Testimony to
The Commission on Affordable Housing and Health Facility
Needs for Seniors in the 21st Century
September 24, 2001
by
THOMAS W. SLEMMER
President
NATIONAL CHURCH RESIDENCES

Members of the Commission, thank you for holding these important hearings in Columbus, Ohio. I am Tom Slemmer, President of National Church Residences. National Church Residences is one of the nation's largest not-for-profit sponsors and managers of affordable housing for seniors, including over 1400 federally assisted housing units, as well as approximately 500 beds of skilled nursing and assisted living.

NCR's Department of Support Services currently oversees 51 service coordinators in 72 properties across the United States, serving over 9,500 residents. These programs are funded through the United States Department of Housing and Urban Development, (HUD). Currently HUD funds service coordination at Section 202/Section 8 affordable housing communities. The Section 202/Section 8 housing provides housing to very low-income residents. These individuals have income levels of $9000/annually or less.

National Church Residences has benefited recently through HUD programs by:

• 85.6% stated they "regularly benefited from the services of a service coordinator";
• 67.5% said they would not be able to continue to live in their "independent" setting without the assistance of their service coordinator, (their alternatives would be assisted living, or possibly long term care);
• 91.8% said a service coordinator was "necessary in their building";
• 83.2% said they would be "unhappy if their property no longer had a service coordinator."

National Church Residences is a recognized leader in the development and implementation of social services in housing communities. Our Department of Support Services at NCR currently has a Director and a Quality Assurance Coordinator, who have Bachelor's and Masters Degrees in Social Work, are Licensed Social Workers in the state of Ohio and have extensive experience in implementing social service grants. NCR's Support Service staff are founding members of the American Association of Service Coordinators and recently drafted the Policy & Procedure Manual for the Association.

I am pleased to be testifying today before this Commission on the issues of streamlining housing and service financing.

Overview of Elderly Housing Crisis: Generally stated, this is a "short list" of the major contributing factors to the elderly-housing crisis:

• The often-unnecessary loss of federally subsidized housing units that are affordable to people with low incomes;
• The lack of new housing production on any meaningful scale;
• A dramatically elderly population;
• The recent national housing policy focus on vouchers instead of production as the primary way to solve the affordable housing crisis;
• Rental costs increasing faster than incomes, especially for low-income people and particularly for people on fixed incomes;
• Unpredictable sources of funding for social services.

Need: There is a critical need to assist and preserve existing non-profit sponsored elderly housing facilities, as well as to expand the supply of suitable and affordable housing for low and moderate income older persons. More than 7.4 million elderly households pay more than they can afford for their housing, including the 1.4 million with worst case housing needs mentioned previously. A majority of these households are on fixed incomes and receives no housing assistance. Unfortunately, low income elderly people seeking housing are faced with multi-year waiting lists exacerbated by the shrinking supply of suitable, affordable housing as some owners convert existing units to market rate housing. According to a recent AARP study, there were nine people over 62 years old waiting for every Section 202 unit in 1999. That number has undoubtedly grown since then.

The dynamics of fixed incomes, high costs and the limited supply of affordable housing options is compounded by an ever increasing aging population needing a range of supportive and health care services. This need for supportive services, appropriate community space, and service coordination applies to the 1.5 million elderly households who currently live in federally-subsidized housing, with an average age of about 75 years, as well as those in need of housing assistance. Today's elderly population is expected to double by 2030. Additionally, many elderly housing facilities have "aged" and need modernization and/or retrofitting and refinancing in order to accommodate supportive services to aging residents, assure quality of life, accessibility and marketability.

Solutions
Section 202: One of the basic solutions to this problem is to support the Section 202 supportive housing for the elderly program at least at its current $760 million level. As you know, the Section 202 funds are specifically for new development in project rental assistance contracts to help address the critical shortage of affordable housing for the very low-income elderly. We have seen a downward trend in Section 202 funding from $1.2 billion in FY95 to $679 million last year. The Section 202 program is not only one of the most successful elderly housing production programs in the country, it is also the least complicated. In the long run, the Section 202 program is also the least expensive housing option for developing and operating affordable housing. I believe this because the Section 202 program is one-stop shopping. An application is made to the local HUD office and, once the project is approved, the same office processes it under consistent guidelines. I would also suggest that the Section 202 program be combined with Social Service Coordination and that funding be required from the PRAC.

