Housing Commission Updates

City of Ann Arbor 2013Jennifer Hall

Executive DirectorAnn Arbor Housing Commission

jhall@a2gov.org734 794-6721

Agenda

• History of public housing• AAHC role and mission• Successes• Challenges• Federal congressional funding decline impact• HUD funding solution

What is Affordable Housing?

• Rental or Owner• Pay no more than 30% of income on housing

(includes utilities, taxes)– Otherwise Cost-burdened

• Most HUD programs cap at 80% of Area Median Income (AMI) or less– Targets for 50% AMI and 30% AMI or less• 30% AMI 1 person household = $17,500• 50% AMI 3 person household = $37,400

History of Housing Authorities

• 1933 Michigan adopted PA 18 – Municipalities can create housing authorities– To create safe & sanitary affordable housing– Finance affordable housing by selling bonds

• 1937 Congress Created the National Housing Act – Allowed for creation of housing authorities to

undertake federal housing programs and apply for federal funds

– Targeted to out of work middle class during the Depression

City of Ann Arbor Ordinance

• 1965 City of Ann Arbor created the AAHC– Make use of all forms of financing or sponsorship to

provide flexible approach to solving problems– Make programs pay for themselves as much as practically

possible– Enter into any cooperative agreements with any

organization that promotes purpose of AAHC– All deeds, mortgages, contracts etc. regarding real

property will be made in name of City of Ann Arbor – City may by resolution convey any property owned by the

City and controlled by the AAHC to the AAHC

Partnership with City of Ann Arbor• Mayor and Council appoint AAHC board• All Housing Commission staff are City employees• City owns all Housing Commission properties “by

and through” the Housing Commission– Housing Commission provided funding for property

acquisition and development through HUD– HUD Regulatory Control

• Annual Contributions Contract – terms and conditions• Declaration of Trust – long term affordability• Cooperation Agreement with local governing body

– To provide municipal services and tax-exemption

Ann Arbor Housing Authority

• Manage 360 units of Public Housing at 18 sites– In Ann Arbor

• Administer 1483 Vouchers– Includes 155 veteran’s vouchers– Washtenaw County, Western Wayne County and Monroe County

• Administer 202 Project Based Vouchers for Cranbrook Towers– AAHC floated the bonds to build Cranbrook in 1979– Private ownership (not AAHC)

• Administer Shelter Plus Care and Supportive Housing Program funds for local nonprofits

Baker Commons64 units built in 1980Packard/MainPrimarily single elderly and disabled households

Hillside ManorTwo 3-bedroom duplexesFamily Housing built in 1998Pennsylvania Ave – behind Arbor Farms

Demographics

Public Housing Vouchers

Minorities 63% 73%

Female Head 59% 77%

Disabled 46% 44%

Income less than $20,000 90% 91%

Age 60+ 18% 15%

Housing Commission Successes

• Unit Turns Maintenance/New Occupant– Previously 190+ days average to turn & occupy– Currently 21 day average to turn– Currently 45 days average to turn & occupy

• Occupancy– Currently 99% (1-5 vacant units)– Previously 95% (12 – 20 vacant)

• Vouchers– 1 year ago 1298 under contract– Goal was 1378 by December 2012– Currently 1420 under contract in Jan 2013

Positive Impact

• No Longer in Troubled Status– REAC Physical Inspection Score • Increased score from a 78 to a 81 on the East side• Increased score from a 64 to a 86 on the West side

• Increased Operating Revenue– Able to bill HUD for more units– Getting paid less per unit by HUD due to

congressional budget cuts• Eligible for new HUD grants & Rental

Assistance Demonstration (RAD) project

Old Carpet Baker Commons

New Marmoleum Flooring Baker and Miller

Baker CommonsAsphalt Roof damage

Baker CommonsNew Steel Roof installed in 2013Funding provided by the Downtown Development AuthorityInitial bid $246,000. Extensive rafter damage increased cost to $305,000

Federal Funding

• Historical decline in federal support for affordable housing• 1976 HUD’s budget was $86.8 billion• 2012 HUD’s budget was $41.7 billion

• HUD losing 10,000-15,000 hard units/year due to disrepair requiring demolition

Capital Needs Nationally

•Capital repair needs in excess of $25.6B across HUD public housing portfolio, or $23,365/unit

•Capital Accrual Needs of $82,125/unit 20 years– AAHC Capital Needs Assessment indicated

$40,337/unit average capital needs next 15 years– At current HUD rates AAHC will get $18,000/unit• 2012 HUD capital grant = $440,778 or $1,224/unit

– $22,000/unit shortfall in capital repair funding

Decreased Funding Public Housing

• 2012 HUD reimbursed the AAHC at 95% of the operating fees owed– $62,700 less than owed

• HUD is reimbursing the AAHC at 92% in 2013– Estimated at $105,000 less than owed

• 2011 Capital Funding from HUD $557,000• 2012 Capital Funding $440,478• 2013 Capital Funding TBD

North Maple Estates – view from highest point on siteTwenty scattered 4 and 5 bedroom unitsPoor site design – units built on lowest part of property – drainage issuesConstruction problems – plumbing leaks, windows

Water Damaged Window Frame

Water damage from upstairs bathroom floor drain

Window leaking causing water damage

HUD Funding by Program

2010 2011 2012$0

$2,000,000,000

$4,000,000,000

$6,000,000,000

$8,000,000,000

$10,000,000,000

$12,000,000,000

$14,000,000,000

$16,000,000,000

$18,000,000,000

$20,000,000,000

Housing Choice VouchersProject Based Rental AssistancePublic Housing Operating SubsidyPublic Housing Capital Funding

Comparison of Ann Arbor Public Housing and Vouchers – Average Rent 2012

Average Payment

Vouchers to private landlords

Public Housing

Tenant $240 $183

Rent Subsidy $567 $231

Capital funds $0 $102

Total $807 $516

2 Problems

• Annual Operating Subsidy– Maintenance– Staffing

• Capital Investment– Replacing major systems like roof, furnaces etc.

