Arkansas public housing looks outward; repairs sorely underfunded, private capital cast as savior

Several public housing agencies across Arkansas are looking to save crumbling housing projects by injecting private capital under a federal program.

The Rental Assistance Demonstration program, formed in 2012 but still in its infancy, is the U.S. Housing and Urban Development Department's latest attempt to shore up the nation's public housing sector while it grapples with decades of underfunding from Congress.

HUD estimates that $26 billion is needed to repair and restore the nation's 1.1 million public housing units, with each subsequent year accruing an additional $3.4 billion in unmet capital needs.

"The nation is losing 10,000 units of public housing every year mainly due to disrepair. Making things worse, this is happening as funding from Washington decreases," HUD Secretary Julian Castro said. "Communities are wondering how they can preserve their public housing in this tough fiscal climate. The answer for many of them is HUD's Rental Assistance Demonstration initiative."

The program aims to make it easier for housing agencies to leverage private funds to help overcome the lack of federal funding.

In Arkansas, 3,000 public housing units in 11 cities are on HUD's rolls for the program. Many of them are shopping for private financiers to help fund tens of millions of dollars in upgrades for the deteriorating projects that house the state's poorest and most vulnerable residents.

North Little Rock has up to $90 million in needed repairs, said Belinda Snow, executive director of the North Little Rock Housing Authority. It's an amount that has been growing over the years as the agency's buildings, which date as far back as 1942, age.

The agency receives roughly $1 million a year from HUD for maintenance and renovations, an amount "that just doesn't work," Snow said.

With no financial reprieve expected from Congress, transferring several of the agency's buildings to private ownership through the Rental Assistance Demonstration program appears to be the only clear path out of dire straits, Snow said.

"We're in a really tight spot," she said. "And we don't really have any other options."

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Housing authorities across the state are in similar circumstances. In Texarkana, faulty sewer lines, aging water mains and drafty windows plague the Texarkana Housing Authority's nine buildings, all built between 1951 and 1967.

"They've all reached their life expectancy, and then some," authority director W.A. "Dub" Wingfield said. "We're looking for somewhere in the neighborhood of $25 million."

His agency receives a $400,000 yearly stipend from HUD for improvements, which is less than half of what the agency was receiving roughly 10 years ago. Today, that money can barely keep up with the physical needs of the buildings. The agency hopes to transfer all of its 389 units under the Rental Assistance Demonstration program sometime next year.

And in Little Rock, the Metropolitan Housing Alliance has applied to transfer seven of its public housing properties -- totaling 788 units -- under the program. The agency has reported that just three of its largest properties -- the Cumberland, Parris and Powell towers -- require $55 million in repairs and upgrades.

Under the Metropolitan Housing Alliance's arrangement with private developer Gorman and Co. Inc., the developer will own the buildings and the agency will hold the ground lease on which the buildings stand. According to Snow, the North Little Rock agency is aiming for a similar arrangement and hopes to finalize a contract next year.

Across the state, more than 27,000 people live in nearly 14,000 public housing units. And roughly 10,000 people live in the units that have entered or are entering the Rental Assistance Demonstration program.

Fundamentally, the program can revamp the funding and ownership structure of a housing authority in a variety of ways. The authority can transform itself into a nonprofit to take out loans or create an auxiliary limited liability company that partners with outside developers or investors.

Incentivized in part by federal tax credits, the private partner would upgrade the property and collect rent from its tenants. Tenants, who are otherwise priced out of the rental market, would sign new leases and be transferred over to HUD's Section 8 rental-subsidy program.

Certain restrictions are set by HUD to ensure that rents remain at below-market rates and that the housing authority maintains partial control over the building. In Little Rock's and North Little Rock's cases, they maintain control by owning the land the buildings stand on and managing the Section 8 program.

Several large cities across the U.S. -- like Chicago, Baltimore, San Francisco and Tampa, Fla. -- also have jumped headlong into the program, transferring large portions of their public housing stock to investors.

The change in those communities, however, has faced critics, who fear pitfalls of privatization.

