Affordable Housing Finance

SPECIAL FOCUS

Affordable Housing Hall of Fame

The Manager:

How Hills Tamed HUD

AFFORDABLE HOUSING FINANCE • November 2008

BY BENDIX ANDERSON

WASHINGTON, D.C.—When Carla Hills took over the Department of Housing and Urban Development (HUD) in 1975, nobody expected her to be a hero for housing.

Industry organizations derided her lack of experience, and Senate Democrats doubted this moderate Republican could, or would, effectively rejuvenate the troubled housing agency, which had produced no new affordable housing since scandals and a moratorium by President Richard Nixon shut its production programs down two years before.

Hills herself remembers telling President Gerald Ford, “I am not an urban-ologist.”

But she became one of the most effective leaders HUD has ever seen. During her first months in office, HUD established the guidelines for two programs that decades later are still among the agency’s most important housing tools. And HUD went from producing zero new units of affordable housing in fiscal 1975 to roughly half a million in 1976.

That’s no small accomplishment for a once-moribund agency in a decade scarred by scandals in Washington, a long, costly war overseas, and a crisis created by abandoned housing in cities and towns with declining populations.

The editors of AFFORDABLE HOUSING FINANCE have chosen Carla Hills for its Affordable Housing Hall of Fame because the leadership she brought to HUD then is the kind of management HUD needs today.

HUD on the ledge

Hills took over the housing agency in March 1975. “We had an incredibly demoralized HUD staff,” recalls Bill Kelly. Now president of the advocacy group Stewards of Affordable Housing for the Future, Kelly was Hills’ 29-year-old special assistant in 1975.

Two years earlier in January 1973, the Nixon White House and the Office of Management and Budget had shut down HUD’s most productive programs for building new housing: the Sec. 236 multifamily and the Sec. 235 single-family housing programs. Both, particularly the Sec. 235 program, had been plagued with problems, and scores of HUD employees were being investigated for backdating documents and other misbehavior.

Carla Hills, accompanied by President Gerald Ford, was sworn in as secretary of the Department of Housing and Urban Development in 1975.
(Photo Courtesy Gerald R. Ford Presidential Library)

During the same period, Hills worked as the assistant attorney general for the Justice Department’s Civil Division, which had acted as HUD’s trial lawyer in suits against HUD on issues ranging from improper refusals to give mortgages to qualified borrowers to mismanagement of its housing programs.

“We had lots of problems with HUD: redlining, lots of things,” she explains.

Despite these problems, the 41-year-old lawyer had expected to take over an agency buzzing with activity, implementing the huge new Sec. 8 and Community Development Block Grant (CDBG) programs created by the Democrat-controlled Congress with the Housing Act of 1974.

But Sec. 8 was mired in delay, even though the law mandated the program start in January 1975. “It turns out the regulations had not been drafted,” says Hills.

Hills scolded the agency into action. HUD staffers quickly learned not to disappoint her—one official saw a letter of reprimand sent to him spread throughout the department. Hills also inspired fierce loyalty—HUD alumni still remember her fondly today. The draft Sec. 8 regulations were published within weeks.

The task was incredibly complicated. The original multibillion-dollar Sec. 8 program was actually three programs in one. The first would build or rehabilitate apartments and supply rental subsidy in the form of project-based Sec. 8 contracts lasting 20 or 40 years. The second provided project-based Sec. 8 subsidy to existing privately owned affordable housing, like Sec. 236 communities without rental subsidy that were already starving for cash. The third created the Sec. 8 rental voucher program that is still growing today.

To add to the complexity, many Sec. 8 developments received tax-exempt bond mortgages insured by the Federal Housing Administration, adding even more layers of program officials and rules.

Many of the regulations written by the agency under Hills are still being used today, filling hundreds of pages in the latest Code of Federal Regulations.

Hills also met her next big deadline: She pledged that HUD would produce roughly half a million new apartments for the next fiscal year. In the 1976 fiscal year, which lasted from July 1975 to September 1976, HUD made commitments to projects totaling well over 450,000 units—compared to zero the year before. The year was longer than usual because the entire government converted to a fiscal year ending three months later.

Good management and good thinking awaken HUD

Hills’ managerial skills helped her achieve her goals. She put in place a system called “Management by Objectives,” which was a state-of-the-art business planning method at the time.

For HUD, that meant more communication between its regional offices and Washington, plus clear roles, firm deadlines, and accountability for meeting those deadlines.

“She’s primarily remembered for good administration of an agency that’s had a lot of history before and since of bad administration,” says Robert Elliot, who served as general counsel under several HUD secretaries, including Hills.

Yet Hills didn’t just apply good management to HUD; she also applied good thinking to urban affairs.

Although Hills returned to private practice following the inauguration of President Jimmy Carter, she acted as the lead U.S. negotiator of NAFTA.
(Photo Courtesy Gerald R. Ford Presidential Library)

Hills used HUD’s new programs to fight the growing crisis of abandonment that was beginning to strangle many of America’s oldest and proudest cities. New York City would lose 350,000 units of housing to abandonment between 1975 and 1985, according to local housing officials.

“In the 1970s, we had a lot of empty houses. Pretty soon you had broken windows. Crime and falling property values came after that,” says Hills. To avoid these problems, Hills used the flexibility Congress had given her to rehabilitate existing, often-troubled apartment buildings with the Sec. 8 program.

She stood up to home builder trade groups that expected the multibilliondollar HUD programs to pay for new construction, as HUD programs had done in the 1960s. “We had gone through a period of build, build, build,” says Hills. New construction had flooded local housing markets, many of which were already struggling with declining populations. “We were competing with existing landlords,” she said.

HUD’s new focus in rehabilitating existing buildings was also a more efficient use of federal cash. “It is far less costly to recycle a city than to build a suburb,” Hills explains.

Hills also believed in giving local experts the power to solve the housing needs in their own areas with flexible programs like CDBG. With block grants, “you don’t have Washington 1,000 miles away telling you what your priority is,” says Hills. The program replaced specific congressional mandates, like pest control, that were not needed in every area.

Hills returned to private practice after Democratic President Jimmy Carter took office in January 1977. Her Washington, D.C.-based firm, Hills & Co. International Consultants, advises clients on investment, trade, and risk issues abroad.

In 1988, however, she returned to public life as U.S. trade representative, a cabinet-level position in the administration of President George H.W. Bush. Once again, she won praise, despite having little direct experience in trade issues, and successfully acted as the lead U.S. negotiator of the North American Free Trade Agreement.