Citation
The Colorado Housing Finance Authority : does it truly serve the public purpose? An analysis and some alternatives

Material Information

Title:
The Colorado Housing Finance Authority : does it truly serve the public purpose? An analysis and some alternatives
Creator:
Vogel, Mary Elizabeth
Place of Publication:
Denver, CO
Publisher:
University of Colorado Denver
Publication Date:
Language:
English

Thesis/Dissertation Information

Degree:
Master's ( Master of urban and regional planning)
Degree Grantor:
University of Colorado Denver
Degree Divisions:
College of Architecture and Planning, CU Denver
Degree Disciplines:
Urban and regional planning

Record Information

Source Institution:
University of Colorado Denver
Holding Location:
Auraria Library
Rights Management:
Copyright Mary Elizabeth Vogel. Permission granted to University of Colorado Denver to digitize and display this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.

Downloads

This item has the following downloads:


Full Text
VOOitZL.
«
THE UNIVERSITY OF COLORADO
THE COLORADO HOUSING FINANCE AUTHORITY: DOES IT TRULY SERVE THE PUBLIC PURPOSE? AN ANALYSIS AND SOME ALTERNATIVES
A THESIS SUBMITTED TO
THE FACULTY OF THE DEPARTMENT OF URBAN AND REGIONAL PLANNING IN CANDIDACY FOR THE DEGREE OF MASTER OF URBAN AND REGIONAL PLANNING
by
3CHIVE
I 90 *78 )78 '64
AURARIA LIBRARY
MARY ELIZABETH VOGEL DENVER, COLORADO DECEMBER, 1978
U1A701 7541570


THIS WORK IS DEDICATED TO MY BELOVED FRIEND ROSALIND ALLEMAN I945 _ 1978
FIRST DIRECTOR
BOULDER COUNTY WOMEN'S RESOURCE CENTER JANUARY 1975 - NOVEMBER 1976
CONFERENCE COORDINATOR COLORADO WOMEN'S CONFERENCE DECEMBER 1976 - NOVEMBER 1977
PH.D. CANDIDATE IN SOCIOLOGY UNIVERSITY OF COLORADO
WHOSE TRAGIC DEATH AT HER OWN HAND WOULD NOT HAVE HAPPENED UNDER THE KIND OF SOCIAL-POLITICAL-ECONOMIC SYSTEM THIS WORK SEEKS TO CREATE


ACKNOWLEDGEMENTS
I owe very special thanks to Michael Stone whose work was Doth the original inspiration for my thesis and continued to he my guiding light. His personal encouragement and suggestions were much appreciated. Special thanks also to Chester Hartman for his invaluable works and for exposing me to a wonderful variety of resources throughout the country and all over the world through the Planner's Network which he edits and produces. The long-term commitment and activism of both of these authors has been a source of continuing inspiration for me. Another special thanks to Emily Achtenburg who co-authored with Michael Stone two of the works that I found so helpful.
I'd like to express appreciation for the assistance and encouragement of my advisors: Dave Bramhall, Byron Johnson, Jonni Jones, Eric Kelly, and John Maldonado whose views are not necessarily in agreement with those in my thesis, but whose suggestions were very useful in clarifying my thinking. My major advisor, Jonni Jones, has helped me over some rough spots and times of total discouragement over the past several years. Her courses were very influential in the development of my thinking and her own activism a good example. John Maldonado's continuing commitment to providing housing for low and moderate income people has likewise been for me a positive role model and his active encouragement of my involvement in housing issues during the three years I have known him was one of the major stimuli for this thesis.
Dave Herlinger, Executive Director of the Colorado Housing Finance Authority, and several of his staff members including Mark Gallegos, Bill Montez and Carol Papini were very generous in taking the time to answer my questions and provide me with whatever materials or available information I requested. I am grateful for their assistance. In no way should this paper be construed to question their integrity. I have much respect for all of them. Rather the paper questions the entire system which they accept as a given— albeit while they attempt to make it operate more humanely.
Blake Chambliss, CHFA Board Member, has been another positive inspiration to me through his persistent commitment to provide high quality low-income housing in well-designed communities.
L


I owe a special debt of gratitude to Eleanor Grow, Jim Reynolds and Jack Lang at the Colorado Civil Rights Commission, my employer, for their generosity in giving me time to complete my work on this thesis.
There have been many who have contributed to the development of my ideas by their actions and lifestyle as well as by the spoken or written word. Amongst them have been friends in the Women's School of Planning and Architecture, the Boulder Socialist Feminist Collective, the National Organization for Women, the U.S.-China People's Friendship Association, the New American Movement, the Conference on Alternative State and Local Public Policy and the Red Feather Institute for Socialist Studies in Colorado.
Finally, I'd like to acknowledge one other person who has unknowingly been very important to my continuing commitment to social change—my own younger sister. She made me more aware than ever before that the problems of this country will require societal as well as individual change when she wrote last year:
I started working the deli again—full-time—because the regular girl, Beverly, was sick and while she was out she tried to kill herself and went into the hospital for that.
...They offered me the deli job in Camp Springs, or here in Hyattsville, if Beverly will go to Camp Springs—because their girl tried to kill herself too! There's something awful about thinking of that back-breaking, hectic job as mine, even though checking is no cinch and is just as wearing. ... I know I have a lot to learn but the ire is
no one around to teach me. ... You can see I really know
what I'm doing, where I'm going and what I want to do with my life every minute, huh? Well, at least I have some options. And if nothing comes across or turns out well I could always get real depressed and go the route of other rejected, frustrated deli girls (ha-ha).
My sister has worked for the past five years as a checker in a
large chain food store in Maryland.


ABSTRACT
The thesis of this paper is that the Colorado Housing Finance Authority (CHFA), a quasi-governmental organization of the State of Colorado, is not meeting the critical housing needs of low and moderate income persons in this State in a way that best serves the public purpose.
The paper briefly traces the history and consequences of federal government intervention beginning with the collapse of the housing market in the Great Depression and shows that CHFA is a logical extension of that intervention. The typical pattern of government intervention since the 1930's has been one that first serves the interests of mortgage lenders, then developers, then landlords and other owners of equity. The principal strategy of this intervention has been the promotion of the long-term, low-downpayment mortgage loan through the creation of three main types of structures (l) a central banking system through the creation of the FHLBB (2) a mortgage insurance system through the creation of the FHA and (3) secondary mortgage markets with the creation of FNMA and GNMA. This long-term, low-downpayment mortgage loan was designed to undercut the income/ housing cost problem, which is an inherent problem in our economic system, by lessening both the savings needed to buy and the monthly payments on a loan of a given size, thereby "promoting the illusion of homeownership through the reality of debt."'*' There is an inherent conflict between income and housing costs in our system because, on the one hand, the system seeks to keep wages as low as possible while, on the other hand, it seeks to maximize profits on its goods. The government has not been able to ignore this conflict between the labor market and the housing market since one of its functions is to maintain social order. Over the past few decades it has become increasingly necessary for the government to intervene in the housing sector to try to manage the conflict in the interests of capital.
The government structures created to aid housing capitalists made possible new opportunities for wealthy investors and provided mortgage lenders with protection against risk while stimulating demand for homeownership. Homeownership gave those who participated
"'‘Michael Stone, "Housing, Mortgage Lending and the Contradictions of Capitalism" in Marxism and the Metropolis. Tabb and Sawers (eds.), 1978, p. 193.
- i -


in it a financial stake in the system encouraging them to identify
their interests with the interests of landlords and lenders. It
also helped to overcome the "alienated tenant psychology".
The long-term, low-downpayment mortgage loan, while successful
in the short-run in both providing homeownership opportunities for
2
a majority of Americans also created many other problems which are increasingly detracting from our quality of life today. The problems of urban sprawl and the white noose around our central cities which the long-term, low-downpayment mortgage loan with its supporting institutions (especially FHA) helped to foster are by no means the only negative impacts catching up with us today. Creation of the long-term, low-downpayment mortgage loan also mortgaged the future, greatly fueling many of the problems we're presently experiencing in the economy—including overall inflation in every sector of the economy and decreasing opportunity for homeownership.
Residential mortgage debt increased rapidly relative to other debt in the economy. Between 19^-6 and 197^, while total private debt grew twice as fast as the gross national product, housing debt grew two-and-a-half times as fast. The dependence of our system on debt-financing leads to what one author calls a fundamental contradiction which the system cannot resolve:
On the one hand, if the federal government allows the money supply to increase to meet all the need for borrowed funds, it sets off price increases in the economy, since the amount of money being spent goes up faster than the amount of goods and services being produced. Inflation leads to higher interest rates and more borrowing in anticipation of further price increases. Debt accelerates far ahead of ability to repay it, leading toward a financial crisis. On the other hand, if the government tries to restrict the growth of credit to prevent or limit inflation, then some borrowers get squeezed out. Previously accumulated debts eventually have to be paid, and many individuals and businesses are totally dependent on new loans to pay off the old ones. Without continued access to credit to pay their bills, they may go bankrupt. Since the banks and other creditors have also borrowed heavily to expand their lending and stimulate the economy, when they do not get paid, a chain of defaults can ensue.
Thus a credit squeeze can also bring the financial system to the brink of collapse.3
2
In the 1950's about 2/3 of all American families could afford the payments on a new house. Today it is estimated that only l/5 of all families can afford such payments.
â– ^Michael Stone, op. cit. , p. 197-198.


Housing has been especially victimized when the government acts to restrict the growth of credit. Therefore housing capitalists have sought new instruments through government intervention to bring capital into their sector' of the economy. CHFA is one of these new instruments—following in the pattern of FHLBB, FHA, FHLMC, FNMA, GNMA, etc. What these instruments have done has been twofolds (l) they've increased the competition for borrowed funds just at the points when government monetary policy seeks to reduce the supply of credit, thereby causing even higher interest rates; (2) they've helped to tie the stability of the structure of capitalism to the stability of the structure of mortgage debt by enabling billions of investment dollars to be tied up with the mortgage system—investment dollars beyond those of small savers and thrift institutions.
Following the typical pattern for intervention by government under our system, CHFA brings capital into Colorado to prop up the same long-term, low-downpayment mortgage loan system which has contributed so greatly to the problems of our economy. Although it claims to bring in this capital at no expense to the taxpayers of Colorado, in actually, CHFA's tax-exempt bonds bring funds in at the expense of lower and middle income working people to the benefit of upper income individuals and financial institutions. The money which CHFA brings in in this manner is then used to finance programs through mortgage lenders who take their cut for "originating and servicing" the loans that are made. A small proportion of those needing housing pay a lower than average interest rate on a mortgage or live in rental units where they pay less than the market rate while the vast majority of those with inadequate shelter are not served and while housing costs continue to skyrocket for all of us.
The paper examines CHFA's dependence upon tax expenditures—the cost to the government of various types of individual and corporate deductions from income taxes. Data is presented to show that the major beneficiaries of such tax expenditures are the richest 1% of the population and the largest and wealthiest financial institutions.
In fact, tax expenditures are extremely regressive—the wealthier the individual or institution, the greater the benefit. Additional beneficiaries are the syndicators who make great profits buying and selling the bonds.
iii -


In addition to the tax expenditure which CHFA perpetuates in its utilization of tax-exempt bond financing, CHFA indirectly promotes the tax expenditure of real estate tax shelter subsidies by seeking out developers who use them. The paper ourlines a sample project built utilizing real estate tax shelters. Again the major beneficiaries are shown to be the richest 1% of the population and the largest and wealthiest banks.
Under a tax expenditure system of "subsidizing" housing, the U.S. Treasury must pay more to investors to induce them to risk their money than it would cost the Treasury itself to invest directly in housing. "If the purpose is to provide housing for those who need it most, we could hardly devise a less effective or more expen-
k
sive method."
In order to use the public power, CHFA—or any other arm of government—supposedly must promote the public health, safety, morals and/or general welfare. In view of facts brought to light in this paper, a new test of whether CHFA truly serves the public purpose is suggested.
Since CHFA fails to meet the test of promoting the public purpose under its current method of operation, an alternative role for CHFA to play in meeting the critical housing needs of low and moderate income people is outlined. Two fundamental changes that CHFA's new role would be directed towards arej (l) altering our conception of housing from a commodity to be bought and sold for a profit, to a social good which people have the right to use and occupy as they wish, but which cannot be owned, bought or sold for a profit, and (2) gradually eliminating housing's dependence upon the national capital markets. These two changes must be the ultimate goal of any reform strategy if we are to reverse the current trends towards skyrocketing housing costs and greater shelter poverty.
Under the alternative system of providing housing laid out in the paper, the federal government's role would also be transformed.
The federal government would provide direct grants for housing after raising the money through a reformed progressive tax system. CHFA would accept such direct grants and would then disburse the funds directly (rather than through mortgage lenders).
A
Cushing Dolbeare, Federal Tax Rip-Offs: Housing Subsidies for the Rich. 1972, p. 22.
iv -


GHFA would accept proposals from private developers, local housing authorities, non-profit housing development corporations, labor unions, community organizations and perhaps from individuals wanting to build their own housing. It would approve plans and costs and allocate funds geographically according to the State's Housing Needs Study and the Growth and Human Settlement in Colorado policies. The money CHFA disbursed would not have to be repaid because it would be a grant, not a loan. Neither construction financing costs nor long term mortgages would have to be paid off so the families or individuals who occupy such housing would pay only the actual operating expenses such as utilities and maintenance—i.e., they wouldn't be charged that part of the rent that today goes towards paying off the mortgage and making a profit for the developer and/or the owner.
The housing built with CHFA funds would be owned either by the local public housing authority or by CHFA itself.
An interim strategy would see Colorado instituting its own progressive income tax system and its own state bank. This approach would begin to end CHFA's dependency on the banks and private credit markets to finance housing although it would not eliminate mortgages. It is suggested only as an interim strategy on the path towards more fundamental changes.
Two very short-range reforms a coalition might pursue ares (l) encouraging CHFA to fund housing cooperatives and provide them with technical assistance and (2) mandating CHFA to utilize non-profit local public housing authorities and other non-profit sponsors.
Both of these reforms would be a step towards challenging the concept of housing as a commodity to be bought and sold for a profit—although neither should be seen as an end in and of itself.
Achievement of any of the above reforms—even the short-range proposals—will require a broad-based coalition of people to pursue them. The alliances begun at two recent conferences—the Colorado Civil Rights Commission's "Metro Denver Housing Crisis Conference" and the Colorado Coalition for Full Employment's "Conference on the Urban Environment, Jobs and Neighborhoods"—must be combined and the issues must be expanded to encompass the rural areas of this State in order to begin to build a movement that will bring about the basic changes needed in our economic and social system.
v


TABLE OF CONTENTS
I. INTRODUCTION: DEFINITION OF THE PROBLEM........................1
II. STATEMENT OF THESIS ...........................................5
III. STATE INTERVENTION IN HOUSING: A BRIEF HISTORICAL ANALYSIS..6
Three Types of Structures to Aid Mortgage Lenders ..........8
Central banking system .. . . . .........................8
Mortgage insurance .. .................................. 9
Secondary mortgage markets .........................9
Other New Vehicles of Capital for Mortgages .............11
IV. CONSEQUENCES OF STATE INTERVENTION ON BEHALF OF CAPITAL.......11
The Major Beneficiaries and the Principal Strategy ........12
The Long-term, Low-downpayment Mortgage Loan and the Debt
Economy ...12
The Fundamental Contradiction ............................1^
The Instability of the Economy and Its Impact on Housing..l^J-Housing's Increased Dependence on the Federal Treasury ...16 Two Contradictions: A Summary of the Major Consequences..17 V. STATE INTERVENTION: TAX EXPENDITURES
CHFA: Its Purpose, Its Programs and Its Place in State
Intervention....19
Tax-Exempt Bond Financing and CHFA ........................22
Costs to the federal government ........................22
Concentration of ownership of bonds ....................2^
Summary of tax-exempt bond financing ....................26
Real Estate Tax Shelter Subsidies and CHFA ................26
A sample project ........................................27
Revenue loss to the Treasury.............................30
Conclusions on real estate tax shelter subsidies ........31
VI. THE PUBLIC PURPOSE .........................................32
VII. AN ALTERNATIVE ROLE FOR CHFA .................................33
Transformed Conception of Housing: The Hartman-Stone
Program.....35
Grassroots Effort with Conscious Political Strategy
Needed .....38
A Program for Colorado ....................................39
VIII. APPENDIX
CHFA's Architectural Checklist and Design Criteria........A
CHFA's Promotion Piece ...................................B


"HOME GOST IN AREA SOARS 20 PERCENT IN 9 MONTHS" — Rocky Mtn. News,
10/18/78
"HOUSING COSTS RISING FASTER THAN OTHER COSTS" — Denver Post, 9/19/78 "HOME BUILDERS WARNED OF DOWNTURN" — Rocky Mtn. News, 9/19/78 "HOUSING CONSTRUCTION TO DROP SHARPLY" — Rocky Mtn. News, 11/8/78 "CONDO CONVERSIONS TROUBLE FOR TENANTS" — Colorado Daily, 9/25/78 "MORTGAGES: NO RELIEF IN SIGHT" — Rocky Mtn. News, 12/27/78
I. INTRODUCTION: DEFINITION OF THE PROBLEM
Housing costs in Colorado are skyrocketing! With the predicted drop off in new construction, the price of purchase or rental of a place to live will rise even more steeply. These facts are no secret to anyone who even takes an occasional glance at a newspaper as the above headlines indicate.
At the "Metro Denver Housing Crisis Conference" sponsored by the Colorado Civil Rights Commission last May 14-15, 1978, figures were cited to show that 20% of all Denver families could not afford to live in the average new home even if it were given to them because they could not afford the property taxes and utility bills; forty percent of all Denver families could not afford to live in that same new home even if they had to make no down payment, because they could not afford the mortgage payments, property taxes and utility bills. Also cited were figures to show that the cost increases that are making home-ownership an option for fewer and fewer families were mainly due to two factors: increased finance costs and increased land costs. Between 1949 and 1976 the percentage of cost factor for these two items jumped 30%—from 19% of the cost of a new home in 1949 to 49% of the cost of a new home in 1976. In the Denver area in 1976, the cost of land alone accounted for 35% of the cost of a new home."''
^Henry Burgwyn, Workshop on "How You Too Can Join the Crabgrass Crowd", Metro Denver Housing Crisis Conference, May 13 & 14, 1978.
- 1 -


At the national level, between 1970 and 1976, while median family income was rising 47% and the overall Consumer Price Index went up 46%, median sales prices for new houses rose 89%; even worse, the monthly ownership costs for a median priced house rose 102% for a new house and 65% for an existing house.
The rapidly rising cost of new housing is particularly alarming. In 1965, the average cost of a new single family house was $20,000 and the income needed to purchase such a house was $7,700. Those figures today (1978) have shot up to $61,500 for the average new home requiring an income of $28,000 to afford. What these figures indicate is that fewer and fewer American families can afford the cost of a new home. During the 1950s about 2/3 of all families could have afforded the typical new house. By 1970 the proportion had declined to l/2, and by 1975, it had fallen to about l/4 of all families.
It comes as no surprise then that in the eight years since the 1970 hearings jointly sponsored by the Colorado Civil Rights Commission and the Metro Denver Fair Housing Center,
Inc. which identified one of the major housing problems facing Colorado at that time ass Inflated housing costs due to increases in land, labor, materials and government regulation, which prevent many Coloradans from securing decent, safe and sanitary housing-^, that the number of households in Colorado estimated to be either paying too much for housing (over 25% of their incomes) or occupying inadequate housing increased
2
Chester Hartman and Michael, Stone, "Housings A Socialist Alternative" in The Federal Budget and Social Reconstruction, Marcus Raskin
(edTTT 1978, p. 207.
o
JFindings/Recommendations of the State Hearing Panel, 1970 Housing Report of Colorado. While I agree that government regulation and increases in labor and materials are certainly factors in inflated housing costs, I feel that this statement is extremely limited in its analysis of the problem. It overlooks the dependence of housing on mortgage credit as the major factor responsible for inflation.
- 2 -


from 84,500 in 1970 to 132,000 in 1977.
Of this 132,000 lower
income households estimated to he needing or eligible for housing assistance, only 20,221 households were being provided with assistance as of January 1, 1977. An additional 14,910 lower income households will need and be eligible for housing assistance by 1982.
In 1972 the Colorado legislature declared that "there is
a shortage in Colorado of decent, safe and sanitary housing
which is within the financial capabilities of low and moderate-
income families".^ To broaden the definition of the problem
and place it within a national context, I'll borrow from Stone:
...there are not enough dwelling units in decent condition, at bearable prices, with required amenities and secure tenure, at accessible locations, in
communities with adequate services
Stone loses an income dependent standard to estimate the extent of shelter poverty from the 1970 Census. Over 16 million households were paying more for shelter than they could afford.
These households represent more than l/4 of all households in the U.S. For those with incomes under $10,000, 40^ of all households and 50% of renter households were shelter poor in 1970.
As Hartman's and Stone's more recent data (see footnote #4) indicate, shelter poverty has become even more pervasive since 1970—with the number of shelter poor increasing by 5 million in 5 years and the percentage rising 5%>—from 25% in 1970 to 30^ of all U.S. households in 1975. In Colorado the estimate for the rise in shelter poor is 47,500 in the 7 years from 1970
^Colorado Division of Housing, Housing Element (Draft) p. 111:22. As disturbing as these figures are, they are based upon what some find to be an inadequate method of estimating shelter poverty which grossly underestimates the need. Hartman and Stone have worked out a more accurate measure which considers minimum family budget requirements and actual family income. They estimate that nearly 21 million households—11.3 million home-owner households and 9.5 million renter households—were paying more than they could afford for housing in 1975. These figures represent nearly 50% of all U.S. households and nearly 50% of all households with incomes under $15,000 per year.’
â– ^Colorado Housing Finance Authority Act (Part 7 of Article 4
of Title 27, C.R.S. 1973, as amended).
^Michael Stone, "Housing, Mortgage Lending and the Contradictions of Capitalism" in Marxism and the Metropolis. Tabb and Sawers (eds.), 1978, p. 180.