"If the price of accessing private capital is to put public ownership at risk, then that price is too high," wrote Sen. Maxine Waters, D-Calif., in a letter to the White House in 2014. "A more appropriate and sustainable approach would be for the federal government to provide adequate funding directly to the public housing program."

Earlier this year, the Center for Arkansas Legal Services received grant funding to monitor select housing authorities undergoing the transition to the Rental Assistance Demonstration program. However, after only a month of work, a change in the grant arrangement discontinued its efforts.

Now, beyond routine federal audits, there's no entity in Arkansas ensuring that Rental Assistance Demonstration transitions are adhering to HUD requirements.

"I don't have any reason to think this is a concern here in Arkansas, but nationally people are worried if companies or housing authorities take out debt that they cannot pay," said Kendall Lewellen, an attorney with the Center for Arkansas Legal Services. "What happens if these properties are foreclosed on -- would a bank then run a public housing project? Or dismantle it?"

"HUD has shrank tremendously in the last couple of decades," said Dustin Duke, managing attorney for the Center for Arkansas Legal Services. "HUD's field office here in Little Rock is pretty small. It can't effectively oversee all the housing authorities. There's not enough oversight, because HUD just doesn't have the manpower to oversee the housing authorities that they're tasked to oversee."

Since the Rental Assistance Demonstration program's inception in 2012 through 2015, 185 housing projects had completed the transition, leveraging a total of $2.5 billion in private financing, according to a HUD report.

For every $1 of public housing funds, the Rental Assistance Demonstration program "is leveraging $9 from sources such as low-income housing tax credit equity, private mortgage debt, accrued equity in the land, grants and other funding sources," the report says.

Considering those figures, many local proponents of the program see it as the future of HUD and have noted an increase in interest in the program across Arkansas and the South.

Holly Knight, a Mississippi-based public housing consultant and former HUD director, works with housing authorities across the southern region, including those in North Little Rock, Hot Springs and Paragould. Housing projects in cities big and small are taking the Rental Assistance Demonstration option, she said.

"It's much more viable for the public housing agencies to go RAD than stay stagnant," said Knight. "They are getting out of low-rent public housing, they're doing away with all those program requirements. Once they move to the Section 8 platform, the tenants have the same protections, but the housing authority itself has less requirements."

The Fort Smith Housing Authority became the first public housing entity in Arkansas to sign up for the program in 2014. At the time, the agency had recently completed a demolition and rebuild of Ragon Homes, 170 units of single family and duplex housing. Without the same kind of financial woes that other housing authorities have, the Fort Smith authority was able to finance the rebuild itself.

Instead of signing up for the Rental Assistance Demonstration program out of financial necessity, like some other cities, the Fort Smith Housing Authority decided to enter the Rental Assistance Demonstration program to disentangle itself from HUD regulations over public housing.

"HUD was pushing the RAD program very hard," said Mitch Minnick, the authority's executive director. "It made sense to us from a standpoint of being able to lessen our involvement with HUD."

Similar to Fort Smith, the Paragould Housing Authority chose to enter the program to distance itself from HUD regulations.

"When you're working directly with HUD, there's just constant change in the way things are supposed to be reported to them. Sometimes it's difficult for our residents because of that constant change," Paragould Housing Authority Executive Director David Lange said. "We felt like if we could form a 501(c)3 [nonprofit organization], we could better serve our residents."

Currently Congress has capped the number of units in the Rental Assistance Demonstration program at 185,000. HUD's proposed 2017 budget will raise that cap by 25,000, and the department is pushing to lift the cap entirely. Meanwhile, the program's waiting list grows.

On that list, near the bottom, is the housing authority in Fayetteville, which is proposing to transfer Hillcrest Towers and Lewis Plaza to the Rental Assistance Demonstration program.

"I think we are starting to see this trend -- especially if the housing authorities continue to get checklisted to death, monitored to death, more requirements and no funding to be able to fulfill those requirements," Knight said.

A Section on 12/27/2016

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