using some of those expert resources that you talked about. In all
candor, I can't think of any organization, including the Federal
Government, that has the in-house capacity to do a restructuring
of 900,000 units. No one would expect that, whether it be an RTC
or any kind of organization. So, yes, we are doing so.

One of the inhibiting factors is the nature of the procurement
process and the other processes we use in gauging that assistance
is a laborious process. Given the length of time it takes to go
through the procurement process, if I were in the private sector, I
would do it more quickly, have a process in terms of selecting that
help, but our proposal is predicated on the use of third parties to
execute this proposal.

Mr. Shays. All of what you said is why I am just wondering if
in the end we are not going to say the solution is to take this away
from HUD with no disrespect to HUD. The problem with the pilot
programs is by the time we learn from the pilot program we are
in the mess. So in a way, it has been covered for me. I have been
able to vote for this pilot program, but basically all I have done is
I have done nothing, with all due respect. We have done one thing.
We were going to deal with 15,000 units, I guess that is the num-
ber, but we are not dealing with 900,000. So this may be a dialog
we need to have not necessarily on the record because we are just
brain storming right now, I am. But I am left with a feeling that
this committee needs to make some real noise about the fact that
we are beyond the point where we can even look at a pilot pro-
gram, that we have to do something more substantive.

This committee has no inclination to go after HUD in any way,
because this is a long-term thing that has been here for a while
and we need to collectively say, hey, we are in this now. What do
we do about it.

The bottom line is I buy your point, I think you alluded to it,
that HUD does not have the expertise given the magnitude of the
problem and that we are going to have to find some solution that



107

is not yet on the drawing board. That is kind of where I am left.
You are welcome to respond.

Mr. Retsinas. The only comment, I believe we do have the exper-
tise in terms of knowing what to do. Where I do agree whole-
heartedly with my colleague is that we do not have the capacity to
execute on an individual basis. That is why the partner principle
becomes critical.

Mr. Shays. I accept that. The policy issues are still — I know that
people have the ability within HUD to deal with some of these pol-
icy issues. I think the solution, though, is something none of us
have talked about. So it would be nice to have the synergy of oth-
ers involved in it.

Thank you for listening to me. I think I have spoken more than
I have asked, but I have Teamed a lot and you both have been won-
derful witnesses. We look forward to working with GAO and HUD
and the inspector general to see how we can be helpful.

We are going to end with one witness who carries a great burden
for everyone else whom she will be representing. Carol Severin is
our last witness.

[Witness sworn.]

Mr. Shays. Before you give your testimony, if you would tell me
in a sense, I could have asked my staff this — what do you bring to
the table? What is your basic — it will help me be able to focus on
your message better.

Ms. Severin. Of the 10 projects, 1 studied by the GAO that was
in the video is one of our projects.

Mr. Shays. In other words, you own this project?

Ms. Severin. Yes. I am the president and CEO of a nonprofit
corporation that develops low-income housing for elderly and dis-
abled people and I am here today representing the American Asso-
ciation of Homes and Services for the Aging.

Mr. Shays. Your perspective is from the developer, but you are
really a nonprofit developer, correct?

Ms. Severin. Right. My perspective is from the perspective of a
nonprofit housing corporation that is community-based as well as
representing the residents because we are mission-driven instead
of profit-driven and also representing the special needs of elderly
and disabled people

Mr. Shays. Would my characterization be that someone in your
position is not looking to find a way to get out of a long-term com-
mitment to help people?

Ms. Severin. Absolutely.

Mr. Shays. Your perspective is not I own this property, now I
can buy it, and now I can serve a different clientele?

Ms. Severin. Absolutely.

Mr. Shays. So the one weakness, I think, in our hearing is we
don't have someone who is a private developer who said when I re-
tire 20 years from now I am going to be 65, I can sell this property.
Is that a fair

Ms. Severin. That is correct.

Mr. Shays. Believe me, if I bought this property as a private de-
veloper and I knew that in 20 years I could buy out, that is my
right.



