The Dallas Morning News ran a story Sunday (here) regarding Texas’s slow start to the Weatherization Assistance Program.  The story highlighted the fact that as of last month, the program had completed just a handful homes using Recovery Act funds. Austin’s KUT picked up the story this morning (here).

Is this good news?  No, we’d want the funds put to use as quickly as possible.  But compare that article about Texas with a New York Times article the same day about the Weatherization Assistance Program in Illinois:  That article highlight failures in oversight that led to dangerous conditions in a weatherized home.

TDHCA implies that one reason for the delay is the time required to set up the oversight needed for the program.  Given the recent Energy Department Inspector General report regarding the need for such oversight, we think it’s worth waiting to do it right.

As this program comes up to speed, we will be continuing to focus on the three issues we highlighted in our initial review of this program:

• Is the program helping those who need it most? The income eligibility threshold for the program increased from 150% of the poverty level to 200%.  Lower-income residents may require more outreach by the local agencies, and agencies may have incentive to skim the top of the eligible population.  TDHCA should make sure that local agencies are both prioritizing and providing active outreach to families at or below the poverty level to make certain such families are benefiting from the program.
• Does program training providing workers sustainable skills? The recovery act increased the funding available for training and technical assistance from 10% of the program funds to 20%.  This is an opportunity for a strong job-training component of the program that can provide skills to workers that will outlast the temporary WAP funding.  TDHCA should maximize the workforce development impact of this funding.
• Does the program actively enforce a high level of quality control? Weatherization is more than just caulking the holes in a house, and if done poorly can adversely affect air-quality.  Weatherized homes should be inspected to ensure that the repairs created or maintained a healthful indoor environment in the home.

Recovery.gov will be releasing progress data on Jan 29^th regarding recipients served by this program.  By then, we hope that more homes will be done and data will begin to be available to show it was worth the wait.

Stay Tuned.

The Inspector General at the Department of Energy^[1] released a report Monday warning that the Recovery Act energy funding “represents a massive workload increase for the Department’s programs” and noting that “the effort to date has strained existing resources” at the department.

The Department of Energy is administering $32.7 Billion of the Recovery Act, including $5.0 billion allocated to the Weatherization Assistance Program.  The report states particular challenges face the Weatherization Program, as “based on monitoring reports and past experience, certain Weatherization grantees may not have adequate internal controls, reducing the likelihood of preventing or detecting fraud, waste, or abuse.”

The report also notes that the division administering the Weatherization Program (the “Energy Efficiency and Renewable Energy” or EERE division)has only hired half the the 288 positions authorized in the Recovery Act and that EERE identified staffing as “its most significant risk to the successful implementation of Recovery Act activities.”

The report makes several recommendations to improve oversight of the Recovery Act programs, including focusing management attention on hiring for recovery act oversight positions and incorporating the financial disbursement system used by the Treasury Department to control draw-downs of the Recovery Act funds by subcontractors.

This report focuses on the federal administration of the Weatherization Assitence Program, but it is our belief that similar concerns and recommendation apply to the sub-administration of the program at the state level.  In Texas, the Weatherization Assistance Program is administered by TDHCA.

Note:
[1] Inspector Generals  are independant investigators authorized under the Inspector General Act of 1978.  There are now Offices of Inspector Generals at 69 federal agencies.  The Department of Energy IG “promotes the effective, efficient, and economical operation of the Department of Energy’s programs and operations through audits, inspections, investigations, and other reviews.“

One of the Recovery Act programs we’re watching is the Housing Tax Credit Exchange program, a program supporting the production of affordable multifamily housing.  This program builds on the infrastructure and processes of the traditional Low Income Housing Tax Credit (LIHTC) program.  In the LIHTC program, investors receive tax credits for funding the construction of income-restricted multifamily housing.  In the Exchange program, TDHCA replaces tax credit investors by directly funding the development of income-restricted multifamily housing and “exchanging” the tax credits available for such development for cash at the US Treasury.

At the July 30^th 2009 TDHCA board meeting, the TDHCA board adopted a policy resolution outlining the HTC Exchange program in Texas.  This policy envisioned TDHCA dropping directly into the role of a tax credit investor, buying equity in affordable housing developments with the funds provided by Treasury and receiving “not less than a 20% distribution to the Department of any net cash flow, residual funds and/or net sale proceeds” in return.

In short, if the state was going to play the role of an equity investor, TDHCA thought it should get the benefits due an equity investor.  Discussion at the board meeting implied that the returned money would go to the housing trust fund to build affordable housing for people with low incomes.

Unfortunately, the Treasury Department had other ideas.  In an early clarification of the program, Treasury stated that State agencies such as TDHCA are limited to a one percent or less de minimis ownership in a building receiving exchange funds, and the terms and conditions of the program made clear that TDHCA could not structure a deal to get money back.  In short, Treasury requires that the funds be granted to the developments, not loaned through a note or equity.

TDHCA, to their credit, has attempted to work around this restriction.  They recently released the LIHTC Exchange program Subaward Agreement which envisions (in section 8.3) that Exchange recipients set up a special reserve account “to assist current and future residents to provide assistance with expenses associated with their tenancy,” and fund that account with the money that would have otherwise gone to TDHCA’s equity share during the compliance period.  (Under the equity structure, TDHCA would have also received 20% of any eventual sale of the property.  The reserve account will not receive those exit funds).  The idea is that if TDHCA couldn’t benefit from the funds, at least the residents could.

It is our belief that the language in the Subaward Agreement is overly broad and could easily be used by apartment owners to cover uncollected rent and invented expenses rather than provide actual incremental benefit to residents.  We will be filing comments with TDHCA this week requesting the subaward agreement contain a tighter limitation on the uses for these funds.  In our opinion, allowing “other purposes as approved by the Department,” when such approval “shall not be unreasonably withheld” is an big loophole which allows the special reserve account to be a slush fund for the developer.

Nevertheless, this problem was created by Treasury in their implementation of the program.  The language in the statute indicates this funding is a grant to the state to “finance the construction or acquisition and rehabilitation of qualified low-income buildings,” and makes no indication that the state is limited to providing “cash assistance” to developments.  If a state can structure the financing as a loan or equity and create additional resources for low-income housing, they should be allowed to do so.

Last Friday was a major milestone in the extensive reporting requirements of the Recovery Act.  Recovery.gov released the first round of reports by local recipients regarding the status of some 142,825 initiatives receiving recovery funds.   This round of reports covered Feb. 17, 2009, through Sept. 30, 2009—the reports will be updated quarterly going forward.

As TXLIHIS is closely following the recovery act funds related to housing, we awaited these initial reports with interest.  However, a quick glance at the data revealed little new insight regarding the programs we are following.

TCAP, the supplemental funding program for low income housing tax credit developments, is well underway in Texas.  In fact, the TDHCA board has already awarded the first round of TCAP funding.  However, none of the funds have been dispersed because the winning developments are still undergoing underwriting and the contract language for the funding structures are still being finalized.

Because none of the funds have been actually dispersed, the Recovery.gov report on the TCAP program in Texas merely states “During the first reporting period project activity has been limited to administrative activities at the Prime Recipient level.”   This is in line with other states:  The only state to report actually expending TCAP funds by September 30th is Colorado, which reported making its first award in mid-September.

Similar language describes the status of the Weatherization Assistance Program in Texas.   While that funding was available in early September to local service providers that executed contracts with TDHCA, as of September 30^th, Texas reported spending just .03% of its weatherization funding from the recovery act.  While this lags behind other states (Georgia reports spending 19% of its funding, South Carolina 15%), this may indicate that service providers initially prioritized conventional Weatherization Assistance Program funding over Recovery Act funding rather than a lack of weatherization activity.  At a housing conference in early October, TDHCA staff indicated that some 4,000 units had been weatherized in Texas.

So, this data release is a case where the interesting details were those behind the data, not in the data itself.  The next round of recipient reports should be released Jan 29^th.  By then, we hope to have more activity reported from these programs.

Related Links:

• Coalition For An Accountable Recovery
• Recovery.gov

October 17, 2009 – In the wake of hurricanes Ike and Dolly, the Texas Department of Housing and Community Affairs (TDHCA) has $620 million in its coffer to help rebuild damaged or destroyed residences. Houston contractors should be aware that it was just announced that the TDHCA will be spending $277,676 on repairs to Houston’s Tidwell Estates Apartments.  This low income rental development requires major roof reconstruction as a result of the storms.

It is the mission of the TDHCA to not only bring stability and comfort to those affected by Ike and Dolly, but to also aid the ailing construction economy.  All construction companies holding a Texas contractors license in the Houston area should pursue these community rebuilding contracts, as they offer steady income as well as peace of mind. To date, Texas has received close to $1.3 billion in federal dollars to aid in the state’s disaster recovery efforts.

jobtrio.com Staff
Construction Industry Newswire

Federal Program Highlights:

• Funding: 3 Billion
• Administering Agency: US Treasury
• Unused funds must be returned by 1/1/2011

Texas Program Highlights:

• Funding: Up to 314 Million
• Administering Agency:
• TDHCA Awards expected by 10/16/2009

The 2009 Stimulus Bill (American Recovery and Reinvestment Act of 2009) contained a provision allowing the limited exchange of tax credits granted under the Low-Income Housing Tax Credit (LIHTC) program for cash grants. This program has been referred to by various names, including the Tax Credit Exchange Program (TCEP), the 1602 program, the Housing Tax Credit (HTC) Exchange, or Grants in Lieu of Housing Tax Credits.

Under the LIHTC program, multi-year tax credits are available to multi-family housing construction or rehabilitation ventures that agree to provide housing for low-income tenants. These tax credits are generally sold and the proceeds used as upfront investment capital for the venture.

With the high-profile disruptions in the economy and credit markets over the last few years, the market price for these tax credits has fallen significantly. This has, in turn, disrupted the production of affordable multifamily housing under the program. Prior to the market collapse, the LIHTC program was estimated to support nearly 90 percent of all affordable rental housing created in the U.S. and 20% of multi-family construction in Texas. The Exchange program is intended to revive the production of affordable multifamily housing by replacing the funding role of the secondary market for tax credits with direct grants from the US Treasury.

In Texas, the Texas Department of Housing and Community Affairs (TDHCA) is responsible for administering the Tax Credit exchange program. TDHCA has adopted a policy document outlining how the agency intends to administer the program,3 and is currently evaluating applications.

Texas Program Details:

1. Developments allocated credits in 2007, 2008, or 2009 are eligible for exchange. If a development exchanges any credits, they must exchange 100% of their credits. Applicants requesting funds must provide evidence of a Good Faith Effort to obtain equity commitments

2. The Department is limited to exchanging 40% of the 2009 regular annual credit ceiling

3. The base exchange price is $0.77 (vs. an expected market price of $0.71)

4. Developments that agree to increase the number of extremely low income (households earning not more than 30% of the area median income) income- restricted units are eligible for higher exchange rates. Developments that increase extremely low-income units by at least 10% of the total number of units are eligible for an exchange price of $0.81, and Developments agreeing to increase extremely low- income by at least 20% of the total units are eligible for an exchange price of $0.85.

5. TDHCA will be a special limited partner in the developments funded by the exchange program. The base residual split to the Department will be 20%; however, if 10% more extremely low income units are included, the residual split to the Department will be reduced to 15% and if 20% more extremely low income units are included, the residual split to the Department will be reduced to 10%.

6. Priority will be given to developments that obtained the highest application scores in the round they applied in general accordance with the regional allocation formula, including set asides of 20% for At-Risk developments and 40% for Rural developments.

