Innovation Fund Act

— 515 — Department of Housing and Urban Development 25. Process must prioritize where political leadership can implement administrative reforms through regulatory action and subregulatory guidance reforms. 26. China and other foreign nations should not be able to disrupt our nation’s housing markets, including by artificially driving up prices and reducing affordability and access to housing for Americans who are crowded out of the market by such market participation. 27. These initiatives are maintained under such designations as diversity, equity, and inclusion (DEI); critical race theory (CRT); black, indigenous, Pacific Islander, and other people of color (BIPOC); and environmental, social, and governance (ESG). 28. At a minimum, these efforts duplicate what the federal government already collects and assesses; at worst, they institute arbitrary procedures in real estate appraisal practices that undermine integrity and perversely introduce arbitrary biases into what should be an unbiased system for determining financial value. 29. Revise regulatory and subregulatory guidance, where applicable within statutory authorities, that adds unnecessary delay and costs to the construction and development of new housing and has been estimated to account for about 40 percent of new housing unit costs in multifamily housing. 30. The Biden Administration has issued a proposed rule to replace the Trump Administration’s “Preserving Community and Neighborhood Choice” rule that had repealed earlier rules expanding AFFH enforcement. See U.S. Department of Housing and Urban Development, Office of Fair Housing, “Preserving Community and Neighborhood Choice,” Final Rule, Federal Register, Vol. 85, No. 153 (August 7, 2020), pp. 47899–47912, https://www.govinfo.gov/content/pkg/FR-2020-08-07/pdf/2020-16320.pdf (accessed March 5, 2023), and U.S. Department of Housing and Urban Development, Office of the Secretary, “Affirmatively Furthering Fair Housing,” Proposed Rule, Federal Register, Vol. 88, No. 27 (February 9, 2023), pp. 8516–8590, https://www. govinfo.gov/content/pkg/FR-2015-07-16/pdf/2015-17032.pdf (accessed March 5, 2023). 31. Certain pilot initiatives may encourage greater take-up of loan products designed for faster equity accumulation, including loans with shorter terms and accelerated amortization schedules. In concept, the FHA’s Home Equity Accelerator Loan (HEAL) and Good Neighbor Next Door (GNND) pilot initiatives might lead to meaningful wealth generation for first-time buyers, but they should be available to all eligible households only when they do not arbitrarily discriminate based on race or other characteristics. 32. Housing supply does remain a problem in the U.S., but constructing more units at the low end of the market will not solve the problem. Investors and developers can deliver at more efficient cost new units that will allow for greater upward mobility of rental and ownership housing stock and better target increased construction of mid-tier rental units. Further, and more fundamental to the housing supply challenge in markets across the U.S., localities can consider revising land use, zoning, and building regulations that constrict new housing development, adding time delays and costs that impede construction. Federal housing policy should get out of the way where possible and minimize the distortive impact that stimulating greater demand through loose lending can have in driving up housing prices for households that are looking for affordable entry into the housing market. 33. U.S. Department of Housing and Urban Development, Office of the Secretary, “Housing and Community Development Act of 1980: Verification of Eligible Status,” Proposed Rule, Federal Register, Vol. 84, No. 91 (May 10, 2019), pp. 20589–20595, https://www.govinfo.gov/content/pkg/FR-2019-05-10/pdf/2019-09566.pdf (accessed March 5, 2023). 34. Reforms should contemplate rent payment flexibilities, allow escrow savings, and set maximum term limits that can reduce implicit penalties for increasing household incomes over eligibility terms for housing assistance and reweight waiting-list prioritization for two-parent households. 35. Some PHAs have been able to implement work requirements and term limit policies in various congressionally authorized demonstration programs, notably the Moving to Work (MTW) demonstration program established in 1996 for 39 PHAs (Congress has since authorized another 100 PHAs) in which participating MTW PHAs were given authority to implement rent reforms, work requirements and other experimental policies in rental assistance programs along with flexibilities in the use of capital and operating appropriations. 