Affordable housing success story may stop

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March 1, 2004 // UPDATED 9:22 am - April 25, 2007
By: Scott Russell
Scott Russell

Federal vouchers have helped build and preserve affordable housing in Minneapolis. Why is a good thing threatened?

Just as more affordable housing is coming on line in Minneapolis, a one-two punch may short-circuit new units.

First, a major federal program that has helped several new supportive housing developments is tapped out locally. Second, new federal regulations restrict how local officials can subsidize housing developments for homeless teens, poor moms with kids or those with a chemical addiction.

The setbacks come just as state and local leaders, including Gov. Tim Pawlenty, are calling for an end to chronic homelessness. A key strategy for doing that is funding more supportive housing, which provides services for those with problems beyond homelessness. Federal rules may undercut any gains new state money would buy.

Because Minnesota may move backward when everyone expects it to go forward, Minneapolis Public Housing Authority (MPHA) Deputy Director Tom Streitz said he wanted to "raise a flag."

"We have supportive housing providers out there who are running very good programs, who are having great difficulty meeting their operating costs and are struggling," he said.

One Downtown project in rent subsidy limbo is Phase II of the Jeremiah Program, 1510 Laurel Ave. It opened 21 new supportive units for poor women with young children in July.

It still awaits federal approval for rent support. Until then, it has to fund-raise to support the heat, utilities and maintenance -- about $200,000 a year.

The pipeline dries up

At the center of the storm is Section 8, a federal rent guarantee program. Locally run by MPHA, it helps some of the city's poorest residents.

Single people making $16,100 a year or less can get Section 8 vouchers; so can a family of four making $23,000 or less.

Vouchers let renters find private apartments just as any renter would. The vouchers entitle people to pay 30 percent of their income for rent and the federal government pays the rest to the landlord.

However, public housing authorities can also use up to 20 percent of the Section 8 vouchers to guarantee rents in specific low-income unit.

Such "project-based" guarantees don't subsidize construction -- but they help housing programs get critical operating money. The long-term rent subsidies show the governmental agencies and foundations that subsidize construction costs that the project has the financial wherewithal to succeed long term.

For instance, project-based Section 8 provides a significant financial backstop for the recently opened Lydia Apartments, 1920 LaSalle Ave., a 40-unit building with supportive services for recently homeless people.

Project-based Section 8 also supports low-income apartments that don't offer services. That's how the MPHA will support six of the 24 units in the proposed Boulevard development, 5320 Lyndale Ave. S.

Overall, MPHA can dedicate approximately 800 of its roughly 4,000 vouchers for project-based developments, Streitz said. It has committed Section 8 money for 630 such units, either completed or awaiting federal Housing and Urban Development (HUD) approval.

HUD Operations Specialist L. Peter Bast said Minneapolis "is in the front of the line nationwide" for creating new affordable and supportive housing with project-based Section 8 money.

However, that appears to run against what HUD's national leadership intended.

A statement from HUD's Chicago office, in response to an interview request, stated that the Section 8 program "was not designed to provide long-term operating subsidies to stabilize supportive housing programs."

There is only so much Section 8 money -- creating a tug-of-war between homeless people who just need rent help versus those who need much more.

Sea change

Five years ago, MPHA could satisfy all comers. It had a pile of unused Section 8 vouchers. Now it has none.

Streitz said only 80 percent of Section 8 vouchers were used in the late 1990s. Landlords often wouldn't take them; vacancies were few, and federal "fair market" rent reimbursements were low. That made it easier for MPHA to shift unused vouchers to project-based Section 8 developments.

As renters and landlords know, the market has changed. The housing market softened, vacancy rates rose and, Bast said, HUD raised fair market rent reimbursements.

Now, 100 percent of MPHA's available Section 8 vouchers support renters in the private market. What helps them hurts developers seeking project-based Section 8 support to add to or preserve the city's affordable housing supply.

