Chicago Opening Door To Privatizing Half its Public Housing
December 1998 demolition of S. Lake Park Avenue & 39th Street (Christopher Morris / flickr.com)
Chicago, long a pioneer of privatization, is poised to embark on a sweeping experiment with the city’s public-housing stock. The Chicago Housing Authority (CHA) plans to court private investment in as much as half of its public-housing units through the Rental Assistance Demonstration (RAD), a new federal program billed as a way to “revitalize” housing for the poor and address a $26 billion backlog in needed repairs.
But housing advocates around the country worry that RAD is just a prelude to privatization. RAD, approved by Congress in 2011, gives local housing authorities broad latitude to raise funds, including the ability to mortgage or sell public-housing buildings. Critics believes that if public housing is opened up to the vagaries of the mortgage market and the whims of private developers, large swaths of low-income housing could wind up in foreclosure, or become luxury condos once RAD’s affordability requirements expire.
Steven Knight, supervising attorney at the National Housing Law Project, says that the program’s “stated goals are very laudable” but “the devil is in the details–local housing authorities have to get these transactions right, and if they don’t, the consequences may be severe and long-lasting.”
So, will Chicago get it right? RAD arrives in the city as the CHA is already under fire for failing to spend millions of dollars earmarked for affordable housing while amassing at least $440 million in cash reserves, even as more than 280,000 people sit on its housing waitlist. These financial shenanigans were enabled in large part by the CHA’s deregulation in 2000 under now-Mayor Rahm Emanuel’s, who pushed to remove federal oversight of the housing authority’s budget as vice chairman of its board.
As mayor, Emanuel has been lambasted by housing activists and progressive challenger Jesus “Chuy” Garcia for blocking reform of the CHA, whose board the mayor appoints. Over the course of Emanuel’s tenure, notes an investigation this month in the Huffington Post, “the CHA has become as much an investment fund as a housing agency,” using its funds to pay down its debts early, purchase government bonds and secure a AA credit rating.
Housing advocates fear that the CHA’s transformation into an asset manager, rather than a direct provider of housing, is about to be intensified through RAD. (The mayor’s office did not respond to a request for comment on the initiative).
The CHA has submitted the largest RAD request of any U.S. city, for nearly 11,000 public-housing units. The agency is still waiting for approval from the Department of Housing and Urban Development (HUD), but is moving ahead with plans to implement RAD, stirring suspicions among public-housing residents that they will be left out of crucial decisions.
A free-market fix
A pared-down version of a Bush-era proposal to overhaul public housing, RAD was launched in 2013 as a HUD pilot program. The program essentially creates a new funding structure by converting traditional public housing units—which local housing agencies manage using direct federal subsidies—to Section 8 rental assistance contracts. This will allow the agencies to borrow money against the properties and use low-income housing tax credits (LIHTCs) and other forms of private financing to make improvements. In short, RAD hopes to attract private capital in lieu of federal reinvestment in public housing, for which funding has declined sharply since the Reagan era. In return, investors can receive future federal subsidies for the buildings, interest payment on loans, or, in cases where they’ve taken over day-to-day operations of buildings, hefty management fees.
In October 2013, the CHA applied to convert nearly 11,000 of its 21,000 public-housing units through RAD. CHA spokesperson Matthew Aguilar tells In These Times that the agency is pursuing RAD “in order to help preserve and protect its current portfolio of public housing units, since it allows CHA to transition identified units from the public housing funding platform to the HCV [housing choice voucher] funding platform, which provides more stability.”
While RAD has been pitched to the nation’s public-housing residents as a minor technocratic tweak, critics worry that it will turn out to be the latest in a long line of privatization schemes—most notably, the Clinton-era HOPE VI program—that generate a windfall for private developers while displacing public-housing residents.
Until recently, RAD conversions were capped at 60,000 units nationwide, leaving Chicago and many other cities on a waitlist. But at the urging of HUD and developer lobbyists, that cap was lifted in December 2014. Aguilar tells In These Times that the CHA has not yet received the go-ahead from HUD on its RAD application, but “continues to prepare for implementation.”
Though CHA has held public meetings on RAD, “it’s been smoke and mirrors,” says Perry Casey, who lives in one of the city’snearly 9,000 units of public housing specifically for senior citizens. Casey also serves as president of the resident-led Central Advisory Council for the CHA’s Senior North group of properties, where residents have been scrambling to understand what RAD will change for them, he says. Residents are still unsure of which properties will be converted through RAD or when, he notes, but “We feel that eventually, [the CHA] will either find a way to sell the properties or otherwise turn them over to private ownership, and the seniors will have nowhere to go.”
The CHA’s website says that there are “no proposed changes in ownership” for the first phase of RAD. “CHA intends to maintain the properties and day-to-day operations as they are today,” Aguilar tells In These Times. “CHA will maintain ownership or operational control of all properties within the RAD program, we will maintain on-site property management, and we will retain existing services.”
Leah Levinger, executive director of the affordable housing coalition the Chicago Housing Initiative (CHI), finds such statements cold comfort. While the housing authority has assured residents and advocates that it won’t be privatizing buildings through RAD, she says, “there’s nothing in the federal initiative that prevents them from doing so, and there’s nothing to hold them to their verbal assurances.”
