Despite the U.S. government shutdown and the threat of federal debt default, the Cambridge Housing Authority is again trying to finance extensive repairs to its aging public housing developments.

This past Friday the authority sent nine applications to the U.S. Department of Housing and Urban Development, one for each housing site, to raise about $170 million in private and public money for the first phase of the project, which includes its largest and most deteriorated developments. The nine developments contain 1,153 apartments. The authority will file a second application for the remainder of its housing at least a year from now.

Because of the government shutdown, the applications went to a shuttered federal agency, but officials told CHA the e-mails will get a time stamp that will give Cambridge a place in the line of applicants to win federal approval, CHA Executive Director Greg Russ said.

Similarities

Like the authority’s unsuccessful effort last year, the plan would transfer all of the city’s public housing to private, nonprofit corporations under CHA control. Legally, there would be no more public housing, although authority officials say they can guarantee its preservation for low-income tenants by retaining ownership of the land under the buildings and by writing restrictions into the deeds for the properties.

In other similarities with the failed plan, the authority would raise most of the money it needs for construction from banks and private investors, and daily operations would be financed by federal rent subsidies for each low-income tenant.

The main difference from last year’s try is that the federal government won’t contribute any additional money. That means the authority must use some of its own relatively scarce resources. Russ and CHA Planning Director Terry Dumas said that in the first phase, the money will come from areas such as the authority’s surplus and from savings in other programs.

Loss of vouchers

The authority may have to dip into income from its stock of rental assistance vouchers for the second phase – as many as 34 vouchers, Russ said. The sought-after vouchers, funded by Washington, allow low-income families and individuals to live in private housing and pay 30 percent of their income for rent, with the federal government paying the remainder.

No one now getting a rent subsidy will lose benefits; instead, the authority will take the funding stream from subsidies that become available when recipients leave the program, Russ said. But that does mean fewer vouchers for the roughly 1,300 people on the CHA waiting list for subsidies. The demand for the program has been so high that people can’t even get onto the waiting list; it has been closed for years.

Still not a slam-dunk

The agency has kept trying to find the money to redevelop its deteriorating public housing despite repeated rejections from Washington. Congress has continued to cut traditional support for operations and repairs. Some Cambridge developments were upgraded with federal stimulus funds, but others could become unlivable without extensive repairs, CHA says.

A year ago, Cambridge hoped to use a housing law loophole to win millions of dollars in additional federal money, but HUD closed the loophole just two months before the CHA applied. This time, federal officials have encouraged Cambridge to apply for its new Rental Assistance Demonstration program, Russ said.

It’s still not a slam-dunk, especially with today’s economic turmoil. CHA commissioner Gerard Clark sharply questioned authority officials before he and three other board members approved the new applications at its Oct. 8 meeting.

Clark pointed out that the private banks and investors that will put up most of the money for construction would have to rely on the authority’s receiving a steady stream of income from Washington for the rental vouchers to repay the loans and keep the housing developments operating.

Trusting the government

“We are asking lenders to rely on a continued revenue stream over 20 to 30 years,” Clark said. Given the current impasse in Washington, “how is HUD guaranteeing that? Why is the lending community going to trust the government?” he said.

Russ responded that many of the housing authorities applying for the new HUD program are “in GOP territory,” making it more likely that Congress will keep funding the vouchers.

“It will raise the debt,” Clark countered.

Russ responded: “It will not come to substantially more money. There is some appetite for [the HUD program] in both chambers.”

If the government defaults on its debt, “that might change [banks’ and investors’] view,” Russ warned, but “based on information now, it’s reasonable.”

Board chairman James Stockard Jr., a consultant on affordable housing development, joined in to support the applications. “The banks and [investors] will fight to keep this program alive,” Stockard said. “They love this. They don’t care about public housing.”

Downside of private investment

In an interview later, Russ said the switch from public to private support is a major bonus. “The more people on the private side tied with investors and bankers the more voice we will have,” he said. That will increase “the likelihood we will get the subsidies we need.”

At the same time, the private investment adds millions of dollars in fees, interest and other items to the cost of the project. The authority needs about $100 million for construction in the first phase but it must raise another $22 million in financing fees and other “soft” costs.

There are also ongoing costs of private investment. CHA expects to pay $3.9 million in interest over 30 years on a loan of $61.3 million. Besides that, it expects private investors to buy $87.6 million in popular tax credits that give holders a tax break for investing in low-income housing. Nationwide, such credits reduce the federal government’s tax collections by an estimated $6 billion to $8 billion a year, Russ said.

“It is not an efficient system,” Russ acknowledged. “In a world unencumbered by budget realities the most efficient way to do something is a direct appropriation.” He and other public housing officials have proposed putting low-income housing tax credits into a central fund from which local agencies could draw money, which would reduce much of the extra fees.

Worries for tenants

Tenants have expressed worry about the fact that private investors will own their apartments and that there will be a private bank mortgage on the property. In response, the authority plans to increase the reserves it keeps and may buy mortgage insurance – although that will add costs to the project.

The authority says it will continue to manage and control its developments, ensure that they are always used for low-income housing and won’t change any tenant protections or rent levels. CHA General Counsel Sue Cohen said the extra reserves might reassure tenants.

Some things will change; every year tenants will have to fill out a different set of forms to verify their income and eligibility, because of requirements for the tax credit. A small number of tenants – those with higher income and families where everyone is a full-time student – might have to move to another public housing unit, also to satisfy tax credit mandates. And new tenants may have to meet other requirements that are murky right now. CHA officials said there will be little or no impact.

Four of the Phase 1 sites have already been rehabilitated; the other five – Manning Apartments in Central Square, Woodrow Wilson Court in Cambridgeport, Putnam Gardens in Riverside, and Newtowne Court and Washington Elms, both in Area 4 – need extensive work. CHA filed applications for all nine because HUD is insisting that applicants include all their housing in the program and those that file for half their units before Dec. 31 get a promise of higher rent subsidies, CHA officials said.

The authority plans to file a separate application to revamp Miller’s River, the senior housing project in East Cambridge, for $60 million. It is the most run-down and can’t be repaired without using the loophole that was ruled out a year ago, Russ and Dumas said. They said HUD officials have indicated they’ll make an exception for Miller’s River in return for Cambridge including the rest of its housing in the Rental Assistance Demonstration, which hasn’t attracted many large housing authorities.

Later, Russ clarified that, rather than saying the agency would make an exception, “What HUD has stated to the CHA is that they would reconsider a disposition application for Millers River and that the different HUD offices would cooperate as the [Rental Assistance Demonstration] and disposition applications are being reviewed.”