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					                Production-Related Comments from
                Responses to MHC Solicitation Letter

                                          *      *        *
Note: There were lots of references to the role of nonprofits in providing housing counseling for
homeownership but the comments did not compare nonprofit versus for-profit “playing” in this
“field.” Overall impression: There are few for-profits providing this service, and the nonprofits who
do provide it generally lack resources.
                                          *      *        *


The American Institute of                             architects attempt to lower the cost of
                                                      production, this approach alone cannot
Architects                                            produce enough new housing to meet the
     Nonprofit / For-Profit Issues                    demand. There is a dramatic need for housing
                                                      working families, for housing to support the
Nonprofit developers need an easily                   rehabilitative efforts of people with life issues
accessible development loan fund for land             trying to rejoin the workforce, and for
acquisition and redevelopment expenses in             housing for seniors to live out their later years
order to compete with for-profit developers           with security and dignity. The housing
for certain properties. Even where                    affordability gap is widening. Rather than
sympathetic land owners agree to sell their           belaboring incremental shifts in programs or
parcels to nonprofit developers, the nonprofit        resources, we need to examine the potential
developers often lose out on worthwhile               for systemic change to the policies and public
properties because they cannot fund a                 commitments necessary to change this
purchase quickly enough or do not have                delivery system.
access to a fund that would allow option
payments and predevelopment work                      …
necessary to secure permanent financing. An           In an effort to reduce construction costs,
operating fund would create access to much-           architects and builders have tried using
needed capital to advance the development of          innovative materials, designs, and
desirable lots.                                       construction processes. Many of these,
           Production Issues                          unfortunately, have not been successful. For
                                                      example, using a cheaper grade of materials
The federal government needs to increase its          may reduce construction cost but require
current commitment of funds to deal with the          more frequent replacement or higher
challenges of producing and financing                 operating and maintenance costs. In some
affordable housing. These challenges include:         parts of the country, baseboard electric heat is
cost and financing; continuation and                  the least expensive to install initially, but it
expansion of successful federal, state, and           imposes significantly higher operating costs
local housing programs; and elimination of            than other alternatives. Other design
barriers to production.                               innovations may include the unconventional
What makes “affordable housing” affordable            use of new construction methods, materials,
is the relationship between the cost of               or layouts. Unless these innovations are
production and the income of the end user,            broadly accepted in the society at large, they
not the cost of production alone. Although            can become stigmatizing to the resident


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                Production-Related Comments from
                Responses to MHC Solicitation Letter
population. An affordable-housing developer           Community Development Block Grant
ought not be forced by budget constraints to          (CDBG) funds invested in communities near
use substandard materials or processes or             HOPE VI developments could be used to
otherwise sacrifice good design principles.           rehabilitate existing stock or build infill
The short- and long-term impact of these              housing, for example, or give much-needed
decisions can result in higher operating              economic incentives to small businesses by
expense or have a blighting effect on a               financing Main Street programs. These
neighborhood, thereby causing more                    enterprises bring vitality to a neighborhood
opposition to increased affordable housing            by increasing the amount of capital spent in a
production.                                           neighborhood’s small-scale stores and
                                                      services. These businesses can employ local
Further complicating the goal of cost
                                                      residents, providing a focus to building a
containment is a rigid regulatory framework.
Legal requirements for the protection of the          sense of community and pride. Additionally,
                                                      in-home businesses could be encouraged
public’s health, safety, and welfare such as
                                                      through the design of housing types that
fire sprinklers, accessible design features,
lead paint and asbestos abatement, and energy         include appropriately sized ground-floor
                                                      rooms with direct-at-grade access.
conservation measures could never, in good
conscience, be eliminated as a way to reduce          …
costs. The social agenda for producing
                                                      Many projects have multiple funding sources
affordable housing may also work within a             with different requirements that create
regulatory framework that requires
                                                      inefficiencies and delays. Ideally, of course,
procurement of services through contracting,
                                                      programs would be so well-funded that only
payment of certain wage rates or project labor        one source would be necessary to complete a
agreements, or local hiring plans. Again,
                                                      project, and all worthy projects would be
these protections add cost while
                                                      funded. Failing that, however, a “one stop”
simultaneously advancing other social and             application, not unlike the application forms
economic development goals.
                                                      that many universities and colleges have
As an example, the U.S. Department of                 agreed to use, can facilitate the process for
Housing and Urban Development (HUD)                   applicants. If all affordable financing sources
recently issued regulations to implement the          agreed to use this one form, then application
Lead-Based Paint Poisoning Prevention Act             time could be reduced and coordination of
as amended and the Residential Lead-Based             conditions for financing could be streamlined.
Paint Hazard Reduction Act of 1992.
Remediation of lead is a critical health issue.       Bank of America
However, these regulations can increase the                      Production Issues
cost of renovating an older building by 15 to
35 percent. With incentives to develop and            To what extent should vouchers be project
use new technology to remediate lead at a             based or otherwise linked to production
lower cost, we could increase production of           programs? If so, how and how many?
affordable housing by renovating more of the                 In general, one-time capital subsidies
existing stock.                                               are preferable to ongoing operating
…                                                             subsidies, but some combination of
                                                              the two is necessary. While the former


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                Production-Related Comments from
                Responses to MHC Solicitation Letter
       is much less subject to diminution                 While current programs, especially
       over time or future political event risk,           HOME and CDBG, are critically
       some operating subsidies for                        important to existing production
       dwellings occupied by extremely low                 efforts, they often lack adequate
       income households can ensure the                    flexibility, have conflicting
       sustainability of the project. This is              regulations and often are accompanied
       especially true during inflationary                 by excessive administrative costs.
       times when operating subsidies serve                Congress may wish to consider
       to counter the effects of extraordinary             offering local governments an option
       increases of operating costs and                    to consolidate these two programs for
       support proper upkeep and                           housing-related uses. Restrictions on
       maintenance.                                        uses of CDBG for some types of new
                                                           production costs should be eliminated.
      It should be recognized that capital
       subsidies are easier for private capital           While HOPE VI supports a
       suppliers to underwrite and work with.              desperately needed effort to end the
      That noted, project-based support for               historic isolation of severely
                                                           distressed public housing
       new production should be limited to
       developments which deliver a broader                communities, the current
                                                           administrative regime is wildly
       range of policy goals including mixed
                                                           expensive and burdensome. Severely
       income, tenure, and land use as well
       as work and housing geographic                      distressed public housing would be
       balance.                                            much better served by a more flexible
                                                           approach that:
      In essence, project-based support
                                                              o increases the level of capital
       should support developments that
                                                                available;
       speak to a local smart growth agenda.
                                                              o links access to this capital to
      Project-based support for new
                                                                efforts that also use private
       developments, which meaningfully
                                                                risk capital and state or local
       address several of the goals listed                      government capital;
       above, should be substantial in terms
       of the number of such developments                     o provides certain types of
       that could be supported. Access to                       procedural “safe harbors”
       incremental, project-based support                       intended to reduce the
       also might be structured to include                      administration and transaction
       incentives for private, state and local                  cost burden of the current
       companion investments and for                            approach;
       developments that represent                            o promotes mixed-income and
       substantial investments in low-income                    mixed-tenure replacement
       census tracts.                                           efforts, and;
How well do current programs operate as                       o allows distressed public
production tools (e.g., HOME, CDBG, HOPE                        housing to be revitalized with
VI, §202, §811)? How well do they work with                     off-site replacement, including
each other? How can they be improved?


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                Production-Related Comments from
                Responses to MHC Solicitation Letter
               acquisitions, so long as the off-               that foster and reinforce deeper state
               site replacement meets income                   and local government involvement.
               mixing criteria.                                States and localities should be
What are the merits of the various proposals                   rewarded for their own meaningful,
                                                               local financial efforts in support of
to create a new housing production program?
                                                               affordable housing.
What unmet needs are being addressed in
each proposal?                                                In some areas, local public housing
      Most housing markets in the country                     authorities, acting under their state
                                                               and local law powers and not relying
       would benefit from a low- and
       moderate- income production                             on HUD derived resources, have
                                                               played a meaningful role in acquiring,
       program. The keys to success are to
                                                               developing and preserving affordable
       involve private risk capital; to attract
       appropriate long-term stewardship of                    housing. Many of these ventures are
                                                               undertaken in partnership with local
       investor-owned properties; to avoid a
                                                               government. A few of these
       need for ongoing operating subsidy;
       and, to target subsidy level to local                   authorities now have non-HUD real
       real estate capitalization values.                      estate portfolios that are larger than
                                                               their public housing portfolios.
What innovative and creative programs are
being used by states and local governments to                 Notably, in some cases, the non-HUD
produce affordable housing?                                    portfolios generate significant
                                                               unencumbered, recurring cash flows
      In some geographic areas, local                         and represent a locally controlled and
       government is a local effort funding                    locally developed subsidy stream. The
       and/or risk participant in production                   federal government should support
       efforts. Mechanisms include use of tax                  and encourage such locally driven
       revenues as a development                               entrepreneurial initiatives and
       capitalization resource and the use of                  examine ways to propagate and
       state or local government balance                       generalize these skills and capacities
       sheet as guarantee resource to induce                   across the public housing industry.
       deeper private capital involvement.                     Bank of America, LISC, Enterprise
      In some areas, local government may                     and NAHRO recently launched a joint
       co-develop, lease or master lease                       initiative, the NAHRO Access
       portions of developments in order to                    Alliance, to do just that. NAA
       attract private capital investment.                     deserves federal recognition and
       Property tax abatement, inclusionary                    support.
       zoning and housing impact fees or               Catholic Charities USA
       SDCs are also in use in some local
       areas.                                                 Nonprofit / For-Profit Issues
      While the federal government should             Low-income housing development has
       mandate none of these responses, it is          become a very profitable business for private
       appropriate for the federal government          developers. In Florida, we have had
       to deploy its own resources in ways             developers raking off 15%+ for a developer’s



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                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
fee and in some cases, another 15%+ for                Nonprofit or developer needs to be allowed to
profit from construction. This is, of course, to       collect a developer’s fee at closing to pay for
say nothing about those who are                        predevelopment costs, time and effort. These
exceptionally enterprising in the sales of land.       ultimately help the nonprofit to build its
This is common knowledge in development                capacity to be a better organization, offer
circles. The answer to the question is to have         better service, and proceed purchasing more
greater non-profit involvement in project              projects.
development. Non-profits will defer their
                                                       Predevelopment capital is necessary—very
developer fees or use them to provide more
                                                       few nonprofits have cash around to throw at
services or cheaper housing.
                                                       earnest money, appraisals, etc. Need access to
Rehab capital is not as important as the               a low interest line of credit or capital. (Rusty
capital necessary to actually acquire a                Collins, Executive Director, Neighbor to
building to preserve. Often, if rehab capital          Neighbor, Fort Collins, CO)
originates from a State or Federal source,             …
there are extreme strings attached, like Davis-
Bacon federal wage requirements as an                  Programs like CDBG and HOME are
example. These requirements put the                    working as well as they always have.
nonprofit at a severe disadvantage because             Currently, they are the only source of capital
most contractors in this competitive market            for nonprofit developers outside of tax
don’t want to deal with regulations of a               credits. If a group is not sophisticated enough
nonprofit. Additionally, there are burdens on          for tax credits, CDBG and HOME are an
the nonprofit requirement bidding, etc. An             excellent alternative. The problem is that one
alternative strategy is to fund the down               can only go to the same well so many times.
payment capital that acquires the building to a        Additionally, Loveland, for example, is only
large enough degree that the rehab can be              able to offer about $250,000 annually in
done with bank proceeds (essentially from the          CDBG bricks and mortar. Considering
capital down payment) after the project                competition for funds, any award for any
closes. This keeps the money and the project           project will be fairly limited, thus reducing
much freer to compete in the marketplace and           the size of the project. Our organization can
best support our constituents. (Rusty Collins,         only develop 11-units or less at a time in
Executive Director, Neighbor to Neighbor,              Loveland due to this constraint (there just
Fort Collins, CO)                                      isn’t enough capital). There are still a lot of
                                                       hoops to jump through for this money,
…
                                                       including a 20-30 Deed Restriction on the
To provide rents for people at 30% - 50%               property—which is ok for a nonprofit—but
AMI and make a project cash flow (without              not many private developers will comply with
using Section 8 Certificates charging Fair             this. (Rusty Collins, Executive Director,
Market Rate), a project needs to operate at            Neighbor to Neighbor, Fort Collins, CO)
about an 8 CAP. This equates to less than 8%           …
return on investment. Most private parties
only do projects at 10 CAP or better.                  Fort Collins has developed a Land Bank
Nonprofits have to do more with less.                  program that is proactive and future thinking.
                                                       The city will purchase up to 55 acres with
                                                       about $1Million over the next 5 years, which


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                Production-Related Comments from
                Responses to MHC Solicitation Letter
will be held by the city until such a time that       federal funds and that any solution with
development and infrastructure have reached           respect to housing for extremely low-income
the site through growth. Then the land will be        individuals required a greater role by non-
sold at below-market prices to nonprofits or          profits, especially those that could deliver a
other developers doing affordable housing.            social service component.
We need to save land now—so that in 15
                                                                 Production Issues
years we are not saying, “if only we would
have put aside some land.” This should be             Tie vouchers to new housing production, so
done at least regionally, if not sponsored            that financing can be readily obtainable for
statewide at some point if the pilot project          new units since there is a guaranteed income
works out. (Rusty Collins, Executive Director,        stream to support the mortgage.
Neighbor to Neighbor, Fort Collins, CO)               …
Private-public-nonprofit collaborations have          One of the few tools available for affordable
been a creative way of funding new                    housing production for general populations is
projects—we are now beginning to look at              the tax credit program, yet the window of
employer assisted housing potentials.                 eligibility/affordability for this program is
(Richard Conn, Executive Director, Partners           pretty narrow. Assistance is needed for those
in Housing, Colorado Springs)                         who fall outside this narrow range.
State low-income housing tax credits, multi-          …
jurisdictional housing authorities, employer-
assistance housing programs, public-private           How well do current programs operate as
partnerships, land-trusts, waiving or reducing        production tools (e.g., HOME, CDBG, HOPE
development fees, improving the                       VI, 202, 811)? How well do they work with
development review process, recognizing that          each other? How can they be improved?
issues like sprawl, transportation and                We have extensive experience with the HUD
affordable housing (jobs-housing balance),            202 program and find that it works well. Our
waiving property taxes for low-income rental          concern, at present, is the very high cost of
projects, homeless prevention voluntary               construction in New York, made even more
check-off on state tax forms. local and               costly due to HUD requirements for
regional housing trust funds, (currently              Davis/Bacon wage scales.
working on creating a Colorado statewide
trust fund). (John Kefalas, Public Policy             Further in the recent NOFA there was a
Advocate, Catholic Charities, Fort Collins,           proposal for the development of mixed
CO)                                                   financing for 202s. Unfortunately, however,
                                                      the regulations for this possibility were not
…                                                     included. Mixed financing of 202s would
Housing, like health care and education, is an        broaden the potential for this very stable form
incredibly complex issue that is                      of housing so that It could possibly include
interconnected with domestic policy                   on-site community social service centers or
regarding job creation, transportation, child         mixed-age/income housing opportunities.
care and health services and education. While         (CC Brooklyn and Queens)
there are many factors, it was universally
agreed that there needed to be more flexible