Policy Questions to Watch:

• Is the program having maximum impact (i.e. providing maximum benefit to low-income Texans?)
• Should program be extended in scope and/or timeframe?

Additional Web Resources

Texas Department of Housing and Community Affairs

National Low Income Housing Coalition

Here is a brief overview of the Texas Credit Assistance Program and how it is shaping up in Texas.

Federal Program Highlights:

• Funding: 2.25 Billion
• Administering Agency: HUD
• Fund must be spent by 2/17/2012

Texas Program Highlights:

• Funding: 148 Million
• Administering Agency: TDHCA
• Awards expected by 12/17/2009

The 2009 Stimulus Bill (American Recovery and Reinvestment Act of 2009) contained additional funding for developments awarded tax credits under the Low-Income Housing Tax Credit (LIHTC) program in 2007, 2008, or 2009.

Under the LIHTC program, multi-year tax credits are available to multi-family housing construction or rehabilitation ventures that agree to provide housing for low- income tenants. These tax credits are generally sold and the proceeds used as upfront investment capital for the venture.

With the high-profile disruptions in the economy and credit markets over the last few years, the market price for these tax credits has fallen significantly. This has, in turn, disrupted the production of affordable multifamily housing under the program. Prior to the market collapse, the LIHTC program was estimated to support nearly 90 percent of all affordable rental housing created in the U.S. and 20% of multi-family construction in Texas. TCAP is intended to revive the production of affordable multifamily housing by replacing the gap in funding creased by the reduced value of the tax credits provided by the LIHTC program.

In Texas, the Texas Department of Housing and Community Affairs (TDHCA) is responsible for administering TCAP. TDHCA has adopted a policy document outlining how the agency intends to administer the program, and is currently evaluating applications.

Texas Program Details:

1. Applicants who previously returned their credits are not eligible for the program.

2. Applicants requesting funds must provide evidence of a Good Faith Effort to obtain equity commitments.

3. Priority scoring is offered to developers with higher-than-application equity commitments. (“Credit Pricing Incentive”)

4. Applicants can request a:

• 10-year zero percent Equity Bridge Loan,
• 15 to 40-year low interest Permanent Loan Replacement, or
• replacement of the granted Tax Credit at the price expected in the approved application price (capped at .85) in exchange for a forgivable zero percent loan and an at-parity cut of the equity cash flow.

5. 5% of the funding is reserved for developments funded by the Texas Rural Development Office of the United States Department of Agriculture (TRDO-USDA)

6. 15% of the funding is reserved for the “At-Risk Development Set-Aside” (i.e. properties nearing expiration on a requirement to maintain affordability and in danger of losing said affordability)

7. The funding is regionally allocated across the state according to the same formula as the LIHTC program.

Policy Question to Watch: Is the program having maximum impact (i.e. providing maximum benefit to low-income Texans?)

Additional Web Resources

Texas Department of Housing and Community Affairs:

National Low Income Housing Coalition

The 2009 Stimulus Bill (American Recovery and Reinvestment Act of 2009) contained a provision allowing the limited exchange of tax credits granted under the Low- Income Housing Tax Credit (LIHTC) program for cash grants.

In Texas, the Texas Department of Housing and Community Affairs (TDHCA) recently adopted a policy providing incentives for developments to increase the number of units reserved for Extremely Low Income (ELI) households (i.e. those households earning not more than 30% of the area median income). Traditionally, the LIHTC program targets all but a small fraction of the apartments created under the program to families earning 50 percent to 60 percent of the area median, leaving ELI households. Under the adopted incentives, developments increasing the number of ELI units offered are eligible to receive a higher cash price for their tax credits, as well as a greater claim to the residual project value.

Texas Low Income Housing Information Service has analyzed TDHCA’s Notice of Intent to Return Credits Log1 to determine the impact of the incentive program.

Our findings:

1. Fifty-Nine Percent of all applicants to the Exchange program offered to provide additional ELI units, resulting to 883 new housing units targeted at ELI residents.

2. These additional units were fairly evenly allocated by target demographic population, with 435 new Elderly units, 411 new General units, and 37 new Intergenerational units resulting from the incentive program.

3. Although a greater percentage of rural deals elected to provide additional ELI units, (65% of rural deals vs 54% of urban deals) there were more urban deals in the application pool (and they tended to be much larger deals), resulting in 67% of the total ELI additional units being placed in urban areas. (590 new Urban ELI units, 293 new Rural ELI units)

4. Rehab deals were more likely to elect to provide additional ELI units: 72% of Rehab deals vs. 52% of new construction, but again, more ELI units resulted from new construction (541) than Rehab (342).

The table below summarizes the additional ELI units by TDHCA allocation region.

Region Representative City   New ELI Units  Total Units  % New ELI Units
1      Lubbock/Amarillo            24          413           6%
2      Wichita Falls	           52	       426	    12%
3      Dallas/Fort Worth          162	      1833	     9%
4      Tyler/Texarkana	           48	       336	    14%
5      Beaumont                    16	       400	     4%
6      Houston	                  251	      3380	     7%
7      Austin                      61	       884	     7%
8      Waco	                   71	       576	    12%
9      San Antonio	           69	       615	    11%
10     Corpus Christi	           36	       503	     7%
11     McAllen/Brownsville         50	       820	     6%
12     Midland/Odessa              23	       180	    13%
13     El Paso        	           20	       194	    10%
Total	                          883	    10,560	     8%

.

Additional Web Resources: Texas Department of Housing and Community Affairs: http://www.tdhca.state.tx.us/recovery/detail-htc-exchange.htm

The Low Income Housing Tax Credit Program is the program that produces, by far, the largest number of affordable housing units in Texas each year. The tax credits are awarded to housing developers by the Texas Department of Housing and Community Affairs (TDHCA) through a competitive process. The rules for that process are set out in the Texas Qualified Allocation Plan (QAP).  Once a year the QAP is revised and there is an opportunity for housing developers and the public to comment on the plan. It is that time of year.

Here are the comments we at the Texas Low Income Housing Information Service submitted to the Texas Department of Housing and Community Affairs. our recommendations address a wide range of issues with the current program.

We have reviewed the 2009 QAP to identify areas where the plan can be changed to address these issues. We have identified fifteen areas that could be changed. Each issue is set out individually below with my narrative discussion and the citation of what I think is the relevant section of the 2009 QAP.

ISSUE 1 — Definition of “At-Risk” development

(QAP page 4)

At-risk applications get a set-aside of 20% under the statute. The demand for these credits has been less than 20%. The result is that applications with relatively low scores are getting funded in this category because of the lack of competition.

This year there was a difference of 100 points between the high and low scoring projects in this set-aside. This means some marginal quality deals are getting funded in this set-aside.

The reason for creating an at-risk set aside should be to preserve high-quality existing affordable housing and especially to preserve the subsidies within those developments that make them affordable for lower income people. The downside is that many of these developments are old, poorly designed originally and located in economically depressed and racially segregated neighborhoods. There is a need for a more refined analysis to determine whether a particular at-risk development should be prioritized.

When we worked to create a statutory priority for TDHCA to prioritize at-risk developments we also proposed a department assessment and prioritization of each development in the pool of at-risk housing in the state. That recommendation was not put in place in the TDHCA statute but is nonetheless an important activity. It would allow TDHCA to assign a priority to those at-risk developments that are truly at risk and which were worthy of long-term preservation.

Our recommendation is for TDHCA to prioritize at-risk developments as contemplated in the original statutory language. If this proves impossible, then develop and incorporate standards for priority at-risk developments for inclusion in the QAP and only allow these prioritized units to compete in the at-risk set aside.

This is important in terms of improving the quality of tax credit housing as well as in promoting fair housing by not continuing to prop up old, undesirable HUD properties located in racially segregated housing in bad neighborhoods through the tax credit program. There are many priority at risk developments that have attached to them deep and important rent subsidies that merit redevelopment through the LIHTC program. There are also developments, located in areas proximate to a downtown and in gentrifying neighborhoods that the tax credit program needs to assist.

ISSUE 2 — High Opportunity Area

(QAP pages 6-7 and 53)

The provision of a 130 percent boost of tax credits is one of the most important tools available to TDHCA to affirmatively further fair housing. The problem is that the effect of this tool is diminished by an overly broad definition.

The state should conduct or commission a study to identify census tracts where affordable housing is lacking and where the presence of that housing would advance the state’s duty to affirmatively further fair housing. Careful consideration of the methodology for the study would need to be given.

For the purposes of the 2010 QAP, I recommend establishing two levels of boost: 115% and 130%.

• A 130% boost would be afforded to projects that are constructed in a census tract with less than 5% of the households living at or below the poverty level AND has an AMGI that is 120% higher than the AMGI of the county or place in which the census tract is located OR a school attendance zone that has an academic rating of “Exemplary” or “Recognized” rating (as determined by the Texas Education Agency) as of the first day of the Application Submission Acceptance Period.
• A 115% boost would be afforded to projects that are constructed in a census tract with less than 10% of the households living at or below the poverty level AND a census tract that has an AMGI that is 100% higher than the AMGI of the county or place in which the census tract is located.

ISSUE 3 — Market analyst

(QAP page 9)

Important program goals can be realized and a resolution of disputes over the need for a proposed development could be achieved if a market analyst associated with the application can be shown to be truly independent of the developer and in a position to render a completely objective and honest opinion regarding the market need for a proposed tax credit development.

An objective third party determination of need could be used as a basis for factually and independently resolving community and elected official anecdotal claims a development is not needed. By designing an assessment of need based on a range of needs defined within the QAP, the independent market analyst could help to ensure a better prioritization of tax credit awards.

The key here is to demonstrate true independence between the market analyst and the developer. While in theory that exists under the current system, few would argue that it is actually achieved. A developer chooses the market analyst they want to hire and the developer pays the market analyst directly. This opens up the opportunity for community organizations and local elected officials to make the argument the development is not needed.

It is my understanding that the state of Florida assigns a market analyst to the development and is paid by the department from a fee charged to the developer. This is the system I believe Texas should adopt.

I recommend that TDHCA develop a list of qualified market analysts and develop criteria and standards for the analysis they are asked to perform. The format of the analysis should be standardized to facilitate TDHCA’s own review and to allow comparison between the market analysis between applications. Developers would pay a market analysis fee directly to TDHCA. TDHCA would assign an approved market analyst to an application. The analyst could be called on by TDHCA to provide supplemental information and to be available to respond to issues of the need for a proposed development raised by neighborhoods or elected officials.

ISSUE 4 — Qualified nonprofit

(QAP pages 9-10)

The purpose for a nonprofit set-aside within the LIHTC program in Texas is poorly defined. The definition of a qualified nonprofit in the QAP in no way ensures that the nonprofit is competent or that it will be acting in a manner to enhance the quality of the development, provide valuable services to tenants or achieve an important community revitalization objective. Most of the nonprofits involved in Texas have no actual role in the development of the property. This is different from the successful role of nonprofits in many other large states.

TDHCA needs to begin by defining the added value nonprofits are expected to bring to the tax credit program. TDHCA should define the characteristics of nonprofits that are capable of providing these benefits and then write those characteristics into this definition.

Some of the things qualifying nonprofits should provide would include:

• Undertaking a development as a neighborhood based nonprofit community development corporation as part of a comprehensive community revitalization strategy.
• Creating the development for the purpose of providing special needs housing or housing with particular tenant services that the nonprofit has an interest and an expertise in providing.

