[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PUBLIC HOUSING IN THE COMPETITIVE MARKET PLACE: DO AFFORDABLE AND
PUBLIC HOUSING DEVELOPMENTS BENEFIT FROM PRIVATE MARKET AND OTHER
FINANCING TOOLS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERALISM
AND THE CENSUS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
MAY 23, 2006
__________
Serial No. 109-210
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
32-967 PDF WASHINGTON : 2007
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
------ ------
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Federalism and the Census
MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina CAROLYN B. MALONEY, New York
------ ------
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
John Cuaderes, Staff Director
Shannon Weinberg, Counsel
Juliana French, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
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Page
Hearing held on May 23, 2006..................................... 1
Statement of:
Clancy, Patrick, president and CEO, the Community Builders,
Inc.; Wendy Dolber, managing director, tax exempt
financing, Standard & Poor's Rating Services; and Brian
Tracey, community development banking market executive
Atlantic Region, Bank of America Corp...................... 5
Clancy, Patrick.......................................... 5
Dolber, Wendy............................................ 23
Tracey, Brian............................................ 62
Letters, statements, etc., submitted for the record by:
Clancy, Patrick, president and CEO, the Community Builders,
Inc., prepared statement of................................ 8
Dolber, Wendy, managing director, tax exempt financing,
Standard & Poor's Rating Services, prepared statement of... 25
Tracey, Brian, community development banking market executive
Atlantic Region, Bank of America Corp., prepared statement
of......................................................... 64
Turner, Hon. Michael R., a Representative in Congress from
the State of Pennsylvania, prepared statement of........... 3
PUBLIC HOUSING IN THE COMPETITIVE MARKET PLACE: DO AFFORDABLE AND
PUBLIC HOUSING DEVELOPMENTS BENEFIT FROM PRIVATE MARKET AND OTHER
FINANCING TOOLS?
----------
TUESDAY, MAY 23, 2006
House of Representatives,
Subcommittee on Federalism and the Census,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Michael R.
Turner (chairman of the subcommittee) presiding.
Present: Representatives Turner, Dent, Foxx, Clay, and
Maloney.
Staff present: Shannon Weinberg, counsel; Juliana French,
clerk; Adam Bordes, minority professional staff member; and
Cecelia Morton, minority office manager.
Mr. Turner. A quorum being present, this hearing on the
Subcommittee on Federalism and the Census will come to order.
Welcome to the subcommittee's hearing entitled, ``Public
Housing in the Competitive Marketplace: Do Affordable and
Public Housing Developments Benefit From Private Market and
Other Financing Tools?''
This is the third in this series of hearings in the
Federalism and the Census Subcommittee which we are holding on
public and low-income housing. The purpose of today's hearing
is to learn how financiers and developers in the multifamily
affordable housing industry obtain structure of the various
forms of capital used in the development of low and mixed-
income housing developments.
The Federal Government, through the Department of Housing
and Urban Development, and ultimately through the various
public housing authorities, plays a significant role in
developing affordable housing by providing seed money for these
projects. Federal funds provided to the low-income tax credit
help fix grants, the Public Housing Capital Fund, and the
Capital Fund Financing Program have all been heavily used to
leverage additional private sources of capital for these
projects.
Developers have also successfully used other Federal
programs, such as the Home Investment Partnerships Program, the
Community Development Block Grant, and CDBG Section 108 loan
guarantees to raise capital funds for development projects.
Congress has recently decreased funding for many of these
programs in recent years. At the same time, many of the
statutory and regulatory requirements of these Federal programs
often encumber the use of Federal moneys, creating significant
delays and project closings. The complex nature of these
programs has caused some would-be investors and lenders to walk
away from certain projects. Our goal here today is to learn
from those in the industry and investigate ways in which
Congress can streamline the use of the Federal Government's
various sources of project capital so they can be more easily
integrated into mixed or multi layered financing packages.
Your comments will help us shape any recommendations that
we make to our colleagues in Congress as well as to the
administration on how we could improve the current system and
attract even greater private investment in affordable housing
projects.
The panel that we have today consists of three witnesses
from the private sector who will share with the subcommittee
their experiences with the financing of large low-income and
mixed-income housing projects. First, we will hear from Patrick
Clancy, president and CEO of the Community Builders Inc.
Community Builders is a nonprofit developer of low and mixed-
income housing projects over the Boston area. Next we will hear
from Wendy Dolber, managing director of tax exempt financing,
Standard & Poor's Rating Services. Finally we have Brian
Tracey, community development banking market executive for Bank
of America's Atlantic region.
With that, I welcome each of you here today, and I look
forward to your comments. Each witness has kindly prepared
written testimony which will be included in the record of this
hearing. Witnesses will notice that there is a timer light at
the witness table. The green light indicates that you should
begin your prepared remarks, and the red light indicates that
the time has expired. The yellow light will indicate when you
have 1 minute left in which to conclude your remarks.
Our ranking member, Mr. Clay, has notified us that he does
intend to join us today, and we'll be looking for his
attendance and his opening statement at a later time, perhaps.
It is the policy of this committee that all witnesses be sworn
in before they testify. Will the panel please raise your right
hands and stand?
[The prepared statement of Hon. Michael R. Turner follows:]
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[Witnesses sworn.]
Mr. Turner. Will the record show that all witnesses have
responded in the affirmative. And I want to thank Mr. Clay for
his support and his continued interest in community development
and recognize him for his opening statement.
Mr. Clay. Thank you, Mr. Chairman. Mr. Chairman, I thank
you for holding today's hearing on the role of private capital
financing in our Nation's public housing. As we continue in our
work to improve public housing, today's hearing will allow us
to examine how both Congress and the private sector can work in
tandem to meet the need for public housing nationwide.
Since the enactment of the Low-Income Housing Tax Credit
Program in 1986, the role of private capital in public housing
has afforded increased options to local housing authorities
facing significant building and restoration needs. This
partnership is sorely needed as our Nation's affordable housing
stock is decreasing, and public housing faces capital
improvement needs approaching $20 billion annually.
Nevertheless, Federal resources for capital improvements remain
inadequate while local agencies face daunting approval
processes for proposed projects that are funded.
As in previous years, the President's budget for fiscal
year 2007 provides no funding for the HOPE VI Program that is
essential to the revitalization programs of dilapidated public
housing complexes. In addition, the budget costs are shrinking
the amount of funding for the Public Housing Capital Fund by
nearly $250 million from fiscal year 2006 funding level. This
is sending the wrong signal at the wrong time to our capital
markets.
I suggest to you, Mr. Chairman, that inconsistent support
for these programs will only lessen the commitment to public
housing from the private sector. If our PHAs cannot depend on
long-term capital commitments from the Federal Government, it
makes little business sense for the private sector to hold up
their end of the bargain. While we in Congress will often step
in at the 11th hour to fund these programs, these solutions
lack a firm commitment to private market participants seeking
to provide favorable lending terms or adequate resources to our
PHA.
