[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
   PUBLIC HOUSING IN THE COMPETITIVE MARKET PLACE: DO AFFORDABLE AND 
   PUBLIC HOUSING DEVELOPMENTS BENEFIT FROM PRIVATE MARKET AND OTHER 
                            FINANCING TOOLS?
=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON FEDERALISM
                             AND THE CENSUS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 23, 2006

                               __________

                           Serial No. 109-210

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform



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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                      David Marin, Staff Director
                Lawrence Halloran, Deputy Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

               Subcommittee on Federalism and the Census

                   MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania        WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina        CAROLYN B. MALONEY, New York
------ ------

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     John Cuaderes, Staff Director
                       Shannon Weinberg, Counsel
                         Juliana French, Clerk
            Adam Bordes, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 23, 2006.....................................     1
Statement of:
    Clancy, Patrick, president and CEO, the Community Builders, 
      Inc.; Wendy Dolber, managing director, tax exempt 
      financing, Standard & Poor's Rating Services; and Brian 
      Tracey, community development banking market executive 
      Atlantic Region, Bank of America Corp......................     5
        Clancy, Patrick..........................................     5
        Dolber, Wendy............................................    23
        Tracey, Brian............................................    62
Letters, statements, etc., submitted for the record by:
    Clancy, Patrick, president and CEO, the Community Builders, 
      Inc., prepared statement of................................     8
    Dolber, Wendy, managing director, tax exempt financing, 
      Standard & Poor's Rating Services, prepared statement of...    25
    Tracey, Brian, community development banking market executive 
      Atlantic Region, Bank of America Corp., prepared statement 
      of.........................................................    64
    Turner, Hon. Michael R., a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3


   PUBLIC HOUSING IN THE COMPETITIVE MARKET PLACE: DO AFFORDABLE AND 
   PUBLIC HOUSING DEVELOPMENTS BENEFIT FROM PRIVATE MARKET AND OTHER 
                            FINANCING TOOLS?

                              ----------                              


                         TUESDAY, MAY 23, 2006

                  House of Representatives,
         Subcommittee on Federalism and the Census,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Michael R. 
Turner (chairman of the subcommittee) presiding.
    Present: Representatives Turner, Dent, Foxx, Clay, and 
Maloney.
    Staff present: Shannon Weinberg, counsel; Juliana French, 
clerk; Adam Bordes, minority professional staff member; and 
Cecelia Morton, minority office manager.
    Mr. Turner. A quorum being present, this hearing on the 
Subcommittee on Federalism and the Census will come to order. 
Welcome to the subcommittee's hearing entitled, ``Public 
Housing in the Competitive Marketplace: Do Affordable and 
Public Housing Developments Benefit From Private Market and 
Other Financing Tools?''
    This is the third in this series of hearings in the 
Federalism and the Census Subcommittee which we are holding on 
public and low-income housing. The purpose of today's hearing 
is to learn how financiers and developers in the multifamily 
affordable housing industry obtain structure of the various 
forms of capital used in the development of low and mixed-
income housing developments.
    The Federal Government, through the Department of Housing 
and Urban Development, and ultimately through the various 
public housing authorities, plays a significant role in 
developing affordable housing by providing seed money for these 
projects. Federal funds provided to the low-income tax credit 
help fix grants, the Public Housing Capital Fund, and the 
Capital Fund Financing Program have all been heavily used to 
leverage additional private sources of capital for these 
projects.
    Developers have also successfully used other Federal 
programs, such as the Home Investment Partnerships Program, the 
Community Development Block Grant, and CDBG Section 108 loan 
guarantees to raise capital funds for development projects.
    Congress has recently decreased funding for many of these 
programs in recent years. At the same time, many of the 
statutory and regulatory requirements of these Federal programs 
often encumber the use of Federal moneys, creating significant 
delays and project closings. The complex nature of these 
programs has caused some would-be investors and lenders to walk 
away from certain projects. Our goal here today is to learn 
from those in the industry and investigate ways in which 
Congress can streamline the use of the Federal Government's 
various sources of project capital so they can be more easily 
integrated into mixed or multi layered financing packages.
    Your comments will help us shape any recommendations that 
we make to our colleagues in Congress as well as to the 
administration on how we could improve the current system and 
attract even greater private investment in affordable housing 
projects.
    The panel that we have today consists of three witnesses 
from the private sector who will share with the subcommittee 
their experiences with the financing of large low-income and 
mixed-income housing projects. First, we will hear from Patrick 
Clancy, president and CEO of the Community Builders Inc. 
Community Builders is a nonprofit developer of low and mixed-
income housing projects over the Boston area. Next we will hear 
from Wendy Dolber, managing director of tax exempt financing, 
Standard & Poor's Rating Services. Finally we have Brian 
Tracey, community development banking market executive for Bank 
of America's Atlantic region.
    With that, I welcome each of you here today, and I look 
forward to your comments. Each witness has kindly prepared 
written testimony which will be included in the record of this 
hearing. Witnesses will notice that there is a timer light at 
the witness table. The green light indicates that you should 
begin your prepared remarks, and the red light indicates that 
the time has expired. The yellow light will indicate when you 
have 1 minute left in which to conclude your remarks.
    Our ranking member, Mr. Clay, has notified us that he does 
intend to join us today, and we'll be looking for his 
attendance and his opening statement at a later time, perhaps. 
It is the policy of this committee that all witnesses be sworn 
in before they testify. Will the panel please raise your right 
hands and stand?
    [The prepared statement of Hon. Michael R. Turner follows:]
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    [Witnesses sworn.]
    Mr. Turner. Will the record show that all witnesses have 
responded in the affirmative. And I want to thank Mr. Clay for 
his support and his continued interest in community development 
and recognize him for his opening statement.
    Mr. Clay. Thank you, Mr. Chairman. Mr. Chairman, I thank 
you for holding today's hearing on the role of private capital 
financing in our Nation's public housing. As we continue in our 
work to improve public housing, today's hearing will allow us 
to examine how both Congress and the private sector can work in 
tandem to meet the need for public housing nationwide.
    Since the enactment of the Low-Income Housing Tax Credit 
Program in 1986, the role of private capital in public housing 
has afforded increased options to local housing authorities 
facing significant building and restoration needs. This 
partnership is sorely needed as our Nation's affordable housing 
stock is decreasing, and public housing faces capital 
improvement needs approaching $20 billion annually. 
Nevertheless, Federal resources for capital improvements remain 
inadequate while local agencies face daunting approval 
processes for proposed projects that are funded.
    As in previous years, the President's budget for fiscal 
year 2007 provides no funding for the HOPE VI Program that is 
essential to the revitalization programs of dilapidated public 
housing complexes. In addition, the budget costs are shrinking 
the amount of funding for the Public Housing Capital Fund by 
nearly $250 million from fiscal year 2006 funding level. This 
is sending the wrong signal at the wrong time to our capital 
markets.
    I suggest to you, Mr. Chairman, that inconsistent support 
for these programs will only lessen the commitment to public 
housing from the private sector. If our PHAs cannot depend on 
long-term capital commitments from the Federal Government, it 
makes little business sense for the private sector to hold up 
their end of the bargain. While we in Congress will often step 
in at the 11th hour to fund these programs, these solutions 
lack a firm commitment to private market participants seeking 
to provide favorable lending terms or adequate resources to our 
PHA.
    This concludes my remarks, and I look forward to our 
testimony today. Thank you, Mr. Chairman.
    Mr. Turner. Thank you, Mr. Clay. And with that, we'll begin 
with Mr. Clancy.