In other words, the nonprofit should be bringing something to the transaction that relates to the mission of the nonprofit. A nonprofit that simply has a mission of building and providing affordable housing is qualitatively not different than a for-profit developer and should not receive preference in the allocation of tax credits. An exception would be a nonprofit that brings substantial additional financial resources to the tax credit development to either enhance the physical quality of the development or to substantially improve its affordability.

We recommend that this concept be incorporated into the definition of a qualified nonprofit.

A qualified nonprofit should also be in sole control of the general partnership, and earn and collect more than half of the developer fee at the same time and rate as any other development partner.

ISSUE 5 — Fail to return tax credits then developer is barred from future transactions.

This is an issue that is not included in the current QAP.

There needs to be a strong incentive to developers to turn in unused credits to the tax credit exchange program or face being barred from participations in future tax credit rounds.

ISSUE 6 — Size of development

(QAP page 17 and page 56)

Neighborhoods generally do not want extremely large apartment complexes and neither to tenants. There is no reason to allow tax credit developers to build 252 unit developments. These mega-developments attract community opposition.

TDHCA should be going in precisely the opposite direction and providing incentives and financing options to allow for mini tax credit developments that can be incorporated into existing neighborhoods and integrated into communities.

We recommend a limit of 150 units.

The requirement that the development should consist of at least 36 units should also be eliminated. If a developer can figure out how to do a smaller size development, TDHCA should encourage rather than prohibit the development.

ISSUE 7 — Rehabilitation levels

(QAP page 19)

A number of tax-exempt bond projects that have failed have involved the rehabilitation of older developments. In most cases those developments have failed to provide an adequate level of rehabilitation at the time of the transaction and that has undermined the long-term economic viability of the development. The lesson is that rehabilitation should be required to bring a development up to near new standards.

Many of the poorest conceived and most problematic developments are rehabilitation applications that involve $15,000 or less per unit in rehabilitation. Allowing these type of transactions encourages the flipping of older properties primarily for the purpose of gaining developer fees or reducing tax liabilities through transfer to nonprofit ownership. A mere change of ownership is not a compelling purpose to award tax credits except in a few exceptional circumstances that can be addressed in a proper definition of at-risk units.

The $15,000 minimum rehabilitation threshold is too low. We recommend that TDHCA review and consider increasing it. TDHCA should include a list a critical major components of the development that must be brought to a like new conditions.

An appraiser working for TDHCA who is independent of the developer should objectively and independently assess the proposed rehabilitation needs of the development.  No application should be financed with tax credits unless truly substantial rehabilitation is going to take place.

ISSUE 8 — Elected official letters

The Dallas public corruption case offers ample evidence that relying upon a single elected official to make a determination as to whether a tax credit development gets the points it needs to move forward opens the door for abuse, bribery and extortion. Local elected official input for purposes of awarding points to a tax credit development should only be considered if the local governing body as a whole provides the input.

TDHCA should develop objective standards that would form the basis of the request for elected official input. Presuming that a truly independent market analysis is put in place, the need for the housing should not be one of the requested areas for elected official input.

Local elected officials commenting on an application should be invited to submit any community revitalization plans, HOME plans, etc. and indicate whether, based on these plans they feel the development should be approved or denied and why. The state and local government obligation to affirmatively further fair housing should be a topic they are invited to address in the context of their recommendation.

ISSUE 9 — Bribing neighborhoods

(QAP page 34)…

The penalties need to be enhanced for violation of this section. We recommend a three-year debarment.

This practice appears to be ongoing. See: http://texashousers.net/2009/07/29/50000-was-the-price-for-community-support-for-affordable-housing-in-dallas/

ISSUE 10 — Area resident notification through signage and letter

(QAP page 40)

Low income housing is one of the few activities that a private developer can undertake in the state of Texas that triggers public signage and notification processes. You can drill a gas well next door to somebody’s house and you don’t have to put up a sign to notify them in advance. What is it that these notification requirements concerning affordable housing are protecting the public from?

The truth is that the signage requirements represent an official expression that the State of Texas believes that there is something for surrounding property owners and the public at large to fear from low income housing. Otherwise, what is the point of providing this extraordinary level of public notification?

Do homeowners living adjacent to a proposed elderly housing development need to live in fear that old ladies with walkers will threaten the peace of their neighborhood? Are not the protections of city ordinances and zoning powers supposed to control proposed development? If so, why is this extra level of notification necessary for affordable housing? Why are these notices required only of developments financed through the Texas Department of Housing and Community Affairs? Why are not privately financed housing developments required to provide the public the same type of notices?

This is absurd and offensive. The property is not being zoned. Presumably that has already taken place.

Any public notice provisions not strictly required in state law should be struck from the QAP.

ISSUE 11 — Appraiser should be selected by the department

There is no reason to allow a tax credit developer to shop around for an appraiser who will provide an inflated value estimate. Banks do not allow this. TDHCA should not either.

ISSUE 12 — Community input standards

(QAP pages 46-47)

Many hours of contentious community debate occurs over whether an individual application should be denied based on the need for the housing, its impact on schools and community services and the traffic impact. There are no standards for evaluating these factors or for deciding what constitutes a basis for denying an application on the basis of these factors. We recommend that this be addressed in the QAP.

The independent market analyst, working for TDHCA should also prepare, or contract to have prepared, a school, community service and traffic impact statement for the development based upon objective standards set out in the QAP. The criteria to be used in conducting these assessments and the thresholds to be used uniformly for disqualification of an application based on these factors should be incorporated in the QAP.

Provided the QAP requires an independent market analysis that is expert and unbiased, the public needs to be informed of the independent nature of the market analysis. The public should be informed that the rebuttable presumption is that these independent assessments are correct and that the threshold for disqualification of an application is set out in the QAP.

Community input and award consideration should be given project design factors, tenant services and the like.

ISSUE 13 — Quality of the units

(QAP page 48)

We recommend including points under amenities if a development is built in conformance with the Green Community Initiative, http://www.greencommunitiesonline.org/

HUD, housing authorities and affordable housing builders are embracing this initiative as a reasonable and practical alternative to LEED.

ISSUE 14 — Tenant services

(QAP page 51)

TDHCA should award points to developments at two levels of tenant services: basic services (required of every development) and enhanced services.

Basic services should receive no points; enhanced tenant services, funded at a minimum of $5,000 per month in 2009 dollars, adjusted for inflation, should receive eight points. Tenant services agreements should be included in the Land Use Restriction Agreement (LURA) and monitored through the regular compliance monitoring process.

We propose that TDHCA employ a Tenant Opportunities Coordinator (TOC). The TOC would have a MSW or better and be knowledgeable about anti-poverty programs and strategies. Supporting the TOC would be an advisory commission known as the Tenant Initiatives Commission (TIC) composed of social workers and other experts. The TIC would work with the TOC to develop a list of baseline services that all developments would be required to provide. TDHCA would require each development to provide a fixed amount of funds from income to fund tenant services with an inflation-escalating clause. A tenant services plan would be submitted yearly to TDHCA detailing how these funds would be spent in conformance with the list of approved baseline tenant services. As part of the regular monitoring for compliance, TDHCA would ensure that the services were actually provided.

A development proposing enhanced tenant services would, at the time of initial tax credit application, submit a plan for those services. A range of points would be available based on a list of programs approved by the TOC. The developer’s plan would be reviewed and scored by the TOC. Any deficiencies in the plan would be noted and the developer would have an opportunity to address those deficiencies prior to final scoring of the application.

ISSUE 15 – Reduce incentives for senior only housing

There are too many senior applications being approved relative to family developments. TDHCA’s policy should be to encourage intergenerational developments. To accomplish this we recommend reducing incentives for elderly segregated housing in the QAP.

The Board of Directors of the Texas Department of Housing and Community Affairs approved today a plan to use the Tax Credit Exchange Program (TCEP) to provide financial incentives to low income housing tax credit (LIHTC) developers to provide 10 percent to 20 percent more apartments in their new developments for Texans with incomes at or below 30 percent of the area median family income — the lowest income category served by housing programs.

I blogged earlier about the TCEP and its potential to be used to put a dent in the state’s huge deficit of apartments affordable to these families near the bottom of the income ladder.

TDHCA’s new program is the most significant effort the State of Texas has ever undertaken to provide housing for the neediest category of families in the state.

The TCEP was created by Congress and the Obama Administration in response to the collapse of the market for housing tax credits brought on by the current national economic crisis. Prior to the crisis, recipients of low income housing tax credits, developers who construct and manage apartments affordable to lower income families, sold the tax credits to large institutions such as corporations and banks that could apply the tax credits to offset their tax liabilities. With the current diminished tax liabilities and a number of other economic conditions, the market for these tax credits has dried up. TCEP allows the state (which administers the housing tax credit program) to return the unused credits to the federal Treasury and receive cash.

Housing tax credit developers speaking at today’s board meeting were unanimous in their opposition to the incentives the board adopted. They urged the board to award developers the extra funds and not to require any additional apartments to be set aside at lower rents for lower income tenants.

Sarah Mills and Belinda Carlton, advocates for Texans with disabilities and I testified in favor of the set-aside incentives.

The TDHCA board’s unanimous action today will offer an incentive to tax credit developers in the form of enhanced value for the tax credits they return, provided the developers agree to increase the number of apartments set aside for families earning 30 percent of the area median income in urban areas and 40 percent of the area median income in rural areas. Developers will receive 77 cents for each dollar of tax credits if they provide no additional units, 81 cents if they increase the affordable apartments by 10 percent and 85 cents if they increase affordable apartments by 20 percent.

This is truly an historic decision that will have unprecedented positive impact on the lives to most needy Texans.

According to Census Bureau calculations published in the TDHCA State Low Income Housing Plan and Annual Report, in 2000 there were 418,681 Texas households with HUD defined housing problems earning less than 30 percent of the area median family income. This is by far the largest economic group in the state with housing problems. Traditionally, the LIHTC program targets all but a small fraction of the apartments created under the program to families earning 50 percent to 60 percent of the area median.

My compliments to the staff and board of the Texas Department of Housing and Community Affairs for this major commitment to expanding affordable housing opportunities to the most needy Texans.

The Texas Department of Housing and Community Affairs announced new down payment assistance programs for first time homebuyers. These programs will help fulfill the down payment need for many first-time Texas homebuyers.

Below are some bullet points:

• Borrowers must have a 620 or higher FICO score
• TDHCA has three different programs to use: 90-Day DPA Program (FHA Only), Mortgage Advantage MCC, Mortgage Advantage Bond
• Borrowers can receive up to $7k from the 90-day program and up to $6k with the others
• Borrowers must be first-time homebuyers (or not owned a home in the last three years) – TDHCA will verify this with previous 3 years’ tax returns
• Borrowers must qualify with the payment in their ratios – $323/mo with the 90-day program and $120/mo with the others
• Income limits do apply – $75,000 single buyer, $150,000 married buyers
• Borrowers must occupy the property for 3 years or the IRS will recapture the assistance in the tax year the property is sold
• $250 cashiers check from borrowers to TDHCA is required
• TDHCA is telling us to expect 20 business days from submission to closing…..This is important. DO NOT expect a 2 week closing. I would advise at least 45 days to be safe.
• Funds are first come first serve and rather limited

Again, this will be a great program which will help many Texans buy homes.