For example, the Plymouth Church Neighborhood Foundation wants to preserve affordable apartments at a 35-unit Loring Park development.

Foundation Executive Director Lee Blons asked MPHA to commit seven project-based Section 8 vouchers so 1501 Hawthorne Ave. could serve lower-income tenants, she said.

"That is when we were told, 'It sounds like a great project. We don't have them to give out,'" Blons said.

State in the breech

New state money should mean more affordable housing. Gov. Pawlenty and the Minnesota Housing Finance Agency (MHFA) have proposed a major initiative to end chronic homelessness by 2010.

The plan includes borrowing $20 million in 2004 to build supportive housing. It also would use $50 million in MHFA reserves over the next seven years to subsidize rents, similar to project-based Section 8.

All told, said MHFA Commissioner Tim Marx, the plan would create 4,000 "supportive housing opportunities" statewide in the next seven years, or an average of nearly 600 a year.

Like project-based Section 8, the state money would also support rent for new supportive housing projects. The state would provide private-market rental assistance -- where support services would come to the tenant -- for 1,600 of the 4,000 projected supportive housing units.

It is unclear how much Minnesota money Minneapolis might receive. However, Marx said the new state money wouldn't offset the loss of federal project-based Section 8 statewide.

"We understand that it will take some time to work with the federal government and other partners to make that resource more flexible and available," he said. "Our resources are not going to be able to make up the difference."

Overconcentration issues

President Bush's proposed 2005 federal budget includes no new money for Section 8.

Even if project-based Section 8 somehow gets a money infusion locally, other federal regulations will affect new proposals.

Locally and nationally, critics say supportive housing programs concentrate the hardest-to-help poor in a few neighborhoods.

In response, HUD has a national policy "to deconcentrate poverty and expand housing opportunities." In Minneapolis, HUD limits project-based Section 8 assistance to census tracts with poverty rates of 32 percent or less, or minority populations of 32 percent or less, based on the Hollman Consent Decree, said the statement from its Chicago office. Therefore, some Minneapolis projects need HUD waivers to proceed.

One such project is on the Downtown riverfront: the proposed St. Anthony Mills Apartments at 100 Chicago Ave. MPHA has approved 17 project-based Section 8 units as part of the planned 84-unit, mixed-income development.

Until recently, HUD's national office granted concentration waivers relatively easily, said Bast, who works in HUD's Minneapolis office. Within the last year, however, the national office has cracked down on waivers. He did not know why -- and thinks the policy needs review.

"I don't see where when we do concentrate it, it is detrimental -- because they [tenants] are acquiring quality, safe homes," said Bast, who lives in Whittier and once chaired the Stevens Square Community Organization.

Lydia Apartments is one of the city's most recent examples of a local "concentration" controversy.

Some neighborhood and business leaders sued to block Lydia Apartments, arguing that the city violated its own policy by packing too many supportive housing projects in near-south-side neighborhoods. Lydia backers said the Nicollet-and-Franklin site gave tenants convenient access to mass transit and social services.

HUD rules did not affect Lydia Apartments. It is not in a concentrated census tract, according to an MPHA list.

At the state level, Marx said, the Minnesota Housing Finance Agency's proposed rent support program would take a "flexible" approach to funding supportive housing in concentrated areas.

Marx said the state agency would work with communities to make sure supportive housing works there, but "the facts are that people who are experiencing long-term homelessness are in those [concentrated] communities right now. It will be likely much better for them to be housed -- and housed with supports -- so they can be successful, rather than in crisis shelters and in the streets and the emergency rooms and getting in trouble with the law."

Fair housing for all

According to HUD rules, no project can be more than 25 percent project-based Section 8. If a proposal tops that limit, HUD requires supportive services and a waiver application.

The rule has existed since 2001 and several Minneapolis projects have received waivers. Tubman Family Alliance, 3111 1st Ave. S., has project-based Section 8 assistance for all 10 of its units. Women's Community Housing, 17 E. 24th St., has all 17 of its units backstopped by Section 8.

