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Castro Move to HUD Sets Up Possible VP Selection in 2016

Photographer: Stan Honda//AFP via GettyImages

President Barack Obama has chosen Julian Castro -- the San Antonio mayor known for his youth, telegenic appeal and inspiring keynote address to the Democratic convention in 2012 -- to serve as his next secretary of Housing and Urban Development. Close

President Barack Obama has chosen Julian Castro -- the San Antonio mayor known for his... Read More

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Photographer: Stan Honda//AFP via GettyImages

President Barack Obama has chosen Julian Castro -- the San Antonio mayor known for his youth, telegenic appeal and inspiring keynote address to the Democratic convention in 2012 -- to serve as his next secretary of Housing and Urban Development.

Julian Castro is getting a seat in President Barack Obama’s cabinet. Democrats are getting much more, including a potential 2016 candidate for vice president.

Obama has picked Castro -- the San Antonio mayor known for his youth, telegenic appeal and inspiring keynote address to the Democratic national convention in 2012 -- to serve as his next secretary of Housing and Urban Development. He made the choice official at the White House yesterday and asked the Senate for speedy confirmation.

Castro “has been focused on revitalizing one of our most wonderful cities,” Obama said. “He has become a leader in housing and economic development.”

Castro, in turn, recounted that he’d grown up living in rental housing.

“Just because you are of modest means does not mean your aspirations or your opportunity ought to be limited,” he said.

Castro’s HUD nomination can help Democrats in several ways. It deepens the party’s bench of potential candidates for the national ticket while soothing Hispanics upset over Obama’s failure to win a revamp of immigration laws. And should Castro land on the 2016 ticket, the party may have a chance of winning Texas and its 38 electoral votes for the first time since Jimmy Carter won there in 1976.

“Castro would be a good pick if he was from Mars,” said Mark McKinnon, a onetime senior adviser to President George W. Bush. “He just happens to be from Texas.”

Cabinet Shift

If confirmed, Castro will replace current HUD Secretary Shaun Donovan, who Obama named to serve as the next director of the Office of Management and Budget. Obama nominated last month his current budget chief, Sylvia Mathews Burwell, to lead the Department of Health and Human Services, succeeding Kathleen Sebelius, who oversaw the troubled rollout of his health-care law.

White House officials declined to comment on the strategy behind Castro’s selection. Several Democratic strategists said it’s too early to talk seriously about whether Hillary Clinton, the early frontrunner for the party’s next presidential nomination, might pick Castro as a running mate.

One person who is close to the Clintons said the former first family has been aware of Castro since he delivered the convention speech, a springboard for Bill Clinton in 1988 and Obama in 2004. Castro would probably be on a short list for vice president for any 2016 Democratic nominee, that person said, speaking on condition of anonymity because Hillary Clinton has yet to announce a decision on her candidacy.

No Guarantee

Having a Texan on the ticket is no guaranteed path to win the state for the Democrats. Even though presidential nominee Michael Dukakis selected then-Texas Senator Lloyd Bentsen in 1988 as his running mate, 56 percent of Texans voted instead for the Republican ticket of George H.W. Bush and Dan Quayle.

Regardless of how the 2016 calculus evolves, Obama will benefit for the next two years by having a strong Hispanic ally in his inner circle.

“It’s like in sports,” Paul Begala, the chief strategist for Bill Clinton’s 1992 presidential campaign, said of why Obama might have picked the 39-year-old Castro. “Draft for talent first. Castro’s the best available talent.”

Bill Frick, a Maryland state representative who went to Harvard Law School with Castro and later worked with him at the firm Akin Gump Strauss Hauer & Feld LLP, said the San Antonio mayor has “a rare combination of talents.”

“This is someone who is comfortable in the impoverished Spanish-speaking neighborhoods of San Antonio and he’s comfortable in the C suites, talking to executives,” Frick said.

HUD Challenges

Castro would inherit a job with challenges beyond politics. HUD’s $50 billion budget for economic development and housing programs is being stretched by a skyrocketing need for subsidized rental homes. He’ll also be in charge of the financially troubled Federal Housing Administration, which has been struggling with a wave of defaults in the $1.1 trillion portfolio of home mortgages it insures.

