Privatization of Public Housing Shelved -- For Now

HUD's attempt to privatize all of
America's public housing has been put on hold -- for now. You played
an important role. Thousands of you signed the petition and spread the
word, so that those at the House Financial Services Committee hearing
on May 25 understood what the stakes were.

Barney Frank and Maxine Waters asked
the right questions, and HUD's answers revealed what was hidden in
the language of the bill, namely, that all public housing in America
would be subject to privatization. Under the PETRA bill, public housing
could result in new ownership that would take out mortgages from private
banks to fix and maintain the property. In the case of budget cuts to
HUD, or mismanagement by new owners, the mortgage payments would be
endangered and foreclosure would be a real issue. Banks that held the
mortgages could foreclose and then those banks would own what is now
public housing.

Barney Frank's questions to HUD Secretary
Shaun Donovan reveal that Rep. Frank understood that foreclosure would
mean privatization. Donovan did not answer Barney Frank's questions.
The next day Donovan stated in a blog on the Huffington Post that his
PETRA bill would not allow privatization of public housing, contrary
to Rep. Frank's -- and my -- understanding.

Here is Secretary Donovan refusing
to answer Barney Frank's questions at the hearing of the Financial
Services Committee of the House on May 25.

Barney Frank:

Question: Going to a Project-based
section 8 is one thing, the ability to finance and put ownership at
risk is another. You say in your opening statement that ownership won't
change, but it might if there is a financing and then a foreclosure.
How necessary is that? Is there a way to get financing without that?
And, if you have a foreclosure, would you then have, well, you can have "use
restrictions" but would you then have a private entity (it's almost
like contract prisons), is there then a private entity standing in the
shoes of government and what are the constitutional implications of
that? That's what concerns me. You anticipate, under this, you could
end up with a foreclosure and a private ownership of public housing,
are they then required to maintain it as public housing in perpetuity?
Does the tenant or anyone else have the same constitutional rights vis-a
vis-that owner. In the municipality, some have a large population in
public housing, does that diminish the right of the elected or appointed
officials? What is the status of a potential private owner of public
housing?

Shaun Donovan: Answer: If I can
speak broadly on this subject, this is intended to level the playing
field...

Barney Frank interrupts: You know
we only have five minutes. I understand that, but that's not my question.
You accept the fact that there may be foreclosures and I need to know
what happens in that case?.

Shaun Donovan: Specifically, every
other kind of housing can access not only private...

Barney Frank Interrupts: Mr. Secretary,
look, we have a good working relationship, please don't jeopardize it
by not answering the question. That's not what I asked you, you had
a chance to talk about that. What happens when a private owner, we have
public housing that is publicly owned, what happens, what is the status
of a private owner who takes it over?

Shaun Donovan: So, there is a required, for
any public housing building, there is a required 30 year minimum term
with a use agreement initially, with renewals of any property based
contract at the unilateral discretion of HUD. And so, there is no way
for an opt-out to happen...

Frank Interrupts: Stop, please.
What is the legal position you have now, a private owner of what was
public housing, what is the constitutional relationship with the City,
what are all those implications?

Shaun Donovan: I'm sorry, I'm trying
to answer the question...

Frank: No, your not. Please answer.

Donovan: The use agreement survives
foreclosure...

Frank: Please, stop. I didn't ask
you about the opt-out. If you are living in a place that is owned by a
government, you are under one set of rules, a private entity takes over,
what does that do to your constitutional rights, to the relationship
with the City, the Mayor can't fire you anymore. That's a very important
set of questions.

Donovan: I thought you were asking
about, in foreclosure, the risk of that happening...

Frank: Yes, because then it becomes
a private owner.

Donovan: So, all of those current
requirements about the public ownership continue and the fact that there
is private financing doesn't change that in any way...

Frank: Doesn't a foreclosure transfer
the ownership from a public entity to the private entity?

Donovan: The foreclosure, first
of all, all of the requirements of affordability continue, and the transfer,
any transfer of the property would be subject to the ability of HUD
to have a right of first refusal on that transfer..

Frank: That's not the question.
The question is that if, in fact, there is a private owner, what's the
legal status of that private owner, vis-a-vis, the tenants, the rest
of the city, etc. etc. That's pretty clear-cut.

Donovan: If there is a private
owner of that housing, then it would still operate under all of the
requirements, both for affordability and the Housing authority itself
would continue to be subject to all the same appointment of commissioners
and the current requirements of the public ownership of that land. And
if I'm missing the question....

Frank: My time is expired.

Shortly thereafter, Rep. Maxine Waters
takes up the questioning of Secretary Donovan. It is clear that she
also sees PETRA as leading to privatization.

Maxine Waters: I am going
to try and continue some of the discussion raised by the Chairman in
relation to foreclosed properties and I'm going to go through this exercise
because I think it is important to engage you on these very important
issues but I am starting out with a negative feeling about TRA.