MPHA Housing Development Coordinator Dean Carlson said HUD has concerns that project-based Section 8 will be used for specific groups of homeless and not for a broad range of people without housing -- those on the Section 8 waiting list.

Carlson believes HUD's national office never expected so much of the project-based Section 8 program would get used for supportive housing.

"All of a sudden, I think someone at HUD Washington, D.C. said, 'Wait a second. It means if we are approving [waivers] for the Women's Consortium Housing, then a man can't get that service, and we are in violation of fair housing,'" Carlson said. "I think it dawned on them there is an inherent problem with that. They have been struggling with the supportive services issue ever since."

Wordsmithing

Programs needing a waiver sometimes try to walk a linguistic tightrope.

For instance, two Downtown projects -- Archdale, 1600 1st Ave. S., and St. Barnabas, 906 S. 7th St. -- aim to serve homeless youth between 15 and 21, with most between 18 and 20, said staff of Central Community Housing Trust (CCHT), the projects' sponsor.

HUD recently approved project-based Section 8 assistance for 13 of Archdale's 30 units. (Open since 1996, it provides 10 percent of the supportive housing for homeless youth in the metro area). HUD recently approved all 39 of St. Barnabas's units, a project still in the works.

Carlson said MPHA worked with CCHT staff to clear federal hurdles -- by tacitly opening a youth-focused program to anyone.

"They basically sanitized their application to deal with these fair housing issues," he said. "If someone is 25 and wants their service, they won't reject them."

Jerry Boardman, CCHT's vice-president of housing development, said, "Because of fair housing laws, we can't say this is a youth housing project."

St. Barnabas Senior Project Manager Gina Ciganik said as a practical matter, few 25-year-olds would want to live there, given program rules such as no overnight guests.

HUD's Bast said he has also crafted language to help programs meet federal requirements. He recalled one project-based Section 8 application for a battered women's shelter that also served a relatively small number of men. "I changed the name of it to People at Risk of Domestic Violence," he said. "[Otherwise,] it would have been denied because it is women's shelter."

Monitoring required

HUD regulations also add cost to supportive programs already pressed for funding.

To assure St. Barnabas and Archdale didn't discriminate by age, HUD required them to hire MPHA to oversee their social services.

MPHA's Carlson called the requirement, issued in January, "a bolt from the blue."

The ruling nearly pulled the rug out from under St. Barnabas.

MPHA had approved St. Barnabas's project-based Section 8 in November 2002, and the program was ready to close on the property last November. HUD's monitoring requirement added from $40,000 to $50,000 in annual costs.

St. Barnabas faced a money crisis. The Des Moines Federal Home Loan Bank had committed a $240,000 deferred loan to the project in 2001. After one extension, its latest offer was set to expire Feb. 27, Ciganik said.

The project's general contractor told Ciganik her steel prices would go up in the spring. Subcontractor bids would expire soon, and rebidding would mean higher labor costs.

In early February, Ciganik said, "I don't know how long we can keep up. At what point do you say, this isn't going to work?"

However, the following week, HUD relented and granted the waiver to the 25 percent rule without requiring St. Barnabas to pay for monitoring, Carlson said -- essentially grandfathering in St. Barnabas and Archdale since their applications had already been in process.

MPHA still must ensure the program does not discriminate based on age, Carlson said, and MPHA will have to figure out how to do that within its budget.

The Jeremiah Program opened its 21-unit expansion for women with children under age 4 in July, said Executive Director Gloria Perez Jordan. MPHA approved using project-based Section 8 assistance for all 21 units.

The Jeremiah Program's 18 Phase I units all have project-based Section 8 assistance. The program made a commitment to subsidize the 21 Phase II units with private fund-raising -- several hundred thousand dollars a year -- if it did not get the project-based assistance, Jordan said.

HUD has not yet approved the application.

"It is an income stream we hope to get," Jordan said.