“It’s a very special challenge, because you combine the budget pressures and the great need with the fact that HUD is simply not the sexiest cabinet agency out there,” Julia Gordon, director for housing finance and policy at the Center for American Progress in Washington, which has ties to the Democratic Party. “Someone needs to bring their best game.”

Financial Crisis

He’ll be taking over after Donovan has helped guide the agency through the financial crisis and its aftermath. Now, the focus will be on ensuring that lenders act responsibly while “lending as broadly as possible to as many families as possible,” said David Stevens, president of the Mortgage Bankers Association.

Donovan, 48, came to HUD after a career in preserving affordable housing for low-income families, including serving as New York City housing commissioner in the administration of then-Mayor Michael Bloomberg, majority owner of Bloomberg News parent Bloomberg LP.

Donovan worked to stabilize FHA’s finances and served as the White House point person on issues including a legal settlement with big banks over foreclosure abuses and congressional efforts to remake the nation’s housing-finance system. He put a new emphasis on spending HUD money to shore up the infrastructure of neighborhoods beyond just housing.

Donovan “is eminently qualified to be OMB director,” Stevens said. “He’s run a very complex budget at a very complex time at HUD.”

Federal Aid

In San Antonio, Castro has been on the receiving end of more federal development aid than many mayors. The city was one of only five selected by the White House in January for extra support in applying for and securing federal grants. It was one of only two cities nationwide that secured funds from both the Department of Education and HUD for local revitalization efforts, a total of $54 million.

“He lobbied hard, and both the Department of Education and HUD wanted to find a place where there was someone on the ground who could make it work,” said Henry Cisneros, a former HUD secretary from San Antonio who now runs a property development company.

Castro could face questions as he undergoes the confirmation process about the way his city spent HUD funds. A HUD auditor found in 2012 that San Antonio misused portions of an $8.6 million grant it received to refurbish and sell abandoned homes and renovate apartment buildings.

Contract Monitoring

Some of the construction contracts weren’t monitored correctly and some of the housing wasn’t set aside for poor families as required, the auditor found. The city fixed the problems and appointed a new compliance officer to monitor the grant.

Democrats acknowledge that there is risk involved for Castro. HUD has long been beset by troubles including the misspending of funds by local housing authorities. And no president since Herbert Hoover previously served in the Cabinet.

Still, the job could be a springboard to national stature, as it has been for several of his predecessors. Republican Mel Martinez left the agency in 2003 to win a U.S. Senate race in Florida. Jack Kemp, a HUD secretary under President George H. W. Bush, went on to become the Republican nominee for vice president in 1996. New York Governor Andrew Cuomo, a Democrat, served as HUD secretary during the Clinton administration.

“HUD has long been a troubled agency, but despite that, you certainly have had a number of secretaries go on to bigger and better things and not be weighed down by that,” said Mark Calabria, who worked at HUD under Martinez and now is director of financial regulation studies at the Washington-based Cato Institute, which promotes free markets.

Guilty Plea

One politician whose career was derailed during a stint at HUD was Cisneros, whose trajectory mirrors Castro’s. Cisneros served as mayor of San Antonio before he was tapped to run the housing agency by Clinton in 1993. He left in 1997 amid accusations that he lied to the FBI about payments he made to a former mistress. He pleaded guilty to a misdemeanor and was later pardoned by Clinton.

That was a problem largely of Cisneros’s own making and didn’t have much to do with the agency, Calabria said. “There is the potential for something really kind of bad to blow up, but it’s only going to happen if you do it yourself,” Calabria said.

Civil-rights groups have been urging Obama to appoint a Latino to his cabinet since the resignations of Interior Secretary Ken Salazar and Labor Secretary Hilda Solis last year. Rafael Collazo, director of political campaigns at the National Council of La Raza, said the organization is “very excited” about Castro’s selection.

“Not only is it important for the Latino community to have qualified Latino candidates, but it is also important for the country to have the best minds,” Collazo said.

(An earlier version of this story was corrected. Dukakis and Bentsen ran as the Democratic national ticket in 1988, not 1998.)

To contact the reporters on this story: Jonathan Allen in Washington at jallen149@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editors responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net Steven Komarow, Don Frederick

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