36. The FSS program has a general five-year term with a possible two-year extension, which could be applied at the term limit for overall benefits, and certain PHAs have imposed five-year to seven-year term limits. Families in these programs build escrow savings during their term eligibility that helps to facilitate successful transitions to family self-sufficiency and unassisted housing. — 516 — Mandate for Leadership: The Conservative Promise 37. HUD should implement administrative changes in regulation and guidance and seek statutory authority to end all Housing First directives of Continuum of Care (CoC) grantees and contract homelessness providers in addition to establishing restrictions on local Housing First policies where HUD grant funds are used. 38. The U.S. Interagency Council on Homelessness (USICH) was established in the 1990s, and numerous Administrations have devoted enormous resources to the Housing First model, experimenting with various ways to provide federally financed rapid rehousing and permanent housing opportunities. Housing First is a far-left idea premised on the belief that homelessness is primarily circumstantial rather than behavioral. The Housing First answer to homelessness is to give someone a house instead of attempting to understand the underlying causes of homelessness. Federal intervention centered on Housing First has failed to acknowledge that resolving the issue of homelessness is often a matter of resolving mental health and substance abuse challenges. Instead of the permanent supportive housing proffered by Housing First, a conservative Administration should shift to transitional housing with a focus on addressing the underlying issues that cause homelessness in the first place. 39. The Senate Low-Income First-Time Homebuyers (LIFT) Act would address this policy goal. See S. 2797, Low-Income First-Time Homebuyers Act of 2021 (LIFT Homebuyers Act of 2021), 117th Congress, introduced September 22, 2021, https://www.congress.gov/117/bills/s2797/BILLS-117s2797is.pdf (accessed March 5, 2023). 40. FHA did not facilitate the widespread use of 30-year mortgages until the 1950s when, interacting with Federal Reserve policies, federal agencies began broader adoption of the mortgages, which, despite lowering the monthly repayment terms, result in slow equity accumulation and wealth-building opportunities. 41. The Housing and Economic Recovery Act of 2008 fundamentally revised the scope of federal regulation in the nation’s housing finance system, placing Fannie Mae and Freddie Mac under the purview of a newly established Federal Housing Finance Agency (FHFA) and establishing a Housing Trust Fund (HTF) that is administered in the HUD Office of Community Planning and Development. See H.R. 3221, Housing and Economic Recovery Act of 2008, Public Law No. 110-289, 110th Congress, July 30, 2008, https://www.congress. gov/110/plaws/publ289/PLAW-110publ289.pdf (accessed March 5, 2023). 42. Guiding questions: What reforms should be proposed that could be accomplished within five years? What reforms can be done administratively, and what reforms would need legislative authorization? Are there functions that HUD administers that could be achieved more effectively at another department or agency? What big-picture reforms should be proposed that might take more than five years that would reorganize HUD and its programs to meet the objectives in the vision or mission? What would occur in the absence of these public finance subsidies? How much crowd-out do these subsidies create in the market? Would America be a seriously underhoused nation without these subsidies? Who are the policies intended to benefit? What organizational changes must be made? 43. The Faircloth Amendment (Quality Housing and Work Responsibility Act of 1998) amended the Housing Act of 1937 to maintain public housing units at 1999 levels, preventing housing authorities from maintaining more public housing than they did then. H.R. 4194, Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1999, Public Law No. 105-276, 105th Congress, October 21, 1998, Title V, https://www.congress.gov/105/plaws/publ276/PLAW-105publ276.pdf (accessed March 5, 2023). In recent years, the statutory restriction on new construction of public housing units has been circumvented through some narrow uses of preservation programs such as the Rental Assistance Demonstration (RAD) program, initially authorized in 2012 and reauthorized several times since under higher program unit conversion caps. Congress also provided paths for renewal and continuation of a portion of existing public housing; project/site-based housing stock (refinancing with long-term HAP contract commitments); and Section 8 units through the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). H.R. 2158, Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1998, Public Law No. 105-65, 105th Congress, October 27, 1997, Title V, https://www.congress.gov/105/plaws/publ65/PLAW-105publ65.pdf (accessed March 5, 2023). 44. As the evolution of HUD rental assistance transitions away from the public housing model toward housing choice vouchers, there should be adequate landlord participation to ensure that the supply of housing units for rent in these programs meets the demand for rent among eligible tenants. This issue has been addressed in various ways, including by a task force instituted at the department during the Trump Administration, but could likely remain a challenge in the administration of the program.

