Congressional Testimony of Susie Shannon on PETRA Legislation

Written Testimony
of Susie Shannon
Los Angeles Coalition to End Hunger and Homelessness
 
Submitted to the
 
House Financial Services Subcommittee
on Housing and Community Opportunity on the
“Preservation, Enhancement, and Transformation of Rental Assistance Act of 2010″
 
May 25, 2010
 
    
Chairwoman Waters and members of the House Financial Services Committee on Housing and Community Opportunity, thank you for providing the Los Angeles Coalition to End Hunger and Homelessness the opportunity to submit testimony on the Housing and Urban Development Department’s legislation titled the “Preservation, Enhancement, and Transformation of Rental Assistance Act of 2010.”  The Los Angeles Coalition to End Hunger and Homelessness is an advocacy and grassroots organization working with homeless individuals and families as well as low income tenants currently residing in public and section 8 housing.  We have been participants in several meetings and conference calls with HUD assisted tenants throughout the country as well as HUD staff regarding HUD’s proposed Transforming Rental Assistance (now PETRA) plan.
 
Public Housing is the most stable affordable housing stock in America.  We are concerned about the continued  loss of public housing units and the precedent already set with the 100% disposition of public housing in the cities of San Diego and Atlanta.  To date, not one study has been done on the impacts 100% disposition has had on low income communities in either one of these cities.  It is presumptuous and reckless to move forward with PETRA legislation in the absence of any study. 
 
The impetus for this legislation is to convert public housing units to market rate Section 8 housing so as to attract private lenders and capital improvement funds to public housing. On careful review of the legislation, we believe that, if passed, PETRA will increase homelessness by displacing tenants in the long term, create a precedent for the mortgaging of our public property, provide long term mortgage interest income to banks through taxpayer dollars, eliminate various tenant rights now applicable to only public housing tenants, and add the unintended risk of foreclosure and risk of permanent loss of affordable housing units. 
 
Public Housing is a public good.  In the bid to bring in private funding, there will be a commoditization of public housing whereby banks and other lenders will view public housing units and tenants as assets.  As such, banks may put pressure on owners to accept only tenants with stable incomes and good credit scores.  
 
  
Bank Income through Taxpayer Dollars AND Greater Risk of Foreclosure
 
 
There is an intrinsic value to public property being owned and operated by the government.
 
In  any circumstance where debt is encumbered on a public property, there is a risk of foreclosure and a subsequent loss of public property to the private sector.  PETRA does not safeguard Public Housing from foreclosure and some provisions make it more likely.  Public Housing mortgages would come with many of the mortgage problems of single family homes. We have delineated the following issues below, including:
 
  • There is no provision to prevent banks from re-bundling loans and selling them to other banks. Mortgages could change hands through many banks, making it difficult to assess which bank holds the mortgage on the property.  
  • There is no provision to cap the amount of interest a PHA can negotiate on such mortgage, making owners vulnerable to predatory lending practices. 
  • There is no provision for a fixed mortgage as opposed to a variable interest rate mortgage. This raises the risk of mortgage payments increasing substantially with little warning and therefore increasing the risk of foreclosure.
  • There is no provision that would prevent a PHA from becoming over-leveraged, making it more likely that properties under said PHA would be at greater risk of foreclosure.  
  • Mortgages borrow from the future in that interest payments will be encumbered on the property for decades and cost our federal government 2 to 3 times more over time to make repairs to public housing.
 
 
PETRA states that in the event of foreclosure or bankruptcy, the new owner shall remain subject to the use agreements and lease agreements between tenants and the prior owner, except that the HUD Secretary can modify and negate these contracts if the “converted units are not….financially sustainable or if necessary to generate lender participation.”   Most properties in foreclosure are less likely to be “financially sustainable” and are less likely to generate lender participation. lf the HUD Secretary were to negate these agreements, tenants in converted units would be uprooted and forced to move to other HUD assisted properties or given section 8 vouchers. Tenants will become vulnerable to market forces in the private sector.  In this scenario, given the lack of safeguards, our public property is more likely to run the risk of being lost forever to the private sector. 
 
