Testimony of Jenny Reed, Policy Analyst, DC Fiscal Policy Institute, at the Public Hearing on the Fiscal Year 2011 Budget Oversight Hearing for the Department of Housing and Community Development, District of Columbia Committee on Housing and Workforce Development

Chairman Brown and members of the Committee, thank you for the opportunity to speak today.  My name is Jenny Reed, and I am a Policy Analyst with the DC Fiscal Policy Institute.  DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents.

I am here today to testify for increased local funding for the Department of Housing and Community Development to support affordable housing development in the District.  Local funding for affordable housing has fallen dramatically since FY 2008 (see figures 1 and 2), the same year the economic recession and housing market collapse began to have a devastating effect on the District’s economy and its residents.

But even before the economic recession hit, DC residents were finding it harder and harder to secure affordable housing in the District.  A recent DCFPI report showed that since 2000, DC rents have risen faster than in most major cities and have outpaced the incomes of most DC households. [1] At the same time, our report showed that DC lost over one-third of its low-cost rental units, and two-thirds of its low-cost owner-occupied units.  With that huge loss of affordable housing it’s not surprising that nearly two in five DC households have housing affordability problems.[2] Now that the recession has hit, and a growing number of families are experiencing unemployment and reduced income, it’s very likely that DC’s affordable housing problems have gotten even worse.

DHCD’s budget supports and manages a number of critical affordable housing tools for the District, all of which have been significantly reduced since FY 2008.  In my testimony today, I’d like to focus on two ‘ the Housing Production Trust Fund and the Home Purchase Assistance Program.
Housing Production Trust Fund

The HPTF is the District’s main source for affordable housing construction and rehabilitation.  For the third year in a row, resources in the HPTF remain very low as a result of the economic recession.  In fact, total resources going into the HPTF will be just $22 million in FY 2011, substantially lower than the $73 million in FY 2008,[3] and the lowest funding for the HPTF since FY 2003 (see figure 3).

The drop in funding is concerning.  Since 2000, the HPTF has supported the construction or rehabilitation of 6,700 affordable homes ‘ with another 1,600 underway. Now that funding into HPTF has fallen, the demands on the HPTF far exceed available resources.  In fact, by the end of September 2010, affordable housing project needs are projected to outweigh available HPTF resources by at least $89 million.[4] This means that in FY 2011 planned projects will be stalled, the number of affordable units developed by the HPTF will likely be far lower than just a few years ago, and funds to help support tenants wishing to exercise their right of first purchase will continue to be severely limited.

With the growing affordable housing crisis, the HPTF needs additional resources in FY 2011 and a new funding mechanism going forward in order to remain a viable affordable housing tool for the District.

DCFPI suggests that going forward, the HPTF be funded either: through direct appropriation, tied to a more stable source of funding, funded through a specific amount of deed taxes, or funded by dedicating a minimum floor of deed taxes.[5] In FY 2009, the Council passed a bill supporting the latter goal, but it was never funded.  In addition to a new funding mechanism, the Council should consider adding a one-time appropriation to the HPTF in FY 2011 to help move along some of the projects ready to be built in the HPTF development pipeline.

We are also concerned about the proposal in the FY 2011 budget to increase the share of HPTF resources allocated to administrative costs from 10 percent to 15 percent.  This comes just one year after DHCD raised the administrative allocation from 5 percent to 10 percent of HPTF resources and further limits the amount of funds available for core HPTF purposes.

Home Purchase Assistance Programs

DHCD manages Home Purchase Assistance Programs (HPAP) that provides down-payment and closing cost assistance to help low- and moderate-income first time homebuyers and low-income District employees purchase homes in the District.  The FY 2011 budget for these home-buying programs is $17 million from both local and federal funds, and represents a 15 percent drop in funds from the FY 2010 budget and represents the lowest total funding for these programs since FY 2006 (see figure 4).

In FY 2007 and FY 2008, funding for HPAP programs increased substantially.  This supported both an increase in the number of people served and increased the maximum loan amount from $30,000 to $70,000.   As funding fell from 2008 onward, the District has reduced the loan amount from $70,000 to $40,000 in order to try and serve the same number of people.  Yet, the total number of first-time homebuyers receiving HPAP loans has also fallen.  Part of the fall is likely due to the economy and difficulty in buying homes in a tight credit market, yet the lower loan amount may also be limiting the number of residents that can purchase homes.  We encourage the Council to restore funding for HPAP programs both to increase the number of people that can be served and increase the maximum loan amount to help more lower-income first-time homebuyers.

Thank you again for the opportunity to testify. I am happy to answer any questions.

[1] DC Fiscal Policy Institute, Nowhere to Go: As DC Housing Costs Rise, Residents are Left with Fewer Affordable Housing Options.  February 5, 2010.  Available at: www.dcfpi.org

[2] A “˜housing affordability problem’ is defined by the U.S. Department of Housing and Community Development as a household paying more than 30 percent of their income on housing.

[3] This figure includes a special one-time $30 million appropriation into the fund.

[4] DC Department of Housing and Community Development, Housing Production Trust Fund FY 2009 4th Quarter Report.  Available at: http://dhcd.dc.gov

[5] For more detail on these suggestions, see CNHED and DCFPI, Affordable Housing in the District Depends on a Stable Housing Production Trust Fund October 20, 2008.  Available at: http://www.dcfpi.org