STATEMENTS OF PATRICK CLANCY, PRESIDENT AND CEO, THE COMMUNITY 
  BUILDERS, INC.; WENDY DOLBER, MANAGING DIRECTOR, TAX EXEMPT 
FINANCING, STANDARD & POOR'S RATING SERVICES; AND BRIAN TRACEY, 
COMMUNITY DEVELOPMENT BANKING MARKET EXECUTIVE ATLANTIC REGION, 
                     BANK OF AMERICA CORP.

                  STATEMENT OF PATRICK CLANCY

    Mr. Clancy. Thank you, Mr. Chairman. Good morning. My name 
is Pat Clancy. I lead an organization that has been building 
affordable housing and transforming neighborhoods for over 40 
years. I'm proud of the Community Builders' record of producing 
over 20,000 units of affordable and mixed-income housing in 
cities across the Northeast, the mid-Atlantic and the Midwest.
    Let me start by stating the key value proposition. The 
value of the housing investment in new mixed income housing 
that is replacing devastated public housing lies in changed 
lives and changed neighborhoods, not simply in the new housing. 
As the community development field has evolved, change agents 
such as my organization have increasingly come to take a 
holistic view of neighborhoods and markets and to propose 
comprehensive neighborhood revitalization efforts [CNR], rather 
than small-scale rehabilitation or new construction.
    In our view, public investment and public-private 
development activity must operate on a scale sufficient to 
reposition a neighborhood in its regional market and to 
stimulate broader economic activity.
    Prior to the HOPE VI program, the ability to mount large-
scale redevelopment initiatives capable of transforming 
neighborhoods was a critical element missing from our urban 
policy. By now, the ingredients behind the success of HOPE VI 
are well known, scales sufficient to change neighborhood 
markets, leveraging private sector capital and development 
capacity, high-quality design, construction and amenities, 
comprehensive intervention across sectors, and careful 
attention to both physical development and human development, 
with particular emphasis on jobs and improved schools. We 
focused our energies on over a dozen redevelopment efforts 
under HOPE VI to reach these broader goals, and I've included 
information on Louisville and Chicago as an appendix to my 
testimony.
    From our experience I want to offer some recommendations 
for your consideration. No. 1, I would propose to make a larger 
share of public housing capital funding available in a 
competitive basis rather than by formula. There's $2.5 billion 
in public housing capital allocated by formula, and only $100 
million this year competitively via HOPE VI. If Congress wants 
housing authorities to use more of their capital funding in 
more leveraged and comprehensive efforts as I am urging, it 
should make a higher proportion of that funding available 
competitively.
    No. 2, reward leverage and comprehensive approaches in 
competitive allocations. The HOPE VI administrative way does 
that now. There would be considerable value in embracing 
leverage and comprehensiveness in a legislative framework. For 
example, Senator Mikulski, in her proposed reauthorization 
bill, requires partnerships with local schools, and that's one 
example of that type of approach.
    No. 3, recognize that you get what you pay for. The early 
HOPE VI program allowed for a $250,000 planning grant so 
authorities could put teams together, go out and really think 
through and map out a long-term revitalization plan before 
coming in and competing for the grant itself. That program 
should be reinstituted, and more comprehensive efforts should 
not be penalized but should be rewarded as long as they make 
consistent progress against ambitious goals.
    There is a funding issue that needs to be addressed in one 
of two ways. Either housing authorities who get grants need to 
be able to draw that money down and make interim investments 
with it or the budget outlays need to be planned over multiple 
years so that there's no unreasonable pressure on getting all 
the money committed in 1 year because these are just not that 
kind of programs. With the scope of so many of these efforts 
being so broad with multiple phases in most instances, the idea 
that the program should be curtailed because the money isn't 
being spent fast enough is nuts.
    No. 4, we need to explore the next financial frontier. Let 
me make it simple. We're taking the worst environments in 
neighborhoods and putting them in a position where they become 
the best housing, and that creates enormous value. We need to 
capture that value both by acquiring additional land for future 
development and by capturing the tax revenues that are going to 
come out of those increased values. Both of those areas 
represent a next critical frontier for these efforts, and it's 
a critical frontier because it takes leverage beyond tax 
credits, beyond home, beyond mortgage financing, and it takes 
us out into capturing the future value and bringing that 
forward so we can invest today.
    I appreciate, as somebody out there for the last 35 years 
working at rebuilding neighborhoods, the attention that this 
committee is putting on this important topic, and I appreciate 
the opportunity to be here in front of you today. Thanks very 
much.
    Mr. Turner. Thank you.
    [The prepared statement of Mr. Clancy follows:]
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    Mr. Turner. Ms. Dolber.

                   STATEMENT OF WENDY DOLBER

    Ms. Dolber. Mr. Chairman, members of the subcommittee, good 
morning. I'm Wendy Dolber, managing director of Standard and 
Poor's Rating Services. I manage the public housing tax--public 
finance tax exempt housing group where we rate that in 
connection with affordable housing. I'd like to focus today on 
our experience in rating capital funds securitizations as well 
as talk more generally about key factors that could enhance a 
PHA's acceptance in the marketplace and help them obtain and 
maintain strong credit ratings.
    S&P has worked with PHAs for decades, rating debt supported 
by multifamily properties or loans. Generally speaking, these 
transactions achieve low to high investment grade ratings and 
do well on the marketplace. The passage of QHWRA and subsequent 
capital funds securitizations introduced two new risks that we 
needed to look at. The sufficiency and timeliness of Federal 
appropriations and the impact of PHA performance on its funding 
levels. PHAs and their financing teams work diligently with HUD 
and the rating agencies to address these risks and ultimately 
we were able to assign ratings ranging from A to AAA if they 
had bond insurance on 22 capital funds securitizations totaling 
almost $2 billion. Key elements of our rating analysis were the 
strong history of capital fund appropriations, predictable 
allocation mechanisms and excess coverage of capital funds to 
bond debt service.
    We also look for insulation against potential PHA 
performance that could negatively impact their receipt of HUD 
funding. HUD addressed performance risk to a large degree 
through written acknowledgement on every transaction that if a 
PHA were saying through poor performance the same thing would 
not reduce the funding level below needed to make debt service 
payments, and we also allowed PHA capital funds to be paid 
directly to the bond trustee. These insurances and processes 
among other things allowed high investment grade ratings, as 
long as S&P could analyze the PHA's general readiness to carry 
out its obligations under the bond program, especially its 
ability and track record in obligating and expending HUD funds.
    To date, we've been able to affirm all outstanding ratings, 
but capital fund appropriations have been cut every year since 
we did the first rating in 2001, which has resulted in a 
reduction of debt service coverage in many cases. We're 
concerned that future cuts could compromise a PHA's ability to 
pay debt service. That would result in lowered ratings, income, 
and would whittle away investor confidence. It is possible that 
more predictability and stability in the level of annual 
appropriations could decrease the need for such high levels of 
coverage and stretch the Federal dollar as a leveraging tool. 
Alternatively, some type of backstop funding mechanism not 
subject to Federal appropriations could greatly enhance 
investor confidence and rating agency confidence.
    I'd like to say a few words about our observations in 
working on PHAs on the securitizations while more PHAs are 
testing the waters and many have been very successful in 
accessing the capital markets, PHAs as a group do seem 
reluctant to move forward with bond financing. This may be due 
to lack of familiarity with the marketplace and its players, 
concerns about possible negative impact on HUD funding and the 
potential liabilities to PHAs or just ongoing difficulties they 
face in meeting their mandates with less resources in a 
changing environment. Pooled financings are one way to ease the 
way for PHAs to enter the capital markets if they're unlikely 
or reluctant to do so.
    It presents an efficient vehicle by saving costs of 
issuance. But the benefit is limited because PHA's funding 
cannot be cross-collateralized. Considering the factors that 
have strengthened market perception of capital fund 
securitizations and looking ahead to more expanded use of 
QHWRA, and perhaps even to the day, when PHAs could have their 
own credit ratings as corporate entities, we would highlight 
four key areas for continuing improvement.
    First, predictability, stability and fungibility of income 
sources. Next, clarity, consistency and dependability regarding 
the HUD regulatory environment, especially as it relates to the 
leveraging of HUD funding and the potential for financial 
sanctioning of PHAs, effective in timely communication with the 
capital markets on the part of the issuers and the Federal 
Government. From our perspective, this is critically important 
as we rely upon accurate and adequate information to maintain 
ratings, and PHA's continuing development of management 
practices on a par with private market, especially in the areas 
of asset management and financial expertise with necessary 
flexibility to achieve best practices.
    In closing, I'd like to thank you for inviting us to 
participate, and I look forward to your questions.
    [The prepared statement of Ms. Dolber follows:]
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    Mr. Turner. Mr. Tracey.