                                                  6
                    Production-Related Comments from
                    Responses to MHC Solicitation Letter
Current programs work well, but the funding            In 25 words or less? Down payment programs
cycles (i.e., 811) should be shortened....twice        is what is needed. (CC Florida)
per year, rather than annually. (CC Phoenix)
                                                       What innovative and creative programs are
These are great programs but very “political”          being used by states and local governments to
locally. Sometimes the funds wind up in                produce affordable housing?
infrastructure or supplanting local
                                                       There has been minimal production of
government expenses. This may sound far out
                                                       affordable housing in New York City and
but what is needed is more of a CDC or                 New York State over the past decade.
CHDO for larger block funds of CDBG, etc.
                                                       Innovation and creativity need to be linked to
Again, local government has established
                                                       a true governmental commitment to building
bureaucratic interests in keeping the status           affordable housing. Affordable housing needs
quo. So, it would be very difficult to change
                                                       to be seen as part of our infrastructures, not
this….nevertheless, you asked the question.
                                                       just a program to help the needy. (CC
(CC Florida)                                           Brooklyn and Queens)
What are the merits of the various proposals           The best innovative program is the LIHTC
to created a new housing production
                                                       program, which gives private sector
program? What unmet needs are being                    incentives for production. (CC Phoenix)
addressed in each proposal?
                                                       Production of additional housing units,
We support the concept of the federal                  particularly in urban areas, is necessary for
government providing federal resources to
                                                       both low and moderate income groups. Once
create a new housing production program
                                                       again, Senator Kerry’s Housing Trust Fund
because these resources are very much                  recognized that additional federal funding had
needed on the state and local levels and it will
                                                       to be extremely flexible. Further, in urban
provide greater incentives for these levels of
                                                       areas where both land and labor costs are
government to be more actively involved in             extremely high, it is necessary to relax union-
addressing the problems of affordable
                                                       scale wages and make available
housing and homelessness. The national
                                                       “Brownfields” and other state/city land for
housing trust fund would need to be set up to          housing production. In addition, when public
minimize administrative costs and
                                                       policy analysts consider the long term
bureaucracy and avoid duplication. It must
                                                       demographic changes in the country away
not supplant funds from other programs that            from the suburban nuclear family to more
are generally working well like CDBG and
                                                       single person households (including the
HOME. We need the public funds to leverage
                                                       elderly), housing policy must take into
the private capital and get back in the                account this shift. Long term, the country
business of affordable housing production.
                                                       needs less 4 bedroom suburban homes and
This will also serve as a strong economic
                                                       more urban apartments and condominiums
stimulus for a sagging economy. We must                closer to transportation and jobs. (CC Boston)
also look at issues around unspent and
unobligated HUD funds and how these could
be channeled into production. (John Kefalas,
Public Policy Advocate, Catholic Charities,
Fort Collins, CO)



                                                   7
                Production-Related Comments from
                Responses to MHC Solicitation Letter

Chicago Mutual Housing                               Park. The Nuestro Hogar (Our Home)
                                                     Cooperative will house 31 low-income
Network                                              families.
           Production Issues                         We ask that the HOPE VI and Section 202 be
Our recommendation is to re-capitalize               more widely marketed as financing tools to
HUD’s Section 221(d) 3 mortgage program              create affordable housing cooperatives. It is
(dating from the 1960’s), which has been the         unclear to the Chicago affordable housing
most successful HUD mortgage programs                community that the Section 202 program
ever created, with a low default ratio. The          could be used for cooperatives serving the
renewal of this loan program will spur the           elderly or disabled. One cooperative that has
production of affordable cooperative housing         worked well in this instance is the Silent
in Chicago. Chicago area cooperatives that           Cooperative, a 99-unit co-op at 2500 West
benefit from this mortgage program include           Belmont Avenue in Chicago. HOPE VI
London Towne Houses in the Pullman                   funding in Chicago has been largely targeted
neighborhood. Established in 1964, the 803-          for CHA redevelopment, with little to no
unit development benefits from a 1% FHA              attention given to the creation of housing
guaranteed mortgage allowing families to live        cooperatives.
in the development today for as little as $400       What innovative and creative programs are
per month. Overall, cooperative loans have           being used by states and local governments to
proven to be the FHA’s top performing loans          produce affordable housing?
in the portfolio, outperforming any other
FHA loan program (Source: 1995 study by              Currently, the Network is working with HUD
the Urban Institute and the National                 funded or public housing properties to
Cooperative Bank.)                                   convert the properties to cooperatives or
                                                     mutual housing associations. One such
How well do current programs operate as              property is the Chicago Housing Authority’s
production tools (e.g. HOME, CDBG, Hope              Lake Parc Place at Oakwood Boulevard and
VI, 202)?                                            Lake Park Avenue. A mixed-income, 280 unit
We urge the expansion of CDBG funds and              twin high-rise development, Lake Parc has
HOME dollars in the creation of affordable           been successfully self-managed for the past
housing cooperatives in Chicago. An                  two years. The resident council is now
expansion of the HOME program is                     working with the Network to convert to a
particularly critical because it does not have       housing co-op.
the restrictions of low-income housing tax
credits in the creation of affordable housing
                                                     Citizens’ Housing and
cooperatives. CDBG funds from the Chicago            Planning Association
Department of Housing enabled the Network                       Production Issues
to provide direct resident/tenant training to
approximately 360 households in 2000. We             How well do current programs operate as
will serve over 500 households this year             production tools? (HOME, CDBG, HOPE VI,
through a CDBG grant.                                §202, 811)
HOME dollars were used to create Chicago’s           HOME and CDBG are important to housing
first master lease cooperative in Humboldt           production and developers have used them


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                Production-Related Comments from
                Responses to MHC Solicitation Letter
successfully. Local control has allowed the           serve the lowest income households. This
cities and states to craft appropriate policies       program, re-tooled for local, rather than HUD
to solve local housing problems. However,             implementation, should serve as the model
HOME and CDBG lack an exclusive focus on              for multi-family housing production
production, particularly multi-family rental          programs.
production. In FY 01, only 35% of CDBG
                                                      In monitoring the use the federal program
went to housing; 45% of HOME is used for              funds, HUD should insure that the
homeownership programs. In general, the
                                                      Consolidated Plans submitted by
subsidy available through these programs has
                                                      communities reflect the true needs of the
been used by jurisdictions as a relatively            community and those housing plans respond
shallow capital subsidy, which needs to be
                                                      to these needs. For example, if the need data
combined with tax credits, debt, and other
                                                      show many extremely low-income families in
sources to complete a production package.             “worst case” housing need, the use of federal
This is inefficient and costly.
                                                      funds outlined in the ConPlan should respond
Since the programs are not designed                   to that housing need. Subsidy programs
specifically to generate housing production           should provide deep enough subsidy to serve
they represent a fragmented approach. HOME            the very lowest income households.
and CDBG regulations often differ from and            Similarly, if high needs for housing for
may conflict with other programs that need to         homeless persons are demonstrated, most
be layered with them to achieve feasibility           HOME funds shouldn’t go into
and affordability. For example, if you use            homeownership. HUD should insist that
Section 8 to achieve greater affordability, it        where high need for low-income rental
may conflict with the allowable HOME rents.           housing is demonstrated, appropriate
                                                      financing be offered by the jurisdictions.
To bring production to a meaningful scale, a
new model, dedicated to multi-family                  What are the merits of the various proposals
production is needed.                                 to create a new production program?
HOPE VI, while the largest development                CHAPA supports both housing trust fund
program on the national level, is not truly a         bills filed by Senator Kerry and Congressman
production program but rather a public                Sanders. However, any housing production
housing preservation/reduction program. In            program hoping to serve households with
most HOPE VI developments, units available            incomes below 50% of median income should
to the population most in need, extremely             incorporate an operating subsidy component.
low-income households, are reduced. The
                                                      We have attached a brief description of our
intense HUD oversight, prescriptive                   proposal for a new rental housing production
imposition of HUD’s changing policy ideas,            program.
and limited range of applicability make this a
costly program to serve a small sector of             What creative and innovative programs are
distressed public housing.                            state and local governments using to produce
                                                      affordable housing?
Section 202 and 811, while underfunded, are
streamlined and effective capital grant               Massachusetts has been a leader in affordable
programs combined with rental assistance              housing production. Four elements make
payments. This allows the housing created to          Massachusetts successful:



                                                  9
            Production-Related Comments from
            Responses to MHC Solicitation Letter
   A network of sophisticated public and                state and city programs available to
    quasi-public agencies that support                   the lowest income households. The
    affordable housing development.                      City of Boston took the lead by
    Massachusetts in one of few states                   requiring that any project developed
    that has a quasi-public agency,                      with City funds set aside 10% for
    Community Economic Development                       homeless families or persons. They
    Assistance Corporation, to provide                   have made good use of the new
    technical assistance and front money                 project-based Section 8 assistance
    loans to non-profit developers of                    program by providing Section 8 to
    affordable housing. The                              city development projects to help
    Massachusetts Housing Partnership                    deepen affordability. The state’s
    also provides technical assistance and               Department of Housing and
    permanent loans for affordable                       Community Development has
    housing. Massachusetts is unique in                  initiated a number of programs using
    having an agency to work with banks                  to their ability to use the project-based
    and corporations to package and buy                  vouchers to encourage affordable
    tax credits to maximize the return to                production and have in their most
    the project.                                         recent tax credit round explicitly
                                                         linked project-based Section 8’s to tax
   State-funded housing programs.
                                                         credits by allowing developers to
    Massachusetts has developed a
                                                         apply for credits and Section 8 in the
    number of general obligation bond                    same application.
    financed programs to facilitate
    housing production. The Housing                     Political leadership. Massachusetts
    Stabilization Fund is available for                  faces an affordable housing crisis. The
    rental and homeownership programs                    administration has attempted to
    for households below 80% of median                   increase the supply of affordable
    income. The Housing Innovation                       housing by issuing Executive Order
    Fund will contribute up to 50% of the                418 to encourage more local
    capital costs of a project that serves               production and by supporting Chapter
    special needs populations like                       40B, a state statute which encourages
    homeless persons and families. This                  housing production in suburban
    year, the state has begun two new                    communities. Use of zoning,
    programs: a five-year, $100 million                  planning, and permitting tools to
    affordable housing trust fund and a                  streamline development has been a
    five-year, $100 million state low                    top priority for state planners.
    income housing tax credit program.                     Production Proposal
    These two new resources are expected
    to increase production by 75% over            Citizens’ Housing and Planning Association
    the next five years.                          Draft, July 2001
   Creative use of resources.                    A new federal production program is needed
    Massachusetts has been a leader in            to respond to the growing demand for
    responding to the need to make                affordable rental housing. Programs now used
    affordable housing produced through           for production, like HOME, lack the


                                             10
               Production-Related Comments from
               Responses to MHC Solicitation Letter
exclusive focus and flexibility needed to                The capital subsidy will be paired
expedite production. Adequate federal                    with project-based subsidy or priority
resources combined with flexible state                   for mobile vouchers to cover the gap
implementation will encourage developers to              between operating expenses and the
produce housing more quickly. This program               rent required of low and extremely
will serve a range of incomes from extremely             low income families.
low income to moderate income households.
                                                        Incentive Vouchers
The new production model is a streamlined
                                                         Vouchers used in this program would
capital grant program with strong targeting
                                                         be less costly than vouchers in the
requirements and a variety of mechanisms to
                                                         private market. To serve low income
deepen affordability in order to serve
                                                         families, the vouchers are essential to
households below 50% of median income.
                                                         cover the difference between the cost
Key elements of the proposed production                  of operating the project and the rents
program are:                                             they pay.
      Type of Program: Capital                          For example, if a family makes
                                                         $15,000 a year, they can afford to pay
       Capital grant program to increase
                                                         30% of their income or $4,500/yr
       rental housing production, modeled on
       the HUD 202/811 program. The                      toward operating expenses. If
                                                         expenses were $6,000 per year, the
       program would provide deep capital
                                                         voucher would cost only $1500 per
       grants to produce housing for
       households of up to 80% of median                 year, far less than a voucher based on
                                                         the FMR, which could cost in excess
       income. The amount of the grant will
                                                         of $12,000 annually. Housing
       be based on the level of affordability
       of the units. Units serving low (below            Authorities targeting vouchers to these
                                                         units may receive additional vouchers
       50% of median income) and
                                                         and use the savings flexibly (as in the
       extremely low income (below 30% of
                                                         Moving to Work demonstrations)
       median income) households would
       receive grants for 100% of the Total             Internal skewing of rents to create
       Development Cost (TDC). Units                     affordability
       above 80% of median income would
                                                         For mixed income projects, the states
       receive no subsidy.
                                                         may choose to subsidize the low
       Simplified “one-stop” financing to                income units’ operating costs through
       increase efficiency. Units serving                providing a large capital grant (up to
       households up to 80% of median                    100%) to higher income units ( up to
       income can access debt financing in               80% of median income) and require
       accordance with affordability and                 that the excess rental income be used
       feasibility. No leverage or match                 to internally subsidize the income gap
       requirement. Developers may seek                  for low and extremely low income
       FHA insurance.                                    households. Financial modeling will
      Type of Program: Operating                        be needed to demonstrate the
                                                         feasibility of this approach and
                                                         document the need for capitalized


                                                11
             Production-Related Comments from
             Responses to MHC Solicitation Letter
    operating reserves to insure continued                  Funding
    viability.
                                                             Congressional appropriations or trust
   Income Targets                                           fund
    At least 25% of the units must serve             The Community Builders
    households below 30% of median
    income. The balance can serve, at                       Nonprofit / For-Profit Issues
    state option, up to 95% of median                Traditionally, nonprofit housing developers
    income, with the amount of grant                 have proven unable to build an adequate
    sliding from 100% for households                 capital base from development activities,
    below 50% and 0% for households                  property management, or foundation support.
    above 80% of median income.                      While development subsidies such as the Low
   Rents                                            Income Housing Tax Credit have succeeded
                                                     in attracting private capital to individual
    Rents will be set initially at 30% of            projects, they have not provided
    the maximum income or slightly                   organizational equity capital of nonprofit
    below. Voucher use will deepen                   organizations. Foundation and government
    affordability. Rents will increase               reluctance to fund organizations themselves
    based on costs and increases in the              rather than programs that directly benefit
    income ranges.                                   needy individuals have also hindered capital
   Affordability restrictions                       growth in nonprofit organizations. The result
                                                     has been an industry that is highly localized,
    40 year affordability restriction. At the        dependent on a patchwork of local
    end of 40 years or at the time of
                                                     government, philanthropic, and project-
    refinancing for useful life repairs,             specific funding. Without a capital base, these
    regulatory agreement will require that           organizations are unable to grow, achieve
    developer “seek and accept” subsidies
                                                     economies of scale, develop professional
    if available to continue affordability.
                                                     expertise, and operate at the scope and scale
   Developer Eligibility                            of operations necessary to tackle the biggest
                                                     urban development challenges facing our
    All housing producers are eligible.
                                                     cities.
    Priority for higher levels of
    affordability or in “hard to develop”                        Production Issues
    areas.
                                                     Encourage integration of new rental
   Flow of Funds                                    production and existing public housing
                                                     resources. Under QHWRA, Housing
    100% of the funds will be awarded to
                                                     Authorities now have much more freedom to
    states on a formula basis that includes
                                                     contribute public housing capital and
    a minimum amount for low
                                                     operating dollars to privately owned and
    population states. Funds not used by a
                                                     managed mixed-income developments.
    state will be made available on a
                                                     Through best practice recognition and
    competitive basis to local producers or
                                                     technical assistance, HUD should highlight
    through national intermediaries
                                                     ways in which Housing Authorities are
    serving the state.
                                                     working in partnership with private


                                                12
                Production-Related Comments from
                Responses to MHC Solicitation Letter
developers using Low Income Tax Credits,               are almost never linked to the operating
tax exempt bonds, and HOME/CDBG block                  subsidies or project-based rental assistance
grant dollars to leverage scare federal                resources that are needed to develop housing
resources, boost mixed-income housing                  that is affordable for people with disabilities
production, and catalyze neighborhood                  below 30 percent of median incomes; and (2)
revitalization efforts.                                state and local officials rarely prioritize or
                                                       fund housing for people with disabilities
The Consortium for Citizens                            through the Consolidated Plan process. With
with Disabilities Housing                              respect to HOPE VI, it has been used almost
Task Force                                             exclusively to create affordable housing for
                                                       households above 30 percent of median
           Production Issues                           incomes. Better linkage to existing project-
To what extent should vouchers be project              based and tenant-based rental assistance
based or otherwise linked to production                programs, as well as more stringent targeting
programs? If so, how and how many?                     requirements for state and local housing
                                                       officials, would go a long way towards
We recommend that project based vouchers               resolving these barriers.
be linked to the development of non-profit
owned housing that is developed with other             Federal efforts to assist states in
sources of federal funding, including HOME,            implementing plans to downsize institutions
CDBG, and federal tax credits. Through this            and help adults with severe disabilities move
strategy, people with disabilities can begin to        into the community under the Supreme
benefit more from projects developed through           Court’s Olmstead decision should not focus
these sources of financing.                            solely on small HUD programs that only
                                                       serve people with disabilities (e.g. the Section
In order for this project based voucher                811 program, the Section 8 Mainstream and
program to succeed, it is very important that          designated housing voucher programs). They
it not repeat the mistakes of past programs—           should also focus on providing access to all of
particularly the bureaucratic process of               HUD’s mainstream housing production
project selection and approval which was               programs, including HOME and CDBG and
created by HUD. Instead, PHAs should be                any new production program. HUD guidance
required to submit selection procedures for            to communities regarding the Olmstead
the project based program that meet generally          decision should also suggest revising local
acceptable HUD criteria for competitive                and state Consolidated Plan needs
selection, and have their programs audited on          assessments, if necessary, to include the
that basis.                                            supportive housing needs of those individuals
How well do current programs operate as                with disabilities living unnecessarily in
production tools (e.g. HOME, CDBG, HOPE                “restrictive settings.”
VI, 202, 811)? How well do they work with              …
each other?
                                                       Cuts to the Section 811 program during the
The HOME and CDBG programs are                         Clinton Administration have made its funding
underutilized with respect to expanding                fall from $387 million in the early 1990s to
housing supply for people with disabilities.           its current level of $217 million. This amount
The problem is two-fold: (1) these programs            of funding must support four different