This concludes my remarks, and I look forward to our
testimony today. Thank you, Mr. Chairman.
Mr. Turner. Thank you, Mr. Clay. And with that, we'll begin
with Mr. Clancy.
STATEMENTS OF PATRICK CLANCY, PRESIDENT AND CEO, THE COMMUNITY
BUILDERS, INC.; WENDY DOLBER, MANAGING DIRECTOR, TAX EXEMPT
FINANCING, STANDARD & POOR'S RATING SERVICES; AND BRIAN TRACEY,
COMMUNITY DEVELOPMENT BANKING MARKET EXECUTIVE ATLANTIC REGION,
BANK OF AMERICA CORP.
STATEMENT OF PATRICK CLANCY
Mr. Clancy. Thank you, Mr. Chairman. Good morning. My name
is Pat Clancy. I lead an organization that has been building
affordable housing and transforming neighborhoods for over 40
years. I'm proud of the Community Builders' record of producing
over 20,000 units of affordable and mixed-income housing in
cities across the Northeast, the mid-Atlantic and the Midwest.
Let me start by stating the key value proposition. The
value of the housing investment in new mixed income housing
that is replacing devastated public housing lies in changed
lives and changed neighborhoods, not simply in the new housing.
As the community development field has evolved, change agents
such as my organization have increasingly come to take a
holistic view of neighborhoods and markets and to propose
comprehensive neighborhood revitalization efforts [CNR], rather
than small-scale rehabilitation or new construction.
In our view, public investment and public-private
development activity must operate on a scale sufficient to
reposition a neighborhood in its regional market and to
stimulate broader economic activity.
Prior to the HOPE VI program, the ability to mount large-
scale redevelopment initiatives capable of transforming
neighborhoods was a critical element missing from our urban
policy. By now, the ingredients behind the success of HOPE VI
are well known, scales sufficient to change neighborhood
markets, leveraging private sector capital and development
capacity, high-quality design, construction and amenities,
comprehensive intervention across sectors, and careful
attention to both physical development and human development,
with particular emphasis on jobs and improved schools. We
focused our energies on over a dozen redevelopment efforts
under HOPE VI to reach these broader goals, and I've included
information on Louisville and Chicago as an appendix to my
testimony.
From our experience I want to offer some recommendations
for your consideration. No. 1, I would propose to make a larger
share of public housing capital funding available in a
competitive basis rather than by formula. There's $2.5 billion
in public housing capital allocated by formula, and only $100
million this year competitively via HOPE VI. If Congress wants
housing authorities to use more of their capital funding in
more leveraged and comprehensive efforts as I am urging, it
should make a higher proportion of that funding available
competitively.
No. 2, reward leverage and comprehensive approaches in
competitive allocations. The HOPE VI administrative way does
that now. There would be considerable value in embracing
leverage and comprehensiveness in a legislative framework. For
example, Senator Mikulski, in her proposed reauthorization
bill, requires partnerships with local schools, and that's one
example of that type of approach.
No. 3, recognize that you get what you pay for. The early
HOPE VI program allowed for a $250,000 planning grant so
authorities could put teams together, go out and really think
through and map out a long-term revitalization plan before
coming in and competing for the grant itself. That program
should be reinstituted, and more comprehensive efforts should
not be penalized but should be rewarded as long as they make
consistent progress against ambitious goals.
There is a funding issue that needs to be addressed in one
of two ways. Either housing authorities who get grants need to
be able to draw that money down and make interim investments
with it or the budget outlays need to be planned over multiple
years so that there's no unreasonable pressure on getting all
the money committed in 1 year because these are just not that
kind of programs. With the scope of so many of these efforts
being so broad with multiple phases in most instances, the idea
that the program should be curtailed because the money isn't
being spent fast enough is nuts.
No. 4, we need to explore the next financial frontier. Let
me make it simple. We're taking the worst environments in
neighborhoods and putting them in a position where they become
the best housing, and that creates enormous value. We need to
capture that value both by acquiring additional land for future
development and by capturing the tax revenues that are going to
come out of those increased values. Both of those areas
represent a next critical frontier for these efforts, and it's
a critical frontier because it takes leverage beyond tax
credits, beyond home, beyond mortgage financing, and it takes
us out into capturing the future value and bringing that
forward so we can invest today.
I appreciate, as somebody out there for the last 35 years
working at rebuilding neighborhoods, the attention that this
committee is putting on this important topic, and I appreciate
the opportunity to be here in front of you today. Thanks very
much.
Mr. Turner. Thank you.
[The prepared statement of Mr. Clancy follows:]
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Mr. Turner. Ms. Dolber.
STATEMENT OF WENDY DOLBER
Ms. Dolber. Mr. Chairman, members of the subcommittee, good
morning. I'm Wendy Dolber, managing director of Standard and
Poor's Rating Services. I manage the public housing tax--public
finance tax exempt housing group where we rate that in
connection with affordable housing. I'd like to focus today on
our experience in rating capital funds securitizations as well
as talk more generally about key factors that could enhance a
PHA's acceptance in the marketplace and help them obtain and
maintain strong credit ratings.
S&P has worked with PHAs for decades, rating debt supported
by multifamily properties or loans. Generally speaking, these
transactions achieve low to high investment grade ratings and
do well on the marketplace. The passage of QHWRA and subsequent
capital funds securitizations introduced two new risks that we
needed to look at. The sufficiency and timeliness of Federal
appropriations and the impact of PHA performance on its funding
levels. PHAs and their financing teams work diligently with HUD
and the rating agencies to address these risks and ultimately
we were able to assign ratings ranging from A to AAA if they
had bond insurance on 22 capital funds securitizations totaling
almost $2 billion. Key elements of our rating analysis were the
strong history of capital fund appropriations, predictable
allocation mechanisms and excess coverage of capital funds to
bond debt service.
We also look for insulation against potential PHA
performance that could negatively impact their receipt of HUD
funding. HUD addressed performance risk to a large degree
through written acknowledgement on every transaction that if a
PHA were saying through poor performance the same thing would
not reduce the funding level below needed to make debt service
payments, and we also allowed PHA capital funds to be paid
directly to the bond trustee. These insurances and processes
among other things allowed high investment grade ratings, as
long as S&P could analyze the PHA's general readiness to carry
out its obligations under the bond program, especially its
ability and track record in obligating and expending HUD funds.
To date, we've been able to affirm all outstanding ratings,
but capital fund appropriations have been cut every year since
we did the first rating in 2001, which has resulted in a
reduction of debt service coverage in many cases. We're
concerned that future cuts could compromise a PHA's ability to
pay debt service. That would result in lowered ratings, income,
and would whittle away investor confidence. It is possible that
more predictability and stability in the level of annual
appropriations could decrease the need for such high levels of
coverage and stretch the Federal dollar as a leveraging tool.