For more complete details, call Chad Underwood at (972) 672-1744.  Chad@NorthTexasHomeFinders.com, www.NorthTexasHomeFinders.com

The Low Income Housing Tax Credit program in Texas is sometimes more about the developers making money building housing and less about the needs of people who need housing. Evidence of this fact can be found in the ongoing public corruption trial of housing tax credit developers and elected officials in the Dallas federal district court.

Let me quickly point out that the great majority of housing tax credit developers are honest business people who struggle to do good work. The state staff overseeing the program are first rate and work tirelessly to make the program work. The problem is that the way the program is set up it too often rewards the other type of developer.

Evidence presented in Dallas federal district court thus far depicts developers, elected officials and so-called community activists never expressing any concern about families who need housing. They’re too busy manipulating one another trying make some money on a housing tax credit “deal.” Housing tax credit development comes across as a parasitic, cynical, amoral, perverted, greed driven culture.

The news media has done a good job of laying out the crude shakedowns that local officials are alleged to have engaged in. That is the story the headlines tell and I won’t replay that evidence here.

This scandal was incubated in a mixture of bad local government and flawed housing program competition laws that combined to allow corruption to take root. There are a number of contributing factors:

• a city zoning process in Dallas in which the worst aspects of ward politics are in place, giving a single local council member and their planning commission appointee effective veto power over development proposals in their district;
• the Dallas City Council that acts on politics and grudges, devoting hardly any effort to understanding even the rudiments of affordable housing policy or community needs;
• state law that mandates a scoring system for awarding housing tax credits that gives elected officials effective veto power over affordable applications;
• a state housing tax credit program that does little to foster competition among housing developers in the quality and affordability of housing they build and instead rewards political competition among developers.

We need to focus state level reforms on these last two factors. The tax credit program operated by the State of Texas has allowed competing developers to provide a de facto minimum standard product and offered too few incentives to do more. Competition is not directed at producing a better, more affordable housing product. Developers can get away with the minimum requirements in quality and affordability if they can secure the right mix of political support of local officials and community “leaders.”

The financial rewards offered to successful applicants for housing tax credit developments is excessive, so much so that developers are drawn to the Texas housing tax credit program in droves. Competition for the huge payout of securing a tax credit “deal” is feverish. Unable to win through a competition by building a better product, developers turn their competitive energy instead into manipulating the decision making process by drumming up phony community support and making political payoffs to edge out their competition.

The solution must include:

• adopting an objective needs-based process for deciding where to build low income housing tax credit developments;
• taking individual elected officials out of the position to pick which competing development is built and allowing local governing bodies as a whole input in these decisions only on the basis of specific objective criteria;
• taking away veto power of community and homeowners organizations which, when they are not acting on the basis of irrational prejudices, are often the fictional creation or pawns of housing developers; and, above all,
• readjusting the scoring system for housing tax credit applications to build serious competition back into the program to challenge developers to spend their time and money building higher quality, more affordable housing for those Texans most in need.

A handful of local officials, and perhaps some developers may be sent to prison in the wake of the latest Texas housing tax credit scandal. But it is the culture of unrestrained greed, operating in a system based on flawed decision making and a lack of adequate competition to provide quality and value, that has taken root among a few in the Texas housing tax credit program that is the true crime.

I haven’t discussed it much yet, but there’s a lot to be said about the new Low Income Housing Tax Credit Exchange Program (TCEP) recently authorized by the federal government. One of the things that needs to be said immediately is that as the state begins to structure how it is going to operate the program it needs to be careful to prevent the program from  becoming a financial windfall to developers that deprives the program of funds to build more affordable housing.

I’m not going into a lot of detail here about the TCEP. I’ll be talking a lot about it a lot in coming weeks. But I do want to lay down my marker regarding considerations for Texas Department of Housing and Community Affairs (TDHCA) should be taking to operate the program in a financially prudent manner.

TDHCA will be in a position to determine how much of a developer’s fee LIHTC housing developers are allowed to collect. In prior years, large urban LIHTC development had the potential to allow a developer to collect a $2 million-$3 million fee.

Under the TCEP program TDHCA is basically baling developers out who were unable to sell tax credits into the private market because of the recent financial downturn. A number of developers with pending applications had counted on receiving $.75 on the dollar or more by selling their housing tax credits. But nowadays nobody is buying tax credits. So the TCEP program allows TDHCA to sell the tax credits that are turned back into the state housing agency by private developers to the federal government. This is instead of private developers having to continue the fruitless effort to sell the tax credits into the private sector and the housing tax credits eventually being lost because they cannot be sold.

Once TDHCA recovers the tax credits from a developer whose application cannot go forward, TDHCA needs to carefully consider the public interest in how it utilizes these recaptured tax credits. TDHCA should not move forward under an assumption that it has a moral obligation guarantee high profit margins of housing developers who cannot make their deals work because of the current financial situation. The  state agency’s moral obligation is to maximize the effective use of the public funds and to create the highest quality and most affordable housing that it can with the limited public tax credit resources.

Therefore, TDHCA needs to tell the developers returning tax credits that it is not going to give them the same level of developer fees that were built into their applications many months ago before the current financial crisis. The economic realities of the country and the economy of the development industry has changed in profound ways. Profits that were available to housing tax credit developers two years ago should not be guaranteed by the government.

I would favor that the developer fees paid under the TCEP program be capped at a reasonable profit level of 5% to 10%. I know that’s going to make some developers scream, but that’s plenty of profit to continue to attract developers to continue to participate in the program.

The taxpayers money should not be doled out by a state agency to guarantee housing developers profits at levels that ignore the current economic reality.

To assist Texans in purchasing their first home, the Texas Department of Housing and Community Affairs (TDHCA) created the 90-Day Down Payment Assistance program designed to help buyers with their down payment and closing costs.

Eligibility:

* First time home buyers purchasing a home – new or resale that will be used as a principal residence.

* First time home buyer who has not owned a principal residence during the 3-year period prior to purchase.

* The income limit for single tax payers is $75,000; the limit is $150k for married tax payers filing a joint return.

* Home purchases must occur on or after 1/1/09 and before 12/1/09.*

Requirements:

* Each home buyer is required to complete a pre-purchase home buyer education course.

* Home buyers must be eligiable to claim the federal first-time home buyer tax credit.

* Home buyers must complete the IRS form 5405 and file an amended 2008 IRS federal tax return. **

Assistance:

* 5% of the first lien mortgage amount up to a maximum of $7,000 for down payment and/or closing cost.

* The first 90 days, 0% interest to encourage borrowers to payoff the second lien with their tax credit refund.

* Those who opt not to repay the down payment assistance loan within 90 days will result in a monthly payment of principal and interest for two (2) years with an interest rate of 10% and an APR of 13.632%***

For more information on buying, selling or leasing commercial or residential property anywhere in the world, contact Nicole Tucker, licensed agent with Keller Williams, Dallas Preston Road office at 972-992-8204 or visit my website at http://www.NicoleRE.com.
Nicole Tucker ~ Making Real Estate Real Easy!

This is being provided for informational purposes only and is not an offer of credit. *Federal tax credit of up to $8,000 available to first-time homebuyers who close escrow on or before November 30, 2009. Income

limitations apply. Amount of tax credits, if any, are not paid to buyer upon close of escrow. Buyer must claim the applicable tax credits on buyer’s federal income tax returns. Not all buyers will qualify. **This information is

provided for general guidance only and does not constitute tax advice. Please consult an accountant or attorney for your particular situation. ***Using this scenario, a home buyer borrowing $7,000 would have a second lien

note of approximately $323 per month. DHI Mortgage Company, Ltd. TX Mortgage Banker Registration 44608-3716/Regulated Loan 1181-10085. 4302 Miller Rd., Rowlett, TX 75088. REVISED ON 06.25.09.

How many times do we have to hear the story before we fix this problem?

Let’s sum up the response to the plight of hurricane survivors with really low incomes…

• The federal government is slow and bungling in providing housing;
• The state government has problems designing an effective housing program and  once the program is designed is either unconscionably slow or completely fails to help poor disaster victims; and
• Local governments throw up obstacles because they would just as soon the poor not move back into their communities.

We are reminded of this once again in an excellent Washington Post story by Spencer S. Hsu that ran Saturday.

This time the multilevel failure is illustrated in the Katrina Cottage pilot program.

The Heston House, a FEMA alternative housing pilot program being developed in Texas.

Hsu tells the story of a 74 year old Mississippi man, who dropped out of school at age 9 to work in a sawmill to help his family earn a living. His home destroyed by Hurricane Katrina, he is now living in a cramped 300 square foot government trailer while across the fence from his trailer set 700 brand new, empty Katrina Cottages.

The FEMA Alternative Housing Pilot Program, aka the Katrina Cottage Demonstration Program, offers an interesting lens through which to view the actions of each level of government toward the effort of rehousing low-income hurricane survivors.

The pilot program was begun on September 15, 2006 with FEMA’s announcement that it would make available $400 million to test home models to, “evaluate the efficacy of nontraditional short and intermediate term housing alternatives for potential future use in a catastrophic disaster environment.” FEMA announced contracts with Mississippi, Louisiana, Texas and Alabama to undertake the demonstration programs in early January 2007.

The results have been, to put it mildly, disappointing.

Hsu reports….

Mississippi built 3,075 [Katrina] cottages, but many local jurisdictions refused to grant permits or alter zoning codes, apparently concerned that the small structures would lower property values. The state retreated, limiting the cottages for temporary use, and more than 1,800 families remain in them.

Louisiana has done even worse. The state received $75 million to build its own version of the cottages. In two years, the program has been shuffled between state agencies, gotten tied up in a contracting dispute and has yet to complete a single cottage. The first is to be delivered later this year.

While Hsu does not explore the problems in Texas I can attest the story is the same.

In 2006 I strongly urged the Texas Department of Housing and Community Affairs (TDHCA) to apply for funds from FEMA to carry out a demonstration project. I believed at the time, and still believe, that Katrina Cottages offer a better, more cost-effective temporary housing solution for hurricane survivors than the traditional FEMA trailer. But rather than the traditional Katrina Cottage model, I believe the best solution is to develop a variant of the Katrina Cottage to be used both for temporary housing and incorporated into a permanent rebuilt structure. In this manner the money invested to build the Katrina Cottage is not lost as permanent replacement housing is built.

Consider it from both the perspective of the government and the hurricane survivor. A Katrina Cottage costs around $70,000 to build and move onto a homeowner’s lot. It’s much better for the taxpayer and the homeowner to figure out a way that this $70,000 public investment is turned into permanent housing so that the government does not need to pay to haul off the Katrina Cottage while putting up additional money to build a permanent house. A permanent Katrina Cottage also means the homeowner does not need to take out as large a loan to get their home rebuilt.

Unfortunately, citing time constraints and the design of the FEMA grant competition, the State of Texas did not participate in the development of a sound concept for its Katrina Cottage submission. Instead, the State released an RFP to private manufactured housing developers based on FEMA’s poorly thought out and unimaginative program description. The State of Texas left it to the manufactured housing developers to propose a demonstration program for FEMA to fund.  The result were proposals for only temporary housing solutions. I believe the State itself should have been involved in narrowing the housing concept to a permanent housing solution that was appropriate for the situation facing hurricane survivors in Texas. To compound the problem further the state submitted, virtually verbatim, a half dozen or so of the submissions that it received from manufactured housing developers to FEMA for consideration in the Alternative Housing Pilot Program instead of picking out and submitted the best.

FEMA’s national selection panel sought to select a wide variety of different alternative housing approaches from among the submissions of the states. Since Louisiana and Mississippi had elected to submit a traditional Katrina Cottage, when it came time to review the Texas application the selection committee was looking for something completely different — a highly temporary, modular approach.

