The Affordability Subcommittee of the Housing Committee met Thursday to talk about future uses of the Affordable Housing Trust Fund. Here’s a glimpse of the issues they will be talking about over the next few months and its one of the most informed discussions you will probably find on the matter. For those who are impatient and don’t want to read through the details, my comments are [in purple].
WHO IS HERE?
Here’s who was there for the discussion. I put where they work/what they do after their names to identify them, as I have heard from some people they don’t know who the people are that I am talking about. Here’s a list of committee members as well.
Committee Members Present: Brian Munson (Planner, Vandewalle & Associates), Susan Day (Lender, Home Savings), Ald. Michael Schumacher, Greg Rosenberg (Executive Director Madison Area Community Land Trust), Curt Brink (Developer), Judy Wilcox (Chair Dane County Housing Authority, serves on boards of other non-profits, retired from State Housing Bureau & more I’m sure).
Public: Tim Radelet (Attorney, Foley & Lardner, Landlord), Marianne Morton (Executive Director Commonwealth Development), Frank Staniszewski (Executive Director Madison Development Corporation), Eileen Mershart (Executive Director YWCA), Me (Executive Director Tenant Resource Center & other things . . . )
Staff: Bill Clingan (Community Development Director) and Pam Rood (Runs City Downpayment Programs and Admin Staff)
PUBLIC TESTIMONY
Staniszewski has mixed feelings about expanded eligible uses for the Trust Fund, but flexibility can be good when you have good staff that you can depend on. [As opposed to? I wonder what he was referencing?] Priorities should be capital costs for new affordable housing and to help the non-profits that don’t have the resources that the private sector has. Says Section 8 issue, on the one hand it is great to see council members looking out for low income renters, but speaking for his agency, Madison Development Corporation, they are in a position to step up and assist 25 – 28 section 8 voucher holders that they have, due to the property tax exemption. [Of course non-profit landlords get funding through cooperative efforts with the city are going to cooperate, but how many other landlords will? It sounded like he took care of his tenants so the others don’t need help? It was disappointing to see him throw the others under the bus.] They think that a joint effort by city, trust fund and landlords is needed. Landlords should be ready to step up. Thinks section 8 is a good program and leads to stability in their tenants and they are prepared to help out.
COMMITTEE DISCUSSION
Brink says he is worried about the long term.
Wilcox says that is the real concern.
Schumacher says he’s more interested in the other uses of the Trust Fund beyond the Section 8 issue. He says he wants to take credit but saw that I raised the question and sometimes as an alder gets the pleasure or nightmare of being a conduit. He was reluctant stepping in, but got convinced. On the one hand we can’t keep paying for other government responsibilities, but we in the community have to deal with the consequences. He says this is all so silly given stimulus funds being spent in the community.He says the City has done alot to get landlords to take Section 8 and leaving landlords out there without supporting them, they might get cold feet. [I appreciate that argument and happen to agree with it, but also, lets not forget, they really don’t have a choice, its a Dane County Ordinance that requires landlords to consider Section 8 tenants the same as any other tenant. i.e. They cannot refuse to rent to a tenant because they are on Section 8.] Finally, he says that we have the money, and although its not allowed for the Fund, he thinks its a good use but he doesn’t want to see the amount of the funds used go over 10% of the fund.
QUESTIONS
Schumacher asks Staniszewski about capital funds. Mayor said he’d veto anything that deviates from focusing on capital funds. i.e. No operating money. Catch with section 8 is a one time use and brief conversation with Schumacher is that this is a temp use.
Staniszewski wants to see prioritization – can be useful to have operating expenses, but MDC doesn’t think the Trust Fund should be used for operating funds. He says there are others in Third Section think not. He says any use of operating expenses it should be limited. If he was prioritizing it would not be operating expenses. He would prioritize capital costs and construction costs and assisting non-profits should be a priority for capital costs. [Way to be a team player there Frank! The challenge for most groups are that they have staffing when they are doing projects, but when the project is done, they don’t have a way to sustain the staff, so they lose all that experience until another project comes along. And while MDC benefitted from the City supporting them for years, many other non-profits didn’t have those kinds of sweetheart deals.]
Schumacher clarifies it shouldn’t go to for profits. Franks agrees.
PUBLIC TESTIMONY
Originally, I think Frank was the only one to register, but as he was speaking, everyone else (except me) registered to speak.