Historically, the Section 202 program has not required outside sources of funds for feasibility, which makes it one of the easiest programs to operate. Unfortunately, the funding levels for the Section 202 program are extremely low, and do not come close to replacing the affordable housing which is going out of production through opt-outs and functional obsolescence. Historically, the Section 202 program has had problems with slow and inadequate HUD processing. However, these problems pale in comparison with the complications that arise in other methods of developing and operating senior housing. In summary, the Section 202 program has been the government's best production program for affordable senior housing.

My speculation is that the low-income housing tax credit program, which is now the most popular way of developing affordable housing, is considerably more expensive in the long-term than the Section 202 program. This is because the tax credit development program is complicated and requires more sophistication with financial intermediaries, including financial consultants, mortgage brokers and syndicators. In addition, investors and banks require a return on investments commensurate with their risk with a profit margin. My first recommendation is that the Section 202 program be funded annually, be commensurate with need, and that the existing 202 housing stock be preserved. The refinancing alternatives available to 202s should be fully explored to provide capital to improve the existing portfolio.

Preservation: An energetic policy that encourages the preservation of affordable elderly housing facilities at the state, local and federal level.

One of the solutions to streamlining financing for affordable housing is a consistent well-communicated intent for preserving existing housing stock. Currently, neither the federal or state governments recognize the critical nature of preserving affordable senior housing. Estimates are that there have been 300,000 units lost between 1997 and 1999. It is easy to see that we are loosing units faster than we are gaining them. Many of these projects could be preserved with an economic of over 30 years with the infusion of dollars far less than the cost of new construction. We estimate that new construction costs in our 202 portfolio are approximately $70,000 per unit. We are seeing renovation projects only in the range of $20-$30,000 per unit. The difficulty is that there is little energy for preservation at the federal and state level; however, there is often a great deal of energy at the local level. One dramatic example of this is the experience in Pacifica, California, as evidenced by this September 1, 2000 press release.

National Church Residences Says "No Way" to Seniors' Evictions, Joins City of Pacifica, California, in Preserving Affordable Senior Housing

Columbus, Ohio- National Church Residences (NCR), the nation's second largest not-for-profit affordable housing organization, today assumed ownership from the City of Pacifica, California, of Oceanview Apartments, a 100-unit apartment building for low-income seniors that has been through the battle and has finally won the war. In June, the City of Pacifica, an ocean-front town located 12 miles south of San Francisco, settled an unprecedented eminent domain lawsuit against the owners of the facility by agreeing to purchase the building for $11.1 million, and to maintain it as affordable senior housing.

Pacifica officials sprang into action when they received word that the owners of Oceanview Apartments had taped eviction notices on the doors of the facility's apartments at 2:00 a.m. one night in September 1998. The owners no longer wanted to maintain the facility as affordable senior housing, and intended to raise rents to market rates, which meant that the majority of the building's residents would be rendered homeless. Most of the tenants were receiving Section 8 low-income housing assistance, and the projected new rent rates exceeded government standards. Residents contended that they were being forced out of their apartments, while the owners insisted that they were only attempting to make a reasonable return on their investment. City officials took steps to assume control of the building and maintain it as an affordable senior housing community. "Oceanview residents were panicked, and rightfully so," said City Manager David Carmany. "Their panic turned to anger, and they wanted to know what the city intended to do about the situation. During the first of many meeting with residents and city officials, one city council member . . . promised the crowd that there was no way we were going to let the evictions take place. We knew we were in for an uphill battle, but were soon to find out the severity of that slope. We quickly found out that money for housing is harder to come by than money to build a highway."

With the heady objective to preserve affordable elderly housing for a city with a closely balanced budget and barely sufficient reserves, the economically strapped city of Pacifica, according to Carmany, opted to take the drastic, but necessary, move to seize the property by eminent domain. Affordable housing is scarce in the area, and would leave the evicted residents virtually no housing alternatives. Eminent domain is rarely invoked, and only comes into play if the benefit to the public good is deemed to supercede the benefit to the owner. Originally financed through government loans, Oceanview's owners were not obligated to preserve the building as affordable senior housing because the loans had long been satisfied. The news of the evictions and proposed rent increases set off a fury among citizens and local politicians.

City of Pacifica Mayor Pete DeJarnatt is jubilant about the outcome. "Because of NCR's interest and willingness to take on the Oceanview project, we have permanently preserved 100 affordable senior housing units, which is of enormous importance to the City of Pacifica. In the San Francisco Bay area, that's a real plus."

