Subsidized Housing: Commissioners Plan to Spend More with Less Accountability

By Leslee Kulba-  Just as the agenda for the Buncombe County Commissioners’ previous meeting was going out, Interim County Manager George Wood received word that Mountain Housing Opportunities would be asking for a loan at that meeting.

Eagle Market Street construction in the process. photo by Mike Fryar.

MHO wanted a $2.2 million, 0% loan due in a balloon payment 20 years from now for the construction of East Haven, an apartment complex in Swannanoa that would rent rooms for $257-$697.

What was wrong with the picture was the request was coming outside the budget cycle. After closing what at one time was a $2 million budget gap, the commissioners could elect to dip into fund balance to give a nonprofit a loan equal to 0.6 cents on the 52.9-cent tax rate.

But there were a couple other nonprofits wanting help with affordable housing outside the budget cycle, too; bringing the sum the county had to scramble to find closer to $5 million. Fortunately, the commissioners voted to give staff a couple weeks to vet the request and come up with a policy.

Wood’s reply began by laying out how much money MHO had received from the county over the last 15 years. It tallied construction loans totaling $500,000 for multifamily housing, $482,000 for single-family residences, and $2,500,000 for off-cycle “special asks.” Of the total awarded ($3,482,000), MHO has repaid $963,025.

This did not include the current request for East Haven. In 2015, the county initially awarded the project $125,000, which was not disbursed because the project failed to get tax credits. MHO then applied for $200,000 from the county in the form of outside agency funding.

The next year, the county awarded MHO $140,000, which also was pending tax credits that did not materialize. In 2017 and 2018, the project was awarded tax credits totaling $8 million; loans totaling $2.35 million from the NC Housing Finance Agency, $250,000 from the state for workforce housing, and $500,000 from the Federal Home Loan Bank; and a $1,675,000 grant from the federal HOME program plus a $75,000 match from Buncombe County.

Now, MHO wanted an additional $2.2 million loan. If the commissioners were going to make it government’s responsibility to construct residential real estate, then, the staff report advised, “we should leverage our taxpayers’ money to provide as much housing as possible as quickly as possible.”

A revolving loan would be better, because MHO’s proposal, “asks that you not receive any of your loan money back until the end of a 20-year period, and that you receive no interest. That ties your money up for 20 years. It also leaves us with a lien subordinated to [four] other liens which gives us poor collateral, with no reduction in that risk over a 20-year period.”

Wood also proposed a 20-year loan for the full ask, but he wanted MHO to pay 2.25% annual interest to cover opportunity costs lost by the county not being able to invest the money. The amortization schedule called for $110,000 in principal to be paid every year, with interest payments scaling down. “This reduces our risk in the event of a default, and more importantly, provides you with the additional funds that can be used to fund additional affordable housing projects,” the report read. “Instead of a balloon payment, you could reinvest that repayment money into four additional projects of $2 million each in the same 20-year timeframe.”

What They Said –
“The frustrating part for the staff,” said Wood, “is we were never contacted about this project beforehand. There was no discussion about financing this project beforehand. It was dropped on us as a fait accompli. That is not the way to do business.

So, to line up all your other financing and then come in and say, well of course you’ll give us a balloon payment at 0% interest for 20 years – That’s quite an assumption to make. You would think somebody would have contacted my office, the planning department office, the budget office, the finance director’s office, somebody in this government and say, ‘I need to talk to you about financing this project.’ That never happened.”

Commissioner Jasmine Beach-Ferrara objected. She said, “Staff from MHO were in active dialogue with everyone on this commission,” a remark that seemed to startle Commissioners Mike Fryar and Robert Pressley. She then said the order of operations called first for securing tax credits and loans from state agencies, “and only once those are approved, does it make sense to go to look for local government funding,” a remark contradicting the historical timeline.