to 1977. Stone attributes the increase to "unprecedented inflation and the worst depression since the 1930s".^
This paper will contend that a problem so pervasive as the one outlined above must be sought "within the very institutional structure of the society and not in some aberration
O
or maladjustment in the normal functioning of the system”.
In order to begin to analyze that "institutional structure of the society", I chose to focus on one Colorado institution which is seeking to address some aspects of the housing problem in this state—the Colorado Housing Finance Authority (CHFA).
In hopes of better understanding the present housing crisis in Colorado and the nation as a whole, I decided to look at
9
why CHFA was set up, what part it plays in the history of state intervention, how it defines its mission, what mechanisms it uses to carry out that mission, what impact those mechanisms have on the housing problem, and whether that impact is such that it serves both the short-range and long-range best interests of the majority of the people of Colorado—and thereby the public purpose that institutions of the state ideally should serve.
II. STATEMENT OF THESIS
Briefly put, the thesis of this paper is that the Colorado Housing Finance Authority is not meeting the critical housing needs of low and moderate income persons in this State in a way that bests serves the public purpose.
In order to show CHFA's place in the overall context of state intervention in the housing market, a brief historical analysis of such intervention will first be traced. In this analysis the emphasis will be placed on the structures set up to aid mortgage lenders. Here, Stone's argument that the typical pattern for intervention by the state has been one which
7Ibid.
8Ibid.
9
State is used here as a generic term referring to government at all levels.
- 4 -


tries to manage the inherent conflict between the labor market and the housing market in the interests of capital will be outlined. The role of the long-term, low-downpayment mortgage loan as a principal strategy of state intervention will be analyzed and the consequences for the economy will be examined.
It will be shown that the reliance upon the increasingly unstable and inadequate supply of funds provided by mortgage lenders has not only contributed to and exacerbated the housing problem, but has also contributed to the growing problems in the economy as a whole. CHFA, one of many devices created by the government to prop up a mortgage system which is failing more and more to meet the needs of the majority of Americans, is ultimately contributing to this exacerbation of the housing problem and the problems of the overall economy. Rather than providing a long-range solution to the housing problems of low and moderate income people, CHFA helps to fuel higher housing costs, higher interest rates generally, and greater concentration in the mortgage industry.
Shifting from the long-range, macro-economic arguments against CHFA's system of ho lasing subsidization to one of the various elements of the housing market that make housing so expensive, it will be shown that CHFA's promotion of the tax expenditure system of subsidizing housing leads to greater costs and less tax equity for the majority of us. While providing a subsidy for only 10$ of those in need of housing, state intervention of the type that CHFA promotes, delivers an even greater subsidy to the largest banks and wealthiest individuals in this country.
Utilizing the alternative system for meeting housing needs that Hartman and Stone lay out^, an attempt will be made to carve out a role for CHFA under such a system. Here some of the positive accomplishments of CHFA will be reviewed.
"^Hartman and Stone, op. cit.
- 5 -


Keeping in mind the two most essential aims of the Hartman-Stone program—i.e. (l) steadily transforming a growing proportion of the housing stock from a commodity into a social good which cannot be owned, bought or sold for a profit, and (2) steadily reducing the dependence of housing on the credit market—an interim strategy will be suggested. Such an interim strategy could give the broad-based group of Colorado citizens who would be needed to achieve it some immediate reforms to pursue while they work towards the longer-range more comprehensive changes that are needed in our economic and social system.
III. STATE INTERVENTION IN HOUSING; A BRIEF HISTORICAL ANALYSIS
The history of housing policy in the United States is intricate and tangled. There are eleven federal agencies that operate in this policy area and twelve congressional committees that write laws substantially affecting housing. Furthermore, the federal government participates in the housing market in a variety of ways—through tax policies, regulation of mortgage financing, mortgage insurance, subsidy payments, welfare assistance, credit policy, labor policy, equal housing opportunity policy, environmental policy, and numerous other activities. In addition, "over the past decade, State governments have emerged as a significant force in the housing field through
- 6 -


the formation of a variety of new State housing agencies holding broad charters to undertake a wide range of activities". 11 Analysis of federal housing policy has tended to focus upon the direct federal housing programs, such as those administered by HUD, FmHA and the VA and upon mortgage market operations by the Federal National Mortgage Association (FNMA),
the Federal Home Loan Bank Board (FHLBB), and the Government
12
National Mortgage Association (GNMA). However, as the National Housing Policy Review points out, the federal government's role is:
...far more complex and far more pervasive than is evidenced by the direct housing programs that form the core of housing legislation. ...Because of the magnitude of the housing market, direct Federal programs often play a strictly supplemental role. ...The Federal Government, in some ways, exercises a greater influence through its indirect interventions in the housing market—for example, the income tax treatment of homeowners and of investors in housing.
...The direct and indirect cost in 1972 of Federal intervention in the housing market totaled at least $1^ to $15 billion and of this total only $2.5 billion was expended on direct federally operated housing subsidy programs.13
I will make no attempt to lay out a complete chronology of the accumulated authorizations in housing programs (numbering more than 70), nor even to highlight all of the major housing acts which have shaped that part of housing policy which lays out rationales for federal involvement, sets housing goals
and authorizes direct subsidies. That has been done quite well 14
by others.
^National Housing Policy Review, Housing in the Seventies. p. 139. 12Ibid., p. 33.
13
Ibid.
See Housing in the Seventies, op cit., for a relatively thorough summary from the establishment point of view and American City Planning Since 1900 A.D. by Laurence Gerkens for a summary and analysis of housing policy interspersed through his excellent history of planning in the U.S.
- 7 -


Rather, since I am attempting to fit Colorado Housing Finance Authority into an overall framework of intervention by the capitalist state, I will focus on only those federal interventions which have aided mortgage lenders and set the pattern for housing finance—the focal point of power in American housing. The account below will be heavily dependent upon the analysis of Michael Stone"^ho contends that the housing problem is due to an inherent contradiction between the requirements of two basic institutions of capitalism—the labor market and the housing market. "The evolution of the housing sector in the 20th Century—particularly the growth of the mortgage system and the extensive intervention of the government—can be understood as attempts to manage the contradiction between the housing and labor markets in the interest of capital".^
Three Types of Structures to Aid Mortgage Lenders
The Great Depression triggered federal intervention in the housing sector in the 1930s which resulted in three main types of structures to aid mortgage lenders: (l) a central banking system for home-loan banks along with governmental insurance of deposits for all types of banks; (2) mortgage insurance; and (3) secondary mortgage markets.
Central banking system
In 1932, the Federal Home Loan Bank Act created the Federal Home Loan Bank Board (FHLBB) which oversees twelve regional Home Loan Banks and the Federal Savings and Loan Insurance Corporation. The regional banks act as a reserve for their members, accepting deposits from them and making loans to them as they pursue profitable investments—thus putting the credit of the federal government behind the member banks. The idea was to create a national mortgage market by centralizing, stabilizing and insuring mortgage-banking operations, thus making mortgage banking more efficient, predictable and profitable.
â– ^A major portion of the account is based upon Stone's "Federal Housing Policy: A Political-Economic Analysis" in Housing Urban America, Pynoos, Soloman, and Hartman (eds), 1973*
â– ^Michael Stone, "Gimme Shelter", in U.S. Capitalism in Crisis, Crisis Reader Editorial Collective (eds), Union for Radical Political Economics, p. 182.
- 8 -


At the same time the Federal Savings and Loan Insurance Corporation (FSLIC) was designed to attract funds into member banks by insuring accounts.
Mortgage Insurance
Mortgage insurance came along with the establishment of the Federal Housing Administration (FHA) created by the National Housing Act of 1934. Another device to reduce risk and guarantee profits, FHA insures mortgage lenders against financial loss from default on approved mortgage loans—with the funds for paying off the claims coming from the borrower who is insured against nothing. In 1944 the Veterans Administration (VA) mortgage-guarantee system was added which together with FHA greatly increased the power and profits of mortgage lenders by promoting a boom in housing sales and increasing the role of approved mortgage lenders in each housing transaction. The long-term, low-downpayment mortgage was created and the results are well known:
...the vast postwar suburban boom, creating the illusion of homeownership for millions of people, while the actual owners are the mortgage lenders. The putative homeowner pays rent to the bank and also pays an insurance premium to the government. Then if he cannot make his mortgage payments, the goverment insurance repays the outstanding part of the loan to the mortgage holder, and the government is left owning the property.1?
Secondary Mortgage Markets
The third major structural addition in the housing sector— the secondary mortgage market—came about with the creation of the Federal National Mortgage Association (FNMA) in 1938- This secondary mortgage market was created to give lenders greater liquidity and allow them to pursue opportunities more profitable than mortgage investments as those opportunities present themselves. FNMA purchased mortgages from approved lending institutions but permitted the original lenders to continue to service
17
Stone, "Federal Housing Policy: A Political-Economic Analysis, op. cit., p. 431.
- 9 -


the loans and to receive a fee of ,25%> to 1% for doing so. Stone points out that FNMA made the housing sector more profitable in two ways. First, not only did the mortgage lenders get the liquidity they desired but they were also able to make some profits on their mortgages—even after they had been sold off. Second, FNMA offered shares in the pool of mortgages it bought, thus giving another group of investors the opportunity to profit from housing finance.
FNMA and GNMA
FNMA, in fact, became so successful that mortgage lenders pressured to have it transferred to the private sector. The FNMA Charter Act of 195^» which authorized the sale of stock to finance the secondary market operations of FNMA, began the transfer process. The Housing Act of 1968 completed the process of making FNMA virtually private, separating its secondary-market operation from its more risky functions of special assistance, management, and liquidation of holdings. These more risky functions were given to a new corporation underwritten by the federal government known as the Government National Mortgage Association (gnma).
The sequence of events outlined above is what Stone callss
...one of the clearest examples of the intermeshing of the state and private business under modern capitalism. A national facility, greatly needed and desired by private business to reduce its risks and assure it of ready markets for its products, is first created and nurtured at public expense. Once it becomes established and begins to repay its costs, the facility is turned over to private interests so that its success can produce profits for them.18
Not happy with a secondary mortgage market that was limited to purchasing government-insured mortgages when the proportions of FHA or VA loans were decreasing as they have in recent years, mortgage lenders pressured for a secondary market for conventional mortgages. The Emergency Home Finance Act of 1970 provided for two secondary markets for conventional mortgages•
l8Ibid., p. kJZ.
- 10 -


first, FNMA was authorized to purchase conventional mortgages; and second, the newly created Federal Home Loan Mortgage Corporation, set up under the Home Loan Bank Board, was authorized to purchase both conventional and insured mortgages from any federally-insured banking institution.
Other New Vehicles of Capital for Mortgages
Federal intervention in housing also prompted intervention by the States. According to the National Housing Policy Review: "Partially in response to Federal housing programs enacted in the latter part of the 1960s, the States have been establishing
their own housing finance and development agencies and continuity
19
affairs agencies..." Stone comments that these state finance and development agencies were yet another device created by the state to raise more money for residential mortgages. Together with local finance and development agencies, they had $10.6
20
billion in housing loans outstanding in 1975*
Finally, state intervention in the form of 1970 legislation creating special tax loopholes stimulated the creation of Real Estate Investment Trusts (REITs) which became a new force in the mortgage industry. Their assets had grown from almost nothing in the late 60s to nearly $21 billion by the mid 1970s.^
IV. CONSEQUENCES OF STATE INTERVENTION ON BEHALF OF CAPITAL â– 
In order to show that CHFA's failure to best serve the public purpose is systemic, i.e., found within the very purpose for which it was created—to advance the interests of capital—
in this section I will again draw extensively on the work of
22
Stone.
19
National Housing Policy Review, op. cit., p. 1^0.
^Stone, "Gimme Shelter", op. cit., p. 189.
21
Ibid. See Senate Committee on Banking, Housing and Urban Affairs, Hearing on Real Estate Investments Trusts, 1976 for an account of some of the damage done to the U.S. economy by REITs.
22
This section will rely heavily on two of Stone's works in particular: "Gimme Shelter", op. cit. and "Housing, Mortgage Lending and the Contradictions of Capitalism", op. cit.
- 11


The Major Beneficiaries and the Principal Strategy
According to Stone, the patterns of intervention within
the housing sector reflect the hierarchy of power within the
sector, the power of housing capitalists with respect to other
capitalists and the goals of the class as a whole to maintain
the status quo. The major beneficiaries of state intervention
in housing have been banks and other mortgage lenders, followed
by developers, and then landlords and other equity investors.
Stone further maintains that the most important goal of
such intervention "has been to restore, sustain and enhance
the process of capital accumulation in response to the tendency
toward declining profits and depression in the housing sector—
23
a tendency generated by the income-housing cost conflict".
He contends that the principal strategy has been the promotion of mortgaged homeownership through the long-term, low-downpayment mortgage loan. This strategy, explains Stone, "was designed to undercut the income/housing cost problem in several ways: economically by both lessening monthly payments for a given size loan and reducing the personal savings needed to
buy; politically by promoting the illusion of homeownership
24
through the reality of debt". The strategy aided housing capitalists by stimulation of demand, creating investment opportunities, providing protection against risks and bestowing actual financial assistance.
The Long-term. Low-downpayment Mortgage Loan and the Debt Economy The long-term, low-downpayment mortgage loan led to the rapid growth of residential mortgage debt relative to other debt in the economy. While total debt in the economy more than tripled between 1946 and 1965, residential mortgage debt grew by 760 percent—by far the biggest single component of the increase. Between 1946-1974, housing continued to be the largest segment of the increase in debt in the economy growing two-and-
23
'Stone, "Housing, Mortgage Lending and the Contradictions of Capitalism", op. cit., p. 188.
24
Ibid., p. 193-
- 12 -


a-half times as fast as the overall economy compared to private
2*5
debt which grew twice as fast as the gross national product.
The rapid increase in housing debt was induced by the change in mortgage-loan ratios and terms and by the increase in demand for housing stimulated in part by the easier availability of mortgage credit. Higher ratio loans create more debt, Stone explains, even if house prices and market activity do not increase; further, longer loan terms mean lower rates of repayment in the early years of the loans. "For example, at the interest rates that were common until the late 1960s, after five years of amortization 40-45 percent of a ten-year loan had been repaid, but only 15-20 percent of a twenty-year loan, and only 7-9 percent of a thirty-year loan". This meant that rather than being able to finance new loans with the repayments on old loans, mortgage lenders had to find more and more new funds thus creating even more debt.
Hartman and Stone explain the problem with our debt economy quite clearly and succinctly:
The need for such immense amounts of borrowed money and the cost of this money—interest rates— have been causing rapidly increasing problems for the housing sector and for the economy as a whole.
They have developed because the government has tried to find ways to prop up the economy as a whole without confronting the basic inadequacies of our economic system. ...Our type of economy has a built-in problem. On the one hand, businesses and corporations that employ people want to maximize their profits. So wages have to be kept at the lowest possible level, while the price of housing and other things people need remains high. Credit provides a way of selling things at high prices without having to give people higher incomes. Instead of taking the money income from the rich and using it to give everyone a good standard of living, our economic system forces people to borrow the money they need and pay it back—with interest. ...This growing credit system only creates further problems, though.
"Buy now, pay later" is profitable for lenders only if there is a "later".27
I
^Hartman and Stone explain that we are now $650 billion in debt on our housing, or nearly $3,000 for each and every person in the country—a debt that has accumulated almost entirely in the last thirty years.
26
Stone, "Housing, Mortgage Lending and the Contradictions of Capital", op. cit., p. 194. _ to


The Fundamental Contradiction
Stone explains that housing has been at the center of the crisis in our economic system because of the problems arising from the spread of long-term mortgages and the associated growth of mortgage debt. The dependence of our system on debt financing leads to a fundamental contradiction which capitalism cannot ultimately resolve:
On the one hand, if the federal government allows the money supply to increase to meet all the needs for borrowed funds, it sets off price increases in the economy, since the amount of money being spent goes up faster than the amount of goods and services being produced. Inflation leads to higher interest rates and more borrowing in anticipation of further price increases. Debt accelerates far ahead of ability to repay it, leading toward a financial crisis.
...On the other hand, if the government tries to restrict the growth of credit to prevent or limit inflation, then some borrowers get squeezed out.
Previously accumulated debts eventually have to be paid, and many individuals and businesses are totally dependent on new loans to pay off the old ones.
Without continued access to credit to pay their bills, they may go bankrupt. Since the banks and other creditors have also borrowed heavily to expand their lending and stimulate the economy, when they do not get paid, a chain of defaults can ensue. Thus a credit squeeze can also bring the financial system to the brink of collapse.28
The Instability of the Economy and Its Impact on Housing
Stone demonstrates how dependence on the mortgage system has made housing especially vulnerable to the problems of the economy as a whole. In 1966, in 1969-70, and again in 197^-7^. the instability of the economy required the government to impose a policy of "tight money” in order to restore equilibrium. This led to soaring interest rates with money flowing out of housing into more profitable investments. Housing starts plummeted to their lowest level in almost 30 years by December 197^-from their highest level in history in January 1973 because of
27
Hartman and Stone, op. cit., p. 219.
28
°Stone, "Housing, Mortgage Lending and the Contradictions of Capital", op. cit., p. 197.


this shift of funds. These periods of tight money have been increasingly severe, with interest rates rising higher each time and mortgage credit being restricted ever more sharply as wealthier depositors have chased more profitable instruments offered by commercial banks, the federal government and industrial corporations. This increasing competition for borrowed funds, since 1966, has caused a steady, long-term rise in the general level of interest rates on top of the short-term fluctuations as lenders have offset the low returns they receive on older mortgages with higher interest rates on new mortgages. Stone goes on to explain how rising interest rates have led to reduced rates of repayment on loans: "...a thirty-year mortgage at 5 percent interest is 8 percent repaid after five years and 19 percent repaid after ten years; at 10 percent interest only
3 percent has been repaid after five years and only 9 percent 29
after ten years". These lower repayment rates only add to the need for new funds to finance additional mortgages, which increases the competition for funds in the economy even more, which adds to interest rates, in a self-reinforcing cycle.
Furthermore, the lengthening of mortgage terms which state
intervention helped to foster has made monthly mortgage payments
much more sensitive to interest rates. Stone points out that
"when interest rates double from 5 percent to 10 percent, the
monthly payments on a ten-year loan go up by 46 percent and
30
on a thirty-year loan by 64 percent". Since housing prices are rising due to other factors in addition to the rising finance costs, mortgage payments have risen much faster than monthly incomes in the last 30 years. Whereas the price of a new single-family house and median family income had both about tripled between 1950 and 1975» "rising interest rates caused the monthly mortgage payments for a new median-priced singlefamily house with a thirty-year mortgage to increase by a factor
29Ibid., p. 200
30Ibid., p. 201
- 15 -


31
of six". While about two-thirds of all families could have afforded the payments on a new house in 1950* less than one quarter of all families can afford those payments today. Stone predicts that this trend will gradually result in the production of smaller and cheaper houses. In recent years the building industry's response has been confused, with an increasing tendency for developers to produce luxury housing while one-third of all new single-family houses are now mobile homes. However there are some signs that Stone's predictions are already coming true with the rapid growth of cluster developments and condominiums that we are seeing today.
Housing's Increased Dependence on the Federal Treasury
Finally, Stone points out that the secondary mortgage markets (whose creation were outlined in the previous chapter) have never fully worked as intended because large private investors such as pension funds have still regarded mortgages as too risky and unfamiliar. Instead, government-backed agencies have become the principal investors in the secondary mortgage market as the economic crisis struck the traditional mortgage industry. Data from the U.S. League of Savings Associations quoted by Stone show that:
In the tight-money period of 1966, the Federal National Mortgage Association (FNMA) went to Wall Street, raised $2.2 billion, and used the money to buy mortgages from thrift institutions and mortgage companies. In 1969-70, FNMA and the newly-created Government National Mortgage Association (GNMA) raised $9.6 billion in the capital markets to buy mortgages. Finally, during the massive inflation and depression of 1973-1975» these three agencies borrowed $17.5 billion to pump into residential mortgages. ...In addition to these secondary mortgage market activities by federal agencies, the Federal Home Loan Bank Board also raised money to prop up thrift institutions that were losing savings deposits. They provided nearly $1 billion in 1966, another $4.3 billion in 1969-1970, and $13.8 billion in 1973-1974.32
31Ibid., p. 200. 32Ibid., p. 202.
- 16 -