"This is the achievement I'm most proud of in the four-plus years I've been involved with city council. We're very appreciative of NCR's willingness to get involved. We've negotiated a win-win situation, and a spectacular acquisition," said DeJarnatt.

The $11.1 million sale price is more than a million dollars more than the current owners paid for the property two years ago. Financing for the deal comes from a combination of loans and grants from the California Housing Finance Agency, the county of San Mateo, and the City of Pacifica, and was arranged by the National Affordable Housing Trust (NAHT), an NCR affiliate. NCR receives ownership of Oceanview from the City of Pacifica, tacking on an additional $100,000 to cover the city's legal fees, and will pump $300,000 in renovations into the facility.

"Pacifica's commitment to its seniors and to the preservation of affordable housing is unprecedented," said Tom Slemmer, NCR President /CEO. "The scarcity of this kind of housing has reached crisis proportions in the U.S. We're thrilled that we were able to play a part in helping Oceanview's residents stay in their homes."

Slemmer is on the board of directors of the American Association of Homes and Services for the Aging (AAHSA), and frequently testifies before Congress to advocate for the expansion and preservation of affordable family and senior housing.

NCR was founded in 1961 and is headquartered in Columbus, Ohio. NCR owns and/or managers over 185 affordable senior and family communities in the U.S. and Puerto Rico, as well as five health care facilities in Ohio. NCR currently has 14 additional properties in development throughout the country.

Another dramatic example is this Manhattan, Kansas press release of January 12, 2001

National Church Residences Purchases Kansas Affordable Senior Housing Community

Columbus, Ohio-
National Church Residences (NCR) announced today that it has received ownership of Colorado Plaza, a 47-unit, Section 8 elderly housing facility in Manhattan, Kansas. With support from the City of Manhattan, NCR's purchase of the property was made final on December 29, 2000.

Upon receiving word in 1998 that Colorado Plaza's 20-year affiliation with the U.S. Department of Housing & Urban Development (HUD) would expire in 2000 and that its owner was considering not renewing the facility's HUD contract, NCR instigated negotiations to purchase the property. Financial agreements were aided by the fact that the building owner was amenable to maintaining Colorado Plaza as affordable senior housing. NCR has been an established presence in Manhattan since 1989, when it opened Garden Grove Apartments, a 35-unit affordable senior housing community. NCR's acquisition of Colorado Plaza coincided with a housing study the city had recently conducted.

The Manhattan City Commission was vital in helping NCR secure the purchase of the property. According to City of Manhattan Mayor Karen McCulloh, "We're delighted to be able to help NCR obtain ownership of Colorado Plaza. Pulling financing together to make this project work was not an easy task. NCR's expertise and vast experience with assembling financial support was instrumental in bringing the transaction to a successful conclusion for everyone involved."

NCR President/CEO Thomas W. Slemmer says, "Our first priority was assuring the residents of Colorado Plaza that NCR would do everything we could to preserve their apartments as affordable. With so many HUD contracts coming up for renewal and many owners considering opting out of the program, maintaining affordable senior housing is one of NCR's primary objectives right now. We're thrilled that we were able to come through for the residents."

The acquisition of the property is NCR's second such purchase in six months. In September 2000, NCR successfully negotiated the purchase of Ocean View Apartments in Pacifica, California. In an unprecedented legal move, the City of Pacifica seized the property by eminent domain after the owners threatened to evict the senior residents and take the building to market rate. NCR partnered with the city to purchase Ocean View Apartments and maintain it as affordable senior housing. NCR purchased Colorado Plaza for $1.5 million. Financing was arranged through various sources, including assumption of a HUD mortgage; Low-Income Housing Tax Credits; and a grant from the Federal Home Loan Bank. Later this year, NCR will activate $200,000 of previously attained tax credits to finance moderate renovations of the building.

NCR was founded in 1961 and is headquartered in Columbus, Ohio. NCR owns and/or manages nearly 200 affordable senior and family housing communities in 24 states and Puerto Rico, including five health care facilities in Ohio. NCR currently has 28 additional properties in development throughout the country.