PETRA also provides for the HUD Secretary to make an offer on property converted from public housing, but does not stipulate a requirement that the owner/bank must accept that offer.  Given the parameters, HUD would be competing with private bids on the property and the owner could accept the best offer, which may be from a private developer or other private entity, which would result in a complete loss of public housing to the private sector. 
 
The consolidation of over 13 HUD assisted programs into one all-encompasing program could make HUD assisted units a more vulnerable target for future congressional appropriations.  The consolidation could be seen as a substantial increase in the section 8 line item of the federal budget.  If a Congressional appropriations committee were to cut the Section 8 budget back to funding levels of a year prior to 2010, it could lead to disastrous cuts to HUD assisted housing and render owners incapable of making mortgage payments.   
 
It is also unclear what happens to non-dwelling property in the event of a foreclosure.  Would banks and private lenders be able to foreclose and take ownership of community centers, meeting halls and other non-dwelling property that is part of the development?  The legislation is silent on this issue and unclear in terms of what property is covered under the “use agreement.”
 
Tenant Rights 
PETRA does not safeguard against the loss of tenant rights.   Under 24 CFR Part 964, public housing tenants have a right to create Resident Advisory Councils AND receive funding to organize tenants at the rate of $25/unit.  PETRA would eliminate the Resident Advisory Boards and also eliminate tenant organizing funds. As written, PETRA would give the HUD Secretary an extreme amount of power to extend the elimination of 964 regulations to non-converted public housing units as well.  In addition, PETRA would eliminate other important provisions, for instance:
 
  • Public Housing Tenants can currently file a grievance for non-adverse actions such as problems with building maintenance and management issues.  PETRA limits greivance filings for “adverse actions involving income determination, tenant contributions, unit size, other conditions of continuing eligibility, or such other issues as determined by the Secretary..” resulting in a loss of these rights for public housing tenants.
 
  •  Public Housing tenants currently have the right to an administrative review in an eviction process.  This legislation appears to take that right away. 
 
  • The legislation calls for the recognition of a tenant organizing group based on a competitive process, but provides no language on how HUD would provide for recognition of a tenant group in developments where several groups are competing for recognition within a single development.  
 
  • Resident Advisory Board members are currently elected by public housing tenants.  This legislation does not provide for elections and merely provides a vague provision that a democratic process is followed.  How does HUD determine who the tenant representatives are for each public housing community?
 
  • The legislation provides for site-based waiting lists.  Currently, prospective tenants can apply at one location for all public housing developments.  Site-based waiting lists create an undue burden on prospective tenants, particularly if they are homeless, in that they have to find transportation to fill out applications at each site. We are concerned that this process will prevent someone in need from getting the next available unit in the jurisdiction.
 
  • PETRA also provides for tenants to move from Public Housing with a Section 8 Voucher after 2 years in a converted unit.  Tenants in converted units would be placed at the top of the waiting list for a voucher, forcing those prospective tenants who have been on the Section 8 waiting list for years to wait even longer. 
 
 
 
Conversion to Section 8, Replacement Housing, Tenant Mobility and Expiring Use Contracts
 
Conversion of Public housing to project-based section 8 brings with it all of the problems experienced by multi-family housing residents.  From expiring use contracts that displace tenants and create instability, to the lack of adherence to Fair Housing Requirements, the Section 8 program is a less stable form of affordable housing and more discriminatory to those with special needs than public housing.   
  
Replacement Housing
 
The most stable form of replacement housing is one-for-one replacement of public housing units for public housing units.  Section 8 vouchers are not an equal replacement for public housing units in that most tenants have a difficult time acquiring units in the private sector. Private landlords can opt out of the section 8 program, leaving tenants to search for another unit and increasing the risk of homelessness in cities where these units are not readily available.   
 
Tenant Mobility
 
While PETRA legislation claims to increase tenant mobility by providing the option of tenant vouchers after two years in public housing, there are more barriers to renting a unit for voucher tenants than any other type of HUD subsidized housing.  It is harder for tenants to meet  income tests, credit report requirements and other unexpressed requirements that a landlord may use to discriminate against a tenant.  It is also easier for a landlord to opt out of the section 8 voucher program.  A tenant taking a voucher is at increased risk of having to leave their housing based on landlord decisions and therefore more at risk of becoming homeless than tenants in unit-based affordable housing.
    