108

Ms. Severin. I agree. I would like 6 minutes, Mr. Chairman. I
have a prepared statement of 5 minutes and I would like to add
to it.

Mr. Shays. You will have 10 minutes. I have rolled these over.
I may have talked a lot, but I have allowed you all to talk, too.

STATEMENT OF CAROL SEVERIN, BA, M. DIV., PRESffiENT AND
CEO, SATELLITE SENIOR HOMES, INC., AND AFFILIATE COR-
PORATIONS REPRESENTING AMERICAN ASSOCIATION OF
HOMES AND SERVICES FOR THE AGING

Ms. Severin. Good afternoon, Mr. Chairman, and if they come
in, the other members of the Human Resources and Intergovern-
mental Affairs Subcommittee. I am the president and chief execu-
tive officer of Satellite Senior Homes, which is a nonprofit corpora-
tion that develops, owns and manages housing for low-income el-
derly and disabled people in the San Francisco Bay area.

Mr. Chairman, our property is much like you described with your
constituents in that our corporation is mission-driven and our
buildings are all sponsored by churches or religious organizations
or civic organizations, Protestants, Catholic, the Jewish Federation,
et cetera.

Over the last three decades. Satellite has developed and manages
15 HUD-assisted facilities and we serve approximately 1,200 very
low and low-income elderly residents, many of whom are frail or
disabled. One of our projects is St. Andrews Manor in Oakland, CA,
and St. Andrews is 1 of the 10 case studies which was on the video-
tape that you saw today.

I am very pleased to be here today representing the American
Association of Homes and Services for the Aging, where I have
served as a member on the public policy committee. I would also
like to take this opportunity to commend the GAO on the honesty,
integrity, and the fairness with which they undertook their study.
They were very sensitive to our residents and to our mission when
they came and videotaped the facility, and we were very apprehen-
sive at first and then very appreciative.

We also would like to note that we have had a lot of support from
our local HUD office in all of the studies that were conducted on
our buildings and we have tremendous respect for the D.C. HUD
staff for tackling this huge fiscal problem. We believe they have
done so fearlessly by authorizing some of the first real proposals
to deal with the problem of dilapidated buildings that are sub-
standard and extraordinary profits that some for-profit owners
have made off the Government.

So it is in that context that I offer my following comments, and
I believe that we will have more in common with the GAO and
HUD than not because we are talking about a particular type of
developer and a type of development and a commitment to the com-
munity and a particularly frail population which most people would
agree needs assistance.

So while we understand that the section 8 renewals place great
stress on the HUD budget and it has been described very well
today — we usually hear of it as a train wreck, avalanche, tidal
wave. We understand the fiscal constraints as much as we can out
in the field. However, we believe that federally assisted nonprofit



109

housing is a very distinct part of a restructuring equation that
should be addressed separately.

So I will speak about four topics. The first is a description of the
residents in our buildings.

Mr. Shays. I want to say, I agree. I do think it should be done
separately. I think they are very unique. You don't have to spend
a lot of time convincing me.

Ms. Severin. Good. The role of nonprofits in restructuring and
the importance of project-based subsidies and services for certain
special needs populations like the elderly and the role of affordable
housing and the long-term care of the elderly, is a topic which I
don't believe is being addressed anywhere at this point except
through AAHSA and its members. A portrait of the elderly mem-
bers in federally assisted housing reveals a population that is very
poor, very old, very frail, very disabled.

Some are blind, some are deaf, some are in their eighties and
nineties. Their average income is about $8,000 a year, which is
equivalent to only 18 percent of the area median income nationally.
Our residents will never get well, get younger, get a better job to
pull themselves up by their bootstraps to get out of poverty.

Many have worked their entire lives at low-wage jobs and now
are destitute, forced to make devastating choices between buying
food or buying medicine after they pay their rent. HUD-assisted
housing programs are the last protection that keeps low-income el-
derly and disabled people from being forced to live on the streets.