Alternatively, some type of backstop funding mechanism not
subject to Federal appropriations could greatly enhance
investor confidence and rating agency confidence.
I'd like to say a few words about our observations in
working on PHAs on the securitizations while more PHAs are
testing the waters and many have been very successful in
accessing the capital markets, PHAs as a group do seem
reluctant to move forward with bond financing. This may be due
to lack of familiarity with the marketplace and its players,
concerns about possible negative impact on HUD funding and the
potential liabilities to PHAs or just ongoing difficulties they
face in meeting their mandates with less resources in a
changing environment. Pooled financings are one way to ease the
way for PHAs to enter the capital markets if they're unlikely
or reluctant to do so.
It presents an efficient vehicle by saving costs of
issuance. But the benefit is limited because PHA's funding
cannot be cross-collateralized. Considering the factors that
have strengthened market perception of capital fund
securitizations and looking ahead to more expanded use of
QHWRA, and perhaps even to the day, when PHAs could have their
own credit ratings as corporate entities, we would highlight
four key areas for continuing improvement.
First, predictability, stability and fungibility of income
sources. Next, clarity, consistency and dependability regarding
the HUD regulatory environment, especially as it relates to the
leveraging of HUD funding and the potential for financial
sanctioning of PHAs, effective in timely communication with the
capital markets on the part of the issuers and the Federal
Government. From our perspective, this is critically important
as we rely upon accurate and adequate information to maintain
ratings, and PHA's continuing development of management
practices on a par with private market, especially in the areas
of asset management and financial expertise with necessary
flexibility to achieve best practices.
In closing, I'd like to thank you for inviting us to
participate, and I look forward to your questions.
[The prepared statement of Ms. Dolber follows:]
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Mr. Turner. Mr. Tracey.
STATEMENT OF BRIAN TRACEY
Mr. Tracey. Good morning. On behalf of the 200,000
associates working at Bank of America, thank you for the
opportunity to share our thoughts today on the use of private
capital for public housing. As the national leader in community
development, Bank of America works to help build stronger and
healthier neighborhoods throughout the country. In support of
public housing, Bank of America acts as a lender, an investor
and a real estate developer, working with housing authorities
in more than 30 States. During the last 10 years, Bank of
America's provided more than $500 million in debt and equity
for over 40 PHA mixed-finance transactions. Our company has
also been a leader in structuring capital fund financing
program bonds, which allow PHAs to use lower-cost tax-exempt
debt to accelerate improvements to public housing properties,
providing about one-third of all private capital supplied to
the Nation's housing authorities using this technique. This
private capital often leverages more limited public funding,
multiplying the benefit of public investment typically four to
six-fold.
Clearly, public housing benefits from access to private
capital. Here's an example of how we've worked with one local
agency to combine Federal housing support with a range of
public and private resources to benefit low-income residents.
Northwestern Regional Housing Authority serves a seven-county
area in western North Carolina. Recently acting as a sole
developer, Northwestern completed 40 rental apartments for very
low-income seniors in Elk Park. This transaction involved the
acquisition and conversion of a historic school building and a
total cost of almost $5 million. Northwestern leveraged a mix
of public and private funding sources, including project-based
Section 8 operating support, low-interest financing from the
North Carolina Housing Finance Authority, permanent financing
through the Federal Home Loan Bank, AHP program and low-income
housing tasked equity construction financing and State and
Federal historic tax credit funding all provided by Bank of
America as lender and investor.
Northwestern's Elk Park development demonstrates the
possibilities of alternative sources of funding not always used
by housing authorities, but this success is far from
commonplace, and many aspects of the current regulatory and
funding environment distinctly limit what lenders and
investors, such as Bank of America, can accomplish today.
What are these limitations, and how they can be changed? A
few thoughts, a few recommendations. Congress and HUD should
provide stable and predictable funding for public housing.
Northwestern's success at Elk Park would not have been possible
without an expectation of predictable Federal funding on the
part of the housing authority's financial partners, and recent
proposed and appropriated funding trends for public housing
have undermined private sector confidence and the stability of
many of these programs. HUD should also implement consistent
standards for common types of transactions involving private
capital and public housing. Today, HUD approves every public
housing capital grant financing and every public housing
transaction involving the low-income housing tax credit on a
case-by-case basis largely centered here in Washington.
Approvals are often very long and coming even in instances
where HUD has approved transactions previously using
substantially identical documentation.
HUD, working with the private sector, should craft a series
of clear, reasonable so-called safe harbor standards for
approving transactions. This safe harbor approach will help
create a more entrepreneurial climate for public housing
authorities where they can predictably access the full range of
financing tools used by private developers. One last
recommendation, HOPE VI funding should be restored to the
levels prevailing 3 years ago. Bank of America, in its
experience, has seen HOPE VI funding improve not only the lives
of public housing residents, but also act as a catalyst for
economic development resulting in private capital flowing to
the stressed areas adjacent to the public housing community.
One such example is Capitol Park in the Peace College area of
Raleigh, NC. This mixed-income, mixed-use community developed
by the Raleigh Housing Authority as sole developer now includes
both rental and single-family homes, a community center,
daycare facilities, a charter school and a commercial office
building where once was an isolated 25-acre complex of poorly
designed public housing.
So who benefits from the use of private dollars to fund
public housing? Well, first and most importantly, we believe
the public housing residents benefit through more money sooner
to improve both their homes and their neighborhoods. Second,
the broader community. As private capital is attracted to the
blocks surrounding public housing developments and finally our
government and taxpayers by efficiently leveraging government
dollars with private capital to accomplish more with the same
amount of public funding.
Thank you, Mr. Chairman and members of the subcommittee,
for the opportunity to make these observations today. Thank
you.
[The prepared statement of Mr. Tracey follows:]
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Mr. Turner. Thank you. Mr. Tracey, I'm going to start with
you. In turning to the issue of the low-income housing tax
credit, I have a couple of questions that are issues that
you've not really raised. My experience has been that for Low-
Income Housing Tax Credit Program, the participation by banks
as investors or purchasers of low-income housing tax credits
themselves has been really essential for this success. If you
look industry-wide, the participation by other sectors of
businesses who could be investors for the tax credits is very
minimal. My understanding of part of the reason for that is not
just the great expertise that banks have in being able to wade
through the technical requirements but also the Community
Reinvestment Act incentive that is there for banks. I would
like, if you would, please, talk about that for a moment and
the Community Reinvestment Act's incentive for banks to
participate. And then second, which is the real crux of my
question is, once the Community Reinvestment Act was an
incentive for banks to participate in low-income housing tax
credits, today are you experiencing enough of a return? Are the
projects profitable enough for the bank? Is your participation
in it now for just basic business principles independent and
sound enough that you would continue that even without the
Community Reinvestment Act by impacts?