The mortgage industry, rather than working in the way it was traditionally conceived it would work—with new money for mortgages coming from traditional savings accounts and payments on old mortgages—became increasingly dependent on the federal treasury to the point where in both 1969 and in 197^» more than 40 percent of all new money for mortgages on ho vising came from federal agencies. The federal agencies, in turn, had to borrow from the national capital markets.
Two Contradictions; A Summary of the Major Consequences
In summary, the major consequences of state intervention which encouraged the development of the long-term, low-downpayment mortgage through the development of new instruments to raise and allocate mortgage credit (such as, FNMA, GNMA, FHLMC, FHLBB, state and local housing finance agencies and REITs) have been twofold according to Stone: (l) the new instruments increase the competition for borrowed funds just at the points when government monetary policy seeks to reduce the supply of credit. This situation has caused even higher interest rates, leading to further withdrawals of deposits in savings accounts as savers have pursued higher returns elsewhere. These withdrawals from thrift institutions (savings-and-loan associations and mutual savings banks—which make the largest proportion of mortgage loans) have offset the additional funds for mortgages raised through the capital markets. If the mortgage lenders are able to successfully compete for funds, there will be even higher interest rates both for mortgages and throughout the economy, adding further to the instability of the system. If mortgage lenders are unsuccessful—i.e. they are not able to compete for funds—the housing shortage will worsen; (2) the stability of the structure of mortgage debt is increasingly important for the stability of the entire financial structure of capitalism because many investors other than thrift institutions and small savers now have billions of dollars tied up with the mortgage system. The stability of the mortgage system, on the other hand, depends upon continued mortgage payments from present homeowners and sufficient demand for the new
- 17 -


housing being built. Census figures cited by Stone indicate that present homeowners are increasingly less able (or willing) to pay. More than one percent of all homeowners were over sixty days behind on their mortgage payments in the mid-1960s and again in 1975 and A percent of all mortgaged structures were foreclosed on in 197^-. And in 197^ and 1975* the spread of defaults on real estate construction loans triggered the biggest bank failures in U.S. history.
V. STATE INTERVENTION; TAX EXPENDITURES
The preceding two chapters attempted to make the point that Colorado Housing Finance Authority—or, for that matter, any state or local intervention that follows the pattern set by federal intervention with its promotion of the long-term, low-downpayment mortgage—is contributing to higher interest rates in the housing sector and throughout the economy and thus to the overall problem of instability in the economy that's so much in the news today. As a result of the above discussion, one is led to question whether any governmental intervention where the majority of the subsidy goes, first, to mortgage lenders, then to developers, and then to landlords and other owners of equity, while only 10^ of the population in need of subsidy is actually served is truly serving the public purpose.
This chapter will continue to develop the position that the benefits of state intervention are highly regressive in character, but it will take a less macro-economic approach.
It will instead narrow in on some of the inequities in a housing subsidy system where the majority of the subsidy is indi-
33
rect—in the the form of tax expenditures.
The two forms of tax expenditures to be examined here are tax-exempt bond financing and real estate tax shelter subsidies. Much of the housing built with financing made available
33
Tax-expenditures are the cost to the government of various deductions on individual and comoratp income taxes.
- 18 -


by CHFA utilizes both of these forms of tax-expenditure. As
a quasi-governmental agency of the state, CHFA itself utilizes
tax-exempt bonds to make financing available to developers of
housing for low and moderate income families at below market
interest rates. In turn, in the case of multi-family rental
34
housing^ developed by so-called "limited dividend" developers, the below market interest rate funds CHFA makes available are piggy-backed on top of real estate tax shelter subsidies. The result is an extremely costly system of providing housing for low and moderate income persons and families.
CHFA: Its Purpose. Its Programs and Its Place in State Intervention Before turning to the tax expenditure housing subsidy systems promoted by CHFA, it is important to understand why CHFA was set up, how it operates and its role as an institution of the capitalist state.
According to CHFA's 1977 Annual Report, "the Authority
was created for the purpose of making available additional
funds to assist private enterprise and governmental entities
in providing housing facilities for low and moderate income 35
families". ^ Both CHFA's enabling legislation and its annual reports are careful to point out that its purpose is not to replace the "private market" or "private enterprise system", but only to help it do the job of providing decent, safe and sanitary housing that is within the financial capabilities
o zT
of low- and moderate- income families. Since "minimizing the impact of higher costs on the ability of low- and moderate-income families to afford decent, safe, and sanitary housing
34
The multi-family housing insured mortgage loan program is essentially CHFA's only program to benefit low-income people since the low-income virtually never qualify for CHFA's loans-to-lenders homeownership loans.
^CHFA Annual Report, 1977. p. 18.
ozC
^ Of course, the enabling legislation and CHFA's reports never address why the private market is no longer able to meet the housing needs of low- or even moderate- income people.
- 19 -


facilities" and "preventing or eliminating blight in urban
and rural areas” are public policies of the state with a valid
public purpose,®^ CHFA's existence is legitimized.®®
In order to achieve its authorized purpose of increasing
the supply of decent, safe and sanitary housing for low and
moderate income families and persons, CHFA has set up three
39
program funds in addition to its operating fund :
(1) Construction Loan Fund - to provide construction loan financing on qualified housing for low and moderate income people. These loans are made through CHFA's Originating and Servicing Correspondents which are approved mortgage lenders who take both a processing fee and a loan servicing fee.
(2) Loans to Lenders Program Funds - to make loans to qualified mortgage lenders in Colorado who in turn make mortgages available at below market interest rates (currently Q%) to qualified moderate income families and individuals to purchase homes in which to live.
(3) Multi-Family Housing Insured Mortgage Loan Program Funds -to make or acquire mortgage loans insured or guaranteed by
an agency of the United States (FHA or FmHA) for rehabilitated or newly constructed apartment dwellings. Here too CHFA utilizes its Originating and Servicing Correspondents to provide the servicing for the permanent mortgage.
®7CHFA Act (Part 7 of Article **• of Title 29, C.H.S. 1973, as amended).
OO
^ Patrick Ashton, in a footnote to his work "The Political Economy of Suburban Development" in Marxism and the Metropolis. notes that "the functions of the capitalist state are (l) to ensure profitable private capital accumulation and (2) to maintain social harmony. The capitalist state contributes directly to corporate profitability through projects and services that increase the rate of profit (e.g., highways, education). It contributes indirectly to corporate profitability through projects and services that lower the reproduction cost of labor (e.g., urban renewal, unemployment insurance). The state legitimates the capitalist system through projects and services which maintain social order (e.g., welfare, police).
39
Authorized activities of this fund include payment of general and administrative expenses and "those activities deemed necessary to fulfill the Authority's corporate purposes" (Annual Eeport). Amongst those activities recently deemed necessary have been a farewell party at one of Denver's foremost hotels for the departing member from the state legislature.
- -


GHFA has also been authorized by the U.S. Department of
Housing and Urban Development to administer funds to qualified
projects under Section 8 of the U.S. Housing Act of 1937, as
amended. These funds are used to reduce rental expenses of
low income tenants to as low as 15% of their income. GHFA
receives payments from HUD and remits the appropriate amounts
40
to each project monthly.
Following the pattern of state intervention outlined earlier, GHFA's role now can be seen as one of shoring up the longterm, low-downpayment mortgage debt system which state intervention on behalf of mortgage lenders made possible in the first place. Since the built-in contradictions of this system lead to spiraling costs which, in turn, means a smaller and smaller percentage of the population will be served by it, a new mechanism was needed. This mechanism would prevent, or at least forestall, the social unrest which would come about as more and more people saw the American dream of homeownership fade out of their reach. Thus we saw the creation of more and more state housing finance authorities in the late 60's and early 70's.
As another example of the intermeshing of the state and private business under modern capitalism, GHFA, at the expense of the federal treasury, brings in the capital needed by private enterprise to produce the housing necessary to meet the needs of those whose needs could presumably not be provided for under
40
Although a full scale critique of Section 8 is beyond the scope of this paper, I want to point out that Section 8 has been criticized for encouraging speculation and high rent by ensuring landlords a high profit. Landlords receive "fair market rents" under a HUD formula which reflects existing inflated prices resulting from land speculation, the tight housing market, lack of bargaining power by tenants and the greed of landlords and investors. It has also been criticized for pitting the poor against moderate income families to compete for scarce housing crumbs. (Shelter-force, June 1976). Stone adds the comment that "the subsidies are ostensibly on behalf of the tenants who could not otherwise afford the rents. There is no question, though, that private owners have found these subsidies very attractive both financially and politically, since the subsidies continue to flow even if the tenants are dissatisfied with conditions or can't pay the rent.”
(The Housing Crisis, Mortage Lending, and Glass Struggle, p. 157).
- 21


the normal workings of the market. The numerous actors of the private market, of course, skim off their profits at various stages along the way—from the syndication and sale of tax-exempt bonds, to the processing, construction finance and permanent mortgage servicing fees, to the syndication and sale of tax shelters, to the profits to be made from subsidized rents, etc.
Tax-Exempt Bond Financing; and GHFA
CHFA's Annual Report proudly maintains that its service is provided at "no direct cost to the taxpayers of the state of Colorado." While this statement may be technically correct, it conceals the fact that the indirect cost to the no longer so silent majority of taxpayers^ of this state (and this nation) are enormous.
Costs to the federal government
The National Housing Policy Review (a Nixon task force) points out that from the point of view of federal fiscal policy, there are disadvantages to tax-exempt bond financing when undertaken either by state housing finance agencies or by local housing authorities in that this type of financing contains a concealed cost to the federal government. By not taxing the interest earned by investors on tax-exempt housing bonds, the government provides a subsidy through the tax system in the form of lower interest rates to the issuing agencies. The Review demonstrates that the tax subsidy is inefficient because it costs the federal government more in foregone tax revenues than the housing finance agencies save in lower interest rates. In 1973i the Review calculated that:
Some 34 bond issues sold since 1961 by State housing finance agencies will cost the Federal Government $1.62 billion in tax revenues foregone over the life of the bonds while saving the agencies $0.60 billion in interest expense. This represents a net loss of $1.02 billion over a 40-year period.^2
4l
These taxpayers are reacting to the increasingly heavy tax burden that the inequities in our tax system have caused for them by striking out against social programs and the poor with measures like California's Proposition 13 rather than thoroughly analyzing matters and questioning the subsidies to the rich.
^National Housing Policy Review, op. cit., p. 144.
- 22 -


Since 1973. with an increased number of state housing finance agencies issuing more and more tax-exempt bonds, the proportionate loss to the federal treasury has increased at an even greater rate. This is because as more tax-exempt bonds are issued, the interest rate is being forced upward, not only increasing the cost to state housing finance agencies (and other state and local government users), but also resulting in greater tax benefits to holders of these securities.
According to the Wall Street Journal of Jan. 20, 1969, the federal government estimated the annual loss from the tax exemption from all state and local government users at $1.8 billion. According to People and Taxes of March 1978, the federal government currently foregoes some $6 billion in taxes because of the exemption, while the states and cities save less than $4.5 billion in reduced interest payments. The same source illustrates the reasons for the difference between what the federal treasury loses and what state and local governments save as follows:
The current market rate for taxable bonds is about 8%. A taxpayer in the 50% bracket would be willing to buy a tax-free bond paying only k%>, since this will yield the same after-tax gain as if he or she received 8% and paid a 50% tax. A person in the 70% tax bracket would accept a tax free yield of only 2.4^.
In order to attract a wider range of lenders, however, state and local governments have to set the interest rates on their bonds to appeal to taxpayers in the 30% bracket and up.43 This means they currently pay about 5|#—tax free. For short-term bonds and,at times when credit is tight, the rate is even higher.^
This gives a windfall to taxpayers in higher brackets— a windfall paid for by the federal government and, ultimately, the rest of us.^5
43
Most other sources consulted claim that bonds must be set to appeal to taxpayers in the 50% bracket and up.
44
CHFA paid 7-0% on its last bond issue.
^Tax Reform Research Group (established by Ralph Nader to work for reform of income, property, and other taxes) People and Taxes, March 1978, p. 8.
- 23 -


Concentration of ownership of bonds
Stone and Achtenburg point out that the 100 biggest commercial banks and richest 1% of the population owned close to -§• of the $200 billion worth of state and local bonds outstanding in 1974. They cite the U.S. Commerce Department's Survey of Current Business (ll/74) to show that bond ownership is even more concentrated among the rich than stock ownership. According to the survey the richest 1% of the population owns 51% of all individually owned stock, while the percentage of state and local bonds held by the richest 1% is variously estimated at from 70-85%.^ People and Taxes estimates that 83% of the individual
24,7
tax savings from the exemption go to the top 1% of all taxpayers.
Stone and Achtenburg further demonstrate that bank ownership of bonds is also highly concentrated—with the 13,000 commercial banks in the U.S. owning $100 billion in state and local
bonds and notes in 1974 and the top 100 banks alone holding l/3
48
of that total. By 1977» the amount commercial banks held in tax-exempt state and local bonds had increased to $114 billion. Further profits from the sale of bonds
Not only have investors made huge profits from the tax-exempt-tion status of CHFA's bonds, but also from the way in which these "I.O.U.s" are bought and sold. Instead of marketing its notes and bonds separately to individual investors, CHFA generally sells the entire issue to the group of big banks and bond houses which is willing to accept the lowest interest rate. The members of this group, called a "syndicate" or "the underwriters", agree to underwrite or guarantee the reliability of the issue. The syndicate keeps some of the notes or bonds for itself and sells
46
Michael and Emily Achtenburg, Hostage; Housing and the Massachusetts Fiscal Crisis, p. 11.
47
Tax Reform Research Group, op cit.
48
Stone and Achtenburg, op. cit. p. 11.
- 24 -


the rest to other investors seeking tax-free profits.
Stone and Achtenburg point out that the syndicate usually buys the notes or bonds at a "discount”—that is, at a price which is lower than their face value. They use the following example:
... if a $100 million note or bond issue was sold at a 2% discount, the syndicate would pay only $98 million. The syndicate can then sell the issue to secondhand bond buyers for at least the face value of $100 million—and realize a profit of $2 million. This difference between the discounted price and the full value of the bond is the syndicate's "underwriting fee" or commission.^9
These authors further point out that if members of the syndicate
keep some portion of the notes or bonds in their own portfolios,
the discount has the effect of increasing the annual rate of
interest or profit. They explain:
...suppose the same $100 million note issue was sold at an annual interest rate of 5%. This represents an annual tax-free yield of $5 million for the noteholders. If the note matured (came due) in one year, at the end of the year the noteholders would get back a total of $105 million—the $100 million note plus $5 million in interest. But since they only invested $98 million, their profit would be $7 million. This represents an effective (real) rate of return of 7.1$ on the $98 million investment.-50
Finally, Stone and Achtenburg demonstrate that the syndicate
can often make even higher profits by selling the notes and
bonds to second-hand buyers at a "premium"—that is, for more
than their face value. Their example:
...suppose the same $100 million note issue were resold at a 1$ premium. The second-hand buyers would then pay $101 million—and the underwriters would make an extra $1 million, on top of their $2 million underwriting fee. In this case, the second-hand investors would receive the $105 million at the end of the year.
Since they only invested $101 million, their profit would be $4 million, an effective rate of return of 4.0% tax-free.51
49
Ibid.
50
Ibid.
51
Ibid., p. 12.
- 25 -


Summary of tax-exempt bond, financing
What the above facts and figures indicate are that the tax-exempt bond financing mechanism GHFA utilizes to make additional funds available to mortgage lenders: (l) is very costly to the federal treasury (and ultimately to most of us) in terms of revenue foregone; (2) is very regressive in that the wealthiest portion of the population and the largest banks reap most of the financial rewards from the tax exemption while the federal treasury loses; and (3) is a terribly inefficient way to make funds available because of the number of actors who must take their cut as the bonds are bought and sold.
Real Estate Tax Shelter Subsidies and GHFA
While GHFA's participation in perpetuating the costly tax
expenditure found in tax-exempt bond financing is quite explicit
and direct, its involvement in continuing the tax expenditures
found in real estate tax shelter subsidies is rather indirect—
i.e., it stems from CHFA's practice of actively seeking out pri-
52
vate developers who utilize them.
GHFA's volume of business has increased substantially over the last few years. Its bonding capacity has increased from $200 million in 1977 to $4-00 million in 1978 to $800 million in 1979—indicating geometrically increasing demand for its funds.
One reason for CHFA's increase in volume of business is that housing developers have been increasingly attracted to the profit opportunities available through tax loopholes associated with low and moderate income housing. A skillful developer can save thousands of dollars each year in income tax payments, by
52
It should be noted here that GHFA mainly deals with private developers because local public housing authorities do not have the "front end" money to meet all of GHFA's requirements. CHFA's requirements in turn are based upon FHA's mortgage insurance requirements. ' GHFA’s Executive'Director is proposing an uninsured program to overcome some of the problems local publifc housing authorities have in utilizing GHFA's funds, but his '
Board of Directors - has shown little enthusiasm for the idea because it would mean an expanded staff to do the site plan and engineering reviews, etc. currently'done by FHA.
- 26 -


claiming that his/her property is rapidly "depreciating" in value. However, unlike other types of property, housing usually doesn't deteriorate but instead goes up in value. These phoney tax losses claimed for depreciation can be used by the developer to "shelter" other income from taxes he/she would normally have to pay. Sophisticated developers can profit further by syndicating or selling shares in their projects to other investors seeking a part of this "tax shelter".
A sample project
Real estate tax shelters can be quite complex because they involve a number of different provisions of the tax code and a number of different participants playing different roles. In order to explain how the subsidies operate, who benefits from them, and how they developed, I will borrow the sample project laid out in the Congressional Budget Office background paper—
Real Estate Tax Shelter Subsidies and Direct Subsidy Alternatives.
The project to be built is an apartment building costing $1,000,000 (which includes development, land and construction costs). The developer obtains a 40 year loan for 90% of the cost—$900,000—say from one of CHFA's Originating and Servicing Correspondents. The developer must then come up with the additional $100,000.
In order to raise the $100,000 the developer can sell interests in the project before it is built and the right to spe-
cial tax advantages that, in combination, will permit income to be sheltered and tax payments avoided or deferred. These tax benefits are spread, out over a period of years—usually 15 to 20.
In determining how much to sell the tax shelter benefits for, the developer discounts the tax benefits to be received in each year according to a formula that takes account of the fact that $100 received in year 20 is much less valuable to an investor than $100 received in year five. This discount rate is usually assumed to be 20%. It takes into account the
rate of return the outside investor could earn on alternative
investments, and the risk that the project might not be as successful or the tax benefits as great as expected.
- 27 -


An additional factor must be taken into account in determining the developer's selling price of the tax benefits. The losses from the tax shelter will be worth more to an investor in the top 70 percent tax bracket than to one in the 50% bracket. For each $1,000 in annual losses from the tax shelter, the ?0% bracket taxpayer will save $700 a year in taxes, while the 50% bracket taxpayer will save only $500 a year. Since there are usually not enough 70% bracket investors to go around, the developer will have to sell the tax losses at a price low enough to attract a 50% bracket taxpayer. So any investors in tax brackets over 50% will get a windfall benefit that increases in size as their top marginal tax bracket increases.
Table I (on the following page) shows the present value of the 20-year stream of total benefits in this sample project to outside investors with marginal tax brackets of 50, 60 and 70%. Column (l) separates out the tax savings that result from these shelters: (l) using accelerated rather than straight-line depreciation, (2) deducting construction period interest and taxes immediately rather than writing them off over the life of the building, and (3) paying tax on the gain on the sale in year 20 at capital gain rates (no recapture of depreciation) rather than ordinary income rates (full recapture). The developer probably will not be able to sell these future tax savings for much more than $71,800, the amount they are worth to a 50% bracket taxpayer.
There are also other benefits the developer can sell to outside investors in this sample project. There are additional tax savings resulting from straight-line depreciation, reduced by whatever capital gains tax must be paid when the project is sold 20 years later. Column (2) shows that the net value of these other tax savings is $29•200 to an investor in the 50% bracket. Column (3) shows the after-tax cash distributions from rents over 20 years, which have a present value of $39»000 for investors in all tax brackets.
- 28 -


TABU 1. DISCOUNTED PRESENT VALUE OF 20 TEARS OF PROJECT BENEFITS AND TREASURY REVENUE LOSSES
SAMPLE PROJECT BENEFITS OVER 20 YEARS PRESENT VALUE DISCOUNTED AT 20 PERCENT
Praaant Valua to Outaida Invaatora (93 Parcant Shara)
Praaant Valua to Bulldar/Davalopar if (3 Parcant Shara)
Invaator Tax Brackat Tax Shaltar Savinga a/ (1) Othar Tax Savinga b/ (2)
50X 9 71,800 9 29,200
602 86,200 33,800
70X 100,600 42,100
Caah Tax
Diatributiona Shaltar
Iron Ranta cf Total Savinga a/
(3) (4) (5)
9 39,000 9140,000 $ 3.800
39.000 161,000 4,500
39.000 181,700 5,300
Othar Caah
Tax Diatributiona
Savinga bj from Ranta c/ Total
(6) (7) ” (8)
$ 1,500 9 2,100 9 7,400
1,900 2,100 8,500
2,200 2,100 9,600
REVENUE LOSS TO TREASURY OVER 20 YEARS FROM TAX SHELTER SAVINGS (COLUMNS (1) AND (5) ABOVE) PRESENT VALUE DISCOUNTED AT 7.5 PERCENT
Invaator Tax Brackat Ravanua Loaa from Invaator and Bulldar/ Developer Tax Shelter Savinga
SOX 9 121,400
60X | 145,700
70X | 170,000
Sourcal Sample Tax Shaltar Project, Saa Appandix B, pp, 119-120 for more datalla.
a/ Indudaa tax aavinga froa (1) ualng accalaratad rathar than atraight-lina dapraciatlon, (2) deducting conatruction parlod intaraat and taxaa immediately rathar than writing thaa off ovar tha Ufa of tha building, and (3) paying tax on tha gain on aala in yaar 20 at capital gain rataa (no racaptura of dapraciatlon) rathar than ordinary income rataa (full recapture) . i
b/ Tax aavinga froa deductione for atraight-lina dapraciatlon, raducad by tha praaant valua of tha tax paid on tha gain on aala at capital gain rataa. A email adjuatnant haa baan made in thla column to raconclla tha 20.4 parcant raturn uaad for ayndicatlon pricing purpoaaa with tha 20 parcant praaant valua diacount rata uaad in thla tabla.
cf Thaaa ara aftar-tax or "tax-free" banafita. They have beeA internally ahaltarad from tax by loaaaa which would otharwiaa ba raflactad abova aa "Othar Tax Savinga" (colunna (2) and (6)).
if Tha buildar/dovalopar ia aaaumad to ba in tha earna tax brackat aa tha invaatora.