Bedroom Size
 
Large families rely on public housing, in many cases, as their only source of affordable housing.  In the event of replacement housing, the legislation provides that bedroom size shall reflect the needs of returning tenants, households currently on the waiting list, and future needs based on market data.  However, large families who typically cannot use vouchers because of the number of bedrooms needed, may only be served by public housing.  The legislation does not ensure that all large families on the waiting list or who may require public housing in the future are served in public housing.  In fact, the trend has been to provide one and two bedroom units in HUD assisted properties. 
 
Dangerous Precedent of Mortgaging Our Public Property to Banks
 
Mortgaging our public housing to banks and other private lenders sets a dangerous precedent for government to mortgage off other types of public property in need of repairs.    If passed, we can imagine a future where schools, libraries and national parks are mortgaged to banks in order to pay for a backlog in capital improvements. 
 
 
Dangerous Precedent of Redefining the Term Public Agency
 
The legislation states that “the Secretary may consider a project or unit owned by a public housing agency to include a project or unit owned by an entity in which the agency or its officers, employees or agents hold a significant interest and which has, among its purposes, the ownership or management of affordable housing.”  This statement redefines private entities, such as non-profits, as public agencies, based on the members who serve on the board of directors.  It is of extreme importance that we not mix these definitions. Non-profit housing is not managed or owned by government employees.  There is no redress for tenants through the government in non-profit housing and, as such, a non-profit should not be considered a public agency. 
 
 
Conclusion
 
For the reasons delineated in this testimony, PETRA should be opposed by our federal legislators.  It is incumbent upon the Congress of the United States to explore alternatives to PETRA to provide the needed funding for capital improvements to public housing.  A national jobs program funded by congress with the intent to repair our infrastructure, including public housing, would put Americans back to work and preserve the integrity of our public property.  It would also require less money in the long run to make improvements as it wouldn’t require interest payments to private lenders. 
 

Sign the Petition to Stop the Privatization of Public Housing!

Sign the petition here to Save Public Housing:

http://www.gopetition.com/petitions/save-public-housing.html

Read George Lakoff’s Article, “HUD is trying to Privatize and Mortgage off All Of America’s Public Housing” on the Huffington Post blog  at:

http://www.huffingtonpost.com/george-lakoff/hud-is-trying-to-privatiz_b_585069.html

Letter to HUD Secy. Opposing PETRA (Part 2)

Continuation of Letter to Secy. Donovan

Under current law, conversion from public housing to project-based Section 8 must

include a transfer of control, such as a change of ownership or a transfer of units through

a land lease agreement between the housing authority and a nongovernment entity.

Therefore, any proposed disposition or conversion would significantly increase the

influence of private and for-profit development interests on public space.

When housing authorities relinquish control over their public housing, it is unclear what

mechanism, if any, is in place for residents to seek redress for issues and conflicts with

private development companies. In Los Angeles, for example, the Pueblo Del Sol Public

Housing Community is currently under a 55 year land lease to a private developer which

maintains the property, sets property rules and collects residents’ portion of the rent, as

well as the government subsidies. The private developer has imposed tighter restrictions

on residents since taking control of the property, including more stringent eligibility

requirements. As the development is no longer managed by the housing authority,

residents must try to negotiate with a private company that is operating under a private

market model with little to no regard for tenant needs or the vital societal role affordable

housing programs serve.

Even if HUD creates a hybrid board of ownership, which includes representation from

local housing authorities and nongovernmental actors, it is unclear whether or how

residents will have redress through government agencies as is currently available in

public housing. Hence, any proposal would have to ensure a process whereby the

government remains accountable and accessible to residents’ needs and concerns.

3. Under the HUD proposal, resident participation and representation will

be severely undermined.

Public housing residents are currently protected under the Federal Code of Regulations

Title 24, Section 964, which provides for resident organizing rights. These organizing

rights include, but are not limited to, the formation of recognized resident councils,

participation in annual review processes and entitlement to specific grievance

procedures.

