs instituted a partnership with the Office of the Inspector General to identify and correct any fraud or abuse. This partnership ensures that the most vulnerable in our society are protected. However, we have not ceased our efforts with just this partnership. We are also working to better coordinate with other departments, such as the Department of Housing and Urban Development and the Department of Justice, that are involved in the fraud, waste, and abuse detection and enforcement process.


Along with decent and affordable housing, many communities also lack essential community facilities such as child care centers, fire stations, and health care centers. This shortage not only impacts the quality of life for community residents but it also makes it more difficult to attract and retain businesses. Fortunately, our Community Facilities (CF) direct and guaranteed loan and grant programs provide funding for these facilities.

The $484 million for Community Facilities programs in the President’s budget will allow us to continue our commitment to child care, which is especially important in rural areas. A staggering 24 percent of rural America’s children live in poverty. Research by ERS suggests that young rural children are more likely to live in poverty than older children because rural areas lack the child care facilities that enable parents to go to work. Many rural parents face a tough choice: go to work to increase their family’s income but worry about whether their children are safe and well cared for, or live in poverty in order to stay home to take good care of their kids. The high quality child care centers, financed by the Community Facilities program, allow parents to go to work with peace of mind. Not only that, they help address the larger problem of rural child poverty.

In Iowa, our staff has made child care a priority. In partnership with the Iowa State Department of Economic Development, Housing Programs has financed 29 child care centers since 1988. Public bodies or hospitals operate six of these projects. Thirteen are located on or adjacent to school sites. Two will actually be operated by the school districts. Fourteen of the projects are co-located with Head Start programs and others provide additional family services.

I have discussed the President’s funding proposals for the major Housing Programs programs. Now let me take a moment to show you how the budget will help some of our most vulnerable rural citizens: the elderly, farmworkers, and Native Americans.


Elderly rural Americans face critical housing and long-term care challenges. Although only 28 percent of all elderly households reside in rural areas, 39 percent living in moderately or severely inadequate housing reside in rural areas. Many live in housing that they cannot reasonably afford. Over 50 percent of the elderly renters living in rural areas spend at least 30 percent of their income on housing.

Housing Programs programs ensure that these financially overburdened rural elderly can live in good and affordable housing. Our Section 515 Rural Rental Housing program provides maintenance-free, handicap-accessible homes to almost 179,500 elderly households who can no longer handle the burdens of homeownership. For those rural elderly people who want to remain in the homes they own, we provide the Section 504 loan and grant programs. These programs make substandard homes safe and decent by financing such things as indoor plumbing, electric heating and cooling systems, safe wiring, roof and floor repair, and the installation of features to accommodate disabilities. The President’s budget includes $30 million for the Section 504 grant program, which serves very low- income seniors, and $40 million for the Section 504 loan program, in which about half of the beneficiaries are elderly. With these funds, Housing Programs can help make over 13,400 substandard homes safe and decent.

In Luther, Oklahoma, an African-American Congregational church helps its members obtain Section 504 loans and grants to repair their homes. When the pastor of the church, who is employed by another USDA agency, learned about the Section 504 program, he began to encourage his congregation to apply for loans and grants and to assist them in completing application forms. His efforts have generated at least eight completed applications from elderly members of the congregation for grants to supply insulation, replace windows, install new furnaces, and ensure that electric systems are safe and adequate. Three applicants have already received funding. Four applicants are eligible for funding and obtaining bids for the repair of their homes. The remaining application is about to be processed.

The Housing Programs Community Facilities program finances a range of service centers for elderly people including nursing homes, boarding care facilities, assisted care, adult day care, and intergenerational care centers that serve both elderly people and children at the same time. Since its inception in 1974, the Community Facilities program has invested $657 million in centers that directly benefit seniors and millions more in health care services which serve both seniors and the general population.