Taking all of the above benefits into account, high-income investors are usually willing to pay from 15 to 20$ of the mortgage amount ($900,000 in this project) for a 95$interest in the project and its tax and cash benefits. It is assumed for the purposes of this sample project that outside investors are willing to pay $1^0,000 or 15.6$ of the mortgage.
Column (4) shows that the present value of the anticipated benefits to investors above the 50$ tax bracket is much greater than the $1^0,000 they are required to put into the project.
In other words, they receive substantial extra benefits solely because of their higher tax bracket.
Revenue loss to the treasury
Table I also shows the revenue loss to the Treasury. When
tax shelter savings are looked at from the Treasury's point of
view as revenue losses, a different discount rate should be used
since the Treasury's borrowing and lending rate is lower than
that of private investors, and its future risks are supposedly
less. Therefore, it is assumed that the Treasury will discount
the 20-year stream of revenue losses at a rate of only about 7*5$.
The Treasury must measure its revenue losses on the basis of
what the average tax shelter investor's marginal tax bracket
is, since that is the best approximation of the Treasury's actual
loss. Since it’s probably reasonable to assume that the average
53
tax shelter investor is in about the 60$ marginal tax bracket, ^ the present value of the Treasury's 20 year tax expenditure for this sample project would be $1^5.700.
The Treasury must in effect pay more to investors to induce them to risk their money than it would cost the Treasury itself to invest directly in the project. The difference in discount rates (20$ for the investors vs. 7.5$ for the Treasury) accounts for about 3A of the Treasury's tax shelter subsidy payment to the investors in this sample project.
53
A recent survey of a limited number of real estate tax shelter investors showed 50$ of the investors with tax brackets below 60$, and 50$ with top brackets of 60$ or higher. Touche Ross & Go., The Impact and Effects of Section 167 (k) on the Rehabilitation of Multifamily Property, prepared for the U.S. Dept, of Housing and Urban Development (197^)» V. 1, p. 102.
- 30 -


The CBO study from which the above model was taken points out that while real estate tax shelters are seen as a device to provide more investment capital for building construction, only about half of what the tax shelter subsidy costs the government in lost revenue ever reaches builders and developers. The remainder goes in the form of payments to investors for the use of their money, and in fees to the syndicators, lawyers, and accountants who are neededto put together and sell the tax shelter package.'^’
Conclusions on. real estate, tax shelter subsidies
Again, CHFA does not directly utilize real estate tax shelters itself. Rather, by making financing available to so called "limited dividend" developers and, in fact, seeking out such developers to utilize its funds, CHFA helps to perpetuate another subsidy system which is costly, inefficient, inequitable and invisible to the average citizen.^
Cushing Dolbeare, Chairperson of the AdHoc Low Income Housing Coalition (soon to become the National Low Income Housing Coalition), sums up the real estate tax shelter subsidy situation without mincing words:
We could hardly find a more expensive way of producing an inferior product. ...While in theory this subsidy is to benefit the moderate income family (low income families cannot afford such housing), in practice it goes to two sources only: The investor in the 50$» 60$ or 70$ tax bracket and the bank or other lending institutions which makes the loan and collects the interest on the mortgage.5& ...If the purpose is to provide housing for those who need it
54
Congressional Budget Office, op. cit., p. xiv
55
base these remarks on the CBO study from which the sample project was taken. On every criteria the study used to evaluate real estate tax shelters and alternative subsidies—i.e., cost, efficiency, ease of administration, incentives for good management and maintenance, tax equity and neutrality, and visibility and controllability—real estate tax shelter subsidies came out lacking.
^ Dolbeare explains in a footnote that this is not to suggest the subsidy does not reduce the cost to the tenant because it does. But the same purpose could be accomplished by a variety of other means.
- 31 -


most, we could hardly devise a less effective or more expensive method. Those of us, however, who are concerned with providing housing for the poor...have a responsibility to design and advocate not only programs which are less expensive to taxpayers hut programs which benefit the needy without providing windfalls and bonanzas for the investor or banker.57
VI. THE PUBLIC PURPOSE
Supposedly "government exists for the protection and/or promotion of the public health, safety, morals and/or general welfare. These are the valid public purposes for which public
£TQ
power may be used". The government can accomplish these protective or promotional public purposes with three tools: (l) the taxing power; (2) the power of eminent domain; (3) the police power.
It is not my intent here to explore in depth the legal history of the concept of the public purpose within the framework of the present legal system. That is a question I hope to pursue more fully at another time. Rather, keeping in mind the admonition of Congressman Ron Dellums who, in a recent keynote address in Denver, reminded us that "A society answers the questions it asks", I want to make explicit here the questions sug-
59
gested by the above discussion: Is a state aided system of housing finance and production which greatly contributes to an over-inflated and unstable debt economy in the best interests of the majority of Americans? Is a state aided system of housing finance and production which contributes to the continuing fiscal crisis of this country operating in the public interest?
Is a state aided system of housing finance and production which fails to meet the housing needs of an ever increasing proportion of the American population truly operating in the public interest?
57
^Cushing Dolbeare, Federal Tax Rip-Offs: Housing Subsidies for the Rich. 1972, pp. 21-22.
rro
^Laurence Gerckens, American City Planning Since 1900 A.D. Module B
p. 16.
59
Again, state is used in the generic to refer to all government.
- 32 -


Is a state aided system of housing finance and production which continues the cycle of inflation—higher interest rates, leading to higher costs and to lower rates of new construction, leading again to higher costs until there seems to he no end in sight— in the best interests of the majority of the American people?
Does a state aided system of housing finance and production which sees the rich getting richer while the rest of us get inflation and higher taxes operate in the public interest? Is it the explicit intention of the American people or the people of the State of Colorado to continue a system of state intervention in housing which first serves the interests of mortgage lenders, then developers, then landlords and other owners of equity while only 10$ of those in need of subsidy to achieve even minimally adequate shelter are reached? Does a state aided system of housing finance and production which promotes the perpetuation of a tax loophole, such as tax-exempt bond financing, which bestows greatest benefit on the richest 1% of the population and the wealthiest banks, operate in the best interest of the majority of us? Does a state aided system of housing finance and production which enables developers to use additional (state created) tax loopholes found in real estate tax shelters, again increasing the tax burden for the majority while the rich get richer, serve our best interests? Finally, does an agency of the State of Colorado— the Colorado Housing Finance Authority—which perpetuates the problems outlined above, meet the test of truly serving the public purpose which it is supposed to serve?
VII. AN ALTERNATIVE ROLE FOR CHFA
The criticisms of CHFA offered in this paper deal with the institutional framework in which it operates rather than the specifics of its operation. That framework was not created by CHFA, rather CHFA and other state housing finance authorities are outgrowths of that framework—responses to the contradictions caused by the operations of other institutions within that framework.
- 33 -


When one does look at the specifics of GHFA's operation one finds that CHFA is doing some very positive things with respect to low and moderate income housing. First, its Architectural Checklist and Design Criteria (see Appendix A) promote high quality developments of attractive design which conform to principles of good land use and community development. Not only does this concern promote more pleasant and healthful conditions for those who live there, hut it also helps dispel the stigma which low income housing has aquired. Second, CHFA has an excellent Equal Opportunity and Affirmative Action Policy covering both construction and occupancy of housing built or acquired with funds it makes available. Such a policy, if actively and sensitively enforced, can go a long way in assuring more opportunities for women of all races and minority males to participate in the design and construction of the built environment. Perhaps their participation will help to assure that these environments begin to better meet the needs of those traditionally excluded from full participation of the benefits of this society. Such a policy can also help to assure more economic as well as racial integration and thereby freedom of choice. Third, CHFA has shown admirable concern with prevention of adverse impacts due to profit motivation and greed which might take place in energy-impacted communities on Colorado's western slope. In order to prevent such impacts, it is attempting to make land development loans available for communities to provide alternative building sites in order to prevent unreasonable prices of houses due to monopoly of available developed lots. Fourth, CHFA has shown a willingness to be innovative in its provision of a revolving line of credit at 3% interest not to exceed $200,000 to Brothers Redevelopment—a minority owned and operated non-profit development firm. The fund is to be used for land acquisition, construction financing for new construction, and acquisition rehabilitation financing of homes which will be owner-occupied by persons or families of low and moderate income.
- 34 -


GHFA's new Promotion Piece (see Appendix B for text) also shows sensitivity to the needs of those it is supposed to he serving as well as to community needs.
Furthermore, CHFA seems to he staffed by a committed and concerned group of people with a high level of social consciousness. Its Board of Directors have also demonstrated (to varying degrees) commitment to and concern for those priced out of the housing market.
To sum up, CHFA performs many functions very efficiently and very well which would need to be performed under any social-economic-political system. I am not advocating that it be abolished—simply that its operation be transformed to one that truly serves the public purpose.
Transformed Conception of Housing; The Hartman-Stone Program
My scheme for a new role for CHFA is based upon a transformed conception of housing—one advocated by Hartman and Stone—that would change this conception from a commodity to be bought and sold for a profit to a social good which people have the right to use and occupy as they wish, but which cannot be owned, bought, or sold for a profit. They further advocate that the dependence of housing on the credit market (and thus on mortgage lenders) be steadily reduced by financing a growing proportion of new construction and housing rehabilitation through direct public grants. Hartman and Stone outline the basic elements of the program they are advancing as follows:
(1) A substancial and growing proportion of new and rehabilitated housing would be financed through direct
construction grants to various local and regional public and private developers. All multi-family and a considerable proportion of single-family and town-house units would be financed in this way. Private developers and individuals could continue to develop conventionally mortgaged units for occupancy in the private market as long as there were people with the inclination and the means to demand such housing.
(2) All new and rehabilitated housing financed publicly would be mixed-income, with a minimum proportion guaranteed for low and moderate income households
and the rest open to households of any income.
- 35 -


(3) Publicly financed housing would have no debt costs to be repaid by the residents or the government and could not be transferred to the private market.
(4) Maximum shelter costs for residents of publicly financed housing would be determined by actual operating expenses, with operating subsidies provided for residents unable to afford full operating costs.
(5) Existing private rental housing would be converted gradually to public or condominium ownership, with reasonable compensation over time for present owners.
Outstanding mortgages would be paid off over their remaining terms. Prior to full conversion to public ownership, rents would be controlled and would be determined by actual operating expenses, mortgage payments, and fixed dollar profit levels. Subsidies would be provided for residents unable to afford full rents. Luxury surcharges would be levied on units with amenities above the standard for publicly financed new and rehabilitated units.
(6) The private home ownership sector would continue, with mortgage payments and the right to resell. Low-income owners could receive subsidies for operating expenses but not for mortgage payments. Owners facing foreclosure due to financial inability to keep
up mortgage payments could convert to public ownership and give up their right to resell, in return for which they would be relieved of mortgage payments and compensated for their equity and have the right to remain in the house.
The authors explain that they are proposing a large scale commitment to a public alternative to the private housing market be made. They go on to demonstrate quite convincingly "...that this alternative will not only be of great benefit to low-income people, but would also offer economic and social benefits for middle-income people at least as great as present homeownership benefits benefits".^ However, no one would be forced into their alternative since the existing homeownership market would continue.
Hartman and Stone offer further ideas on: financing housing construction, allocation of the funds, the attractions of their alternative to homeownership, the continuance of the existing
^Hartman and Stone, op. cit. , pp. 221 & 222. 6lIbid, p. 222.
- 36 -


homeownership market, elimination of private rental housing, provision of subsidies to all residents of public and private housing who are unable to afford the operating expenses for their dwellings, management and maintenance of the public housing stock, movement into and out of the public housing stock and a somewhat detailed program cost summary with suggestions on where the funds could come from. While I do not intend to summarize all of their arguments here since the reader may obtain their article through information provided in the bibliography,
I will outline the political caveats offered by those authors because I feel that they are extremely important to keep in mind if one is to develop a theoretical framework to guide one's actions.
First, the authors point out that a broad-based, powerful political force which would encompass such fundamental issues as housing, jobs, food and health would be necessary to achieve the program since it will require substantial tax reform—which will threaten many more capitalists than those who make their profits through housing.
Second, the broader issues of public enterprise, economic planning and control of the economy will have to be confronted.
This is because substantial tax reform and massive housing subsidies that did not flow back to the wealthy institutions and individuals who currently receive them will lead to lower profits, flight of capital, and overall reduced private investment.
Third, a successful housing program will tend to undermine the social control wielded through the labor market making business very unhappy about such a prospect. Worker's bargaining power would be increased because "a program which would provide people with secure tenure, no mortgage debt, and decent housing at a cost based truly on their ability to pay would substantially
reduce the anxiety caused by low wages and job insecurity in the
62
labor market”. Greater worker militancy would follow as the threat of losing one's home along with one's job were diminished.
62Ibid., p. 206
- 37 -


Finally, since the present housing situation, with its declining homeownership opportunities, poses considerable problems for the capitalist system in that it may lead to social unrest and financial collapse, there is danger that elements of the program might be co-opted—i.e. adopted to help rationalize the system. Housing capitalists may try to pick up some elements of the program outlined by Hartman and Stone in order to ease some social pressures, prop up the construction industry, bail out mortgage lenders, and stave off financial collapse.
Grassroots Effort With Conscious Political Strategy Needed
Heeding Hartman's and Stone's warning that the reforms we can pursue now should not be seen as ends in themselves, but rather as part of a clear and conscious political strategy, J I will suggest below a few ideas with regards to a strategy centered on CHFA that grass roots housing activists as well as my concerned sister/fellow professionals can pursue to move Colorado and the Nation closer to a housing policy that truly serves the public purpose.
The alternative for which we advocate could have CHFA playing some of the same roles it does now in accepting proposals, approving plans and costs, and disbursing funds as the work proceeds. The major changes are that it would obtain funds as grants from the federal government rather than through the sale of tax-exempt bonds and would disburse the funds directly rather than through mortgage lenders. As Hartman and Stone point out:
The money paid out to developers would therefore not have to be repaid, there would be no construction financing costs, and no long-term mortgage would be needed to pay off construction loans. Upon completion of the housing, title would be conveyed to the local or state housing authority, as under the existing "turnkey'' development program for public housing.
The developer would continue to be involved only if it also had a contract to manage the housing.6^
63
This is because any demands for reform that do not occur as part of a total transformation of society will always have a contradictory quality.
6k
Hartman and Stone, op. cit., p. 223.
- 38 -


CHFA would disburse the funds it receives from the federal government to private developers, local housing authorities, nonprofit housing development corporations, labor unions and community organizations who submit acceptable plans to build housing. Even individuals wanting to build housing for their own use would be eligible for funds. The funds would be allocated geographically by CHFA according to the State's Housing Needs Study and the Growth and Human Settlement in Colorado planning document.
A Program for Colorado
Since it is important to have some short-range goals where victories can stimulate continuing commitment and further organizing in the direction of the long-range, more comprehensive program, I will suggest an interim strategy which Colorado citizens could pursue. Such a program might work in the following
65
way:
First, Colorado could institute a reformed progressive tax system—for example, an additional 10% tax on households with incomes of $30,000 or more—to raise some of the money that would be needed. Instead of turning these funds over to the banks to manage and invest for their own profits, the State could put these new funds as well as all other public funds into a state bank. The state bank could then loan its money to CHFA which could allocate the funds to local public housing authorities and to private developers or non-profit sponsors where there are no housing authorities. Again CHFA would approve plans and costs and disburse the funds as the building proceeds. In this proposal too CHFA would allocate funds geographically according to the State's Housing Needs Study and Growth and Human Settlement in Colorado policy document. Since these loans would be entirely between state agencies, with no private market transactions, there would not have to be bonds and notes— eliminating the fees, commissions and discounts associated with the private credit market.
^Many of the ideas presented here are modified from Stone and Achtenburg, op. cit., who suggest a State Housing and Pension Bank as a short-term goal. The reader is referred to their proposal for an analysis of how pension funds could also be utilized in such a program.
- 39 -


Since mortgages would still have to be repaid, the cost of housing will continue to be relatively high, so pressure must be put on both the federal and state governments to increase existing housing subsidy programs in order to enable low and moderate income families to live in the new housing.
Such a program would begin to put an end to CHFA's dependency on the banks and private credit markets to finance housing-a most important step. And there would be a large, steady, predictable flow of funds to build new housing, rehabilitate older housing, provide jobs and stimulate the state economy.
The interest income generated from housing investment would be channeled in ways that benefit the large majority of the people, instead of increasing the profits of financial institutions and wealthy individuals.
This short-range proposal won't totally solve Colorado's housing problems, but it could provide an important step in a new direction that can help build a progressive movement for the more fundamental kinds of changes advocated by Hartman and Stone.
Meanwhile, there are several steps we could urge CHFA to take immediately to begin to reduce high housing costs due to factors that are dependent upon causes other than the reliance on the national capital markets. For example, CHFA could encourage the formation of housing cooperatives amongst low- and moderate-income people seeking housing by providing financing for such cooperatives at lower interest rates than it does for other housing. Although this will not eliminate CHFA's dependence upon selling tax-exempt bonds in the national capital markets (which is a necessary goal of any comprehensive reform strategy), it will help to eliminate the concept of housing as a commodity to be bought and sold for a profit. Since coop members would agree to limit their asking price in the event of sale to whatever they paid plus a reasonable interest on the equity they have invested, a large scale movement in the direction of financing cooperatives by CHFA would help to retard Colorado's ever-growing real estate speculation, which in turn drives up the cost of housing.
- bO -


A "broad-based citizen's group could also urge CHFA to follow the instincts of its Executive Director towards greater utilization of non-profit local public housing authorities and other non-profit sponsors. Such utilization would, again, not eliminate the Authority's dependence on the national capital markets to finance housing, but it would help to eliminate some of the unearned profits made by the "limited dividend" developers with their crews of syndicators, accountants, lawyers and wealthy investors.
Even this short-range program of progressive reforms will require a much more broadly based, unified effort on the part of the majority of the people in this state than has ever been shown before. An alliance is needed amongst the variolas groups whose lives are most negatively impacted by skyrocketing housing costs such as the elderly, welfare recipients, the unemployed and others on fixed incomes, tenants and the young (who will have to pay the price) as well as those middle-income working people whose lives would stand to be enhanced by the program outlined by Hartman and Stone. The alliance which the Colorado Coalition for Full Employment attempted to begin with its conference on "The Urban Environment, Neighborhoods and Jobs" on November 13, 1978 and the alliance which the Colorado Civil Rights Commission attempted to begin with its "Metro Denver Housing Crisis Conference" on May 14-15, 1978 should be combined and expanded statewide with an additional emphasis on rural participation and rural issues. These conferences gathered together representatives from labor unions, neighborhood groups, environmental groups, anti-nuclear groups, community action programs, social welfare and housing organizations and single issue public interest groups who indicated an interest in an ongoing coalition. As Stone and Achtenburg so eloquently put it:
The time has come to stop waging separate, isolated, and never very successful campaigns. Working-class people and progressive groups need to join together—first, for a common defense against the growing assaults, and then to build a movement, a program, and strategy which will bring about the basic changes needed in our economic and social system.66
66,
'Stone and Achtenburg, op. cit. , p. 46.
- 41 -


FINANCE AUTHORITY
Appendix A
COLORADO HOI SINN
MEMORANDUM
November 15, 1978 TO: Board of Directors
FROM: Executive Director
SUBJECT: Architectural Checklist and Design Criteria
Working with Max Saul, Bill Montez and Paul Teague have developed the attached Preliminary Proposal Architectural Check List, which in the future will be presented to the Board with each Section 8 rental development proposal submitted for Feasibility. The form will be submitted to you during the schematic phase and is most important in approving the project concepts. Also, attached is a Final Proposal Check List which will accompany future rental development packets presented to the Board for Firm Commitment. This list will be reviewed in the design development phase; it will be more technically detailed and will build upon the approved schematic concepts. As presently proposed the review process will be as follows:
1. Sponsor and O&SC meet with CHFA staff to discuss initial obj ectives.
2. Sponsor, O&SC and architect meet with CHFA staff and consulting architect regarding design criteria.
3. Preliminary proposal submitted to CHFA by O&SC.
4. Review of preliminary proposal by CHFA and consulting architect.
5. CHFA submits preliminary proposal to HUD, if OK. If not approved by CHFA it is returned to O&SC for appropriate changes.
6. HUD reviews and approves preliminary proposal.
7. Loan package submitted to CHFA Board for Feasibility.
8. CHFA approval; rejection; or approval with conditions.
9. CHFA Letter of Feasibility to O&SC.
10. Sponsor's architect develops working drawings and plan specs, and submits via O&SC to FHA and CHFA.
11. Meetings regarding changes, modifications.
12. FHA issues Firm Commitment.
13. CHFA Board receives loan package for Firm Commitment.
14. CHFA issues Firm Commitment.
15. Closing - construction starts.
The check list should provide the additional information requested by the Board as well as give a more comprehensive review by
the consulting architect.
DWH:rg
Attachments


Architectural Review Checklist
Preliminary Proposal/Schematic
Page Two
REVIEW COMMENTS
1. The statement of program objectives is adequately addressed in the design concept.
Yes
No
Comments:
2. The location seems to provide adequate access to community functions for the intended occupancy.
Yes
No
Comments:
The site plan adequately addresses the following concerns.
a. Exposure d. Landscaping concepts
b. Orientation e. Site grading and
c. Open space and recreation drainage
Yes
No
Comments:
4. The streets, walks, drives, parking areas, patios, walls, garbage areas, and utilities are designed for efficient use by tenants, maintenance personnel, and visitors.
Yes
No
Comments:


Architectural Review Checklist
Preliminary Proposal/Schematic
Page Three
5. The floor plans show that each building has been designed for tenant security, privacy, and efficient use of parking and project public facilities, and for efficient maintenance by the project management.
Yes
No
Comment s:
6. The typical floor and unit plans building elevations show efficient design for the intended occupancy.
Yes
No
Comments:
7. The landscape plans show variety, interest, energy conservation, and minimum required maintenance.
Yes
No
Comments:
8. Based upon review of the statement of qualifications and experience as well as demonstrated past performance, the ability of the archi tect is acceptable.
Yes
No
Comments:


it ec.tural Review Checklist
Pa;;e Four
el iminary Proposal/Schomatic
9. CHFA Design criteria have generally been met. Yes No
Comments:
10. Additional comments:
Reviewer and date .


