Mobtown Beat

Baltimore is about to sell off its public housing. Someone is going to make money-and that's the plan.

It was only a month ago that most Baltimoreans learned that the Housing Authority of Baltimore City (HABC) is contracting to sell off about half of its 10,300 federally subsidized low- income apartments to private companies.

The Baltimore Brew broke the news in a series of stories that irritated Housing Commissioner Paul Graziano and prompted several radio appearances and a March 12 City Council hearing.

But although many people were in the dark about the new program, called the Rental Assistance Demonstration Program, or RAD, it wasn't a secret. Graziano's people had been meeting with low-income housing advocates and posting fliers in the authority's buildings for months.

"They came in here and left notices on each floor" just before Christmas, says Floyd Vines, a resident of the J Van Story Branch senior apartments on 20th Street. "I said, 'What-they going to privatize?' Not that I was automatically skeptical. But I was like, 'This is the guy they send in to take you out.' I was joking with him-'Are you with the CIA or something?'"

The program itself has been known to housing policy insiders since at least 2012. And those who didn't know probably could have guessed what was coming. The Van Story Branch apartments are slated for a "phase two" sale; HABC estimates they need more than $19 million in rehab.

Underlying the arguments and worries about what might become of vulnerable elderly and disabled tenants under the new regime is a policy shift that has systematically diverted federal tax money away from direct housing subsidies and into the pockets of banks and wealthy corporations for nearly three decades.

Since 1986, public housing has been built mostly using the Low Income Housing Tax Credit, which allows a dollar-for-dollar reduction in federal taxes for those who buy it.

While nearly 100,000 new units of low-income housing have been built or renovated annually under this program, the buildings erected in the 1950s and '60s using direct federal subsidies have been torn down-mainly because of lack of maintenance. "HUD estimates a national backlog of deferred maintenance and capital need of approximately $27 billion," the Housing Authority says in a handout it's titled Frequently Asked Questions.

Coincidentally, $27 billion is what the Low Income Housing Tax Credit cost the federal treasury from 2010 through 2014.

The total tax expenditure-that is, taxes foregone by the federal government-from the Low Income Housing Tax Credit since its 1986 inception is in excess of $100 billion.

"I went back and did a little research on the Low Income Housing Tax Credit," City Councilman Bill Henry says. "And, unsurprisingly, it's a product of the Reagan administration. People say it's the most successful affordable housing program ever, and of course it is, because its operation requires that the private sector make money."

Graziano would not have chosen it, but it's the best option he has. "RAD is the best choice because, simply, there are no other choices available to HABC or HUD that have the potential to be this transformative for public housing and its residents," he writes in the FAQ, adding that Baltimore's share of the $27 billion housing maintenance and repair backlog is $800 million. "Given the current climate in Congress, there is no realistic expectation that there will be federal funding available in that magnitude for public housing."

Graziano says that through the magic of the Low Income Housing Tax Credit, RAD will allow HUD to invest over $6 billion nationwide in public housing "without further appropriations from Congress."

"Doing nothing is also not an option," Graziano says. About 1 percent of all HUD-funded public housing is lost each year to lack of maintenance. "HABC is not immune to this trend."

Phase one of the plan would sell 11 publicly owned complexes to private companies that have already won the right to purchase them in a Request for Proposal bid that happened last summer, according to HABC's handout. Eleven more sales will happen in phase two, beginning in 2015.

HABC chose 10 developers to operate the 11 HABC-owned projects. Enterprise Homes will get The Allendale at 3600 W. Franklin, PIRHL Development the Bernard E. Mason Senior Apartments at 2121 Windsor Garden Lane and The Woda Group will take over The Somerset Court on the 600 block of Aisquith St.

Michaels Development gets Pleasant View Gardens on the 200 block of Aisquith; The Community Builders gets the McCulloh Homes Extension at 501 Dolphin St.; Telesis gets The Brentwood at 410 E. 25th Street; Landex gets the Bel-Park Tower (3800 W. Belvedere Ave.) and the Lakeview Towers on Druid Park Lake Drive; Community Preservation & Development Corp. gets Hollins House at 1010 W. Baltimore St.; The French Companies/Community Housing Partners is taking over Primrose Place at 820 S. Caton Ave.; and Pennrose is taking over the Wyman House at 123 W. 29th St.

"The consideration for applying primarily for the mixed-population high-rises is that with only one exception they are all single-building developments and therefore significantly easier to finance through the [Low Income Housing Tax Credit], which HABC had determined was a necessary element of any RAD transaction," HABC says.

Housing advocates have been scrambling to check up on the companies, says Jessica Lewis of the Right to Housing Alliance, an organization led by low-income residents.

