Prepared Remarks of Secretary Shaun Donovan at the 2010 Legislative Forum of the Public Housing Authorities Directors Association

L'Enfant Plaza Hotel, Washington, DC
Monday, September 13, 2010

Thank you, Curt -- for that introduction, for your leadership with PHADA and for families in Keene. I also want to thank your executive director, Tim Kaiser, who I've met with many times.

Over the years, from your involvement in the Future of Public Housing Summit in 2008, to your contributions to the Millennial Housing Report to your own Small Housing Authority Reform Proposal, PHADA has been a powerful voice for change. So, thank you for this opportunity.

First and foremost, on behalf of the Obama Administration and the Department of Housing and Urban Development, thank you. Thank you for taking on the task of administering public housing authorities. Thank you for working hard day-in and day-out to perform a remarkable public service for families in neighborhoods across the country.

And thank you for doing so despite the challenges thrown at you: years of under-funding, mountains of one-size-fits-all regulations, countless late night board meetings with residents and a public that, quite frankly, has no idea how much you are asked to do -- and how few tools you are given to do it with.

You and I both know that the fundamental problems facing affordable housing have been the same for decades:

Too many rules.

Too few resources.

And too much time fighting over small fixes to a flawed system.

Of all the important things that have begun to change these past eighteen months, for me, the progress we've made on those problems is right at the top of the list.

Whether it is the historic capital investment in public housing through President Obama's Recovery Act, which has renovated hundreds of thousands of affordable homes...full funding for the Public Housing Operating Subsidy in this year's budget... the record number of people who will be served by the Section 8 voucher program and a billion dollars to capitalize the National Housing Trust Fund included in next year's budget...or our commitment to passing the Section 8 Voucher Reform Act...let there be no doubt:

This is an Administration that believes in the important mission of public and affordable housing.

This is an Administration that stands with you, and believes in the goals of the programs you work so hard to administer every day.

This is an Administration that not only talks the talk. When it comes to providing a place to call home for our most vulnerable families, we have walked the walk.

Now, I'm proud to have spent my life working as a houser -- inside government and out.

But believe me when I say that it's the opportunity of my lifetime to be working for a President whose first job out of school was community organizing in public housing -- who speaks with experience about the opportunity and potential the homes you provide can unlock for families.

At this moment, I believe that there are more friends of public and affordable housing in Washington than there have been in a very long time.

Still, you and I both know that no amount of first-hand experience with the challenges of public housing is a substitute for fundamental reform. Absent that, we will continue to tread water.

And so, today I want to talk to you about moving forward -- with a sense of shared responsibility to preserve the precious resources entrusted to our nation's Public Housing Authorities.

I want to explain how our Transforming Rental Assistance initiative will help each of you as PHA administrators and stewards preserve that resource -- not with a top-down approach, but with flexible tools that allow local administers to preserve public housing in way that is right for your communities and your markets.

And above all, I want to talk about why I think this is the best chance we have to make real the broad, sweeping change those of you on the front lines been fighting for for decades.

A Broken System

You all know the need. Right now, America is losing tens of thousands of affordable homes every year due, in no small part, to a lack of available capital investment.

Having successfully obligated 99.9% of the $4 billion provided under President Obama's Recovery Act, PHA's have proven they can and will use an infusion of capital for much-needed improvements.

Still, with an estimated $20 to $30 billion in unmet capital needs in Public Housing, $4 billion is just a tip of the iceberg. And despite decades of pleas from local agencies and national organizations like PHADA, even the most housing-friendly Congresses have continued to underfund your programs.

As a result, the country has lost 150,000 units from its stock of public housing over the last 15 years. And that's not including the more than 45,000 units of privately-owned affordable housing that lack any real strategy that would keep them affordable for the years to come.

As frightening a thought as that is, you and I know the problem isn't limited to the bricks and mortar of the buildings -- the system is failing too many residents, neighbors and local partners alike.

The complexity and inconsistency in HUD's 13 deep rental assistance programs forces local administrators, and the families they serve, to wade through a mass of paperwork to give and get assistance.

