Lingering Questions
Although RAD is showing considerable evidence about what it can do, there is some continuing confusion about what it actually does and does not require—largely among those not actively implementing RAD or living in housing converted under it.
One thing RAD does not require is “privatizing” public housing. Housing authorities must retain ownership or control over RAD-converted housing in perpetuity—unless there is a foreclosure action. In this unlikely event, ownership must first be offered to another public entity.
Yet in conjunction with a RAD conversion of assistance, many housing authorities do opt to use LIHTCs to generate needed equity capital. When doing so, a limited-liability partnership (LLP) must be formed for a 15-year period to “own” and be responsible for improvements and operations of the property to claim annual tax benefits. This legally necessitates an interested housing authority to convey or “sell” the building—but typically not the land—to the LLP. When undertaken with RAD, the agency is required to take an ownership position or otherwise maintain control over a property through the life of the LLP and beyond. When the LLP terminates, an agency can exercise its ownership or controlling interest to re-assume full ownership of the property, or it may choose to seek needed additional investment under a new LLP structure—assuming the LIHTC or similar benefits are available to potential investors at that time. Nonprofit and for-profit owners of affordable housing—and many housing authorities using HUD’s Mixed-Finance Program for many years—have routinely used the LLP structure and such control measures to generate needed equity investments and retain ownership control over the property long-term. RAD merely makes accessing LIHTCs simpler and less costly for interested agencies while assuring long-term public stewardship over public assets.
RAD also does not require participating housing authorities to “privatize” property management or other staff in favor of capable agency personnel. Most conversions of assistance under RAD continue to rely on current PHA staffing, accommodating labor or other personnel agreements that may be in place. And when housing authorities opt to participate in tax credit LLPs with private development and management partners, more often than not, such partners look first to continue to engage the agencies’ already-in-place management and site staff. They are the most experienced in running the property and working with residents. They afford seamless operating capacity at a site even if they require training on transitioning from public housing systems and processes to the Sec. 8-based operating platform.
At the same time, transitioning agency staff will be expected to perform to “market” or comparable standards of other surrounding housing—managing the property to budget, meeting leasing and occupancy targets, providing responsive maintenance, and coordinating resident supports common to other LIHTC-supported multifamily properties. If a property is poorly managed under a LLP structure, investors and other partners can face substantial tax-related and economic losses. So typically a housing authority’s site team will be expected to demonstrate a solid record or strong potential in managing the property to needed standards. Failing this, the agency’s partners will likely insist on alternative property management or other staffing arrangements.
Continuing to rely on public employees or introducing private property management under a tax credit partnership formed to generate funding needed to preserve “public” housing assets is a reasonable policy debate. But there is no question that when thousands of deteriorated public housing units are demolished each year, site-based jobs are permanently lost. By generating investments to preserve and improve—rather than lose—public housing, tax credit partnerships used in conjunction with RAD actually help to also preserve and grow jobs. According to standard multipliers, every $1 million of construction activity in affordable housing generates an estimated 20 jobs in a local economy. With more than $2 billion in construction funding for RAD projects already circulating in local economies, 40,000 new jobs are in the works. If RAD continues to generate this level of construction funding across all 185,000 units of its current authority, it could potentially create nearly a quarter-of-a million jobs in a matter of a few years. That’s quite an economic stimulus effect—all at no additional public cost.
Another misconception about RAD is that it allows housing authority owners or their partners in tax credit LLPs the ability to “opt out” of a Sec. 8 contract at the end of its initial 15- or 20-year term, as has been the case under some multifamily-assisted housing programs. However, RAD Sec. 8 contracts must be renewed at the end of their initial term, along with companion-use restrictions. Unlike conventional public housing use agreements that can expire after an initial 30-year period if no additional federal funds have been applied to a property, RAD’s use agreements and Sec. 8 funding are perpetually renewable.
Finally, RAD does not seem to be “creaming” the public housing inventory as some vocal but perhaps not fully informed skeptics have claimed. While about one-third of housing authorities have RAD rents at or above their local fair market rents (FMRs), two-thirds don’t. Regardless of RAD-to-FMR rent margins, agencies are nimbly using long-term Sec. 8 contracts to fill in gaps and meet deeper capital needs even in high-cost markets. More than half of all RAD projects closed to date have involved capital repairs of greater than $25,000 per unit.
With considerable leadership from Mayor Edwin Lee and his Office of Housing, the San Francisco Housing Authority is preserving nearly all of its aging public housing inventory that was not recently rebuilt, using RAD and other public housing resources to leverage $1 billion in private capital along with a reasonable measure of local funds. Likewise, the Cambridge Housing Authority in Massachusetts is preserving its entire 2,129-unit inventory with smart and replicable financing that taps 4% LIHTC acquisition and rehab credits with tax-exempt bonds. The Housing Authority of the City of El Paso impressively knit together tax-exempt bonds and 4% LIHTCs as well as applied 9% LIHTCs where most needed in an effort to preserve and replace 6,100 units of its public housing. Plus, RAD is enabling other agencies to replace obsolete or highly deteriorated housing with newly constructed housing—both on and off-site to reduce densities and transfer RAD operating subsidies to developments in better neighborhoods. About 17% of RAD transactions closed to date are new construction. These results suggest less creaming and more elasticity and creativity to RAD in practice than perhaps could have been imagined in policy analysis.