Public housing residents subject to disposition to project-based Section 8 currently lose

these protections. In the aftermath of a conversion, resident councils must be

reconstituted as tenant organizations subject to Federal Code of Regulations Title 24,

Section 245. Since Section 245 does not encompass the same set of rights and protections

as Section 964, it is likely that residents will lose some of the safeguards and protections

provided under Section 964. Additionally, since project-based Section 8 units are

privately owned, there are fewer protections against evictions than in public housing.

Therefore, under any proposal, HUD must ensure that individuals and communities are

able to take an active role in the decision-making that impacts their housing rights. Since

project-based housing is not government-owned, federal standards of participatory

decision-making do not apply. Hence, HUD must ensure that participatory protections,

including but not limited to Regulation 964, remain intact under any new scheme.

4. The HUD proposal will likely exacerbate the long waiting lists currently

faced by those seeking to access affordable housing programs.

In cities across the country, waitlists for public and subsidized housing have thousands of

applicants, some of whom desperately wait many years for a housing unit to become

available. Under the current HUD proposal, those residents seeking to opt into the

Section 8 voucher program would be given priority over those already on the waiting

lists.

 

2

Similar to the Section 8 voucher program, waitlists for public housing units have tens of

thousands of applicants. When public housing developments are converted to projectbased

Section 8, site-based lists specific to the property are created, taking the

development off the public housing waitlist. Site-based lists force prospective residents

to complete an application for each development. To maximize their ability to obtain

housing, prospective residents are required to fill out multiple applications and be subject

to approval at each project-based Section 8 development, adding more red tape to an

already arduous application process.

Any HUD proposal must ensure that those currently on waitlists do not wait even longer

for units they desperately need and are not forced to reapply on site specific lists.

5. Residents have little legal recourse should this proposal violate their

housing rights.

HUD’s current proposal is not unique. Administrations throughout the years have tried

with varying degrees of success to reform the agency and its programs. Regardless of

whether a reform succeeds or fails, it is the residents that ultimately bear the brunt of

HUD’s decision-making. After witnessing the recent mortgage crisis, it is disturbing to

think that public housing, which was immune because of its fully public nature, will be

exposed to the same market forces that recently caused a wave of foreclosures.

Additionally, HUD administrations in the future may use TRA to further privatize the

nation’s public housing stock. HUD has not adequately addressed concerns that TRA

could eventually mean the loss of this valuable affordable housing to market-rate

housing.

Consequently, any proposal must include a resident approval process. The approval

process, which would determine whether local housing authorities are able to move

forward with project-basing plans, should be developed and overseen by residents and

other key stakeholders. Additionally, a private right of action must be included to ensure

that residents have adequate legal redress should the current proposal fail to meet the

community development objectives envisioned by HUD.

~

The U.S. government passed the Housing Act of 1949, in which the government pledged

to realize: “as soon as feasible . . . the goal of a decent home and a suitable living

environment for every American family, thus contributing to the development and

redevelopment of communities and to the advancement of the growth, wealth, and

security of the nation.” Additionally, international human rights instruments speak to the

human right to housing. Article 25(1) of the Universal Declaration of Human Rights,

which was unanimously adopted by all the member countries of the United Nations,

states: “Everyone has the right to a standard of living adequate for the health and well

being of himself and of his family, including … housing …”

We urge your office to give serious consideration to the issues raised in this letter. Public

housing provides a vital resource for low-income residents and is a crucial part of

ensuring last resort housing for all our citizens. Our nation and human rights principles

have long recognized the importance of guaranteeing to every citizen the right to

housing. Therefore, we call on your leadership in ensuring that HUD’s decision-making

does not undermine the intrinsic value of public housing being owned and operated by

the government and compromise the human rights principles your office has embraced.

We look forward to working with you and your staff as you work towards making the

public housing system stronger and preserving our nation’s affordable housing programs.