The alternative housing pilot program model FEMA decided to fund for Texas certainly met the criteria of being “different”.

The Texas pilot program, known as the “Heston House” is single-family pre-fabricated, panelized house that can be disassembled to fit in a standard 8’ x 20’ shipping container. The house makes sense only as a rapidly deployable temporary housing unit. The unit can be pre-positioned, stored flat to allow multiple units to be transported. It can be constructed in as little as eight hours by a six person crew. It is an interesting idea for a highly specialized housing need.

While the strength of the Heston House is its ability to be shipped in a relatively small container and erected quickly, it’s weakness lies in the fact that it looks like a glorified shipping container with a porch added. The house is not, by any stretch of the imagination, a conventional looking structure that would be welcomed into existing neighborhoods. It closely resembles a single wide mobile home.

As in Louisiana and Mississippi, the program is off to a glacially slow start in Texas.

In the 18 months since receiving the contract from FEMA, a total of seventeen families have been approved to get one of 60-70 temporary units authorized. Only two Heston Houses are complete and occupied. The project was funded with a $16 million FEMA grant. By my math that is more than $228,000 per house, but in fairness, there is a lot of extra program and administrative funds associated with this project because it is a demonstration program. The intent is to make about 50 of the houses available as permanent housing units and 20 as temporary housing units. The temporary housing units are set to be disassembled and stored at some future date in order to test the viability of reusing the houses.

The main challenge Texas faces with the Heston Houses is that they are not a desirable permanent housing solution and will not be acceptable to most cities and neighborhoods. And today’s need is for permanent housing.  If Mississippi cities were reluctant to accept Katrina cottages, I can only imagine the opposition from neighborhood associations and cities when they get a look at the Heston House. That said, TDHCA is negotiating with the City of Houston to put 60 of these “units” on a single site for housing people displaced by Hurricane Rita to Houston.

I will wager these will go out in some remote area by themselves and not in an existing neighborhood. A “community” of these homes is going to look quite similar to a single wide mobile home trailer park. I will also wager that if 60 of these units go onto a single site there will be problems with management and conditions for the tenants.

I hope someone proves me wrong.

I don’t know a lot of people who think it’s a real good idea for government, four years after a hurricane, to set up a large community of low income hurricane survivors, displaced from another part of the state to live in housing of this type. Shouldn’t we be focused instead upon permanently re-housing the survivors? With a different type of housing with a more conventional appearance the odds of this succeeding would have been measurably greater.

But the real solution, and the promise of the Katrina Cottages, was to re-house people quickly in the communities and on their lots where they lived in prior to the hurricane, not to pick people up, move them across the state, and put them in a large community of single wide mobile homes.

The Heston House model might have worked had it been carried out in the way it was designed — as temporary housing for disaster victims, not permanent housing. What went wrong with the Heston House experiment is that the government bureaucracy both at FEMA and at the State of Texas could not respond to the opportunity to use the Heston Houses as temporary housing for Hurricane Ike survivors. Now the state is trying to pound this square peg solution into a round hole reality.

This is not intended to be an indictment of the state housing agency. The people at TDHCA have knocked themselves out to try and make this pilot program work (after agreeing to a flawed approach). Yet the state housing agency, overwhelmed by the scope and size of recent disasters, is attempting to develop and administer programs in areas where state and local governments have little if any practical experience. The fact that state government is trying is of little consolation to impoverished hurricane survivors still searching for a home. Nothing so clearly points out as this experience the need to develop a capable program innovation and planning capacity within state housing agencies.

So here we have yet another illustration of the failure of the federal, state and local governments to adequately respond to the housing needs of low-income hurricane survivors.

• The federal government was slow to implement the alternative housing pilot program and ended up funding an inappropriate model for the situation on the ground in Texas.
• The state, lacking the time, resources and expertise to design an appropriate solution, ended up submitting virtually all of the models it was offered by private sector bidders no matter how inappropriate.
• Local governments, having essentially abdicated their responsibility to provide a way for their low income citizens to move home, will now be in a position of reacting to the federal and state initiatives. If my prediction is correct, local governments will reject attempts to develop a large community of this “alternative housing” without offering any alternative.

Low income hurricane survivors will have no choice but to continue waiting and hoping that a real workable solution to their housing problem someday emerges.

Hsu’s summary of the situation in Mississippi and Louisiana is equally applicable for Texas.

The federal government has poured more than $25 billion into aid for individuals, emergency housing and state rebuilding block grants. But states have lagged in developing long-term solutions for dislocated families, in some cases using funds for economic development projects or drafting poorly designed programs.

I agree.

I have previously expressed concerns about how the new Neighborhood Stabilization Program (NSP) can be successfully implemented. I attended a public hearing last Friday in which officials of the Texas Department of Housing and Community Affairs (TDHCA) explained their proposed rules for how the program would be carried out.

The NSP program is an attempt to allow local communities to purchase foreclosed properties and to either rent or resell those properties to low income families. Any time a new program like this comes along there is a scramble to figure out how to best carry it out and to establish rules and procedures governing the use and distribution of the funds.

The now regular battle between the Department and its nonprofit contractors surfaced during last week’s public hearing. TDHCA’s governing board has, as a matter of policy, insisted that funds made available by the Department to contractors take the form of loans instead of grants. This stems from a desire to maximize the amount of funds returned to the Department so that the funds can be “recycled” to additional projects. A secondary concern of the Department’s has to do with accountability to HUD. Money advanced as loans to families buying homes under the NSP program constitutes “program income” in HUD’s eyes and the state is on the hook for the proper use of these funds.

From the perspective of the nonprofit contractors they would like to be able to hold on to the money as it is repaid by the borrowers so that they can assist other families. While there is a significant amount of money available for the program, the amount going to any one particular contractor is not that large. Thus the contractors face the prospect of designing and implementing a program that serves relatively few families over a short duration. Many potential contractors question whether it is worth their time and effort to set up to undertake such a program.

Aside from this issue between the Department and its contractors there are a number of other important public policy questions. Principal among these are:

• Will the program be administered in a manner that expands the opportunities of low income and minority families to move outside traditional areas or will it reinforce existing segregated housing patterns?
• Will the program be truly affordable to very low income families (those earning less than 50% of the area median income) or will they be effectively excluded from the program due to underwriting and loan terms?
• How can the program be designed to help very low income families buy foreclosed home and not get in trouble and face foreclosure in the future due to their often tenuous low incomes?
• Will rental housing purchased under the program end up housing very low-income families or will it instead be relegated to higher income households who can pay market rents?
• While HUD requires contractors to each provide a sizable portion of their funds to assist very low income families, how can TDHCA ensure that the contractors actually follow through on this commitment?

Here are our answers to these questions that we have submitted to TDHCA…

1) In order to further the obligation of TDHCA and program recipients to affirmatively further fair housing in compliance with the HUD regulations I recommend that an absolute priority be given to applications for activities involving the purchase of rental housing in “high opportunity” and nonminority segregated communities for use in conjunction with a “moving the opportunity” or other affirmative fair housing marketing program.

2) In order to affirmatively further fair housing the Department should require applicants to adopt a fair housing marketing plan that effectively assists minorities to consider housing opportunities for the purchase of single-family homes in nonminority majority communities. The Department should review these plans to ensure their adequacy and effectiveness and should require reports of all applicants regarding the race and national origin of program beneficiaries and the ethnic composition of the census tracts the beneficiaries purchased housing in.

3) In lieu of a down payment families purchasing homes under the program that have incomes below 50% of the area median family income should be allowed to participate in a state certified self-help housing program for Habitat for Humanity program through which they could substitute “sweat equity” in lieu of a down payment.

4) The cash down payment requirement for families with incomes below 50% of the area median family income should be reduced to $500.

5) Homeownership counseling should be required of all families purchasing homes under the program. The counseling should be provided by a HUD certified housing counselor. The Department should prescribe minimum requirements for prepurchase homebuyer counseling. The quality of the counseling is essential to the success of the program and the Department should invest the necessary funds to ensure the quality of the homebuyer counseling.

6) In instances where the local sponsor has a demonstrated capacity to successfully service mortgage loans of extremely low or very low income borrowers the Department should allow the local sponsor to provide loan servicing.

8 ) In all cases involving loans to families earning less than 50% of the area median family income, special provisions should be made within the structure of the loan to allow flexible terms to avoid future foreclosure. The borrower should be made aware of these special loan terms through the prepurchase homeownership counseling. The Department should establish procedures that recognize the precarious situation of a borrower at 50% of median family income. Any temporary loss of work, caused by the broader economic circumstances our nation faces or by family illness or family break up will likely place the borrower in loan default. The way to accommodate these situations and to prevent foreclosure is to build into the loan a process for loan abatement or payment reduction triggered by specific circumstances identified by the Department. Upon application by the borrower the Department would automatically agree to abate loan payments for a reasonable period of time or reduce payments by extending the loan term. This could operate in a manner similar to the US Department of Agriculture Section 502 loan. We strongly believe that a failure to build these type of accommodations into the loan product and make the borrower is aware of and encourage them to quickly communicate changing financial circumstances to the Department will result in an excessively high rate of foreclosures among this borrower population.

9) The single-family homeownership loan requirements is supplied in the draft plan are inadequate. The requirements need to be simple and easy to understand.

The loan must be:
- fixed rate loan for 30 years (no adjustables that can change)
- be affordable (X percent of gross income) including taxes and insurance
- lender must escrow for taxes and insurance
- borrower pays not more than 3 percent of the amount of the loan for any and all loan fees paid to any person (lender, title company, courrier, broker, etc.). This way the Department and homeowner can compare the loans apples to apples.

Loan forgiveness should not considered income for tax purposes. Borrowers should not get a 1099 for the amount forgiven each year.

Before the loan can be refinanced or before a second lien can be made including a home improvement loan, or home equity loan, the homeowner must be counseled on the risks, etc. by a HUD approved housing counselor.

10) All rental properties receiving assistance under this program should be required not to discriminate against renters who seek to use a Section 8 Housing Choice Voucher. Minimum income requirements for renters should not exceed those allowed in the low income housing tax credit program as established by state rule.

11) TDHCA should ensure that funding recipients successfully carry out the income targeting requirements under the program by requiring each recipient to demonstrate At regular intervals that sufficient progress has been made on that portion of their plan directed at providing assistance to families earning below 50% of median family income as a pre-requirement for being able to expend any funds received from the Department for programs assisting higher income households.

All of the money coming to Texas from the economic stimulus bill is a great thing. But as the size of the program begins to sink in there is reason to be concerned over the State’s ability to spend so much money so fast.

Two of the programs that are causing the most concern by the low income weatherization and the funds to assist a homeless. Historically Texas receives $4.8 million in homeless assistance funds. Under the bill the State of Texas will receive about $48 million of homeless assistance funds to disperse and entitlement cities and counties will receive even more bringing the total to $103,967,796 for the state.

Speaking in his usual diplomatic style, Michael Gerber, executive director of the Texas Department of Housing and Community Affairs testified before a House committee last week that, “we do believe we will have significant questions about the capacity of those who would be using those funds. … We’ve generally awarded funds in $50,000-$100,000 increments (to 70 to 80 homeless providers).”

If the funds were divided up among existing homeless providers the typical grant amount would go up from the current level which Gerber described to the committee is being “$50,000-$75,000″ to an average of $1.3 million per provider. Many of these state-supported homeless providers are in smaller communities and operate small shelters that simply cannot absorb such a large amount of funds.