Although the elderly housing needs are severe, farmworkers and Native Americans are the two most poorly housed groups in America. Even though farmworkers enable America to maintain its production levels and to compete in world markets, farmworkers are the lowest-paid group of workers in the Nation. At the same time, their labor ensures food security through the successful production and distribution of our Nation’s agricultural crops.

Housing Programs provides housing to farmworkers primarily through two programs: the Mutual Self-Help program, which I have already described, and the Section 514/516 Farm Labor Housing program, which is the only national source of farm labor housing construction funds. Participants in both of these programs must be either permanent residents or U.S. citizens. Tenants in our farm labor housing must earn a substantial portion of their income through farm work. Eighty-nine percent of tenants in Housing Programs-financed farm labor housing are minorities, primarily Latino and African-American.

The President’s proposed budget of $45 million for the Farm Labor Housing program will allow us to finance construction of approximately 800 new units as well as address our anticipated need to rehabilitate and repair existing units. This funding will be highly leveraged because Housing Programs partners with other public and private funding organizations in the vast majority of its complexes.

Everglades Villages, a farmworker mobile home park in southern Florida, is another example of how Housing Programs helps farmworkers. After many trailers were destroyed by Hurricane Andrew, emergency funds allowed for houses to be built in place of the trailers. When the development is completed, all mobile homes will be replaced. The homes at Everglades Villages are intended for year round farm workers.

In addition to providing farmworkers with housing, Housing Programs also provides them with essential community facilities such as child care and health care centers. This program has also been successful in meeting the needs of migrant farmworkers, who are difficult to serve. In conjunction with the Department of Health and Human Services, we have funded numerous migrant health care clinics and migrant Head Start centers.

The President’s proposed budget includes $5 million for emergency assistance to low-income migrant and seasonal farm workers. This money will help farm workers who face natural disaster or economic hardships by providing emergency services to low income migrant and seasonal farm workers. This money continues assistance provided through the emergency grants Congress funded for $20 million in the FY 1999 spring supplemental appropriations bill.


Housing Programs continues to reach underserved communities and populations. We have help from nonprofit organizations that help package our loans, performing valuable outreach to underserved communities in the process and stretching our limited staff resources. Our nonprofit and Government partners in the Rural Home Loan Partnership have played pivotal roles in expanding the reach of the Section 502 direct loan program.

In its housing survey, ERS looked at how well Housing Programs program participants fare compared with other groups of low-and moderate-income rural residents. They compared the data on our borrowers with that of the 1995 American Housing Survey. The results were impressive. ERS found that 30 percent of the Section 502 program participants are minorities compared with 15 percent of the AHS group. Housing Programs borrowers are more than twice as likely to be female-headed single-parent households.


Of all rural populations, Native Americans suffer from some of the worst poverty levels, housing, and access to basic community and health services in the country. Housing Programs continues its extensive outreach to Native Americans by working to overcome barriers to lending on tUtilities Programst land and providing grant funds whenever possible.

The Section 504 housing repair loan and grant programs are often the first Housing Programs program to be used on a reservation. Section 504 loans are especially easy to use because if the loan is less than $2,500, no real estate security is needed. This minimizes the problem of lending on tUtilities Programst land. In North Dakota, the Section 504 loan program has proved invaluable. After Devils Lake flooded many homes at Spirit Lake Nation reservation, FEMA was able to provide mobile homes to people who had lost their houses but lacked funds to place and connect them. The program helped provide foundations, hookups for utilities, water and sewer, and some weatherization for 10 of these mobile homes.

Housing Programs has worked hard to increase its investments in Indian country. We have financed numerous Section 515 multi-family housing complexes benefiting Native Americans throughout the Nation, and we typically provide about 10 percent of our Housing Preservation Grant funds to organizations that serve Native Americans. Through small Section 525 Technical Assistance Grants to non-profit organizations, we provide credit counseling and homebuyer education to Native Americans to help them qualify for Housing Programs single-family housing loans and become successful homeowners.