                                                  13
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
activities: (1) new production activities; (2)           order to meet the program’s cost limits. This
tenant-based rental assistance (up to 25                 works for Section 202 projects that may have
percent of the appropriation); (3) initial               100 units or more, but does not work for a 6-
funding of Project Rental Assistance                     unit project. The single purpose corporation
Contracts; and (4) renewal of Project Rental             requirement makes it much more difficult and
Assistance Contracts. This level of funding              costly to obtain and use other housing
will produce less than 1,900 new units of                development financing to bridge “gaps”
affordable and accessible housing for people             caused by limited Section 811 funding
with disabilities—a mere fraction of what is             provided per project. “Gap” financing is often
necessary to begin to address the need.                  needed because the Section 811 costs limits
                                                         are frequently too low to build good quality
It is clear that an increase in appropriations is
                                                         accessible housing on a scattered site basis.
necessary to meet all of the above program
objectives.                                              As a result of these disincentives in the
…                                                        Section 811 program, and reductions in
                                                         funding over the past decade, many non-
The housing developed with Section 811                   profits have been discouraged from even
funds is very different from the housing                 competing in the program. The application
developed with Section 202 funding.                      process is extremely complicated, and often
While elderly households continue to prefer              requires even experienced developers to pay
to live in larger housing developments                   $10,000 or more for a specialized Section 811
reserved for elders, people with disabilities            consultant. Non-profit groups can rarely
have expressed a clear preference for less               afford to pay this amount of “up front” money
stigmatizing, scattered-site, and low density            unless there is a reasonable chance that an
models of housing that are well integrated               good application will be funded.
within the community. Non-profit developers              The CCD Housing Task Force has advocated,
of Section 811 housing have found that low-              without success, for many years that the
density models of housing for people with                Section 811 program be simplified and that it
disabilities are extremely difficult to develop          be used to develop housing which more
using the current Section 811 program.                   accurately reflects the housing preferences of
Current Section 811 rules require an onerous             people with disabilities. While Section 811
development process [NOTE: HUD has 375                   program options have been expanded beyond
pages of guidance and forms]. The single-                group homes and independent living facilities
purpose corporation ownership arrangement                to include units in condominium, cooperative
is incompatible with a low-density scattered             and other multi-family developments, the
site approach development and makes it                   program’s development process and HUD’s
difficult to acquire a percentage of the units in        burdensome administration procedures make
a larger affordable housing project.                     these models much more difficult—and
Lower density projects are more difficult, and           expensive—to pursue.
more expensive to develop because the                    …
developer must “spread” the fixed costs
                                                         In addition to restoring needed funding,
associated with the project (i.e. architectural
and engineering fees, site work, development             HUD, Congress, and disability advocates
                                                         should work together to ensure that Section
fees, etc.) over as many units as possible in


                                                    14
                Production-Related Comments from
                Responses to MHC Solicitation Letter
811 funding can be used more flexibly to              production program that includes significant
develop, rehabilitate, purchase, or rent small        targeting (i.e. 30 percent) of households
scale or scattered site housing desired by            below 30 percent of median income, and
people with disabilities. Important progress          provides operating subsidy support to ensure
was made in this effort last year with                affordability. We believe that such a program
enactment of the P.L. 106-569 and its                 would work well with a reformed model of
provisions allowing Section 811 sponsors to           Section 811, with McKinney homeless
partner with for-profit entities, use mixed           assistance resources, as well as with Section 8
funding sources and use project reserves to           project based assistance. For these reasons,
downsize older projects.                              we are working in partnership with the
                                                      National Low Income Housing Coalition to
The primary focus of the Section 811
                                                      create a National Trust Fund program that
program should continue to be production of
housing for people with the most severe               will achieve the targeting outcomes described
                                                      above.
disabilities, with no more than 25 percent of
the funding being targeted for tenant-based           Council for Affordable and
rental assistance. All Section 811 funds
should be provided exclusively to non-profit
                                                      Rural Housing
disability organizations, and not to PHAs.                       Production Issues
Most PHAs have demonstrated little interest
in or the capacity to serve people with severe        RHS’ budget has been severely limited in
disabilities. To meet the needs of people with        recent years and the multi-family housing
severe disabilities, a new non-profit                 production budget is a fraction of that
administered Section 811 rental assistance            appropriated by Congress in years past. The
program should be created so that the current         RHS’ main multifamily program is Section
practice of converting Section 811 tenant-            515. Historical funding levels were around
based funding to Section 8 vouchers can be            $500 million. In recent years, the budget was
eliminated.                                           reduced to around $100 million, and a large
                                                      portion of these funds are used for
What are the merits of the various proposals          rehabilitation of existing Section 515
to create a new housing production program?           properties. (Precise budget figures can be
What unmet needs are being addressed in               provided upon request). This has resulted in
each proposal?                                        relatively little new housing for rural
Since the elimination of the Section 8 New            America. Accordingly, we believe that, in all
Construction and Substantial Rehabilitation           events, rural housing production
and public housing construction programs,             appropriations should be increased to
there has been virtually no mechanism to              historical levels of the early 1990s. We expect
target federal housing production for                 that any funding increase would be modest in
extremely low-income families with the                the current federal budget environment, but
exception of no increments for Section 811            even a modest increase would be important.
and McKinney Homeless Assistance funding.             We believe that the most budget friendly
And these resources are rapidly diminishing!          programs partner federal funding with private
Therefore the CCD Housing Task Force and              funding to achieve a greater goal than federal
TAC support the creation of a federal housing         funding alone could achieve. RHS’ main
                                                      multi-family housing production program,


                                                 15
                Production-Related Comments from
                Responses to MHC Solicitation Letter
under Section 515, is a direct government              amortizing investment would result in 4,151
loan program that does not easily leverage             units, or more than twice the number of units
private dollars. RHS also has a small program          when coupled with a 9% Low Income
for federally insured private multi-family             Housing Tax Credit.
mortgage loans under Section 538 of the
Housing Act of 49, but this has yielded few            Council of State Community
results.                                               Development Agencies
          Production Proposal                                    Production Proposal
In light of funding shortages, we have                 COSCDA and its members support the
analyzed various ways to utilize federal funds         creation of a new affordable housing
to achieve maximum financial leverage. Our             production program. Consistent with the
best suggestion outside of restoring budget            position of the National Governor’s
funds is to leverage federal appropriations            Association, COSCDA believes a new
through a new program under the Federal                program should be administered by states.
Home Loan Bank system (the “Banks”). The               Additionally, as part of any new legislation to
Banks and their members (“Members”) are an             produce more affordable housing, COSCDA
appealing source of financing because                  believes the following principles should be
Members are largely located in or near rural           included:
areas. In our experience, Members also tend
to be familiar with the development of rural                 Objective: To expand the supply of
housing.                                                      affordable rental housing for very-low
                                                              and extremely low-income families.
This program would provide an interest credit
in which a lump sum is paid to the Banks or                  Source of funds: A new federal
the Federal Housing Finance Board, to be                      appropriation of at least $2 Billion
used to buy-down mortgage interest rates to                   annually.
support the below-market mission that RHS                    Administration of funds: HUD would
serves. The Banks’ Affordable Housing                         allocate funds directly to states with
Program (“AHP”) and Community                                 appropriate HUD oversight and
Investment Program (“CIP”) already support                    limited regulation. The Governor of
and encourage Members to loan funds to rural                  each state would assign responsibility
multi-family housing. This interest credit                    to administer the program to the
program would facilitate greater lending at a                 appropriate agency. The state would
below-market interest rate, and the savings                   develop an affordable housing
can be passed on to residents in the form of                  production plan consistent with the
below-market rents.                                           state’s Consolidated Plan and would
We believe that the above-described program                   be developed with public input.
with a $50 million federal investment could                  State allocation formula: Funds would
be used to fund and subsidize loans to                        be allocated to states based either on
Members, creating about $87 million in loans                  the HOME Program formula, or a
from Members. A $50 million amount in                         similar formula based on the percent
Section 515 direct loans results in about 1,961               of population that is low/extremely
units, while $50 million placed in an                         low income.


                                                  16
             Production-Related Comments from
             Responses to MHC Solicitation Letter
   Income targeting: Funds would be                Delaware State Housing
    targeted in significant part to
    extremely low-income families. Funds
                                                    Authority
    should not be used to assist families or                   Production Issues
    individuals above 50% of median
                                                    How well do current programs operate as
    income, with some flexibility given
                                                    production tools (e.g., HOME, CDBG, HOPE
    for increasing the limits in “hard to
                                                    VI, §202, §811)? How well do they work with
    serve” areas. Additionally, the
                                                    each other? How can they be improved?
    program should encourage mix-
    income developments.                            Amend §202 and §811 guidelines to allow
                                                    for-profit developers to be eligible for this
   Coordination with existing program:
                                                    funding. Or, make a portion of such funding
    Funds would be compatible for use in
                                                    available for for-profits.
    combination with other successful
    housing programs including the Low              What innovative and creative programs are
    Income Housing Tax Credit, the                  being used by states and local governments to
    HOME program, and the CDBG                      produce affordable housing?
    program.                                        DSHA has worked closely with a consortium
   Eligible activities: To meet a wide-            of banks (Delaware Community Investment
    range of housing housings needs and             Corporation [DCIC]) in the permanent
    markets, eligible activities would              financing of Tax Credit projects. DCIC
    include new construction, substantial           provides interest rates below commercial rate
    rehabilitation, and preservation of             financing, along with an equity fund for the
    existing affordable housing.                    investment in Tax Credit projects. DSHA
                                                    receives a portion of the document fees
   Tenant income devoted to rent: Rents            charged by the Recorder of Deeds Office to
    would be established at levels so               help fund the HDF and also the Fire Marshal
    residents would pay approximately               has waived its plans review fee for affordable
    30% of income towards rent.                     housing projects.
   Matching funds: Any match would not
    be greater than the 25% match
                                                    The Enterprise Foundation
    currently required under the HOME                          Production Issues
    program. Any match would also be
    flexible, and include a broad array of          Our single most important recommendation
    qualified cash and non-cash                     to the Commission is to urge Congress to
    contributions, (including state and             provide significantly more resources for
    federal Housing Credits, HOME, and              affordable housing production (including
    CDBG funds.                                     rehabilitation). HUD’s budget is less than half
                                                    of what it was in 1980 and only about one-
                                                    third of the Department’s shrunken funding
                                                    today goes to new production and
                                                    rehabilitation.
                                                    We encourage the Commission to address
                                                    affordable housing production in four ways:


                                               17
                Production-Related Comments from
                Responses to MHC Solicitation Letter
       recommend a major funding increase            aside for downpayment assistance in its fiscal
        of the HOME Investment Partnership            year 2002 HUD budget request.
        program;                                      We encourage the Commission to
       propose a new housing production              recommend that Congress increase HOME
        program targeted primarily to                 funding to $2.6 billion for fiscal year 2003.
        extremely low-income people                   This amount would roughly equal an inflation
                                                      adjustment to HOME’s initial 1993
       encourage more CDBG funding for               authorization level of $2 billion. (The
        housing and increase CDBG’s annual            program was originally funded at $1.5
        appropriation; and                            billion.) We also encourage the Commission
       recommend improvements to the FHA             to recommend that HOME funding grow with
        Asset Control Area program.                   inflation in the future.
…                                                     An improvement to HOME that would
                                                      increase the efficiency of the program and the
HOME has financed more than 586,000
                                                      housing finance system as a whole would be
affordable homes and currently produces
                                                      to reconcile HOME’s rent, income,
more than 70,000 homes a year. Of HOME-
                                                      monitoring and reporting requirements with
assisted renters, nearly 90 percent are very
                                                      those of the Housing Credit. This change
low-income and 57 percent are extremely
                                                      would make the programs much simpler to
low-income. More than half of all HOME-
                                                      combine, remove a significant administrative
assisted homebuyers earn 60 percent or less
                                                      burden on developers and allow them to more
of area median income. Every HOME dollar              easily serve lower income tenants.
generates an additional $3.88 in public and
private investment in housing.                        …
HOME is an especially important tool for              We are … concerned that as a result of the
community-based housing developers, which             program’s somewhat broad and vague
have received almost half of all HOME funds,          regulations, CDBG funds do not always
according to the Urban Institute. HOME                “principally benefit” lower-income people, as
dollars often provide critical resources to           the statute requires as the funds’ “primary
housing developments financed with the Low            benefit.” In a time of growing affordable
Income Housing Tax Credit (Housing Credit),           housing needs, with limited resources
which is especially important to grassroots           available to help meet them, small changes to
groups, because they typically do the most            CDBG would provide a big help.
difficult developments requiring the deepest          Specifically, we encourage the Commission
subsidy to serve the neediest families. HOME          to recommend that Congress increase the
also provides crucial technical assistance and        percentage of lower-income people that must
operating support to community-based groups           principally benefit from CDBG from 70
to help them become stronger organizations.           percent to 80 percent of a jurisdiction’s
We encourage the Commission to                        CDBG funds; require that 40 percent of a
recommend that Congress continue to reject            jurisdiction’s CDBG allocation benefit low-
any new HOME set-sides, such as the Bush              income people; tighten the definition of
administration’s proposed $200 million set-           “benefit” to explicitly include only activities
                                                      that directly benefit lower- or low-income


                                                 18
                Production-Related Comments from
                Responses to MHC Solicitation Letter
people; and limit the “area benefit test” to           To date, 15 jurisdictions have ACA
areas that are primarily residential in                Agreements with HUD in place, with
character. These changes are entirely                  thousands of homes in the potential pipeline.
consistent with the CDBG statute, would not            In addition, 10 jurisdictions are in
impose undue restriction on states and cities          negotiations with the Department and 16
and would enable CDBG to help address the              others have formally expressed interest in
most serious housing problems. In addition,            participating. This high level of interest in a
by encouraging states and cities to deploy             program that HUD has done little to promote
CDBG dollars to meet clear and widespread              attests to its great potential.
needs, these changes could result in more              HUD and its ACA partners have
timely spend out rates by CDBG
                                                       constructively negotiated many major details
jurisdictions, solving an issue that has begun
                                                       of how the program should work in each
to hamper CDBG advocates’ ability to                   community. One major sticking point is the
increase the program’s annual appropriations.
                                                       discount price for which HUD will sell its
We encourage the Commission to                         foreclosed homes to cities and nonprofits.
recommend that Congress increase CDBG                  The ACA program statute gives the
formula funding to $5 billion for fiscal year          Department broad flexibility to sell homes at
2003. We also encourage the Commission to              a price that allows their feasible rehabilitation
recommend that CDBG funding grow with                  and resale; the law does not prescribe a
inflation in the future.                               percentage or price limit. Regrettably, HUD
…                                                      by draft regulation has limited the maximum
                                                       discount amount of 75 percent to homes
The FHA ACA program allows local                       valued at $50,000 or less. That is simply too
governments and qualified nonprofit                    low a level to allow the program to work in
organizations to purchase FHA-owned homes              high-cost urban areas. As a result, some ACA
at a discount for rehabilitation and resale to         jurisdictions will have to seek additional
buyers in distressed communities. The                  federal, state or local government subsidies to
program, created in 1998, promotes several             carry out their ACA programs. This
important objectives: increasing                       unnecessary inefficiency will allow the
homeownership for low-income people;                   problem of FHA foreclosures to worsen faster
stabilizing distressed neighborhoods; taking           than communities trying to combat it can
foreclosed homes off the federal                       respond.
government’s hands; limiting losses from
future foreclosures; and preventing real estate        We encourage the Commission to
                                                       recommend that Congress direct HUD to
speculation that exacerbates neighborhood
                                                       implement the ACA program in general and
blight and homeownership disparities. (An
additional benefit, once the program is                its discount provision in particular in the
                                                       flexible manner the law allows, as Congress
operating at scale, could be a freeing up of
                                                       did last year in the Conference Report of
resources now deployed for homeownership,
                                                       HUD’s Fiscal Year 2001 Appropriations Bill.
such as HOME, to help alleviate acute rental
housing needs of extremely low-income                            Production Proposal
people.)
                                                       A substantial HOME increase would help
                                                       significantly address affordable housing