The state is going to clearly need to allocate a significant amount of this money for the construction of the transitional housing and single room occupancy housing (SRO)in order to fully utilize this appropriation.

Don’t get me wrong. There is a tremendous need for these funds, so much so that the mayors of the eight largest Texas cities formally requested the Legislature appropriated $25 million of additional funds for homeless assistance in light of the problems they’ve been encountering.

The task facing the state in low income weatherization is even more daunting. Traditionally funding has been about $13 million per year but under the stimulus bill. This year the state will receive $260 million. Eligible households must make below 200% of poverty and the amount of money expended to weatherize a home may not exceed $6,500.

Now, once again, this is not a matter of Texas not needing the money. There is a long waiting list for weatherization services. But instead, the question is how does the state gear up to deliver an unprecedented level of assistance with this massive new infusion of grant funds.

For the most part the program is now administered by community action agencies. Michael Gerber, in his testimony last week, indicated that it was the state’s intent to “fill up the capacity of the existing providers but since this is a place where it goes so far beyond that this is a place that outsourcing makes sense.” In other words, the state is going to gear up and find additional contractors to do weatherization for low-income households.

This is the correct approach.

For years homeless and weatherization programs have limped along with anemic funding levels. The effect has been to reduce the capacity of traditional providers of services to deliver those services at this point. It is absolutely essential that these funds be extended in a timely manner because the receipt of additional funds that may be available through national competitions is dependent upon the successful expenditure of the first round of funding.

Handling the increase in homeless and low-income weatherization funds will require rapid and aggressive implementation of the program on the state’s part along with an unprecedented effort on the part of homeless providers, housing providers, community action agencies  andthe state’s construction industry.

Our country has always valued the principle of home ownership, and despite the recent fallout of the sub-prime mortgage market, generous incentives still exist for first time home buyers searching for a mortgage loan. Between Federal and State-funded programs, there are many options for residents of Spring, Tomball, Conroe, The Woodlands, and Houston.

In the State of Texas, there are three primary sources of assistance for first time home buyers.

1. The First Time Homebuyer Federal Tax Credit
2. The Mortgage Credit Certificate
3. The TDHCA Texas First Time Homebuyer Program

There are also three additional programs for targeted groups including the Professional Educators program, the Homes for Texas Heroes program, and the Home Sweet Texas Loan program. Unfortunately, these programs are current not funded.

The First Time Homebuyer Federal Tax Credit provides an extremely generous $8,000 (as amended in the American Recovery and Reinvestment Act of 2009) tax credit for qualified homeowners purchasing a home in calendar year 2009. Unlike a tax-deduction which reduces your taxable income, a tax credit like this reduces your tax liability dollar-for-dollar.

Previously, this tax credit was a loan that had to be repaid over 15 years, however under the new legislation, repayment is no longer required. This program is not available to everyone. Single taxpayers with incomes up to $75,000 and joint filers with incomes up to $150,000 qualify for the full credit. The credit is phased out at higher income levels. Under previous legislation, you were not eligible for this tax credit if your home was purchased through a mortgage revenue bond program, but this is no longer the case.

The Texas Department of Housing and Community Affairs created the Mortgage Credit Certificate (MCC) program, which is also a tax credit. With the MCC, the qualified homebuyer is eligible to take a portion of the annual interest paid on the mortgage as a tax credit up to $2,000 for each year that they occupy the home as their principal residence. The amount of the tax credit is equal to 30% of the annual interest paid. This credit offsets other taxes paid and effectively increases the homebuyer’s net earnings. Increased income also results in increased capacity to qualify for a mortgage loan, and a potentially larger loan amount. The MCC has the potential of saving the MCC holder thousands of dollars over the life of the loan.

The Texas First Time Homebuyer Program provides eligible homeowners with a grant equal to 5% of the mortgage amount. In order to qualify, your income must not exceed 60% of the Area Median Family Income (AMFI). In certain targeted areas like the Rita GO Zone, family incomes of up to 140% of AMFI can qualify. A “targeted area” is a census tract in which 70% or more of the families have incomes that are 80% or less of the statewide median income or an area of chronic economic distress. Homebuyers purchasing properties located in Targeted Areas do not have to be a first time homebuyer and purchase price and income limits are generally higher. The loans available under this program are 30-year fixed rate loans and lenders are limited in what they can charge for closing costs.

In addition to these programs, there are many other programs available at the Federal and State level, including the Texas Veterans Land Board Housing Assistance Program and programs available through the U.S. Department of Housing and Urban Development. A more complete list of programs and links is available at our web site .

While the current upheaval in the mortgage markets may cause you to think twice about buying a home, home affordability levels are very high, interest rates are at record lows, and programs like the ones we discussed here create attractive financial incentives that should not be overlooked.

It is no secret that rural housing needs have received far less attention than urban housing needs in Texas. A host of new legislation being filed in the Texas Legislature this session seeks to change that.

As I discussed several weeks ago here, the Texas Low Income Housing Information Service, the Association of Rural Communities in Texas and Motivation Education and Training, Inc., working closely with the Senate Committee on International Relations and Trade, sought to understand what initiatives could be undertaken through state housing programs to better meet rural housing needs.  The approach was to focus intensively on the housing needs in three rural counties as a way to get a handle on the problem statewide. Three counties in the Texas Panhandle were selected, centered around the community of Herford.

The Texas Department of Housing and Community Affairs commissioned a detailed market study that served as a beginning point for understanding the unmet affordable housing needs. The organizations involved worked with community groups and local officials to verify the findings of the market study and to gain a more in-depth understanding of the gaps in existing housing programs.

From this process a series of recommendations for changes in state housing programs emerged. Those recommendations are now being translated into legislation. Texas senators, led by the chairman of the Senate Committee on International Relations and Trade, longtime affordable housing proponent Texas Senator Eddie Lucio (D) – Brownsville, have begun rolling out a series of bills based on the Panhandle study area findings.

I will explore the details of these bills in later postings. For now, here is a list of the subject areas of the legislation.

• Improvements to the state’s self-help housing programs to allow rural areas to better access services.
• The establishment within the state housing agency of rural housing ombudsmen to rural communities to help those communities gain access to federal and state housing programs and to inform the state housing agency about how better to meet rural housing needs.
• A pilot program to establish a regional community development corporation to provide the capacity to undertake housing programs across a rural region.
• A pilot program to develop a new, “foreclosure resistant” mortgage lending product to get loans for home ownership flowing again to lower income borrowers, especially in small towns and rural commuities.
• A change in the rules governing the state’s low income housing tax credit program to provide that apartment developments with fewer units not be at a disadvantage in the competition for tax credits. This is important to make housing funds available to smaller cities.
• A rural land assemblage bill that would allow counties and cities to transfer tax delinquent property to entities that would redevelop the land with affordable housing.

One had to feel sorry for Michael Gerber Thursday morning.

Appearing before a subcommittee of the Texas House Appropriations Committee he was forced to listen as as the Legislators were presented a state auditor’s report excoriating the failure of  the state’s initial efforts to provide housing assistance to victims of Hurricane Rita. House members were clearly shocked and outraged over the failures of the program in its early days.

Before Gerber even had a chance to present his budget request or make a case for the real successes the department has achieved over the past several years he was forced to make excuses for the debacle of the State’s initial efforts to provide housing assistance through contracts with the Councils of Governments (COGs).  The state auditor reconted in painful detail how that program was marred by unconscionable delays and poor performance.

The decision to allocate funds through the COGs was not TDHCA’s but the governor’s. It reflected a misplaced desire to transfer authority from the state to “local officials who are closer to the problem”. Tragically, it soon became apparent that those local officials, who had never run a housing program before, flat-out lacked the capacity to carry out a major disaster relief program. The poor performance cited in the state auditor’s reports was largely the poor performance of the COGs and not the state housing agency. Three years later these contracts continue to limp toward a conclusion that has seen the once lofty housing goals of the COGs reduced to a fraction of their original size.

But that didn’t matter. In the end the state housing agency bore the blame.

And despite the fact that it seems unfair, someone in state government has to be held accountable for this failure because the tragic fact is that no lesson has been learned.

The failure of the modest $40 million housing rehabilitation and reconstruction program for Hurricane Rita victims will now be magnified enormously as Governor Perry again has chosen to turn over the funds and attempt to pass off the State’s responsibility for administering disaster relief funds to the same councils of government who failed to successfully administer the first round of disaster relief.

Two years from now, the failures, the recriminations and the audits recounting the next round of disaster relief housing programs will be replayed once again before the same legislative committees. At some point the leadership of our state will learn that it cannot dodge the responsibilities of spending and accounting for federal funds by passing those funds to those who have proven themselves to be incapable of responsibly administering them. By providing the State of Texas $1.3 billion of hurricane relief money for the victims of Hurricanes Ike and Dolly the federal government made the State the responsible administrative entity.

As President Truman said the buck stops here. The governor can try to pass the buck. But when results are assessed and judgements rendered it is the State of Texas that will ultimately be held accountable.

In developing a plan to help Texas survivors of Hurricanes Ike and Dolly rebuild their homes I believe the starting point should be the existing Hurricane Rita housing program operated by the Texas Department of Housing and Community Affairs (TDHCA). For the reasons I detailed in earlier blog entries, I strongly feel that the basic elements of a workable plan are present in the TDHCA Hurricane Rita housing program with its comprehensive, statewide approach.

The plan has some problems, most notably the long time it took to get the program up and running. But now that it is at last in place and building and repairing homes it represents Texas’ best bet to get the housing damaged and destroyed by Hurricanes Ike and Dolly repaired and rebuilt.

There are some changes I believe should be made and there are some additional housing activities that should be included in the Ike/Dolly housing program. I will discuss these in this blog entry.

Before we get into the program details let’s talk about the principles that should guide the design of the housing programs.

1) Allocate the limited disaster funds so that they take care of the housing needs of Hurricane Ike/Dolly survivors as the State’s top priority and relegate funding for government programs to a lower priority. Families’ recovery should come first and government second.

2) Treat all of the Texas hurricane survivors fairly and equitably by affording them access to the same level of benefits and the same programs regardless of the Texas city or county where they live.

3) If, even after making housing the State’s top funding priority, not enough money is available to meet all of the housing needs, Texas should further prioritize funds to help those who have no other resources to get back into housing – in other words, prioritize the poor who have no insurance and cannot obtain a loan to rebuild.

4) Allocate sufficient funds to rebuild rental housing that is affordable at pre-hurricane rents. Texas must recognize that the huge losses of affordable rental housing will not be replaced without the provision of both loans and grants to public housing authorities and private landlords.

Unfortunately, the Hurricane Ike disaster plan proposed by the Texas Office of Rural Community Affairs (ORCA) inherently violates all of these principles by creating not a comprehensive statewide housing rebuilding program but several regional plans each shaped by the whims of local politicians. There is no guarantee that the haphazard disaster recovery program proposed by the ORCA plan, with regional priorities set by local politicians, will not siphon money away from critical housing needs to fund expensive discretionary public works improvements.

In addition to these guiding principles there are several special considerations based on the nature of the communities involved and the characteristics of the hurricane survivors that should be taken into account in designing the housing programs.

1) Deal with the housing needs of both homeowners and renters equitably. Recognize that private and public affordable rental housing cannot be rebuilt without a source of equity to close the gap between affordable rents and the incomes of lower income renters. This means realistically estimating those rental housing needs and not simply providing the minimal funding levels for affordable rental housing prescribed under federal law.

