Putting HUD's house in order

For residents of the 1400 block of R Street in Washington, D.C.-nine blocks north and two blocks east of the District's most famous address, 1600 Pennsylvania Avenue-it's good to be odd. The odd-numbered buildings on the north side of the street are home to Yuppie singles with $200,000 to spend on cramped urban condos. The buildings have aristocratic-sounding names, like The Gladstone, and wrought-iron fences surround the well-tended flowerbeds out front.

But the south side of the street is a different story. No flowers decorate the front of the run-down, U-shaped facades-just cement steps where young men sit listlessly for hours each day, sullenly watching their neighbors across the street. Nor do the buildings have names: They are known simply by their notorious, even numbers: 1416, 1428, 1432, 1436 and 1440.

The five buildings have a total of 122 apartments for tenants receiving federal rent subsidies. Each year, the Department of Housing and Urban Development pays $975,000 to the partnership that owns the buildings. In return, the owners maintain the 122 units as "Section 8" housing, charging far less per square foot than they could get on the open market. With guaranteed government income, there's precious little incentive to modernize or beautify the apartments-or even to make them marginally livable. From January of 1999 through October of 2000, D.C. police were dispatched to the buildings for emergency calls more than 500 times-nearly once a day.

Not surprisingly, many neighbors want to see the dangerous, drug-infested buildings shut down. Why would anyone want to live in such a place, they wonder? But people do want to live in such a place. Like most big cities, D.C. has a waiting list of poor residents who can't afford market-rate rents. Nearly 13,000 people in the District are waiting for Section 8 housing like the R Street properties, and the average wait time for an available unit is nearly four years. And that's hardly unusual: New York City's Housing Authority has waitlisted 110,000 families looking for affordable housing and told new families added to the list to expect an eight-year delay.

The housing crunch stems from a mixture of middle-class prosperity and bureaucratic ineptitude. As cities like D.C. and New York have experienced economic revivals, property values have risen at astonishing rates, making affordable housing all but impossible to find. Consider the numbers for the nation's capital: In evaluating mortgage loan applications, banks generally want to see that housing costs will eat up no more than one-third of an applicant's monthly income. But among Washington residents who qualify for federal housing assistance, paying even one month's rent on the open market would consume 112 percent of the household income. Nationally, 5.4 million families fork over more than half their monthly income to pay the rent on severely substandard housing.

Naturally, the federal government has a cabinet-level department charged with eradicating this problem. But ever since its inception during the Johnson administration, the Department of Housing and Urban Development has been one of the most inefficient and scandal-plagued departments in Washington. Richard Nixon, Gerald Ford, Ronald Reagan, and even Bill Clinton set about to "reinvent" the agency, but to no avail: In 1994, the General Accounting Office named the entire department a "high risk" for waste, fraud, and abuse. No other federal agency made the list.

With HUD programs administered by 4,500 local housing authorities, 10,000 individual banks, and thousands of outside consultants and management firms, corruption can occur under even the best administrations. After a five-year investigation, a special prosecutor obtained convictions of 16 Reagan-era HUD officials who embezzled millions of dollars earmarked for renovations of substandard housing. Though he was never charged with any crime, Secretary Samuel Pierce admitted in 1995 that "my own conduct failed to set the proper standard" for employees of the department.

Unlike some government offices, in which wasted money hurts only the taxpayer, such scandals at HUD hurt the very people the department is supposed to be helping. Entitlement programs like food stamps or Medicaid guarantee benefits to anyone whose income falls below a specified level. But HUD's programs are not entitlements; when the money runs out, HUD simply tells eligible families they'll have to wait until additional housing becomes available.

The math is straightforward enough: It costs an average of $6,000 to house a poor family for one year. So, for example, the $935 million that HUD loses each year to fraudulent eligibility claims means that 156,000 needy families will go without assistance.

"Part of putting compassionate conservatism into action means using resources efficiently, so there is the means to treat with compassion those in need," Secretary Mel Martinez said during his Senate confirmation hearings, stressing that putting HUD's own house in order would be his "first priority" at the giant housing agency.