                   STATEMENT OF BRIAN TRACEY

    Mr. Tracey. Good morning. On behalf of the 200,000 
associates working at Bank of America, thank you for the 
opportunity to share our thoughts today on the use of private 
capital for public housing. As the national leader in community 
development, Bank of America works to help build stronger and 
healthier neighborhoods throughout the country. In support of 
public housing, Bank of America acts as a lender, an investor 
and a real estate developer, working with housing authorities 
in more than 30 States. During the last 10 years, Bank of 
America's provided more than $500 million in debt and equity 
for over 40 PHA mixed-finance transactions. Our company has 
also been a leader in structuring capital fund financing 
program bonds, which allow PHAs to use lower-cost tax-exempt 
debt to accelerate improvements to public housing properties, 
providing about one-third of all private capital supplied to 
the Nation's housing authorities using this technique. This 
private capital often leverages more limited public funding, 
multiplying the benefit of public investment typically four to 
six-fold.
    Clearly, public housing benefits from access to private 
capital. Here's an example of how we've worked with one local 
agency to combine Federal housing support with a range of 
public and private resources to benefit low-income residents. 
Northwestern Regional Housing Authority serves a seven-county 
area in western North Carolina. Recently acting as a sole 
developer, Northwestern completed 40 rental apartments for very 
low-income seniors in Elk Park. This transaction involved the 
acquisition and conversion of a historic school building and a 
total cost of almost $5 million. Northwestern leveraged a mix 
of public and private funding sources, including project-based 
Section 8 operating support, low-interest financing from the 
North Carolina Housing Finance Authority, permanent financing 
through the Federal Home Loan Bank, AHP program and low-income 
housing tasked equity construction financing and State and 
Federal historic tax credit funding all provided by Bank of 
America as lender and investor.
    Northwestern's Elk Park development demonstrates the 
possibilities of alternative sources of funding not always used 
by housing authorities, but this success is far from 
commonplace, and many aspects of the current regulatory and 
funding environment distinctly limit what lenders and 
investors, such as Bank of America, can accomplish today.
    What are these limitations, and how they can be changed? A 
few thoughts, a few recommendations. Congress and HUD should 
provide stable and predictable funding for public housing. 
Northwestern's success at Elk Park would not have been possible 
without an expectation of predictable Federal funding on the 
part of the housing authority's financial partners, and recent 
proposed and appropriated funding trends for public housing 
have undermined private sector confidence and the stability of 
many of these programs. HUD should also implement consistent 
standards for common types of transactions involving private 
capital and public housing. Today, HUD approves every public 
housing capital grant financing and every public housing 
transaction involving the low-income housing tax credit on a 
case-by-case basis largely centered here in Washington. 
Approvals are often very long and coming even in instances 
where HUD has approved transactions previously using 
substantially identical documentation.
    HUD, working with the private sector, should craft a series 
of clear, reasonable so-called safe harbor standards for 
approving transactions. This safe harbor approach will help 
create a more entrepreneurial climate for public housing 
authorities where they can predictably access the full range of 
financing tools used by private developers. One last 
recommendation, HOPE VI funding should be restored to the 
levels prevailing 3 years ago. Bank of America, in its 
experience, has seen HOPE VI funding improve not only the lives 
of public housing residents, but also act as a catalyst for 
economic development resulting in private capital flowing to 
the stressed areas adjacent to the public housing community. 
One such example is Capitol Park in the Peace College area of 
Raleigh, NC. This mixed-income, mixed-use community developed 
by the Raleigh Housing Authority as sole developer now includes 
both rental and single-family homes, a community center, 
daycare facilities, a charter school and a commercial office 
building where once was an isolated 25-acre complex of poorly 
designed public housing.
    So who benefits from the use of private dollars to fund 
public housing? Well, first and most importantly, we believe 
the public housing residents benefit through more money sooner 
to improve both their homes and their neighborhoods. Second, 
the broader community. As private capital is attracted to the 
blocks surrounding public housing developments and finally our 
government and taxpayers by efficiently leveraging government 
dollars with private capital to accomplish more with the same 
amount of public funding.
    Thank you, Mr. Chairman and members of the subcommittee, 
for the opportunity to make these observations today. Thank 
you.
    [The prepared statement of Mr. Tracey follows:]
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    Mr. Turner. Thank you. Mr. Tracey, I'm going to start with 
you. In turning to the issue of the low-income housing tax 
credit, I have a couple of questions that are issues that 
you've not really raised. My experience has been that for Low-
Income Housing Tax Credit Program, the participation by banks 
as investors or purchasers of low-income housing tax credits 
themselves has been really essential for this success. If you 
look industry-wide, the participation by other sectors of 
businesses who could be investors for the tax credits is very 
minimal. My understanding of part of the reason for that is not 
just the great expertise that banks have in being able to wade 
through the technical requirements but also the Community 
Reinvestment Act incentive that is there for banks. I would 
like, if you would, please, talk about that for a moment and 
the Community Reinvestment Act's incentive for banks to 
participate. And then second, which is the real crux of my 
question is, once the Community Reinvestment Act was an 
incentive for banks to participate in low-income housing tax 
credits, today are you experiencing enough of a return? Are the 
projects profitable enough for the bank? Is your participation 
in it now for just basic business principles independent and 
sound enough that you would continue that even without the 
Community Reinvestment Act by impacts?
    Mr. Tracey. That's a very interesting question, and I think 
clearly historically as the creditors evolved, we've seen more 
private capital, primarily through banks, however, attracted to 
the low-income housing tax credit. As a result, on the one 
hand, it's become a much more efficient credit so prices of the 
credit are now increased to some cases approaching or exceeding 
$1 whereas 20, 25 years ago it was much lower than that. So 
we've seen additional private capital flowing in.
    Now, how much of that is a function of Community 
Reinvestment Act, and how much is it a function of the 
attraction to that return? I can't really quantify that. I've 
never seen any type of statistical analysis trying to 
differentiate between the two. We are clearly driven in our 
low-income housing tax credit approach by the requirements of 
the CRA. At the same time, the returns--and we define returns 
probably a bit differently, more broadly in the use of the 
credits--are still attractive enough that we're getting 
positive overall yields from our portfolio. When I say returns, 
we're looking at the definition of return as also including the 
other business opportunities to credit drives for us as a 
financial institution, which is the opportunity to provide 
construction and permanent financing to those developments that 
benefit from the tax credit.
    One other observation, again, because of the increased 
private capital flowing into these markets, the returns on low-
income housing tax credits are actually quite low, and in some 
instances, approach the yield for similar type Treasury 
investments, and the concern we have is clearly there is a 
difference between the risk in a low-income housing tax credit 
investment and the risks investing in U.S. Treasuries. We're 
not quite sure what to make of that in the financial markets. I 