2) Know how much to allocate for each of the rental and owner housing programs. This requires access to FEMA data that it has thus far refused to release. Specifically, someone must compel FEMA to release the FEMA evaluations of individual damage claims for each city and county in a manner that protects the individual privacy of the applicants yet makes the data available for planning. This data is required to determine the amount of damages that have been incurred by households at different income levels and to quantify exactly how much of those damages are not covered by insurance. Short of the disclosure of this information for planning purposes there is no way for the State of Texas to intelligently allocate funds for housing programs.

3) Serious efforts must be directed at overcoming the extreme levels of racial and economic housing segregation that exists in these communities. Simply rebuilding housing in place, and thus limiting low income and minority households to their existing neighborhoods, will reinforce existing segregated housing patterns and will be an explicit failure to meet the requirement to “affirmatively further fair housing” that is imposed upon any governmental entity using CDBG funds.

4) Afford minority and poor families this unique opportunity to break the physical bonds of poverty and move to where the neighborhoods are safer, the schools are better and jobs are more available. Choice of where to live must be built into the housing programs.

5) Use high standards for the design and construction quality of the houses built under the program to improve the quality of the neighborhoods in which they are built. This massive reconstruction program needs to create well designed homes that can enhance the neighborhood. The program should ensure that the design of the houses complement the existing houses in the neighborhood. The repetition of the same design (“cookie cutter” style houses) should be avoided.

6) Design into the housing programs strategies to maximize the long term affordability of the home. Low income families face challenges in their ability to maintain the home, the cost of insuring the house, the tax burden imposed by a new home and the dangers of predatory home equity lenders. The program design needs to incorporate ways to reduce the costs to renters and homeowners through energy savings, enhance durability and minimize costs of maintaining the houses through green building technologies and to establish Individual Development Savings Accounts (IDAs) for low income families.

In the interest of not taxing the readers of this blog unnecessarily I am going to provide only a basic outline of the changes and new programs. There are a lot of important details that I will leave out here that will need to be discussed and incorporated to make the programs work correctly.

Using the guiding principles and bearing in mind the additional considerations I have just outlined, I propose the survivors of Hurricane Ike be assisted through five unique housing programs.

Program #1: Emergency weatherproofing program. This program would undertake roof, door, window and siding repairs as necessary to prevent moisture from entering the house. The purpose is to stabilize the home so that additional damages do not occur before comprehensive rehabilitation can be undertaken either through insurance, private funds or a government housing repair program. The maximum amount of funds expended on the house would be limited to what is necessary to provide these limited weatherproofing repairs and in all cases would be limited to a maximum of $10,000. The program should be administered by the Texas Department of Housing and Community Affairs and should be provided as a grant to the homeowner.

Program #2: Comprehensive rehabilitation or reconstruction. This program would provide comprehensive rehabilitation or replacement of a home. The program should operate under the guidelines of the existing program established by the Texas Department of Housing and Community Affairs for rehabilitation of homes damaged by Hurricane Rita, with the exception that the maximum expenditure under the program should be increased from the existing $70,000 to $80,000 to build a higher quality, more energy efficient home. The program should be provided as a grant to homeowners with incomes below 80% of the area median family income adjusted for family size.

In addition to the guidelines imposed under the existing Hurricane Rita program the program would also incorporate the following:

- Households would have the option to elect to receive a housing voucher in lieu of the repair or reconstruction of their home in its existing location. The purpose of this would be to allow low income families to relocate to a higher-quality neighborhood or in an area of greater job opportunities.

- All housing rehabilitated or reconstructed under the program should incorporate green building techniques and achieve high energy efficiency ratings.

- Households will be required to complete homeowner training to provide information to the homeowner regarding the maintenance of their home and the financial skills necessary to budget to maintain the structure.

- Households will be required to maintain homeowners insurance and flood insurance (if required). The Legislature should develop a special line of homeowners insurance affordable for lower income families living in hurricane hazard areas.

- A pilot test of a energy efficiency program will be undertaken involving at least 20% of the homes rehabilitated and reconstructed. These homes will be equipped with a range of energy saving devices and energy generating technologies. Long-term monitoring of the technical and practical feasibility of various energy strategies along with the economic effect on the households will be carried out through a contract between the Texas Department of Housing and Community Affairs and a state institution of higher education to be selected by the Department through a competitive process.

- A pilot test of a new housing technology demonstration program will be undertaken involving at least 5% of the homes reconstructed. The pilot will involve a design/build program involving competitively selected teams of architects and contractors. The goal of the program will be to test models for rapidly deployable, modest cost single-family homes to be used in future disaster housing rebuilding programs. The model for this program is the Department’s existing Texas Grow Home project.

Program #3: Faith-based/nonprofit housing rehabilitation program. This program would provide grants of building materials to participating faith-based organizations that agreed to comprehensively rehabilitate homes. The program would also provide reimbursement for selected professional construction services such as electrical and plumbing. The materials and professional reimbursement would be provided to the faith-based/nonprofit organizations in the form of a grant so long as the home being rehabilitated was occupied by a homeowner with an income below 80% of the area median family income adjusted for family size.

Program #4: Public housing rehabilitation and reconstruction program. This program would provide grants and low-interest loans and priority access to low income housing tax credits to public housing authorities to rehabilitate or to reconstruct (either on-site or off site) public housing damaged by the hurricane. The program would require the housing authority to replace public housing units on a one for one basis. Program goals would be established so that the developments rehabilitated or constructed through the program met the desegregation and economic integration goals established under the HUD Hope VI housing program. The program would be administered by the Texas Department of Housing and Community Affairs.

Program #5: Affordable rental housing partnership program. This program would provide grants and low-interest loans and priority access to low income housing tax credits to nonprofit and for-profit developers of affordable rental housing to offset losses of affordable rental housing in Southeast Texas communities. The program would be administered by the Texas Department of Housing and Community Affairs. Priority would be given to applicants who propose to construct one and two family rental housing and mixed income, multifamily housing within the areas of town with poverty rates below those of the community as a whole and within school attendance zones of elementary schools rated as exemplary by the Texas Department of Education. Funds for one and two family rental housing construction or rehabilitation would be restricted to housing units affordable to unsubsidized tenants earning not more than 60 percent of the area median family income adjusted for family size. Grants for multifamily development would be provided as necessary to make not less than 10 percent and not more than 20 percent of the rental housing affordable to families with incomes below 30 percent of the area median adjusted for family size. Additional priority would be given to developments which in addition to achieving the extremely low income targeting also sought to provide at least 25 percent of the rental units for occupancy by households earning above 80 percent of the area median family income.

Keep in mind that these are simply the rudimentary outlines of programs. The details will have to be developed. But none of these programs are likely to occur should Texas elect to move forward with the disastrous pork barrel allocation scheme for disaster recovery funds proposed by ORCA.

The Federal District Court for the Northern District of Texas has denied a motion by the Texas Department of Housing and Community Affairs (TDHCA) to throw out a lawsuit alleging the Department is guilty of racial discrimination in the operation of the Low Income Housing Tax Credit Program.  The case will now move forward to a trial on the merits of the allegations.

I reported on the lawsuit back in July.

The lawsuit alleges:
* TDHCA uses race and ethnicity as one factor in its decision whether to award Low Income Housing Tax credits and this factor is a cause of the segregation and other discrimination.
* The use of race as a factor subjects minority tenants to slum and blighted conditions.

The lawsuit, filed by the Dallas-based Inclusive Communities Project can we found here.  The response filed by the State of Texas on behalf of TDHCA can be found here.

On December 11, Federal Judge Sidney A. Fitzwater rejected all of the claims made by TDHCA and ordered the lawsuit to go forward.  The judge’s order can be found here.

As I noted in a previous posting, this a major challenge to the way the State of Texas allocates Low Income Housing Tax Credits.  It is part of the evolving trend that has moved the focus of the national struggle for fair housing to North Texas due to the work of the Inclusive Communities Project and civil rights attorney Mike Daniel.

The Texas Department of Housing and Community Affairs (TDHCA) has received criticism from elected officials over the slow pace of the Department’s program to repair and rebuild homes damaged by Hurricane Rita. As an advocate for low income families’ housing needs I have been following and commenting on TDHCA’s efforts to set up and operate this housing program over the past three years. While I agree the pace of work has been way too slow, on the whole TDHCA has set up a good program given the circumstances.

Because of the slow implementation, some are now suggesting that the State discard all of the work that has gone on to establish what should be a reasonably successful post-disaster housing reconstruction program. Instead of building on the carefully designed TDHCA housing program the State is moving perilously close to implementing a housing program using a decentralized approach, administered by inexperienced local quasi-governmental organizations that has already been tried and proven to be a failure. This would be a tragic mistake.

Confronting the statutory constraints of the CDBG disaster relief funds.

Let’s begin by looking at the constraints TDHCA operated under. Virtually all of the funding for disaster rebuilding assistance came from special appropriations of Community Development Block Grant (CDBG) funds the US Department of Housing and Urban Development (HUD) made available to the State of Texas. The money was made available in two allocations. The initial $74.5 million was provided to the state on January 25, 2006. A supplemental appropriation of an additional $428.6 million of CDBG funds was provided Texas several months later.

The CDBG funds came with the standard CDBG rules about principally benefiting low and moderate income people, but the State was permitted to seek rule waivers from HUD. To its credit, the State resisted the temptation to divert funds for higher income beneficiaries or other purposes and sought few waivers, electing instead to undertake two activities: reconstruction of critical public infrastructure damaged by the hurricane and providing help to low and moderate income people to rebuild their homes.

The track record of the “critical” public infrastructure program, administered in Texas by the Office of Rural Community Affairs has been lackluster at best. Much of the funding has gone to projects that were not by any means “critical”. Funding was used for projects of questionable merit and expenditures were extremely slow despite the fact the program was subject to few of the complications imposed on the use of the CDBG funds for housing under federal law. The ORCA critical public infrastructure program has received virtually no scrutiny from the media or advocacy organizations. I will discuss some of the failures of the infrastructure program in future postings to this blog.

On the other hand, there were significant constraints imposed by federal regulations on the housing program. If the funds were administered by a government agency then houses had to be rehabilitated to meet basic habitability standards. No partial repairs would be allowed. Most significantly and most expensively, lead-based paint had to be removed or abated, as did asbestos. Houses had to undergo review and plans had to be approved by the Texas Historical Commission. An environmental review had to take place. The Davis Bacon Act required contractors to pay the prevailing wage and maintain records.

How should funds be divided between rental and owner-occupied housing?

The choice was made easy by the nature of damage caused by Hurricane Rita. Overwhelmingly the damage was to single family, owner-occupied housing. In appropriating the CDBG funds Congress mandated that 10% be spent on affordable rental housing. Texas elected to spend exactly 10% on rental housing and no more.

What form of assistance should be provided homeowners?

Texas faced two choices in designing its housing program for homeowners: make direct cash payments to homeowners or set up a program to oversee rebuilding and repairs through a government administered program. The Texas governor’s office looked at the Hurricane Katrina homeowner assistance program in Louisiana and decided it did not want to repeat it. There was a strong desire to see that the funds to be made available for housing reconstruction actually got spent on housing reconstruction in the affected areas and were not made available to hurricane survivors to use for non-housing purposes. Whereas Louisiana paid out benefits directly to homeowners, the Texas approach was to provide housing assistance to homeowners through a state administered program that would allow the state to contract for housing rehabilitation or reconstruction on the behalf of the homeowner.

