In his prepared remarks on the Dapartment of Housing and Urban Development's fiscal year 2012 budget, HUD Secretary Shaun Donovan yesterday told the House Financial Services Committee that any spending allocations must meet a number of challenges. 

Assisting responsible families in the midst of housing crisis, providing quality affordable rental housing, transforming neighborhoods racked with poverty, rebuilding the nation's federally-assisted public housing stock and ensuring that its tenants are part of the skilled workforce the new global economy requires are just a few.  Adding stress to the situation, these lofty  goals must be met in a cost-conscious manner because of America's growing federal budget deficit and struggling economy.

Clearly education plays a major role in sustainable homeownership. Donovan said to remain in line with President Obama's State of the Union message, "Winning the Future",  America must out-educate, out-innovate, and out-build the rest of the world and reform government to make it leaner, smarter, more transparent  for the 21st Century.

We cannot out-educate, he said, if we lack quality affordable housing which prevents children from accessing good schools in safe neighborhoods or if homelessness threatens the continuity of schooling.  For that reason the budget includes support of the Choice Neighborhoods Initiative to link HUD's housing investments to a compatible Department of Education program and proposes to target housing vouchers coupled with educational and other supportive services to at-risk families with school-aged children.

An innovative clean energy economy is also vital.  In order to compete in the new century, HUD will work to improve the energy efficiency of 245,000 HUD-assisted affordable houses through energy retrofits and completing green retrofits of 19,000 privately-owned, federally-assisted multi-family units. 

The President's focus on repairing our existing infrastructure and innovating new ways of transporting people, goods and information will not only put people to work now, Donovan said, but also spur investments that build a stronger economy.  HUD's budget includes $140 million for a joint program with the Environmental Protection Agency and Department of Transportation to help communities develop comprehensive transportation plans to reduce families' combined costs of housing and transportation.  The budget also proposes a $200 million rental assistance demonstration to rehabilitate America's federally-subsidized affordable housing stock in a way that seeks to leverage $7 billion in private debt and equity capital and, in the process, support significant job creation in communities across the country.

To eliminate or streamline contradictory rules and regulations in order to generate economic growth, HUD will continue to focus on improving the way it works with other agencies. Donovan pointed to the existing level of federal and non-federal interagency cooperation, saying it is unprecedented and vowing to continue and improve upon it.  

 The 2012 HUD budget is structured around what Donovan called five overarching goals from the Department's five-year Strategic Plan adopted in 2010.

Goal 1: Strengthen the Nation's Housing Market to Bolster the Economy and Protect Consumers

While HUD expects the FHA will continue to support the housing market, it is critical that the Department pave the way toward a robust private mortgage market, a process it began many months ago.  FHA has already taken significant steps to facilitate the return of private capital and has strengthened its credit and risk controls, improved lender oversight and enforcement, and tightened underwriting guidelines.

Goal 2: Meet the Need for Quality, Affordable Rental Homes

While the median income of American families is over $60,000, families in HUD-assisted housing have a median income of $10,200 and more than half of the tenants are elderly or disabled.  The vulnerability of these residents is why, Donovan said, we have chosen to protect the funding that houses these families and fully 80 percent of the proposed budget keeps current resident in their homes, provides basic upkeep to that housing, and continues to serve the most vulnerable populations through homeless programs.

The Budget requests $19.2 billion for HUD's Housing choice Voucher Program which will help more than two million extremely low- to low-income families and 9.4 billion for Project-Based Rental Assistance to preserve approximately 1.3 million units through funding for contracts with private owners of multi-family housing.

The Budget also calls again for funding the National Housing Trust Fund (NHTF) at $1 billion.  NHTF, which has never been funded, was designed to provide capital to build and rehabilitate housing to fill the growing gap identified in the recent Worst Case Housing Needs Report.

Goal 3: Utilize Housing as a Platform for Improving Quality of Life

Donovan said HUD recognizes that stable affordable housing provides an ideal and cost effective place to deliver other services such as the Department's recent program in cooperation with the Department of Veterans Affairs to target homeless veterans. The Budget includes other programs for the homeless such as $2.3 billion for Homeless Assistance Grants to maintain existing units and expand prevention, rapid re-housing and permanent supportive housing.  The Budget also provides $953 million for Housing for the Elderly and for Persons with Disabilities Programs and $499 million for new construction for elderly and disabled that will allow them to continue living independently in their communities.

Goal 4: Build Inclusive Sustainable Communities Free from Discrimination

President Obama has made it clear that winning the future depends on winning the race to educate children but, Donovan said, that is not possible if we are leaving a whole generation of children behind in our poorest neighborhoods.  The budget brings federal partnerships to connect historically isolated people and neighborhoods to local, regional, and national economies by providing $250 million for a third  year of funding the Choice Neighborhoods initiative.  This program will continue transformative mixed-finance investments in high poverty neighborhoods, bringing private capital and mixed-use, mixed income tools to transform affordable housing in five to seven neighborhoods

Goal 5: Transform the Way HUD Does Business

 The need for responsible budgeting has never been greater and making smart responsible choices depends on quality information so the Budget provides up to $120 million for the Transformation Initiative (TI) Fund which has begun to alter how HUD approaches its investments in delivering technical and capacity-building assistance, conducts research demonstrations and maintains and upgrades information technology (IT) systems. 

A key element of the transformation strategy is to provide predictable funding for high quality research and evaluation that can inform sound policymaking.  Donovan cited as an example the current allocation method of Housing Choice Voucher administrative fees which is not based on rigorous and objective studies and may over-compensate some public housing agencies while underfunding others. HUD must rebuild its internal research capacity and work in partnership with the research community to evaluate existing programs and design new policy approaches to solve housing and community development challenges.

The Department must also use 21st century technology to protect the taxpayers' investment.  Funding for information technology modernization and development is not requested in the 2012 budget because of significant balances available from 2010 and funds from 2011 to continue priority IT development and enhancement efforts. 

Donovan said that, "Given the economic moment we are in, HUD's FY2012 budget proposal isn't about spending more in America's communities - it's about investing smarter and more effectively.