think some could say, well, that's the effect of the CRA, 
driving down returns because there's a nonfinancial component 
of why private capital is attracted to those investments.
    Mr. Turner. Thank you so much for your answer. That was an 
excellent answer. Very tough topic and very well described. 
Once the investment is made, the issue has been raised of the 
exit tax, if you will, of once the purchaser of the tax credits 
becomes an investor in the project and the period of time in 
which the tax credits have expired and the abilities of the 
investor to exit the project, then it incurs a tax consequence. 
Can you talk about that for a moment, because we're getting our 
inquiries as to ways that we might be able to modify.
    Now that some of these projects are maturing and the 
investors have their investment there and wish to exit the 
project, could you speak about those tax consequences and if 
you have any suggestions as to how that might be addressed?
    Mr. Tracey. Well, I'm not a tax expert, but it is an issue, 
and we rely very heavily on others in the industry that are 
studying this issue. I know there's a group that we support, a 
small collection of developers, attorneys, financial 
professionals called the Institute for Responsible Housing 
Preservation. It's based here in the District, that is studying 
this issue. We've had several meetings with officials at HUD to 
talk about specifically the exit tax and proposals for exit tax 
relief. Other industry groups, National Housing Conference, for 
example, is also focused on this issue. This is becoming more 
of an obstacle to the preservation of affordable housing as tax 
credit projects that were done early in the life cycle of the 
credit now either have expired or are approaching the end of 
the compliance period. And I'm not prepared today to give any 
recommendations to that effect, either than just refer you to 
the same industry professionals we look on for advice.
    Mr. Turner. Thank you. Mr. Clancy, do you have any comments 
about the issues of the exit tax?
    Mr. Clancy. The exit tax relief, if applied broadly, could 
be extremely valuable, but it is an expensive item. What we 
have been able to utilize in our attempt to preserve some 
affordable housing assets where owners are facing exit tax but 
want to sell is if, in fact, the value of the property has gone 
up to some degree as a nonprofit, we've been able to structure 
transactions where a charitable contribution, a bargain sale 
can be structured where the investors get a charitable 
contribution for contributing their interest and that deduction 
can help offset the exit tax and provide relief.
    Now, that requires the property have value that there be 
enough value in the property, that, in fact, that's a 
legitimate deduction that, in fact, they are, in turning over 
the property, giving over value, but I think that mechanisms 
like that could be further developed in ways that might avoid 
the large-ticket expense of broad-scale exit tax legislation, 
which we in the industry have been talking about for about 15 
years, but you know, obviously the Congress has not seen fit to 
enact, given the price tag involved.
    Mr. Turner. Mr. Clancy, you raised a number of issues in 
your testimony concerning transitioning funding in programs to 
a competitive basis. As you are aware, there are a number of 
communities that have varying levels of expertise and varying 
levels of access to expertise. A city like Chicago is going to 
have individuals even beyond the public housing sector who are 
going to have complex financial transaction experience, complex 
real estate and legal experience that may not be easily found 
in communities where we have public housing and where that 
public housing needs to be remedied.
    You have been highly successful and, as you know, I've 
toured some of the wonderful transformations that you've been a 
part of that have occurred in Chicago. I'm wondering if you 
might, for a moment, please describe to us some of the types of 
expertise that you think are necessary in order to be 
successful. As we look to what assistance communities are going 
to need, part of it is funding. I noted the commonality of 
stability of funding that was in each of your risks. I wondered 
if you had all compared notes before you got here, but I 
assumed not. But that level of expertise is also an issue that 
is necessary even beyond funding. And to just highlight this, 
as you are aware, part of the problems in continuing HOPE VI 
funding is the belief by some members that HOPE VI funding has 
not met the level of expertise and performance that we've seen 
in other communities. So I'd love your thoughts on that.
    Mr. Clancy. Well, I think that the substantial majority of 
effective HOPE VI production over the last 10 years has 
happened in public-private partnerships between housing 
authorities and development actors with experience in 
utilization of tax credits, utilization of forms of debt and 
equity that get combined with public housing capital. Those 
development actors--because HOPE VI itself is a complex program 
and is layered on top of tax credits--you're absolutely right 
that the actors with the sophistication to carry out that kind 
of a complex financing there tend to be many more of them in 
large cities than in smaller cities.
    I think that this is less true today than it was 10 or 15 
years ago, and the industry has reached a certain level where 
many of the lawyers, many of the accountants, many of the 
smaller developers who were involved in doing affordable 
housing have had some degree of experience with public housing 
capital sources and could--particularly if some of the 
recommendations on looking at ways to streamline and simplify 
some progress could be made--could be brought into utilizing 
those resources.
    I think one of the key requirements, Mr. Chairman, that is 
often a complicated one, is the way in which housing 
authorities reach out to the private sector and the complex 
procurement regulations of the department, and oftentimes 
again, why I recommended reinstituting planning grants, often 
times housing authorities don't quite know what's possible with 
a given site and so how do they reach out for a private partner 
when they don't know what they're reaching out for?
    So there needs to be an understanding and there needs to be 
support from HUD, which I think in the early years of the HOPE 
VI program, there was for housing authorities to be able to 
understand how they can procure a partner, how they can acquire 
the expertise to enable them, even if they're a smaller 
authority to utilize the same kind of techniques that larger 
cities are able to use. I think that's very possible to do.
    Mr. Turner. Ms. Dolber, in looking at your written 
testimony and your comments, both my staff and myself are 
curious about the issue that you have raised for pooling of 
resources and in looking at how that is accomplished. You're 
talking about PHAs, having used HUD's capital fund financing 
program and the pooling have been accomplished ranging from two 
PHAs to 35 PHAs. Could you just describe this process? 
Obviously, the lack of a clear relationship between the public 
housing authorities and, as you have raised in your comments, 
the issue of funding sources just raised several questions 
about that whole process. If you could elaborate, I'd 
appreciate it.
    Ms. Dolber. The pool financings--the way they work is that 
a group of PHAs will issue bonds collectively. So instead of 
each one going out with, let's say Norfolk Housing Authority 
will go out and do a $2 million bond transaction on its own, 
pay over costs of issuance, and all the other--the costs 
associated with doing that, they would team up with a number of 
other housing authorities in the State, and they would do it 
together.
    So therefore, the cost of issuance is spread out among all 
the different housing authorities, and typically these are put 
together by an FA an investment banker or a State housing 
finance agency, as Pennsylvania Housing did, who will corral 
all the PHAs together and bring them into the financing. And 
the way that it works is that they will pledge their capital 
funds, you know, together, but their capital--Norfolk is only 
going to be used to pay for Norfolk's obligation, and if it had 
excesses available, it's not going to help any other housing 
authority. So they--there will be a debt service reserve fund 
that anybody, you know, could use to pay debt service, or the 
trustee will use to pay debt service, but there's no 