Mr. Tracey. That's a very interesting question, and I think
clearly historically as the creditors evolved, we've seen more
private capital, primarily through banks, however, attracted to
the low-income housing tax credit. As a result, on the one
hand, it's become a much more efficient credit so prices of the
credit are now increased to some cases approaching or exceeding
$1 whereas 20, 25 years ago it was much lower than that. So
we've seen additional private capital flowing in.
Now, how much of that is a function of Community
Reinvestment Act, and how much is it a function of the
attraction to that return? I can't really quantify that. I've
never seen any type of statistical analysis trying to
differentiate between the two. We are clearly driven in our
low-income housing tax credit approach by the requirements of
the CRA. At the same time, the returns--and we define returns
probably a bit differently, more broadly in the use of the
credits--are still attractive enough that we're getting
positive overall yields from our portfolio. When I say returns,
we're looking at the definition of return as also including the
other business opportunities to credit drives for us as a
financial institution, which is the opportunity to provide
construction and permanent financing to those developments that
benefit from the tax credit.
One other observation, again, because of the increased
private capital flowing into these markets, the returns on low-
income housing tax credits are actually quite low, and in some
instances, approach the yield for similar type Treasury
investments, and the concern we have is clearly there is a
difference between the risk in a low-income housing tax credit
investment and the risks investing in U.S. Treasuries. We're
not quite sure what to make of that in the financial markets. I
think some could say, well, that's the effect of the CRA,
driving down returns because there's a nonfinancial component
of why private capital is attracted to those investments.
Mr. Turner. Thank you so much for your answer. That was an
excellent answer. Very tough topic and very well described.
Once the investment is made, the issue has been raised of the
exit tax, if you will, of once the purchaser of the tax credits
becomes an investor in the project and the period of time in
which the tax credits have expired and the abilities of the
investor to exit the project, then it incurs a tax consequence.
Can you talk about that for a moment, because we're getting our
inquiries as to ways that we might be able to modify.
Now that some of these projects are maturing and the
investors have their investment there and wish to exit the
project, could you speak about those tax consequences and if
you have any suggestions as to how that might be addressed?
Mr. Tracey. Well, I'm not a tax expert, but it is an issue,
and we rely very heavily on others in the industry that are
studying this issue. I know there's a group that we support, a
small collection of developers, attorneys, financial
professionals called the Institute for Responsible Housing
Preservation. It's based here in the District, that is studying
this issue. We've had several meetings with officials at HUD to
talk about specifically the exit tax and proposals for exit tax
relief. Other industry groups, National Housing Conference, for
example, is also focused on this issue. This is becoming more
of an obstacle to the preservation of affordable housing as tax
credit projects that were done early in the life cycle of the
credit now either have expired or are approaching the end of
the compliance period. And I'm not prepared today to give any
recommendations to that effect, either than just refer you to
the same industry professionals we look on for advice.
Mr. Turner. Thank you. Mr. Clancy, do you have any comments
about the issues of the exit tax?
Mr. Clancy. The exit tax relief, if applied broadly, could
be extremely valuable, but it is an expensive item. What we
have been able to utilize in our attempt to preserve some
affordable housing assets where owners are facing exit tax but
want to sell is if, in fact, the value of the property has gone
up to some degree as a nonprofit, we've been able to structure
transactions where a charitable contribution, a bargain sale
can be structured where the investors get a charitable
contribution for contributing their interest and that deduction
can help offset the exit tax and provide relief.
Now, that requires the property have value that there be
enough value in the property, that, in fact, that's a
legitimate deduction that, in fact, they are, in turning over
the property, giving over value, but I think that mechanisms
like that could be further developed in ways that might avoid
the large-ticket expense of broad-scale exit tax legislation,
which we in the industry have been talking about for about 15
years, but you know, obviously the Congress has not seen fit to
enact, given the price tag involved.
Mr. Turner. Mr. Clancy, you raised a number of issues in
your testimony concerning transitioning funding in programs to
a competitive basis. As you are aware, there are a number of
communities that have varying levels of expertise and varying
levels of access to expertise. A city like Chicago is going to
have individuals even beyond the public housing sector who are
going to have complex financial transaction experience, complex
real estate and legal experience that may not be easily found
in communities where we have public housing and where that
public housing needs to be remedied.
You have been highly successful and, as you know, I've
toured some of the wonderful transformations that you've been a
part of that have occurred in Chicago. I'm wondering if you
might, for a moment, please describe to us some of the types of
expertise that you think are necessary in order to be
successful. As we look to what assistance communities are going
to need, part of it is funding. I noted the commonality of
stability of funding that was in each of your risks. I wondered
if you had all compared notes before you got here, but I
assumed not. But that level of expertise is also an issue that
is necessary even beyond funding. And to just highlight this,
as you are aware, part of the problems in continuing HOPE VI
funding is the belief by some members that HOPE VI funding has
not met the level of expertise and performance that we've seen
in other communities. So I'd love your thoughts on that.
Mr. Clancy. Well, I think that the substantial majority of
effective HOPE VI production over the last 10 years has
happened in public-private partnerships between housing
authorities and development actors with experience in
utilization of tax credits, utilization of forms of debt and
equity that get combined with public housing capital. Those
development actors--because HOPE VI itself is a complex program
and is layered on top of tax credits--you're absolutely right
that the actors with the sophistication to carry out that kind
of a complex financing there tend to be many more of them in
large cities than in smaller cities.
I think that this is less true today than it was 10 or 15
years ago, and the industry has reached a certain level where
many of the lawyers, many of the accountants, many of the
smaller developers who were involved in doing affordable
housing have had some degree of experience with public housing
capital sources and could--particularly if some of the
recommendations on looking at ways to streamline and simplify
some progress could be made--could be brought into utilizing
those resources.
I think one of the key requirements, Mr. Chairman, that is
often a complicated one, is the way in which housing
authorities reach out to the private sector and the complex
procurement regulations of the department, and oftentimes
again, why I recommended reinstituting planning grants, often
times housing authorities don't quite know what's possible with
a given site and so how do they reach out for a private partner
when they don't know what they're reaching out for?
So there needs to be an understanding and there needs to be
support from HUD, which I think in the early years of the HOPE
VI program, there was for housing authorities to be able to
understand how they can procure a partner, how they can acquire
the expertise to enable them, even if they're a smaller
authority to utilize the same kind of techniques that larger
cities are able to use. I think that's very possible to do.
Mr. Turner. Ms. Dolber, in looking at your written
testimony and your comments, both my staff and myself are
curious about the issue that you have raised for pooling of
resources and in looking at how that is accomplished. You're
talking about PHAs, having used HUD's capital fund financing
program and the pooling have been accomplished ranging from two
PHAs to 35 PHAs. Could you just describe this process?