First, Page 11 of your draft discusses
properties in foreclosure or bankruptcy. It is my understanding that
in the event of a foreclosure or bankruptcy, that a use restriction
would remain on the property, meaning that this property has to be utilized
in the same manner. However, you have language on page 12, lines 1-5,
stating that the Secretary can modify this requirement if the units
are not physically viable, financially sustainable, or, if necessary,
to generate sufficient lender participation. The section goes on to
require the Secretary to transfer the contract for assistance to other
properties if he makes such a finding. I have a few questions about
this. Why would a property not be physically viable? Isn't it the point
of TRA to allow public housing agencies access to private markets so
they can rehabilitate their properties?

Second, by financially unsustainable,
I assume you mean that the debt on the property exceeds the net operating
income needed to make the property run in the black. How would a property
get to be in this position in the first place, also, if the property
is in foreclosure, isn't it by definition financially unsustainable?
If the Housing Authority was unable to service the debt because, let's
assume the rents were insufficient, wouldn't the investor have the same
problem?

Third, It seems that you want to
be able to waive the use restrictions entirely if you find that it presents
an impediment to lenders making loans to Housing Authorities, knowing
that you could waive the Use Restrictions. It seems to me that lenders
would make waiving the Use Restrictions a condition of their participation.
I think this position renders the Use Restriction meaningless. Can you
explain under what condition you would grant such a waiver?

And, Fourth, if the Use Restriction is
waived, what happens to the tenants of that property? Do they have to
move, do they receive enhanced vouchers? When the contract is transferred,
what kind of property is it transferred to? Is it transferred to a property
across town, next door, in the suburbs, on and on and on?

I know I threw a lot of questions
at you, but there are hundreds more about this TRA. You want to take
a stab at some of those, Mr. Secretary?

Donovan: Happy to do that. First
of all, we currently have new affordable housing that is developed in
this way. We have long experience on how to protect properties in foreclosure
from losing that housing. TRA would enhance our ability to do that in
a number of ways.

First of all, there would be a
required Use Agreement that would survive the foreclosure, as you said.
In addition to that, however, we also would have a right of first refusal
in order to ensure that if the current Housing Authority or owner is
not able to keep up that property, if we don't believe that they have
the capacity to do that, that we could direct the property to a different
public owner or to an owner we are sure will be able to preserve it.
So, that is a very important tool to be able to be sure that the property
is preserved in the long term. The specific provision you asked about,
about transferring assistance, the truth is that we currently have properties
that are currently under severe distress that we will not be able to
preserve, even today. We have already lost about 150,000 units of public
housing because of the inability to preserve them...

Waters: Mr. Secretary, my time is
just about up and I will talk with you some more about this, but I want
you to know that this experiment I consider very dangerous, and, as
I've said over and over again, I am not about to be a part of privatizing
public housing. I think that there are a lot of problems with this experiment
and I would like you to really think about some of the questions you
are going to hear today and, if you are still interested in pursuing
it, map out a time over the next two years where you can meet with residents,
you can talk with advocates, you can have more hearings, you can flush
all of this out, rather than try to move with something this tremendous,
this big. Thank you.

Later on in the hearing, Waters introduced
the petitions in opposition to PETRA into the Congressional Record.
For full details, go to the website of the Financial Services committee https://financialservices.house.gov.

More than 2500 of you signed the petition,
which has gone into the Congressional Record. More signatures will be
sent to Rep. Maxine Waters. To sign, go to:

https://www.gopetition.com/petitions/save-public-housing.html

Here is a website, with letters, background
information, and alternative proposals:

https://lacehh.wordpress.com/

The PETRA legislation brings up two
important framing questions.

1. Should public housing be considered
infrastructure (frame A) or real estate (frame B)?

As infrastructure, the usual way to finance maintenance is through government
bonds. If the government defaults on the bonds, it still keeps the public
property. As real estate, real estate is financed through private bank
mortgages. If a mortgage isn't paid, the bank takes the property and
it is clearly private. The PETRA bill finances maintenance through private
bank mortgages. It is using frame B.

2. Here is language from the PETRA
bill on page 30 (on the HUD Website):

(ii) PROJECTS AND UNITS OWNED BY
PUBLIC HOUSING AGENCIES.--The Secretary may consider a project or unit
owned by a public housing agency to include a project or unit owned
by an entity in which the agency or its officers, employees or agents
hold a significant direct or indirect interest and which has among its
purposes the ownership or management of affordable housing.

Let's parse that a bit. Consider

a project or unit owned by an entity
in which the agency or its officers, employees or agents hold a significant direct
or indirect interest and which has among its purposes the ownership
or management of affordable housing

This gobbledegook language actually
says that the Secretary of HUD can consider private (or privatized)
property, no longer legally owned by the government, as if it were "owned
by a public housing agency". This is linguistic trickery by which
private, or privatized, property can be called "public." Given this
trickery, Donovan can claim that all privatized property is still "public,"
because the PETRA bill allows him to call it that and "consider"
it as such. It is basically lying with language.

Let us praise Barney Frank and Maxine
Waters for calling privatization "privatization."

But don't take them for granted.
Shaun Donovan is still Secretary of HUD.