Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century

Columbus, Ohio Field Hearing
September 24, 2001

Testimony of Sarah Carpenter
Executive Director, Vermont Housing Finance Agency
Vermont Housing Finance Agency

I'm coming I think from an interesting perspective of having worked all those years as a housing developer and struggling with -- so, how come I can't do this? What do you mean we can't do that? And now being on the other side of the table as an agency executive and having to enforce all the rules that come through our shop like MRV rules, HOME, CDBG so, it has been an interesting experience for me the last three years.

I want to just sort of touch on a few issues that affect us in particular in the rural areas. I think I concur with all of Jim's comments about the fact of how important it is to have flexibility and the ability at the state level to really coordinate housing resources as well as service resources.

That becomes even more critical in the rural area. We don't have communities. We have very few in our part of the region, county governments. We really need to be able to focus on this holistically at the state level and I think all the programs really need to recognize that.

For a rural state, I think some of the issues we struggle with the most is the size of the housing options that we can offer elders in our communities. These markets are small. Think small, is what I keep telling my colleagues. And we need to expect what goes along with that. We need to understand that in many cases that will not be as economic as possible, particularly when we need to build in common spaces and support services. But we need to be able to respond to those communities and keep them where they want and need to be. That is a continuing frustration to get some of the federal housing programs to sort of acknowledge the size of what we need of some of our communities.

It is partially having to do with the fact that it is the Department of Housing and Urban Development and not just the department of housing. There are some issues in particular about everything being so tied to the census. We only have one MSA in the state, just barely. And that does not reflect the rural character, the rural quilt as it looks like.

It we have lots of combinations. For instance, we have large ski areas. It is a wealthy town. The average home price is $300,000. Next door is the farming community where the workers live. The average home price is probably $70,000 or $80,000. But they're still in the same sort of census block numbering area. So they get tagged for all the same targeting when the communities are truly very different. And we need to figure out a better way to take those targets and make them work in the communities that don't have a neighborhood census track.

Some of the other issues that I think we're struggling with in senior housing in rural areas, is really again related to size. It is pretty likely that in a lot of communities you are only going to have one community housing option. You get one shot at it and it better be something that serves most of the community.

I think in the past we made some mistakes, including where we founded a very low income housing project that cannot serve people who are just above some of those target levels. We are beginning to revisit that and going back and looking at how we can do additions, expansions or service accommodations, so we can include other elders in that community, so they can participate in that option.

Conversely, if you look at new tax credit projects, we struggle with how do you truly make those mixed income. Again, small size means it isn't going to produce a lot of equity contribution. How do you couple that with your resources out there?

It's probably true in many neighborhoods, to get that mixed income housing to work so you can serve everybody in that neighborhood are in that village or villages in the case of Vermont.

I think Jim reviewed some of the things that we look at for the Housing Finance Agency. Obviously, high on the table is the ability to provide fixed-rate long-term financing. We are a finance agency. That is what we do. Unfortunately, for an area of the size of Vermont, at the size of our financing group is small, along with the projects that we offer and our ability to cost efficiently bond for some of those types of financing can be prohibitive.

We are frustrated because the markets and some of our partners in capital markets really kind of don't get it that it's projects fit the community, that the debt is sized to that and they need, I think, to step up to the plate and help us financially come up with models and sources of capital the long-term.

It is difficult for us because unlike some states who have a better ability to pool those in some of their large projects, we don't have the ability to pool, so we need to work and get that acknowledged for rural regions of the country.

Tax credits, you are going to hear a lot about credits. It has been the major driver of the new production. I have developed under 202, state agency financing and tax credits and that it produced some great projects. I know Jim and John had asked about the efficiency of that. I know there were some fairly extensive studies and I know the GAO did one in terms of getting the tax credit increased. I'm sure we can probably direct you to some of that.

It certainly has its downside because of the complexities, but I think I would argue that some of that of the added costs are not from the nature of the program. It is really due to regulation and we could streamline the production issues that are viewed as costs really on a regulatory basis. I don't think it is the program itself. It's been a great vehicle to bring in private investment and community ownership.

We in Vermont have been very fortunate that we rely heavily on state-operated equity syndication organization that we were involved in setting up and they really have been able to maximize the investments of local investors, multibank corporations, who are willing to take a reasonable return on their investment in return for community investment. It's been a great model for us and we need to keep building on that.

We do get nervous though, because of our ability to find investors in small projects. I think some look at broadening who can invest in the credit program outside some of the corporations would be useful so that we can get in some smaller investors who want to invest in the size projects we have in Vermont.

And because the credit program is both a driver of production, but a scarce resource even though there are some increases, but one particular issue that we struggle with is we have tried to maximize the credits and maximize the size of the housing development into both family housing and senior development on the same site.