Our Nation's elderly residents who are low income live in chronic
fear of losing their housing. One of the things we are required to
do is to send out a notice 1 year in advance that says we can't as-
sure you of a section 8 certificate. You are most likely to have an-
other type of subsidy. We use the exact words that HUD uses in
order to do the letter, but you can imagine the residents are terri-
fied.

They read the newspaper, go to the senior center and keep up
on issues of public policy. While the 202 elderly program is some-
what protected, there is some acknowledgment that the elderly
can't fend for themselves in the markets. There are other projects
which house the elderly like the 236 program, which has not been
put into that 202 program at this time, so the elderly are in chronic
fear. Our phones ring off the hook with people concerned that they
are going to lose their housing.

The nonprofit housing development industry has grown im-
mensely in numbers and in capacity and has become the most efl:i-
cient and responsive affordable housing producer. For many non-
profit housing organizations, production and management of low-
income housing has been part of a larger community development
strategy with a commitment to address resident and community
needs that go far beyond housing.

For the senior and disabled population, there are services that
are critical to avoid costly institutionalization or homelessness. I
would like to add also that a nonprofit corporation like ours can le-
verage additional services and funds for elderly that a for-profit
wouldn't be able to do.

Our St. Andrews project — since I have 10 minutes, I will tell you
a bit about it. In the St. Andrews project we were able to get Unit-



110

ed Way funding, Kaiser funding, local funding. We got a black
elder project because our residents are primarily African- American.
In the black elder project, $60,000 that went into discerning what
the needs are particularly of black elders in the inner city.

We have received all kinds of additional services from the com-
munity like van services. We have gotten a nursing school to come
and provide free medical care for our residents. We have got a com-
munity policing program which was spun off one of the HUD-fund-
ed drug crime programs, where the police officers come in and sit
with residents when they write their reports and escort the resi-
dents to get groceries or to a medical appointment.

We are working on another program where the police cadets
would work with our residents just to figure out what it is like to
be so old and frail and disadvantaged. So that is another thing the
nonprofit industry brings to this wider debate. The nonprofit com-
mitment to the wider community on long-term affordable housing
is qualitatively different from profit motive owners.

We need policy makers to design strategies which should encour-
age nonprofit acquisition of the debt restructured properties, and
we could bring some more specific recommendations from some of
the nonprofit developers. Much of the debate has centered around
the HUD proposal to transfer these project-based subsidies to ten-
ant-based vouchers. However, in many highly concentrated urban
areas and high cost markets, the vouchers will not guarantee de-
cent housing.

For properties that have special needs populations like the elder-
ly or disabled, it is critical that the Federal subsidy remain project-
based. Project-based subsidies are a Federal commitment to the
long-term housing affordability that is needed for these popu-
lations.

Mr. Shays. Why couldn't you compete like anyone else if you pro-
vide such great services. I am not sure why it has to be project-
based if ultimately you provide such a great facility?

Ms. Severin. One of the reasons is because we would have such
a high vacancy rate. We have about a 25-percent turnover each
year because people go to hospitals, they go home to die in hospice
with overcrowded family conditions. They just simply die. So there
is a huge turnover rate and there is such an enormous need for
housing that even with restructuring, if everyone were given a
voucher we would not be able to fill those apartments.

We have done a financial analysis every time we get a new pro-
posal from GAO or HUD as to how it might be restructured, and
in every one of them the buildings would go bankrupt within 1
year. There is also the problem that there are no comparable units.

When the GAO came out to visit us at one point and when an
appraiser came out, what we saw were fourplexes on second stories
with no elevator, with no amenities for seniors, with apartments so
small that you couldn't turn a Uttle wheelchair around in it. It was
completely inappropriate. So A, there are no comps and B, there is
a huge vacancy problem that we would have. Those are the pri-
mary issues.

St. Andrews is in a neighborhood that is economically distressed
through loss of industry and much of the surrounding housing is
substandard. So if St. Andrews were unable to compete in the mar-



Ill

ket, the neighborhood would lose a very important source of afford-
able housing.