Sincerely,

National Organizations

Advancement Project

Campaign to Restore National Housing Rights

Center for Constitutional Rights

Housing Justice Movement

National Alliance of HUD Tenants

National Economic and Social Rights Initiative

Nation People’s Action

Peabody Watch

Poverty Initiative

Right to the City (RTTC) – HUD Working Group

Western Regional Advocacy Project

Community Groups

California

Beyond Shelter – Los Angeles, CA

Coalition LA – Los Angeles, CA

Coalition on Homelessness – San Francisco, CA

Data Center – Oakland, CA

Lamp Community – Los Angeles, CA

Los Angeles Coalition to End Hunger and Homelessness – Los Angeles, CA

Los Angeles Community Action Network (LACAN) – Los Angeles, CA 

People Organized for Westside Renewal (POWER) – Los Angeles, CA

People Organized to Win Employment Rights (POWER) – San Francisco, CA

Union de Vecinos – Los Angeles, CA

Illinois

Cabrini Green Local Advisory Council – Chicago, IL

Chicago Anti Eviction Campaign – Chicago, IL

Coalition to Protect Public Housing – Chicago, IL

Jewish Council on Urban Affairs – Chicago, IL

Lakeside Action Coalition – Chicago, IL

Lawndale Alliance – Chicago, IL

People for Community Recovery – Chicago, IL

Louisiana

Mayday New Orleans – New Orleans

Survivors Village – New Orleans, LA

Massachusetts

Alliance to Develop Power (ADP) – Statewide, MA

Minnesota

Minnesota Chapter of the National Lawyers Guild – Minneapolis, MN

Minnesota Tenants Union – Minneapolis, MN

Northside Neighbors for Justice – Minneapolis, MN

New York

Coalition to Save Harlem – New York, NY

Concerned Citizens of Greater Harlem – New York, NY

Community Voices Heard – New York, NY

Families United for Racial & Economic Equality (FUREE) – New York, NY

Good Old Lower East Side (GOLES) – New York, NY

Housing is a Human Right – New York, NY

Jews for Racial and Economic Justice – New York, NY

May 1

 

st Coalition for Worker & Immigrant Rights – New York, NYNew York City AIDS Housing Network (NYCAHN) – New York, NY

New York Solidarity Coalition with Katrina & Rita Survivors – New York, NY

Picture the Homeless – New York, NY

Ohio

Communities United For Action (CUFA) – Cincinnati, OH

Oregon

Street Roots – Portland, Oregon

Pennsylvania

Northeast Pennsylvania Organizing Center – Wilkes Barre, PA

Virginia

Residents of Public Housing in Richmond Against Mass Eviction – Richmond, VA

Washington, DC

Organizing Neighborhood Equity (ONE DC) – Washington, DC

Academia

René Francisco Poitevin, New York University

David Harvey, Graduate Center of the City University of New York

Gilda Haas, University of California – Los Angeles

Jacqueline Leavitt, University of California – Los Angeles

Peter Marcuse, Columbia University

Mark D. Naison, Fordham University

David Wagner, University of Southern Maine

International Organizations

Centre on Housing Rights and Evictions – Geneva, Switzerland

International Alliance of Inhabitants – Genoa, Italy

Priority Areas – The Church of Scotland – Edinburgh, Scotland

Popular Action Front of Action on Urban Planning – Montreal, Canada

No-Vox International Solidarity Network – Paris, France

 

Letter to HUD Secy. Opposing PETRA

March 19, 2010

Secretary Shaun Donovan

U.S. Department of Housing and Urban Development

451 7th Street S.W.

Washington, DC 20410

Re: Human and Housing Rights Organizations’ Opposition to HUD’s

Transforming Rental Assistance Initiative (TRA) and 2011 Budget Proposal

Dear Secretary Donovan:

As human rights and housing rights organizations working around the country, we

applaud the efforts your administration has taken to address the housing crisis facing

residents of public housing. We are particularly encouraged by your office’s embrace of

human rights and your commitment to ensuring that our national housing policy reflects

its grounding principles.

As such, we are writing to express our strong objection to the Department of Housing and

Urban Development’s (HUD) Transforming Rental Assistance Initiative (TRA) as

outlined in the 2011 budget proposal, and, in particular, the proposal’s conversion of the

public housing program to a project-based scheme.

As national and community-based organizations working to improve the housing

conditions facing our nation’s most vulnerable communities, we believe TRA fails to

address the housing needs of low-income communities and falls woefully short of

guaranteeing the human right to housing.

Although we appreciate the need to secure much needed funding for the public housing

program, increasing the influence of private capital on our nation’s public housing system

would inevitably create a conflict between profit driven interests and the needs of lowincome

residents. Additionally, as we have witnessed in this current economic downturn,

over-dependence on private investment capital for the development and maintenance of

our national housing system is not a sustainable solution. Consequently, we hope that

you reassess HUD’s current approach and consider different alternatives for addressing

the needs of public housing communities.