Obviously, the lack of a clear relationship between the public
housing authorities and, as you have raised in your comments,
the issue of funding sources just raised several questions
about that whole process. If you could elaborate, I'd
appreciate it.
Ms. Dolber. The pool financings--the way they work is that
a group of PHAs will issue bonds collectively. So instead of
each one going out with, let's say Norfolk Housing Authority
will go out and do a $2 million bond transaction on its own,
pay over costs of issuance, and all the other--the costs
associated with doing that, they would team up with a number of
other housing authorities in the State, and they would do it
together.
So therefore, the cost of issuance is spread out among all
the different housing authorities, and typically these are put
together by an FA an investment banker or a State housing
finance agency, as Pennsylvania Housing did, who will corral
all the PHAs together and bring them into the financing. And
the way that it works is that they will pledge their capital
funds, you know, together, but their capital--Norfolk is only
going to be used to pay for Norfolk's obligation, and if it had
excesses available, it's not going to help any other housing
authority. So they--there will be a debt service reserve fund
that anybody, you know, could use to pay debt service, or the
trustee will use to pay debt service, but there's no
fungibility among the PHA funds, and that's fine, but it's a
very rateable transaction. It sells well on the marketplace,
but what it--what it doesn't allow is for a public housing
authority that doesn't have as much capital funds to bring to
the table. They might be--not be able to participate in the
financing.
Mr. Turner. So it lowers their cost, but not their risk?
Ms. Dolber. That's right.
Mr. Turner. At this point, I'll turn to Mr. Clay for his
questions.
Mr. Clay. Thank you, Mr. Chairman. I'll start with Mr.
Clancy. Welcome. Although our public housing authorities have
longer waiting lists than ever, there's no longer one for one
matching requirement concerning the demolition and
reconstruction of low-income housing units. Doesn't this pose a
threat to those already on a waiting list for public housing?
And what long-term solutions would you offer to the shortage of
units available?
Mr. Clancy. I think obviously there are huge funding
challenges that, as somebody committed to supporting good
housing and good supports for low-income families, particularly
in urban areas, I'd feel the lack of resources is an outrage.
To talk more particularly about what happens in the demolition
of public housing and its replacement, our experience has
been--has been mixed. One of the interesting things that
happens--if you focus on the families that are in the public
housing itself, often times when we get involved, the housing
authority's already planned for demolition of the public
housing, has already relocated a lot of families, and they'll
be in other places and then they're offered, oftentimes, a
chance to come back, oftentimes with requirements like work
requirements, for example, in the city of Chicago.
What's interesting is that a lot of the families that
actually have moved have been relocated out of a public housing
site don't want to come back, even when you build a really
attractive, you know, first-rate mixed-income environment. It's
not always the case, but what happens many times is again, a
lot of these developments have been very distressed. There've
been environments that people who have stayed in those
environments are people who don't have a choice, and even
though people who have been relocated may have been given a
voucher or something else that is not necessarily a stable,
long-term fixed asset in terms of affordable housing, and so it
gives us all concern. Yet for that family, that relocation that
they went through, 9 times out of 10 has been a positive
experience, compared to where they were living.
Now, you created a whole new environment, and so it's a
whole new day, but many times the history of having lived in
that environment when it was a bad environment and the fact
that a family may be stably settled in another neighborhood,
they don't want to come back. What's more important, I think,
is to really focus on the families that are there, the families
that want to make a transition to the new community, and
there's a real timing challenge there, because supporting a
family that has been on public assistance for perhaps two
generations to meet a jobs requirement, I mean, you're talking
about needing to work with a family over an extended period of
time, needing to deal with a lot of very intractable social
challenges that family faces to enable that family to really
become a strong part of that future community.
And I think one of the disconnects is that we don't always
sustain the attention to that effort in these redevelopments,
and while we create a mixed-income community, I think it's
critically important that, you know, over 3 years, over 5
years, over 10 years, the kind of public education that happens
in a neighborhood, the kind of support for families to get jobs
and to get better jobs need to be sustained and maintained to
really be of service to those--to the low-income families that
really are the core of the mission of the transformation effort
itself.
Mr. Clay. You mention relocation with voucher and Section
8. Do you have any examples of some creative relocations, such
as a first-time homeownership?
Mr. Clancy. I'm aware of limited amounts of that. There has
been some, certainly, for example, in Chicago where we're
working, we are in the first phase of home ownership that's
happening right now. There are, I believe, a handful of public
housing tenants that are going into ownership units in the new
mixed-income community. That's a very small number in a large
community, but at least it's a start. Again, I think that what
we expect, actually, in Chicago where it's a 3,000-unit total
build-out, mixture of rental and sales is that we hope that a
number of our public housing families that come in as rental
families over time will graduate to ownership units within the
same community, and we're trying to basically end up with a
community that has that kind of escalating opportunity for
those families.
Mr. Clay. Thank you for that response, Mr. Clancy. Ms.
Dolber, how can your agency factor in the reliability of
Federal support of public capital financing programs when
Congress and the administration are constantly at odds over its
value? And are tax credits over a 5 or 10-year budget window
more reliable for establishing the creditworthiness of a PHA?
Two questions.
Ms. Dolber. I can answer the first question. I didn't
really understand the second question about tax credits.
Mr. Clay. Let's try the first one.
Ms. Dolber. OK. I think what you're talking about is the
risk of appropriations and the declining of appropriations
every year and how we view that, is that right?
Mr. Clay. Yeah.
Ms. Dolber. All right. That's a great question. When we
first did our rating in 2001, the industry was able to supply
us with a lot of very good information about the history of the
appropriations. And so we were able to look at it and feel that
we knew what the track record was, and that in order to make
sure that service could be paid, we look for excess coverage.
So we got comfortable with a lot of the mechanisms that
have been put into place at that time, like negotiated
rulemaking and, you know, things that would allow us to predict
what level each individual PHA might get that we would look at
in a financing. Now we knew that in years to come, it could be
possible that appropriations could be cut, and that's why we
look for excess coverage. Without the excess coverage, there's
no way that the bond issues that we raised would have been
investment grade.
Now, in the last 6 years or 5 years, every single year
appropriations have been cut. That definitely got our
attention. We watch it very closely, and we really did ask
ourselves a question, do we have to downgrade the bonds? It's
very difficult for us to put our finger on, what is the level
of the Federal Government's support for public housing finance?
It's clear the support for public housing, but what about
public housing finance? Because there's really no one from the
Federal Government that's going to say to us, don't worry about
it, everything's going to be OK.
So we have to look at what's actually happening out there.
So what we did, we created a stress test, and in order to
affirm our ratings, we had to anticipate that the funding cuts
would continue every single year as long as the bond issue went
on. And we made sure that debt service would be paid
irregardless. So what I'm saying is that if we could--because
the excess coverage was there, we could factor it into our
rating. However, the track record that we've been looking at is
changing. We looked at a pretty stable track record and a
pretty strong track record, and now we have a more questionable
track record. So the question is, what's going to happen in the
future if cuts continue, are we still going to feel that
there's a strong track record?