                                                  19
                Production-Related Comments from
                Responses to MHC Solicitation Letter
needs of families with incomes between 30                 Any new program should serve low-
percent and 80 percent of area median                      income people exclusively, with the
income. It also would partially alleviate, but             large majority of resources dedicated
not nearly solve, the far more severe housing              to extremely low-income people. We
crisis facing those earning less than 30                   recommend that any new program
percent of area median income. To fully meet               target 75 percent of its funds to
that goal, a new program is needed.                        extremely low-income households. Of
Extremely low-income people face by far the                that amount, 30 percent of funds
most acute affordable housing needs. Of the                should be targeted to households
nearly 14 million families with critical                   earning the equivalent of the
housing needs, nearly 60 percent have income               minimum wage (in 1999, $11,156 for
of 30 percent or less of area median income.               a family of two, $16,895 for a family
The acute shortage of apartments affordable                of four) or less. The remaining 25
to people in this income range already has                 percent of funds should be targeted to
been noted.                                                households earning up to 80 percent
                                                           of area median income, provided that
Even the best programs in combination, such                they live in low-income communities.
as HOME and the Housing Credit, cannot                     This targeting would assure that the
meet the nation’s most severe housing                      vast majority of resources benefit
problems. This is not a defect of those                    those that most need housing help,
programs, but rather an inherent problem in                while allowing (and facilitating) some
virtually any capital subsidy program: unless              level of mixed-income development in
the subsidy is deep enough to allow no debt                high-poverty neighborhoods that
service payment on the building, it will not               would benefit from it.
produce housing that the poorest can afford,
even with some sort of continuing operating               Any new program should work in
subsidy. A new, deeply targeted program,                   combination with existing, effective
along with the commitment to provide                       resources, especially the Housing
operating subsidies, such as additional                    Credit. The only way to serve
Section 8 vouchers, is the only solution.                  extremely poor people with a capital
                                                           subsidy is to combine resources from
Fortunately, HOME has shown us what a                      several programs. It is particularly
successful program should look like. It should             important that any new program work
be flexible, allowing for virtually any type of            with the Housing Credit, which can
housing development, with an emphasis on                   cover up to 70 percent of construction
rental production, including rehabilitation. It            costs. The Housing Credit generally
should be administered by states and cities,               penalizes developments that receive
pursuant to public input. It should leverage               federal grants, with exceptions for
additional public and private investment. It               HOME and CDBG. One way to
should provide a strong role for community-                assure that a new program would
based groups. Beyond those broad, largely                  work with Housing Credits could be
non-controversial principles, we offer the                 to allow, but not require, jurisdictions
following more detailed suggestions for                    that receive the new resources to run
structuring a new production program.                      them, or some portion of them,
                                                           through their HOME program


                                                  20
                Production-Related Comments from
                Responses to MHC Solicitation Letter
       accounts. This could be accomplished           acquisition of land and development of
       without altering either the HOME               affordable single-family homes for
       statute or the deeper targeting and any        homeownership. SHOP was created to
       longer affordability requirement of a          facilitate the production of new housing using
       new program.                                   the self-help or “sweat equity” approach to
                                                      homeownership and to help developers
      Any new program should set a
                                                      overcome the two most significant financial
       minimum rent contribution affordable
                                                      barriers encountered in affordable housing
       to extremely low-income people to
                                                      development: the cost of land and
       allow developers, lenders and
                                                      infrastructure development. SHOP funds are
       investors to underwrite developments
                                                      spent solely on land and infrastructure
       that serve them. Simply pegging
                                                      development and one house must be produced
       tenant rents to a percentage of their
                                                      for every $10,000 grant.
       income, which varies by family,
       prevents sound financial underwriting.         One of the many benefits of the SHOP
       We recommend that any new program              program is that it results in the efficient
       set a minimum tenant contribution to           development of affordable housing with
       rent for the extremely low-income              minimal government intervention and
       apartments of either the greater of 30         significant involvement by private entities.
       percent of the tenant’s income or a            Habitat for Humanity competes for these
       standard amount affordable to a tenant         “seed” funds through the Department of
       whose income is 15 percent of the              Housing and Urban Development, and is held
       area median income (state median               to strict fiscal accountability by HUD, but
       income for apartments in non-                  administers the awards and manages the
       metropolitan areas).                           program through our own internal processes.
                                                      Competition among Habitat affiliates for
Fannie Mae                                            SHOP funds is steep and requests for funding
           Production Issues                          far exceeds availability.

The Commission could greatly enhance                  While SHOP has revolutionized the capacity
efficiencies in affordable housing production         of our affiliates to build more houses, there
by focusing on ways to improve the ability of         are two specific changes that would enhance
different subsidy programs to work together.          its operation. Since the inception of SHOP,
                                                      the price of land has grown exponentially in
Habitat for Humanity                                  many areas of the country, creating additional
                                                      obstacles for self-help housing providers like
           Production Issues                          Habitat for Humanity. To continue the
How well do current programs operate as               successful facilitation of homeownership
production tools (e.g., HOME, CDBG)? How              opportunities for low-income families, we
can they be improved?                                 believe it is necessary to adjust the current
                                                      requirement of one house produced per
For the past five years, Congress has
                                                      $10,000 to $15,000, at least in high cost
appropriated funds for the Self-Help
                                                      areas, to accommodate the rising prices of
Homeownership Opportunity Program
                                                      land. It is our hope that the HUD Secretary
(SHOP)—as a CDBG set-aside—to assist
                                                      may be able to provide a waiver for
non-profit, self-help housing providers in the


                                                 21
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
participants in high cost areas, where the              increased and made more accessible to the
higher figure may be necessary.                         most rural and impoverished communities.
In addition, SHOP has been reauthorized                            Production Issues
annually, making it difficult for some of our
                                                        Resources should be significantly increased
affiliates to develop long-term building
                                                        for the production of both homeownership
schedules. For example, affiliates in several
                                                        and rental housing for low-income families
parts of the country have been able to acquire
                                                        and individuals. While homeownership is not
large tracts of land and plan subdivisions and
                                                        the best option for all households, it is the
neighborhoods of Habitat homes. These
                                                        overwhelmingly preferred form of tenure in
larger developments with costly new
                                                        rural America. Federal public-private
infrastructure are possible only through the
                                                        partnership strategies such as the Rural
infusion of SHOP funds but also require more
                                                        Housing Service (RHS) Section 502
extensive, long-range planning to fully
                                                        Homeownership Loan program and the
implement. It would be extremely beneficial
                                                        Department of Housing and Urban
for these affiliates to have the ability to plan
                                                        Development (HUD) Self-Help
for longer than one year at a time, which
                                                        Homeownership Opportunity Program
could be accomplished if the reauthorization
                                                        (SHOP) are critical to making the American
of SHOP were for three years. Attached to
                                                        dream of homeownership possible for many
this paper is draft legislative language to
                                                        rural households.
address these two issues and is supported by
the Housing Assistance Council, the other               Resources for rental housing production are
major user of SHOP funds. This language is              also necessary to provide an adequate supply
currently being circulated on the Hill .                of housing opportunities for very low income
                                                        rural households. Despite the fact that
Housing Assistance Council                              housing costs are generally lower in nonmetro
     Nonprofit / For-Profit Issues                      areas, rural renters generally have lower
                                                        incomes, and thus are not immune to
Nonprofit organizations are an increasingly             affordability problems. Federally subsidized
important factor in providing low-income                rural rental housing production has been
housing. Rural nonprofits frequently begin to           successful in the past. RHS’s Rural Rental
try to address local housing needs with no              Housing program, Section 515, reaches the
staff, little or no funds, and unspecified              lowest income rural residents. According to
housing development plans. They often have              RHS data, the vast majority (87 percent) of
the will, but little means for engaging in the          current tenants have incomes that are less
increasingly complex task of affordable                 than 50 percent of area median incomes, and
housing development. The USDA Rural                     more than half of the tenants are elderly or
Community Development Initiative (RCDI),                have disabilities. Annual appropriations for
HUD’s Office of Rural Housing and                       this critical program, however, which reached
Economic Development and funding for                    $540 million in FY 1994, have been
Community Housing Development                           drastically reduced in recent years. Recent
Organizations (CHDOs) under the HOME                    studies show a need for at least $150 million
program provide much needed resources for               in Section 515 funding in order to meet
building the capacity of local organizations.           existing maintenance needs and still provide
Resources such as these programs should be


                                                   22
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
enough funding for at least one new                   may charge lower development fees, or defer
development project in each state.                    payment of a portion, if construction budgets
                                                      need to be supplemented to maintain quality.
The Housing Partnership                               Cash flow distributions may also be reduced
Network                                               to keep rents down, support social service
                                                      programs for tenants, or re-invest in property
     Nonprofit / For-Profit Issues                    improvements. Finally, revenue that could be
Mature nonprofits [lack] sufficient equity, or        realized from residual values (accumulated
corporate capital, to support their growth            equity) is frequently given up at the front-end
strategies and development goals. They need           to meet perpetual affordability purposes.
new, flexible sources of working capital to           Nonprofit fund balances also get used for
enhance fund balances. These organizations            illiquid investment purposes, such as
could then operate and compete more                   subordinated debt to finance a project’s
successfully in private markets with                  development or operating reserve
businesses that can access traditional sources        requirements.
of equity investment.
                                                      As successful nonprofit developers elect to
The current system of public and                      use potential revenues to satisfy other social
philanthropic support for nonprofit                   purposes, new techniques are needed to
development focuses on grants to build                provide them with equity and working
organizational capacity and financing                 capital. These are not funds for project-
subsidies for particular projects. What is            specific activities, such as financing to
lacking are sources of capital for higher             acquire or develop property. Rather, their
capacity groups—those with established track          purpose is to support and enhance operational
records, strong balance sheets, and long-term         capacities. For example, accessible and
net worth—that they can use for                       affordable sources of working capital would
organizational growth.                                help grow existing lines of business, start new
There are three ways that development                 business initiatives, expand development
companies—for-profit and nonprofit—earn               staffs, etc.
revenue to survive and grow. Each source              Funds should be accessed in the form of long-
relies on successful performance. First, they         term below-market loans that are based on
earn development fees for completing                  successful development track records and
projects. Then, as owners of income-                  sound business plans. The loans should
producing property, they receive cash                 originate from private sector financial
distributions after operating and financing           institutions that are accustomed to supporting
costs are paid. Finally, they realize residual        small business enterprises. They should be
values when properties are sold. For-profit           channeled through intermediaries who
developers use these revenues to reward               understand the borrowers and their businesses
themselves, pay dividends to their investors,         and can provide administrative efficiency and
and provide equity for their future                   accountability.
development undertakings.
                                                      The federal government has induced
Mission-driven nonprofits frequently forego           investments of private capital for public-
some of these revenue sources to achieve              purpose housing development for years.
social objectives. For example, nonprofits


                                                 23
                Production-Related Comments from
                Responses to MHC Solicitation Letter
Effective techniques supplement or replace             investments, and monitor and report on the
yields that investors may earn in conventional         use of the working capital funds.
private markets.
                                                       This proposal employs proven financing
Federal tax credits, such as Low Income                techniques (tax credits, BEA-type grants) to
Housing Tax Credits (LIHTCs), are a broadly            direct private investment capital for the
accepted means to attract private capital,             support of nonprofit housing development
including equity investments from                      groups. The funds will be employed for a
commercial banks. Similarly, the New                   range of working capital purposes, and then
Markets program is also based on federal tax           repaid. The membership of the Housing
credits. Direct federal grants have also been          Partnership Network comprises those groups
made to reward private investors and                   that need and will use these funds to expand
subsidize their returns. Recently, the Treasury        their base of operations. The Network's CDFI
Department’s Bank Enterprise Awards (BEA)              certified lending affiliate, the Housing
have been used to enhance bank yields                  Partnership Fund, has the capacity and
through lump-sum cash payments. BEA                    interest to administer a working capital
grants make public purpose investments                 program.
competitive with other capital markets.
                                                                  Production Issues
                 Proposal                              More than 15 years have passed since HUD
Congress should enact a program that                   provided subsidy programs to produce
provides incentives specifically for private           affordable rental housing that serves the
investment in working capital for mature               needs of very low-income households. Low
nonprofit housing developers. The form of              Income Housing Tax Credits (LIHTCs)
the incentives would be either tax credits or          generate equity capital for a portion of
BEA-type grants. The capital investments               development costs. To the extent projects do
supported by these incentives would be                 not need to borrow and service mortgages,
significant ($1 million to $5 million,                 they can offer lower, more affordable rents.
depending on the organization’s capacity and
                                                       In some markets, combining LIHTC equity
needs) and patient (five to ten-year payback).         with conventional mortgage debt is sufficient
The incentives would enable investor yields
                                                       to develop housing that is affordable to
to be substantially below market, perhaps
                                                       households with incomes from 50% to 60%
even nominal.
                                                       of the area median, e.g., in the range of
The program would be administered by CDFI              $20,000 to $30,000 per year. Usually,
intermediaries that operate on a regional or           however, other capital resources (HOME,
national basis. The CDFIs would be allocated           CDBG) must also contribute to development
an amount of federal resources (tax credits or         budgets. These and other subsidies must be
grant funds) for which eligible nonprofit              structured as grants or deferred-payment
developers would apply. The CDFI would                 loans. To serve very low-income
also assemble private capital commitments.             households—35% to 50% of median, or
Similar to the community development                   $12,000 to $20,000 per year—there can be
enterprises that administer the New Markets            little or no amortizing debt. (The precise
tax credits, the intermediary would                    percentage and income levels will, of course,
underwrite the organizations, size the                 vary with local conditions.)


                                                  24
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
Households earning minimum wages …                      project-based Section 8 units, continues to
cannot afford to pay enough to cover the cost           require help.
of operating and maintaining their
                                                        To address the needs of the working poor, the
apartments, much less provide revenues for              federal government should expand the rental
mortgage debt service. Apartments for
                                                        assistance voucher program. Project-based
working households in the lowest wage
                                                        vouchers for housing production for
ranges need rental assistance.
                                                        households with incomes less than about 35%
           Recommendations                              of the median are a critical element of this
                                                        expansion.
1. Targeting Additional Capital Resources
                                                        In exchange for the commitment of project-
Congress recently enacted increases to the
                                                        based vouchers, owners would agree to
LIHTC program. After 15 years of flat
                                                        restrict the assisted units to the lowest
funding, state credit allocations are increasing
                                                        incomes for so long as the vouchers are in
by about 25%, and they will be indexed for
                                                        place. Otherwise, minimum affordability
inflation. (While welcome, these increases do
                                                        would revert to the requirements of any
not even cover the costs of inflation since the
                                                        capital subsidy programs used for the project
program’s inception.) There has not been a
                                                        (LIHTC, HOME or CDBG). Opportunities to
similar increase in other capital subsidies,
                                                        coordinate project-based vouchers with other
however. Without increases in supplemental
                                                        production subsidies will be enhanced if the
capital sources, we will continue to fall
                                                        production vouchers are allocated through
behind in the production of units affordable to
                                                        administrative systems at state levels.
very low-income households, e.g., below
50% of the median.                                      Finally, new or additional capital funds
                                                        should be provided in conjunction with
The federal government should increase
                                                        targeted rental subsidies for households at or
significantly its capital subsidy programs
                                                        below 35% of median income levels.
targeting rental housing that is affordable to
                                                        Combining resources is the only way to
households below 50% of median income.
                                                        achieve significant of housing production for
Existing, successful programs, such as
                                                        those in greatest need.
HOME, could be expanded; new programs
that are more narrowly focused toward rental            Manufactured Housing
housing could be created; or both. Additional
resources will begin to address the housing
                                                        Institute
needs of the rapidly growing number of very                        Production Issues
low-income working families.
                                                        In particular, manufactured housing for all
2. Targeting Additional Rental Subsidies                policy purposes, including tax policy, should
Capital subsidy programs alone cannot                   be treated on a par with multi-family housing.
address the needs of extremely low-income               McAuley Institute
households. Operating or rental subsidies are
also needed for this growing market segment.                 Nonprofit / For-Profit Issues
In addition, unemployed populations, for                It is important that the Commission, as
whom the only decent housing may be the                 chartered, consider methods for making the
shrinking stock of publicly-owned and                   private housing industry more effective in


