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.

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

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

    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

    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

    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

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:

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

The PETRA legislation brings up two
important framing questions.

1. Should public housing be considered
(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):

    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.

Join Us: News for people demanding a better world

Common Dreams is powered by optimists who believe in the power of informed and engaged citizens to ignite and enact change to make the world a better place.

We're hundreds of thousands strong, but every single supporter makes the difference.

Your contribution supports this bold media model—free, independent, and dedicated to reporting the facts every day. Stand with us in the fight for economic equality, social justice, human rights, and a more sustainable future. As a people-powered nonprofit news outlet, we cover the issues the corporate media never will. Join with us today!

Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.