Federal Reserve Bank Dallas
We're going to start with our next panel. Now we're going to bring this down to earth and discuss the community development landscape in our region.
Principal, Reznick Group
I have to at least say that we are a national accounting firm. I am very pleased to be involved with this session today. Steve is going to be the first presenter and he's going to talk about the state of community development in the State of Texas. He was a state legislator for some time. He is fairly new to TACDC.
Ken will go second. He will talk about some models and some examples of how some of this really works. He's going to show how you can take some of these ideas and how you can actually produce community development.
One comment I have to make is how difficult change really is for an organization. One of the things we wanted to do is to make some changes in the way we did business. It took us nine months and some of our staff made it and some of them didn't. Make no mistake about it, if you think about those kinds of things for your organization. No matter how much time you spend with your staff there are times you have to say, I am the leader and this is the way we are going to go. I applaud you for thinking about how you make the kinds of changes that are needed to get to scale.
Texas Association of Community Development Corporations
I am feeling like I am at a little bit of disadvantage because I was on the tarmac for some time this morning. I don't know how the flow of things has been going. We are here to communicate with each other about what we know about community development.
If you are familiar with the capital building here in Texas the house floor is on the second floor of the building. Communications can some times go awry. We need to communicate with one another because we are scattered around the state and the country. We need to communicate about public policy, technicalities, and program issues. Where are we? CDCs mostly got their start under the Great Society Program in the 60s. They were designed to do some things the private sector couldn't do. I am not so rosey cheeked about the private sector to think they can do everything.
When you have a society where people cannot provide for themselves then you need some government involvement to help them. We recently had some arguments about the minimum wage being raised. If the minimum wage was $7, $9, or $12 it would not cover the basic needs to live these days.
GM is paying 20% of their current cost on the healthcare for their employees. Even if you raise the minimum wage people will not be able to afford basic insurance. The median family income has fallen in terms of real dollars. In Travis county family income has fallen 13% and housing prices have risen while the cost of living has also risen.
Its more typical to have 40% of a persons income going to housing payments these days. That is not sustainable. If income is not there for the private sector to profit by providing housing for the needs of people then something will have to happen. The demand for housing compared to median income has been slowly shrinking. The private sector is not a charitable oranization - they are there to make money. We have to have something to engage the private investor in participating. What we are seeing is a shift in demand for CDC services. They used to be inner city and rehashed areas. An interesting phenomenon is occurring. The calls we are getting now for housing are from places like Georgetown, Texas where the influx of new jobs and now businesses have created a demand for affordability of housing (places where you wouldn't have thought about the need for affordable housing).
I'll stop at this point.
Kenneth Powell • download ppt presentation
Managing Director, Stone & Youngberg LLC
There was a guy on the plane that said that Texas is really relevent at this time.
I'm glad to be here this morning. I am going to try to take you to a different place. When Dana called me I asked what I am supposed to do? She said, "you are supposed to take 900 seconds to change the way people think about getting capital.'
My background is a recovering lawyer and recreational eater. We have tried to change the thinking of localities. The first project I am going to talk about is Mission Bay near San Francisco. This is an area below San Francisco. This area was dedicated to shipping and was underdeveloped. Nothing had been done in this area since WWII. Because the bay area has gone up in value we said we would put special assessments on these properties. We are building 6000 residential units in this area. 28% of that will be affordable housing. A lot of the thinking went into how we could get the investors and we need housing at all levels. We talked to them about things like how we would put in hotels and we wanted people to be able to live near where they work.
If you enter the process early enough there is money that can be used and people want to sell the project across the city.
Richmond VA
This was an area that was in really bad shape. The whole place was a mess. We went to the stakeholders and we did a bond deal so we could re-do the infrastructure. We put a new theater in and brought Hilton in to do the hotel. When we looked at this it cost the city nothing except for the parking. Just to the left is Jackson Ward which was the African American neighborhood where people coming form the south had to change trains. This became a historic area and that has become a primary housing area (this project did not have any housing but the housing all around it became really valuable). It revitalized the area. Since we put in $70,000,000 we have gotten more then a $1billion in investment around this area. While this wasn't directly a housing project what it did was bring people in. We used a creative type of financing to do this.