ARCHITECTURAL REVIEW CHECK LIST FINAL PROPOSAL/DESIGN DEVELOPMENT
1. Site Plan - Scale 1" to 50', minimum, with easements, if any.
2. Property lines and dimensions.
3. Contours, both existing and finished, with drainage.
4. Building locations, to scale.
5. Streets, walks, drives, patios, walls, garbage areas, utilties.
6. Landscape plans, showing trees, shrubs, recreation areas, etc.
7. Schedule showing number and size of units, by type.
8. Floor plans of each building, or typical building. Multi-story
buildings must show plans of each differing floor. Plans at 1/8" = l"-0".
9. Typical unit plans of each type unit, including standard and handi-
capped at 1/4" = l"-0".
10. All elevations of buildings, or typical building, showing general
materials proposed, at 1/8" = l'-O".
11. Outline specifications.
12. Architect's name and Seal.
13. Perspective Rendering of final design if different from initial
concept.
REVIEW COMMENTS
1, The design concept of the Final Proposal is consistent with the Preliminary Proposal.
Yes
No
Comments:
2. The outline specifications are adequate and meet CHFA criteria.
Yes
No
Comments:
Reviewer and date


o~n ju
Appendix B
CHFA PROMOTION PIECE
Envelope:
What's the difference?
Poster:
HOUSE or HOME?
Together we can make the difference - your ideas, our financing.
"I'd like to see some greenery from mg living room window - not just parked cars and pickup trucks 1"
"There's no safe place for the kids to play, except on the lawn -and then the' neighbors get upset."
"We feel like the neighborhood looks down on us because we live here."
"It's just four walls and a roof - not much better than the place they moved us from."
"I feel isolated - there's no place to meet other folks my age informally. "This place has all the charm of an Army barracks!"
"We're proud to be living here!"
"I know the kids are safe when they go out to play."
"The trees and flowers really give me a lift."
"The entire community has benefited from the thoughtful design."
"It seems so bright and sunny inside » . .and the view outside is pleasant, too."
"As Senior Citizens, it's important to have areas where we can get together to play cards and visit."
Excellence of design, coupled with care in execution and advantageous
financing, will create low income housing that brings pride to residents, is a credit to the community and a lasting endeavor to which all participants can point with satisfaction. For guidelines on design criteria, consult your CHFA representative.
COLORADO HOUSING FINANCE AUTHORITY
115 Grant Street, Denver, Colorado 80203/(303) 861-8962


BIBLIOGRAPHY
Aaron, Henry J. Shelter and Subsidies: Who Benefits from Federal Housing Policies?. Washington, D,C.: Brookings Institution, 1972.
Achtenburg, Emily and Stone Michael. Tenants First: A Research and Organizing Guide to FHA Housing. Cambridge, Mass.: Urban Planning Aid, 197^.
Alcaly, Robert E. and Mermelstein, David. The Fiscal Crisis of American Cities. New York: Vintage Books, 1976.
Betnum, Nathan S. Housing Finance Agencies: A Comparison between States and HUD. New York: Praeger Publishers, 1976.
Brilliant, Eleanor L. The Urban Development Corporation: Private Interests and Public Authority. Lexington, Mass.: D.C. Heath &
Go., 1975.
California Senate Select Committee on Investment Priorities and Objectives. Creation of a California State Bank (hearings on). Los Angeles, 1977.
Caro, Robert A. The Power Broker: Robert Moses and the Fall of New York. New York: Vintage Books, 1975-
Center for Community Change. The Lifeblood of Housing: A Report to the Commonwealth of Pennsylvania on Housing Investment and Conservation. Washington, D.C.: Appalachian Regional Commission,
1976.
Colorado Division of Housing, Department of Local Affairs. Housing Element Draft. Denver, 1978.
Colorado Division of Housing, Department of Local Affairs. Housing in Colorado: Estimates fo Housing Inventory and Household Characteristics for January 1. 1977. and Projections of Household Growth to January 1, 1982. Denver, 1978.
Colorado Division of Housing, Department of Local Affairs and Colorado Housing Finance Authority. Colorado Households Needing and Qualifying for Housing Assistance, January 1, 1977 to January 1, 1982. Denver, 1978.
Colorado Housing Finance Authority. Annual Report. 197^* 1975» 1976,
1977.
Community Ownership Organizing Project. The Cities' Wealth: Programs for Community Economic Control in Berkeley, California. Washington, D.C.: Conference on Alternative State and Local Public Policies, 1976.
Congressional Budget Office. Real Estate Tax Shelter Subsidies and Direct Subsidy Alternatives. Washington, D.C.: U.S. Government Printing Office, 1977.


Crisis Reader Editorial Collective. U.S. Capitalism in Crisis. New Yorks Union for Radical Political Economics, 1978.
Dolbeare, Cushing N. Federal Tax Rip-Offs: Housing Subsidies for the Rich. Washington, D.C.: Rural Housing Alliance, 1972.
Editors of Monthly Review. "The Long-Run Decline in Liquidity", Monthly Review. Sept. 1970.
Editors of Monthly Review. " Keynesian Chickens Come Home to Roost", Monthly Review, Apr. 197^.
Editors of Monthly Review. "Banks: Skating on Thin Ice", Monthly Review, Feb. 1975.
Editors of Monthly Review. "Capital Shortage: Fact and Fancy", Monthly Review. Apr. 1976.
Faux, Jeff and Lightfoot, Robert. Capital and Community: Notes on Financing a New Economy. Washington, D.C.: Exploratory Project for Economic Alternatives, 1976.
Galbraith, John Kenneth. Economics and the Public Purpose. Boston: Houghton Mifflin Co., 1973.
Gallegos, Mark D. Tax-Exempt Securities and Subsidized Housing. University of Colorado, Denver, 1978.(unpublished paper)
Gerckens, Laurence C. American City Planning Since 1900 A.D.: A Course Manual. Columbus, Ohio: The Ohio State University, 1978.
Hartman, Chester and Stone, Michael', "Housing: A Socialist Alternative" in Marcus G. Raskin, ed. The Federal Budget and Social Reconstruction. New Brunswick: Transaction, Inc.
Hartman, Chester. Housing and Social Policy. Englewood Cliffs, N.J. Prentice Hall, Inc., 1975.
Harvey, David. "The Political Economy of Urbanization in Advanced Capitalist Countries: The Case of the United States", in Gary Gappert and Harold M. Rose, eds., The Social Economy of Cities. Sage Urban Affairs Annual, Vol. 9» Beverly Hills: Sage Publications, 1975.
Hawley, Peter K. Housing in the Public Domain: The Only Solution. New York: The Metropolitan Council on Housing, 1978.
Housing and Community Research Groups. Community Housing Development Corporations: The Empty Promise. Cambridge, Mass.: Urban Planning Aid, 1973.
International Independence Institute. The Community Land Trust:
A Guide to a New Model for Land Tenure in America. Cambridge, Mass.: Center for Community Economic Development, 1972.
Keith, Nathaniel. Politics and the Housing Crisis Since 1930. New York: Universe Books, 1973-


Liblit, Jerome (ed.). Housing—The Cooperative Way. New York:
Twayne Publishers, Inc., 19$+.
Morris, Peter R. State Housing Finance Agencies: An Entreprenurial Approach to Subsidized Housing. Lexington, Mass.: D.C. Heath and Go., 197^.
National Commission on Urban Problems. Building the American City.
New York: Praeger Publishers, 1969.
National Housing Policy Review. Housing in the Seventies. Washington, D.C.: U.S. Dept, of Housing and Urban Development, 197^+.
O'Connor, James. The Fiscal Crisis of the State. New York: St. Martin's Press, 1973-
Ott, David J. and Meltzer, Allan H. Federal Tax Treatment of State and Local Securities. Washington, D.C.: The Brookings Institution,
1963.
Piven, Frances Fox and Cloward, Richard A. Regulating the Poor:
The Functions of Public Welfare. New York: Pantheon Books, 1971.
Raskin, Marcus G. (ed.). The Federal Budget and Social Reconstruction: The People and the State. New Brunswick, N.J. s Transaction, Inc. Rutgers Univ. (also available from Institute for Policy Studies, 1901 Que St., N.W., Washington, D.C. 20009 for $7-95), 1978.
Ruskay, Joseph A. and Osserman, Richard A. Halfway to Tax Reform. Bloomington, Ind.: Indiana University Press, 1970.
Schaaf, Michael. Cooperatives at the Crossroads: The Potential for a Ma.jor New Economic and Social Role. Washington, D.C.s Exploratory Project for Economic Alternatives, 1977.
Schafer, Robert; Betnum, Nathan S., and Solomon, Arthur P. A Place to Live: Housing Policy in the States. Lexington, Ky.: The Council of State Governments, 197^.
Solomon, Arthur P. Housing the Urban Poor: A Critical Evaluation of Federal Housing Policy. Cambridge, Mass.: The MIT Press, 197^+.
Starr, Roger. America's Housing Challenge: What It Is and How to Meet It. New York: Hill and Wang, 197^.
Starr, Roger. Housing and the Money Market. New York: Basic Books,
1975.
Sternlieb, George; Roistacher, Elizabeth and Hughes, James W. Tax Subsidies and Housing Investment: A Fiscal Cost-Benefit Analysis. New Brunswick, N.J.: The Center for Urban Policy Research, 1976.
Stone, Michael E. "Federal Housing Policy: A Political Economic Analysis", in Jon Pynoos, Robert Schafer, and Chester Hartman, eds. Housing Urban America. Chicago: Aldine, 1973.


Stone, Michael E. "Gimme Shelter” in Crisis Reader Editorial Collective. U.S. Capitalism in Crisis. New York: Union for Radical Political Political Economics, 1978.
Stone, Michael E. "Housing, Mortgage Lending and the Contradictions of Capitalism” in William K. Tabb and Larry Sawers, eds. Marxism and the Metropolis. New York: Oxford University Press, 1978.
Stone, Michael E. "The Housing Crisis, Mortgage Lending, and Class Struggle" in Antipode, Sept. 1975-
Stone, Michael and Achtenburg, Emily. Hostage! Housing and the Massachusetts Fiscal Crisis. Boston: Boston Community School, 1977.
Tabb, William K. and Sawers, Larry, eds. Marxism and the Metropolis: New Perspectives in Urban Political Economy. New York: Oxford University Press, 1978.
Sweet, Morris L. and Walters, S. George. Mandatory Housing Finance
Programs: A Comparative International Analysis. New York: Praeger Publishers, 1975.
Turner, John F.C. Housing by People: Towards Autonomy in Building Environments. New York: Pantheon Books, 1976.
Zinsmeyer, Jeffrey; Turnock, Judith and Mott, Andrew. Opportunities For Abuse: Private Profits. Public Losses and the Mortgage Banking Industry. Washington, D.C.: Neighborhood Revitalization Project, Center for Community Change, 1977.


Full Text

PAGE 1

• THE UNIVERSITY OF COLORADO THE COLORADO HOUSING FINANCE AUTHORITY: DOES IT TRULY SERVE THE PUBLIC PURPOSE? AN ANALYSIS AND SOME ALTERNATIVES A THESIS SUBMITTED TO THE FACULTY OF THE DEPARTMENT OF URBAN AND REGIONAL PLANNING IN CANDIDACY FOR THE DEGREE OF MASTER OF URBAN AND REGIONAL PLANNING by MARY ELIZABETH VOGEL ) r-----------DENVER, COLORADO DECE; 1978 -----

PAGE 2

THIS WORK IS DEDICATED TO MY BELOVED FRIEND ROSALIND ALLEMAN 1945 -1978 FIRST DIRECTOR BOULDER COUNTY WOMEN'S RESOURCE CENTER JANUARY 1975 -NOVEMBER 1976 CONFERENCE COORDINATOR COLORADO WOMEN'S CONFERENCE DECEMBER 1976 -NOVEMBER 1977 PH.D. CANDIDATE IN SOCIOLOGY UNIVERSITY OF COLORADO WHOSE TRAGIC DEATH AT HER OWN HAND WOULD NOT HAVE HAPPENED UNDER THE KIND OF SOCIAL-POLITICAL-ECONOMIC SYSTEM THIS WORK SEEKS TO CREATE

PAGE 3

ACKNOWLEDGEMENTS I owe very special thanks to Michael Stone whose work was both the original inspiration for my thesis and continued to be my guiding light. His personal encouragement and suggestions were much appreciated. Special thanks also to Chester Hartman for his invaluable works and for exposing me to a wonderful variety of resources throughout the country and all over the world through the Planner's Network which he edits and produces. The long-term commitment and activism of both of these authors has been a source of continuing inspiration for me. Another special thanks to Emily Achtenburg who co-authored with Michael Stone two of the works that I found so helpful. I'd like to express appreciation for the assistance and encouragement of my advisors: Dave Bramhall, Byron Johnson, Jonni Jones, Eric Kelly, and John Maldonado whose views are not necessarily in agreement with those in my thesis, but whose suggestions were very useful in clarifying my thinking. My major advisor, Jonni Jones, has helped me over some rough spots and times of total discouragement over the past several years. Her courses were very influential in the development of my thinking and her own activism a good example. John Maldonado's continuing commitment to providing housing for low and moderate income people has likewise been for me a positive role model and his active encouragement of my involvement in housing issues during the three years I have known him was one of the major stimuli for this thesis. Dave Herlinger, Executive Director of the Colorado Housing Finance Authority, and several of his staff members including Mark Gallegos, Bill Montez and Carol Papini were very generous in taking the time to answer my questions and provide me with whatever materials or available information I requested. I am grateful for their assistance. In no way should this paper be construed to question their integrity. I have much respect for all of them. Rather the paper questions the entire system which they accept as a given-albeit while they attempt to make it operate more humanely. Blake Chambliss, CHFA Board Member, has been another positive inspiration to me through his persistent commitment to provide high quality low-income housing in well-designed communities.

PAGE 4

I owe_ a special debt of gratitude to Eleanor Crow, Jim Reynolds and Jack Lang at the Colorado Civil Rights Commission, my employer, for their generosity in giving me time to complete my work on this thesis. There have been many who have contributed to the development of my ideas by their actions and lifestyle as well as by the spoken or written word. Amongst them have been friends in the Women's School of Planning and Architecture, the Boulder Socialist Feminist Collec tive, the National Organization for Women, the U.S.-China People's Friendship Association, the New American Movement, the Conference on Alternative State and Local Public Policy and the Red Feather Institute for Socialist Studies in Colorado. Finally, I'd like to acknowledge one other person who has unknowingly been very important to my continuing commitment to social change--my own younger sister. She made me more aware than ever before that the problems of this country will require societal as well as individual change when she wrote last year: I started working the deli again--full-time--because the regular girl, Beverly, was sick and while she was out she tried to kill herself and went into the hospital for that . ... They offered me the deli job in Camp Springs, or here in Hyattsville, if Beverly will go to Camp Springs--because their girl tried to kill herself too! There's something awful about thinking of that back-breaking, hectic job as mine, even though checking is no cinch and is just as wearing .... I know I have a lot to learn but there is no one around to teach me .•.. You can see I really know what I'm doing, where I'm going and what I want to do with my life every minute, huh? Well, at least I have some options. And if nothing comes across or turns out well I could always get real depressed and go the route of other rejected, frustrated deli girls (ha-ha). M y sister has worked for the past five years as a checker in a large chain food store in Maryland.

PAGE 5

ABSTRACT The thesis of this paper is that the Colorado Housing Finance Authority (CHFA), a organization of the State of Colorado, is not meeting the critical housing needs of low and moderate income persons in this State in a way that best serves the public purpose. The paper briefly traces the history and of federal government intervention beginning with the collapse of the housing market in the Great Depression and shows that CHFA is a logical extension of that intervention. The typical pattern of government intervention since the 1930's has been one that first serves the interests of mortgage lenders, then developers, then landlords and other owners of The principal strategy of this intervention has been the promotion of the long-term, low-downpayment mortgage loan through the creation of three main types of structures (1) a central banking system through the creation of the FHLBB (2) a mortgage insurance system through the creation of the FHA and .(3) secondary mortgage markets with the creation of FNMA and GNMA. This long-term, low-downpayment mortgage loan was designed to undercut the income/ housing cost problem, which is an inherent problem in our economic system, by lessening both the savings needed to buy and the monthly payments on a loan of a given size, thereby "promoting the illusion of homeownership through the reality of debt."1 There is an inherent conflict between income and housing costs in our system because, on the one hand, the system seeks to keep wages as low as possible while, on the other hand, it seeks to maximize profits on its goods. The government has not been able to ignore this conflict between the labor market and the housing market since one of its functions is to maintain social order. Over the past few decades it has become increasingly necessary for the government to intervene in the housing sector to try to manage the conflict in the interests of capital. The government structures created to aid housing capitalists made possible new opportunities for wealthy investors and provided mortgage lenders with protection against risk while sti!i1Ulating demand for homeownership. Homeownership gave those who participated Stone, "Housing, Mortgage Lending and the Contradictions of Capitalism" in Marxism and the Metropolis, Tabb and Sawers (eds.), 197, p. 193. -i -

PAGE 6

in it a financial stake in the system encouraging them to identify their interests with the interests of landlords and lenders. It also helped to overcome the "alienated tenant psychology". The long-term, low-downpayment mortgage loan, while successful in the short-run in both providing homeownership opportunities for . . t f A ' 2 l t d th bl h. h a maJorl y o mer1cans a so crea e many o er pro ems w lc are increasingly detracting from our quality of life today. The problems of urban sprawl and the white noose around our central cities which the long-term, low-downpayment mortgage loan with its supporting institutions (especially FHA) helped to foster are by no means the only negative impacts catching up with us t o day . Creation of the long-term, low-downpayment mortgage loan also mortgaged the future, greatly fueling many of the problems we're presently experiencing in the economy--including overall inflation in every sector of the economy and decreasing opportunity for homeownership. Residential m ortgage debt increased rapidly relative to other debt in the economy. Between 1946 and 1974, while total private debt grew twice as fast as the gross national produc t , housing debt grew two-and-a-half times as fast. The dependence of our system on debt-financing leads to what one author calls a fundamental contradiction which the system cannot resolve: On the one hand, if the federal government allows the money s upply t o increase t o meet all the need for bo rrowed funds, it sets off pric e increases in t h e economy , since the amount of m o ney being spent goes u p faster t han the amount of goods and services being pro d uced. Inflation leads t o higher interest rates and more b orrowing in ant i cipation of further price increases. Debt accelerates far ahead of ability to repay it, leading toward a financial crisis. On the other h a nd, if the government tries to restrict the growth of credit to prevent or limit inflation, then s ome borrowers get squeezed out. Previously accumulated debts eventually have to be paid, and many individuals and businesses are totally dependent on new loans to pay off the old ones. Without continue d access to credit to pay their bills, they may go bankrupt. Since the banks and other creditors have also borrowed heavily to expand their lending and stimulate the economy, when they do not get paid, a chain of defaults can ensue. Thus a credit squeeze can also bring the financial system to the brink of collapse,3 2In the 1950's about 2/3 of all American families could afford the payments on a new house. Today it is estimated that only l/5 of all families can afford such payments. 3Michael Stone, op. cit., p. 197-198. n -

PAGE 7

Housing has been especially victimized when the government acts to restrict the growth of credit. Therefore housing capitalists have sought new instruments through government intervention to bring capital into their sector of the economy. CHFA is one of these new instruments--following in the pattern of FHLBB, FHA, FHLMC, FNMA, GNMA, etc. What these instruments have done has been twofold: (1) they've increased the competition for borrowed funds just at the points when government monetary policy seeks to reduce the supply of credit, thereby causing even higher interest rates; (2) they've helped to tiethe stability of the structure of capitalism to the stability of the structure of mortgage debt by enabling billions of investment dollars to be tied up with the mortgage system--investment dollars beyond those of small savers and thrift institutions. Following the typical pattern for intervention by government under our system, CHFA brings capital into Colorado to prop up the same long-term, low-downpayment mortgage loan system which has contributed so greatly to the problems of our economy. Although it claims to bring in this capital at no expense to the taxpayers of Colorado, in actually, CHFA's tax-exempt bonds bring funds in at the expense of lower and middle income working people to the benefit of upper income individuals and financial institutions. The money which CHFA brings in in this manner is then used to finance programs through mortgage lenders who take their cut for "originating and servicing" the loans that are made. A small proportion of those needing housing pay a lower than average interest rate on a mortgage or live in rental units where they pay less than the market rate while the vast majority of those with inadequate shelter are not served and while housing costs continue to skyrocket for all of us. The paper examines CHFA's dependence upon tax expenditures--the cost to the government of various types of individual and corporate deductions from income taxes. Data is presented to show that the major beneficiaries of such tax expenditures are the richest 1% of the population and the largest and wealthiest financial institutions. In fact, tax expenditures are extremely regressive--the wealthier the individual or institution, the greater the benefit. Additional beneficiaries are the syndicators who make great profits buying and selling the bonds, Ui-

PAGE 8

In addition to the tax expenditure which CHFA perpetuates in its utilization of tax-exempt bond financing, CHFA indirectly promotes the tax expenditure of real estate tax shelter subsidies by seeking out developers who use them. The paper ourlines a sample project built utilizing real estate tax shelters, Again the major beneficiaries are shown to be the richest l% of the population and the largest and wealthiest banks. Under a tax expenditure system of "subsidizing" housing, the U.S. Treasury must pay more to investors to induce them to risk their money than it would cost the Treasury itself to invest directly in housing. "If the purpose is to provide housing for those who need it most, we could hardly devise a less effective or more expensive method. "4 In order to use the public power, CHFA--or any other arm of government--supposedly must promote the public health, safety, morals and/or general welfare. In view of facts brought to light in this paper, a new test of whether CHFA truly the public purpose is suggested, Since CHFA fails to meet the test of promoting the public purpose under its current method of operation, an alternative role for CHFA to play in meeting the critical housing needs of low and moderate income people is outlined, Two fundamental changes that CHFA's new role would be directed towards are1 (1) altering our conception of housing from a commodity to be bought and sold for a profit, to a social good which people have the right to use and occupy as they wish, but which cannot be owned, bought or sold for a profit, and (2) gradually eliminating housing's dependence upon the national capital markets, These two changes must be the ultimate goal of any reform strategy if we are to reverse the current trends towards skyrocketing housing costs and greater shelter poverty. Under the alternative system of providing housing laid out in the paper, the federal government's role would also be transformed, The federal government would provide direct grants for housing after raising the money through a reformed progressive tax system. CHFA would accept such direct grants and would then disburse the funds directly (rather than through mortgage lenders). 4 Cushing Dolbeare, Federal Tax Rip-Offs 1 H ousing Subsidies for the Rich, 1972, p . 22. -iv -

PAGE 9

CHFA accept proposals from private developers, local housing authorities, non-profit housing development corporations, labor unions, community organizations and perhaps from individuals wanting to build their own housing. It would approve plans and costs and allocate funds geographically according to the State's Housing Needs Study and the Growth and Human Settlement in Colorado policies. The money CHFA disbursed would not have to be repaid because it would be a grant, not a loan. Neither construction financing costs nor long term mortgages would have to be paid off so the families or individuals who occupy such housing would pay only the actual operating expenses such as utilities and maintenance--i.e,, they wouldn't be charged that part of the rent that today goes towards paying off the mortgage and making a profit for the developer and/or the owner. The housing built with CHFA funds would be owned either by the local public housing authority or by CHFA itself. An interim strategy would see Colorado instituting its own progressive income tax system and its own state bank. This approach would begin to end CHFA's dependency on the banks and private credit markets to finance housing although it would not eliminate mortgages, It is suggested only as an interim strategy on the path towards more fundamental changes. Two very short-range reforms a coalition might pursue are: (1) encouraging CHFA to fund housing cooperatives and provide them with technical assistance and (2) mandating CHFA to utilize non-profit local public housing authorities and other non-profit sponsors. Both of these reforms would be a step towards challenging the concept of housing as a commodity to be bought and sold for a profit--although neither should be seen as an end in and of itself. Achievement of any of the above reforms--even the short-range proposals--will require a broad-based coalition of people to pursue them. The alliances begun at two recent conferences--the Colorado Civil Rights Commission's "t
PAGE 10

