April 30, 1996 - From the April, 1996 issue

Publicly-Assisted, Affordable Housing Policy: A TPR Tête-à-Tête

Profound shifts in housing policy, both at the federal and state levels, have catalyzed a wide-reaching debate over the future of publicly-assisted housing, both at the federal and state levels. At issue is how consolidated block grants from the U.S. Department of Housing and Urban Development will filter through the states to large metropolitan areas such as Los Angeles. 

With the future of affordable housing developers, financial institutions and cities in the balance, TPR presents a roundtable interview with three long-time practitioners and experts in housing policy: Gary Squier is the General Manager of the Los Angeles Housing Department: Jan Breidenbach is the Executive Director of the Southern California Association for Non-Profit Housing (SCANPH); and Bill Witte is a partner in a housing development firm, The Related Companies of California. 


Gary Squier: "Apparently, national attention is focused neither on services nor housing, but riveted to the state of the economy and the stability and quality of jobs"

Bill, would you comment, as the rest of the panelists will, on the impact of the 1994 election and the subsequent changes in this Congress on how HUD's federal housing dollars are to be focused. What changes, if any, do you see occur­ring in priorities? 

Bill Witte: Clearly what happened immediately after the election is that the Administration and Henry Cisneros believed that HUD was going to be taken apart, brick by brick, by the new Congress. In anticipation of this impending destruction of the agency, they figured that they had better get with the program. 

The program has been, to the extent you can make head or tails of it, an attempt at both less government from Washington and the virtual elimination, where possible, of long term subsidy commitments. It is too early to tell exactly where all of this is destined. For some time throughout the 1980's, there had been an erosion of support for HUD programs and funding other than block grants. Support continues to decrease. The only thing new to come out of this whole period of flux is an increased focus on the future of obsolete public housing. 

Gary, from your vantage point, how has the shift in political power in Washington affected what's happening to Federal dollars with respect to housing? 

Gary Squier: For the short-term, the shift is meant to change the way the federal government are dealing with public housing as a rental subsidy program. For the longer term, the two to three year impact is likely going to be a reduction in both CDBG and HOME funds. In addition, there had been a flurry of initiatives to restructure the way these programs are implemented. 

How will Federal funds be dispensed? To cities? 

Gary Squier: Both CDBG and HOME are allocated directly to the city. CDBG is a grant that was first initiated by Nixon in the 70’s. It allows localities lots of flexibility in use—public services, housing. etc. In L.A., the Housing Department has traditionally allocated about 50% of these funds.

The HOME program on the other hand is used only for housing purposes and has increased regulations. It can't be used for other purposes, and most cities add it to the pool of resources available to resolve the housing problem. There is the danger that these two funds could be combined, increasing the chances that less money will go to housing. 

As long as our levels of funding are maintained, we will be able to maintain our housing initiative. The caveat will be that the low-income housing tax credits must be preserved to compliment it. 

Jan Breidenbach: HUD is seeking to consolidate many of its programs. HUD wants to streamline, and some of this is positive. However, some of the reinvention is streamlining to the point where many programs may disappear. I think HUD wants to appear that they are working harder and smarter; my concern is that they may go too far. 

Their first iteration went further than many in Congress, which is one reason why it was stopped. Their second version is not much better.

How are these changes affecting your work representing the non­profit housing developers in the region? 

Jan Breidenbach: The immediate effects won't be felt for another year or so; it takes a while for things to come down the pike. Consolidation of programs will result in increased competition. The changes that we’re seeing are not just for dollars, but also in terms of having to go to the same funding source to get very disparate types of housing produced. You will see political competition for example, where senior projects must compete against projects for the disabled or housing for people with AIDS. 

Secretary Cisneros has insisted that HUD's vision and priorities will now be driven by local needs and local realities. What does this mean?

Gary Squier: HUD will rely more on block grants such as CDBG and HOME. Hopefully it also means less regulation in the way that you can use those funds. It's going to take a real effort on HUD's part however, to truly reduce the level of regulation. An example is the Consolidated Plan, which has become an increasingly controlling document in determining how local government will use their funds. For example, under new regulations, even minor mid-year corrections in CDBG or HOME utilization will require costly and time consuming public hearings and HUD review.

Bill Witte: What it means in theory is that there will be a continued devolution of funding authority from Washington to state and local governments. Much like the CDBG program and HOME funds, each within its scope of eligible activities, local governments can decide what they want to do with these programs, subject to local requirements and needs. 