                                                   25
                Production-Related Comments from
                Responses to MHC Solicitation Letter
closing the yawning gap in the nation’s               brought billions of dollars from an array of
affordable housing. At the same time, it is           sources to the task of affordable housing.
undeniable that the nonprofit sector in recent        Without nonprofits, the charitable
years has shown tremendous growth in                  contributions of foundations, community
capacity and sophistication in delivering             institutions and businesses would not be
housing and related community benefits.               available for housing. The nation’s socially
McAuley Institute urges the Commission to             conscious investors would put their money
consider ways to bolster this nonprofit               into other causes if it were not for CDFIs.
contribution.                                         Nonprofits also have used the Community
The nonprofit sector in housing and                   Reinvestment Act, Home Mortgage
                                                      Disclosure Act, and Fair Housing laws, to
community development didn’t begin to
                                                      hold financial institutions accountable for
bloom until after 1987 with passage of the
                                                      investment in low-income and minority areas.
National Affordable Housing Act which
established and legitimized CHDOs. HOME-              In addition to these funding relationships,
funded technical assistance has helped                community-based nonprofits have learned to
nonprofits become more sophisticated. The             collaborate with other partners like hospitals
15 percent HOME set-aside for CHDOs                   and universities to develop housing and link it
helped open the eyes of state and local               to human services and employment. These
officials to the effectiveness of nonprofits.         partnerships have resulted in larger-scale
The authorization the previous year of the            development than many community
Low Income Housing Tax Credit made a                  organizations would be able to produce on
significant source of funds available to              their own.
nonprofit developers.
                                                      According to NCCED, [nonprofits] manage
In the past 15 years, there has been a                59 percent of the housing they produce.
tremendous growth in the number of CHDOs              Because of nonprofits’ charitable missions,
and CDFIs. Nonprofits have produced over              this stock is more likely to be maintained in
550,000 units, or one-third of the subsidized         sound condition and kept affordable for the
housing stock according to the National               long term. Nonprofit housing organizations
Congress of Community Economic                        also tend to provide a range of community
Development. Nonprofits have succeeded,               services, including health, recreation, social
where others have not tried, in getting prices        services and crime prevention. We found this
down so that units are affordable at less than        to be particularly so among women-led
50 percent of median income. Units McAuley            community development organizations in our
has helped produce rent for as little as $150         1999 study, Women as Catalysts for Social
per month. We also know from the GAO and              Change. Nonprofit organizations, particularly
elsewhere that nonprofits provide a quality           those led by women, emphasize community
product tailored to the particular needs of           planning and organizing to strengthen their
poor populations, including disabled and              communities’ influence with government and
elderly persons and large families. Often this        private institutions. They help empower
work is done under challenging                        residents to advocate for the benefit of the
environmental and political circumstances.            community.
By their very nature as charitable, tax exempt        Besides drawing capital into poor areas for
organizations, nonprofit developers have              housing and economic development,


                                                 26
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
nonprofits themselves are enterprises that               Given these advantages of nonprofit housing
create jobs and develop the skills of                    developers, we encourage the Millennial
community residents. Nonprofits have                     Commission to emphasize in its final
become an engine of social and economic                  recommendations ways to strengthen the
change in areas the private sector has written           capacity of existing organizations and create
off. They develop community leadership and               new ones where none now exist.
opportunities for women and people of color.             …
They provide a launching pad for new career
paths. One group we work with in West                    Nonprofits’ greatest difficulty is under-
Virginia has brought $2 million into the                 capitalization and the insufficiency of income
community and is the county's largest                    streams to sustain operations. Whatever
employer.                                                philanthropic and government funding is
                                                         available usually is tied to a specific project
Nonprofits develop property in areas that for-
                                                         and not operations. This is a significant
profits wouldn't touch for environmental or              problem for newer, smaller organizations.
economic reasons.
                                                         To help sustain existing and foster new
Nonprofit intermediaries have been important
                                                         community development organizations, we
conveyors of expertise and innovation
                                                         urge the Commission to recommend that
tailored to the needs of their market niche in           Congress establish a fund that would make
the field. The HOME program’s provision of
                                                         investments in response to business plans.
technical assistance for CHDOs and
                                                         Without imposing burdensome requirements,
nonprofits desiring to become CHDOs has                  housing organizations would be funded based
been an important factor in the growth of the
                                                         on a showing of ability to obtain measurable
field and the transfer of skills. Recent years
                                                         results. Criteria should be flexible enough to
have seen stronger nonprofit management and              account for the size and age of the
increased emphasis on productivity and
                                                         organization and regional differences in cost,
documentation of results, such as through
                                                         demographics and housing patterns. Credit
McAuley's Success Measures Project, the                  should be given for factors as well as “units
Urban Institute's Neighborhood Indicators
                                                         produced” such as income level of the
Project, and Neighborhood Reinvestment’s
                                                         population served, resident involvement on
training programs. Proven models now exist               governing boards, neighborhood strategic
to be to passed on to start-ups., but it is too
                                                         planning, range of services provided, and
early, and the field is too diverse and creative,
                                                         willingness to undertake difficult to develop
for the promotion of a single model.
                                                         projects (such as in-fill housing consistent
In the late 1990s, nonprofits have become                with smart growth principles, environmental
more efficient through technology. McAuley               hazards and, in rural areas, the premium on
Institute has used HOME funds for pass-                  the cost of construction). Just as small
through grants to help organizations buy                 businesses are not expected to show a profit
hardware and software. Now even newer,                   for several years, more risk should be taken
smaller CHDOs take advantage of electronic               with small and emerging nonprofit
communications, financial management and                 developers.
design programs.
                                                         Such a capital investment would be useful in
                                                         a number of ways. It would enable a new



                                                    27
                Production-Related Comments from
                Responses to MHC Solicitation Letter
organization to establish a track record. It           Mid-City Financial
could underpin grassroots fundraising, a
capital campaign to establish an endowment             Corporation
or the purchase offices and thereby eliminate             Nonprofit / For-Profit Issues
future rent costs. It might permit an
organization to take a normal developer’s fee,           Encouraging the evolution of non-profit
which many nonprofits now forego, and to                 organizations with the professional skills
sustain salaries while prospecting for the next          and capacities to acquire, develop and
project. The value of both human capital and             sustain affordable housing stock over the
hard assets would appreciate over time.                  long term. Some of the impediments in
                                                         programs and policy that presently exist
…                                                        are:
In the HOME program, federal policy should                     An historical bias in HUD
be strengthened to require, as current law now                  programs against non-profits
permits, participating jurisdictions to spend                   earning money to sustain their
five percent of their allocations for CHDO                      staff function.
operating expenses. In the CDBG program,
few jurisdictions share their 20 percent                       Arbitrary standards against the
allotment for administrative costs with                         evolution of symbiotic
nonprofits. We recommend the Commission                         relationships between professional
suggest to Congress an appropriate sharing of                   profit motivated organizations and
administrative dollars in CDBG.                                 non-profit organizations. IRS has
                                                                recently taken a more constructive
           Production Issues                                    approach. (For example—by
The Commission should promote the creation                      publishing objective standards for
of a National Housing Trust Fund that would                     private enurement issues.) HUD’S
provide a self-renewing source of funds to                      policy, programs and regulations
underpin the nation’s housing infrastructure.                   are outdated in this area and they
Like the National Highway Trust Fund, it                        should do the same.
could be financed by a dedicated tax (say on                   The current situation with the
real estate transactions nationwide) or other                   limited partnership tax investors
housing-related sources, such as the proceeds                   being “locked” in should be acted
of the FHA or Ginnie Mae. The Trust Fund                        on wisely and promptly with
should be targeted to extremely low-income                      these thoughts in mind:
persons with incomes less than 30 percent of
area median income. Nothing can contribute                          1) By providing a workable
more to the economic self-sufficiency of                               exit strategy, addressing
families than safe, decent, affordable housing.                        tax relief for negative basis
As the Manpower Development and Research                               in “tax” partnerships
Corp. found in its study of the Minnesota                              (probably deferring) to
Family Investment Program, quarterly                                   these owners if sold or
earnings increased an average of 25 percent                            otherwise transferred to a
for former welfare recipients living in                                non-profit, several
subsidized or public housing.                                          worthwhile public



                                                  28
Production-Related Comments from
Responses to MHC Solicitation Letter
 purposes would be                                          slipping away because
 accomplished                                               of the age and
                                                            decreasing amounts of
 a) Interested long-term
    owners are put in place                                 the financing
                                                            outstanding in place.
    with the same goals as
    the public policy               Mortgage Bankers
    programs instead of
    what you have today—
                                    Association of America
    disinterested,                       Nonprofit / For-Profit Issues
    unmotivated owners
    who are there for the           The tax code requires that each state agency
    wrong reasons.                  set aside 10% of its credit allocation for tax-
    National policy erred,          exempt entities. Many states allocate more
    in my view, in 1960-            than 50% of their credits to non-profits.
    1980 legislation of             A selection criteria benefiting non-profits has
    assisted housing                its roots in the belief that non-profits will
    programs, not by                maintain the property as affordable for a
    seeking private                 longer period or will provide deeper
    investment to augment           targeting. Currently, most states require
    the Government’s                extended use agreements and award bonus
    costs, but in permitting        points for deeper targeting. Thus, a preference
    profit motivated                for non-profits in excess of the 10%
    entities to control all         requirement is no longer warranted. Non-
    the decisions subject to        profits should compete on a level playing
    regulation by HUD.              field for the credit allocation with tax-paying
    When “ownership”                sponsors. Allocations should be based on
    passed to such                  criteria established by the state that affect the
    interests, the results          development (for example, extended use
    were disastrous from a          agreements, deeper targeting or mixed
    program objective               income developments) rather than whether
    standpoint because              the owner involves a non-profit general
    profit became the only          partner.
    objective. The current
                                    In addition, some studies show that non-
    Tax Credit Program,
                                    profits add to the cost of units. A 1998 study
    when controlled for the
                                    by City Research analyzing the low-income
    economic life of a
                                    housing tax credit found that “controlling for
    Property by a non-
                                    project size, construction type, location (i.e.,
    profit organization,
                                    central city, suburban, or non-metropolitan),
    makes far more sense.
                                    region of the country, and neighborhood
 b) For the BMIR and 236            poverty rates, units developed by non-profit
    programs, for sure,             sponsors on average cost 15 percent more
    and, perhaps, others;           than the average unit” in its sample.
    this opportunity is


                               29
                Production-Related Comments from
                Responses to MHC Solicitation Letter
Approaches: State allocating agencies should           rehabilitated housing with little or no cost to
be prohibited from giving bonus points for             the federal government.
non-profit participation.
                                                       Partnering FHA mortgage insurance with an
          Production Proposal                          interest rate subsidy will, in most markets,
                                                       encourage private production of rental
There is currently no program that is designed
                                                       housing at rents that would be within the
to provide rental housing for working families
                                                       reach of families at 60% to 100% of median
from 60% to 100% of median income who
                                                       income, a group that is not currently being
are unable to find decent, affordable housing
                                                       served by housing programs. Such a program
near where they work.
                                                       could be used in conjunction with the tax
Recent reports published by the National               credit program or vouchers, where
Housing Conference, entitled "Housing                  appropriate, to meet the needs of lower
America's Working Families" and "Paycheck              income families in a percentage of the units.
to Paycheck: Working Families and the Cost             This type of mixed income development
of Housing in America", find that more than            should receive less resistance from
3.7 million low-to moderate-income working             neighborhoods and provide a viable
families had critical housing needs in 1997            community for all the families that live there.
and that between 1997 and 1999, that overall
                                                       The program would reduce the cost of
number rose by almost 700,000—a 23
                                                       financing by providing an interest rate
percent increase in just two years. Focusing
                                                       subsidy which would bring the market
on the medium income groups, the number of
                                                       interest rate down to a fixed interest rate that
families earning 50 to 80% of median income
                                                       is significantly below market (i.e., 4%) to
with critical housing needs increased 31%
                                                       allow for lower rents.
and the 80 to 120% of median income group
rose a dramatic 77%. The studies also note             The most efficient and cost-effective means
that vital municipal workers like teachers and         to do this is through use of the FHA insurance
police officers are increasingly vulnerable            programs coupled with GNMA mortgage
and the lack of decent, affordable housing is          backed securities (MBSs). The budget cost
increasingly being seen as a significant               would be the difference between par and the
impediment to local economic growth. With              competitive sale of the MBSs to private
this as background, it is clear that there is a        investors at a discount reflecting the lower
need for a federal program to address the              interest rate.
housing needs of this segment of the                   To make the FHA insurance programs
population.                                            workable, we need an increase in the FHA
The federal government has tried a number of           maximum mortgage limits and a solution to
different approaches to providing housing              the credit subsidy problem.
over the last 50 years. The most successful of         The program needs to work seamlessly with
these rely heavily on a public/private                 other federal programs such as HOME, tax
partnership that encourages the private sector         credits, project-based vouchers, etc. to
to produce housing with support provided by            achieve a mix of incomes. The reduced
the federal government. In particular, the             interest rate should produce rents affordable
FHA mortgage insurance programs have been              to 60-100% of median families, but other
extremely successful in producing new and


                                                  30
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
subsidies will be needed to address lower-              that the project would be feasible and
income families.                                        insurable.
The only income restrictions would be that              To encourage the removal of local barriers,
90% of the units must be affordable to                  90% of the funds would be distributed by
families at less than 100% of area median               formula with the remaining 10% distributed
income.                                                 to communities that remove barriers and/or
                                                        otherwise facilitate the developments.
To address the needs of lower-income
families, 15-25% of units in each property              The National Alliance to End
would be available for voucher recipients or
otherwise restricted in accordance with the
                                                        Homelessness
requirements of the other programs used (e.g.                      Production Issues
HOME or tax credits).
                                                        There is a national shortage of affordable
Income restrictions and availability for                housing and it is causing a significant number
voucher recipients would be imposed for the             of poor people to become homeless. We urge
life of the property.                                   the Millennial Housing Commission to
Distributions would be limited to the owners            recommend a housing production program
of the property for the greater of 20 years or          that will significantly address this shortage.
the life of the loan (and the loan could not be         Increased affordable housing production can
prepaid for the first 20 years).                        be addressed in many ways, including
                                                        improvement of the existing housing
This type of shallow subsidy could produce              production infrastructure. The Alliance also
approximately 100,000 units per year for a              supports the creation of a National Affordable
cost to the government of $3 billion per year,          Housing Trust Fund.
assuming an average cost to build of
$150,000 per unit, market interest rates at 8%          While fully recognizing that there are housing
and subsidized rates at 4%.                             needs across a wide spectrum of incomes, it is
                                                        an inescapable fact that the shortage of
The program should provide a level playing              affordable housing has a much more severe
field for property ownership with no                    impact on some than on others. While the
preference given to non-profit entities or tax-         values surrounding balanced community
paying companies. Rather, consideration                 development, mixed income housing, and
should be given to the most efficient producer          support for working families are laudable, the
of the housing to assure that the program is            first order of business must be to alleviate
implemented quickly at the lowest possible              housing need that is so severe that it causes
cost.                                                   people to live on the streets or in shelter.
Distribution of funds would be through the              Allowing people to become homeless is not
same entities that receive HOME funds with a            only inhumane; it is surprisingly costly. If
formula that takes into account housing                 there are adequate resources available to meet
needs, housing condition, vacancy rates and             the housing needs of all Americans up to
construction costs. The city or state allocating        120% of Area Median Income and beyond,
agency would decide which properties would              then the needs of people at 15% of Area
receive the subsidized interest rate, after a           Median Income and below will be met, and
preliminary indication is received from FHA             no further targeting will be required.