Sometimes we have in the past funded those both at nine percent allocated credits and four percent credit. A recent letter ruling by the IRS made it virtually prohibitive, especially with the size of our deals and it seemed very contrary to the intent of creating diversity within a project. That has been very discouraging for us.

Again, an issue I know you're going to hear a lot about tax credits is defining and clarifying this whole issue of assisted living and use of tax credits, continuous nursing services, optionality of services, all of those issues. But it is critical to get that clarified.

We need to continue to develop tax credit projects that are service enriched. Again, our dilemma is that we have one shot at building a community and you have got to serve everybody. I mean, we allow elders in other settings to get Medicaid waivers. We allow elders in their own homes to get 24-hour nursing care and still get a homeowner tax deduction. Why the IRS was so concerned about the tax issue relative to if somebody is old and wants to age in place is beyond me.

We should be encouraging the settings to be the setting where someone can stay until the end of life and if that means having a nurse available on staff to serve their needs, then that should not be contrary to tax law, but infection be encouraged and incentivized by the tax law.

A couple other comments. Again, this relates to other federal programs and how they work in rural areas. A project that I have worked a lot with as a funding source is the USDA's Rural Development Fund. It is a great resource and has produced some great housing throughout the country for both seniors and families.

But they truly look at themselves as bricks and mortar. They have not stepped up to the plate or even acknowledge the issue of service coordinators. If you think HUD is behind the eight ball on this, Rural Development is way behind the eight ball on. They really need to get their act together to acknowledge service coordination and those projects.

And other rural development source that we again use is called facilities monies, particularly for assisted living types facilitates, but they get confused about when is it assisted living, is it housing or is it not housing. Again, it is a great resource, particularly for adding spaces in housing projects, but there is some conflict on how those rules are interpreted to use that as a resource in rural communities.

Another resource that is there is the Section 8 vouchers. We are very pleased that HUD finally got around to writing the regs for projects based on those vouchers and that is a plus, but again, and a lot of small communities, our senior housing does not necessarily meet the definition of special needs. The small number of units and the prohibition on only using 25 percent of units, to me again does not make any sense.

If we determine or the municipal authority wants to put the vouchers in that project and they have determined that to be a high need, then why are we restricted by the 25 percent rule? I think it is important to acknowledge that in senior projects, and I think in particular rural ones, we don't have the concentration of poverty issues that we are trying to get away from with that 25 percent rule.

And the reality is a lot of these projects are funded by tax credits, which is already targeted to low income people, so the 25 percent prohibition is really again sort of an artificial distinction because many people are going to be under 60 percent of the median anyway.

You are going to be hearing more about 202 programs, but I really think that we really need to redirect that resource and make it more flexible. I never thought I would hear myself saying this, but HOME and CDBG actually are the easiest sources for us to use based on the premise that they are flexible.

You get it in a grant and at least it comes in a chunk and you can from project to project change how that is used in that way effectively meet the needs of local organizations.

I think it also because those funds are state administered, have much closer coordination with our Department of Aging and Disabilities. If you look at the fact that Medicaid is a prime funder of services for people is state administered, why not have a parallel track on the housing side?

I know the concept of moving housing resources entirely to a state level is controversial, particularly for people who have worked across the country in multiple states come out that they do believe it is really how you respond to both urban and rural needs. States with a lot of urban needs need the flexibility to direct the resources to that need.

One other comment as well. The Housing Financing Association works a lot with the other government sponsored enterprises, Fannie Mae, Freddie Mac and the Federal Home Loan Bank. They have been good partners to us, but I think there's more work to be done both in their knowledge of senior housing and in particular, some of their knowledge of rural communities.

Again, I keep telling them to think small, knock a few zeros off that number, invest in us. We have got to get them to think that way. AHP, which has been a good partner and funder for a lot of programs, sometimes senior housing does not fare well competing with mixed income projects, because they on the one hand have a lot of low income targets and I think that is admirable. But if you try to create a mixed income deal and you are not 100 percent low income -- resident control and homeownership is just really a different model from what you are going to have been a highly service enriched senior projects.

A few recommendations. I concur with my colleagues that we just need to remove any of the regulatory barriers that exist out there with a HFA funded, HUD and Section 8 and rural development projects that inhibit us from adding services, from adding additions, adding mixed income options.

The issue that I have struggled with over the years is again the income targeting. I think we need to really re-evaluate how we determine income for really all elders under the sections that look at that. We are required to use gross income. Many elders, particularly those in and 30 to 50 percent of median, are not Medicaid eligible. They are paying a lot of money out of their pocket, but you could be ineligible for occupancy since you are over the 50 percent of median. Your disposable income could get you way down to poverty level. Somehow, tying adjusted income and gross income for purposes of eligibility, I think we need to look at.