AHF Live: The 2005 Tax Credit Developers' Summit
Industry leaders debate ways to improve LIHTC program
Transcript of Affordable Housing Finance's Editorial Advisory Board roundtable meeting

STAN HERSKOVITZ: I'm Stan Herskovitz, and I think that where we've come is kind of full circle. We started out here about one-and-a-half hours ago with David saying we need to get the experienced developers. They're going to do a better job or whatever. Now, it has gone around. We've talked about policing ourselves. We've talked about the supply and demand. We've talked about the real estate. It really does come back to that one thing. It is supply and demand. If there is a way to structure that thing together and get an opinion, someone is going to take that deal. I may not do it. Somebody else at this table may not do it. Somebody has got to do it and somebody is going to get that opinion. I think, and what I tried to say earlier, is we need to take a look at the real estate first. We need to look as a group, both from the state and the local municipality side as well as from the developer's and investor's side, at what are the guidelines that make sense for the viability of this industry and move ahead to work in that regard. If it means making certain aspects of this more valuable than other aspects of this, then let's do that. If it means not doing certain deals or not stratifying because that economically doesn't work, let's find a way to make that happen as opposed to, you're right, somebody said it here at the beginning: it used to be a 55 cent business and now it's a $1.05 business. As long as that is the case, somebody is going to enter and do it unless we as a group say that these are the things that are important to make our industry run. If we all get on the side of that, from the Freddie Mac side to the developer's side to the investor's side to the legal side, that's the way the business is going to go. Those other deals are just not going to get done. .

Just one last thought. In closing, let me say this: But as long as we're all Type A personalities, we all want to go out and make the next deal. We're all deal junkies. Until we look back at it and say, “How does it work long term?” it's not going to work for any of us.

JANA BLACKMAN: I agree 100%. I can't be any more eloquent than you were. The one thing I'd like to add to the mix, and you touched on it for a second, islegal. The lawyers in some respects have failed the industry as well. I think the lawyers have to step up to the plate as well. We have to decide as an industry here what we can opine on. We've always had this peculiar thing because we've gotten a buy from the IRS that we decide that things are acceptable just because we've done it for so long and the IRS hasn't said no. I think the lawyers at this point have to step up to the plate and discipline ourselves a little bit, too, and begin to communicate more than just in the Bar association forum and say, "OK. What are we going to do here on legal opinions, and how far will we stretch it?" and get a little uniformity so we can give you, our clients, some guidance on a going-forward basis.

I want to go into the audience now to get the best feel of the things that we have. Okay, Jack.

JACK MARKOWSKI: I'm sorry. I just want to throw one thing on the table because you've mentioned it several times, about the flexible credit percentage. When you've talked about it, it's implied that we’re talking about the 9% credits. I can understand that. I just also would like to have the conversation at some point extend it to the to the 4% credits as well. What I would say is that in our situation, we've got plenty of bond cap that is not being used right now. So, for instance, let's say that we were flexible. Instead of a 4% credit, we ended up with a 12% credit on a deal and we had to give up three times the bond cap on that deal. We'd do that. We have plenty of bond cap to do that.

ANDRE SHASHATY: You're saying that you would swap bond cap for credits.

DAVID REZNICK: From the audience, of what you've heard today, what are the thoughts that you may have that you would like us to take on this next 12 months to really push forward?

BARRY ZUCKERMAN: I'm Barry Zuckerman with Millennium Housing in Milwaukee. I'm a refugee CPA. Anyhow, in the Internal Revenue Code you see tax credits and tax rates, and they're all fixed. Only the low-income tax credit is a moving target, which makes planning difficult as rates go up and down. I think it would be nice if it could be stabilized.

DAVID REZNICK: Thank you. It's a very good idea. Yes, come on you guys. Get up! Wake up! Yes?

JACK HATCH: Hello, I'm Jack Hatch. I'm from Des Moines, Iowa, and I'm one of those inexperienced developers. But I'm also an Iowa state senator. One of the things that I did not hear today was about the real reason that we have low-income housing tax credits. Stan, it's not about real estate. Congress enacted this to establish a social policy to house people. That's what we didn't hear today. It's partly real estate, of course. But it's getting the right people to step into a home that they didn't have, or to shelter people that need housing. It's to tell state legislators, “Why do you provide tax credits?” In Iowa, we have state tax credits in enterprise zones, a major policy. We enacted income-based legislation a couple of years ago so assessors and developers can really target their expected operation cost. Why did we do that? We didn't do it to help developers. We didn't do it to help investors. We did it to help make deals so people could get into housing. That means cities and counties that participate in partnering with us as developers have an interest in their investment. I get more money from public investors than I do from my tax credit investor. So, there's a significant amount of public policy that I engage in to get people into housing.