                                                   31
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
However, if there are not enough resources to           have a decent place to live at an affordable
meet the full spectrum of need there must be            cost.
substantial targeting. While this targeting
                                                        It is clearly time to recognize that public
should be directed to people at 30% of Area             policy focused exclusively on the lowest-
Median Income and below, there must also be
                                                        income Americans does not begin to address
special consideration given to people who are
                                                        the scope of the problem. NAHB estimates
at 15% of AMI and below. We recommend                   that at least 60,000 to 70,000 new multifamily
that the Commission consider such targeting
                                                        units annually are needed for America to
for any production program it recommends,
                                                        begin to meet the housing needs of working
and for other housing proposals.                        families.
National Association of                                 This new production initiative would reaffirm
Home Builders                                           the goal established by Congress in the 1949
                                                        Housing Act to “provide a decent home and
           Production Issues                            suitable living environment for every
In all of this, success will depend on allowing         American family.” The new program would
the private, for-profit sector to play a leading        be targeted to households with incomes
role.                                                   between 60 and 100 percent of area median
                                                        income (115 percent in high cost areas) who
There is a need for a new multifamily housing           are not currently served by federal or other
production program that would meet the                  publicly supported housing programs. Mixed-
affordable rental housing needs of households           income projects would be encouraged and
with incomes between 60 percent and 100                 set-asides of funds for the production of
percent of median income, America’s                     housing for the elderly (some with service
“working poor,” achieving an annual                     components), small projects, and rural
production goal of between 60,000 and                   housing development opportunities should be
70,000 multifamily units.                               considered. Up to 25 percent of the funds
A report published by the National Housing              would be provided to lower or very-low
Conference’s Center for Housing Policy                  income residents, with additional assistance
noted that more than 730,000 working                    through increased funding for vouchers, tax
families with one or more blue-collar workers           credit increases, HOME or Community
spend more than half their incomes for                  Development Block Grant funds to fill any
housing as do more than 550,000 service                 remaining funding gaps.
workers and a similar number of retail sales            The specific forms of assistance are not as
workers. The report went on to say that vital           important as whether the program provides an
municipal workers—such as teachers and                  incentive to keep an owner in the program.
police officers—are also increasingly                   Currently, there is no reward for operating
vulnerable. More than 220,000 teachers,                 Section 8 or tax credit developments
police, and public safety officers across the           efficiently (for example, higher management
country currently spend more than half their            fees or the ability to take out excess cash
income for housing, and the problem is                  flow). The Millennial Housing Commission is
growing worse. In short, the study says that            interested in how to structure a program that
having a job does not guarantee a family will           keeps sponsors in, beyond the usual fees,
                                                        residual income and bonuses. It is important


                                                   32
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
not to provide just an upfront incentive, such          capable of understanding the needs of their
as a developer fee, because then sponsors can           communities than states since they work on a
lose interest, which puts the property at risk.         daily basis within the realm of local housing
Assistance must provide incentives for                  and community development issues.
sponsors to own and maintain the property               Furthermore, allocating the funds to state
over the long term.                                     agencies would create another layer of
To assist in filling any financing gaps, the            bureaucracy that would serve to increase the
                                                        time in which localities receive the funds
new program should be compatible with
                                                        because of drawn out application and award
existing housing and community development
programs such as CDBG, HOME, FHA                        processes (this has been our experience with
                                                        other state programs). Moreover, states add
Mortgage Insurance, and the tax credit
                                                        their own factors—or criteria—for localities
program. Very low-income residents would
be limited to up to 25 percent of an entire             to receive the funds. What if you don’t meet
                                                        the state’s application factors? What if the
development to further promote income
                                                        factors are targeted only to smaller cities and
mixing and make these developments more
acceptable to local communities and                     rural areas when the need for housing
neighborhoods.                                          production is really in larger metropolitan
                                                        areas? We caution you to be wary of strictly
Funds could be allocated to states on a per             allocating funds solely to states under a new
capita basis. This could be coupled with some           housing production program. Local
minimum “bonus” award to those who reduce               governments must be direct recipients of a
barriers and regulatory burdens related to              portion of the funds.
affordable housing production as well as to
those that provide state or local contributions         The argument has also been raised that state
either monetary or in-kind.                             agencies are in a better position to coordinate
                                                        other programs and resources to use in
National Community                                      combination with a new affordable housing
                                                        production program. We have not seen this to
Development Association                                 be the case. Coordination is very difficult at
          Production Proposal                           the state level. There is a great deal of
                                                        “turfism” that exists and a political climate in
Several proposals have been crafted in the
                                                        most cases that restricts state agencies from
last year to create a new affordable housing
                                                        working well with one another. We urge the
production program. Most of these proposals
                                                        Committee to examine this poor argument
recommend that the funding for the new
                                                        before making any recommendations to shift
program be allocated directly to state housing
                                                        the funds for a new production program to
finance agencies. NCDA sees this position as
                                                        states. Furthermore, most local governments
a direct assault on local governments and
                                                        have better coordination and just as many
their ability to assist their communities. These
                                                        resources to provide to a new program. For
proposals fly in the face of the block grant
                                                        example, many localities have established
approach, which has afforded local
                                                        housing trust funds. Localities also use
governments the flexibility, the predictability,
                                                        general fund monies, tax breaks, and special
and, most importantly, the control to provide
                                                        laws, such as affordable dwelling unit
for the housing needs of their most vulnerable
                                                        ordinances to target resources to affordable
citizens. Local governments are far more
                                                        housing. Furthermore, metropolitan areas


                                                   33
                Production-Related Comments from
                Responses to MHC Solicitation Letter
drive our nation’s economy. In its recent              the amount of funding that is appropriated
report, U.S. Metro Economies: The Engines              each year. Funding for the program has
of America’s Growth, the U.S. Conference of            increased very little since it first began in
Mayors notes that metro areas generate more            1992. The amount allocated under the
than 80% of the nation’s employment,                   program in 1992 was $1.460 billion. The
income, and production of goods and                    amount appropriated for 2001 was $1.8
services. Metropolitan areas do generate a             billion. In order to expand efforts to meet the
great deal of resources and should not be              enormous need for affordable housing in this
discounted; however, the Federal government            country, adequate resources must be
must continue to be a partner in providing             appropriated to programs such as HOME; a
resources for housing and community                    program that works and has a proven track
development with local governments serving             record. NCDA recommends that this new
to leverage the federal resources.                     element within HOME be funded at $2 billion
                                                       in FY 2002, with the existing HOME
Finally, we strongly believe that a new
                                                       program receiving a $2.25 billion allocation
program would compete with the HOME
program for appropriations. It would be                in FY 2002. This would mean a total
                                                       allocation of $4.25 billion for HOME in FY
unthinkable to local governments to have the
                                                       2002. The Administration and many on
HOME program decreased in lieu of a new
program targeted to states. NCDA and other             capitol hill may balk at this idea; however, we
                                                       will never solve the housing crisis in this
interest groups have to fight very hard every
                                                       country without adequate funding, no matter
year to make sure that the HOME program is
even level funded. It is a very difficult              how many new programs are created.
                                                       Money—a lot more money—to adequately
process. We were ecstatic to finally receive
                                                       meet the demand that local government
an increase in the program last year, and we
certainly don’t want to see the program cut to         agencies face on a day to day basis for
                                                       affordable housing is needed. We urge the
make room for a new, separate program. We
                                                       Commission to call for a substantial increase
are adamantly opposed to these proposals
                                                       in funding for HOME.
which direct the funds to state agencies and
carves local governments out of the process.           The HOME program has been a catalyst in
Instead, NCDA, supports a proposal that                spurring new affordable housing development
would build upon the HOME program, as                  since its inception. HOME is extremely
described below.                                       useful in providing funding for production,
                                                       particularly for gap financing for many rental
NCDA recommends that the HOME program
                                                       projects. The flexibility of the program allows
be looked upon as the catalyst for increasing
new affordable housing production. The                 local participating jurisdictions to use the
                                                       program funds in combination with other
infrastructure is already in place to implement
                                                       federal, state, and local funds, and to work
such an affordable housing production
program, since rental housing production is            with their non-profit partners, to develop
                                                       affordable housing based on locally-defined
already an existing eligible activity under the
                                                       needs. According to recent HUD data, the
HOME program. HOME is a sound program,
with an excellent track record in developing           HOME program has helped to develop or
                                                       rehabilitate approximately 595,000 affordable
affordable housing for households at various
                                                       units for low- and very low-income families.
income levels. However, HOME is limited by
                                                       Furthermore, the HOME program is deeply


                                                  34
                Production-Related Comments from
                Responses to MHC Solicitation Letter
targeted. The majority of HOME funds have                     households at or below 30% of area
been committed to housing that will be                        median income). Some form of
occupied by very low-income people and a                      ongoing subsidy is needed in order to
substantial amount will assist families with                  ensure that these very poor families
incomes no greater than 30 percent of median                  are able to pay the rent on the unit in
(extremely low income). As of the end of                      which they reside.
May 2001, approximately 82 percent of
                                                             Allocation and Distribution of
HOME-assisted rental housing was benefiting
                                                              FundsFunds would be apportioned
families at or below 50 percent of area
                                                              using the existing allocation scenario
median income, while 41 percent was
                                                              of the HOME program with 60
assisting families with incomes at or below
30 percent of area median income. HOME                        percent of the funds allocated to local
                                                              participating jurisdictions (including
funds also help families realize the dream of
                                                              consortia) and 40 percent allocated to
homeownership by providing for construction
and rehabilitation of housing as well as                      states using a needs-based formula
                                                              that measures inadequate housing
providing down payment and/or closing cost
                                                              supply and other necessary factors.
assistance. Furthermore, HOME is cost
effective and provides the gap financing               We urge the Commission to embrace our
necessary to attract private loans and                 production program with HOME.
investments in projects. For each HOME
dollar, $3.88 of private and other funds is            National Housing
currently being leveraged.                             Conference
We recommend that any new housing                                 Production Issues
production proposal be incorporated into the
HOME program and provide the following:                Providing federal incentives to empower state
                                                       and local institutions to produce new
      Eligible ActivitiesOur proposal                affordable housing and preserve existing
       would provide grants for new                    inventory may be the most viable and
       construction, substantial rehabilitation        politically desirable means to expand the
       and preservation of multifamily                 supply of affordable housing. This includes
       housing. Mixed income projects                  working with state and local governments to
       would be encouraged.                            break down existing regulatory barriers and
      TargetingAll of the resources made             NIMBYism, both of which significantly
       available under our proposal must               inhibit the production of new affordable
       benefit households at or below of 80            housing. Local and state governments must
       percent of median income, with at               be encouraged to use such tools as
       least 50 percent benefiting those               inclusionary zoning, regional/area wide
       households at or below 30 percent of            housing planning and smart growth measures
       area median income.                             that stimulate the production and preservation
                                                       of affordable housing. The federal
      Ongoing Rental SubsidyNCDA                     government can assist these governments by
       supports the linkage of Section 8               efficiently allocating appropriated resources
       subsidies to those tenants with                 and tax related benefits, vigorously enforcing
       extremely low-incomes (those                    and overseeing fair housing and


                                                  35
                Production-Related Comments from
                Responses to MHC Solicitation Letter
environmental laws, and, through the Federal                 meeting these needs will require
Housing Administration (FHA), facilitating                    expanded production and preservation
the production of higher-risk housing.                        efforts, including specific targeting
There are a number of affordable housing                      and deep subsidies, covering both
production programs that have proven to be                    capital and operating costs required to
sound and should be enhanced and expanded.                    support income-based tenant rent
Among the more significant programs are                       contributions;
Private Activity Bonds (PAB’s), Community                    housing should be provided through
Development Block Grants (CDBG), the Low                      providers that commit to long-term
Income Housing Tax Credit (LIHTC) and                         use restrictions;
HOME. In addition, a number of programs
that produce housing for the elderly, disabled               policies governing public subsidies
and homeless need continued support                           must include specific performance
(Section 202, Section 811 and SRO Section 8                   requirements, as well as mechanisms
Moderate Rehabilitation).                                     to ensure fair treatment of applicants
                                                              and residents and provider and
National Housing Law                                          performance accountability.
Project                                               …
       Nonprofit / For-Profit Issues                  There are currently no significant production
                                                      programs that serve the needs of very low-
While recognizing that our economic system
                                                      income and extremely low-income
relies heavily on private initiative and
                                                      households. Against an unmet housing need
enterprise, the housing crisis should not be          of several million units of housing, the
addressed primarily through incentives and
                                                      combined production of the HUD Section 202
stimulus to private for-profit entities
                                                      and Section 811 programs and the RHS
regardless of cost. Frequently, the direct and        Section 515 programs is less that 10,000 units
indirect incentives provided to for-profit
                                                      per year. The HOPE VI program is
participants are well beyond the level
                                                      demolishing more affordable public housing
necessary to stimulate the construction,              units than it is producing. At the same time,
operation and maintenance of affordable
                                                      CDBG and HOME funds are being used to
housing, resulting in unnecessary
                                                      support the production of Low Income
expenditures or loss of tax revenues.
                                                      Housing Tax Credit developments that serve,
            Production Issues                         by and large, persons with incomes in the 40
                                                      to 60 percent of area median range.
While we later provide suggestions with
respect specific programs and policies, we            Rampantly escalating housing costs in many
believe that any comprehensive federal policy         jurisdictions have made the voucher program
planning should respect the following general         unworkable, forcing low income residents to
principles:                                           concentrate in racially and economically
                                                      impacted neighborhoods or to relocate to
       the worst-case housing needs of
                                                      more affordable communities and to travel
        extremely low-income families should          tens if not hundreds of miles to jobs.
        be the primary focus of federal               Congress should significantly increase the
        housing policies and resources;
                                                      resources available for the production of


                                                 36
                Production-Related Comments from
                Responses to MHC Solicitation Letter
housing affordable to low- very low- and               National Low Income
extremely low-income households, especially
in communities where the voucher programs              Housing Coalition
are not functioning adequately and where                         Production Proposal
there is a demonstrated demand for
affordable housing. A new housing                      NLIHC strongly urges the commission to
production program geared to families should           recommend passage of national housing trust
be instituted in urban areas and existing              fund legislation (S. 1248 and H.R. 2349) with
housing production programs, that serve                sufficient funding to meet the goal of
special populations, such as the 202 and the           production, rehabilitation, or preservation of
Section 811 programs. or directed at special           1,500,000 units of housing in the next 10
areas, such as the Section 515 Rural Rental            years.
Housing Program, should be expanded to                 This is an ambitious agenda, but it is certainly
meet the needs of those populations and                well within the financial capability of the
areas. Similarly, funding for homeownership            federal government. The estimate for
programs such as the Rural Housing Service’s           production at this level is $10 billion a year or
Section 502 single family homeownership                $100 billion over ten years.
program must be restored to the funding
                                                       Trust fund principles. The partners in the
levels of the early 1990s.
                                                       National Housing Trust Fund campaign have
With the recent emphasis on homeownership              developed a set of principles to guide the
housing, it is important that Congress adopt           negotiations on legislation. These principles
policies that not only expand homeownership            are as follows:
opportunities but also protect the interests of
                                                             Goals and Objectives. A National
those that are already homeowners.
                                                              Housing Trust Fund should be
Counseling programs, particularly post-
                                                              established to serve as a source of
purchase counseling programs must be
                                                              revenue for the production of new
expanded to ensure that those who have
                                                              housing, and the preservation or
become homeowners are able to physically
                                                              rehabilitation of existing housing that
maintain their homes and avoid foreclosure
                                                              is affordable for low income people.
due to predatory lending practices or
                                                              The initial goal of the National
hardships brought on by the economic
                                                              Housing Trust Fund should be to
vicissitudes that frequently befall all
                                                              produce, rehabilitate, and preserve
households but have a particularly
                                                              1,500,000 units of housing by 2010.
devastating impact on low-income
households. Foreclosure avoidance                            Source of capital. The Trust Fund
mechanisms and programs, such as the Rural                    should be capitalized with ongoing,
Housing Service Moratorium on Payments                        permanent, dedicated and sufficient
Program, authorized by Section 505 of the                     sources of revenue to meet the goal of
Housing Act of 1949, must be put in place for                 1,500,000 housing units by 2010. The
all other homeownership programs serving                      initial sources should be excess FHA
low-income households.                                        and Ginnie Mae revenue, above what
                                                              is necessary to maintain the soundness
                                                              of the FHA and Ginnie Mae
                                                              programs. At a minimum, revenue


                                                  37
            Production-Related Comments from
            Responses to MHC Solicitation Letter
    produced by federal housing programs             Operating subsidy. Projects funded
    should be used to solve housing                   through the Trust Fund should assure
    problems. Other sources of funding                that any operating subsidy needed to
    should be identified and dedicated to             make the housing affordable for a
    the Trust Fund and, if necessary,                 range of extremely low income people
    additional appropriations should be               is provided. That could be by using
    made to meet the goal.                            Trust Fund assistance to underwrite
                                                      the operating subsidy for new or
   Eligible activities. The Trust Fund
    should be used for the production of              rehabilitated units for one year, after
                                                      which the operating subsidy will be
    new housing, preservation of existing
                                                      funded from the Housing Certificate
    federally assisted housing, and
    rehabilitation of existing private                Fund and renewed through the Section
                                                      8 program thereafter, or the applicant
    market affordable housing. The Trust
                                                      could devise another operating
    Fund should be primarily used for
    rental housing. We support allowing               subsidy mechanism (which may be
                                                      able to be applied to the match
    between 15 and 25% of funds to be
                                                      requirement).
    used for homeownership activities, so
    long as low income people are served.            Distribution. Ninety percent of Trust
   Income targeting. At least 75% the                Fund assistance should be distributed
                                                      by formula allocation. The formula
    Trust Fund dollars should be used for
    housing that is affordable for                    should be developed by HUD, using
                                                      criteria that assure distribution in
    extremely low income households,
                                                      proportion to the need for eligible
    that is, those with incomes under 30%
    of the area median. Within that, 30%              housing. The distribution of funds
                                                      should ensure that every type of
    of total Trust Fund dollars should be
                                                      community has access to funds, and
    used for housing that is affordable to
    households with income at the                     should encourage regional consortia.
                                                      If an eligible grantee declines to apply
    equivalent of full time minimum wage
                                                      for Trust Fund assistance, an
    earnings ($10,700 annually) or less.
    The rest of the funds can be used for             alternative application process should
                                                      be established so that other entities in
    low income households with incomes
                                                      the jurisdiction can receive and
    up to 80% of the area median
    provided these funds are restricted to            distribute the Trust Fund dollars.
                                                      Grantees will distribute the funds to
    housing production, preservation, or
                                                      eligible entities prepared to conduct
    rehabilitation in low income
    neighborhoods. In all cases, no one               activities that are eligible for Trust
                                                      Fund support. The remaining 10% of
    should pay more than 30% of their
    income for housing.                               Trust Fund assistance should be
                                                      distributed through a national
   Term of affordability. Housing funded             competition that supports eligible
    through the Trust Fund should be                  entities that are pursuing innovative
    required to remain affordable for the             approaches to production,
    useful life of the property.                      preservation, and rehabilitation of
                                                      affordable housing.


