The Durham City Council voted to give the Durham Housing Authority nearly $1.2 million Monday to bail the troubled agency out of delayed affordable-housing deals.
The vote occurred at a special meeting, but city officials have been working with DHA officials since spring, said Reginald Johnson, director of the city’s Department of Community Development.
The money will essentially cover an internal debt the authority created by using public-housing funds to cover development costs on delayed projects.
The city’s grant will help the authority’s nonprofit development arm Development Ventures Inc. move forward with two projects: the $16.5 million renovation of the 224-unit Morreene Road Apartments and the $18.5 million renovation of the 102-unit Damar Court.
DVI will use $389,783 to pay four months of administration overhead and pre-development expenses through the end of the year.
The remaining $805,430 is funding that DVI already spent on those and other projects, as well as a plan to convert all DHA’s 19 public housing properties with 1,900 units to voucher-based, Housing Choice (formerly Section 8) properties.
The authority planned to replenish the money with developer fees that DVI would earn when the projects moved forward, said Anthony Scott, DHA’s chief executive officer. Those fees have yet to be earned, but DVI needs to replenish the public housing authority funds before securing financing or attracting scrutiny from the U.S. Department of Housing and Urban Development, which oversees housing authorities.
The two renovation projects fall under a redevelopment plan that goes back to DHA’s participation in the Rental Assistance Demonstration program.
About six years ago, HUD created the program, commonly called RAD, to preserve and and improve public housing. The 1.2 million public housing units across the nation have a documented capital needs back log of nearly $26 billion, according to HUD. The inventory has been losing an average of 10,000 units each year through demolitions and sales.
The programs allow owners of HUD-assisted properties to convert public housing units to the voucher program to receive more in federal subsidies for each unit. The shift allows authorities, such as DHA, to leverage private funding and tax credits to make capital improvements.
In 2012 and 2013, DHA moved forward with an ambitious RAD plan to convert to Section 8 and renovate all of its public housing units.
Under the change, DHA planned for Morreene Road Apartments to receive the first substantial renovation through a financing transaction that was planned to close in November 2015. A Damar Court deal was supposed to follow in October 2016.
The Morreene Road closing didn’t happen because the project architect didn’t submit the necessary permitting applications in time for the closing.
That delay then pushed back Damar Court.
When the Morreene Road and Damar Court deals closed, DHA expected to receive development fees to pay back the public housing reserves.
The financing partners for Morreene Road and Damar Court have indicated they won’t move forward with the deal until the public housing money is replenished.
Under the grant agreement, the city has the right to monitor financial and development activities to ensure the funding is being spent as planned.
DHA Chairman Dan Hudgins said the DHA board, which is also the DVI board, learned about an initial housing fund deficit in an audit report in March. At that point in time, then CEO Dallas Parks, who announced he would retire in six months in January, indicated he was working with the city, Hudgins said.
In May, Jeffrey Causey, the authority’s chief financial officer, left the agency.
Scott, who started in June, said the authority is tracking spending differently, and the authority will also establish a line of credit to address future cash-flow shortages.
Scott said DHA has hired a new consultant that has more experience in RAD projects. The consultant will draft a new RAD plan that shifts from renovating all the housing projects to building mixed-use communities.
In September, the city gave DHA a $220,260 grant to help the authority streamline its Section 8 voucher inspection and distribution process, and issue about 300 more vouchers.
In June 2015, the city also awarded a $500,000 grant to DVI to assist in low-income housing tax credit deals. The grant hasn’t been spent since no deals have closed.
Where will the money come from?
The city is giving $389,783 from its penny for housing fund, which is a 1 cent per $100 valuation property tax dedicated to affordable housing. The rest will come from the city’s General Fund balance.