As I said, there are no comps in the community and the comps
that we looked at were completely inaccessible. Because of the high
degree of services and the complete lack of comparable units, we
do not believe the majority of our residents would opt to leave if
they were offered a section 8 tenant voucher.

Additionally, many of our residents know from lifelong experi-
ence that in for-profit and competitive markets they have already
faced severe discrimination based on their age, disability, frailty,
race, source of income, and accommodation needs.

As I just spoke of the vacancies, the project restructuring is an-
other key issue which impacts the projects financially and in our
projects when we did the analysis, we saw that they couldn't make
it past 1 year even if the debt were entirely forgiven. It would be
basically up to us to market, to pick up the lucky few people who
have the vouchers, which now, if you look at some housing author-
ity waiting lists, they will open up the list for 1 day and look at
4,000 applicants.

If you look at our projects, one has a 10-year waiting list, so we
have had the waiting list closed for 3 years and we purge it every
6 months. We still have a 10-year waiting list. So people who are
waiting are already excluded from the market. They would not
have vouchers.

What would happen is the people who were in the projects would
get vouchers, and then for our population, they would die, and
would those vouchers be replaced? We don't know.

Mr. Shays. The dialog about vouchers, there are always solutions
for everything you have mentioned. I don't know if we want to just
have a long dialog about vouchers, but there are ways you would
structure a voucher to allow you to be competitive with someone
else. If you have a significant vacancy rate then your rate may
have to be higher for people who live in that facility. What you are
telling me is that HUD is paying for units that it is not using?

Ms. Severin. Now, they are all used. We are 100-percent occu-
pied. I am saying if it were restructured we would have the va-
cancy problem because by attrition

Mr. Shays. People die whether you have a tenant-based or
voucher. So you have a vacancy. That issue exists under both sce-
narios.

Ms. Severin. With the current scenario any old, frail, disabled
person, particularly because

Mr. Shays. Are you answering the question?

Ms. Severin. Yes. Absolutely. With the current system that we
now have that is project-based, a waiting list years long of frail, el-
derly, disabled people will come in and they get the subsidy be-
cause they are in the building and the building has a subsidy.

Mr. Shays. If someone has a voucher there is a vacancy and they
move in.

Ms. Severin. Yes. What happens when somebody comes in, if we
were to be restructured and people had individual vouchers is that
we do not believe that there would be enough vouchers to go
around.



112

Mr. Shays. But the bottom line is we don't have a project base
which converts the project into vouchers. That is a different fear.
That is something different. That wasn't what you told me. You
told me you had a vacancy rate. I want to make sure that we are
focused in on the issue here.

Are you telling me that nonprofits are more expensive to oper-
ate?

Ms. Severin. No.

Mr. Shays. Nonprofits didn't take out money in the beginning of
a project. Are you telling me that the nonprofits like your own are
getting more than the market rate?

Ms. Severin. In this project they are and the reason is because
they provide these vital support services that the residents have to
have in order to maintain their independence. These are support
services that would not be provided in the private market.

Mr. Shays. You say that in other places where they are paying
more than market rate it is going to pay the mortgage. You are
saying in this case it is going to pay for these services. That may
ultimately be restructured to be more honest.

The honesty would be that if there is a service, let's note who is
getting the service and who is paying for it, not necessarily that
HUD should be paying for it out of housing. But what I hear you
saying is, that you have basically used above-market rate to pro-
vide a whole host of very wonderful services. If yours is the facility
I remember, there were one or two very beautiful facilities. You
weren't the facility with the treadmills, were you?

Ms. Severin. No.

Mr. Shays. I can laugh in one sense, but in another sense what
I think is despicable is that people are paying the same rate as
those who are getting the treadmills, but they are living in the fa-
cilities with the roaches. That is the one I have my problems with.