— 512 — Mandate for Leadership: The Conservative Promise housing model. At best, any new public investments will provide maintenance funds to bring substandard housing units and properties up to livability standards but will still fail to address larger aims of upward mobility and dynamism for local housing markets where land can be sold by PHAs and put to greater economic use, thereby benefiting entire local economies through greater private investment, productivity and employment opportunities, and increased tax revenue. Any long-term view of HUD’s future must include maintaining the strong financial operations and reliable reporting that are needed to run a $50 billion- per-year agency. Before the Trump Administration, HUD effectively did not have a Chief Financial Officer (CFO) for eight years, and HUD’s financial infrastructure inevitably deteriorated. The department’s auditors were unable to conclude that HUD’s internal operations were producing accurate financial reporting. The audi- tors had identified multiple material weaknesses and significant deficiencies in the department’s internal financial controls. Overall, the deterioration of HUD’s financial infrastructure led to a lack of accountability with respect to the use of taxpayer funds as well as to pervasive difficulties with operations and program implementation. However, by hiring a new CFO from the private sector with a proven track record of visionary leadership, HUD was able to implement an agencywide governance structure that improved its financial processes and internal controls and harnessed the power of innovative new technologies to bring a modernized business mindset to the agency’s financial infrastructure. By the end of the Trump Administration, for the first time in nearly a decade, HUD was able to address all of its previously identified material weaknesses, and the auditors were able to issue their first clean audit report on HUD’s financial statements and internal controls. Finally, and more fundamentally, Congress could consider a wholesale overhaul of HUD that contemplates devolving many HUD functions to states and localities with any remaining federal functions consolidated to other federal agencies (for example, by transferring loan guarantee programs to SBA; moving Indian housing programs to the Department of the Interior; moving rental assistance, mortgage insurance programs, and GNMA to a redesignated Housing and Home Finance Agency). Generally, this reform path could consolidate some programs, elimi- nate others that have failed to produce meaningful long-run results, and narrow the scope of many programs so that they are closer to what they were when they were created. — 513 — Department of Housing and Urban Development ENDNOTES 1. At a 1998 Senate hearing, then-HUD Secretary Andrew Cuomo acknowledged that the department “faced a competence gap” and had “the dubious distinction of being the only federal agency designated as ‘high risk’ by the General Accounting [now Government Accountability] Office (GAO),” even referencing the Section 8 rental subsidy as “on the brink of becoming the next savings and loan scandal,” and explained how the department was stepping up enforcement efforts “focused on closing the competence gap by eliminating waste, fraud, and abuse.” See “Testimony of Secretary Andrew Cuomo before the House Appropriations Subcommittee on VA, HUD, and Independent Agencies,” March 25, 1998, https://archives.hud.gov/ testimony/1998/tst32598.cfm (accessed March 4, 2023). 2. H.R. 7984, Housing and Urban Development Act of 1965, Public Law No. 89-117, 89th Congress, August 10, 1965, https://www.congress.gov/89/statute/STATUTE-79/STATUTE-79-Pg451.pdf (accessed March 4, 2023). 3. U.S. Department of Housing and Urban Development, 2023 Budget in Brief, pp. 2 and 7, https://www.hud.gov/ sites/dfiles/CFO/documents/2023_BudgetInBriefFINAL.pdf (accessed March 4, 2023). 4. For example, the Special Applications Center (SAC) located in Chicago, Illinois, was established in 1998 as a division of the Office of Public and Indian Housing to accept, review, and approve all nonfunded, noncompetitive applications and plans for demolition, disposition, and conversion of land subject to an annual contributions contract (ACC) in public housing. 