fungibility among the PHA funds, and that's fine, but it's a 
very rateable transaction. It sells well on the marketplace, 
but what it--what it doesn't allow is for a public housing 
authority that doesn't have as much capital funds to bring to 
the table. They might be--not be able to participate in the 
financing.
    Mr. Turner. So it lowers their cost, but not their risk?
    Ms. Dolber. That's right.
    Mr. Turner. At this point, I'll turn to Mr. Clay for his 
questions.
    Mr. Clay. Thank you, Mr. Chairman. I'll start with Mr. 
Clancy. Welcome. Although our public housing authorities have 
longer waiting lists than ever, there's no longer one for one 
matching requirement concerning the demolition and 
reconstruction of low-income housing units. Doesn't this pose a 
threat to those already on a waiting list for public housing? 
And what long-term solutions would you offer to the shortage of 
units available?
    Mr. Clancy. I think obviously there are huge funding 
challenges that, as somebody committed to supporting good 
housing and good supports for low-income families, particularly 
in urban areas, I'd feel the lack of resources is an outrage. 
To talk more particularly about what happens in the demolition 
of public housing and its replacement, our experience has 
been--has been mixed. One of the interesting things that 
happens--if you focus on the families that are in the public 
housing itself, often times when we get involved, the housing 
authority's already planned for demolition of the public 
housing, has already relocated a lot of families, and they'll 
be in other places and then they're offered, oftentimes, a 
chance to come back, oftentimes with requirements like work 
requirements, for example, in the city of Chicago.
    What's interesting is that a lot of the families that 
actually have moved have been relocated out of a public housing 
site don't want to come back, even when you build a really 
attractive, you know, first-rate mixed-income environment. It's 
not always the case, but what happens many times is again, a 
lot of these developments have been very distressed. There've 
been environments that people who have stayed in those 
environments are people who don't have a choice, and even 
though people who have been relocated may have been given a 
voucher or something else that is not necessarily a stable, 
long-term fixed asset in terms of affordable housing, and so it 
gives us all concern. Yet for that family, that relocation that 
they went through, 9 times out of 10 has been a positive 
experience, compared to where they were living.
    Now, you created a whole new environment, and so it's a 
whole new day, but many times the history of having lived in 
that environment when it was a bad environment and the fact 
that a family may be stably settled in another neighborhood, 
they don't want to come back. What's more important, I think, 
is to really focus on the families that are there, the families 
that want to make a transition to the new community, and 
there's a real timing challenge there, because supporting a 
family that has been on public assistance for perhaps two 
generations to meet a jobs requirement, I mean, you're talking 
about needing to work with a family over an extended period of 
time, needing to deal with a lot of very intractable social 
challenges that family faces to enable that family to really 
become a strong part of that future community.
    And I think one of the disconnects is that we don't always 
sustain the attention to that effort in these redevelopments, 
and while we create a mixed-income community, I think it's 
critically important that, you know, over 3 years, over 5 
years, over 10 years, the kind of public education that happens 
in a neighborhood, the kind of support for families to get jobs 
and to get better jobs need to be sustained and maintained to 
really be of service to those--to the low-income families that 
really are the core of the mission of the transformation effort 
itself.
    Mr. Clay. You mention relocation with voucher and Section 
8. Do you have any examples of some creative relocations, such 
as a first-time homeownership?
    Mr. Clancy. I'm aware of limited amounts of that. There has 
been some, certainly, for example, in Chicago where we're 
working, we are in the first phase of home ownership that's 
happening right now. There are, I believe, a handful of public 
housing tenants that are going into ownership units in the new 
mixed-income community. That's a very small number in a large 
community, but at least it's a start. Again, I think that what 
we expect, actually, in Chicago where it's a 3,000-unit total 
build-out, mixture of rental and sales is that we hope that a 
number of our public housing families that come in as rental 
families over time will graduate to ownership units within the 
same community, and we're trying to basically end up with a 
community that has that kind of escalating opportunity for 
those families.
    Mr. Clay. Thank you for that response, Mr. Clancy. Ms. 
Dolber, how can your agency factor in the reliability of 
Federal support of public capital financing programs when 
Congress and the administration are constantly at odds over its 
value? And are tax credits over a 5 or 10-year budget window 
more reliable for establishing the creditworthiness of a PHA? 
Two questions.
    Ms. Dolber. I can answer the first question. I didn't 
really understand the second question about tax credits.
    Mr. Clay. Let's try the first one.
    Ms. Dolber. OK. I think what you're talking about is the 
risk of appropriations and the declining of appropriations 
every year and how we view that, is that right?
    Mr. Clay. Yeah.
    Ms. Dolber. All right. That's a great question. When we 
first did our rating in 2001, the industry was able to supply 
us with a lot of very good information about the history of the 
appropriations. And so we were able to look at it and feel that 
we knew what the track record was, and that in order to make 
sure that service could be paid, we look for excess coverage.
    So we got comfortable with a lot of the mechanisms that 
have been put into place at that time, like negotiated 
rulemaking and, you know, things that would allow us to predict 
what level each individual PHA might get that we would look at 
in a financing. Now we knew that in years to come, it could be 
possible that appropriations could be cut, and that's why we 
look for excess coverage. Without the excess coverage, there's 
no way that the bond issues that we raised would have been 
investment grade.
    Now, in the last 6 years or 5 years, every single year 
appropriations have been cut. That definitely got our 
attention. We watch it very closely, and we really did ask 
ourselves a question, do we have to downgrade the bonds? It's 
very difficult for us to put our finger on, what is the level 
of the Federal Government's support for public housing finance? 
It's clear the support for public housing, but what about 
public housing finance? Because there's really no one from the 
Federal Government that's going to say to us, don't worry about 
it, everything's going to be OK.
    So we have to look at what's actually happening out there. 
So what we did, we created a stress test, and in order to 
affirm our ratings, we had to anticipate that the funding cuts 
would continue every single year as long as the bond issue went 
on. And we made sure that debt service would be paid 
irregardless. So what I'm saying is that if we could--because 
the excess coverage was there, we could factor it into our 
rating. However, the track record that we've been looking at is 
changing. We looked at a pretty stable track record and a 
pretty strong track record, and now we have a more questionable 
track record. So the question is, what's going to happen in the 
future if cuts continue, are we still going to feel that 
there's a strong track record?
    Mr. Clay. Let me reword the second question there. It's a 
followup to what you said. Would the S&P view tax credits like, 
the low-income tax credit as more reliable than appropriations 
for PHA ratings?
    Ms. Dolber. Well, it's a different mechanism that we 
usually see coming into a transaction at the beginning, and 
putting money on the table, if you will. And we look to see how 
those funds--from the sale of the tax credits are going to be 
used in the financing, you know, sometimes they're used in 
development costs. So this is where they reduce the amount of 
bonds that have to be issued. So that type of mechanism where 
money comes in up front and it's on the table, but there are 