TABLE OF CONTENTS I. INTRODUCTION: DEFINITION OF THE PROBLEM ..••.•••.•..•......• 1 II. STATE:r1ENT OF THESIS ...•......•...••...•.••......••. , .•....•. .5 III. STATE INTERVENTION IN HOU3ING: A BRIEF HISTORICAL ANALYSIS .. 6 Three Types of Structures to Aid Mortgage Lenders ..••••• •• 8 Central banking system ••••••• o,. o o •• , o, o ••• , •• , o •• o. o o •• 8 Mortgage insurance .. o ••••••••••• o ••• o a •••• o •••• o ••••• o o • 9 Secondary mortgage markets Other New Vehicles of Capital for Mortgages •••••o•••••o••ll IV. CONSEQUENCES OF STATE INTERVENTION ON BEHALF OF CAPITAL .•..• 11 The Major Beneficiaries and the Principal Strategy ••••..• 12 The Long-term, Low-downpayment Mortgage Loan and the Debt Economy •. ol2 The Fundamental Contradiction •••o••••ooooo••••••••ooo••••l4 The Instability of the Economy and Its Impact on Housing •• l4 Housing's Increased Dependence on the Federal Treasury •.• 16 Two Contradictions: A Summary of the Major Consequences •• l? V. STATE INTERVENTION 1 TAX EXPENDITURES CHFA: Its Purpose, Its Programs and Its Place in State Intervention •••.• l9 Tax-Exempt Bond Financing and CHFA ••••••••••••••••••••o• Costs to the federal government Concentration of ownership of bonds Summary of tax-exempt bond financing •••••••••••••••••• Real Estate Tax Shelter Subsidies and CHFA A sample project .....••.......•••••. , .•..... , , ......... 27 Revenue loss to the Treasury •••••••o•o•o••••••••••••• Conclusions on real estate tax shelter subsidies VI . THE PtJBLI c PURPOS El • I • • • • • • • •••••••••••••••••••••••••••••••• 32 VII. AN ALTERNATIVE ROLE FOR CHFA ...•..•.•.........•.•......••.. )3 Transformed Conception of Housing: The Hartman-stone Program .. o •. 35 Grassroots Effort with Conscious Political Strategy Needed ..... 38 A Program for Colorado .•••••••••••••••• 1 ••••• , ••••••• 1 ••• 39 VIII. APPENDIX CHFA's Architectural Checklist and Design ....... A CHF' A's Promotion Piece ................................•.. B

PAGE 11

"HOME COST IN AREA SOARS 20 PERCENT IN 9 MONTHS" --Rocky Mtn. News, . 10/18/78 "HOUSING COSTS RISING FASTER THAN OTHER COSTS" --Denver Post, 9/19/78 "HOME BUILDERS WARNED OF DOWNTURN" --Rocky Mtn. News, 9/19/78 "HOUSING CONSTRUCTION TO DROP SHARPLY" --Rocky Mtn. News, 11/8/78 "CONDO CONVERSIONS TROUBLE FOR TENANTS" --Colorado Daily, 9/25/78 "MORTGAGES: NO RELIEF IN SIGHT" --Rocky Mtn. News, 12/27/78 I. INTRODUCTION: DEFINITION OF THE PROBLEM Housing costs in Colorado are skyrocketing! With the predicted drop off in new construction, the price of purchase or rental of a place to live will rise even more steeply. These facts are no secret to anyone who even takes an occasional glance at a newspaper as the above headlines indicate. At the "Metro Denver Housing Crisis Conference" sponsored by the Colorado Civil Rights Commission last May 14-15, 1978, figures were cited to show that 20% of all Denver families could not afford to live in the average new home even if it were given to them because they could not afford the property taxes and utility bills; forty percent of all Denver families could not afford to live in that same new home even if they had to make no down payment, because they could not afford the mortgage payments, property taxes and utility bills. Also cited were figures to show that the cost increases that are making homeownership an option for fewer and fewer families were mainly due to two factors: increased finance costs and increased land costs. Between 1949 and 1976 the percentage of cost factor for these two items jumped 30%--from 19% of the cost of a new home in 1949 to 49% of the cost of a new home in 1976. In the Denver area in 1976, the cost of land alone accounted for 35% of the cost of a new home. 1 Burgwyn, Workshop on "How You Too Can Join the Crabgrass Crowd", Metro Denver Housing Crisis Conference, May 13 & 14, 1978. -1 -

PAGE 12

At the national level, between 1970 and 1976, while median family income was rising 4?% and the overall Consumer Price Index went up 46%, median sales prices for new houses rose 89%; even worse, the monthly ownership costs for a median priced house ros. e 102% for a new house and 65% for an existing house. The rapidly rising cost of new housing is particularly alarming. In 1965, the average cost of a new single family house was $20,000 and the income needed to purchase such a house was $7,700, Those figures today (1978) have shot up to $61,500 for the average new home requiring an income of $28,000 to afford. What these figures indicate is that fewer and fewer American families can afford the cost of a new home. During the 1950s about 2/3 of all families could have afforded the typical new house. By 1970 the proportion had declined to 1/2, and by 1975, it had fallen to about 1/4 of all families.2 It comes as no surprise then that in the eight years since the 1970 hearings jointly sponsored by the Colorado Civil Rights Commission and the Metro Denver Fair Housing Center, Inc, which identified one of the major housing problems facing Colorado at that time as1 Inflated housing costs due to increases in land, labor, materials and government regulation, which prevent many Coloradans from securing decent, safe and sanitary houstng3, that the number of households in Colorado estimated to be either paying too much for housing (over 25% of their incomes) or occupying inadequate housing increased 2Chester Hartman and Michael, Stone, "Housing: A Socialist Alternative" in The Federal Budget and Social Reconstruction, Marcus Raskin (edT, 1978, p. 207. 3Findings/Recommendations of the State Hearing Panel, 1970 Housing Report of Colorado. While I agree that government regulation and increases in labor and materials are certainly factors in inflated housing costs, I feel that this statement is extremely limited in its analysis of the problem. It overlooks the dependence of housing on mortgage credit as the major factor responsible for inflation. -2 -

PAGE 13

from 84,500 in 1970 to 132,000 in 1977. 4 Of this 132,000 lower income households estimated to be needing or eligible for housing assistance, only 20,221 households were being provided with assistance as of January l, 1977. An additional 14,910 lower income households will need and be eligible for housing assistance by 1982. In 1972 the Colorado legislature declared that "there is a shortage in Colorado of decent, safe and sanitary housing which is within the financial capabilities of low and moderateincome families".5 To broaden the definition of the problem and place it within a national context, I'll borrow from Stone: ... there are not enough dwelling units in decent condition, at bearable prices, with required amenities and secure tenure, at accessible locations, in safe and communities with adequate services and facilities. Stone uses an income dependent standard to estimate the extent of shelter poverty from the 1970 Census. Over 16 million households were paying more for shelter than they could afford. These households represent more than l/4 of all households in the U.S. For those with incomes under $10,000, 4o% of all households and 5o% of renter households were shelter poor in 1970. As Hartman's and Stone's more recent data (see footnote #4) indicate, shelter poverty has become even more pervasive since 1970--with the number of shelter poor increasing by 5 million in 5 years and the percentage rising 5%--from 25% in 1970 to 3o% of all U.S. households in 1975. In Colorado the estimate for the rise in shelter poor is 47,500 in the 7 years from 1970 4colorado Division of Housing, Housing Element (Draft) p. III:22. As disturbing as these figures are, they are based upon what some find to be an inadequate method of estimating shelter poverty which grossly underestimates the need. Hartman and Stone have worked out a more accurate measure which considers minimum family budget requirements and actual family income. They estimate that nearly 21 million households--11.3 million home owner households and 9.5 million renter households--were paying more than they could afford for housing in 1975. These figures represent nearly 30% of all U.S. households and nearly 50% of all households with incomes under $15,000 year; 5Colorado Housing Finance Authority Act (Part 7 of Article 4 of Title 27, C.R.S. 1973, as amended). 6Michael Stone, "Housing, Mortgage Lending and the Contradictions of Capitalism" in Nar3ipm and the Metropolis, Tabb and Sawers (eds.), l97P, p. 180, 1 -

PAGE 14

to 1977. Stone attributes the increase to "unprecedented inflation and the worst depression since the l9J0s".7 This paper will contend that a problem so pervasive as the one outlined above must be sought "within the very institutional structure of the society and not in some aberration or maladjustment in the normal functioning of the system".8 In order to begin to analyze that "institutional structure of the society", I chose to focus on one Colorado institution which is seeking to address some aspects of the housing problem in this state--the Colorado Housing Finance Authority (CHFA). In hopes of better understanding the present housing crisis in Colorado and the nation as a whole, I decided to look at why CHFA was set up, what part it plays in the history of state9 intervention, how it defines its mission, what mechanisms it uses to carry out that mission, what impact those mechanisms have on the housing problem, and whether that impact is such that it serves both the short-range and long-range best interests of the majority of the people of Colorado--and thereby the public purpose that institutions of the state ideally should serve. II. STATEMENT OF THESIS Briefly put, the thesis of this paper is that the Colorado Housing Finance Authority is not meeting the critical housing needs of low and moderate income persons in this State in a way that bests serves the public purpose. In order to show CHFA's place in the overall context of state intervention in the housing market, a brief historical analysis of such intervention will first be traced. In this analysis the emphasis will be placed on the structures set up to aid mortgage lenders. Here, Stone's argument that the typical pattern for intervention by the state has been one which 9state is used here as a generic term referring to government at all levels. -4 -

PAGE 15

tries to manage the inherent conflict between the labor market and the housing market in the interests of capital will be outlined. The role of the long-term, low-downpayment mortgage loan as a principal strategy of state intervention will be analyzed and the consequences for the economy will be examined. It will be shown that the reliance upon the increasingly unstable and inadequate supply of funds provided by mortgage lenders has not only contributed to and exacerbated the housing problem, but has also contributed to the growing p r oblems in the economy as a whole. CHFA, one of many devices created by the government to prop up a mortgage system which is failing more and more to meet the needs of the majority of Americans, is ultimately contributing to this exacerbation of the housing problem and the problems of the overall economy. Rather than providing a long-range solution to the housing problems of low and moderate income people, CHFA helps to fuel higher housing costs, higher interest rates generally, and greater concentration in the mortgage industry. Shifting from the long-range, macro-economic arguments against CHFA's system of housing subsidization to one of the various elements of the housing market that make housing so expensive, it will be shown that CHFA's promotion of the tax expenditure system of subsidizing housing leads to greater costs and less tax equity for the majority of us. While providing a subsidy for only 10% of those in need of housing, state intervention of the type that CHFA promotes1delivers an even greater subsidy to the largest banks and wealthiest individuals in this country. Utilizing the alternative system for meeting housing needs that Hartman and Stone lay out10 , an attempt will be made to carve out a role for CHFA under such a system. Here some of the positive accomplishments of CHFA will be reviewed, 10 Hartman and Stone, op. cit. 5 -

PAGE 16

Keeping in mind the two most essential aims of the Hartman Stone program--i.e. (1) steadily transforming a gro wing proportion of the housing stock from a commodity into a social g o od which cannot be owned, bought or sold for a profit, and (2) steadily reducing the dependence of housing on the credit market--an interim strategy will be suggested. Such an interim strategy could give the broad-based group of Colorado citizens who would be needed to achieve it some immediate reforms to pursue while they work towards the longer-range m ore comprehensive changes that are needed in our economic and social system. III. STATE INTERVENTION IN HOlBING: A BRIEF HISTORICAL ANALYSIS The history of housing policy in the United States is intricate and tangled. There are eleven federal agencies that operate in this policy area and twelve congressional committees that write laws substantially affecting housing. Furthermore, the federal government participates in the housing market in a variety of ways--through tax p olicies, regulation o f mortgage financing, mortgage insurance, subsidy payments, welfare assistance, credit policy, labor policy, equal housing opportunity policy, environmental policy, and numerous other activities. In addition, "over the past decade, State governments have e merged as a significant force in the housing field through 6 -

PAGE 17

the formation of a variety of new State housing agencies holding broad charters to undertake a wide range of activities".11 Analysis of federal housing policy has tended to focus upon the direct federal housing programs, such as those administered by HUD, FmHA and the VA and upon mortgage market operations by the Federal National Mortgage Association (FNMA), the Federal Home Loan Bank Board (FHLBB), and the Government National Mortgage Association (GNMA).12 However, as the National Housing Policy Review points out, the federal government's role is: ... far more complex and far more pervasive than is evidenced by the direct housing programs that form the core of housing legislation .... Because of the magnitude of the housing market, direct Federal programs often play a strictly supplemental role .... The Federal Government, in some ways, exercises a greater influence through its indirect interventions in the housing market--for example, the income tax treatment of homeowners and of investors in housing . ... The direct and indirect cost in 1972 of Federal intervention in the housing market totaled at least $14 to $15 billion and of this total only $2.5 billion was expended on direct federally operated housing subsidy programs,l3 I will make no attempt to lay out a complete chronology of the accumulated authorizations in housing programs (numbering more than 70), nor even to highlight all of the major housing acts which have shaped that part of housing policy which lays out rationales for federal involvement, sets housing goals and authorizes direct subsidies. That has been done quite well 14 b y others. 11National Housing Policy Review, Housing in the Seventies, p. 139 . 12Ibid., p. JJ, lJibid. 14see Housing in the Seventies, op cit., for a relatively thorough summary from the establishment point of view and American City Planning Since_l900_ A.D. by Laurence Gerkens for a summary and analysis of housing policy interspersed through his excellent history of p lanning in the U.S. -7 -

PAGE 18

Rather, since I am attempting to fit Colorado Housing Finance Authority into an overall framework of intervention by the capitalist state, I will focus on only those federal interventions which have aided mortgage lenders and set the pattern for housing finance--the focal point of power in American housing. The account below will be heavily dependent upon the analysis of Michael contends that the housing problem is due to an inherent contradiction betwe e n the requirements of two basic institutions of capitalism--the labor market and the housing market. "The evolution of the housing sector in the 20th Century--particularly the growth of the mortgage system and the extensive intervention of the government--can be understood as attempts to manage the contradiction between the hous-16 ing and labor markets in the interest of capital". Three Types of Structures to Aid Mortgage Lenders The Great Depression triggered federal intervention in the housing sector in the 1930s which resulted in three main types of structures to aid mortgage lenders: (l) a central banking system for home-loan banks along with governmental insurance of deposits for all types of banks; (2) mortgage insurance; and (3) secondary mortgage markets, Central banking system In 1932, the Federal Home Loan Bank Act created the Federal Home Loan Bank Board (FHLBB) which oversees twelve regional Home Loan Banks and the Federal Savings and Loan Insurance Corporation. The regional banks act as a reserve for their members, accepting deposits from them and making loans to them as they pursue profitable investments--thus putting the credit of the federal government behind the member banks. The idea was to create a national mortgage market by centralizing, stabilizing and insuring mortgage-banking operations, thus making mortgage banking more efficient, predictable and profitable, 15 A major portion of the account is based upon Stone' s "Federal Housing Policy: A Political-Economic Analysis" in Housing Urban America, Pynoos, Soloman, and Hartman (eds), 1973. 16 Michael Stone, "Gimme Shelter", in U.S. Capitalism in Crisis, Crisis Reader Editorial Collective (eds), Union for Radical Political Economics, p. 182. -8 -

PAGE 19

At the same time the Federal Savings and Loan Insurance Corporation (FSLIC) was designed to attract funds into member banks by insuring accounts. Mortgage insurance Mortgage insurance came along with the establishment of the Federal Housing Administration (FHA) created by the National Housing Act of 19}4. Another device to reduce risk and guar-. antee profits, FHA insures mortgage lenders against financial loss from default on approved mortgage the funds for paying off the claims coming from the borrower who is insured against nothing. In 1944 the Veterans Administration (VA) mortgage-guarantee system was added which together with FHA greatly increased the power and profits of mortgage lenders by promoting a boom in housing sales and increasing the role of approved mortgage lenders in each housing transaction. The long-term, low-downpayment mortgage was created and the results are well known: ... the vast postwar suburban boom, creating the illusion of homeownership for millions of people, while the actual owners are the mortgage lenders. The putative homeowner pays rent to the bank and also pays an insurance premium to the government. Then if he cannot make his mortgage payments, the goverment insurance repays the outstanding part of the loan to the mortgage holder, and the government is left owning the property,l? Secondary Mortgage Markets The third major structural addition in the housing sector-the secondary mortgage market--came about with the creation of the Federal National Mortgage Association (FNMA) in 1938. This secondary mortgage market was created to give lenders greater liquidity and allow them to pursue opportunities more profitable than mortgage investments as those opportunities present themselves. FNMA purchased mortgages from approved lending institutions but permitted the original lenders to continue to service l?Stone, "Federal Housing Policy: A Political-Economic Analysis, op. cit., p. 4)1. 9 -

PAGE 20

the loans and to receive a fee of .25% to 1% for doing so. Stone points out that FNMA made the housing sector more profitable in two ways. First, not only did the mortgage lenders get the liquidity they desired but they were also able to make some profits on their mortgages--even after they had been sold off. Second, FNMA offered shares in the pool of mortgages it bought, thus giving another group of investors the opportunity to profit from housing finance. FNMA and GNMA FNMA, in fact, became so successful that mortgage lenders pressured to have it transferred to the private sector. The FNMA Charter Act of 1954, which authorized the sale of stock to finance the secondary market operations of FNMA, began the transfer process. The Housing Act of 1968 completed the process of making FNMA virtually private, separating its secondary-market operation from its more risky functions of special assistance, management, and liquidation of holdings. These more risky functions were given to a new corporation underwritten by the federal government known as the Government National Mortgage Association (GNMA), The sequence of events outlined above is what Stone calls: ... one of the clearest examples of the intermeshing of the state and private business under modern capitalism. A national facility, greatly needed and desired by private business to reduce its risks and assure it of ready markets for its products, is first created and nurtured at public expense. Once it be-comes established and begins to repay its costs, the facility is turned over to private interests so that its success can produce profits for them.l8 Not happy with a secondary mortgage market that was limited to purchasing government-insured mortgages when the proportions of FHA or VA loans were decreasing as they have in recent years, mortgage lenders pressured for a secondary market for conventional mortgages, The Emergency Home Finance Act of 1970 provided for two secondary markets for conventional mortgages: 18 Ibid,, p. 432. 10 -

PAGE 21

first, FNMA was authorized to purchase conventional mortgages; and second, the newly created Federal Home Loan Mortgage Cor poration, set up under the Home Loan Bank Board , was authorized to purchase both conventional and insured mortgages from any federally-insured banking institution. Other New Vehicles of Capital for Mortgages Federal intervention in housing also prompted intervention by the States. According to the National Housing Policy Review: "Partially in response to Federal housing programs enacted in the latter part of the 1960s, the States have been establishing their own housing finance and development agencies and commuity affairs agencies ..... l9 Stone comments that these state finance and development agencies were yet another device created by the state to raise more money for residential mortgages. Together with local finance and development agencies, they had $10.6 billion in housing loans outstanding in 1975. 20 Finally, state intervention in the form of 1970 legislation creating special tax loopholes stimulat ed the creation of Real Estate Investment Trusts (REITs) which became a new force in the mortgage industry. Their assets had grown from almost nothing in the late 60s to nearly $21 billion by the mid l970s. 21 IV. CONSEQUENCES OF STATE INTERVENTION ON BEHALF OF CAPITAL I n order to show that CHFA's failure to best serve the public purpose is systemic, i.e., found within the very purpose for which it was created--to advance the interests of capital-in this section I will again draw extensively on the work of Stone.22 l9National Housing Policy Review, op. cit., p. 140. 20 Stone, "GimmeShelter", op . cit., p. 189. 21Ibid. See Senate Committee on Banking, H ousing a nd Urban Affairs, Hearing Estate Investments Trusts, 1976 for an account of some of the damage done t o the U.S. economy by REITs . 22This section will rely heavily on two o f .Stone's works in particular: "Gimme Shelter", op. cit. and "Housing, Mortgage Lending and the Contradictions of Capitalism", op. cit. -11 -

PAGE 22

The Major Beneficiaries and the Principal Strategy According to Stone, the patterns of intervention within the housing sector reflect the hierarchy of power within the sector, the power of housing capitalists with respect to other capitalists and the goals of the class as a whole to maintain the status quo. The major beneficiaries of state intervention in housing have been banks and other mortgage lenders, followed by developers, and then landlords and other equity investors. Stone further maintains that the most important goal of such intervention "has been to restore, sustain and enhance the process of capital accumulation in response to the tendency toward declining profits and depression in the housing sector-a tendency generated by the income-housing conflict".23 He contends that the principal strategy has been the promotion of mortgaged homeownership through the long-term, low-downpay ment mortgage loan. This strategy, explains Stone, "was designed to undercut the income/housing cost problem in several ways: economically by both lessening monthly payments for a given size loan and reducing the personal savings needed to buy; politically by promoting the illusion of homeownership through the reality of debt".24 The strategy aided housing capitalists by stimulation of demand, creating investment opportunities, providing protection against risks and bestowing actual financial assistance. The Long-term, Low-downpayment Mortgage Loan and the Debt Economy The long-term, low-downpayment mortgage loan led to the rapid growth of residential mortgage debt relative to other debt in the economy. While total debt in the economy more than tripled between 1946 and 1965, residential mortgage debt grew by 760 percent--by far the biggest single component of the increase. Between 1946-1974, housing continued to be the largest segment of the increase in debt in the economy growing two-and-23stone, "Housing, Mortgage Lending and the Contradictions of Capitalism", op. cit., p. 188. 24 Ibid. I p. 193. -12 -