5. The Secretary has delegated full authority for the Administration and enforcement of the Fair Housing Act to the Assistant Secretary of the Office of Fair Housing and Equal Opportunity but also has delegated limited assignment and decision-making authority to the General Counsel. 6. Effectively the HUD Chief Operating Officer and appointed by the President with Senate advice and consent. 7. The Office of Hearings and Appeals (OHA) is an independent adjudicatory office within the Office of the Secretary. Led by a Director who is appointed by the Secretary, it supervises the Administrative Judges of the Office of Appeals, the administrative law judges of the Office of Administrative Law Judges, and the OHA support staff. The HUD Secretary appoints administrative judges and administrative law judges in accordance with the Administrative Procedure Act, 5 U.S.C. Chapter 5, https://www.law.cornell.edu/uscode/text/5/part-I/ chapter-5 (accessed March 4, 2023). 8. HUD currently has a Departmental Equity Assessment Working Group, supported with five FTEs funded by the OSDBU, “as part of the President’s Executive Order 13985, Executive Order On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.” See U.S. Department of Housing and Urban Development, 2023 Congressional Justifications, p. 35-15, https://www.hud.gov/sites/ dfiles/CFO/documents/2023HUDCongressionalJustificationsFINALelectronicversion.pdf (accessed March 4, 2023), and President Joseph R. Biden Jr., Executive Order 13985, “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government,” January 20, 2021, in Federal Register, Vol. 86, No. 14 (January 25, 2021), pp. 7009–7013, https://www.govinfo.gov/content/pkg/FR-2021-01-25/pdf/2021- 01753.pdf (accessed March 4, 2023). 9. Interestingly, “[t]he 2023 President’s Budget requests $748 thousand for CFBNP, which is $436 thousand less than the 2022 Annualized CR level. The Budget reflects total funding (carryover and new authority) of $1.2 million, $448 thousand less than 2022 total funding.” U.S. Department of Housing and Urban Development, 2023 Congressional Justifications, p. 35-16. 10. See H.R. 558, Stewart B. McKinney Homeless Assistance Act, Public Law No. 100-77, 100th Congress, July 22, 1987, https://www.govinfo.gov/content/pkg/STATUTE-101/pdf/STATUTE-101-Pg482.pdf (accessed March 5, 2023). Later renamed the McKinney–Vento Homeless Assistance Act. 11. Established under the Housing and Community Development Act of 1974, 42 U.S.C. §§ 5301 et seq., https:// www.law.cornell.edu/uscode/text/42 (accessed March 4, 2023). 12. S. 566, Cranston–Gonzalez National Affordable Housing Act, Public Law No. 101-625, 101st Congress, November 28, 1990, Title II, https://www.congress.gov/101/statute/STATUTE-104/STATUTE-104-Pg4079.pdf (accessed March 5, 2023). 13. S. 1, Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, Public Law No. 91-646, 91st Congress, January 2, 1971, https://www.congress.gov/91/statute/STATUTE-84/STATUTE-84-Pg1894.pdf (accessed March 4, 2023). “The URA establishes the minimum Federal requirements for the acquisition of real property for Federally-funded programs and projects, and for the relocation of persons who must move from

— 515 — Department of Housing and Urban Development 25. Process must prioritize where political leadership can implement administrative reforms through regulatory action and subregulatory guidance reforms. 26. China and other foreign nations should not be able to disrupt our nation’s housing markets, including by artificially driving up prices and reducing affordability and access to housing for Americans who are crowded out of the market by such market participation. 27. These initiatives are maintained under such designations as diversity, equity, and inclusion (DEI); critical race theory (CRT); black, indigenous, Pacific Islander, and other people of color (BIPOC); and environmental, social, and governance (ESG). 28. At a minimum, these efforts duplicate what the federal government already collects and assesses; at worst, they institute arbitrary procedures in real estate appraisal practices that undermine integrity and perversely introduce arbitrary biases into what should be an unbiased system for determining financial value. 