things that can affect whether it's going to continue, whether 
the tax benefits of the tax credit are going to continue don't 
really affect our ratings.
    In a sense, because the money is already there, it affects 
the tax credit investor because they could lose their tax 
credits. So if we're rating an issue that's based on the 
performance, for example, of the tax credit investor, which we 
sometimes do, we have to be concerned about what's going to 
happen if it loses value for them and they're not going to be 
there the way we expected them to be there, and usually we 
expect them to be there and--I mean, a lot of tax credit 
investors have actually put money into properties, and that's 
something--because there's a question about what could happen, 
we give what I would say soft credit to that.
    Mr. Clay. Thank you for that response. And my last question 
is for Mr. Tracey. Welcome. Are State housing authorities 
providing adequate lending options to local authorities who may 
not have the technical or economic base to access markets 
along--and please explain how utilizing property and financing 
can expand the options available to public housing authorities.
    Mr. Tracey. When you mention State housing authorities, 
housing finance authorities, the issuance of bonds?
    Mr. Clay. Yes, yes.
    Mr. Tracey. Thank you. Thank you. I would say generally, 
yes. Our experience has been favorable across the country, 
working with State housing finance agencies. Again, we're 
looking for much the same as we had referenced consistency, 
predictability, not so much of the funding but of the processes 
themselves because that makes us more comfortable devoting 
resources, people resources, financial resources to certain 
markets. If we have a framework for working with various State 
agencies in the issuance of bonds where we--I won't mention any 
particular jurisdictions, but where we've had difficulties is 
where the rules change, and the rules change frequently.
    And that creates a hindrance for us in order to provide our 
capital. What we're always looking for is additional places to 
use our resources and support community development, whether 
that be by providing construction financing, use of taxes and 
bonds or permanent financing by buying those bonds, creating 
secondary markets attracting other capital to purchase those 
bonds. So anything that adds or anything that, rather, reduces 
the friction in those markets, eases costs of transactions, 
makes us more comfortable, more likely to put private capital 
into those particular jurisdictions.
    Mr. Clay. Thank you for that response. I yield back, Mr. 
Chairman.
    Mr. Turner. We acknowledge that we've been joined by 
Charlie Dent from Pennsylvania, and Ms. Foxx from North 
Carolina.
    And Mr. Clancy, I'm going to ask you a question that is 
somewhat off topic, but I'm going to explain, ask you the 
question so that you will understand why I'm asking it to you. 
Whenever we look at the issue of community development in 
addition to process and expertise and financing, there's also 
public policy theory that gets overlaid on everything that we 
do; and in that discussion of topics of public policy theory, 
from that, programs are designed, and rules are established 
that can restrict or that can permit the various types of 
development.
    One of those public policy theories that has been bantered 
about is the issue of public housing land and whether once 
public housing has been established on a piece of land, whether 
or not that piece of land shall therefore forever be public 
housing land.
    I happen to be of the opinion that with communities in 
shifting both in the location of populations, the shifting of 
even employment centers, the shifting and transportation 
routes, school populations, construction of schools and 
response to populations, but as a theory, that it is overly 
limiting for us to say that once public housing has been 
established on a piece of land, that it shall forever be public 
housing land. Our goal of providing affordable housing should 
not be tied to a historical decision that was made at another 
point in time when a community had other development factors.
    I was wondering if you might have an opinion on that, 
knowing the creative things that are occurring in your 
community and the shifts that have occurred in populations, if 
you believe that affordable housing needs can be addressed 
without overly restricting once public housing land.
    Mr. Clancy. Affordable housing needs, I think, can only be 
addressed effectively if, in fact, one is continually attentive 
to market forces and market dynamics, and that is, as you 
describe, Mr. Chairman, a shifting dynamic, value-shift in 
neighborhoods and property needs to be looked at in a very 
dynamic market-oriented way. I think that often people who 
espouse the theory that you are alluding to are really 
concerned about the extent to which there's long-term 
commitment to serving the poor, and whether there's some place, 
you know, some way to nail that down so that the commitment 
doesn't get extinguished inappropriately.
    And I support that 1,000 percent, philosophically, 
ideologically, morally, and on a million other levels. But as a 
real estate professional, I think it's a huge mistake to take 
that to one-for-one replacement or to take that to tying land, 
let's say, to a particular use. The whole point is, you've got 
to be able to capture market values. You've got to be able to 
utilize those values to support a diverse population, and 
that's, you know, very much the centerpiece, I think, of our 
approach.
    If I could come back to an earlier question that you asked, 
because I had a further thought afterwards, smaller localities 
getting the sophistication to utilize a program like HOPE VI, 
you know, what are the things that HUD has done very 
successfully over time when the HOME Program first got passed, 
CPD, the Community Planning and Development section of HUD put 
out a series of technical assistance contracts to organizations 
that then could work nationally with different localities in 
apprizing them of how to utilize the HOME Program to make them 
more able to be effective in how they designed local use of 
HOME. The same thing could be done to assure that localities--
smaller localities, particularly, can acquire the expertise to 
utilize HOPE VI, and HUD could allocate some dollars for 
technical assistance out of public and Indian housing that 
could support smaller authorities in that effort in the same 
way.
    Mr. Turner. Mr. Tracey, similarly, I'm going to ask you a 
question that is more subjective. You had talked about the 
issue of the cumbersomeness of the process. And a great 
recommendation when looking at a safe harbor process where 
people could be not on a case-by-case basis waiting for 
approval, but know specifically the area of something that is a 
cookie cutter-type development that has occurred before a 
certainty of approval and a timeline for approval.
    So many times when we look at government bureaucracy, it 
can fall into two different categories of impact. One is cost, 
and another is just straight out barrier to entry, meaning that 
the cumbersomeness is so great that the expertise required is a 
barrier for those who might otherwise enter it.
    Cost increase is something that the government can just 
continue to subsidize undesirably, but nevertheless we can. 
Barrier to entry, though, is something that rises to the level 
of completely thwarting our ultimate goal and objective. 
Knowing that the banks with the CRA have not only the 
cumbersomeness but incentive to go through the process, I 
wonder whether or not you believed that, in many instances, the 
types of cumbersomeness, the processes that you're seeing, rise 
greater to the level of just cost, but actually thwart our 
ability to bring people into the process.
    Mr. Tracey. Well, actually, I do think that some of the 
issues that have been raised by all of the panelists today do 
result in barriers in entry, and not so much entry into 
community development as a whole, but rather pushing resources 
into a more certain and predictable area of community 
development.
    That's likely one of the reasons why yields are so low and 
declining in low-income housing tax credits because that is a 
more certain or predictable program. It has a history. Many 
players have been involved in that market for quite a number of 
years. Our experience, I think, on working with capital grant 
financing could also help illustrate the point. Our company was 