DAVID REZNICK: I'm not positive I got the complete gist of that, but – don't go away yet. A lot of what you heard was really different folks talking about how they can actually do a transaction. It takes a real estate property to house someone. That real estate property has to have enough revenue coming into it. It has to have enough construction dollars coming into it to build it so that it will last. It will need enough income stream to come in to pay maintenance costs. I really think that what we were really talking about, we may have said it in different ways, was really to actually get ways to do this when in fact costs are rising.

DAVID HELLER: David, if I can respond to that as well. First of all, I think we need to clone him in all 50 states in all the legislatures because he's right on target and right on message. I do want to mention that part of the reason that there wasn't a lot of talk about the actual people living in the affordable housing today around this table is because we eat, sleep, breathe this issue. That's why we're here. It's in our blood. It's what we're all about. It's why we get up in the morning: to provide safe and affordable housing for people. Sometimes that gets overlooked in a discussion like this, but the reason that we're having this discussion and the reason we're trying to work out these industry issues is for the residents of our communities.

DAVID REZNICK: Yes, I do believe that. Yes?

LLOYD BOGGIO: I'm Lloyd Boggio with the Carlisle Group. I'm a Florida developer. Most of what we say doesn't resonate with the people we're trying to convince because we're so far into the forest and the specifics of things we know work and don't work, that we're not really thinking about what it looks like from the outside. What we have to do is outside our industry; we have to simplify our message. The message has to be something like this: There was this program. The Congress thought it was a good idea. It has worked. It has built a lot of homes for a lot of people. Now, land costs more. Construction costs are rising. Operating costs are rising. But the sources of our funding are the same. Therefore, less and less units are going to be built. Less and less units are built and that trend is going to continue. Less and less units are going to be built. If everybody here thinks that idea is obvious out there, then we've missed it because it is not obvious out there. It's not obvious at the state level. It's not obvious at the county level. It may be obvious to us. It's not obvious at the federal level, not to guys that pass the laws. We haven't made it clear. If it's a good program – and we have to convince them that it is and show them that it's big – if the costs are going like this, and if the subsidies are like this, there are going to be fewer and fewer units. If that is a bad thing, then they have to do something about it.

DAVID REZNICK: It is the magazine's role – Andre, you may want to comment on it – to pick up what you've said and that be the lead to the areas that we can then feed in behind that can help with the resources we have to muster as many units of good housing as we can produce.

LLOYD BOGGIO: Then maybe something that would be real interesting – I know I can tell you about Florida. It's this many units in 2002. This many units in 2003. This many units in 2004. It's got to be the same everywhere. If you guys did nothing else but say, "Here's what this program did starting in 1986, and here's what it's doing now." It's a line that goes up and then starts going down. If you can make that point, you can get those statistics from around the country. That's the key point. Then the political people start saying, well, that's not good. What do we need to do about it? That's when all of this matters.

DAVID REZNICK: Thoughts from around the table? Final thoughts?

CHRIS FOSTER: Well, I kind of like what the state senator said in a way. This is something that I have been thinking about for a while. The fact is that we're all about housing. Housing is a great thing. It's very important. But the fact is that we have a lot of endemic problems in our society that aren't going away and are getting worse. The people that are running the White House and the Senate and so on and so forth are not particularly keen on housing. It's not a big issue to them. As long as we want to turn a relatively blind eye to delivery of services coupled with housing, I think we're going to have a politically difficult program to run and administer in the various ways that we administer it. So, I believe that we really need to step up in terms of services. I think that the agencies ought to be requiring more services and giving more points for services and following up for services like some people suggested here. I'm not talking about computer centers. Have you ever been to a property in a computer center? You say, “Well, let's go to the computer center,” and they say, “I'll see if I can find the key.” They don't know where the key is. So, I'm just saying that we really need to think about services.

DAVID REZNICK: We've got about nine minutes. Let's go around this table and see if our panelists have closing thoughts in 30 seconds or less. Keep it tight.

DANIEL CUNNINGHAM: When we're able to articulate this in a way that if the military budget changes and there's money for tanks but no money for fuel, money for weapons but no money for bullets, I think people will understand exactly what kind of real losses the housing industry has experienced in terms of real buying power. That's really what we're trying to do is chip into that, make it known, and get some solutions.