Mr. Clay. Let me reword the second question there. It's a
followup to what you said. Would the S&P view tax credits like,
the low-income tax credit as more reliable than appropriations
for PHA ratings?
Ms. Dolber. Well, it's a different mechanism that we
usually see coming into a transaction at the beginning, and
putting money on the table, if you will. And we look to see how
those funds--from the sale of the tax credits are going to be
used in the financing, you know, sometimes they're used in
development costs. So this is where they reduce the amount of
bonds that have to be issued. So that type of mechanism where
money comes in up front and it's on the table, but there are
things that can affect whether it's going to continue, whether
the tax benefits of the tax credit are going to continue don't
really affect our ratings.
In a sense, because the money is already there, it affects
the tax credit investor because they could lose their tax
credits. So if we're rating an issue that's based on the
performance, for example, of the tax credit investor, which we
sometimes do, we have to be concerned about what's going to
happen if it loses value for them and they're not going to be
there the way we expected them to be there, and usually we
expect them to be there and--I mean, a lot of tax credit
investors have actually put money into properties, and that's
something--because there's a question about what could happen,
we give what I would say soft credit to that.
Mr. Clay. Thank you for that response. And my last question
is for Mr. Tracey. Welcome. Are State housing authorities
providing adequate lending options to local authorities who may
not have the technical or economic base to access markets
along--and please explain how utilizing property and financing
can expand the options available to public housing authorities.
Mr. Tracey. When you mention State housing authorities,
housing finance authorities, the issuance of bonds?
Mr. Clay. Yes, yes.
Mr. Tracey. Thank you. Thank you. I would say generally,
yes. Our experience has been favorable across the country,
working with State housing finance agencies. Again, we're
looking for much the same as we had referenced consistency,
predictability, not so much of the funding but of the processes
themselves because that makes us more comfortable devoting
resources, people resources, financial resources to certain
markets. If we have a framework for working with various State
agencies in the issuance of bonds where we--I won't mention any
particular jurisdictions, but where we've had difficulties is
where the rules change, and the rules change frequently.
And that creates a hindrance for us in order to provide our
capital. What we're always looking for is additional places to
use our resources and support community development, whether
that be by providing construction financing, use of taxes and
bonds or permanent financing by buying those bonds, creating
secondary markets attracting other capital to purchase those
bonds. So anything that adds or anything that, rather, reduces
the friction in those markets, eases costs of transactions,
makes us more comfortable, more likely to put private capital
into those particular jurisdictions.
Mr. Clay. Thank you for that response. I yield back, Mr.
Chairman.
Mr. Turner. We acknowledge that we've been joined by
Charlie Dent from Pennsylvania, and Ms. Foxx from North
Carolina.
And Mr. Clancy, I'm going to ask you a question that is
somewhat off topic, but I'm going to explain, ask you the
question so that you will understand why I'm asking it to you.
Whenever we look at the issue of community development in
addition to process and expertise and financing, there's also
public policy theory that gets overlaid on everything that we
do; and in that discussion of topics of public policy theory,
from that, programs are designed, and rules are established
that can restrict or that can permit the various types of
development.
One of those public policy theories that has been bantered
about is the issue of public housing land and whether once
public housing has been established on a piece of land, whether
or not that piece of land shall therefore forever be public
housing land.
I happen to be of the opinion that with communities in
shifting both in the location of populations, the shifting of
even employment centers, the shifting and transportation
routes, school populations, construction of schools and
response to populations, but as a theory, that it is overly
limiting for us to say that once public housing has been
established on a piece of land, that it shall forever be public
housing land. Our goal of providing affordable housing should
not be tied to a historical decision that was made at another
point in time when a community had other development factors.
I was wondering if you might have an opinion on that,
knowing the creative things that are occurring in your
community and the shifts that have occurred in populations, if
you believe that affordable housing needs can be addressed
without overly restricting once public housing land.
Mr. Clancy. Affordable housing needs, I think, can only be
addressed effectively if, in fact, one is continually attentive
to market forces and market dynamics, and that is, as you
describe, Mr. Chairman, a shifting dynamic, value-shift in
neighborhoods and property needs to be looked at in a very
dynamic market-oriented way. I think that often people who
espouse the theory that you are alluding to are really
concerned about the extent to which there's long-term
commitment to serving the poor, and whether there's some place,
you know, some way to nail that down so that the commitment
doesn't get extinguished inappropriately.
And I support that 1,000 percent, philosophically,
ideologically, morally, and on a million other levels. But as a
real estate professional, I think it's a huge mistake to take
that to one-for-one replacement or to take that to tying land,
let's say, to a particular use. The whole point is, you've got
to be able to capture market values. You've got to be able to
utilize those values to support a diverse population, and
that's, you know, very much the centerpiece, I think, of our
approach.
If I could come back to an earlier question that you asked,
because I had a further thought afterwards, smaller localities
getting the sophistication to utilize a program like HOPE VI,
you know, what are the things that HUD has done very
successfully over time when the HOME Program first got passed,
CPD, the Community Planning and Development section of HUD put
out a series of technical assistance contracts to organizations
that then could work nationally with different localities in
apprizing them of how to utilize the HOME Program to make them
more able to be effective in how they designed local use of
HOME. The same thing could be done to assure that localities--
smaller localities, particularly, can acquire the expertise to
utilize HOPE VI, and HUD could allocate some dollars for
technical assistance out of public and Indian housing that
could support smaller authorities in that effort in the same
way.
Mr. Turner. Mr. Tracey, similarly, I'm going to ask you a
question that is more subjective. You had talked about the
issue of the cumbersomeness of the process. And a great
recommendation when looking at a safe harbor process where
people could be not on a case-by-case basis waiting for
approval, but know specifically the area of something that is a
cookie cutter-type development that has occurred before a
certainty of approval and a timeline for approval.
So many times when we look at government bureaucracy, it
can fall into two different categories of impact. One is cost,
and another is just straight out barrier to entry, meaning that
the cumbersomeness is so great that the expertise required is a
barrier for those who might otherwise enter it.
Cost increase is something that the government can just
continue to subsidize undesirably, but nevertheless we can.
Barrier to entry, though, is something that rises to the level
of completely thwarting our ultimate goal and objective.
Knowing that the banks with the CRA have not only the
cumbersomeness but incentive to go through the process, I
wonder whether or not you believed that, in many instances, the
types of cumbersomeness, the processes that you're seeing, rise
greater to the level of just cost, but actually thwart our
ability to bring people into the process.
Mr. Tracey. Well, actually, I do think that some of the
issues that have been raised by all of the panelists today do
result in barriers in entry, and not so much entry into
community development as a whole, but rather pushing resources
into a more certain and predictable area of community
development.
