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. 
 
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