29. Revise regulatory and subregulatory guidance, where applicable within statutory authorities, that adds unnecessary delay and costs to the construction and development of new housing and has been estimated to account for about 40 percent of new housing unit costs in multifamily housing. 30. The Biden Administration has issued a proposed rule to replace the Trump Administration’s “Preserving Community and Neighborhood Choice” rule that had repealed earlier rules expanding AFFH enforcement. See U.S. Department of Housing and Urban Development, Office of Fair Housing, “Preserving Community and Neighborhood Choice,” Final Rule, Federal Register, Vol. 85, No. 153 (August 7, 2020), pp. 47899–47912, https://www.govinfo.gov/content/pkg/FR-2020-08-07/pdf/2020-16320.pdf (accessed March 5, 2023), and U.S. Department of Housing and Urban Development, Office of the Secretary, “Affirmatively Furthering Fair Housing,” Proposed Rule, Federal Register, Vol. 88, No. 27 (February 9, 2023), pp. 8516–8590, https://www. govinfo.gov/content/pkg/FR-2015-07-16/pdf/2015-17032.pdf (accessed March 5, 2023). 31. Certain pilot initiatives may encourage greater take-up of loan products designed for faster equity accumulation, including loans with shorter terms and accelerated amortization schedules. In concept, the FHA’s Home Equity Accelerator Loan (HEAL) and Good Neighbor Next Door (GNND) pilot initiatives might lead to meaningful wealth generation for first-time buyers, but they should be available to all eligible households only when they do not arbitrarily discriminate based on race or other characteristics. 32. Housing supply does remain a problem in the U.S., but constructing more units at the low end of the market will not solve the problem. Investors and developers can deliver at more efficient cost new units that will allow for greater upward mobility of rental and ownership housing stock and better target increased construction of mid-tier rental units. Further, and more fundamental to the housing supply challenge in markets across the U.S., localities can consider revising land use, zoning, and building regulations that constrict new housing development, adding time delays and costs that impede construction. Federal housing policy should get out of the way where possible and minimize the distortive impact that stimulating greater demand through loose lending can have in driving up housing prices for households that are looking for affordable entry into the housing market. 33. U.S. Department of Housing and Urban Development, Office of the Secretary, “Housing and Community Development Act of 1980: Verification of Eligible Status,” Proposed Rule, Federal Register, Vol. 84, No. 91 (May 10, 2019), pp. 20589–20595, https://www.govinfo.gov/content/pkg/FR-2019-05-10/pdf/2019-09566.pdf (accessed March 5, 2023). 34. Reforms should contemplate rent payment flexibilities, allow escrow savings, and set maximum term limits that can reduce implicit penalties for increasing household incomes over eligibility terms for housing assistance and reweight waiting-list prioritization for two-parent households. 35. Some PHAs have been able to implement work requirements and term limit policies in various congressionally authorized demonstration programs, notably the Moving to Work (MTW) demonstration program established in 1996 for 39 PHAs (Congress has since authorized another 100 PHAs) in which participating MTW PHAs were given authority to implement rent reforms, work requirements and other experimental policies in rental assistance programs along with flexibilities in the use of capital and operating appropriations. 36. The FSS program has a general five-year term with a possible two-year extension, which could be applied at the term limit for overall benefits, and certain PHAs have imposed five-year to seven-year term limits. Families in these programs build escrow savings during their term eligibility that helps to facilitate successful transitions to family self-sufficiency and unassisted housing.