That's likely one of the reasons why yields are so low and
declining in low-income housing tax credits because that is a
more certain or predictable program. It has a history. Many
players have been involved in that market for quite a number of
years. Our experience, I think, on working with capital grant
financing could also help illustrate the point. Our company was
involved in structuring the very first cap grant financing
which was a taxable loan to the D.C. Housing Authority here in
Washington.
And QHWRA had been around since 1998. We closed our
transaction, I think, in 2000. So it took 2 years for the first
transaction to be closed after the legislation had been enacted
that enabled that type of financing. Two years is a long time
in the finance industry.
One of the issues was that there was no standard, no safe
harbor for what the transaction would look like. We were making
that up as we structured the financing with HUD and the D.C.
Housing Authority. The one point that was still unsettled very
close to closing was the degree of leverage permitted, which is
a critical point. How much of the cap grant payment stream
would HUD permit the D.C. Housing Authority to borrow against?
As those types of issues became resolved, then we've seen
the market evolve; and private capital flows in; and instead of
more expensive taxable financing, which was what we were able
to put together 5 years ago, now we're in the tax exempt arena
with lower transaction costs on a pooled basis and so forth.
All of that should have been compressed, though, into a much
shorter timeframe rather than taking the 5 to 6 years that it
did for that market to evolve.
And with consistent standards up front, more parties would
have been attracted to that type of structure; and again, the
lack of consistent standard of framework for that particular
financing structure, you know, it wouldn't have acted as a
barrier to entry.
In 2000, Bank of America, D.C. Housing Authority, we were
pretty much it, even though the legislation had been on the
books for 2 years.
Mr. Turner. Thank you for that. I want to recognize Mr.
Dent.
Mr. Dent. Thank you, Mr. Chairman. Thank you for holding
this hearing. Thanks, too, to our panelists.
Mr. Clancy, over the past 20 years, one of the better
Federal incentives for private investment in affordable housing
has been the Federal low-income housing tax credit. Many
hundreds of units of affordable housing have been constructed
and developed in my district because of this Federal
initiative. However, over the past few years, that production
has dropped off to near zero. What kinds of changes to the tax
credit program would you recommend to strengthen that program?
I'd like to start with you, Mr. Clancy. If any others have
an opinion. I would be pleased to hear that.
Mr. Clancy. It's a multifaceted answer. And let me try to--
the reason why production would have tailored off to zero in
your district, I suspect, has more to do with some of the other
resources that are necessary to make a tax credit project
feasible. The tax credit program itself has continued and, as
Mr. Tracey has said, has actually gotten somewhat more
efficient over the last few years; but most tax credit
developments have either significant--for example, in
Pennsylvania, the State HOME Program of PHFA or local Community
Development Block Grant or other resources going into the
housing.
So I don't know the particular situation and why the
decline is taking place. I do think generally the credit is a
very specific and not very flexible vehicle and that one area
that would make it more broadly useable would be if, in fact,
instead of everybody having to be under 60 percent a median,
let's say, to get the credit, you might have a band of people
who are at 30 percent a median and a band that are at 50
percent of the median and a band that might be at 70 or 80
percent the median; and as long as it averaged out to 60, you
could get credit on all the units, some of those kind of
simplifying changes that would make it more flexible. But
again, it's been a very effective piece of legislation.
The tax committees have made only minor changes to it; and
it is, as you say, still the biggest resource that's supporting
affordable housing today.
Mr. Dent. Anybody else want anything to that?
Mr. Tracey. No. I would just make two comments. I would
concur with what Mr. Clancy said about the need to create more
income, diversification in low-income housing tax credit
projects. If there has been a push to define affordable housing
not just to supporting the very low income or low income but
new definition, work force housing, those that 80 percent to
100 percent, 120 percent of median income are also struggling
in finding adequate and affordable housing as well.
And the second comment, too, would be to focus on both
scarcity of land in many markets, and also the high cost of
that land, which does prevent much affordable housing from
being constructed, notwithstanding any tax credit programs.
It's just very high cost to entry in the affordable housing
market because of the scarcity and the cost of the land in many
of our markets.
Mr. Dent. Thank you. Mr. Clancy, back to you. I know the
Community Builders often acts as the tax syndicator in tax
credit deals. Is that correct?
Mr. Clancy. Yes. We are a principal in the work that we do,
but we also directly structure and design the tax credit
investment and work directly with--Bank of America is one
investor that we often work with. We work with many of the
major financial institutions and directly structure investments
with them.
Mr. Dent. Can you describe the role that syndicator in
those transactions and essentially in how they benefit?
Mr. Clancy. Basically for us, it's been really a critical
tool of affordable housing, and I won't bore you with the whole
history; but going back to 1970 when we did the first
nonprofit-sponsored tax shelter syndication for affordable
housing in the South End of Boston, the tax incentives
available under the code--and obviously, since 1986, the low-
income housing credit are such a central part that we end up,
for example, in a typical transaction. Whether it's HOPE VI or
whether it's just a tax credit transaction, we will end up with
perhaps as much as 60 percent of our total development cost
coming out of the tax credit value and as little as maybe 15
percent coming out of a first mortgage financing. And let's say
the other 25 percent coming out of perhaps public housing
capital or HOME or CDBG or other kind of grant resources.
So in the mix, the largest private investment piece is the
low-income housing tax credit. So being able to structure that
effectively, being able to bring investors in on a basis that
maximizes the return to the project from their investment, and
also one of the things that has been important for us in that
industry for the last 35 years, is to be able to bring
investors in on the basis that is completely compatible with
long-term affordability of that housing, is one of the
structures that we've insisted on, as I say, going back 35
years.
Mr. Dent. Thank you. And I guess, finally, I will just
maybe touch on HOPE VI, and maybe prior to my arriving here,
you may have touched on that issue. But in my district, we have
a substantial HOPE VI project underway, and it's been helping
us attract a considerable amount of private investment; and, of
course, HOPE VI funding has been diminishing in recent years,
and with it, a number of communities in which obviously housing
projects can benefit. So that is a problem.
Do you have any experience with HOPE VI? Any of you that
you would like to speak to; and if so, what is it about that
program that attracts so much private investment?
Mr. Clancy. Well, I think, as I did stress in my testimony,
I think one of the things that has enabled HOPE VI to do that
has been that since 1995 in the competitive allocation rounds,
it has actually encouraged housing authorities to leverage the
grant that they receive with private debt and equity; and so to
be competitive for funding, it really has created an active
marketplace of housing authorities who, to get the money, have
almost got to leverage the money with private debt and equity.
So one of my recommendations is to look at the total
funding for housing authorities, total capital funding and make
more of it competitive so that, in fact, you get that same--and
have the competitions be--provide a preference for leveraging
and for taking a more comprehensive approach so that, in fact,
you could expand the extent to which public housing capital was
leveraged with private debt and equity, was combined with
things like the low-income housing tax credit.