When you think fund raising you limit yourself to 1% of the corporate budgets. This project needed two more votes so we funded a small foundation for Jackson Ward ($5million). It has spawned lots of projects and it was a corporate investment not a grant.
New Kent, VA
We had a situation here where we had to say, if you ask me for 40 units of affordable housing we can go to the developer and make it happen. In our proposals we are saying that affordable housing is valuable for these projects. Keep doing what you are doing and reaclimate your thinking - maybe bring a new aspect in and go into the corporatation and bring their money.
If we can get development money at tax exempt rates - where can we fit in to your regular business - call it investment (tax except investing).
St Paul
This is the kind of property you can do something with. It was a polluted piece of property. We came up with a plan for issuing bonds for 18 acres to make it into investment property. We put 89 affordable housing units on it.
Hampton, VA
This group was tearing down an old shopping center. A mall was built there 30 years ago. We converted it to a town center. We will tear it down and develop it. We cut off the loss of tenents. Now we are doing this - there is no housing involved - but the whole area has been benefitted by having shopping and a center. We rejuvenated this area by putting this developme in. The corporate world is doing this all the time.
Ken, all of these examples were financed with tax exempt bonds, what kind?
TIF Bonds (tax incremental financing)- taxes on the extra improvements we are splitting. The other percentage goes to reduce the debt.
Assessment Bonds - that makes that property go up in value. We then do a special assessment. They are really all over the place now.
49 states have TIF statutes. Every state allows Assessment Bonds. Its a matter of breaking the ice. Texas has different statutes. Texas legislators have been very generous.
Q - TIFs - school districts have been carved out; are they part of the TIF statutes? You can be as creative as you want. We are trying to put a school district back into an area.
Q - In Texas I understand about 6 to 8 organizations are producing 70% of the stock produced by CDCs. It's quite true that we have some large producers. That is due to the nature of the businesses, where they are located, their tenure, etc.
How very difficult it is for small organizations to participate in bonds because of the overhead that is associated with bonds. What those smaller CDCs have been lacking is a way to do cooperative bond financing or managing their overhead costs, architectural services, building services, etc.
Many smaller CDCs don't have the opportunities to participate in these things.
Edwina- visiting with an investment firm or financial advisor will not cost you anything but it can be intimidating. If it is something you are interested in there are multitudes of folks that would be willing to talk to you about what you can do and how much it will cost (and eligible use of proceeds). They won't charge you to sit and visit with you.
Q -You mentioned $5million on the Richmond, VA project. Where did that come from. That was over and above the bond proceeds. If you can say that affordable housing will be a problem and lets use that as part of your advertising. They are putting the affordable housing in other projects now.
Winston Churchill said we judge our society by how we treat the least wealthy. Your purpose is more nobel then theirs. There are people that would welcome the opportunity to be involved. You can find a very willing participant in bankers and investment advisors, etc.
CDCs have largely depended on banks but there are industries beyond banks that have incentives to participate. We in the CDC world are like everyone else. If we are satisfied with the status quo we will stay with the status quo. We need to look at every opportunity.
Maybe you can have a program on bond utilization and maybe that is something that could start the next round of programs. You don't want to disrupt the fiber of your core organizations.
Q - Is there a way to contact you after these meetings?
Last night we had a long discussion about not-for-profit entities and what we can do. There are a few things we need to consider:
1) not being non-profit looking for below market investment (you are not a not-for-profit). Change the thinking about what we are.
2) I have to bring these people in to talk to developers
3) "If they only understood us" is old think. You have to understand them and find their business model or else you will be banned or limited to the 1%. Langdon said that when he said you need to know that customer and you want a lot more money and you want a sustainable business partner.
Texas has over 400 CDCs registered. How about partnering and expanding your scope and geographic area. TACDC does provide a strong structure and a strong advocacy for consistency.