Unfortunately, there are also significant cuts accompanying this administrative change, and the administration hasn't entirely figured out how to make the change yet. So developers are caught in limbo. Local governments are in very difficult positions right now. They anticipate what they think is going to come—more control but less money—but hasn't come. They still don't have any control but they have less money. 

Jan Breidenbach: To me, it means that mayors are going to get to do things the way they want. In some cases that will be really good; in other cases it will be bad. HUD will let local jurisdictions decide what they want to do with much less oversight. The working poor may benefit, the very poor will be out on the streets. 

Our membership is regional and not just within the City of Los Angeles. We've got a good housing department in the City of Los Angeles, we have enjoyed support from the City Council here. In other communities, it may mean less support for housing and a greater difficulty in getting the housing developed. 

What are the three highest priorities or needs your membership is coming to you with for you to address? 

Jan Breidenbach: Our first priority for this year is to analyze the programs that will be up for renewal at the federal level, and educate the electorate about them. Secondly, we are focusing on project based Section 8, and thirdly on tax credits and the State QAP. 

What has led to there being such little discussion in this presidential election year about the role of Washington and the federal government in housing? None of the candidates, including the incumbent, have even mentioned housing as a focus or priority. What explains this, Bill?

Bill Witte: When was the last time in a presidential race that housing was mentioned prominently or even really at all by any of the major candidates? I can't recall when that might have been. 

I think that's a problem. The problem is that many people in this country, relative to other countries, are well housed—especially voters. The biggest problems of affordability, supply, etc., are among lower-income people who have always have been less represented, and who will always will be politically underrepresented. So those problems tend to get swept under the rug as generic urban problems. 

Frankly, most people feel about housing problems the way they do about welfare, which is, "God, it's a terrible problem and I haven't the foggiest idea of what to do about it, so I'm certainly not going to venture out on a limb with some suggestion." 

The most you get is that mushy realm of empowerment zones, which has really never taken off, but still seems popular. I don't know that there's anything new that explains why nobody's talking about it. They never have been. 

Gary Squier: Apparently, national attention is focused neither on services nor housing, but riveted to the state of the economy and the stability and quality of jobs. In my experience, much of policy discussion is a swinging pendulum. At this point, the public's interest and the politicians' dialogue is swinging towards the macro economy and away from urban issues of poverty and housing. 

Jan Breidenbach: They really believe we're a constituency without a voice, and we have to spend our time and effort proving otherwise. Affordable housing developers must have a lot of political sophistication at the local level to make projects work. While state and federal money was more forthcoming, local "savvy" was often more important than pressure in Sacramento or Washington. Now that's shifted, and we are going to be more politically-active at all levels. 

Changing the focus a bit, what is the appropriate role, as you see it, of FHA, especially with respect to insured and subsidized housing? 

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Bill Witte: The role should be what it was originally intended to do. For the moment let's separate the role between single family and multi-family housing, because the two are different programs. 

In multi-family, FHA should support various public policy objectives. Either improvement of housing stock, rehabilitation in selective market areas, or encouragement of development of affordable housing. 

FHA should supplement deals that are well underwritten but where, for one reason or another, market forces are making financing difficult. Unfortunately, because of the scandals and huge losses of those funds in the 1980s, there is now a move to unwind FHA. 

I have not heard much dialogue about what FHA's role in the future should be. Most of the dialogue now is about what to do about the existing inventory of FHA-insured projects, particularly those that have Section 8 commitments that the government does not want to renew. There is a clear role for FHA as an insurer or credit enhancer of deals, either in empowerment zones, with tax credits, or with mixed-income projects involving the redevelopment of obsolete public housing sites where conventional market forces are reluctant to provide long-term financing commitments. 

Gary, could you expand on Bill's comments? Is HUD dramatically shifting its policy away from a direct federal role, a public role, in developing, insuring and subsidizing public housing? 

Gary Squier: The role of FHA is definitely changing. It is preoccupied with a huge inventory of non-performing notes and cannot focus on its traditional role as a credit enhancer for new housing development. 

To address the troubled portfolio of FHA multi-family stock, HUD is considering a "market to market" strategy which would end project-based section 8 rent subsidies to over 800,000 low-income housing units nationally. We are concerned about some aspects of this and how much burden the cuts might bear in avoiding a loss of affordable units in L.A. 

Turning to California and tax credits, what is our roundtable's assessment of this current round of tax credit allocations by Don Maddy's office? What are your expectations, given the restraining order issued in mid-March and the fact that the list of those projects to be allocated credits will not be released until the end of April for this year? 

Jan Breidenbach: The preliminary injunction will be heard on the April 3. Quite a lot rests upon what happens then. 