Streamlining the Low-Income Housing Tax Credit Development Process
We have noted that low-income housing tax credit developments are very complicated. These transactions include expensive tax credit application processes for all participants with a win ratio of less than 30%. After the tax credits are awarded, the real complications begin in that sophisticated consultants must be hired to assist sponsors in maneuvering through the complicated financial world of limited partnerships and tax credit equity. In addition, to make these projects affordable, soft funds have to be solicited from state, local and federal sources, and a complicated array of applications and funding interviews must take place. These projects are fraught with complicated regulatory burdens that increase operating costs above the level of sophistication for many sponsors involved in these projects. However, this is not to say that we cannot develop high quality housing projects through the tax credit process.

Establishing HUD Leadership throughout the HUD system with a mission of developing and preserving affordable housing with services

The Department of Housing and Urban Development has most of the resources and many of the tools available to assist in resolving and streamlining financing for affordable elderly housing:

• HUD controls virtually the entire 202 process;
• HUD controls the stream of HOME funds to state and local governments;
• HUD has federally-assisted programs available to ensure financing for preservation activities;
• HUD controls vouchers and Section 8 certificates, which provide the primary source of revenue to fund affordable housing activities;
• HUD controls the funding for social service coordination.
• HUD needs to have a mission and vision for solving this problem.

While most HUD and local officials are very concerned about the loss of desperately needed affordable senior housing, we have heard that in certain areas (e.g., Detroit) that HUD officials have actually worked against preservation efforts or have stood by as valuable affordable housing stock was lost. We are very concerned about recent reports that, in an effort to satisfy a goal of having perfect portfolios, local HUD offices are prematurely foreclosing on Section 202 elderly properties. In Detroit, where preservation appears to not be part of their active agenda, two large Section 202 projects totaling 532 units have been foreclosed on by HUD and auctioned off to for profit developers, thus resulting in the loss of the buildings and their project-based Section 8 subsidies forever to the City of Detroit. In these instances, it appears that HUD did not intervene to remove obviously weak and failing Boards from the properties in time for the projects to be permanently saved, sold the projects to for profits at prices far below their assessed value and put the residents are great risk. In one case, where 212 units were lost, the property had a long history of management problems. In the time preceding HUD's ultimate foreclosure and sale to a for profit, HUD placed the building in enforcement and brought in its own management. It did not, however, use its authority to replace the Board while the Board refused attempts by a coalition of nonprofit housing providers to take over control of the building and preserve it as affordable senior housing. We believe that if HUD had taken firm action to hold the Board responsible and replaced them when they refused to perform their duties, it is likely that none of these units would have been lost.

In a pending case, a group of nonprofits is working to bring adequate resources together to purchase a failing development, but HUD is insisting on modernization resources the task force does not have, while not providing any of its own resources or agreeing to hold the foreclosure in abeyance. While we support the Congressional goal of maintaining safe, decent and affordable housing stock, we do not believe Congress ever intended to lose so many units so quickly to for profit owners, especially when the loss could be easily avoided at a fraction of the cost of new units. We also do not believe that Congress would want to these properties sold at below their assessed values. We urge the HUD be prohibited from foreclosing on nonprofit senior housing without exhausting all options to maintain this desperately needed affordable housing stock.

Summary:
To summarize, there is a critical need for affordable senior housing in this country, combined with supportive services. That need is complicated by a cumbersome and expensive funding system. The suggested solutions include:

1. Maximizing the Section 202 program, combining it with services, and recognizing it as probably the best model for developing, maintaining and preserving affordable senior housing;
2. Preserving the existing housing stock and applying a consistent stream of funds for service coordination;
3. Creating a low-income housing tax credit program that is less complicated, with predictable service coordinator funds available;
4. Reorienting HUD to the urgency of producing and preserving affordable elderly housing.

Thank you for allowing me to testify before you today. We wish you the best and urge your support.

SUMMARY OUTLINE OF TESTIMONY

Thomas W. Slemmer
National Church Residences

1. Tremendous Need for Housing and Service Coordination
2. Extremely Complicated Financing:
• Pacifica, CA - 100 unit eminent domain preservation;
• Manhattan, KS - 50 unit preservation of downtown elderly housing complex;
• North Carolina - 4 facility rehab.
3. Solutions:
• Section 202 combined with service coordination - least expensive and most simple solution to low-income elderly housing production;
• Consistent preservation strategy across all agencies;
• Less complicated low-income housing tax credit development process;
• Reorienting HUD to the urgency of producing and preserving affordable elderly housing.