We have outlined below our reasons for opposition to the plan.

~

1. The proposed conversion of the public housing program to a projectbased

system threatens the permanence of our nation’s public housing

stock, and the much needed affordable housing it provides.

Public housing is currently the only permanent, affordable housing stock in the country.

It has long provided much-needed, deeply affordable housing to those most in need.

Disposition of public housing to a project-based Section 8 scheme potentially eliminates

the permanent affordability and long-term availability of these units. This loss would

detrimentally impact the ability of local governments to address the growing U.S.

housing crisis, would destabilize entire communities, and would increase homelessness.

As currently promulgated, the Section 8 program does not supply a permanent stock of

affordable housing units. Contracts between private owners and the government have

time restrictions, and owners have the ability to opt-out of the program once a contract

expires or prior to its expiration pursuant to certain guidelines. According to HUD’s own

data, “as many as 13,000 Section 8 contracts will expire by 2013, meaning 800,000

privately owned buildings could potentially be put up for sale or have the rents on their

apartments raised to full market rates.”

 

1 Hence, under any new scheme, HUD mustensure there is no loss of hard public housing units currently in use, and that those units

remain at their current levels of affordability. There must also be guarantees that, during

the conversion process, there is no displacement of residents, and, in instances of

rehabilitation, there be phased rehabilitation and adequate, on-site relocation support and

assistance. Additionally, HUD must ensure one-for-one replacement of all public housing

units. This includes one-for-one replacement based on unit (bedroom) size.

Under the HUD proposal, housing authorities may be permitted to leverage public

housing through mortgage-backed loans from private banks. Mortgaging public housing

makes developments vulnerable to foreclosure and adds a financial burden, over time,

through decades of interest payments. Additionally, HUD’s plan to seek private

investment for construction capital may further encroach upon the integrity of this

valuable public resource. Dependence upon private capital could have dire consequences

in the event of loan defaults. In order to prevent the loss of public housing to the private

market, mortgage-backed loans must be FHA-insured. In addition, HUD must create a

process, which is developed and overseen by residents and other key stakeholders, by

which the financial health of housing authorities participating in any new program would

be evaluated. This evaluative process would serve as a potential safeguard to ensuring

that housing authorities with weak financial positioning do not fall victim to private

interests, leaving residents vulnerable to private takeovers.

Ultimately, if the goal of HUD’s proposal is to improve conditions in public housing – a

mission we fully support – as has been stated by various HUD officials, we implore you

to advocate for adequate funding of the public housing program through government

appropriation rather than risking the long-term affordability that this vital resource

provides to residents and communities throughout the country.

2. The HUD proposal may lead to the loss of government control and

oversight of the public housing program, negatively impacting

government accountability and transparency.

(See the continuation of this letter on the next post)

 

Fact Sheet on Public Housing and New Legislation for Privatization

FACT SHEET ON PUBLIC HOUSING AND HUD’S MORTGAGE PLAN

Prepared by Los Angeles Coalition to End Hunger and Homelessness

In a nutshell, HUD’s legislation is devised to attract private banks and other private investors to provide loans which leverage against Public Housing property.  How will this work?
 
Public Housing Facts and Historical Background:
 
-Public Housing is owned and operated by the government, namely the local Public Housing Authority (PHA) through a contract with HUD.
 
- Public Housing Authorities have been lobbying for 100% disposition of Public Housing.  As a result, HUD approved requests for several cities to completely eliminate their Public Housing stock.  As a result, the City of Atlanta, GA and the City of San Diego, CA have completely eliminated their public housing stock.
 
- HUD estimates a $24 billion funding shortfall for capital improvements on Public Housing.  Although Congress did provide $4 billion in stimulus money in FY2010 for Public Housing capital improvements, this is just a small amount needed according to their estimates.
 
- Based on their powerpoint, HUD anticipates leveraging $7.5 billion in one year from private banks and other private funding under the Transforming Rental Assistance Program.
 
