Sarah's Senate Testimony on Affordable Housing

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I was recently asked to provide testimony to the Committee on Intergovernmental Relations of the Texas Senate.  The charge they received from Lieutenant Governor Dewhurst is to:

Review state policies regarding the provision of affordable housing, including ways to better coordinate existing federal, state, county, and city resources to appropriately increase homeownership and make recommendations to address any issues.  Identify any impediments that prevent local governments from using existing tools, such as land trusts, land banks, and other available incentives.  Study methods to improve the provision of affordable housing to special-needs populations, such as co-location with social services and coordination with mass transit.

Here is an overview of the comments I provided to the Committee:

Our Challenge is Great

According to the American Community Survey, 41% of Travis County households were housing-cost burdened in 2010, meaning they spent more than 30% of income on housing.  That number was up from 38% in 2009.  Our percentage of housing-cost burdened is higher than other major metropolitan areas in the State.  Also, 37% of County residents are low income, living at or under 200% of the Federal Poverty Level (approximately $22K for a single person, $44K for a family of four).

Travis County’s economy is comparatively healthy with a steady flow of in-migration and continued population growth.  But, our housing stock has not kept pace with the growth in the low-income population.  A recent City of Austin report identified a significant lack of affordable rental units.  For households earning less than $20,000 annually the need is an estimated 39,000 rental units.

Federal Funding and Programs that Work

The Down Payment Assistance (DPA) program is funded by the U.S. Department of Housing and Urban Development (HUD) HOME Program through the Texas Department of Housing and Community Affairs (TDHCA).  Travis County has had great success with this program.  In 2011 TDHCA, in response to low utilization of the State’s allocation of HOME funds by local entities, changed their distribution method.  They created a pool of reservable funds that have the potential to provide local governments that are successfully implementing the HOME program (such as Travis County) with access to additional money above what they already receive.  The Legislature should examine the success of TDHCA’s decision and look for ways to promote ways for the State to maximize the utility of federal money that is appropriated for us.  We should never send money back to HUD unused when there are viable ways to spend it here in Texas.

Private Activity Bonds are tax-exempt bonds that can be used to finance affordable housing projects.  The State of Texas is not taking full advantage of our volume cap as calculated by the Internal Revenue Service for issuing these bonds.  The Legislature should examine opportunities to partner with the private sector for affordable housing by not fully utilizing our Private Activity Bond cap.

The Mortgage Credit Certificate (MCC) program allows homebuyers to claim tax credits for some portion of the mortgage interest paid per year.  It is a dollar-for-dollar reduction against their federal tax liability with no fiscal impact for either the state or local government.  TDHCA should aggressively promote the MCC program, encouraging as many eligible Texans as possible to benefit from it.

Innovative Tools

The Legislature passed the Homestead Preservation Act (HPA) in 2005.  This local bill allowed the City of Austin and Travis County to designate a specified area for promoting housing affordability through the use of land banks and Tax Increment Financing (TIF).  Although the HPA was never implemented as envisioned by the bill, the land bank and TIF provisions should be explored for use in any major urbanized or urbanizing county.

For example, many counties like Travis have the administrative capacity to land bank tax-foreclosed properties for redevelopment as affordable housing.  Some public benefit could be salvaged from the tragedy of tax foreclosure by developing fair and transparent land-banking programs as a component of the foreclosure process already required of counties.  Either the property could be redeveloped for new low-income residents, or the current low-income owner could “sell” the real estate to a land trust to satisfy the tax debt but retain ownership of the improvement thereby staying in his or her home but considerably reducing his or her ongoing tax burden.  The Legislature should grant authority to counties to manage such land banking programs throughout their jurisdictions.

Another HPA innovation that may have application beyond the boundaries of the Act is authorizing local governments to tax increment finance land banking for affordable housing.  The HPA idea was to capture the increasing values that resulted from gentrification to pay for the preservation and maintenance of affordable housing stock in targeted neighborhoods.  Currently the HPA is to a specific district.  Counties should be authorized to tax increment finance land banks anywhere within their jurisdictions.

Targeting Affordable Housing for Those Most In Need

When the state’s mental health institutions where shuttered, community housing options were expected to replace them.  This has not occurred.  We desperately need housing options for folks with serious mental illness.  And that housing needs to include services.

TDHCA should consider prioritizing tax credits and other housing funds to favor supportive housing.  For-profit tax credit builders favor family projects that are easier to build.  Supportive housing projects are complex to finance and construct and require operating and service subsidies.  They also face neighborhood resistance.  The TDHCA should create a supportive housing set-aside for tax credits to ensure these more complex but desperately needed supportive housing projects are pursued.

Also, the Legislature should consider improving policy and funding coordination between TDHCA, the Health and Human Services Commission (HHSC) and Texas Department of Criminal Justice (TDCJ) to better serve their overlapping constituencies suffering with serious mental illness.  We can pay for this up front through housing and social services.  Or we can pay after the fact in the criminal justice system, often at a higher cost.

Placing affordable housing in areas without jobs and services and lacking access to public transportation are not ultimately affordable to the end user.  Therefore, TDHCA should improve the scoring incentives for locating housing-tax credit projects in closer proximity to mass transit.

TDHCA used to have incentives for projects located in Transit Oriented Development (TOD) districts, but those incentives were removed from the qualified allocation plan out of concern for the higher cost of land in urban TODs.  But, balance must be achieved between the cost of the land to the developer and the cost of transportation to jobs and services to the resident.

Increase Funding, Targeting, Flexibility and Coordination

Certainly we need more funding for affordable housing, but in this atmosphere of scarcity we must pick our battles, targeting those most in need in areas with the highest benefit to residents.  Aside from prioritizing supportive housing for the seriously mentally ill and re-establishing preferences for projects with transit access, the State should give local government maximum flexibility in utilizing the scarce federal dollars to best effect.  Federal grant administration is already complicated without adding state regulations.  The Legislature should establish guidelines for urbanized or urbanizing local governments to test the promise of land banks and TIFs.  We could all benefit from a higher degree of coordination and streamlining at the federal, state and local levels.  The Legislature should review all state rules and requirements to ensure that funding scores are weighted to favor collaborative regional planning where possible.

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