                                             38
             Production-Related Comments from
             Responses to MHC Solicitation Letter
   Match. States, localities, or non-profit              Tenant Protections. Existing federal
    organizations receiving Trust Fund                     tenant protections and rights to
    assistance should match the federal                    participate in decision making about
    funds in the following manner. If the                  their homes should be extended to
    entity uses state, local, or private                   tenants in homes funded by Trust
    revenue for the match, they will                       Fund dollars.
    receive two federal Trust Fund dollars
                                                          Other housing funds. In addition to
    for every dollar they provide. If an
                                                           establishing a National Housing Trust
    entity uses locally controlled federal
                                                           Fund, we recommend additional
    dollars (HOME, CDBG, LIHTC,
                                                           investment in affordable housing with
    private activity bonds, TANF funds,
                                                           substantial increases in HOME,
    project based assistance) for the
                                                           CDBG and USDA Rural Housing
    match, they will receive one Trust
                                                           programs, as well as an examination
    Fund dollar for every dollar of match
                                                           of ways to reform the Low Income
    they provide.
                                                           Housing Tax Credit program to
   Mixed Income. New housing                              improve access to the program by a
    production and financing should be                     wider range of non-profit,
    done in a way that assures that                        community-based housing developers.
    extremely low income households are                    Substantial increases in the housing
    not segregated from other income                       voucher program will also be
    groups. Thus, Trust Fund dollars                       necessary to assure affordability for
    should be utilized in conjunction with                 the lowest income households.
    other funds to complete the financing
    for a new multifamily housing                   National Multi Housing
    development, with the Trust Fund                Council
    dollars supporting the construction of
    housing for extremely low income                           Production Issues
    households. Trust Fund applicants that          Before the government embarks on a new
    propose small projects in low-poverty           multifamily production program, it should
    neighborhoods, rural communities, or            clearly define the goals of such an effort, set
    that serve special populations may be           achievable and realistic objectives, and ensure
    able to assure economic integration             that it has the ability to implement it. It is
    with Trust Fund dollars alone.                  equally important to avoid market instability
                                                    and overbuilding. Regardless of the specific
   Compatibility with other housing
                                                    approach, the development of additional
    programs. The use of Trust Fund
                                                    multifamily production should:
    funds should be flexible to ensure its
    compatibility with Low Income                         Be designed to benefit working
    Housing Tax Credits, private activity                  families that do not currently receive
    bonds, CDBG, HOME, Section 8,                          any assistance through other
    public housing, USDA rural housing                     programs;
    programs, and other forms of
                                                          Serve a range of incomes;
    assistance.



                                               39
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
       Use market mechanisms, including                approach that focuses on building assets for
        debt (loan) programs, insurance                 people and communities, the ability to
        products and tax incentives;                    leverage other resources for the community
                                                        through public and private sources, an
       Be complementary to existing
                                                        ongoing presence in and commitment to the
        programs;
                                                        community and its residents, and the ability to
       Serve all areas of the country;                 address the need for long-term affordability.
                                                        In other words, nonprofit developers are
       Make effective use of the secondary
                                                        much more than real estate entities, they are
        and capital markets; and
                                                        community builders that help revitalize poor
       Have adequate resources for a                   neighborhoods and increase the opportunities
        meaningful impact.                              available to residents. Targeting federal (and
                                                        non-federal) resources to nonprofits through
One way to accomplish this is through risk-
                                                        set asides or preferences that account for the
sharing or independent market feasibility
                                                        full range of resources and capabilities that
analysis. As noted above, the Commission
                                                        nonprofits bring to the communities they
should evaluate the existing risk-sharing
                                                        serve is essential.
programs in order to propose reforms that
would leverage construction capital not just            The need for nonprofit community based
for affordable housing, but for moderate and            organizations and their services is far greater
market-rate rental properties as well.                  than the capacity that these organizations
Specifically, through risk sharing with the             have to meet the need. The nonprofit sector of
government-sponsored entities (GSEs), HUD               the industry needs resources for training and
could support more short-term construction              technical assistance and capacity building in
and lease-up lending.                                   order to respond to growing needs and
                                                        demands. In addition to their contribution to
One particular benefit of using expanded risk
                                                        the communities they serve, nonprofit
sharing to drive more capital into apartment
                                                        community based organizations also have a
construction is that it automatically brings the
                                                        great deal to offer to the planning process at
GSEs’ risk management policies into the
                                                        the local and regional level. Training,
program. Their proven focus on supply and
                                                        education, and support is needed—both for
demand conditions and overbuilding risk
                                                        community organizations and for local
would go a long way to ensure market
                                                        governments and others involved in the
stability and would help avoid the possibility
                                                        planning process - to encourage greater
of overbuilding in any given market.
                                                        involvement by local nonprofit groups in
National Neighborhood                                   local, and regional processes. Community
                                                        organizations are exceptionally well
Coalition                                               positioned to help identify community needs,
       Nonprofit / For-Profit Issues                    engage citizens, develop community vision,
                                                        and recommend development that is
Non profit housing providers play a unique
                                                        important for the local community. An
and important role in addressing the housing
                                                        emphasis on linking neighborhood to region
needs of lower income communities. Their
                                                        through the participation of the community is
unique strengths are the ability to link
                                                        key to achieving community linkages and
housing to other needed services and an
                                                        equitable smart growth, as discussed above.


                                                   40
                Production-Related Comments from
                Responses to MHC Solicitation Letter
           Production Issues                          local, as well as private. Skilled local
                                                      organizations meld these resources together
The National Neighborhood Coalition has
                                                      to provide financing packages affordable to
endorsed the proposal for a national housing
                                                      low-income families. The National Rural
trust fund promoted by the National Low
                                                      Housing Coalition documents the success of
Income Housing Coalition.
                                                      the emerging new delivery system in its
National Rural Housing                                October 2000 report entitled, Opening Doors
                                                      to Rural Homeownership.
Coalition
                                                      This approach is more complex and time-
     Nonprofit / For-Profit Issues                    consuming and is contingent upon the
There is increasing evidence that rural non-          capacity—both technical and financial—of
profit organizations have the technical               local organizations. Therefore, when a rural
capacity to address the complex financing and         community does not have such an
management issues related to preservation of          organization, it often goes without this
Section 515. However, the lack of funding to          important assistance to low-income
cover the cost of doing business makes it             homeowners.
exceedingly difficult for non-profits to              There is not a dedicated source of federal
actively participate in the program. Further,         support to promote a non-profit delivery
RHS has not made a strong effort to involve           system for rural housing. Nor is there an easy
non-profits in a preservation effort.                 mechanism for replicating successful models.
…                                                     With the exception of self-help housing
                                                      technical assistance grants, a uniform method
There is no uniform delivery system for rural         of support or encouragement for low-income
housing. In the period in which direct loans
                                                      homeownership efforts is not available to
were at higher levels, private contractors and        rural communities across the country.
homebuilders dominated the principal
delivery system for low-income housing                …
assistance. These organizations recruited             With dramatic reductions in federal funding
eligible families and shepherded them                 and new opportunities presented by a good
through the FmHA system. This informal                economy for building higher end housing, the
system was in existence in most rural areas           private sector delivery system is no longer
because Section 502 and 515 mortgages were            dominant as it was when funding levels were
available. With the dramatic reduction in             higher, and in many rural communities does
direct lending and opportunities presented by         not exist. In some rural areas, non-profits
a good economy for building higher end                have picked up the slack and pursued a
housing, the private sector delivery system is        multiple funding strategy. Skilled local
no longer dominant and in many rural                  organizations meld federal, state, local and
communities does not exist.                           private resources together to provide
In some rural areas, non-profits have picked          affordable financing packages to low-income
up the slack and pursued a multiple funding           families. But there is not a dedicated source
strategy for homeownership. Funding for               of federal support to promote a non-profit
home mortgages and rental housing comes               delivery system for rural housing.
from several sources—federal, state, and


                                                 41
                Production-Related Comments from
                Responses to MHC Solicitation Letter
Without a uniform system of housing                   Partnerships Program (HOME), the
assistance in rural areas, non-profit                 Community Development Block Grants
organizations are increasing important as a           (CDBG) program, and the Federal Housing
vehicle to deliver housing assistance.                Administration (FHA) may have the intention
However, there is only meager funding                 of serving rural areas, but fail to do so to the
available for the Rural Community                     appropriate extent.
Development Initiative (RDCI), a new                  It is apparent that rural communities are not a
program that provides capacity building
                                                      priority for USDA and an after thought at
support to non-profits through intermediaries.
                                                      HUD. However, the current direction of
Funding for RCDI should be expanded from              federal policy appears to be in the direction of
$6 million to $25 million.
                                                      HUD and in the direction of increased
           Production Issues                          housing resources administered through
                                                      states.
NRHC suggests the following changes to
federal block grant programs for housing and          Patrick N. Sheridan
community development, as well as tax
credits for low-income housing:                                  Production Issues
      States and HUD adopt a uniform                 To what extent should vouchers be project
       definition of rural. NRHC                      based or otherwise linked to production
       recommends a limit of 25,000                   programs? If so, how and how many?
       population;                                    I suggest that vouchers should be project
      25 percent of HOME and CDBG                    based, at least for markets that have a
       funds be allocated to communities              shortage of affordable rental housing. It is
       with populations up to 25,000;                 difficult if not impossible to attract
                                                      developers, nonprofit or for-profit, to create
      States be required to develop                  rental housing without assurances that the
       implementation plans that adequately           properties will be financially feasible.
       and accurately address rural needs;            Without fixed vouchers, syndicators have
      States be authorized to waive                  been extremely reluctant to invest in low-
       matching requirements for projects in          income properties, particularly in rural areas.
       small, poor communities;                       The “sticky” voucher model would seem to
                                                      be an appropriate model. I would suggest that
      States should be encouraged to                 the number of vouchers be tied to market
       provide permanent, multi-year,                 studies that reflect the number of tenants
       resources to local non-profit                  needing vouchers in a market or for a
       organizations and communities to               particular project.
       rural communities.
                                                      How well do current programs operate as
HUD has not done its part in responding to            production tools (e.g., HOME, CDBG, HOPE
the housing needs of our rural communities.           VI, §202, §811)? How well do they work with
HUD’s programs provide a disproportionately           each other? How can they be improved?
small amount of services to rural areas, even
in programs with rural requirements.                  I believe that the current RHS MFH programs
Programs such as the HOME Investment                  such as sections 515, 514/516 and 538 work
                                                      very well, although funded at inadequate


                                                 42
                Production-Related Comments from
                Responses to MHC Solicitation Letter
levels. My experience with the HOME,                   What unmet needs are being addressed in
CDBG and LIHTC programs is that they also              each proposal?
work well in rural areas when partnered with
                                                       From my perspective, there may not be a
these programs to produce rental housing.              need to create new rural MFH programs.
However, the paperwork and overlay of
                                                       Between the sections 515 and 538 programs,
regulatory requirements is extremely
                                                       and the section 514/516 Farm Labor Housing
burdensome. Transaction costs for such deals           Program, the ability to cover the spectrum of
are often 3 or 4 times more than for a
                                                       rural residents, from very low- to moderate-
property financed with one financing source.
                                                       income to farm labor, already exists. What is
Developers must learn multiple programs.               necessary is adequate funding for these
They must meet with multiple lenders or
                                                       programs so that they can be delivered
grant administrators. They must submit
                                                       quickly and without needless complication
multiple loan and/or grant applications. Many          from having to layer several different
of the partners involved in such deals boast of
                                                       financing and grant sources together to make
the cooperation and ability to do such
                                                       a deal work. As for urban areas, it is my
complex deals, but ultimately, the deal is             understanding that comparable programs do
more expensive than it has to be than if
                                                       not exist. It may be worthwhile to examine
funded by one source with adequate funds
                                                       the RHS programs to see if duplication at
than 3 of 4.
                                                       HUD may be the most effective way to jump-
Additionally, the ongoing tenant eligibility,          start urban MFH production.
property condition and financial requirements
                                                       What innovative and creative programs are
are slightly different for each of the funding
                                                       being used by states and local governments to
sources and owners and managers must                   produce affordable housing?
educate themselves about each and make sure
that documentation is produced for each. An            The concept of multiple layering of financing
example is the similar but different                   and/or grants is probably the most innovative
requirements for the RHS section 515                   and creative program being used. Partnering
program, the HUD section 8 and HOME                    with local service providers to assist nonprofit
programs, and the LIHTC program—all                    and for-profit owners in providing rental
programs you may find used to fund a rural             residents new levels of empowerment
property. By making the tenant, property and           programs and independent living has been
financial requirements the same for each of            successful where federal resources do not
these programs, substantial expense would be           exist. Other frequently used programs include
eliminated from the operating budget and               tax abatements for lower income rental
making the tenant, property and financial              properties or exemption from development
requirements the same for each of these                surcharges to fund local infrastructure. Many
programs could reduce rents. Each of these             states have direct funded production
programs has the same goal. It should be               programs that have proven to be extremely
possible to make reaching that goal much               helpful in developing affordable housing.
more consistent between the programs.
What are the merits of the various proposals
to create a new housing production program?




                                                  43
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter

Public Housing Authorities                              The LIHTC paper separately prepared for the
                                                        Commission by Recapitalization Advisors
Directors Association                                   makes a cogent and telling observation.
           Production Issues                            “. . . perhaps because it is so flexible, the
Using the HOME program … PHAs have                      Credit cannot be all things to all properties. It
been successful in producing significant                appears to be less cost-effective on large-
numbers of additional units to the assisted             bedroom apartments, preservation, larger and
housing inventory. Just as with tax credits,            very large properties, and extremely low
the HOME program is not uncomplicated, but              income (ELI) families (although no program
its additional merits lie with the built-in             extant adequately addresses ELI-apartment
flexibility, responsiveness to local situations,        economic viability).”
and comparative relief from the HUD                     Tax policy alone will probably never reach
regulatory process. As an effective production          the very low income without some directly
method, PHADA recommends a major                        funded add-on. Project-based vouchers (PBV)
expansion of the HOME program.                          can, and have provided the necessary “add-
At the same time, however, PHADA                        on” for low-income families in conjunction
recommends several programmatic changes                 with tax credit properties. Even with the 25
to the HOME program to make it more                     percent restriction (i.e. the number of units
effective as a production tool. First, the 25           permitted per property), and the limitation to
percent match requirement should be                     20 percent of the PHA’s current tenant-based
eliminated, or it should be significantly               assistance, the project-based voucher is an
liberalized regarding what “counts” as the              excellent candidate for producing low-income
local match. Second, except that HOME is                housing. PHADA recommends that both the
exclusively for housing, the rules for HOME             tax-credit allocations and the vouchers be
and CDBG should be coextensive rather than              substantially increased for production
having two different sets of rules (for                 purposes.
example, the combination of public housing              At a June 20, 2001 conference HUD officials
and Section 8 rules for income and rent                 began work with industry groups to review
calculations). Third, because “wiring up” a             the interim notice on PBV with the objective
HOME project is a complex undertaking,                  of drafting the actual rule. Participants were
PHADA recommends that the time allowed to               encouraged that the Department genuinely
commit the funds should be extended from                wants to keep the procedural aspects as
two to three years, within the five-year time           simple and as locally driven as possible.
frame.                                                  PHADA is confident that the views of
In recent years the low-income housing tax              participants in the conference will be
credit program has been the major, successful           accommodated in the proposed rule when
producer of additional assisted housing, and            published.
clearly should be expanded. However, the tax            However, the major stumbling block to
credit program has a serious shortcoming. It            effective use of PBV is the application of the
does not make the housing affordable for the            deconcentration requirement. (According to
lowest of the low-income population at 30               the rule, “project-basing must be consistent
percent or less of local median income                  with the statutory goal of deconcentrating
without significant subsidy layering.