The information I have today—which is entirely anecdotal—indicates that there appears to be little predictability to the process this time. From what I've been told, there's no discernible pattern; there is nothing coming out of this round that will tell developers: “This is the way I need to do it,” if they didn't get their projects in this round. It seems as if the process is quite unpredictable. We now have an administrative program rather than a housing program. 

Gary Squier: Administrative and legal problems have put thousands of units and millions of scarce housing dollars in jeopardy. We are very concerned that L.A. projects and L.A. developments will be hurt. We have about eighteen projects that are ready to commence as soon as they have an allocation from TCAC. If they delay the allocation, these projects will begin to unravel and they may lose their financial viability. 

Bill, what is your view, as a private affordable housing developer, of the current TCAC round, and what are your expectations for 1996? 

Bill Witte: The first thing that people need to understand is that there is significantly less money to allocate than there has been in past years, and more people competing for allocations. There is less money because in prior years, California’s allocation was augmented by unspent funds from other stales—in some cases up to $14 million. Other states are now using their funds, and that source is gone. 

There are also many more developers trying to get into the business because the multi-family development business has all but shut down in California. Apartment development is the only game in town. No matter what system was put in place, including the system that was actually implemented in this recent Qualified Allocation Plan, there were destined to be many losers.

Many questions have arisen, including those in the lawsuit that has held up allocation of credits this week. Questions have arisen concerning the administration of the program, how rulings are made on eligibility, and very esoteric points—the type of issues that come up when competition gets so intense, and many stakeholders have significant amounts of money invested.

In addition, the concern is that the program will not be extended, and that developers will only have one or two more bites of the apple. There is complete uncertainty in the industry about what to do about these changes. Yes, there are problems, but are they fixable by tweaking the Qualified Allocation Plan? Probably not. 

At the end of the day, you have many people chasing many sites, with limited funds. I have heard people in the last few days hold up who the winner and losers are. You end up with criteria like "cities on the south side of the street in urban areas that begin with an "S". There is not a clear pattern. There is some question about a process that pushes people so irrevocably toward cheaper, or lower-cost projects.

Gary, do you or LAHD have a position on whether you favor federal devolution of money and power through the state or to cities or regions like ours? The Mayor's office, most specifically, Michael Keeley, has said it doesn't matter.

Gary Squier: As always, the City of Los Angeles will lose if the State of California administers federal resources. When federal dollars go to state implementing agencies, the ability of large cities to compete on a pro rata basis with farm localities, which have numerous representatives in Sacramento, is compromised. Examples include mortgage revenue bonds, taxes and bond financing authority, and low income housing tax credits.

Each of those three cases leaves Los Angeles in a struggle to get a fair share in a state allocation process. We would much prefer to have a standard formula from the federal government to avoid spending enormous energies fighting other localities and state bureaucracies just to maintain our fair share.

Jan Breidenbach: The flow of money matters to our regional membership. Our membership prefers that the allocations continue the way they have been, which is in HOME funds is 60% locally and 40% to the state. Based on the history of Housing and Community Development, we are particularly concerned about housing dollars being block-granted to the state.

Do you want to elaborate on any specific examples about why it matters?

Jan Breidenbach: HOME funds are an example. Southern California has only received about 12% of total state HOME funds, although we have over 60% of the population. In recent years, we saw the same discrepancy in the distribution of RHCP (Rental Housing Construction Program) and CHRP-R(California Housing Rehab Program-Rental). There has been a geographic bias, intentional or otherwise, in state allocation program. We have not historically received our “fair share."

There's also a sense that HCD is not particularly efficient. It takes them a long time to do things, they are extraordinarily bureaucratic, and projects function better when the developer can work through a local jurisdiction. 

Finally, elaborate on your unique perspectives on the present need for new or rehabilitated housing, for publicly assisted housing, in the Southern California metro region? 

Jan Breidenbach: When you go by Congressional districts and look at the "worst case" housing situations, defined as the most overcrowded, most substandard units, and most families overpaying for rent, seven of the worst ten Congressional districts in the country are in Southern California. Simply said, we have the worst affordable housing crisis in the nation. Obviously with this kind of crisis, the private market isn't responding to the housing needs of the region. We simply will not have proper housing without federal assistance.

Gary Squier: The need for decent housing is growing at an incredible rate in Los Angeles. The housing that we have is deteriorating. Homelessness has increased. Our population is increasingly dominated by large families, while our housing stock is dominated by small units. This causes a severe imbalance in Los Angeles' housing stock. Providing housing is a daunting task, and in the case of cuts at HUD, it's overwhelming.

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