- Public Housing is our most stable form of affordable housing.  For large families, the disabled, the elderly and other tenants who otherwise cannot find housing in the private market (even with a Section 8 voucher), Public Housing is essential to ending or preventing homelessness.
 
- Tenants in both Public Housing and Project Based Section 8 pay 1/3 of their income toward rent and the Federal government subsidizes the rest.  The difference is that Public Housing rents are set by formula and Project Based Section 8 rents are set at market rate. Tenants also have more organizing rights and protections, including a comprehensive greivance policy under Public Housing (CFR 964) as opposed to Project Based Section 8.  This legislation weakens the greivance procedure for tenants as well as other rights and protections.   
 
HUD’s PLAN:
 
-  HUD’s plan is to allow Public Housing Authorities to convert all of their Public Housing stock to Project Based Section 8, give the PHA’s more money (2 to 3 times more in some cities) per unit, and have the PHA leverage that money against the property in the form of a mortgage from a private lender.  The money from the loan is to be used to fix up the property. Please note that the legislation is unclear on which entity will actually own the property after conversion, whether the Public Housing Authority or a Public/Private partnership or a private developer.  The law currently states that in order to convert Public Housing, ownership must change.   
 
-  The bill also provides for HUD to consolidate all 13+ assisted housing programs into one big program.  The appropriations for each program would be consolidated into one program item in the budget under Section 8, potentially making it more vulnerable to funding cuts.  Cuts from the Congressional budget would lead to cuts in subsidy payments to the PHA’s which could lead to foreclosure.
 
OTHER PROBLEMS WITH THE PLAN:
 
The problems are many with this scheme. 
 
-  It puts some control of public property in the hands of the banks or other private interests, which come in as a private funding partner.  There are no controls on banks rebundling these loans and selling them off to other banks, there are no controls on the amount of interest paid to the banks, there is no protection against PHA’s overleveraging the property (other than a review by HUD), there is no protection against foreclosure – other than the fact that the “use agreement” with an affordable convenant made between the previous owner of the development and the tenant will remain intact even after foreclosure, although it stipulates on page 11 of the draft legislation that “the Secretary may modify this requirement if the Secretary determines the converted units are not physically viable or financially sustainable, or if necessary to generate sufficient lender participation, and following such determination may require the transfer of the contract for assistance to one or more other properties.”
 - In order to attract private lenders, public housing must be seen as a commidity and the owner as an asset manager.  The units themselves, as well as the tenants, will be seen as assets.  Because of this, we are concerned that banks will put pressure on the owners to choose only the most desirable tenants financially, those with higher incomes, stable employment, good credit history, etc.  This will preclude the most vulnerable tenants from acquiring an affordable unit.

 - The leveraging of Public Housing to make capital improvements will set a dangerous precedent of taking out mortgages on other public property to pay for repairs.  One can imagine a future where public schools, libraries, our national parks, etc, are mortgaged to banks in order to make improvements. (Please note that the authority to mortgage public housing was adopted in 1998 when changes to the 1937 Housing Act were made under the Bush Administration.  This, however, only resulted in short term bonds on a couple of properties because public housing was not set at market rates and was therefore not desirable to banks.  This legislation is designed to make public housing more desirable to private lenders).

In short, this legislation appears to be a scheme for the privatization of Public Housing.  It will encourage PHA’s to take out loans in order to fix up the property, therefore guaranteeing mortgage interest income to banks from taxpayer dollars for decades to come.  It will cost the federal government more money in the long term to pay interest to fund property improvements, rather than to just pay for them outright.
- This legilsation also brings with it the myriad problems of Project Based Section 8 as detailed in the letter from the National Alliance of HUD Tenants at http://www.saveourhomes.org/kaymathew/trapositionpaper.pdf , including expiring use contracts where landlords can opt out of the affordable housing program at the end of the contract period. 
 
Solutions:
 
-  The obvious solution to fixing up Public Housing is to provide funding directly through appropriations.  It makes more sense for this to be a jobs program which would put contractors and skilled tenants to work through a direct appropriation, rather than paying interest to banks for decades and jeoporadizing our public housing stock.
 
- Congress appropriated $4 billion in stimulus funds this year for Public Housing capital improvements.  If Congress committed to an additional $4 billion for 5 more years, we would have the funding necessary to make these improvements.



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