And because subsidized affordable housing assistance is often tied to a specific unit in a specific location, families have fewer opportunities than you or me to move to where the good jobs and better schools are for their children.

With failing schools and less opportunity close by, many of these families end up living in poor neighborhoods for years, even decades.

But let me be perfectly frank here. These neighborhoods didn't become segregated and isolated or suffer from disinvestment because of the decisions made by PHAs. That is neither true nor fair to local administrators -- or to the commitment seen every day in your organizations.

Most of the blame should be laid at the feet of federal policies -- which for too long simply have not provided localities the tools and flexibility you need to succeed.

For those of you in this room who also manage properties with project-based rent subsidies, you know first-hand how limited your public housing funding is.

Among the most important distinctions to be sure is the fact that owners and managers of new affordable housing can use public and private financing to create homes with a mix of incomes and uses, using the Low-Income Housing Tax Credit. And of course, HOPE VI allows public housing to access capital from other places.

But let's be honest, HOPE VI won't remake every public housing unit with five grants a year -- or even the many more we hope Choice Neighborhoods will transform.

The Low-Income Housing Tax Credit is the single most important capital source for funding affordable housing -- and people who own, manage and operate Public Housing have virtually no way of accessing it.

Barriers to Innovation and Preservation

To give you an idea of how brutally difficult affordable housing preservation is for Public Housing, just look at Marble Falls, Texas.

Because of unfunded capital needs, upgrades to Marble Falls' public housing stock required more than 30 times what it received from its annual Capital Fund grant. And because of the numerous bureaucratic hurdles that stand in the way of PHAs who want to develop new affordable housing programs outside of the Public Housing Program, the Housing Authority had no incentive and virtually no tools available to maintain and rehabilitate its 100 units.

So, they chose to demolish 66 public housing units that were no longer habitable and dispose of the remaining 34 units and the underlying land to an affiliated PHA.

The affiliate planned to rebuild 100 new units and rehabilitate using Low Income Housing Tax Credits.

Even though tax credit rents have higher income requirements, this extremely complex arrangement was the only way Marble Falls could maintain, and indeed grow, its affordable housing. Under this plan, rents will still be affordable to those displaced public housing residents by using their replacement Housing Choice Vouchers each received when by vacating their units.

Washburn, Wisconsin faced an equally steep hill to climb. To preserve three dozen affordable homes, Washburn's PHA had to securitize their Capital Funds through the Capital Fund Financing Program to support a $265,000 loan, and then leverage the loan with $1.5 million in tax credit equity and other funds. They were only able to do this by partnering with a larger PHA nearby, the Stevens Point housing authority.

In community after community, we see the extraordinary lengths PHAs will go to--and the extraordinary legal, financing and development fees they will pay--to keep housing affordable to low-income families -- despite the cost and despite the bureaucratic hurdles.

There are exceptions. Keene, New Hampshire was able to convert all of its public housing stock to Project Based assistance. But Keene's success was only possible for two reasons:

Because of Curt's leadership and expertise and because Keene was a Moving to Work community where more flexible rules applied.

Still, why shouldn't every community represented in this room have the same opportunity to meet the needs of your residents and your communities?

Ensuring you do is my job at HUD.

TRA – a 21st Century Preservation Strategy

That's why we have proposed our Transforming Rental Assistance initiative -- which will allow you to convert the funding for your public housing units to long-term Section 8 property-based funding, giving owners of affordable housing access to the resources they need to preserve this housing into the future.

Now, let me first say that even approaching something this ambitious wouldn't have been possible without PHADA members' leadership on overarching policy questions -- specifically, your Rent Reform proposals, your position papers on Asset Management, your involvement in the Future of Public Housing Summit in 2008, your contributions to the Millennial Housing Commission's work and most recently your Small Housing Authority Reform proposal -- SHARP.

And with the statement of principles for Recapitalizing and Preserving Public Housing you recently released with CLPHA and NAHRO, you've continued that leadership in this area.