A proposed list of policies for RAD properties was circulated to residents in November, but Casey says the 30-day comment period wasn’t sufficient to review the long and technical document. The administrative plan for RAD properties includes a section on “ownership controls” and stipulates that CHA must retain operational control of RAD properties through direct ownership—or through direct or indirect legal authority. What is legal authority? The document says it “may be established via contract, partnership share or agreement of an equity partnership, voting rights, majority share of general partner interests in a limited partnership, or otherwise.”
Aguilar tells In These Times that the document has been approved in final form by the CHA Board of Commissioners. Asked by In These Times to review the CHA policy, the NHLP’s Knight notes that it is “not sufficiently clear to identify what the specific means of ownership will be after the RAD conversion.” He notes, however, that there are a number of ways that housing authorities can exercise long-term control of RAD properties, including by retaining ownership of the underlying land, or controlling a nonprofit entity to which ownership has been transferred.
But part of the problem, say RAD critics, is that such decisions are largely left to the discretion of housing authorities, with little input from residents and advocates. In Baltimore, where RAD is already underway, many public-housing residents say they first learned that the local housing authority was selling off more than half its housing stock through the program when a local paper broke the news in February 2014.
The new Plan for Transformation
As the CHA continues preparations for RAD, the city is still in the final stages of another public-housing redevelopment plan: the Plan for Transformation, a $1.6 billion initiative to tear down the city’s beleaguered public high-rises and replace them with 25,000 new or rehabilitated units. Launched in 1999 as a 10-year program, the program is nearly six years behind schedule and still inching towards completion. New construction ground nearly to a halt under Mayor Emanuel—the Huffington Post’s investigation notes that in the four years before he took office, the CHA cut the ribbons on an average of 843 replacement units each year. That number has fallen each year Emanuel has been in office, with just 88 units completed in 2013 and a goal of 40 new units set for 2014.
The Plan for Transformation did, however, complete renovation of the city’s public housing for seniors. It therefore strikes residents as odd that senior housing makes up the bulk of the properties that the CHA has proposed to convert through RAD. The program has been presented primarily as a means to make long-needed improvements in public housing; senior buildings have been relatively well kept-up and do not have outstanding maintenance needs, says Casey.
That raises the question of whether public-housing units that need repairs will get them through RAD, and how the program will benefit units already in good shape. Casey speculates that senior housing, much of which is located on the city’s wealthier and whiter north side, could represent the most attractive option for investors. “We can walk to the lakefront and ride our bikes. Many times in the summer, I just walk down to Michigan Avenue,” he says. “If I were an investor looking to buy property, this is where I’d want to do it.”
Asked about the criteria used to select properties for RAD, Aguilar says that the “CHA identified properties that would be able to most benefit from the stable funding structure available under RAD,” based on factors that included “existing property conditions, recent construction activity, overall financial health and eligibility for the RAD Program.”
He tells In These Times that a list of all potential RAD properties is still being finalized, but confirms that most of the properties selected for the first phase of RAD are senior or mixed-income buildings. Asked what specific issues will be addressed in these buildings, he says that the CHA’s RAD plan will include “plans to address identified critical repairs as well as an approach to address future capital needs over the long term.”
The only alternative?
Chicago public housing residents’ fears of displacement have proved prescient in the past. Just 11 percent of former public-housing residents whose high-rises were demolished beginning in 1999 had returned to mixed-income developments constructed through the Plan for Transformation as of 2011. For example, Chicago’s Robert Taylor Homes were once the nation’s largest public-housing project, with 27,000 residents. A $500 million redevelopment effort knocked down the complex’s 28 high-rises and replaced them with a mixed-income community of just 2,300 units.
RAD does contain a number of provisions that offer greater protections to residents than its predecessors, such as a right of return for residents who are displaced during repairs or renovations, as well as a requirement that any units demolished or redeveloped as part of RAD must be replaced. Early into the HOPE VI program, for example, Congress dropped a requirement that each demolished unit be replaced with a new affordable unit, with the result that only about a third of the public housing destroyed through the program was ever replaced.
RAD corrects this issue with a requirement for 1:1 replacement, but the protection contains what the CHI’s Levinger calls a “glaring loophole:” Units need only be replaced through RAD if they have been occupied within the past 24 months.
That raises eyebrows given the CHA’s more than 15 vacancy rate across the city, and the agency’s track record of allowing long-term vacancies during redevelopment projects. A 2012 investigation by the Chicago Reporter found that at Lathrop Homes, a public-housing community that sits on prime North side real estate and is still being redeveloped as part of the Plan for Transformation, the CHA had consistently neglected lease-up units when they became vacant, resulting in an occupancy rate of just 18 percent.
Levinger is adamant that RAD is not “the only tool available” to secure funds for low-income housing. A coalition of housing advocates have been pushing for a city ordinance that would require greater transparency and additional oversight of the CHA, a move that they say would help ensure that before turning to outside investors, the agency uses its millions in reserves to expand public housing and make necessary repairs.
The measure is stalled in committee—which Levinger believes is due to opposition from Mayor Emanuel. In the absence of transparency, “We can’t really evaluate the claim that RAD conversions are essential to the viability of the public-housing stock,” she says. “But there’s plenty of cash and plenty of options available that don’t involve privatization of ownership whatsoever, or turn the city’s public housing into a profit center for investors.”