PAGE 23

a-half times as fast as the overall economy compared to private debt which grew twice as fast as the gross national product.2 5 The rapid increase in hous i ng d ebt was i nduced by the change in mortgage-loan ratios and terms and by the increase in demand for housing stimulated in part by the easier availability of mort-gage credit. Higher ratio loans create more debt, Stone explains, even if house prices and market activity do not increase; .further, longer loan terms mean lower rates o f repayment in t he early years of the loans. "For example , at the interest rates that were common until the late 1960s, after five years of amortiza-tion 40-45 percent of a ten-year loan had been repaid, but only 15-20 percent of a twenty-year loan, and only 7-9 percent of a thirty-year loan".26 This meant that rather than being able to finance new loans with the repayment s on old loans, mortgage lenders had to find more and more new funds t hus creating even more debt. Hartman and Stone explain the problem with our debt economy quite clearly and succinctly: The need for such immense amounts of b orrowed m oney and the cost of this money--interest rates-have been causing rapidly increasing problems for the housing sector and for the economy as a whole . They have developed because the government has tried to find ways to prop up the economy as a whole without confronting the basic inadequacies of our economic system .... Our type of e co n omy has a built-in problem. On the one hand, businesses and corporations that employ people want to maximize their profits. So wages have t o be kept at the lowest possible leve l , while the price of housing and other things people need remains high. Credit provides a way of selling things at high prices without hav ing to give people higher incomes. Instead of taking the money income from the rich and using it t o give everyo ne a good standard of living, our economic system forces people to borrow the money they need and pay it back--with interest .... This growing credit system only creates further problem s , though. "Buy now, pay later" is profitable for lenders only if there is a "later".27 2 5Hartman and Stone explain that we are now $650 billion in debt on our housing, or nearly $3,000 for each and every person in the country--a debt that has accumulated almost entirely in the last thirty years. 26s tone, "Housing, Mortgage Lending and the Contradictions of Capital", op . cit., p . 194. _ 11 _

PAGE 24

The Fundamental Contradiction Stone explains that housing has been at the center of the crisis in our economic system because of the problems arising from the spread of long-term mortgages and the associated growth of mortgage debt. The dependence of our system on debt financing leads to a fundamental contradiction which capitalism cannot ultimately resolve: On the one hand, if the federal government allows the money supply to increase to meet all the needs for borrowed funds, it sets off price increases in the economy, since the amount of money being spent goes up faster than the amount of goods and services being produced. Inflation leads to higher interest rates and more borrowing in anticipation of further price increases. Debt accelerates far ahead of ability to repay it, leading toward a financial crisis . ... On the other hand, if the government tries to restrict the growth of credit to prevent or limit inflation, then some borrowers get squeezed out. Previously accumulated debts eventually have to be paid, and many individuals and businesses are totally dependent on new loans to pay off the old ones. Without continued access to credit to pay their bills, they may go bankrupt. Since the banks and other creditors have also borrowed heavily to expand their lending and stimulate the economy, when they do not get paid, a chain of defaults can ensue. Thus a credit squeeze can also bring the financial system to the brink of collapse.28 The Instability of the Economy and Its Impact on Housing Stone demonstrates how dependence on the mortgage system has made housing especially vulnerable to the problems of the economy as a whole. In 1966, in 1969-70, and again in 1974-74, the instability of the economy required the government to impose a policy of "tight money" in order to restore equilibrium. This led to soaring interest rates with money flowing out of housing into more profitable investments. Housing starts plum meted to their lowest level in almost 30 years by December 1974 from their highest level in history in January 1973 because of 27 Hartman and Stone, op. cit., p. 219. 28 Stone, "Housing, Mortgage Lending and the Contradictions of Capital", op. cit., p. 197. -14 -

PAGE 25

this shift of funds. These periods of tight money have been increasingly severe, with interest rates rising higher each time and mortgage credit being restricted ever more sharply as wealthie r depositors have chased more profitable instruments offered by commercial banks, the federal government and industrial corporations. This increasing competition for borrowed funds, since 1966, has caused a steady, long-term rise in the general level of interest rates on top of the short-term fluc as lenders have offset the low returns they receive on older mortgages with higher interest rates on new mortgages. Stone goes on to explain how rising interest rates have led to reduced rates of repayment on loans: " ... a thirty-year mortgage at 5 percent interest is 8 percent repaid after five years and 19 percent repaid after ten years; at 10 percent interest only J percent has been repaid after five years and only 9 percent after ten years".29 These lower repayment rates only add to the need for new funds to finance additional mortgages, which increases the competition for funds in the economy even more, which adds to interest rates, in a self-reinforcing cycle. Furthermore, the lengthening of mortgage terms which state intervention helped to foster has made monthly mortgage payments much more sensitive to interest rates. Stone points out that "when interest rates double from 5 percent to 10 percent, the monthly payments on a ten-year loan go up by 46 percent and on a thirty-year loan by 64 percent".JO Since housing prices are rising due to other factors in addition to the rising finance costs, mortgage payments have risen much faster than monthly incomes in the last JO years. Whereas the price of a new single-family house and median family income had both about triple d between 1950 and 1975, "rising interest rates caused the monthly mortgage payments for a new median-priced singlef a mily h ous e with a thirty-year mortgage to increase by a factor 29Ibid. I p. 2 00. JOibid., p. 2 01. 15 -

PAGE 26

of six".3l While about two-thirds of all families could have afforded the payments on a new house in 1950, less than one QUarter of all families can afford those payments today. Stone predicts that this trend will gradually result in the production of smaller and cheaper houses. In recent years the building industry's response has been confused, with an increasing tendency . for developers to produce luxury housing while one-third of all new single-family houses are now mobile homes . However there are some signs that Stone's predictions are already coming true with the rapid growth of cluster developments and condomin iums that we are seeing today. Housing's Increased Dependence on the Federal Treasury Finally, Stone points out that the secondary mortgage markets (whose creation were outlined in the previous chapter) have never fully worked as intended because large private investors such as pension funds have still regarded mortgages as too risky and unfamiliar. Instead, government-backed agencies have become the principal investors in the secondary mortgage market as the economic crisis struck the traditional mortgage industry. Data from the U.S. League of Savings Associations Quoted by Stone show that: In the tight-money period of 1966 , the Federal National Mortgage Association (FNMA) went to Wall Street, raised $2.2 billion, and used the money to buy mortgages from thrift institutions and mortgage companies. In 1969-70, FNMA and the newly-created Government National Mortgage Association (GNMA) raised $9.6 billion in the capital markets to buy mortgages. Finally, during the massive inflation and depression of 1973-1975, these three agencies borrowed $17.5 billion to pump into residential mortgages .... In addition to these secondary mortgage market activities by federal agencies, the Federal Home Loan Bank Board also raised money to prop up thrift institutions that were losing savings deposits. They provided nearly $1 billion in 1966, another $4.3 billion in 1969-1970, and $13.8 billion in 1973 -1974.32 3libid., p. 200. 3 2Ibid., p. 202. -16 -

PAGE 27

The mortgage industry, rather than working in the way it was traditionally conceived it would work--with new money for mortgages coming from traditional savings accounts and payments on old mortgages--became increasingly dependent on the federal treasury to the point where in both 1969 and in 1974, more than 40 percent of all new money for mortgages on housing came from federal agencies. The federal agencies, in turn, had to borrow from the national capital markets. Two Contradictions: A Summary of the Major Consequences In summary, the major of state intervention which encouraged the development of the long-term, low-downpayment mortgage through the development of new instruments to raise and allocate mortgage credit (such as, FNMA, GNMA, FHLMC, FHLBB, state and local housing finance agencies and REITs) have been twofold according to Stone: (l) the new instruments increase the competition for borrowed funds just at the points when government monetary policy seeks to reduce the supply of credit. This situation has caused even higher interest rates, leading to further withdrawals of deposits in savings accounts as savers have pursued higher returns elsewhere. These withdrawals from thrift institutions (savings-and-loan associations and mutual savings make the largest proportion of mortgage loans) have offset the additional funds for mortgages raised through the capital n1arkets. If the mortgage lenders are able to successfully compete for funds, there will be even higher interest rates both for mortgages and throughout the economy, adding further to the instability of the system. If mortgage lenders are unsuccessful--i.e. they are not able to compete for funds--the housing shortage will worsen; (2) the stability of the structure of mortgage debt is increasingly important for the stability of the entire financial structure of capitalism because many investors other than thrift institutions and small savers now have billions of dollars tied up with the mortgage system. The stability of the mortgage system, on the other hand, depends upon continued mortgage payments from present homeowners and sufficient demand for the new -17 -

PAGE 28

housing being built. Census figures cited by Stone indicate that present homeowners are increasingly less able (or willing) to pay. More than one percent of all homeowners were over sixty days_ behind on their mortgage payments in the mid-l960s and again in 1975 and .4 percent of all mortgaged structures were foreclosed on in 1974. And in 1974 and 1975, the spread of defaults on real estate construction loans triggered the biggest bank failures in U.S. history. V. STATE INTERVENTION: TAX EXPENDITURES The preceding two chapters attempted to make the point that Colorado Housing Finance Authority--or, for that matter, any state or local intervention that follows the pattern set by federal intervention with its promotion of the long-term, low-downpayment mortgage--is contributing to higher interest rates in the housing sector and throughout the economy and thus to the overall problem of instability in the economy that's so much in the news today. As a result of the above discussion, one is led to question whether any governmental intervention where the majority of the subsidy goes, first, to mortgage lenders, then to developers, and then to landlords and other owners of equity, while only lo% of the population in need of subsidy is actually served is truly serving the public purpose. This chapter will continue to develop the position that the benefits of state intervention are highly regressive in character, but it will take a less macro-economic approach. It will instead narrow in on some of the inequities in a hous ing subsidy system where the majority of the subsidy is indirect--in the the form of tax expenditures.JJ The two forms of tax expenditures to be examined here are tax-exempt bond financing and real estate tax shelter subsidies. Much of the housing built with financing made available 33Tax-expenditures are the cost to the government of various deductions on indlvidual and cornor.qt . P 1 ncome taxP.s . -18 -

PAGE 29

by CHFA utilizes both of these forms of tax-expenditure. As a quasi-governmental agency of the state, CHFA itself utilizes tax-exempt bonds to make financing available to developers of housing for low and moderate income families at below market interest rates. In turn, in the case of multi-family rental housingYJdeveloped by so-called "limited dividend" developers, the below market interest rate funds CHFA makes available are piggy-backed on top of real estate tax shelter subsidies. The result is an extremely costly system of providing housing for low and moderate income persons and families. CHFA: Its Purpose, Its Programs and Its Place in State Intervention Before turning to the tax expenditure housing subsidy systems promoted by CHFA, it is important to understand why CHFA was set up, how it operates and its role as an institution of the capitalist state. According to CHFA's 1977 Annual Report, "the Authority was created for the purpose of making available additional funds to assist private enterprise and governmental entities in providing housing facilities for low and moderate income families".35 Both CHFA's enabling legislation and its annual reports are careful to point out that its purpose is not to replace the "private market" or "private enterprise system", but only to help it do the job of providing decent, safe and sanitary housing that is within the financial capabilities of lowand moderate-income families.36 Since "minimizing the impact of higher costs on the ability of low-and income families to afford decent, safe, and sanitary housing YJ-The multi-family housing insured mortgage loan program is essentially CHFA's only program to benefit low-income people since the low-income virtually never qualify for CHFA's loansto-lenders homeownership loans. 35CHFA Annual Report, 1977, p. 18. 36of course, the enabling legislation and CHFA' s reports address why the private market is no longer able to meet housing needs of low-or even moderate-income people. 19 -never the

PAGE 30

facilities" and "preventing or eliminating blight in urban and rural areas" are public policies of the state with a valid public purpose,37 CHFA's existence is legitimized.38 In order to achieve its authorized purpose of increasing the supply of decent, safe and sanitary housing for low and moderate income families and persons, CHFA has set up three program funds in addition to its operating fund39i (1) Construction Loan Fund -to provide construction loan financing on qualified housing for low and moderate income people. These loans are made through CHFA's Originating and Servicing Correspondents which are approved mortgage lenders who take both a processing fee and a loan servicing fee. (2) Loans to Lenders Program Funds -to make loans to qualified mortgage lenders in Colorado who in turn make mortgages available at below market interest rates (currently 8%) to qualified moderate income families and individuals to purchase homes in which to live. (3) Multi-Family Housing Insured Mortgage Loan Program Funds -to make or acquire mortgage loans insured or guaranteed by an agency of the United States (FHA or FmHA) for rehabilitated or newl y constructed apartment dwellings. Here too CHFA utilizes its Originating and Servicing Correspondents to provide the servicing for the permanent mortgage. 3 7cHFA Act (Part 7 of Article 4 of Title 29, C.R.S. 1973, as amended). 3 8Patrick Ashton, in a footnote to his work "The Political Economy of Suburban Development" in Marxism and the Metropolis, notes that "the functions of the capitalist (1) to ensure profitable private capital accumulation and (2) to maintain social harmony. The capitalist state contributes directly to corporate profitability through projects and services that increase the rate of profit (e.g., highways, education). It contributes indirectly to corporate profitability through pro-jects and services that lower the reproduction cost of labor (e.g., urban renewal, unemployment insurance). The state legitimates the capitalist system through projects and services which maintain social order (e.g., welfare, police). 39Authorized activities of this fund include payment of general and administrative expenses and "those activities deemed necessary to fulfill the Authority's corporate purposes" (Annual Report). Amongst those activities recently deemed necessary have been a farewell party at one of Denver's foremost hotels for the departing member from the state legislature. -?() -

PAGE 31

CHFA has also been authorized by the U.S. Department of Housing and Urban Development to administer funds to qualified projects under Section 8 of the U.S. Housing Act of 1937, as amended, These funds are used to reduce rental expenses of low income tenants to as low as 15% of their income. CHFA receives payments from HUD and remits the appropriate amounts to each project monthly.40 Following the pattern of state intervention outlined earlier, CHFA's role now can be seen as one of shoring up the long, term, low-downpayment mortgage debt system which state intervention on behalf of mortgage lenders made possible in the first place. Since the built-in contradictions of this system lead to spiraling costs which, in turn, means a smaller and smaller percentage of the population will be served by it, a new mech anism was needed, This mechanism would prevent, or at least forestall, the social unrest which would come about as more and more people saw the American dream of homeownership fade out of their reach. Thus we saw the creation of more and more state housing finance authorities in the late 60's and early 70's, As another example of the intermeshing of the state and private business under modern capitalism, CHFA, at the expense of the federal treasury, brings in the capital needed by private enterprise to produce the housing necessary to meet the needs of those whose needs could presumably not be provided for under 40 Although a full scale critique of Section 8 is beyond the scope of this paper, I want to point out that Section 8 has been criti-cized for encouraging speculation and high rent by ensuring land-lords a high profit, Landlords receive "fair market rents" un-der a HUD formula which reflects existing inflated prices result-ing from land speculation, the tight housing market, lack of bargaining power by tenants and the greed of landlords and in-vestors. It has also been criticized for pitting the poor against moderate income families to compete for scarce housing crumbs, (Shelterforce, June 1976) . Stone adds the comment that "the subsidies are ostensibly on behalf of the tenants who could not otherwise afford the rents. There is no question, though, that private owners have found these subsidies very attractive both financially and politically, since the subsidies continue to flow even if the tenants are dissatisfied with conditions or can't pay the rent. " (The Housing Crisis, Mortage Lending, and Class Struggle, p. 157). -21 -

PAGE 32

the normal workings of the market. The numerous actors of the private market, of course, skim off their profits at various stages along the way--from the syndication and sale of tax-exempt bonds, to the processing, construction finance and permanent mortgage servicing fees, to the syndication and sale of tax shelters, to the profits to be made from subsidized rents, etc. Tax-Exempt Bond Financing and CHFA CHFA's Annual Report proudly maintains that its service is provided at "no direct cost to the taxpayers of the state of Colorado." While this statement may be technically correct, it conceals the fact that the indirect cost to the no longer so silent majority of taxpayers41 of this state (and this nation) are enormous. Costs to the federal government The National Housing Policy Review (a Nixon task force) points out that from the point of view of federal fiscal policy, there are disadvantages to tax-exempt bond financing when undertaken either by state housing finance agencies or by local housing authorities in that this type of financing contains a concealed cost to the federal government. By not taxing the interest earned by investors on tax-exempt housing bonds, the government provides a subsidy through the tax system in the form of lower interest rates to the issuing agencies. The Review demonstrates that the tax subsidy is inefficient because it costs the federal government more in foregone tax revenues than the housing finance agencies save in lower interest rates. In 1973, the Review calculated that: 41 Some 34 bond issues sold since 1961 by State housing finance agencies will cost the Federal Government $1.62 billion in tax revenues foregone over the life of the bonds while saving the agencies $0.60 billion in interest expense. This represents a net loss of $1.02 billion over a 40-year period.42 These taxpayers are reacting to the increasingly heavy tax burden that the inequities in our tax system have caused for them by striking out against social programs and the poor with measures like California's Proposition 13 rather than thoroughly analyzing matters and questioning the subsidies to the rich. 42National Housing Policy Review, op. cit., p. 144. 22 -

PAGE 33

Since 1973, with an increased number of state housing finance agencies issuing more and more tax-exempt bonds, the proportionate loss to the federal treasury has increased a t an even greater rate. This is because as more tax-exempt bonds are issued, the interest rate is being forced upward, not only increasing t he cost to state housing finance agencies (and other state and local government users), but also resulting in greater tax benefits to holders of these securities. According to the Wall Street Journal of Jan. 20, 1969 , the federal government estimated the annual loss from the tax exemption from all state and local government users at $1.8 billion. According to People and Taxes of March 1978, the federal govern-ment currently foregoes some $6 billion in taxes because of the exemption, while the states and cities save less than $4 . 5 billion in reduced interest payments. The same source illustrates the reasons for the difference between what the federal treasury loses and what state and local governments save as follows: The current market rate for taxable bonds is about 8%. A taxpayer in the 50% bracket would be willing to buy a tax-free bond paying only 4%, since this will yield the same after-tax gain as if he or she received 8% and paid a 50% tax. A person in the 70% tax bracket would accept a tax free yield of only 2.4% . In order to attract a wider range of lenders, however , state and local governments have to set the interest rates on their bonds to appeal to taxpayers in the 30% bracket and up.43 This means they currently pay about 5i%--tax free. For short-term bonds times when credit is tight, the rate is even higher. This gives a windfall to taxpayers in higher brackets-a windfall paid for by the federal government and, ultimately, the rest of us,45 4 3Most other sources consulted claim that bonds must be set t o appeal to taxpayers in the 50% bracket and up . 44cHFA paid 7.0% on its last bond issue. 4 5Tax Reform Research Group (established by Ralph Nader to w ork for reform of income, property, and other taxes) People and Taxes, March 1978, p. 8. 23 -

PAGE 34

Concentration of ownership of bonds Stone and Achtenburg point out that the 100 biggest commercial banks and richest l% of the population owned close to t of the $200 billion worth of state and local bonds outstanding in 1974. They cite the U.S. Commerce Department's Survey of Current Business (11/74) to show that bond ownership is even more concentrated among the rich than stock ownership. According to the survey the richest 1% of the population owns 51% o f all individually owned stock, while the percentage of state and local bonds held by the richest 1% is variously estimated at from 70-85%. 46 People and Taxes estimates that 83% of the individual tax savings from the exemption go to the top l% of all taxpayers.4 7 Stone and Achtenburg further demonstrate that bank ownership of bonds is also highly concentrated--with the 13,000 commercial banks in the U.S. owning $100 billion in state and local bonds and notes in 1974 and the top 100 banks alone holding 1/3 48 of that total. By 1977, the amount commercial banks held in tax-exempt state and local bonds had increased to $114 billion. Further profits from the sale of bonds Not only have investors made huge profits from the tax-exempt tiQn status of CHFA's bonds, but also from the way in which these "I. 0. U.s" are bought and sold. Instead of marketing its notes and bonds separately to individual investors, CHFA generally sells the entire issue to the group of big banks and bond houses which is willing to accept the lowest interest rate. The members of this group, called a "syndicate" or "the underwriters", agree to underwrite or guarantee the reliability of the issue. The syndicate keeps some of the notes or bonds for itself and sells 46 Michael and Emily Achtenburg, Hostaget Housing and the Massa-chusetts Fiscal Crisis, p. 11. 4 7Tax Reform Research Group, op cit. 48 Stone and Achtenburg, op. cit. p. 11. 24 -

PAGE 35

the rest to other investors seeking tax-free profits. Stone and Achtenburg point out that the syndicate usually buys the notes or bonds at a " discount"--that is, at a price which is lower than their face value. They use the following example: ... if a $100 million note or bond issue was sold at a 2% discount, the syndicate would pay only $98 million. The syndicate can then sell the issue to secondhand bond buyers for at least the face value of $100 million--and realize a profit of $2 million. This differe nce between the discounted price and the full value of the bond is the syndicate's "underwriting fee" or commission.49 These authors further .point out that if members of the syndicate keep some portion of t h e notes or bonds in their own portfolios, the discount has the effect of increasing the annual rate of interest or profit. They explain: ... suppose the same $100 million note issue was sold at an annual interest rate of 5%. This represents an annual tax-free yield of $5 million for the noteholders. If the note matured (came due) in one year, at the end of the year the noteholders would get back a total of $105 million--the $100 million note plus $5 million in interest. But since they only invested $98 million, their profit would be $7 million. This represents an (real) rate of return of 7.1% on the $98 million investment.50 Finally, Stone and Achtenburg demonstrate that the syndicate can often m ak e even higher profits by selling the notes and bonds to s e cond-hand buyers at a "premium"--that is, than their face value. Their examplea ... suppos e the same $100 million note issue were resold at a 1% p r emium. The second-hand buyers would then pay $101 million--and the underwriters would make an extra $1 million, on top of their $2 million underwriting fee. In this case, the second-hand investors would receive the $105 million at the end of the year. Since they only invested $101 million, their profit would be $4 million, an effective rate of return of 4.0% tax-free.51 49Ibid, 50ibid. 5libid., p. 12. -25 -

