January 30, 1995 - From the January, 1995 issue

Bodaken: In A “New’t” World, Federal Commitment to Housing Will Be?

The 104th Republican-controlled Congress will surely revisit and debate Clinton's federal housing policies and programs. The Planning Report presents an interview with Michael Bodaken, executive director of the National Housing Trust in Washington D.C., and former housing advisor to Los Angeles Mayor Tom Bradley, regarding the evolving policy debates surrounding HUD, the Federal Housing Administration, affordable housing and public housing policies that will have sweeping ramifications for both the production and operation of subsidized housing within the region.

In light of the election of a new Republican Congress, share with us your observations on the future of federal housing programs. 

Well, I think there is a question about whether or not there is a need for a federal housing department and a need for federal housing policy that's linked to a cabinet-level agency. Clearly, we need a national commitment to housing and community development, one which prioritizes the rebuilding and sustenance of neighborhoods and communities. I believe that HUD will survive in some form, but clearly the department is under serious examination by the budget cutters - both Democrats and Republicans, and fundamental questions need to be answered regarding HUD's role in the future, not only for poor Americans, but middle-class Americans as well. 

The National Housing Trust is absolutely supportive of some form of a reinvented HUD, including a Federal Housing Administration (FHA) which provides credit enhancement for multi­family housing that would otherwise not be available in the private market. The credit enhancement program assures the financial stability that lenders need in order to make loans for affordable housing. I don't believe there is another national program filling that important function. Whatever the new HUD looks like, FHA's essential functions should be maintained. To the extent the new FHA is run more like a business, with ability to make essential personnel and other changes, I welcome the proposal. 

How will the new Congress treat HUD's programs and priorities? 

The department focused almost exclusively on a very-low and low-income constituency, which is critical for its survival, but which is not sufficient in this new environment. The department has to show why it delivers programs for all people. A number of tough questions will be central to the debate. 

For example, what is the role of an FHA insured mortgage for single families in an environment where Fannie Mae and Freddie Mac are providing a lot of the take-out financing for homeowners? What is the role of the department in providing a niche in multi-family housing when the low income housing tax credit provides much of the affordable housing production in the country? What is the view of the department regarding concentrations of very poor people and trying to figure out a way to build neighborhoods as opposed to just building projects? All of which I think is critical for the department to prove in this new era. Those are the kinds of questions that will be asked. 

What an Sec. Cisneros' articulated strategies for keeping HUD together? 

It is a three-pronged strategy. First, the idea of the super block grant. Second, the radical transformation of public housing so that it serves a greater spectrum of individuals, not just the poorest of the poor. As I said, there has to be increased attention to preventing displacement of people who are very, very poor, or people who have particular problems such as the handicapped or elderly. 

Third, HUD will create a government-owned FHA corporation. It allows FHA to make personnel changes and still provide insurance for mortgages that would otherwise not be made by financial institutions, which I believe is needed for HUD to appeal to a constituency consisting of not only poor Americans, but to single family homeowners and moderate income Americans as well. 

The difficulty is in the details. For example, the Administration's assumption that vouchers will work for everyone in all markets is suspect. Equally problematic are the assumptions that there are sufficient resources to "fix" public housing, make them competitive with private housing stock and then eliminate any further subsidies to these public housing developments. If the Administration is wrong about these issues, cities will be faced with the prospect of frequent defaults, abandonment and foreclosures of multi­family housing that has been propped up by the federal government. These projects will deteriorate and undermine neighborhoods. 

Hence, this strategy may well "keep HUD together'', but at what price? These difficult issues lie ahead. I hope we have the courage to seriously address them. 

What are your thoughts for the continued reinvention of HUD for 1995? 

Fust, I think the situation is changing by the hour. How long the HUD reinvention lasts is any one's guess; I expect that it will survive into the new Congress and be part of President Clinton's budget.

What will be the major goals HUD tries to pursue in 1995? 

The major theme will be deregulation, and an emerging tendency to use vouchers as a way to provide people access to housing. I hope there will also be a breaking away from a mold of bureaucratic thinking. For a city such as Los Angeles, this can be good and bad. The good news is that the city is adequately equipped to handle block grants in an innovative way, but I would be concerned about maintaining funding at current levels. 

We have to make sure that Congress supports the provision of sufficient block grants to cities, even if Congress itself is not directly involved with that effort. By giving a block grant to cities or states, you may be doing an end-run around Congress, so you have to make sure that Congress is supportive, or there will not be a political constituency to maintain funding levels. 

Last year you remarked in TPR that HUD was facing potentially seven budget cuts; how did HUD fare? How will it fare this year? 

HUD was more or less successful in fighting off a large part of those cuts, but I think that even bad the November elections gone otherwise, given the nation's present deficit and economy, we are not looking at an expansion of the HUD budget in the near term. I think HUD will survive as a leaner but hopefully more efficient bureaucracy. My general judgment is that in this new environment there will not be new billions of dollars with which to play. 

Mayor Riordan has proposed consolidating the Los Angeles Housing Department (LAHD), Community Development Department (CDD) and the Los Angeles Community Redevelopment Agency (LA/CRA). He has argued consolidation wouldn't have an impact on the availability of funds for affordable housing, and with HUD's increasing support, the City would actually increase its housing production. In light of a new Congress and a weakened HUD, are the Mayor's assurances in need of a reassessment?

I haven't followed Mayor Riordan's proposals in any detail, so I can't comment. With respect to in increased dollars coming from HUD, I would not count on additional funds in my budget assumptions over the next few years. President Clinton has indicated that a super block grant type program will be provided. The President is proposing super block grants that will go to either cities or states. The block grants will consolidate not just homeless programs but also CBDG, the HOME program, the Section 202 program, the 811 program — all of the grant programs that are currently operated out of HUD in Washington D.C. 