Indeed, it was reassuring to me to see how many areas of agreement we have -- whether it is timely access to flexible project-based funding, public ownership, making conversion voluntary, or ensuring that a new conversion initiative makes the preservation of public housing assets priority number one.

TRA draws directly on the work of your reports and proposals -- and makes providing reliable funding the first order of business.

TRA will allow PHAs to move from the heavily regulated public housing program to the more locally controlled project-based contracts.

It will allow you to move from the inconsistent and often prorated Op and Cap subsidy to a single funding source that is reliable, predictable, and controlled by you.

It will allow you to move from a system that restricts your ability to tap the value of your assets to one that gives you the right to borrow public and private capital for renovation, repairs and upkeep.

In all, TRA would bring more than $1 billion dollars annually over-and-above the current Operating and Capital funding levels annually if all public housing converts -- and allow for an additional $25 billion in leveraged capital funds in the years to come.

And let's be clear:

Multifamily properties have been borrowing with this form of project-based contract for decades.

Even in this economy, local Multifamily owners have defaulted on their loans less than one-tenth of 1 percent of the time.

And we have seen project-based Section 8 contracts work well for small properties and those in rural areas. More than a quarter of today's project-based Section 8 contracts in our Multifamily portfolio are in non-metropolitan areas.

Had Marble Falls, Texas been given the opportunity to convert its public housing funding to a project-based Section 8 contract, not only would they have been able to leverage even more resources -- they would have been able to maintain their public ownership and long-term affordability to low-income families.

Under TRA, units will receive the equivalent of market rents.

Indeed, for most of you, that will mean an increase in funding per-unit. But if moving to a market rent is still not enough to preserve your communities' housing, as may be true in rural areas with low rents or a small affordable housing stock, TRA allows HUD the flexibility to provide a subsidy above market -- a tool we all refer to as "exception rents."

Put simply, with TRA, prorated, persistent underfunding will be a thing of the past. Public and affordable housing will be funded just like any other affordable housing, with the same reliable and predictable funding that, in the 30-plus years of using project-based contracts, has never once been underfunded by Congress.

Not a single time.

That's because with more people invested in these properties, owners of other affordable housing aren't fighting for these funds alone -- but alongside financial institutions, developers and municipalities.

Instead of you fighting advocates for other HUD programs over a piece of a shrinking pie, we will be growing the pie by allowing the affordable housing community to finally speak with one voice.

Simplicity

But the challenges that you all face go beyond funding. The rules and bureaucracy that govern your PHA are part of the problem. Because as you put it in SHARP, less paperwork for agencies means more service to residents.

Already, owners of affordable housing have to navigate through 13 different rental assistance programs, each with its own rules, managed by three operating divisions at HUD. And no program faces a more byzantine set of rules than public housing.

In that sense, TRA and SEVRA work hand-in-hand, to ensure a more common set of rules and protections across all HUD-funded rental assistance programs that are easier to use for tenants and administrators alike.

But simplicity also means HUD getting out of the way of innovation.

We have already talked about the brutal process small PHA's have to go through to preserve affordable housing. For me, it's simple:

If the solution you offer makes sense for your communities, HUD should not stand in your way -- in fact, we should be helping you.

I have no interest in the Federal government micromanaging small PHAs, especially when it doesn't yield better results.

As I recently heard from several PHA administrators in Rapid City, South Dakota, simplicity also means providing solutions that work for smaller communities.

Smaller communities are penalized -- because having fewer resources means the lack of flexibility comes at an even steeper cost.

For example, small PHAs house nearly 180,000 elderly or disabled households, which make up 18 percent of all public housing households. And so these communities, many of which are in rural areas, face not only an aging housing stock -- but a more rapidly aging population.

As a result, I imagine many of you are looking at your portfolio not only thinking about repairing a boiler or replacing a leaky roof -- you're also trying to figure out how to make your properties accessible to wheelchairs and on-site services. TRA will give smaller communities more resources -- but also more flexibility to use those resources.

TRA will also lower the barriers to collaborating with New Partners.