RENEE GLOVER: I'd only add that if indeed the administration is focused on eliminating poverty, then we've got to connect the dots. Housing is critical, but it is very important that we end the practice of concentrating the poor, because that is just building the backlog. These resources, when you put them into the total scheme of things, are very small investments. So, I would advocate that the administration focus on investing in a stronger democracy, by making strategic investments in local communities to support affordable housing inside of mixed-income communities. The deep problems around poverty are eminently solvable in this country.

LEE HARRIS: The idea that sounds to me the most concrete that this magazine could champion is this whole flexible credit/tax-exempt bond combination. I think that is a winner.

KIM GRIFFITH: I think next year what we need to also talk about is preservation, because we are losing units right and left. I think that it just shows you how complicated it is. Mixed-income and preservation may not exactly work at the same time.

STAN HERSKOVITZ: I think the gentleman had it right. It's about housing and whether we preserve it or whether we develop it, this program develops something like 115,000 new housing units a year. If we can remember that is the target and keep those numbers going, it becomes a successful program. If we let the economics and the other issues we want to solve get in the way of that, then the program goes south for all of us.

DAVID PEREL: This is sort of repeating what came up before. The good part about this discussion is that we clearly came up with a number of changes that won't cost the treasury money and that would solve legal problems that Jana talked about, because that's reflecting tight budgets.

CORINE SHERIDAN: I think one of the things that was loud and clear in our discussion today is that while this is a federal program administered federally, a lot of the solutions are going to come from the local and state level. That takes people like you and your organization in Maryland getting together and deciding that you are going to do something that will help development and help the people who live there.

RONNE THIELEN: Right along with that, I think really the qualified allocation plan in every state ought to be looked at very carefully. There are things certainly in California and other states that are adding costs. Maybe it was a great idea at the time, but they need to be backed off. Finding land that is within two feet of the grocery store, those kinds of things, have raised the cost of land so much that we've got to take a look at some of these things. The income-targeting, sometimes that is the problem. It all depends. Each one is different.

PAT SHERIDAN: Yeah, I think the message you have ought to be getting back to the people and how the linkages are there and what housing does. In other words, providing a platform for other types of social services that can be delivered in a community, whether it's job training in the community center or things like that. I think that by being able to show both state legislatures and the federal government that you could have a bigger impact on people's lives by providing the housing rather than just providing the tax credit, you could deliver these other programs at those locations. It will sell better from that standpoint.

DAVID HELLER: I just want to second what Corine and Ronne said about the state agencies. When people go around the table and they talk about the administration, I hope they are talking about the administration of the state agencies and not the federal government, because that is where it's really going to happen. We can sit here around the table all day long and take shots at the administration, but the administration you need to take and focus your energy on is making changes at the state level and making changes with the qualified allocation plans.

JUDY CALOGERO: Isn't it sad that the 115,000 units that we will build this year are less than half of what is needed to rebuild the damage from Katrina and Rita? On the other issues, if we have to put a face on this, then let's do it. If that's going to help, then let's do it. It doesn't seem to help elsewhere, but I think we should take a look at it. I think also to get the magazine to support fixing the tax rate as well. While we're at it, why don't we take the management of the DDAs, the difficult development areas, away from HUD and give it to the states? The flexibility you could give us with that could be tremendous.

TONY FREEDMAN: The statistic of the day, David: According to CNN, 14,000 people today were living in FEMA trailers and were evacuated, refugees, from Hurricane Charlie. They are still living 14 months later in FEMA trailers. We've got to make different kinds of decisions as a nation.

DAVID REZNICK: One last small thing I want to mention that should be an easy fix: We have a bunch of units that were constructed under the Sec. 8 mod rehab program. Because they had some bad actors involved at one point, these were blacklisted from Sec. 8. There was a regulation put in for tax credits. That is an easy fix. These properties are deteriorating significantly. They need new money. Nobody has any new money in it. Hey, guys, thank you very much for coming. You guys have been terrific.

ANDRE SHASHATY: Before you guys get up, let me make a couple of closing comments. I'd like to ask the advisory board to think about two questions for follow-up later on. One is: What practical ideas do you have for how to police ourselves, as Jana said? I'd like to hear some further thoughts on that. What is really possible? The second question I'd like to ask the board to think about is: How do you build capacity and know-how in this industry to get more experienced developers who can solve these problems?

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