Cleaning house at the state

The June 5, 2008 compliance hearing video is 60 minutes. It provides a very useful overview of the issues surrounding compliance monitoring from TDHCA’s and TSAHC’s perspective.
Watch the hearing video.

Last Wednesday the Texas House of Representative’s Urban Affairs committee held a public hearing about strengthening efforts by the Texas Department of Housing and Community Affairs and the Texas State Affordable Housing Corporation to ensure that multi-family housing developments funded by the state agencies are maintained in good condition. The hearing presented an opportunity for both agencies to publicly disclose details of their ongoing efforts to improve their oversight programs.

Credit should be given to Urban Affairs subcommittee chair Rep. Jose Menendez for keeping after this problem. While the housing industry would prefer to focus on regulations and funding allocation issues maintaining the quality of the publicly subsidized affordable housing stock is critical for maintaining public support for the program.

The Texas State Affordable Housing Corporation got in a lot of trouble, and deservedly so, for providing tax exempt bond financing to a host of newly formed nonprofit corporations several years ago to purchase aging apartment projects and to “rehabilitate” them. Within a few years the nonprofits were defaulting on their loans and the apartments had seriously deteriorated. All of this attracted the attention of the news media, which featured the failures of this affordable housing finance deal prominently in the Dallas-Fort Worth newspapers.

At the time TSAHC proposed funding initial the acquisition and rehabilitation I raised our strong objections. It seemed to me at the time, and I think experience has borne this out, that the finance transactions were being undertaken primarily to enrich the parties involved in the transaction and not in the interest of the tenants or in the long term interests of improving the housing. Despite our objections, the Texas State Affordable Housing Corporation and the Texas Bond Review Board went forward with the financing.

The original owners of the properties profited from a higher sales price because the new owners, nonprofits at least in name, were able to secure partial property tax exemption on the properties through the transfer from the original for-profit owners to the newly formed nonprofit buyers. The Texas State Affordable Housing Corporation secured money for itself through bond origination fees and through continuing fees for asset oversight and compliance. While ostensibly undertaken to improve the quality and the long-term affordability of the apartments, the amount of funds dedicated to doing badly needed maintenance and modernization at the aging apartments was extremely paltry. Management problems, continued physical deterioration and the downswing in the rental market combined to produce serious financial problems and eventual financial default at the apartments within just a few years.

Affordable housing programs such as this one feed the public’s negative stereotypes of low income housing programs and erode political support. The damage done by one transaction such as this can cancel out the good work of hundreds of successful low income housing developments.

For this reason the Legislature’s attention to this problem is well-placed.

A couple of years ago the Texas Low Income Housing Information Service and Austin Interfaith worked with the tenants at Fairway Village in Austin, a low income apartment project which had received similar public subsidies for an ownership transfer and rehabilitation. Our work there brought to light that the so-called rehabilitation financed through the public programs was superficial and left serious maintenance issues which threatened the health and safety of the tenants. I wish that I could report that our advocacy fixed the problem, but while a number of improvements occurred problems remain. This development is one that the state agencies are responsible for overseeing. In our work to try to improve conditions in that development we received little effective help from the state agencies.

The testimony from TDHCA and TSAHC leads me to believe that the state understands that it has a problem. Both agencies, at least rhetorically, are establishing aggressive monitoring and oversight programs to prevent publicly subsidized low income housing developments from becoming slums. TDHCA indicates that it has ongoing problems with 35-40 apartment projects, a relatively small but nevertheless troubling proportion of the many developments it oversees. In his testimony before the committee Michael Gerber, TDHCA Executive Director, described an aggressive new program to deal with these problem projects.

Missing from the testimony this week was the voice of the tenants. Only the agencies spoke to the efforts to clean up the substandard conditions.

As for us, the Texas Low Income Housing Information Service will carefully watch the new compliance programs at TDHCA and TSAHC and will work with legislators to build and enact state statutes to implement an aggressive oversight program. We must do so an order to regain the public’s support for low income housing and to protect the lives of the poor who call it home.