We all know that the challenges of providing affordable housing don't stop at the city line or even the county line.

As we saw with Washburn, if allowing you to work with some of the other Housing Authorities in your state or region on financing, portability or back office processing works for your jurisdiction, you should not only have that option -- but we should be making easier for you to access it.

The goal of all these efforts is to provide more local control -- dictated not by HUD, but by local conditions and local needs.

Choice

The third way TRA would improve the current system is by providing more choice to families.

You know, I was reading your statement of principles. As I noted earlier, there are many areas of agreement.

But I do want to take exception to one, which suggests that goals like choice should be considered separately from any preservation initiative.

Just as I do not want to micromanage your work, government should not be in the business of micromanaging people's lives.

When a resident has found a better job across town or their child has the opportunity to go to a better school, we shouldn't be telling families that they can't move to seize that opportunity.

That's not what we stand for as Americans. More importantly, it's not what we're in the business of doing as housers.

The Federal government should not stand in the way of the choices people need to seize opportunities for themselves or their children.

With your help, we should be in the business of giving them those choices -- so that they can.

But here again, we have listened to you, because what we don't want to do is replace one problem--lack of choice--with another -- constant turnover.

The project-based voucher program that many of you already administer already has a mobility option -- and we've taken steps to ensure that TRA is more targeted, while still realizing the President's commitment to ensuring families have real choice in their lives.

Voluntary

Lastly, much like HOPE VI, TRA leaves it up to the local agency to decide whether to apply.

But unlike HOPE VI, TRA is expansive enough that every PHA would have an opportunity to recapitalize their property.

And we are prepared to provide you and your staffs with the technical assistance and field trainings you need to successfully convert your stock to long-term Section 8 property-based contracts.

And so, when some ask whether TRA will ultimately be mandatory, I say that because TRA provides a more stable and better funding mechanism, because it allows you to safely leverage billions for recapitalization, and because it will be a dramatic improvement in markets big or small, tight or soft, we don't have to make it mandatory.

By using every tool at our disposal to attract the capital necessary to preserve affordable housing in your community--and by recognizing that different communities face vastly different needs--I believe TRA will be a better deal for every one of you, but that would be your choice, not mine.

Embracing The Fierce Urgency of Now

So, believe me when I say: we have heard you -- through five convenings, through countless briefings and interactive webcasts, and through the thousands of stakeholders who've told us what works about our programs, what needs to improve, and how they must change.

More importantly, we've responded -- having already made at least 40 changes to PETRA based on stakeholder input, concerns, or suggestions -- including PHADA's.

Ultimately, this process tells me that while change is hard -- change is urgently needed.

You know, in two years, we will celebrate the 75th anniversary of FDR's signing of the 1937 Housing Act.

I don't know about you. But at that celebration--and it will be a celebration--I don't want to be saying that we are largely using the same tools for public housing that we were then.

I don't want to say that we missed our best chance to preserve nearly a century's worth of investment, a century's worth of hard work.

I don't want to say that even though we finally had a President who was ready to deliver, a Congress that was ready to think broadly and ambitiously, and a HUD that was ready to get out of your way, somehow we couldn't rise to the occasion.

I don't want to say that even though we got the whole reform coalition to the table--from PHAs and residents rights groups, to developers and financial institutions, to civil rights groups--even though everyone agreed on the problem and the vast majority of fixes, we failed to ensure that everybody walked away from that table having gotten something important to them.

Not with this much at stake. Not with how far we've come. Not with millions of households--low-income families, seniors and people with disabilities--depending on us to build a better system for the 21st century.

Not now.

I recognize that change isn't easy -- if the last 18 months have told me anything, it's not easy for any of us, HUD included.

But we can't let the fear of change obstruct the very benefits we all agree we need to provide to residents, to the properties you manage and to the work you do every day in our communities.

No one has been a stronger, more consistent voice for changing the system over the years than the people in this room -- and we need you now more than ever.

In the coming days, weeks and months, may we rise to the occasion together. Thanks.

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