Morton – came to listen, especially on Section 8. She is supportive of Afforable Housing Trust Fund (AHTF) and idea of endowment is important. But she realizes that while waiting to be built up, people want to see it used and that is something that needs to happen and hope that is the direction they are moving. Glad Mayor’s focus is on capital funding and supports construction loans. [One more item on the “operating funds”. We had attempted in 6(c) to make it permissible to use the Affordable Housing Trust Fund for downpayment assistance. What we wanted to do was give money to a non-profit that could lend out to individual homebuyers and have the non-profit adminster and distribute the funds. The operating funds would allow us to use AHTF funds to staff the program.] But strong believer that the money has to stay in the City of Madison. She supports regional housing, but city resources should be used in the City and she still hears rumors of suggesting using it outside the City. Also, Commonwealth accepts section 8. Housing staff is calculating the impact that the changes are going to have. They had less than 30 days notice. She says some tenants were paying $50 and their payments jumpted to $238. She talks about some of her tenants and the challenges they face and about tenants with disabilities (in wheel chairs) that have to pay $200 per month more. Would have liked more time to work this out, the challenge is people have to pay August 1st. Agrees that property tax exemption is good for non-profits but is not good for tenants. [I wonder if she mis-spoke, because without the property tax exemption, the tenants would have either had to pay more or been evicted if they couldn’t afford it.]
Schumacher explains what the Section 8 portion of the ordinance says and notes they can find it on my blog. He says that the gap is $476,000 but will only take $400,000 from the AHTF. He says that it will be retroactive to August 1. He says it gives CDA flexibility to make up the rules and that the enabling language sunsets on December 31st.
Mershart – Timing is not about YWCA . It is about the policy and realizes that is needs to be done the right way. [They have a project they want to fund with the AHTF under the proposed rules and they are in a hurry due to Section 42 funding.] She advocates to use the fund for capital, bridge loans and construction loans for affordable housing. That is the heart of where it should exist. Doesn’t think Section 8 is what they should be focused on. [Wow, again, just disappointed, I wonder what these folks think should happen? Just let the section 8 tenants fend for themselves? Just let them get evicted and be homeless?] Will work with their residents on Section 8. She says she talked to her staff and she said they will work it through with the residents. She also notes that site based section 8 isn’t affected by this. [Again, not helping, YWCA got some of the “sticky” Secttion 8 vouchers and those residents won’t be impacted. The city gave those “sticky” vouchers to help the non-profits be able to have stable funding. And therefore, tenants can’t apply for them and take them with them, they are “stuck” with the non-profit.] She says they are in the middle of trying to put together Section 42 tax deal and this kind of loan would be perfectly suited to rehabilitation and keep housing affordable for some of the most vulnerable citizen and this is the kind of thing that will help us do that.
Radelet – He can’t figure out how to register. He is a lobbyist for some organizations, but that isn’t why he is here and he isn’t getting paid by them right now. So he’s not sure if he is a lobbyist. He says he represents YWCA and works with the Third Sector Housig Group. He says he has a 2 unit [on Jenifer St.] and one of the two tenants is on section 8. That tenant has to pay $200 more per month and he will work it out with him. Isn’t sure what he will do, there is no money to pay that. The tenant’s rent is already $200 – 300 below market due to the fair market rents allowed by Section 8. So he points out that in some cases, even for profit landlords are charging less than they could because of section 8 limitations. His tenant has been there for 14 years, not in danger of losing his housing, but now have another financial situation to deal with and hopefully this will be short term. He says does not want trust fund money for his unit. [Sadly, I believe many smaller landlords that really care about their tenants will reach the same conclusion, but the larger management companies and larger landlords will be the ones to benefit from this money. So, the non-profits and small landlords will be team players, but the largest ones will not. I hope they work with the Apartment Association and are able to prove me wrong!]
Radelet also says that construction loans for project like the YWCA “would be huge”. Many of the non-profits are trying to develop housing and there are little or no sources of funding to pay for up front costs ($100,000 to $200,000) [duh! like operating costs, you know, the ones they don’t want?! I’m legitimately confused by the strategy here, but hey, if the non-profits don’t want operating funds, then ok, take it out. I just don’t know how to retain the expertise on staff and how non-profits are supposed to sustain themselves this way. I think operating costs for the project should be allowed, but its too much of an uphill battle and should be removed at this point.] He says the construction funds are especially useful because these are tax credit projects and the investors don’t want to put money in until the project is complete because they get a higher rate of return and they will put in more money. So if they could borrow from AHTF this would help make the project more successful due to the higher capital contributions.
QUESTIONS OF SPEAKERS/DISCUSSION
Schumacher asks how long the construction and bridge loans should be.
Radelet says that the YWCA project is a long construction period because the are rehabbing the building one floor at a time to move residents around. This one will be 1.5 – 2 years of construciton. Normal project might be a year or less. He says that even after the project is done, takes longer to do paperwork and get the money to pay back the investor, so 2 – 3 years would be useful.
Brink says if use for construction loans, he sees it as more of a guarantee to the title company for the construction loan. He says we’re not set up to be a bank. Says that the money should be set aside as a guarantee to the loan. Then we’re secure but there is always the problem at the end with the lien waivers and the banks will feel more secure.