Ferrara told staff, “I think we need to table frustrations about process, … and I think we need to see this for what it is, and that’s a project about safe, affordable housing for members of our community who deserve that as a basic right, and who have very limited means to accessing it. Unlike other ways that we look at public funds and investment strategies, this is a different breed of project we’re being asked to invest in. Newcomer Amanda Edwards went further on declaring housing, like early childhood education, a human right worthy of considerably more investment from the public treasury.

When the floor was opened to members of the public, Cindy Weeks, vice president of MHO, presented the board with a counteroffer. She would accept a $2.2 million loan for 20 years at 0% interest and annual payments of $10,000, $75,000, or $5,000 to total $500,000. In return, MHO wanted $500,000 up-front, $425,000 paid midway through the project and again when it was complete, and $850,000 when MHO closed on its first mortgage.

MHO would request no fee rebates, pay property taxes, and keep the apartments at Affordable rates in perpetuity. Weeks graciously apologized for seeming to sell the vision without a price tag. “We were operating under the old system where we met with Jon Creighton and Wanda Greene and discussed these issues…. It’s been a little difficult for us to find the way to communicate with staff and commissioners,” she said.

Chair Brownie Newman said MHO could go no lower on their offer; they had exhausted all options. Commissioner Joe Belcher asked how he knew that and how members of the public were supposed to know. The way he saw it, if MHO couldn’t make the $110,000 annual payments, they wouldn’t have enough saved up to pay the lump sum.

Weeks said her organization typically restructures its debt to pay off 20-year loans. By then, the interest-laden bank loans are typically paid, so MHO can get better rates on new loans. MHO will also be raising rents. Belcher wasn’t enjoying the delusion. He told his peers if they wanted to give away money they should call the award a grant and grow the county’s budget by $5 million a year to accommodate it.

Amid a mess of metaphors about sharp implements, Beach-Ferrara replied, “I actually really love that idea. I think a permanent commitment around affordable housing is exactly one of the tools we should have in our arsenal around this.

I think the revolving loan fund is a really interesting tool. I just don’t think this is the right project to launch it with.” Beach-Ferrara said the commissioners should not be treating MHO like “antagonists in a negotiation.” She said, “The frame on this is not how do we recoup investment dollars, it’s how we can provide housing for people who have no other way to get housing…. This is about how we are responsible, moral stewards of public funding to create a safety net for those who do not have the most basic needs met in their lives. And it’s offensive to me that we persist in treating this like a business negotiation.”

“First of all, I take exception to that,” said Wood. “To say this is more moral than the one we came up with – if the whole issue is doing more affordable housing, the proposal we’ve come up with does more affordable housing.” Having just received a copy of the new proposal, he had been reviewing it during the discussion, and he had to ask when MHO planned on making the balloon payment.

The only concession he saw was the annual payments. If the commissioners wanted more affordable housing, “this would be going in the opposition direction,” he said.
Wood’s proposal had also required the project to meet normal standards for receiving its certificate of occupancy. To illustrate why, Fryar presented some slides of MHO’s Eagle Market Place development. In order to meet grant deadlines, MHO applied for and received its COO by hanging an address over one of the units, which had a “DANGER” sign posted in the window.

To go inside, one had to walk under scaffolding and step on the pallet, which served as a porch. The interior looked like a construction site. With neither carpet nor paint, concrete sported holes for yet-to-be-installed HVAC, lights were strung with catenated extension cords. The plumbing, Fryar said, was “not done right,” and sprinklers didn’t seem to be connected. Lastly, he showed the thermostat reading 25oF.

Fryar found it odd MHO couldn’t find $110,000 a year when they found $5.6 million to complete EMP, even as they rented an idle crane for 18 months. He recalled a former county manager telling him he could expect a different MHO proposal, with a similar amortization schedule, to be written off by a future commission. Fryar also reminded his peers how EMP, after collecting all kinds of grants for affordable housing, had to raise half its rents to $1,000-$1,500.

The commissioners entertained several motions before adopting Weeks’ proposal. All votes were divided the same 4-3 way.

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