3 Options

• No Change– Negative impact on units and tenants due to lack of

funding• City of Ann Arbor provide annual gap funding– Cover the gap between HUD funding and need– Approximately $500,000/year

• Convert Public Housing to Project-Based Vouchers with private funding reinvestment– Immediate rehabilitation all properties– Long-term operating subsidy from different HUD

program that is better funded by Congress

Rental Assistance Demonstration (RAD)

HUD’s goal is to convert 60,000 public housing units to Project Based Vouchers

• NEW rent subsidy with vouchers (Operations)– project based vouchers (PBV)–OR project based rental assistance vouchers (PBRA)

• NEW access to capital funding – Reinvest in physical structures– Leverage private capital to preserve assets

How RAD rent/operating subsidy will be determined

29Public Housing Voucher

At conversion, PHAs will convert

funding to a Section 8 rent subsidy (HAP)

AAHC RAD Rents

• First year limited to current PHA funding• Annually re-evaluated by HUD and increased

(based on operating adjustment factor)– Will never be less than first year

Bedrooms EAST WEST

1 $466 $470

2 $567 $572

3 $713 $719

4 $734 $741

5 $844 $852

How will Rehabilitation be financed?

• Equity from Low Income Housing Tax Credits • Grants• Debt

Low Income Housing Tax Credits (LIHTC)

• Created in 1986 IRS Code Section 42– Incentivize private sector to invest in affordable

housing– Single largest funding source for affordable

housing development• Tax Credits allocated to States– Developers compete for tax credits

• Developer sells tax credits to private sector– Creates Cash (Equity) for affordable property– 10 years of tax credits to Equity Investor

Legal Structure

• IRS requires Equity Investor to be part of the ownership structure– known as equity partner

• Create a limited partnership with developer/owner– known as general partner

• Must be single purpose entity– Purpose is to utilize tax credits to invest in a specific property (or

group of properties)– No cross collateralization & liability with other

properties/businesses• 15 year tax credit compliance period & 30 year affordability

period• Under RAD, HUD requires permanent affordability

Development Team• Dykema Gossett

– Legal Counsel• Recap Real Estate Advisors

– RAD Consultant• Avalon Housing

– Supportive Housing Consultant• Norstar Development

– Co-developer and Co-general partner• O’Brian Construction

– General Contractor• Mitchell and Mouat

– Architect

How does current structure work?City of Ann Arbor AAHC

Public Housing

HUD funding

deed

Property manager

How will new structure work?

Affordable Housing

City of Ann Arbor AAHC

NonprofitGeneral Partner

Co-General Partner/

Co-Developer

Equity partner(passive partner)

Limited Dividend Housing Authority, LP

15 year limited partnershipthen AAHC sole owner

HUD regs

Rehabilitation

• Physical Condition Assessment must be completed– 20 year schedule – all replacement costs in replacement reserve

• Rehab budget determined by architect/engineer and actual bid– Minimum 10% rehab contingency

• Market competitive upgrades (a/c) must be included• Must use energy efficient products as finances allow• Must use general contractor

Initial Budget

• LIHTC $10,600,000• FHA Loan $6,650,000• City of Ann Arbor $500,000

(AAHTF & CDBG)• DDA $300,000• Seller’s Note $3,500,000• TOTAL $21,550,000

Impact on AAHC & Residents• Reinvestment in properties– Increased energy efficiency– Remedy structural problems

• More stable source of rent (operating) subsidy• AAHC staff continue to manage properties• New regulations to be learned by staff– Voucher regulations less cumbersome than public

housing regulations• Tenant protections & choice mobility

Impact on AAHC Finances

• Diversifies Portfolio– Not single source of funding

• Developer Fee– To pay AAHC staff, consultants and co-developer for

redevelopment work• Seller’s Note– AAHC holds Note on property from sale to LDHA, LLC– Paid partially upon sale, rest paid through cash-flow

• Use to pay for support services to tenants• Operating reserves• Rehabilitation of properties that will not be LIHTC

Risks

• Unable to secure capital funds to make project work– Continues as public housing

• Co-developer and AAHC disagree on …– AAHC has final say on all issues

• Equity Investor wants to remove AAHC from partnership– AAHC cannot be removed unless fail to perform per contract– Same as current situation with HUD. HUD can remove if fail to

perform• Co-developer or Equity Investor want to convert to market

rate units– Cannot be done. HUD has affordable housing use agreement that

precedes all other agreements and financing

Next Steps• Feasibility Analysis every property– Rehab or demo & new construction

• Resident Input• Apply for financing• Council approval of PILOT & Transfer of

properties to AAHC