Several tenants that work with Lewis' group are named plaintiffs in a class-action lawsuit against Sage Management, a private property management company that specializes in tenants holding Housing Choice vouchers (formerly called Section 8). The lawsuit says Sage charged illegal fees to tenants as part of a systematic effort to squeeze more money from them. Although Sage is not part of the new RAD program, Lewis says the financial incentives inherent in the voucher system-which is integral to RAD-make Sage's alleged violations more likely: "We can see how the private market handles rental housing, you know, and they do a really shitty job."

So-called "market rate rents" for public housing apartments range from about $900 to more than $1,000 per month, according to figures Graziano provided to a congressional subcommittee four years ago. With the federal government picking up at least 70 percent of that figure (and often all of it), the potential profits for private owners and management companies are substantial. Indeed, in recent years buildings subsidized by the Low Income Housing Tax Credit (which do not necessarily rely on the Housing Choice voucher, which pays all the rent due above the amount the tenant can pay using 30 percent of his or her income) have yielded annual cash-flows of more than $600 per unit.

The reason: cheap money. "These younger properties have realized the benefit of low levels of leverage and relatively inexpensive financing," says a 2012 report by CohnReznick, a consultant to the industry.

Thanks to low interest rates-and a 2008 change in the law that effectively guaranteed their profits-investors in tax-credit housing have seen their returns soar in recent years, the report says. While investors in older projects saw returns on their investments in the 6 percent range, recent returns have been above 10 percent.

Yet the tax credit system, like the direct subsidy it replaced, has no built-in guarantee of funds for building maintenance: "Some respondents believe that as properties age, deferred maintenance could become a compounded issue over time and cause decreased DCRs and cash flow," the CohnReznick report allows. DCR means debt coverage ratio-the amount of money the buildings throw off over and above the mortgage payment.

The tax credit system has spawned an industry of syndicators and developers, both for-profit and nonprofit, who now dominate the discussion of low-income housing policy. Companies like LISC-the Local Initiatives Support Corporation-and Enterprise Community Partners leverage grants and tax credits to draw private investment into low -income housing. They feature web sites touting the good work they do, and have banded together with the public housing agencies that now depend on them to lobby against any cuts to the tax break-and for a temporary increase in it, implemented in 2008 and extended in 2012-to be made permanent.

"The Housing Credit is at risk," according to a February "issue brief" on the Enterprise Community web site. Efforts at closing corporate tax loopholes could threaten the tax credit, Enterprise frets. And even if that doesn't come to pass, a recent enhancement that more than doubled the credit to 9 percent (from 4 percent) and effectively guaranteed the yield has expired. "It must now be extended on a long-term basis in order to maintain financial feasibility and administrative predictability for Housing Credit projects in 2014 and beyond," Enterprise insists. There is an "Affordable Housing A.C.T.I.ON." campaign well staffed and no doubt funded by the companies that profit from this complex system of tax expenditures. Nearly 650 are listed.

About 43 percent of all Low Income Housing Tax Credit buyers are financial institutions seeking credit under the Community Reinvestment Act. Banks must lend where they receive deposits, and the tax break counts under the law.

Most of the rest of the buyers do it for the tax shelter, the Congressional Research Service found.

According to the Brew, under RAD, HABC expects to receive about $27.6 million in "developers fees" that can then be plowed back into renovation of the remaining housing units. Graziano estimates 184 units will be renovated.

That's a cost of $150,000 per unit.

Barbara Samuels, managing attorney of the fair housing project for ACLU of Maryland, says she wants to see the plan details to see how and where those renovations will take place. "The focus should be what is the plan for HABC's inventory," she says. "Also, it's a lot [of sale and renovation] at once; it's going to require a lot of administrative capacity. And they may have bitten off more than they can chew."

Vines says he was at the March 12 City Council hearing, and the numbers presented there didn't make a lot of sense to the tenants. "I raise my hand," he says, "They're going to raise millions of dollars . . . you say they going to get a tax break. But I said, 'Wait-you're HUD! You get our rent.'

"They spoke at the meeting about bond issues, and 30 percent this-I looked around the room and saw the dead look in people's eyes."

Edward Ericson Jr.

Cost to renovate 184 units of scattered-site public housing units under RAD: $27.6 million

Cost to renovate each unit of HABC-owned housing, per Paul Graziano's estimate: $150,000

Cost to construct new mid-rise apartments in Baltimore, per square foot: $164 *-source: RSMeans Construction Cost Data (does not include site acquisition or prep or other "soft costs")

Cost to build an average-sized (861 square foot) apartment (per RSMeans): $141,204

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