Radelet says you could, but for YWCA there is no permanent loan. The only lender is the City of Madison and they regularly do this. He describes the city process where they ask for monthly draws, get title insurance and disburse through a title company so they have the same liens and it is all protected. Radelet says that if it were set up as guarnatee to a loan, then have to go to a bank and the bank will charge a loan fee and it will end up costing the project more money.
Schumacher asks what happens if permanent loan doesn’t pan out?
Radelet says treat is as a real loan – when start construction, everything closes. All sources of funds are committed so there is a take out in place for the city loan.
Mershart says it should not be limited to new construction, rehab is important.
Committee members say rehab loans are in there.
Rosenberg asks Radelet about the tweaks he had suggested.
Radelet outlines his recommended changes to the entire ordinance [Note: I introduced the first version of the amended ordinance in June of 2007 and its good to see it finally getting somewhere]:
– He fixed some typographic errors and gramatical errors (longer should be longest).
– Some of the language is make sure that construction loans are not just mentioned, but the fund actually works for them.
– He takes out the word “new” so that rehabilitation projects can be funded.
– Top of page 2 and throughout, he suggests changing 50% of AMI to allow tenatns with more money at 60% of AMI to be qualified housholds. He says to do this for housing tax credit projects. He explains many are required to do 20% affordable housing at 50% AMI or 40% affordable housing at 60% AMI, so if change to 60% you pick up all section 42 projects. [Hate to say this, but that was EXACTLY the point, we wanted the trust fund to support the lowest income housing we could reasonably do to encourage developers to make more housing at the more affordable levels, because given a choice, most won’t do it that way.]
– Change the language that says “because of assistance from” to “is assisted by” so that we don’t create a “but for” type of test.
– 4 (b) third line add language that says – “directly or through an affiliated entity”. He gives the example of the YWCA which will sell its building to an LLC managed and controlled by YWCA. In some cases YWCA is the borrower, not the LLC.
– 4 (b) last sentence – professional services costs shall not exceed 15% of the total project costs. He added, funded from the trust fund. He says especially if it is all the costs of the project. [I just realized I’m not sure where this is and what version he was working off of but I think it is this one (my March 13, 2009 version), not linked in the file but on the agenda discussion item, and someone should fix that. Interested parties will be looking at the wrong version depending how they search for it.]
– 6 (a) should be “longer” instead of “longest”
– 6 (c) third line – the language “plus a pro rata share of the value of the assisted unit” is the city’s equity which is a shared appreciation loan. Explains you if you get funding for 10% of the project, you have to pay amount borrowed or 10% of increased value back when the project is sold and that is how they were lending CDBG and HOME money but they are shifting to 0% interest bearing loans. He explains that while it is a good idea, there is almost never appreciation collected and it leasds to complicated bookkeeping. How do you book that on your audited statement and it requires getting an appraisal done. Often, although the city has paid for 10% of the project, the project is 98% leveraged and so when pay it off, the first thing is to pay off all the mortgage debt. He says they should only get a share of what is left after paying off debts on the project. Especially with projects like YWCA. He also talks about all the improvements and wonders how much of that results in the increase in value of the building. [While Radelet is right when it comes to non-profits, since the AHTF can be used by for profits who might not have the same goals, those protections were put in. If those protections are removed it won’t be a big deal for non-profits because they will plow the money back into their mission, but for profits will just walk away with the profit and will will lose that money to help create more affordable housing.]
Day says she is not interested in makig this change because sources for funding the trust fund are illusive and one of the intents in changing the ordinance is to create some interest income to help build the money in the fund, because there is a great desire to have a grant fund, and without interest, we can’t get enough money in the fund to get to the point where they can do grants.
Radelet says a nominal interest rate is ok.
Day thinks about tying it to index it to costs of funds.
Radelet says maybe CDBG commission could make that decision.
Shumacher asks Cligan about his take on the issue of the shared equity. He says practice is that the reality is that they are just giving it back to the same provider for the next project, so the value that is appreciated is given back to the same project. He says maybe the ordinance should be written to say it is a shared appreciation unless the future use is also for affordable housing. [GREAT suggestion! That would achieve the goal regardless of if it was a non-profit or for profit.]
Radelet suggests again that leaving it up to CDBG would leave flexibilty. He also says that a 2 year loan is different than a long term loan. [Another EXCELLENT point!]
Susan says she prefers that method to 0% interest loans.
The group agrees that CDBG should have a uniform process.
6(c) Says that the only thing should be “interest” instead of “pro-rated” which is a continuation of the discussion immediately above.
DISCUSSION
At this point, the committee commences discussion amongst themselves, and there is only about 10 minutes left.