But "using resources efficiently" will have to mean more than just cutting out the fraud and abuse. With a limited budget and an ever-shrinking stock of affordable housing, HUD has to ensure that every dollar it spends will bring the maximum benefits to poor families in need of a home, according to Ronald Utt, a senior research fellow at the Heritage Foundation in Washington.

One problem is that the agency historically has favored project-based approaches that turn the federal government into a developer and manager of low-income properties-in essence, Uncle Sam as slum lord. Mr. Utt says that public housing costs more than twice as much as other forms of assistance, including vouchers that let poor families shop for their own home or apartment. That means that if HUD spends $1 million a year building and maintaining a public housing project for 100 families, it could-for the same amount of money-provide 200 families with vouchers for private housing. Yet despite years of studies proving the economic superiority of a voucher-based system, public housing still accounts for roughly 70 percent of the assistance offered by HUD.

Besides the sheer inefficiency of the typical HUD approach, government-owned public housing also reinforces the worst aspects of the welfare state, according to critics. While the Welfare Reform Act of 1996 required able-bodied recipients to find work or risk losing their benefits, public housing was inexplicably left out of the equation. "There's no work requirement for public housing," said Mr. Utt. "People can stay in these projects forever.... We've got to view HUD assistance as temporary. If we want to move these people from dependence to self-sufficiency, then housing should be treated the same as other welfare programs."

But almost nothing in the traditional HUD model is designed to wean residents from their dependence on government. Though residents are supposed to leave the projects as their incomes rise, the cost and trauma of a move act as a powerful disincentive to ever achieving financial independence. It's easier just to stay poor and stay put.

As one generation stays put and rears children in the projects, another generation learns a bleak and hopeless lesson. "All these people who have troubled lives in one way or another-trouble with drugs, trouble with employment, trouble with their husbands, whatever-they all get concentrated in one place," Mr. Utt said. "There's no positive stimulus to join the American mainstream, and their children grow up knowing no other lifestyle than what they see around them."

Mr. Martinez, the new HUD secretary, has seen firsthand the effects of such dependency. As chairman of Orlando's public housing authority, he took the almost unheard-of step of putting residents on the board to give them a say in the governance of their homes. During one of those board meetings, a grandfather attended with his young granddaughter. He had been living in the projects since he was his granddaughter's age, the old man testified. "I think that's just a terrible indictment of our public housing system that through three generations we have people in public housing," Mr. Martinez said.

Critics have been indicting HUD almost from Day 1, however. The real question is, what can the new administration do to fix the agency's intractable problems? Mr. Martinez promises to rein in HUD's helter-skelter approach-what Mr. Utt terms the "press release of the day" approach practiced by the former secretary, Andrew Cuomo. In a matter of years, HUD's portfolio has exploded from 50 programs to 350. Enough is enough, said Mr. Martinez: "I hope the legacy of this administration is that we can continue to do the things we need to do, but we're not going to do it through 350 programs.

"We need to focus on our core mission and avoid the frills. Do that which we're here to do, and not that which others would dream up for us from one to the other.... Finding creative ways of doing that without just throwing money at problems is another way that I hope we'll be defined."

The creative solution that Mr. Martinez keeps coming back to again and again is partnering with faith-based organizations. "If we get people in the local churches interacting with folks in public housing-showing them the way, getting them involved with Habitat for Humanity and other programs-people can be moved out of dependence and toward a life on their own," he said.

As an example, he points to the Orlando Rescue Mission, where homeless men learn a skill that will allow them to hold a steady job. Once they start working, the Mission holds a portion of each paycheck in an escrow account, allowing the men to build enough of a nest egg to move into an apartment of their own. "Those are the kinds of local examples that we at the federal level need to foster and encourage-and frankly just stay out of the way of-so that they can achieve the kinds of results that we at the federal level cannot achieve."

Mr. Martinez sees his agency on the front lines of the new president's battle to advance compassionate conservatism. "This is where the rubber meets the road," he said of HUD. "It's here that we need to implement compassionate conservatism. It's about maintaining our programs, not expanding them. It's about making sure that they work effectively and efficiently. It's about pushing back to the local government those things that only they can do best, but not completely retreating from the federal role in something like public housing because we know there are people who always will need that, no matter how successful we are."