This means that states and localities will not necessarily have more resources; rather officials will have more discretion over their resources. For example, I can imagine a situation in which the city of Los Angeles may be able to have better control over funds and what should be done with them. The direction is for more decentralized, local control. 

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However, there are potential problems associated with this approach. For example, there is the possibility that the most vulnerable of our under housed populations, e.g., the elderly, the disabled and large families, who now enjoy set asides, will not be protected. Second, and more concerning, I expect that many mayors and governors suspect that the federal government is "blocking up to cut back". Just recently the U.S. Conference of Mayors released a statement expressing that concern. 

If you were called upon today for counsel by City Housing departments and big City Mayors, what advice would you give them on federal housing policy, funding and priorities?

If you are going to give cities a funded mandate, make sure that the mandate is not too detailed. It doesn't help cities to write mandates with so many restrictions that cities have to come back to Washington, D.C. every month to waive a particular regulation. 

I'd be very concerned about taking on the burdens of the federal government unless it was clear that the federal government was going to give cities sufficient resources and flexibility to solve problems the way local officials would like. Otherwise, I think the federal government with its reservoir of both resources and knowledge is the logical place for these decisions to be made. If they are going to delegate the mandate, they had better give cities both the funds and the flexibility to make the necessary changes. 

What, if you would elaborate further, will HUD look like one year from now? What is the likely consensus which will be reached on the federal role in housing? 

I expect a rigorous national debate sorting out the respective roles of HUD vis-á-vis local and state government in meeting housing and community development needs. It will be accompanied by a connected discussion concerning, a) who should receive subsidies, and b) what types of subsidies are appropriate, i.e., project based vs. vouchers in this era of limited resources. With respect to the public housing proposal, I believe most big city mayors will endorse the Administration’s proposal to permit the demolition of dilapidated public housing. But, is it reasonable to expect, as the Administration's proposal for public housing assumes, that we can afford sufficient rehabilitation resources for so called "good'' public housing to make these units competitive in the private market three years from now?

Finally, we should consider the utility of vouchers which the Administration intends to substitute for project based subsidies. The Administration has properly been concerned with owners who receive guaranteed taxpayer subsidies yet permit their projects to deteriorate to unspeakable conditions. The substitution of portable vouchers means that tenants will rent in the private market rather than be assigned to public or federally-assisted housing. Theoretically, landlords will respond by better maintaining their buildings or risk losing good tenants. But vouchers do not necessarily work well for the poorest large families, the aged, and the disabled, especially in tight rental markets. 

Will private landlords accept voucher holders in tight markets? What will be a local community's response if these vulnerable populations are unable to secure decent shelter with a voucher? In other words, will vouchers be an effective surrogate for the over two million units of federally assisted housing developed between 1965 and today? 

I hope there will be a national consensus, despite the obvious impediments and concerns about HUD's bureaucracy, for a continued federal housing role. Just because HUD hasn't performed in the past doesn't negate the need for a federal housing policy. For example, I don't understand how you can standardize the housing finance market without federal housing insurance. The new HUD leadership has developed proposals to streamline and reinvent the department and I hope they are given a real opportunity to prove that the department can respond to the changing marketplace. 

Can cities such as Los Angeles expect affordable housing subsidies of $50,000 per unit from HUD? 

No. It's not going to happen. People are going to have to be even more innovative in providing affordable housing and mixed-income housing in the future. Also, HUD has to build links to people who haven't felt that they have been receiving services in order for the agency to survive. 

Sec. Cisneros has been quoted as saying that many of the practices of HUD are "indefensible", what is your reaction? And what does this say about his leadership in 1995?

I do think that HUD has some terrible problems but I don't think it is indefensible in all cases. There is a need for a federal housing presence and federal housing policy, and a need for a uniform federal housing standardization. 

Sec. Cisneros believes he will be at HUD for a long time and I have no reason to believe otherwise. 

The Housing Trust has been involved in arguing for the preservation of existing federally-assisted, affordable multi-family housing. What is your organization's prognostication in light of change in political power in Washington? 

It's a mixed outlook. We are probably going to see the delinking of what is called project-based subsidies from these properties over time. In other words, to the extent that we can maintain these properties as unique, mixed-income housing resources for the community, I think the federal government will help. However, if we try to tum these developments into ones that only serve very poor people, we won't have much prospect for success. 

I advocate maintaining both low and mixed income projects that the federal government originally subsidized. To do this FHA must still provide sufficient credit enhancement to facilitate securing a loan sufficient for purchase, rehabilitation and continued affordability. How you do this without subsidies tied to the units is a real trick. But if you start to think of the project as carrying too much debt, get the federal government to agree to take a partial reduction on the existing loan, rewrite the loan to a level that can be sustained with current rents, and then work with your existing tenants to obtain a reasonable rent level, these proprieties should survive in this new era. 

To the extent the project houses people with a broad range of incomes, as are the developments currently being assisted by the Trust, this concept should work and families shouldn't have to be displaced to achieve the goal. That may not be true, by the way, with so-called "project based Section 8" developments, where the family incomes are much lower. When the project based subsidy is taken from these developments, displacement is likely.

If you start to think of projects as less dependent on partial subsidy and more dependent on partial market-rent, I think they definitely will survive in this new era. The result is the projects develop their own constituency, and most developments are already mixed income, so you don't have to change things, you just have to maintain them. To the extent that we are trying to drive project-based subsidies into a project, we need to rethink that strategy.

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