I have attached a memorandum that covers this subject in more detail. I should comment briefly on the organization changes that HUD has recently announced. The Assistant Secretary-FHA Commissioner will, in the future, be able to communicate freely with local offices for program guidance and interpretation. Obviously this is necessary, so it is a step in the right direction. But it is not line authority. He will be authorized to select the heads of housing divisions in local offices, in consultation with the regional administrator, if and when these positions become vacant. He will be authorized to determine the training needs of housing staff. Certain day-to-day interventions of the HUD regional offices in the processing of cases have been eliminated. These are steps in the right direction, to mitigate some of the symptoms of bad organization, but they do not correct the organization itself. HUD has essentially retained the old inefficient organization of 1969 and in some important respects made it worse. HUD had three organization levels. That was one too many. Now, for large areas of the country, it has four. It has abolished the one FHA organizational element that was still efficient, the local insuring offices serving some 38 areas of the country, including many whole States with a full range of FHA services. It will leave some staff at these locations, reporting to area offices sometimes several States away, and some home mortgage functions, but rental housing, cooperatives, and other multifamily services will no longer be done in the local offices. This is a mistake. Decisionmaking is being removed from the local markets in which the housing must function. Moreover, these insuring offices typically handled their business, including multifamily housing, more efficiently than the area offices that would now take over. In terms of serving people, it is another step backward. On the matter of redtape, FHA should get back to basics: FHA is in the business of insuring mortgage risk. Procedures directly relating to mortgage risk should be applied. No others are necessary. It is that simple. As a corollary to this: A requirement not deemed to be of sufficient importance to attach to all federally affected private mortgage transactions should not be attached to any. This is necessary to keep the various elements of the mortgage financing system in balance and to keep the full range of financing options and housing opportunities available to the people. In short, get down to basics so that we can serve people efficiently. Thank you. [The attachments to Mr. Bazan's statement follow:] LINE AUTHORITY AND STAFF FUNCTIONS (As They Apply to an Efficient FHA within HUD and the Effective Performance of FHA's Future Role) Everyone agrees that the FHA Commissioner must have line authority over FHA operations including line authority over FHA operations in the field. But what does it mean? How would it be structured? How would it function? Line and staff The standard phraseology is "line authority" and "staff advice" and "staff services." The "line" commands an organization, directs and conducts operations, makes and directs decisions, manages. The "staff" advises and assists the line and provides services, but does not have executive or command power to manage or control or direct the organization or its operations or to make or direct operating decisions. Such executive power, the responsibility and accountability that go with it, are reserved to the line. The line of command (or line of authority) descends directly through subordinate line officers, each of whom is fully accountable to his superior. Line operations and staff functions distinguished The line operations are those that the organization exists to perform. In HUD, obviously, such functions are: facilitating private residential creditinsuring mortgages; (2) subsidizing housing for lower income families; and (3) making grants for community development. If HUD delivers each of these services efficiently, it will be a success; it will have done what it exists to do. If HUD does not deliver each of these three services efficiently, it will be a failure and should go out of business (no matter how efficiently it runs a centralized computer or how zealously it processes environmental impact statements). Staff services, such as legal services, administrative services, specialized advice on environmental impact and the like, are performed to advise, support and assist the line to manage and perform the basic operations-to deliver those services that are the reason for the department's existence. Relationship of line authority to organization To have any real meaning line authority must be combined with command of a line organization containing the resources and services necessary for the accomplishment of the mission. Otherwise the authority cannot be exercised effectively to accomplish its objective. The Secretary, of course, is the top line officer of the department. She commands the department and all its resources. The line of authority begins with her and descends to her principal line officers. The FHA Commissioner, Assistant Secretary for Housing and Assistant Secretary for Community Development, the line officers responsible respectively for the efficient delivery of the three basic services that the department exists to perform. They, too, like the Secretary, must combine line authority with command of a line organization containing the resources and services necessary for the accomplishment of their respective missions. Hence, when we agree that the FHA Commissioner should have line authority we mean that he should be a complete executive and manager heading an FHA organization containing all of the elements (including staff services) necessary to run FHA as a residential credit insurance agency and that he must be in full control (under the Secretary, of course) of all of the budget authority, manpower, insurance funds and resources available to operate the system and of all of the processes and decision making procedures by which the services are delivered and the system is operated. Since FHA's mission requires field offices, FHA field offices must be a part of the organization under his command. Since FHA's mission requires appraisers, credit examiners, architects, engineers, market analysts, property managers, and mortgage services, they must be a part of the organization he directs so that he can marshall and deploy them to achieve prompt insurance service, accurate decisions, and prudent management of mortgage and property assets. Since FHA's operation requires lawyers to close cases and review titles and accountants to pay insurance claims and other costs and to collect premiums and control and account for the insurance funds, they must be a part of the organization. The FHA budget must be under his management so that he can direct the utilization of the funds in the most efficient manner to accomplish the job and deliver FHA's services. Hiring, assigning, promoting, training and firing of FHA employees in Washington and in the field is the responsibility of FHA management. To the extent that personnel management specialists are needed for these purposes they should be a part of the FHA organization in a staff role. In summary, an efficient department is organized around its basic line operations for the efficient delivery of the services. The Secretary uses her principal line officers as complete managers with full authority heading complete organizations capable of delivering the service. Line authority should descend from the principal line officer, the FHA Commissioner in this case, through subordinate FHA officials, each fully accountable to his superior. (It should not descend through officials who are not subordinates to and fully accountable to the FHA Commissioner. It should be understood that officials who are purportedly accountable to multiple "bosses" are fully accountable to none of them and the line of authority is diluted and broken, however well intentioned such officials might be.) Lines of authority and communication should be short and direct from FHA headquarters in Washington to the operating offices in the field. How should staff functions be organized in relation to line operations? The line moves the department's business, operates its programs, delivers its services. The staff functions advise, assist, provide services to the line-are supportive of line operations. Hence, the staff functions in an operating organization are most effective when they are organizationally as well as conceptually supportive of the line. This will be seen best in a discussion of various functions, below. Services that Can Be "Made" or "Bought."