Rosenberg asks if they have to make changes to use section 8?
Schumacher says yes, they are amending section (m) and the amendment will sunset at the end of the year. That will be introduced at the Council on Tuesday and it will come back to housing as the lead. [He listed the committees it was getting referred to, and it sounded like it would also get sent to the Economic Development Commission, which will be fund to watch as it meets the same time as the housing committee. And I wonder what they will have to add? In the past, they complained about items like this being referred to them.]
Rosenberg clarifies that is it only $400,000.
Committee gests confused about the longer term changes to the afforable housing trust fund and the temporary amendment for Section 8, which are two separate pieces of legislation. Schumacher says Section 8 should get to the council in September and the other changes will take longer.
Munson reviews what we have discussed for the past two years. He steps back and reviews the history and reasons for the changes. He says that discussion was that the trust fund was just sitting there, earning interest but a big target for politicians looking to fill budget gaps. Intent is to get money out there, not just have a bank account. They want to get housing built, but we want to get return on our investments. Concerned about maintaining body of fund and earning interest to grow the fund. There has been alot of discussion and little interest in ptting money in the fund. He says the need to protect it to be a vehicle in the future. Brian says having done that exercise, it all got rolled into this draft and then lost sponsor [Me!] and here we are. He says he heard some good additions today.
Munson says his issues
– Page 2 item 3(b)(2)
– He has questions about the use of the Inclusionary Zoning Fund. He says the discussion at IZ committee to move it here because there is no mechanism to use it. He says it is a dead fund in terms as use. He says the committee crafted some language and something needs to be addressed so we can use it. [In other words, there are 42 Inclusionary Zoning homes that the city can buy back, but only if there are funds to do it, otherwise, those affordable homes will not remain affordable.]
– He says that in 3(c) we should leave the “may” a “shall” because the budget we are facing, we are shifting money when council will have concerns and it will be contentious. Wants to leave that to the council as a decision point. [I think he makes a good point here. It should say shall, but the political climate just isn’t there.]
– He agrees with the speakers that the intent of the fund has been to mobilize and build housing. Realsizes there are costs and there are other mechanisms to pay for operating costs. [This is an odd change, as I thought he was supportive of using the funds as downpayment assistance, but if the funds are used for that, who will staff it?]
– He thinks the language that weights the fund toward non-profits should be removed because if we have an opportunity to use the fund, we should. Would rather see it qualified applicant and project.
Rosenberg
– Endorses Radelet’s tweaks. They will get forwarded for distribution.
– On the 50% to non-profits he feels that is a low figure. Can’t imagine that it would go to the for profits and not impact the non-profits sector which the city has made an investment in. [Let’s just get real, what for profit beyond Stonehouse and Gorman would even think about using the funds?]
– He is concerned that 50% of the funds can go towards one project.
Day is surprised by change from 25% to 50% of the fund going for one project.
Rosenberg prefers 10%.
Day doesn’t like 50%.
Schumacher asks if the outcome is supporting non-profits or creating housing. [In reality, it is mostly the same thing.]
Rosenberg says that non-profits are needed, for profits won’t do it. Non profits sector is already under duress. Projects are getting harder, margins are getting thinner, and it is more and more critical and if you let Gorman come in and get half the money, then that weakens the non-profits. [One way to fix that would be to keep the number at 50% AMI and not use 60% AMI]. Would change mind if private sector would be able to provide all the affordable housing for the community, then he would change his mind.
Brink says it is a non-profit monopoly on getting the money. He says 50% of the fund for one project is too high, wants it to be 25%. Fund will drop to $3.8 after the section 8 issue.
Schumacher makes clarification between (l) and (a).
Rosenberg is responding to (l), not (a).
Rosenberg says other comment is on 4(k). The language says no grants until $10M, section 8 would be a modification to that. We may never see 1$0M and he likes the idea of grants if there is a source of funding to replace it within a 3 year period. Otherwise we will just keep spending it down to create shorfalls in city agencies. He wants to be forward thinking about this. Wants the section 8 to work within the ordinance instead of having separate language.
Schumacher says he is not sure it will pass. He reminds people it is a 15 vote item. If you do this, it is a one time thing. Changing it permanently would be problematic. He wants to keep it separate.
Rosenberg says no.
Brink says taht 15 vote item is the best protection for the fund. It’s not a grant if the money is coming back. He will talk to Porterfield (housing committee chair). Everyone should forward their comments so that they can work through the issues one by one.
Radelet tells them that the new TIF law passed says that TIF districts can be kept open for an additional year after it is paid off if the city uses 75% of the funds for affordable housing and those funds could be put in the AHTF. [VERY IMPORTANT POINT!!]
On that happy note, they move to adjourn.