While some might view this approach as paternalistic, we housing advocates concluded that it was probably for the best. Overwhelmingly the homeowners affected by Hurricane Rita came from a low income population, many were elderly and disabled, had limited education and lacked any experience dealing with contractors. In many cases their homes were old and would require extensive repairs to bring them into compliance with current building standards. This made the population particularly vulnerable to exploitation by contractors. The shortage of qualified contractors, when coupled with the virtually complete absence of any consumer protection laws governing home repairs in Texas, dictated that for the best interest of the hurricane survivors the State should have an active role in overseeing the repair or reconstruction of the homes.

Today, several years after this decision was made, I continue to believe the state acted responsibly in this approach.

The decision of the State to act as the contractor, instead of providing a payment directly to the homeowners, triggered the additional CDBG requirements such as lead based paint abatement, environmental review, etc. This necessitated substantial additional work on the part of the State, increased the cost and, as we will see, greatly increased the amount of time before construction could begin. But, as I said earlier, it was the only responsible alternative to protect those who had lost their homes to the hurricane.

Who should administer the program?

TDHCA tried really hard not to administer the housing program directly. This proved to be a mistake. TDHCA first contracted with the local Councils of Government (COGs) to do housing repairs. Each of these organizations that operated within areas affected by Hurricane Rita were given an initial contract to do housing rehabilitation and reconstruction. Today the COGs are still struggling to meet their goals.

Simply undertaking the process of identifying the homeowners to be assisted and qualifying them for assistance ended up taking the COGs years. Ultimately, the COGs threw up their hands and gave up trying to repair homes and turned to simply contracting for replacement homes. Each of the COGs developed their own approach to purchasing replacement homes. Many of the homes that they ended up buying were mobile homes (hardly the optimal housing solution for in areas subject to hurricanes). The cost of the replacement houses varied widely between the COGs. As of today, almost three years after the initial funds were available, these programs are still trying to deliver the extremely modest numbers of housing units that the COGs contracted with the State to provide.

TDHCA grew extremely frustrated with the glacially slow performance of the COGs and resolved to use $223 million of the $428 million second supplemental appropriation of CDBG funds to provide a housing rehabilitation and construction program across all of the Hurricane Rita affected counties. Instead of using the COGs as a middleman, TDHCA would directly administer this program itself.

Unlike the COGs, TDHCA decided to undertake both a housing rehabilitation and a housing reconstruction program. This was vitally important to the successful recovery of the area as many homes did not require demolition and replacement but needed to be repaired. The COGs had been unable to successfully repair any houses over the years that they attempted to operate their housing program.

As housing advocates we strongly approved this decision as necessary to get the funds expended and to provide a uniform and consistent program for the Hurricane Rita survivors.

Which homeowners should receive assistance?

The State could have requested waivers to the CDBG income targeting requirements. But given the large population of low income families who lost their homes and the relatively small amount of available CDBG funds, TDHCA decided to limit the program to households with incomes at or below 80% of median family income for the area. In Southeast Texas this translates into people with very low household incomes. It was these poor families who generally lacked homeowner’s insurance and thus would be left with no ability to rebuild their homes without assistance from the CDBG program.

As housing advocates we strongly agreed with TDHCA’s decision to limit beneficiaries to low and moderate income families. To have extended the program to families with larger incomes through a waiver of the CDBG grant requirements would have diluted the funds to the extent that the lowest income and most needy households, and particularly the elderly and the disabled, would not have access to housing assistance.

Given that most of the choices made by the state were reasonable ones, why has it taken so long to get the program going?

I think it is tragic that it has taken so long to help the survivors of Hurricane Rita get the housing assistance that they need. But I have been around government programs long enough to appreciate just how difficult it is to establish a new program where none previously existed.

The state wasted at least 18 months trying to help the COGs run the housing program. From the very beginning, we urged the State of Texas to administer the housing assistance programs through TDHCA. We pointed out in 1995 that the COGs lacked any administrative capacity and lacked any previous experience operating housing programs. So from January 2006 to mid-year 2007 valuable time was lost in the frustrating effort to try to deliver housing assistance through the COGs.

Once it became clear that TDHCA would have to assume administration of the housing program approximately 8 months were spent in a lengthy process to advertise in bid for third party contractors to oversee the application and administration of the program and the management of the construction contractors. This process probably took too long but was ultimately unavoidable.

Once the project administrator was in place, the process of developing program rules and regulations, applications, and procedures began. The attempt to satisfy all of the government regulations produced an application which was completely unwieldy (over 50 pages long as I recall). The extreme complexity and burdensome nature of the initial application draft became apparent to TDHCA and to its contractors. Given that the overwhelming majority of the hurricane survivors who would be applying for assistance were elderly and very low income households, it became apparent that such a complex application would simply not work. More than two months were spent reworking the application.

This took the process to mid-2008. At that point TDHCA began negotiating through its contractors with homebuilders interested in building the replacement homes. Despite the downturn in the economy few homebuilders stepped up to express an interest and a number of additional weeks were spent recruiting additional builders. Finally, with builders in place, the first phase of the program began — the rebuilding of homes in the coastal community of Sabine Pass.

As this first phase of the construction was about to begin Hurricane Ike hit. This brought all construction activities in the area to a screeching halt as the Gulf Coast dug out once again from a second disaster.

The Hurricane Rita housing reconstruction program is now finally beginning in earnest. TDHCA expects to complete as many as 50 houses each week over the coming months.

What lessons should be learned from the Rita program that should be applied to the program to rebuild homes damaged or destroyed by Hurricane Ike?

The State of Texas and in particular the survivors of Hurricane Rita have paid a high price to put in place the housing program which is only now beginning to produce results. Survivors are justifiably angry and political leaders are indignant over the time it is taken to get the program operational.

But anger and indignation will not get the houses repaired or built. Indeed, an ill-informed, knee-jerk reaction to proclaim the efforts of TDHCA a failure threatens to discard all of the work that has gone on to establish what should be a successful post-disaster housing reconstruction program.

It is absolutely essential that the State of Texas build on all of the good work that has been done to establish this existing program and not waste time starting all over again. The direction that the ORCA Hurricane Ike CDBG disaster plan proposes, essentially Balkanizing the housing rebuilding program by farming it out across several COGs and numerous local governments, will produce the same failed results that characterize the initial efforts of the State of Texas to use the COGs to deliver housing assistance in the immediate aftermath of Hurricane Rita.

Starting over again from scratch would be nothing short of a disaster. Multiple administering entities will cause much higher administrative costs. Multiple administrating entities will result in widely varying levels of assistance to disaster survivors as each government entity establishes its own rules, eligibility guidelines and benefit limits. This will be highly unfair to the disaster survivors.

Furthermore, there is no indication that the COGs will be able to overcome their past inability to rehabilitate homes instead of simply tearing down and replacing them. There is simply not enough CDBG money available to demolish and rebuild every home damaged by Hurricane Ike. The economies of scale that a state level program is able to secure both in administration and in the cost of rehabilitating and building the houses will be lost. Enormous amounts of time will be chewed up as dozens upon dozens of individual jurisdictions work to develop program rules and guidelines and obtain clearance from the State and from HUD.

We need to instead take one more look at the housing program TDHCA has created, make the necessary modifications, and put it to work not only rebuilding homes destroyed by Hurricane Rita but also rehousing the survivors of Hurricane Ike. In tomorrow’s blog I will explore the program changes that should be made before expanding the program to deal with Hurricane Ike.

HUD has allocated Texas $1.3 billion of the $2.1 billion in Community Development Block Grant funds that Congress has recently appropriated for disaster recovery.  Major allocations also went to Louisiana for Hurricane Edwardo recovery ($438m) and Iowa for flood recovery ($125m).

Texas officials had submitted to the feds estimates of about $27 billion for Ike-related damages.  Yet, the $1.3 billion is about what state and local officials expected to receive out of this in initial appropriation.  A supplementary Congressional appropriation of disaster recovery funds is expected from Congress in coming months. The state is hoping for total funding to reach about $4 billion.

Hurricane rebuilding responsibility is now shifting from FEMA to the State of Texas.  The state now faces a series of critical decisions about how to use the federal funds.  The Governor will first decide how to allocate the available funds among the various two types of disaster assistance.  The funds will be divided between public infrastructure and direct assistance to individuals to repair or replace damaged or destroyed homes.

It is our strong opinion that housing assistance should be the top priority.  Getting Texas families back into their homes should be given priority over granting funds to local governments to reimburse their expenses and to carry out various public improvements.  I am pleased to note that Texas Governor Rick Perry generally followed this approach in allocating funds made available for Hurricane Rita rebuilding.  In that disaster repair and reconstruction of housing homes got the lion’s share of CDBG funds.

Congress has set a minimum of $139,595,563 for Texas to spend on affordable rental housing.  This number is only a spending floor.  Given the amount of rental housing damaged by Hurricane Ike this number should be many times greater.  There is no federally established minimum level of spending for restoring owner-occupied housing.

The public uproar over the failure for FEMA to adequately provide for the temporary housing needs of Hurricane Ike survivors in Texas, along with the loud indignation expressed by state officials and members of the Congressional delegation, should serve as a warning to state officials that they had better not short change Texan’s long term housing repair and rebuilding needs for the sake of passing CDBG funds to local governments for other purposes.  While FEMA is responsible for the short term housing of survivors it is solely up to the State of Texas to provide for long term housing rebuilding using these CDBG funds.

Given the rather (how should I say this?) discretionary nature of the expenditures of the Hurricane Rita CDBG funds that were spent for public infrastructure, the Governor would be wise to prioritize housing.  A lot of CDBG funds were spent doing public works improvements that seem to me unrelated to the hurricane.  Local officials actually had the nerve to propose that they be allowed to expend CDBG disaster recovery funds for public works projects that were on lists of regular public improvements, prepared before the hurricane and thus clearly were not disaster related expenses.  The Texas Department of Housing and Community Affairs (TDHCA), which was administering the Hurricane Rita rebuilding funds for the State said no to this misuse of funds despite the urging of the Texas Office of Rural Community Affairs (ORCA).

One thing I can promise is that this time a light will shine on the public infrastructure funding in a way it was not under Hurricane Rita.  Inappropriate, “pork barrel” government agency spending will be contrasted against the unmet housing needs of Texas families.  We and many others will make sure of this.

I hear that ORCA will be the lead agency in charge of administering this next round of Hurricane Ike CDBG funds — which, given that agency’s past track record, does not bode well for the appropriate and responsible use of the funds.  With the enhanced public attention to this disaster the Governor’s office and HUD both better keep an eye out for the proper allocation of this $1.3 billion.

Given the fact that Texas has received only about 30 cents on the dollar for the uninsured housing damages, Texas is going to need all of the funds it can find to help Texans get back into their homes.

ProPublica, an independent, non-profit newsroom that produces investigative journalism in the public interest, is reporting that President Bush is considering a pardon for former Texas Department of Housing and Community Affairs (TDHCA) board member Florida Bell Griffin.

Griffin was convicted and sent to federal prison in a bribery scandal surrounding the Texas Low Income Housing Tax Credit program.  During the trial, prosecutors said that Griffin stood to make at least $425,000 from the deal.  In 2000, she was convicted of bribery, theft and money laundering.  She was appointed a board member of TDHCA by George Bush while he was governor of Texas.

The publication notes that Bush has pardoned more Texans than residents of any other state.   ProPublica ranks the likelihood of a Griffin pardon as a 2 on a scale of 4.