-At this juncture, so that we will not get sidetracked at the margins of the problem of organization and management, it should be understood that there are some services that an organization can decide either to "make" (do for itself) or "buy" (obtain from others). You can buy library services, you can buy supply services; you can buy printing services; you can buy payroll services; you can buy time on a computer. These kinds of services offer an election. It is a common sense management decision: Which way really works best in a given set of circumstances? There is no inherent virtue in having one large facility serving several line organizations if several smaller facilities will do the job more efficiently, responsively and at the same or less cost; or the importance of an increase in utility may be clearly worth the cost. Four bathroom facilities on the second floor of a four family flat is really not as useful as one bathroom in each unit. The zealot for centralization may argue that it provides greater flexibility and utilization, that several members of the same family may be able to use the central facilities simultaneously, or even that three centrally located facilities will serve in the place of four separate ones. But common sense and experience tell us differently. If the election is made to buy the service, the service must be available promptly, when and where the line organization requires it and in the quantities and quality required. Administrative Staff Services.-Budget, personnel and certain management, data, accounting, contracting and supply functions are the tools of the line manager in marshalling and managing his resources to get the job done. This is the essence of management—an inherent part of the line organization head's function as manager. Such staff services are best organized as an internal part of the line manager's organization. Such services are worst organized when they are set up in independent, separate organizations whom the line manager must supplicate for the services he needs (or even for permission) to marshall and utilize the resources budgeted and provided for his operation to get the job done and deliver the department's services for which he is accountable. It goes without saying that such services are available to the Secretary to help her do her job as chief line officer and head of the department, but such services should also be available within the organizations of her principal subordinate line officers (such as the FHA Commissioner). Legal Services that Are a Part of FHA Operations.-There are certain legal services that are an integral part of FHA insurance operations and procedures: closing multifamily housing insured mortgages, examining title, reviewing assignments of mortgages, etc. The attorneys who perform these services are an integral and indispensable part of the FHA insurance process and of the FHA Commissioner's resources for getting his job done. They should be a part of the FHA organization. The object of the organization is to deliver FHA insurance services. The attorney's services are as essential as the appraiser's services to that end. It matters not if the underwriting has been done if the transaction cannot be completed without the attorney's service. Of course there is a HUD General Counsel. Of course there will be only one official HUD interpretation of a novel and ambiguous statutory provision. But these are not the day to day legal services that the FHA Commissioner needs to run the FHA insurance system and deliver its services. And these are not a valid reason why the HUD General Counsel should control a part of the indispensable resources required to run the FHA insurance system. This is a job of the FHA Commissioner; he is accountable. tem. Accounting Functions that Are an Integral Part of the FHA Insurance SysThose accounting functions that are an integral part of the FHA insurance system-the collection of premiums, the accounting and management of the insurance funds, the payment of insurance costs and claims-should be a part of the FHA organization. There is a unified and inexorable relationship between underwriting, premium collections, claims paid, losses sustained, reserves accrued and invested. The payment of an insurance claim is a line function and an insurance service to be delivered promptly, just the same as issuance of an insurance commitment or endorsement of an insurance contract. General Audit Functions that Are Tools of Supervision.-Some audit functions are essential to assure the integrity of the books of account and of departmental operations. These are well performed independently by an audit staff separate from operations. There are other audit functions-the audit of a corporate mortgagor who has defaulted, for the purpose of assuring the conservation of assets in the event of insurance claim, for example-that are an integral part of insurance operations. An audit staff to perform such operations should be a part of the FHA organization. Other Specialized Staff Services.-Environmental considerations have appliIcation in mortgage insurance and housing and in the administration of community development grants. Hence the FHA and Housing elements of HUD and the Community Development element of HUD each need the capacity to apply these environmental considerations in their program operations. Neither should be dependent upon the other nor upon some third party for the application of environmental considerations to their respective program operations. This was the concept of Sections 101 and 102 of the National Environmental Policy Act-that all Federal programs should apply environmental considerations and seek to further environmental objectives in their respective operations. Similarly, it is the concept of Sections 808(d) and (e) of the Civil Rights Act of 1968 that all agencies and departments, as well as HUD, administer their programs and activities relating to housing and urban development in a manner, affirmatively, to further the policies of the Act set forth in Title VIII (which prohibited discrimination on grounds of race, color, religion, or national origin in the sale or rental of housing, in financing of housing, and in the provision of brokerage services). FHA, the housing, and the community development organizations of HUD should each apply Title VIII to their respective program operations (as, of course, should the Federal Home Loan Bank Board, VA, the Farmer's Home Administration and other agencies of government in their programs relating to housing and urban development) and each should have in its organization the internal staff advice necessary for this purpose. Control by the Secretary The power of the Secretary is not diminished by these arrangements. Her power is enhanced because it is made effective. She has organizations beneath her capable of performing efficiently the basic operations of the department for which the department exists. She has an FHA Commissioner and other operating heads accountable to her who are complete executives and managers with the line authority, organization and control of resources and services necessary to carry out their operations. The Secretary has policy control and administrative control, subject only to the President and the mandate of Congress. And she has the organization to make that control effective. She has both her operating heads and her staff advisors to assist her. For example, FHA policy is primarily a matter between the Secretary and the FHA |