Ms. Severin. This particular project is in an economically dis-
tressed neighborhood where the facilities around it, the comps, if
there were comps, are inaccessible, a lot of absentee landlords, a
lot of slums. But the seniors in that project provide a vital force
as an economic development stronghold in the community, and as
a nonprofit housing corporation concerned with the communities
that the residents come from and live in, another one of our pur-
poses is to maintain that housing as affordable — and we believe
that the vacancy rate would increase — right now it is completely
occupied, but we believe that the vacancy rate would increase if it
went to private vouchers, individual subsidies.

Mr. Shays. Unfortunately, I thought I had a lot more time, but
I am scheduled to be on live TV in a few minutes. I wonder if you
could summarize. Based on the comments that I have made and
the issues that we have been focusing on, if you could react to cer-
tain things that you heard and your bottom line point?

Ms. Severin. I'd be happy to. One point which I didn't go into,
because you were talking about who really pays for these services,
this committee maybe has a different vantage point than another
committee that we might speak to, is that Federal-assisted housing
could play an important role in the whole long-term continuum for
elderly people because it costs the Government a fraction of what



113

it costs to put people into nursing homes or if they become home-
less.

So now you keep them in their unit, we get some free nursing
services from a local college, and the Government provides some re-
sources through HHS or through another Department, so that you
can keep people in housing and not be institutionalized.

To summarize, what we believe is that affordable housing if built
and managed by community development corporations are different
than they are for for-profit owners who have a profit motive. We
would like to ensure the long-term affordability of the housing
stock.

We believe that these special needs populations like the elderly
will work best if we maintain a project-based assistance and we
also are concerned that residents are not forced to pay more than
they can afford in rents. And to allow nonprofit sponsors of housing
programs financed under all these different projects like 236's to be
considered the 202's, which we believe is most apt to be protected
if any group is to be protected under the Mark to Market program.

Last, part of the problem with Mark to Market that we see for
some of our populations is that the people that we are serving are
already excluded from the rental market because of their income,
age and frailty and disability, and that is why they live with us.
We can provide services and a community to them they wouldn't
have if they were just living out on their own, and that there will
always be people in our society who are excluded from the market.
Every Government and every country needs to care for these peo-
ple

Mr. Shays. You are just talking generically about how we have
to care for poor people. There is really, that is not adding value to
this hearing because we all agree that that has to happen. The
issue is how do we deal, not whether we should. I hear your main
point as being that nonprofits should be treated separately in any
HUD plan to re-engineer.

Ms. Severin. Right.

Mr. Shays. I agree with part of that in that I don't think that
the nonprofits have the same issue of their wanting to buy out, so
that we should be able to negotiate with them. I don't have any in-
herent problem with project base as a general rule. It is important
for you to put that on the record. But we are tr3dng to deal with
the fact that we are paying over market and should we be paying
over market?

The fact is that Congress is not going to pay over market. We
are simply not. Whether I wanted to and I don't want to, my col-
leagues won't allow it. But I do agree with your basic point that
the nonprofits give us an opportunity that we shouldn't lump ev-
erybody the same and say this is going to be the solution, that we
have an opportunity with nonprofits to carve out and maybe deal
with that problem sooner.

Ms. Severin. The other point would be that certain populations
like the elderly will never get a job and get on with their lives to
get out of poverty, and so there are certain populations that need
to be protected more than other populations.

Mr. Shays. I don't know if I agree with that, because I think a
young child and a mother



114

Ms. Severin. Absolutely.

Mr. Shays. I think the elderly also can be less expensive, not
more because I think they inherently have a better sense of how
to keep and maintain a facility. They are not necessarily going to
have the same challenges of kids.

While you can describe services you provide that cost more
money, I will tell you that in some ways when we look at public
housing they are the less expensive for us rather than more.

Ms. Severin. Right. I also agree that children should be pro-
tected.

Mr. Shays. We have a lot of groups that need to be protected.
Then you get to the disabled. Is there any last point you want to
make?

Ms. Severin. No. I am glad to have this opportunity. I wish you