Because I think even though the HOPE VI work has been very
high visibility and has been fairly dramatic in a number of
places, we've still only really scratched the surface of the
overall capital needs for public housing. And the more leverage
that can be brought to meeting those needs, the quicker we'll
be able to meet more of them.
Mr. Dent. Thank you. Anybody else wish to add anything on
HOPE VI?
Mr. Tracey. I would. Yes, thank you.
Bank of America has been involved as a lender investor and
actually real estate developer in more than two dozen HOPE VI
projects across the country, and our experience has generally
been very positive. In particular, we view the multiplier
effect as very common in the successful HOPE VI developments;
and effect often gets overlooked in judging the success of the
projects, we believe.
One example is right up 95 on the west side of Baltimore,
two different HOPE VI projects, Lexington Terrace and what's
now known as Heritage Crossing. Initially, homes were selling
there for $65,000. So on the face of it, the criticism was, why
should our government be selling homes at $65,000 when they
cost $165,000? But upwards of 5, 7, 8 years later, private
capital has now been attracted into that area. There are
homeowners from Washington now buying $400,000 homes in that
same community, in the surrounding neighborhoods.
The University of Maryland has now crossed over Martin
Luther King Boulevard, which was a dividing line for the
community, and has built a biotech center in that same
community. So when taking the long view and stepping back and
doing the overall returns to the community, we think the HOPE
VI program has actually been very effective and very efficient.
Mr. Dent. Thank you. I think it's been a good program too.
I just wanted to get your feedback on this. Thank you, Mr.
Chairman. I have no further questions.
Mr. Turner. Thank you. We've been notified that in the next
10 minutes, we'll have a series of votes. So what I'd like to
do is in closing, allow each of you, if there are other
thoughts that you have or other issues that we have not raised
that you would like to place on the record or a question that
you've heard someone else answer that you would like to comment
on, get any closing additional thoughts that you might have
that you would like to leave with us on the record.
Before I do that, I would like to ask Ms. Dolber, our staff
have prepared a number of questions that are highly technical
in response to your statements; and rather than go through
those in this format, I was wondering if you might be kind
enough if we submitted those questions to you in writing, if
you would respond back to us in writing that we would make it
part of this record.
Ms. Dolber. Sure. I would be happy to.
Mr. Turner. I would greatly appreciate that. And with that,
I would like to turn for opportunities for closing statements.
So I'll start with Mr. Clancy.
Mr. Clancy. Thank you, Mr. Chairman. And thank you for the
opportunity to be here today. There's just one item that I
would point to that we haven't expressly dealt with; and I did
cover briefly in my written testimony; and that is that this
same challenge of re-engineering and repositioning and dealing
dynamically with distressed affordable housing assets exists in
the privately owned Section 8 assisted housing portfolio that
we've talked a lot about in the public housing arena. And the
same kind of approaches are, I think, critically important in
that arena. There is a section that was passed, Section 318 of
the HUD Appropriations Act of 2006--2005, gave a 2-year window
for moving project-based Section 8 contracts from obsolete
developments to new developments or to other developments.
That's the first real avenue for, in effect, applying a
HOPE VI-type approach to distressed Section 8 properties; and I
think housing authorities should be encouraged; and I think HUD
should be encouraged to look creatively at ways to use Section
318 to accomplish some of the same things that the committee
has viewed positively that have been accomplished in public
housing revitalization. Thank you very much.
Mr. Turner. Thank you. Ms. Dolber.
Ms. Dolber. Thank you. I'd also like to thank you again for
inviting us to be here. The communications with the capital
markets about federally funded types of transactions is very
important, and we really appreciate the opportunity to be able
to provide our thoughts.
I've mentioned the importance of communication. It really
helps to help us make decisions about where things are going,
and it helps investors as well.
I wanted to make a comment about what Mr. Clancy said about
competitive grants, if there was an aspect of competitiveness
to it. While that might not work for a structured financing
like the capital funds securitizations that have been done
because you have to know how much each PHA is going to get, the
thing that would be beneficial for something like that would be
that it does instill the competitive spirit and a drive for
excellence, which is really needed in the industry.
And if PHAs are going to get their own credit ratings as
opposed to just getting ratings on issues that they might do,
you know, a finite issue like the capital fund securitization,
if they had their own ratings, that competitive ability to
compete would help them a lot, I think, to move forward to that
kind of thing. But in a strictly structured financing, it
doesn't work as well.
Mr. Turner. Thank you. One of the questions that we have
for you is your thoughts about transitioning to a rating for
the agencies themselves and your recommendations on those
processes. So it's good that you raise that in your closing
because that's one of the questions that we'll be coming to.
Mr. Tracey.
Mr. Tracey. Just one final observation and really a
summary. We talked quite a bit about the need for
predictability, stability and funding sources for public
housing from the providers of private capital. Also, however,
there is a need for a legal structure for these transactions
that provide secure collateral. Again, that comes due to the
certainty involved in the transactions that we are lender or
investor. Within the final point too, which we didn't address
is, which ties back to the reference to CRA, is the need from
the private markets for adequate and consistent returns because
if we build a market that's dependent only on the negative
incentives of CRA, we haven't built a market that's sustainable
over time, because as banks move in and out of compliance with
CRA, as the regulation changed, it's been weakened in recent
years unfortunately. In our view, that will not provide the
consistent source of capital, I think, we all want from our
public housing authorities.
So from our perspective, I think there's often a
misconception that our capital is limited by the CRA, and
that's really not a true statement. There is ample private
capital that will flow into public housing markets, provided we
have a stable, predictable source of funding, safe and secure
collateral and adequate returns.
Mr. Turner. Mr. Tracey, I appreciate your comments in that
regard; and I do think that alone is an issue that this
committee needs to pursue further, although the crux of our
success may be the relationships that are currently there,
through CRA and the banks and their expertise, our ability to
encourage an expansion of these types of investment
opportunities and greater--other industry sector participation
is going to be based on our ability to transition, make it more
interactive, make it more stable and less of a negative
consequence, more of a positive. I'm certain we'll be having
further discussions with you on your ideas and thoughts as how
we can accomplish that.
I want to thank all of you for your participation. I know
that in addition to the time you've taken today, you've put in
considerable preparation for your testimony today, but I also
want to thank you for your dedication to your careers and your
expertise to this important area because I know each of you, as
you look into the communities that you've impacted, can see
real changes have occurred as a result of your choice to
dedicate yourselves to what you're doing and real changes for
the lives of the people who have benefited for the programs and
the projects which you've applied your expertise. So thank you
for that.
And with that, we'll be adjourned.
[Whereupon, at 11:19 a.m., the subcommittee was adjourned.]