The President’s proposed budget earmarks $24 million for Native Americans of which $4 million is proposed to be used for Community Facilities (CF) assistance. Native American communities, especially those on reservations, have many needs beyond housing, such as medical centers, libraries, community centers, child care centers, Head Start facilities, fire stations and trucks. The CF program also funds a variety of buildings for tribal colleges, including housing for teachers in isolated areas.


There are two legislative proposals in our budget submission. It is our belief that precious Government dollars should be targeted to those most in need. Our proposals are to reduce the cost of some of our guaranteed-lending programs so that this money can be used in our direct programs.

We are proposing to make our Guaranteed Multi-Family Housing program even more cost effective by eliminating the provision that requires us to provide subsidies for at least 20 percent of the loans. Since this program is designed to provide housing for tenants with incomes of up to 115 percent of median area income, the interest credit subsidy is not needed to make most projects feasible. This provision also makes the loan much more difficult and costly to administer equitably and market across the country. Lenders have advised us that it is burdensome for them to operate under the provision because while borrowers make monthly payments to the banks, Housing Programs pays the interest credit on the loan annually.

In the same vein, we are requesting a statutory change to increase the fee that may be charged to lenders from 1 to not more than 2 percent of the Guaranteed Single Family Housing loan. By increasing the guarantee fee, the cost of the program to the Government would be reduced to almost zero. This fee increase would not make a significant difference in the amount the borrower would have to pay since it could be included in the loan.

Should the Congress revise the Housing Act as we propose, these programs will become budget neutral, which means that the programs could assist many more families and scarce subsidy dollars could be targeted to programs that serve the most needy rural Americans.


Housing Programs’s commitment to helping people become self-sufficient extends to its employees. In July 1997, in response to President Clinton’s Federal Welfare-to-Work Initiative, the USDA Centralized Servicing Center (CSC) in St. Louis, MO, hired its first Welfare-to-Work employee. Since then, the CSC has hired 22 Welfare to Work employees. Nineteen are still employed by USDA. One transferred out of the St. Louis area and now works for the IRS. Our Welfare to Work program has had a 90 percent success rate. Several factors contributed to the success of this program. The CSC works in partnership with Hope House, a transitional service agency. Hope House refers candidates and provides child care, skill training, and housing for them. At USDA, trainees complete an orientation that helps them understand how the working world operates. Each trainee is assigned a mentor from the CSC who assists and advises the trainee on personal issues as well as work-related problems.

Welfare-to-Work employees are initially hired to work as customer service representatives. This helps the trainees because (1) they receive in-depth training on all areas of the CSC; (2) they can take advantage of flexible scheduling; and (3) there is a special supervisory team to give them individual support and training. Once they make the transition to a working environment, they may apply for other positions.

Here is an example of a success story in the Welfare-to-Work program. When this employee started as a trainee, she found it difficult to handle her work schedule and manage the demands of her family. Her mentor and supervisor helped by giving her the support, encouragement and flexibility she needed for success. In addition to job-related assistance, her mentor has advised her on personal decisions, such as buying a new car and, recently, buying her own home. Currently, this employee has a permanent position in the telephone center and is attending junior college. She plans to complete her associate degree in computer science this year.

I hope I have illustrated to you how Housing Programs programs touch many areas of rural life. We have great opportunities to assist rural people and their communities in becoming self-sufficient. I have given you only a few examples of the ways Housing Programs makes a difference in the lives of so many rural Americans.

Through our partnerships and leveraging efforts, we can expand the reach of our resources even further. The funds requested in the President’s budget will assist us in reaching underserved people in rural areas where our help is needed the most.

Before closing, I would like to ask the Committee to provide the requested funding for Rural Development salaries and expenses. We cannot manage the approximately $40 billion portfolio of direct and guaranteed loans without qualified staff. In addition, our portfolio is rapidly outgrowing our existing computer systems. We need the funding to pay for all of these things.

Mr. Chairman and members of the Committee, with your continued support, Housing Programs looks forward to improving the quality of life in rural America by helping to build competitive, vibrant communities through our Community Facilities and housing programs.

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