involved in structuring the very first cap grant financing 
which was a taxable loan to the D.C. Housing Authority here in 
Washington.
    And QHWRA had been around since 1998. We closed our 
transaction, I think, in 2000. So it took 2 years for the first 
transaction to be closed after the legislation had been enacted 
that enabled that type of financing. Two years is a long time 
in the finance industry.
    One of the issues was that there was no standard, no safe 
harbor for what the transaction would look like. We were making 
that up as we structured the financing with HUD and the D.C. 
Housing Authority. The one point that was still unsettled very 
close to closing was the degree of leverage permitted, which is 
a critical point. How much of the cap grant payment stream 
would HUD permit the D.C. Housing Authority to borrow against?
    As those types of issues became resolved, then we've seen 
the market evolve; and private capital flows in; and instead of 
more expensive taxable financing, which was what we were able 
to put together 5 years ago, now we're in the tax exempt arena 
with lower transaction costs on a pooled basis and so forth. 
All of that should have been compressed, though, into a much 
shorter timeframe rather than taking the 5 to 6 years that it 
did for that market to evolve.
    And with consistent standards up front, more parties would 
have been attracted to that type of structure; and again, the 
lack of consistent standard of framework for that particular 
financing structure, you know, it wouldn't have acted as a 
barrier to entry.
    In 2000, Bank of America, D.C. Housing Authority, we were 
pretty much it, even though the legislation had been on the 
books for 2 years.
    Mr. Turner. Thank you for that. I want to recognize Mr. 
Dent.
    Mr. Dent. Thank you, Mr. Chairman. Thank you for holding 
this hearing. Thanks, too, to our panelists.
    Mr. Clancy, over the past 20 years, one of the better 
Federal incentives for private investment in affordable housing 
has been the Federal low-income housing tax credit. Many 
hundreds of units of affordable housing have been constructed 
and developed in my district because of this Federal 
initiative. However, over the past few years, that production 
has dropped off to near zero. What kinds of changes to the tax 
credit program would you recommend to strengthen that program?
    I'd like to start with you, Mr. Clancy. If any others have 
an opinion. I would be pleased to hear that.
    Mr. Clancy. It's a multifaceted answer. And let me try to--
the reason why production would have tailored off to zero in 
your district, I suspect, has more to do with some of the other 
resources that are necessary to make a tax credit project 
feasible. The tax credit program itself has continued and, as 
Mr. Tracey has said, has actually gotten somewhat more 
efficient over the last few years; but most tax credit 
developments have either significant--for example, in 
Pennsylvania, the State HOME Program of PHFA or local Community 
Development Block Grant or other resources going into the 
housing.
    So I don't know the particular situation and why the 
decline is taking place. I do think generally the credit is a 
very specific and not very flexible vehicle and that one area 
that would make it more broadly useable would be if, in fact, 
instead of everybody having to be under 60 percent a median, 
let's say, to get the credit, you might have a band of people 
who are at 30 percent a median and a band that are at 50 
percent of the median and a band that might be at 70 or 80 
percent the median; and as long as it averaged out to 60, you 
could get credit on all the units, some of those kind of 
simplifying changes that would make it more flexible. But 
again, it's been a very effective piece of legislation.
    The tax committees have made only minor changes to it; and 
it is, as you say, still the biggest resource that's supporting 
affordable housing today.
    Mr. Dent. Anybody else want anything to that?
    Mr. Tracey. No. I would just make two comments. I would 
concur with what Mr. Clancy said about the need to create more 
income, diversification in low-income housing tax credit 
projects. If there has been a push to define affordable housing 
not just to supporting the very low income or low income but 
new definition, work force housing, those that 80 percent to 
100 percent, 120 percent of median income are also struggling 
in finding adequate and affordable housing as well.
    And the second comment, too, would be to focus on both 
scarcity of land in many markets, and also the high cost of 
that land, which does prevent much affordable housing from 
being constructed, notwithstanding any tax credit programs. 
It's just very high cost to entry in the affordable housing 
market because of the scarcity and the cost of the land in many 
of our markets.
    Mr. Dent. Thank you. Mr. Clancy, back to you. I know the 
Community Builders often acts as the tax syndicator in tax 
credit deals. Is that correct?
    Mr. Clancy. Yes. We are a principal in the work that we do, 
but we also directly structure and design the tax credit 
investment and work directly with--Bank of America is one 
investor that we often work with. We work with many of the 
major financial institutions and directly structure investments 
with them.
    Mr. Dent. Can you describe the role that syndicator in 
those transactions and essentially in how they benefit?
    Mr. Clancy. Basically for us, it's been really a critical 
tool of affordable housing, and I won't bore you with the whole 
history; but going back to 1970 when we did the first 
nonprofit-sponsored tax shelter syndication for affordable 
housing in the South End of Boston, the tax incentives 
available under the code--and obviously, since 1986, the low-
income housing credit are such a central part that we end up, 
for example, in a typical transaction. Whether it's HOPE VI or 
whether it's just a tax credit transaction, we will end up with 
perhaps as much as 60 percent of our total development cost 
coming out of the tax credit value and as little as maybe 15 
percent coming out of a first mortgage financing. And let's say 
the other 25 percent coming out of perhaps public housing 
capital or HOME or CDBG or other kind of grant resources.
    So in the mix, the largest private investment piece is the 
low-income housing tax credit. So being able to structure that 
effectively, being able to bring investors in on a basis that 
maximizes the return to the project from their investment, and 
also one of the things that has been important for us in that 
industry for the last 35 years, is to be able to bring 
investors in on the basis that is completely compatible with 
long-term affordability of that housing, is one of the 
structures that we've insisted on, as I say, going back 35 
years.
    Mr. Dent. Thank you. And I guess, finally, I will just 
maybe touch on HOPE VI, and maybe prior to my arriving here, 
you may have touched on that issue. But in my district, we have 
a substantial HOPE VI project underway, and it's been helping 
us attract a considerable amount of private investment; and, of 
course, HOPE VI funding has been diminishing in recent years, 
and with it, a number of communities in which obviously housing 
projects can benefit. So that is a problem.
    Do you have any experience with HOPE VI? Any of you that 
you would like to speak to; and if so, what is it about that 
program that attracts so much private investment?
    Mr. Clancy. Well, I think, as I did stress in my testimony, 
I think one of the things that has enabled HOPE VI to do that 
has been that since 1995 in the competitive allocation rounds, 
it has actually encouraged housing authorities to leverage the 
grant that they receive with private debt and equity; and so to 
be competitive for funding, it really has created an active 
marketplace of housing authorities who, to get the money, have 
almost got to leverage the money with private debt and equity.
    So one of my recommendations is to look at the total 
funding for housing authorities, total capital funding and make 
more of it competitive so that, in fact, you get that same--and 
have the competitions be--provide a preference for leveraging 
and for taking a more comprehensive approach so that, in fact, 
you could expand the extent to which public housing capital was 
leveraged with private debt and equity, was combined with 
things like the low-income housing tax credit.
    Because I think even though the HOPE VI work has been very 
high visibility and has been fairly dramatic in a number of 
