Proposed New Choice Neighborhoods Initiative Program Has Appeal; Suggestions for Refining the Design

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Tax Credit Advisor, September 2009:

By Thom Amdur, National Housing & Rehabilitation Association

Congress this fall may authorize and fund a proposed new federal program designed to tie together the production and preservation of affordable housing with community and economic development, education, and other aspects of everyday life. The Choice Neighborhoods Initiative (CNI), proposed by the Obama Administration in its Fiscal Year 2010 budget request for the U.S. Department of Housing and Urban Development (HUD), would replace and build upon HUD’s HOPE VI public housing revitalization program.

This proposed change in direction has sparked some concerns in the affordable housing industry, as well as suggestions for shaping the CNI program.

Background on HOPE VI

Established in 1992, HOPE VI has been one of the most effective and controversial federal housing programs. Through December 2008, HUD has awarded 247 HOPE VI revitalization grants totaling $6.1 billion to 130 public housing authorities in 34 states, the District of Columbia, and Puerto Rico. These grants have leveraged more than $17.5 billion in private investment. This public-private partnership has redeveloped severely distressed public housing projects to produce 107,800 new or renovated housing units, 56,800 of which are affordable to low-income households.

The worst of these blighted projects were in advanced physical and social deterioration, acting as barriers to opportunity for their residents. These “warehouses for the poor” have been replaced by vibrant, lower-density, mixed-income developments that are integrated into their community and that provide a broad array of services to residents.

But HOPE VI has had its critics. Some have called the program inefficient because of the long time often taken to spend grants once awarded. Tenant advocates have complained about the reduction in the number of public housing units from some HOPE VI projects.

On another note, chronic federal underfunding of annual operating subsidies for public housing has put newly revitalized communities at risk as they age.

Choice Neighborhood Initiative

The Obama Administration has requested $250 million in initial annual funding for the proposed new Choice Neighborhoods Initiative.

CNI would offer federal funding for a broader range of eligible activities than HOPE VI. Among eligible activities would be assisted rental housing, acquisition and rehabilitation of unsubsidized housing, and construction of mixed-income housing.

Similarly, there would be a broader range of eligible applicants for CNI funds than for HOPE VI. In addition to public housing authorities, this would include for-profit and nonprofit developers and local governments.

CNI would take a more holistic approach to neighborhood revitalization. Redevelopment plans for neighborhoods would address schools, health care, retail, job training, transportation, child care, and housing. Preference would be given to plans that focus on school reform and early education. HUD Secretary Donovan wants to replicate the success of the Harlem Children’s Zone. (See p. 14 for article on Harlem Children’s Zone.)

Suggestions for Shaping Program

Congress must pass housing legislation to establish CNI and approve an appropriation for it, for the program to become a reality.

Leaders in Congress, at HUD, and within the affordable housing community have been brainstorming to try to develop proposed details for authorizing legislation for CNI, to best capture its objectives and ensure its successful implementation. Lawmakers may introduce a bill this fall.

The National Housing & Rehabilitation Association’s HOPE VI Working Group has taken a lead role in discussing how best to implement this critical new program. At NH&RA’s 2009 Summer Institute, the Working Group identified principles that it recommends HUD and Congress consider in designing the Choice Neighborhood Initiative. These include that:

  • CNI be open to all potential program participants, especially for-profit and nonprofit developers. Developers offer a valuable set of skills including their proven ability to raise private capital, and many specialize in acquiring, repositioning, fixing, and managing troubled and distressed HUD-assisted and conventional rental properties. All applicants for CNI grants should be evaluated based on their abilities and past track record, without special set-asides for certain types of applicants.
  • CNI not be too complex, but primarily focus on the construction and repositioning of affordable housing units, with sufficient operating subsidies provided for completed units. The education reform element should be adequately funded and, ideally, implemented by parallel, supportive programs and initiatives, such as those of the U.S. Department of Education, local governments, and nonprofits.
  • CNI encourage layering of other housing subsidies in projects, such as Section 8 rent subsidies, public housing annual contributions contracts (ACCs), and low-income housing tax credits.
  • Flexible site control tools be provided, to enable grantees to quickly acquire and integrate distressed assisted and conventional properties. Properties that aren’t public housing shouldn’t be disadvantaged in the site control weighting in the application. Grants should be large enough to cover a portion of acquisition costs.
  • Additional factors or metrics beyond education should be used to identify eligible neighborhoods.
  • Leveraging of additional other public and private funds should be encouraged.
  • Program rules should be issued in a timely fashion.
  • There should be long-term, adequate funding of operating and rent subsidies to assure the success and sustainability of funded projects.
  • Consideration be given to allowing the conversion of public housing operating subsidies to Section 8 rental assistance when used with CNI funds.
  • Consideration be given to a set-aside of a portion of CNI funds for pre-development grants, in order to support larger-scale projects.
  • Care is exercised and all possible implications considered in determining whether or not to impose a one-for-one unit replacement requirement.
  • Efficient asset management of completed units is promoted.
  • Consideration be given to emphasizing participation in the program by private developers and finance partners.
  • The program’s design encourage communication, cooperation, and coordination among all parties involved in transactions, including developers, property managers, public housing authorities, HUD, local governments, and residents.

NH&RA’s HOPE VI Working Group will be convening again going forward to continue discussing the best ways to implement CNI. To learn more and find out how to participate, contact Thom Amdur, [email protected], 202-939-1753. Details on the HOPE VI Working Group at http://www.housingonline.com/HopeVICouncil.aspx.