                                                   44
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
poverty.”) On nearly every aspect of the                 at the local level on a case-by-case basis
program, the requirement for deconcentration             given all the circumstances. The issue should
appears nearly insurmountable.                           not be decided on a national, one-size-fits-all
The contradictions become apparent when                  basis using outdated and ever-changing
                                                         census data which can be inaccurate and
one considers, for example, that the tax credit
                                                         irrelevant to local conditions.
program is heavily weighted to high-poverty
areas which are ineligible for PBV under                 Another consideration for the Commission
deconcentration. There is also the anomaly of            with regard to production (as well as some
major investments of local and Federal funds             aspects of preservation) is for PHAs to be
through CDBG, HOME and others into high-                 made eligible for direct participation in all
poverty areas (as required), while PBV is                forms of housing programs, tax credits,
ineligible for the same reasons. The same is             Section 202, 811, etc. In every reference to
true for mixed-income developments under                 non-profit development or sponsorship, PHAs
HOPE VI.                                                 should be included by definition. In many
                                                         parts of the country, the PHA is in the best
Clearly there is something wrong when major
                                                         position to understand the needs and the local
investments in neighborhood and community
revitalization are being made, but a program             situation, and is in the best position to apply
                                                         existing talent and resources to program
like project-based vouchers, which could
                                                         generation and expansion. The PHA, if it is
provide essential housing resources in the
same areas, follows a disinvestment policy.              qualified to do so, should be a full-time
                                                         player in all aspects of the local housing
While the procedural requirements of the
                                                         market. What should not be ignored is that
PBV program can certainly be worked out, it
is likely that the substantive issue of                  there is an experienced and professional
                                                         infrastructure of 3,000 public housing
deconcentration will be irreconcilable without
                                                         authorities capable of successfully leading
a major policy shift, and it is unlikely that the
                                                         local assisted housing efforts.
project-based voucher program will reach full
potential otherwise.                                     Sierra Club
In a speech to HUD staff, Anthony Downs of                          Production Issues
the Brookings Institution advocated for the
deconcentration strategy, but offered a                  A National Affordable Housing Trust Fund
realistic caveat at the same time. “Because it           with a dedicated source of income will be an
is politically impossible to focus all federal           important financing tool for increasing
aids on deconcentrating existing poverty                 affordable housing supply to the nation. The
enclaves, we should also invest notable                  fund should concentrate on the production of
resources in improving conditions there. We              units for low-income renters with the greatest
will be unable to deconcentrate even a                   need. Possible sources of income for the fund
majority of existing high-poverty areas within           include fees on commercial development and
any short time, so we should not ignore those            taxes such as employee tax, payroll tax, and
still there.”                                            business license tax. The Sierra Club has
                                                         endorsed Senator Kerry’s Affordable Housing
PHADA recommends that the question of                    Trust Fund bill.
deconcentration and mobility with regard to
project-based vouchers should be addressed



                                                    45
                Production-Related Comments from
                Responses to MHC Solicitation Letter
Such funds have worked remarkably well on             rehabilitate abandoned or vacant properties.
the state and local level, for instance,              These properties represent an enormous
Vermont’s “Housing and Conservation Trust             opportunity for redevelopment and
Fund.” This fund uses real estate transfer            revitalization, and can provide the housing
taxes and the state’s bonding authority to pay        stock for new affordable housing production.
for farmland preservation, open space,                Unfortunately, information regarding the
historic preservation, and affordable housing.        quantity, location and status of these
Between 1987 and 1996, they have dedicated            properties with respect to title clearance and
$95 million for grants and loans through this         other barriers to redevelopment appears to be
fund.                                                 inconsistent and incomplete. The Millennial
                                                      Housing Commission can play an important
Smart Growth America                                  role by recommending that local governments
           Production Issues                          be given better tools and greater resources to
                                                      inventory vacant properties and clear the path
We believe that the Commission’s top                  for rehabilitation.
priority should be the production of more
affordable housing, especially for very low-          Vermont’s State Housing
income people. Some of this can be achieved           Agencies
through existing programs. We urge the
Commission to recommend a significant                            Production Issues
increase in funding for successful housing            To what extent should vouchers be project
programs such as the Home Investment                  based or otherwise linked to production
Partnership Program (HOME) and                        programs? If so, how and how many?
Community Development Block Grants
(CDBG). We also support increases in the              If we are to serve very low-income tenants in
HOPE VI program if steps are taken to ensure          newly produced housing, project based
that projects produce more affordable units           operating assistance is critical. In Vermont
than they replace, and that HOPE VI does not          with average per unit month operating costs
take a disproportionate amount of resources           of $350 - $400 (including utilities, but
from other housing production programs.               excluding debt service), we cannot reach the
Another option is creating new housing                30% of adjusted monthly income for many
production programs. Smart Growth America             families, even in debt free units. In rural
has endorsed the national housing trust fund          market areas and in small projects a 25%
campaign that is being led by the National            allowance for project based assistance is too
Low-Income Housing Coalition, an effort               restrictive. To make small projects viable,
targeted more towards very low-income                 particularly in communities where the entire
families.                                             population may have low median incomes,
                                                      you need more vouchers with less targeting at
…                                                     30% of median. It seems unfair to penalize
Finally, there are other needs that must be           the production of housing designed to meet
addressed to enable cities and towns to more          the needs of the persons who live in a
easily produce affordable housing. Smart              community. To discourage the concentration
Growth America is particularly focused on             of poverty some project-based vouchers
helping communities inventory and                     should be allowed to serve persons up to 80%



                                                 46
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
of median or at some threshold to meet the              Unallocated (4%) tax credit projects should
needs of working families with children.                not be required to meet a 51% MRB bond
…                                                       usage if the project already has a commitment
                                                        of substantial other federal resources like
Vouchers should be project based if there is            Rural Development 515, Section 202 Capital
market need to do so and to improve the                 Advance, HOPE VI, HOPWA, McKinney.
success of very low income families                     This may open the use of the 4% credit but it
searching for housing. As many as 50% of                will be limited by the availability of these
families with housing vouchers FAIL to find             other programs. It will reduce the inefficient
suitable, affordable housing under the                  use of 9% credits or bonds to create new
voucher program and are forced to turn in               housing. If states choose to allocate multiple
their voucher—linking vouchers to                       resources (i.e. 9% credits, and 4% credits and
production programs is another way of                   bond financing), perhaps in conjunction with
creating new affordable housing units.                  another federal program, tax credit rules
…                                                       should accommodate this. This is particularly
                                                        so if a housing project creates mixed income
At the present time the option to use up to             or mixed occupancy types, or meets a high
20% of an Authority’s voucher allocation for            priority of the states housing plan.
project-based assistance does not create more
units; it is merely a tool to better utilize            The ability of HFA’s to effectively use their
existing vouchers. In areas where utilization           ability to issue bonds that provide long term;
rates are high, or where payment standards              low cost capital depends on the availability of
and low vacancy rates make it difficult to use          investors for those bonds. In this market the
vouchers effectively, project-based assistance          GSE’s (Fannie Mae, Freddie Mac, FHLB) are
is not a viable option.                                 a major investor. They must be given the
                                                        authority (or required) to invest in HFA
As long as there are no new vouchers set                bonds with somewhat different standards and
aside for project-based use, it will remain a           capital charges than other investments. The
tool used under specific circumstances.                 net profit of some of the GSE’s (like Fannie)
A better way to encourage production of new             could be more aggressively used to create
units would be to create set-asides so that a           housing production capital by writing down
housing authority would not have to choose              the costs and interest rates.
between using their scarce resources for                How well do current programs operate as
tenant-based or project-based assistance.               production tools (e.g., HOME, CDBG, HOPE
How can the multifamily housing finance                 VI, §202, §811)? How well do they work with
delivery system be improved for housing                 each other? How can they be improved?
production and preservation?                            Section 202 / 811Some of the enabling
Tax exempt financing should not be                      legislation of 2000 allows 202/811capital
prohibited in allocated (9%) tax credit                 advances and operating subsidies to be used
projects. If a state chooses to use a portion of        in mixed income projects with tax credits and
their private activity bond cap to support a            other types of debt and subsidy. This was a
high priority housing project they should be            good step forward, but the effectiveness
allowed to.                                             won’t be known until new rules (and
                                                        processes) are written and implemented.


                                                   47
                Production-Related Comments from
                Responses to MHC Solicitation Letter
HUD has never transferred its thinking and            of funding available, at least for Northern
administration of these programs from a loan          New England, means that only small projects
to a grant program. HUD is not the                    can be undertaken. The dollars available per
mortgagee; they should treat 202/811 funds            unit are unrealistically low and haven’t kept
like a grant with outcome goals.                      pace with the rise in the cost of construction.
                                                      The process was described as too slow and
HOPE VI—Resources from this program
should be made available to small PHA’s               too cumbersome because of programmatic
                                                      reasons. For example, four different sections
who need to do major reconfigurations or
                                                      at HUD look at and underwrite the project
repairs to projects, but who do not suffer the
blight (and mismanagement) that some of the           and sometimes give conflicting advice. This
large urban projects do.                              results in “a continual open loop that never
                                                      gets closed yet if deadlines aren’t met the
Rural Development 515—RD rules and                    developer has to start over at zero”. These
implementation should reflect communities’            programs have requirements such as a fidelity
desires to build in village centers and do            bond that cannot be charged back to the
substantial renovation. Approved project              project and therefore are out of pocket
designs should reflect the rural community            expenses for the non-profit developer. In
(multiple buildings, rather than one building,        addition, the programs do not allow for any
designs that might adapt to future                    money in the form of development fees or
homeownership). Consider changing the                 operating fees to be passed back to the
funding to be like 202 with a capital advance         developer, yet the developers have legitimate
and rental assistance, and administer the             staff, overhead and other expenses. The
advance like a grant (i.e. don’t supervise            comment was made that there are program
every detail of the production). Provide              elements that don’t belong anymore and that
automatic access to 4% housing credits.               a fresh, holistic look should be taken to bring
…                                                     202 and 811 programs into the 21 st century.

In general, the programs that are block               Rural Development’s 515 program has
granted to the States receive relatively              changed dramatically for the better over the
“favorable reviews” for their flexibility and         past 15 years. It is much more flexible and
their ability to contribute to housing                responsive to the needs of individual
production. These include CDBG and                    communities than formerly. Areas of
HOME. We hear more criticism about the                potential improvement include the amount of
programs such as S.202, 811, and Rural                time between approval of the pre-application
Development’s 515 program that are                    and the application, the fact that the rules for
administered directly by the federal agency.          market studies for 515 projects render them
In talking to Vermont groups a lot of                 not particularly meaningful and, similar to the
frustration was expressed regarding the 202           HUD 202 and 811 programs, RD will not pay
and 811 programs in particular. They were             for non-profit development fees and doesn’t
described as extremely demanding and                  allow the non-profit to pay itself for
onerous programs that are almost impossible           administration during the period of program
to undertake without a consultant. Program            operation. The 515 program suffers from the
users describe a program whose requirements           cuts that were made in the program resulting
are designed for large projects yet the amount        in not enough resources for projects and not
                                                      enough staff in the state offices to


                                                 48
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
successfully administer the program. The               income housing. Because virtually all housing
contribution per unit is unrealistically low in        subsidies are tied to 50% of median income,
today’s housing market.                                there is no support for creating units for those
In our opinion, elements of a successful               between 50 and 100% of median. However
                                                       the amortized cost of producing a new unit
production program include up front risk
                                                       plus operating costs generally creates a
capital and organizational support for non-
profit developers in order to make the                 monthly rent out of reach of a working
                                                       family, particularly those in low median
program work. These elements are lacking in
                                                       income areas.
most of the existing production programs
with the exception of the HOME program and             …
to a limited extent the CDBG program.                  Edwards Bill—This bill is attractive because
Ample technical assistance to housing
                                                       of its simplicity. It seeks to fill an important
producers, whether that be through
                                                       hole in production of affordable housing in
workshops, group trainings, or one on one is           rural states because of serious cuts to Rural
another essential element of housing
                                                       Housing Service’s “515” program several
production. Block granting technical
                                                       years ago. For years “515” has been the core
assistance funds to states would not only              housing production program in rural areas of
insure the availability of this assistance but
                                                       the country. The low interest financing along
would facilitate the provision of assistance
                                                       with the opportunity for rental assistance has
designed to meet the needs and address issues          made it an extremely effective tool in
relevant to a particular state or locality.
                                                       producing housing for the lowest income
What are the merits of the various proposals           residents.
to create a new housing production program?
                                                       Sanders Trust Fund Bill—This bill takes a
What unmet needs are being addressed in                realistic approach to housing production.
each proposal?
                                                       While targeting much of the money to the
The National Housing Trust Fund proposals              lowest income Americans it seeks to do it in a
have the admirable goal of trying to serve the         mixed income setting. It balances the needs of
most low income families; however they are             low income households with the practical
trying to accomplish this through a capital            realities of affordable housing development.
production program, when what is really                It proposes to use the FHA surplus, allows for
needed is an operating subsidy. These deep-            both rental housing and homeownership, and
targeting goals will seriously diminish the            recognizes the types of incentives needed to
increased production or substantial                    entice developers to house the lowest income
rehabilitation of units where you need that            Americans. The long term commitment to
capital. Tying most of the targeting to 30% of         housing affordability required of recipients of
median income in areas that already have low           these funds should help to avoid future losses
incomes makes serving working families                 of federally subsidized affordable housing
difficult. This is exacerbated in high cost            because developers will be unable to opt out
areas like the Northeast. Any new production           of the requirements after 15 years as was the
program should account for the varying                 case with previous HUD and Farmers Home
median incomes of communities relative to              programs. The requirement for a state match
minimum wage, high construction costs                  gives an incentive to states to put some of
areas, and the goal of trying to create mixed          their own resources into housing production.


                                                  49
                 Production-Related Comments from
                 Responses to MHC Solicitation Letter
Kerry Trust Fund Bill—Much of the Sanders               housing production and for helping to
Bill is identical to last year’s version of the         implement state policy related to these issues
Kerry bill. As of the time of this writing it is        (2) reliance on a non-profit housing delivery
anticipated that Sen. Kerry will reintroduce a          system including community land trusts (3)
housing trust fund bill this year as well. Most         creation of a statewide non-profit corporation
of the comments regarding the Sanders Bill              to develop affordable housing in partnership
apply to the Kerry bill as well although we             with local groups and to syndicate the low
believe that the Sanders bill takes a more              income housing tax credit and thereby bring
realistic approach to tenant contribution               much needed equity to the project, (4)
towards rent than the approach taken in the             creation of a state tax credit low income
2000 Kerry bill.                                        housing tax credit, (5) creation of a state tax
                                                        credit for projects in designated downtowns
Bond Bill—Senator Bond introduced a bill
late in the 2000 session. While we believe the          (6) development of non-profit operated
                                                        Homeownership Centers that not only
bill represents a “good start” we do have a
                                                        counsel prospective homebuyers and assist
couple of concerns. On the plus side it
contains a matching grant program for                   them with the process of purchasing a home
                                                        but also sometimes engage in the
preservation. It doesn’t make sense to talk
                                                        development of new homeownership
about production without talking about
preservation; if we are losing affordable               opportunities for lower income households,
                                                        (7) ongoing support of organizational
housing stock faster than we can produce it
                                                        capacity and technical assistance geared to
we haven’t really gained anything. Of
concern is the fact that the funding source is          meet the needs of specific organizations, and
                                                        (8) the establishment of every conceivable
Section 8 recapture. That is not likely to be an
                                                        type of partnership imaginable to “get the job
ongoing source of available revenue. In
addition, the targeting is not to very low              done” whether it be between a social service
                                                        agency and housing developer, local
income households where the need is
greatest.                                               government and a housing developer, an
                                                        educational institution and a housing
While we laud these efforts to put additional           developer, or multiple developers and/or
financial resources into housing production,            funders with specific roles to play.
we believe that the question “is it better to
create a new program or more generously
fund existing programs?” should be asked.
What innovative and creative programs are
being used by states and local governments to
produce affordable housing?
We are aware of a number of innovative and
creative approaches being used by the State
and by local governments in Vermont to
produce affordable housing. They include: (1)
creation of a state housing trust fund that has
successfully provided a vehicle for
investment of state funds in affordable



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