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"The Not So Low Income Housing Tax Credit Program in Washington State,"

by John Fox May/June 1996 issue of Poverty & Race

In 1986, when the federal Low Income Housing Tax Credit Program was created, specific language was adopted to ensure that each state developed a "qualified allocation plan" that gave first priority for use of these lucrative credits to for-profit or non-profit housing developers serving "the lowest income tenants." Nearly a decade later, and after the program has stimulated renovation and construction of over a quarter million housing units, conservative members of Congress have proposed "sunsetting" the program. While this threat has diminished in recent months, questions remain about the future of the program. Currently, the General Accounting Office is undertaking an extensive investigation of the program.

In the Fall of 1991, the Seattle Displacement Coalition received several complaints from tenants in tax credit subsidized buildings-specifically with regard to the rents they were being charged and how these units were being managed. Prompted by these initial concerns, and with funding assistance from PRRAC, the Coalition began what was to be a four-year effort-first to evaluate the program in Washington State and then to secure changes in the program at the state level so that it does a better job of fulfilling its mandate: to serve those most in need.

Our effort has culminated in publica-tion of an extensive report in which we conclude that many low-income people and people of color in Washington State are being denied access to housing built under the tax credit program. Nevertheless, the Coalition does not side with those calling for an end to the program. Instead, we call for specific reforms at the state and federal level that would ensure tighter control on state housing agencies charged with implementing the program.

In 1992, the Displacement Coalition first surveyed resident managers of over 100 tax credit projects built in Washington since the program began in the mid-80's. This earlier study encouraged the state's Finance Commission to make minor changes in how the program was implemented. In an attempt to determine if problems persisted, the Coalition this year went back and sampled 37 tax credit projects, state-wide, including some of the projects first studied in 1992.

Of the 37 projects surveyed in 1996, 25 (65% of the total) set a minimum income standard that ranged from 2 to 3 1/2 times the required rent. In other words, "very low income" tenants applying for a set-aside unit in these projects also were required to prove that they had monthly earnings equal to at least 2 to 3 1/2 times the set-aside rent. Even though these set-aside units were earmarked to serve low-income people, most low-income people-especially those on 551, General Assistance or other forms of fixed income--were ineligible due to these minimum income thresholds.

The Coalition found an absence of effective marketing. Of 37 projects surveyed, 17 (46%) said they did not list their units with the housing authority. Most of those surveyed said they did not aggressively market units to communities of color. In addition, 6 projects (16%) said they did not have handicapped accessible units in their building. Sixteen of the projects (43%) would not even acknowledge that they offered low-income units for rent in their building. The Coalition also found that 38% of the sample refused to refund the damage deposit even when a unit was vacated in good condition (a practice outlawed in Washington State). While the Coalition, in the follow-up survey, did not ask managers how many of their units were occupied by people of color, in our 1992-93 survey of over 100 projects, 24% said that none of the units in their building were occupied by people of color, and another 14% indicated they had percentages of people of color in their buildings that fell below averages for the county where their project was located. Another 16% of the projects said they did not know how many people of color they had in their building.

Most troubling of all, the Coalition found that program rules (including those set at the federal and state level) did not adequately guarantee rent levels on set-aside units that most low-income people can afford. While most of the state's low-income people have earnings at or below 35-40% of median, most of the set-aside units were priced at rent levels affordable only to those earning at or above 50% of median. In fact, in many cases, rents on "low-income units approximated and even exceeded average rents for a given locale. In effect, it was easier and more affordable for a poor person to search out and rent a market rate unit in their community.

Most of the problems uncovered by the Coalition are intrinsic to the tax credit program itself Responsibility
should be placed on the states' housing finance agencies to adopt more aggressive guidelines for enforcement, marketing and project selection that would guarantee accessibility to the state's lowest-income populations. Since the Coalition's experience indicates that state housing agencies are unwilling to do this, it should be done through changes in federal guidelines. State housing agencies should hire more staff for enforcement and monitoring (paid for by fees charged to project sponsors). There should be annual, and more rigorous, certifications, including a review of how many people of color are being housed in each project, with on-site visits conducted at least once every three years for all projects, and with fines and other more aggressive remedial actions imposed. State housing agencies also should require developers receiving credits to draw from area housing authorities and agencies serving communities of color. Setting minimum income requirements (at least those set at more than 1 1/2 times the rent) should be barred outright. Owners also should be barred from charging excessive up-front fees, the size of damage deposits should be limited and full refunds of the deposit should be ensured.

Most important, rents on all set-aside "low-income" units should be substan-tially lowered. In Washington State, this idea has been met with considerable resistance by for-profit developers, bankers and investors reaping profits off the program. Congress should re-quire that most of the set-aside units be priced at rent levels that serve people earning at or below 35-40% of median, rather than 50 or 60% of median. Also, most of the tax credits allotted to states should be earmarked for non-profit housing developers better equipped and generally committed to serving those most in need.

Even though the Coalition submitted its most recent findings to State Housing Agency in February, they still have not responded. The Coalition may soon hold a "press event" outside a Commission board meeting "to get their attention." In the meantime, the Coalition is presenting both its findings and recommendations to state legislators, U.S. Senators Murray and Gonon and members of the state's congressional delegation. HUD also is being apprised of the Washington results, one of the first, if not the first, such study of the Low Income Housing Tax Program in a given state.

John Fox is the Coordinator of the Seattle Displacement Coalition, a 19-year old housing advocacy and organizing project committed to the expansion and preservation of affordable housing in the Seattle/King Count) area, 4759 15th NE, Seattle, WA 98105, 206/523-2569. The Coalition's full report, The Washington State Low Income Housing Tax Credit Program: Does the Program Truly Serve the Needs of Low Income People & People of Color? (26 pp. + app., Feb. 1996), is available for $10; a summary is free.
 
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