places, we've still only really scratched the surface of the 
overall capital needs for public housing. And the more leverage 
that can be brought to meeting those needs, the quicker we'll 
be able to meet more of them.
    Mr. Dent. Thank you. Anybody else wish to add anything on 
HOPE VI?
    Mr. Tracey. I would. Yes, thank you.
    Bank of America has been involved as a lender investor and 
actually real estate developer in more than two dozen HOPE VI 
projects across the country, and our experience has generally 
been very positive. In particular, we view the multiplier 
effect as very common in the successful HOPE VI developments; 
and effect often gets overlooked in judging the success of the 
projects, we believe.
    One example is right up 95 on the west side of Baltimore, 
two different HOPE VI projects, Lexington Terrace and what's 
now known as Heritage Crossing. Initially, homes were selling 
there for $65,000. So on the face of it, the criticism was, why 
should our government be selling homes at $65,000 when they 
cost $165,000? But upwards of 5, 7, 8 years later, private 
capital has now been attracted into that area. There are 
homeowners from Washington now buying $400,000 homes in that 
same community, in the surrounding neighborhoods.
    The University of Maryland has now crossed over Martin 
Luther King Boulevard, which was a dividing line for the 
community, and has built a biotech center in that same 
community. So when taking the long view and stepping back and 
doing the overall returns to the community, we think the HOPE 
VI program has actually been very effective and very efficient.
    Mr. Dent. Thank you. I think it's been a good program too. 
I just wanted to get your feedback on this. Thank you, Mr. 
Chairman. I have no further questions.
    Mr. Turner. Thank you. We've been notified that in the next 
10 minutes, we'll have a series of votes. So what I'd like to 
do is in closing, allow each of you, if there are other 
thoughts that you have or other issues that we have not raised 
that you would like to place on the record or a question that 
you've heard someone else answer that you would like to comment 
on, get any closing additional thoughts that you might have 
that you would like to leave with us on the record.
    Before I do that, I would like to ask Ms. Dolber, our staff 
have prepared a number of questions that are highly technical 
in response to your statements; and rather than go through 
those in this format, I was wondering if you might be kind 
enough if we submitted those questions to you in writing, if 
you would respond back to us in writing that we would make it 
part of this record.
    Ms. Dolber. Sure. I would be happy to.
    Mr. Turner. I would greatly appreciate that. And with that, 
I would like to turn for opportunities for closing statements. 
So I'll start with Mr. Clancy.
    Mr. Clancy. Thank you, Mr. Chairman. And thank you for the 
opportunity to be here today. There's just one item that I 
would point to that we haven't expressly dealt with; and I did 
cover briefly in my written testimony; and that is that this 
same challenge of re-engineering and repositioning and dealing 
dynamically with distressed affordable housing assets exists in 
the privately owned Section 8 assisted housing portfolio that 
we've talked a lot about in the public housing arena. And the 
same kind of approaches are, I think, critically important in 
that arena. There is a section that was passed, Section 318 of 
the HUD Appropriations Act of 2006--2005, gave a 2-year window 
for moving project-based Section 8 contracts from obsolete 
developments to new developments or to other developments.
    That's the first real avenue for, in effect, applying a 
HOPE VI-type approach to distressed Section 8 properties; and I 
think housing authorities should be encouraged; and I think HUD 
should be encouraged to look creatively at ways to use Section 
318 to accomplish some of the same things that the committee 
has viewed positively that have been accomplished in public 
housing revitalization. Thank you very much.
    Mr. Turner. Thank you. Ms. Dolber.
    Ms. Dolber. Thank you. I'd also like to thank you again for 
inviting us to be here. The communications with the capital 
markets about federally funded types of transactions is very 
important, and we really appreciate the opportunity to be able 
to provide our thoughts.
    I've mentioned the importance of communication. It really 
helps to help us make decisions about where things are going, 
and it helps investors as well.
    I wanted to make a comment about what Mr. Clancy said about 
competitive grants, if there was an aspect of competitiveness 
to it. While that might not work for a structured financing 
like the capital funds securitizations that have been done 
because you have to know how much each PHA is going to get, the 
thing that would be beneficial for something like that would be 
that it does instill the competitive spirit and a drive for 
excellence, which is really needed in the industry.
    And if PHAs are going to get their own credit ratings as 
opposed to just getting ratings on issues that they might do, 
you know, a finite issue like the capital fund securitization, 
if they had their own ratings, that competitive ability to 
compete would help them a lot, I think, to move forward to that 
kind of thing. But in a strictly structured financing, it 
doesn't work as well.
    Mr. Turner. Thank you. One of the questions that we have 
for you is your thoughts about transitioning to a rating for 
the agencies themselves and your recommendations on those 
processes. So it's good that you raise that in your closing 
because that's one of the questions that we'll be coming to. 
Mr. Tracey.
    Mr. Tracey. Just one final observation and really a 
summary. We talked quite a bit about the need for 
predictability, stability and funding sources for public 
housing from the providers of private capital. Also, however, 
there is a need for a legal structure for these transactions 
that provide secure collateral. Again, that comes due to the 
certainty involved in the transactions that we are lender or 
investor. Within the final point too, which we didn't address 
is, which ties back to the reference to CRA, is the need from 
the private markets for adequate and consistent returns because 
if we build a market that's dependent only on the negative 
incentives of CRA, we haven't built a market that's sustainable 
over time, because as banks move in and out of compliance with 
CRA, as the regulation changed, it's been weakened in recent 
years unfortunately. In our view, that will not provide the 
consistent source of capital, I think, we all want from our 
public housing authorities.
    So from our perspective, I think there's often a 
misconception that our capital is limited by the CRA, and 
that's really not a true statement. There is ample private 
capital that will flow into public housing markets, provided we 
have a stable, predictable source of funding, safe and secure 
collateral and adequate returns.
    Mr. Turner. Mr. Tracey, I appreciate your comments in that 
regard; and I do think that alone is an issue that this 
committee needs to pursue further, although the crux of our 
success may be the relationships that are currently there, 
through CRA and the banks and their expertise, our ability to 
encourage an expansion of these types of investment 
opportunities and greater--other industry sector participation 
is going to be based on our ability to transition, make it more 
interactive, make it more stable and less of a negative 
consequence, more of a positive. I'm certain we'll be having 
further discussions with you on your ideas and thoughts as how 
we can accomplish that.
    I want to thank all of you for your participation. I know 
that in addition to the time you've taken today, you've put in 
considerable preparation for your testimony today, but I also 
want to thank you for your dedication to your careers and your 
expertise to this important area because I know each of you, as 
you look into the communities that you've impacted, can see 
real changes have occurred as a result of your choice to 
dedicate yourselves to what you're doing and real changes for 
the lives of the people who have benefited for the programs and 
the projects which you've applied your expertise. So thank you 
for that.
    And with that, we'll be adjourned.
    [Whereupon, at 11:19 a.m., the subcommittee was adjourned.]

                                 
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