PAGE 36

Summary of tax-exempt bond financing What the above facts and figures indicate are that the tax-exempt bond financing mechanism CHFA utilizes to make additional funds available to mortgage lenders: (l) is very costly to the federal treasury (and ultiRately to most of us) in terms of revenue foregone; (2) is very regressive in that the wealthiest portion of the population and the largest banks reap most of the financial rewards from the tax exemption while the federal treasury loses; and (3) is a terribly inefficient way to make funds available because of the number of actors who must take their cut as the bonds are bought and sold. Real Estate Tax Shelter Subsidies and CHFA While CHFA's participation in perpetuating the costly tax expenditure found in tax-exempt bond financing is quite explicit and direct, its involvement in continuing the tax expenditures found in real estate tax shelter subsidies is rather indirect-i.e., it stems from CHFA's practice of actively seeking out private developers who utilize them.52 CHFA's volume of business has increased substantially over the last few years. Its bonding capacity has increased from $200 million in 1977 to $400 million in 1978 to $800 million in 1979--indicating geometrically increasing demand for its funds. One reason for CHFA's increase in volume of business is that housing dev elopers have been increasingly attracted to the profit opportunities available through tax loopholes associated with low and moderate income housing. A skillful developer can save thousands of dollars each year in income tax payments, by 5 2rt should be noted here that CHFA mainly deals with private developers because local public housing authorities do not have the "front end" money to meet all-of CHFA's requirements. CHFA's requirements in turn are based upon FHA's mortgage insurance requirements. r.HFA's -Executive Director is proposing an unin:.... sured program t . o some. of :the p:r?eblems :j:ocal public housing authbrities M5:e in utilizing GHFA ' s funds, but his Board of Directors-has shown little enthusiasm for the idea because it would mean an expanded staff to do the site plan and engineering reviews, etc. by FHA. 26 -

PAGE 37

claiming that his/her property is rapidly "depreciating" in value. However, unlike other types of property, housing usually doesn't deteriorate but instead goes up in value. These phoney tax losses claimed for depreciation can be used by the developer to "shelter" other income from taxes he/she would normally have to pay. Soph isticated developers can profit further by syndicating or selling shares in their projects to other investors seeking a part of this "tax shelter". A sample project Real estate tax shelters can be quite complex because they involve a number of different provisions of the tax code and a number of different participants playing different roles, In order to explain how the subsidies operate, who benefits from them, and how they developed, I will borrow the sample project laid out in.the Congressional Budget Office background paper-Real Estate Tax Shelter Subsidies and Direct Subsidy Alternatives. The project to be built is an apartment building costing $1,000,000 (which includes development, land and construction The developer obtains a 40 year loan for 90% of the cost--$900,000--say from one of CHFA's Originating and Servicing Correspondents, The developer must then come up with the additional $100,000. In order to raise the $100,000 the developer can sell interests in t h e project before it is built and the right to special tax advantages that, in combination, will permit income to be sheltered and tax payments avoided or deferred, These tax benefits are spread out over a period of years--usually 15 to 20. In determining how much to sell the tax shelter benefits for, the developer discounts the tax benefits to be received in each year according to a formula that takes account of the fact that $100 received in year 20 is much less valuable to an investor than $100 received in year five. This discount rate is usually assumed to be 20%. It takes into account the rate of return the outside investor could earn on alternative investments, and the risk that the project might not be as succ essful or t he tax bene fits as great as expected, 27 -

PAGE 38

An additional factor must be taken into account in determining the developer's selling price of the tax benefits. The losses from the tax shelter will be worth more to an investor in the top 70 percent tax bracket than to one in the 50% bracket. For each $1,000 in annual losses from the tax shelter, the 70% bracket taxpayer will save $700 a year in taxes, while the 50% bracket taxpayer will save only $500 a year. Since there are usually not enough 70% bracket investors to go around, the developer will have to sell the tax losses at a price low enough to attract a 50% bracket taxpayer. So any investors in tax brackets over 50% will get a windfall benefit that increases in size as their top marginal tax bracket increases. Table I (on the following page) shows the present value of the 20-year stream of total benefits in this sample project to outside investors with marginal tax brackets of 50, 60 and 70%. Column (l) separates out the tax savings that result from these shelters: (1) using accelerated rather than straight-line depreciation, (2) deducting construction period interest and taxes immediately rather than writing them off over the life of the building, and (3) paying tax on the gain on the sale in year 20 at capital gain rates (no recapture of depreciation) rather than ordinary income rates (full recapture). The developer probably will not be able to sell these future tax savings for much more than $71,800, the amount they are worth to a 50% bracket taxpayer. There are also other benefits the developer can sell to outside investors in this sample project. There are additional tax savings resulting from straight-line depreciation, reduced by whatever capital gains tax must be paid when the project is sold 20 years later. Column (2) shows that the net value of these other tax savings is $29,200 to an investor in the 50% bracket. Column (3) shows the after-tax cash distributions from rents over 20 years, which have a present of $39,000 for investors in all tax brackets. 28 -

PAGE 39

N "' " [ ' 'l'AILI lo DliCOUliTID PUS!NT VALUI or 20 liAII or PIOJICT 11Mil11'1 AND TIIAIUilt UV!MUI LOSI!I Tu Invaator Shaltar SAHPLI PIOJ!Ct' IIM!riTS OV!l 20 liAII PIISIMT VALUI DISCOUMTBD AT 20 PIIC!MT Praaaat Valua to Outaida lavaatora (95 Parcaat Shara) Other Caah Tax Dlatributioaa Tu Shaltar Praaaat Value to J! (5 Parcaat Sbara) Other Caah Tax Diltrlbutlona Tax Savina• !I Saviaa• W fra. laata sJ Total Savina• y aavtaa•W fra. lanta sJ Total I racket 501 601 701 (1) • 71,800 86,200 100,600 Iavaator Tax Bracket 501 601 701 (2) • 29,200 35,800 42,100 (3) (4) (5) ' 39,000 $140,000 • 3,800 39,000 161,000 4,500 39,000 181,700 5,300 UVIMUI LOll TO TIIAIUll OVII 20 llAU PI
PAGE 40

Taking all of the above benefits into account, high-income investors are usually willing to pay from 15 to 20% of the mortgage amount ($900,000 in this project) for a 95%interest in the project and its tax and cash benefits. It is assumed for the purposes of this sample project that outside investors are willing to pay $140,000 or 15.6% of the mortgage. Column (4) shows that the present value of the anticipated benefits t o investors above the 50% tax bracket is much greater than the $140,000 they are required to put into the project. In other words, they receive substantial extra benefits solely because of their higher tax bracket. Revenue loss to the t-reasury Table I also shows the revenue loss to the Treasury. When tax shelter savings are looked at from the Treasury's point of view as revenue losses, a different discount rate should be used since the Treasury's borrowing and lending rate is lower than that of private investors, and its future risks are supposedly less. Therefore, it is assumed that the Treasury will discount the 20-year stream of revenue losses at a rate of only about 7.5%. The Treasury must measure its revenue losses on the basis of what the average tax shelter investor's marginal tax bracket is, since that is the best approximation of the Treasury's actual loss. Since itk probably reasonable to assume that the average tax shelter investor is in about the 60% marginal tax bracket,53 the present value of the Treasury's 20 year tax expenditure for this sample project would be $145,700. The Treasury must in effect pay more to investors to induce them to risk their money than it would cost the Treasury itself to invest directly in the project. The difference in discount rates (20% for the investors vs. 7.5% for the Treasury) accounts for about 3/4 of the Treasury's tax shelter subsidy payment to the investors in this sample project. 53A recent survey of a limited number of real estate tax shelter investors showed 50% of the investors with tax brackets below 60%, and 50% with top brackets of 60% or higher. Touche Ross & Co., The Impact and Effects of Section 167 hl .Q!! the Rehabilitation of Multifamily Propertt, prepared for the U.S. Dept. of Housing and Urban Development 1974), V. 1, p. 102. 30 -

PAGE 41

. . The CBO study from which the above model was taken points out that while real estate tax shelters are seen as a device to provide more investment capital for building construction, only about half of what the tax shelter subsidy costs the government in lost revenue ever reaches builders and developers. The remainder goes in the form of payments to investors for the use of their money, and in fees to the syndicators, lawyers, and accountants who are neederlto put together and sell the tax shelter package.54 ConclusiQns on real e.state. tax .shelter subsidies Again, CHFA does not directly utilize real estate tax shelters itself. Rather, by making financing available to so called "limited dividend" developers and, in fact, seeking out such developers to utilize its funds, CHFA helps to perpetuate another subsidy system which is costly, inefficient, inequitable and invisible to the average citizen,55 Cushing Dolbeare, Chairperson of the AdHoc Low Income Housing Coalition (soon to become the National Low Income Housing Coalition), sums up the real estate tax shelter subsidy situation without mincing words: We could hardly find a more expensive way of producing an inferior product .... While in theory this subsidy is to benefit the moderate income family (low income families cannot afford such housing), in practice it goes to two sources only: The investor in the 5o%, 6o% or ?o% tax bracket and the bank or other lending institutions which makes the loan and collects the interest on the mortgage.56 ... If the purpose is to provide housing for those who need it 54congressional Budget Office, op. cit., p. xiv 55I base these remarks on the CBO study from which the sample project was taken. On every criteria the study used to evaluate real estate tax shelters and alternative subsidies--i.e., cost, efficiency, ease of administration, incentives for good manage ment and maintenance; tax equity and neutrality, and visibility and controllability--real estate tax shelter subsidies came out lacking. 5 6Dolbeare in a footnote that this is not to suggest the subsidy does not reduce the cost to the tenant because it does. But the same purpose could be accomplished by a variety of other means. -31 -

PAGE 42

most, we could hardly devise a less effective or more expensive method, Those of us, however, who are concerned with providing housing for the poor ... have a responsibility to design and advocate not only programs which are less expensive to taxpayers but programs which benefit the needy without providing windfalls and bonanzas for the investor or banker.57 VI, : THE PUBLIC PURPOSE Supposedly "government exists for the protection and/or promotion of the public health, safety, morals and/or general welfare. These are the valid public purposes for which public power may be used".5B The government can accomplish these protective or promotional public purposes with three tools: (1) the taxing power; (2) the power of eminent domain; (3) the police power, It is not my intent here to explore in depth the legal history of the concept of the public purpose within the framework of the present legal system. That is a question I hope to pursue more fully at another time. Rather, keeping in mind the admonition of Congressman Ron Dellums who, in a recent keynote addressin Denver, reminded us that "A society answers the questions it asks", I want to make explicit here the questions suggested by the above discussion: Is a state59 aided system of housing finance and production which greatly contributes to an over-inflated and unstable debt economy in the best interests of the majority of Americans? Is a state aided system of housing and production which contributes to the continuing fiscal crisis of this countrj operating in the public interest? Is a state aided system of housing finance and production which fails to meet the housing needs of an ever increasing proportion of the American population truly operating in the public interest? 57Cushing Dolbeare, Federal Tax Rip-Offs: Housing Subsidies for the Rich, 1972 , pp. 21-22. 5 8Laurence Gerckens, American City Planning Since 1900 A.D. Module B p. 16. 59Again , state is used in the generic to refer to all government. -32 -

PAGE 43

Is a state aided system of housing finance and production which continues the cycle of inflation--higher interest rates, leading to higher costs and to lower rates of new construction, leading again to higher costs until there seems to be no end in sight-in the best interests of the majority of the American people? Does a state aided s ystem of housing finance and production which sees the rich getting richer while the rest of us get inflation and higher taxes operate in the public interest? Is it the explicit intention of the American people or the people of the State of Colorado to continue a system of state intervention in housing which first serves the interests of mortgage lenders, then developers, then landlords and other owners of equity while only 10% of those in need of subsidy to achieve eve n mipimally pde quate shelter are reached? Does a state aided system of housing finance and production which promotes the perpetuation of a tax loophole, such as tax-exempt bond financing, which bestows greatest benefit on the richest 1% of the population and the wealthiest banks, operate in the best interest of the majority of us? Does a state aided system of housing finance and production which enables developers to use additional (state created) tax loopholes found in real estate tax shelters, again increasing the tax burden for the majority while the rich get richer, serve our best interests? Finally, does an agency of the State of Colorado-the Colorado Housing Finance Authority--which perpetuates the problems outlined above, meet the test of truly serving the public purpose which it is supposed to serve? VII. AN ALTERNATIVE ROLE FOR CHFA The criticisms of CHFA offered in this paper deal with the institutional framework in which it operates rather than the specifics of its operation. That framework was not created by CHFA, rather CHFA and other state housing finance authorities are outgrowths of that framework--responses to the contradictions caused by the operations of other institutions within that framework. -33 -

PAGE 44

When one does look at the specifics of CHFA's operation one finds that CHFA is doing some very positive things with respect to low and moderate income housing. First, its Architectural Checklist and Design Criteria (see Appendix A) promote high quality developments of attractive design which conform to principles of good land use and community development. Not only does this concern promote more pleasant and healthful conditions for those. who live there, but it also helps dispel the stigma which low income housing has aquired . . Second, CHFA has an excellent Equal Opportunity and Affirmative Action Policy c overing b oth construction and occupancy of housing built or acquired with funds it makes available. Such a policy, if actively and sensitively enforced, can go a long way in assuring more opportunities for women of all races and minority males to participate in the design and construction of the built environment. Perhaps their participation will help to assure that these environments begin to better meet the needs of those traditionally excluded from full participation of the benefits of this society. Such a policy can also help to assure more economic as well as racial integration and thereby freedom of choice. Third, CHFA has shown admirable concern with prevention of adverse impacts due to profit motivatio n and greed which might take place in energy-impacted communities on Colorado's western slope. In order t o prevent such impacts, it is attempting to make land development loans available for communities to provide alternative building sites in order to prevent unreasonable prices of houses due to monopoly of available developed lots. Fourth, CHFA has shown a willingness to be innovative in its provision of a revolving line of credit at 3% interest not to exceed $20 0 ,000 to Brothers Redevelopment--a minority owned and operated non-profit development firm. The fund is to be used for land acquisition, c onstruction financing for new construction, and acquisition rehabilitation financing of homes which will be owner-occupied by persons or families of low and moderate income. 34 -

PAGE 45

CHFA's new Promotion Piece (see Appendix B for text) also shows sensitivity to the needs of those it is supposed to be serving as well as to community needs. Furthermore, CHFA seems to be staffed by a committed and concerned group of people with a high level of social consciousness. Its Board of Directors have also demonstrated (to varying degrees) commitment to and concern for those priced out of the housing market. To sum up, CHFA performs many functions very efficiently and very well which would need to be performed under any socialeconomic-political system. I am not advocating that it be abolished--simply that its operation be transformed to one that truly serves the public purpose. Transformed Conception of Housing: The Hartman-stone Program My scheme for a new role for CHFA is based upon a transformed conception of housing--one advocated by Hartman and Stone--that would change this conception from a commodity to be bought and sold for a profit to a social good which people have the right to use and occupy as they wish, but which cannot be owned, bought, or sold for a profit. They further advocate that the dependence of housing on the credit market (and thus on mortgage lenders) be steadily reduced by financing a growing proportion of new construction and housing rehabilitation through direct public grants. Hartman and Stone outline the basic elements of the program they are advancing as follows: (1) A substancial and growing proportion of new and rehabilitated housing would be financed through direct construction grants to various local and regional public and private developers. All multi-family and a considerable proportion of single-family and town house units would be financed in this way. Private developers and individuals could continue to develop conventionally mortgaged units for occupancy in the private market as long as there were people with the inclination and the means to demand such housing. (2) All new and rehabilitated housing financed publicly would be mixed-income, with a minimum proportion guaranteed for low and moderate income households and the rest open to households of any income. 35 -

PAGE 46

(3) Publicly financed housing would have no debt costs to be repaid by the residents or the government and could not be transferred to the private market. (4) Maximum shelter costs for residents of publicly financed housing would be determined by actual operating expenses, with operating subsidies provided for residents unable to afford full operating costs. (5) Existing private rental housing would be converted gradually to public or condominium ownership, with reasonable compensation over time for present owners. Outstanding mortgages would be paid off over their remaining terms. Prior to full conversion to public ownership, rents would be controlled and would be determined by actual operating expenses, mortgage payments, and fixed dollar profit levels. Subsidies would be provided for residents unable to afford full rents. Luxury surcharges would be levied on units with amenities above the standard for publicly financed new and rehabilitated units. (6) The private home ownership sector would continue, with mortgage payments and the right to resell. Lowincome owners could receive subsidies for operating expenses but not for mortgage payments. Owners facing foreclosure due to financial inability to keep up mortgage payments could convert to public ownership and give up their right to resell, in return for which they would be relieved of mortgage payments and compensated for their equity and have the right to remain in the house.60 The authors explain that they are proposing a large scale commitment to a public alternative to the private housing market be made. They go on to demonstrate quite convincingly" ... that this alternative will not only be of great benefit to low-income people, but would also offer economic and social benefits for middle-income people at least as great as present homeownership benefits 61 benefits", However, no one would be forced into their alter-native since the existing homeownership market would continue. Hartman and Stone offer further ideas on: financing housing construction, allocation of the funds, the attractions of their alternative to homeownership, the continuance of the existing 60 Hartman and Stone, op. cit., pp. 221 & 222. 61 Ibid, p. 222. -36 -

PAGE 47

homeownership market, elimination of private rental housing, provision of subsidies to all residents of public and private housing who are unable to afford the operating expenses for their dwellings, management and maintenance of the public housing stock, movement into and out of the public housing stock and a somewhat detailed program cost summary with suggestions on where the funds could come from. While I do not intend to summarize all of their arguments here since the reader may obtain their article through information provided in the bibliography, I will outline the political caveats offered by those authors because I feel that they are extremely important to keep in mind if one is to develop a theoretical framework to guide one's actions. First, the authors point out that a broad-based, powerful political force which would encompass such fundamental issues as housing, jobs, food and health would be necessary to achieve the program since it will require substantial tax reform--which will threaten many more capitalists than those who make their profits through housing. Second, the broader issues of public enterprise, economic planning and control of the economy will have to be confronted. This is because substantial tax reform and massive housing subsidies that did not flow back to the wealthy institutions and individuals who currently receive them will lead to lower profits, flight of capital, and overall reduced private investment. Third, a successful housing program will tend to undermine the social control wielded through the labor market making business very unhappy about such a prospect. Worker's bargaining power would be increased because "a program which would provide people with secure tenure, no mortgage debt, and decent housing at a cost based truly on their ability to pay would substantially reduce the anxiety caused by low wages and job insecurity in the 62 labor market". Greater worker militancy would follow as the threat of losing one's home along with one's job were diminished. 62Ibid., p. 206 -37 -

PAGE 48

Finally, since the present housing situation, with its declining homeownership opportunities, poses considerable problems for the capitalist system in that it may lead to social unrest and financial collapse, there is danger that elements of the program might be co-opted--i.e. adopted to help rationalize the s ystem. Housing capitalists may try to pick up some elements of the program outlined by Hartman and Stone in order to ease some social pressures, prop up the construction industry, bail out mortgage lenders, and stave off financial collapse, Grassroots 'Effort With Conscious Political Strategy Needed Heeding Hartman's and Stone's warning that the reforms we can pursue now should not be seen as ends in themselves, but rather as part of a clear and conscious political strategy,63 I will suggest below a few ideas with regards to a strategy centered on CHFA that grass roots housing activists as well as my concerned sister/fellow professionals can pursue to move Colorado and the Nation closer to a housing policy that truly serves the public purpose. The alternative for which we advocate could have CHl,A playing some of the same roles it does now in accepting proposals, approving plans and costs, and disbursing funds as the work proceeds, The major changes are that it would obtain funds as grants from the federal government rather than through the sale of taxexempt bonds and would disburse the funds directly rather than through mortgage lenders. As Hartman and Stone point outa The money paid out to developers would therefore not have to be repaid, there would be no construction financing costs, and no long-term mortgage would be needed to pay off construction loans. Upon completion of the housing, title would be conveyed to the local or state housing authority, as under the existing "turnkey" development program for public housing, The developer would continue to be involved only if it also had a contract to manage the housing,64 63This is because any demands for reform that do not occur as part of a total transformation of society will always have a contradictory quality. 64 Hartman and Stone, op. cit., p. 223. -38 -

PAGE 49

CHFA would disburse the funds it receives from the federal government to private developers, local housing authorities, nonprofit housing development corporations, labor unions and community organizations who submit acceptable plans to build housing. Even individuals wanting to build housing for their own use would be eligible for funds. The funds would be allocated geographically by CHFA according to the State's Housing Needs Study and the Growth and Human Settlement in Colorado planning document. A Program for Colorado Since it is important to have some short-range goals where victories can stimulate continuing commitment and further organizing in the direction of the long-range, more comprehensive program, I will suggest an interim strategy which Colorado citizens could pursue. Such a program might work in the following way:65 First, Colorado could institute a reformed progressive tax system--for example, an additional 10% tax on households with incomes of $30,000 or more--to raise some of the money that would be needed. Instead of turning these funds over to the banks to manage and invest for their own profits, the State could put these new funds as well as all otJr public funds into a state bank. The state bank could then loan its money to CHFA which c ould allocate the funds to loc public housing authorities and to private developers or non-profit sponsors where there are no housing authorities. Again CHFA would approve plans and costs and disburse the funds as the building proceeds. In this proposal too CHFA would allocate funds geographically according to the State's Housing Needs Study and Growth and Human Settlement in Colorado policy document. Since these loans would be entirely between state agencies, with no private market transactions, there would not have to be bonds and notes-eliminating the fees, commissions and discounts associated with the private credit market. 65Many of the ideas presented here are modified from Stone and Achtenburg, op. cit., who suggest a State Housing and Pension Bank as a short-term goal. The reader is referred to their proposal for an analysis of how pension funds could also be utilized in such a program. -39 -

PAGE 50

Since mortgages would still have to be repaid, the cost of housing will continue to be relatively high, so pressure must be put on both the federal and state governments to increase existing housing subsidy programs in order to enable low and moderate income families to live in the new housing. Such a program would begin to put an end to CHFA's dependency on the banks and private credit markets to finance housing-a most important step. And there would be a large, steady, predictable flow of funds to build new housing, rehabilitate older housing, provide jobs and stimulate the state economy. The interest income generated from housing investment would be channeled in ways that benefit the large majority of the people, instead of increasing the profits of financial institutions and wealthy individuals. This short-range proposal won't totally solve Colorado's housing problems, but it could provide an important step in a new direction that can help build a progressive movement for the more fundamental kinds of changes advocated by Hartman and Stone. Meanwhile, there are several steps we could urge CHFA to take immediately to begin to reduce high housing costs due to factors that are dependent upon causes other than the reliance on the national capital markets. For example, CHFA could encourage the formation of housing cooperatives amongst low-and moderate-income people seeking housing by providing financing for such cooperatives at lower interest rates than it does for other housing. Although this will not eliminate CHFA's dependence upon selling tax-exempt bonds in the national capital markets (which is a necessary goal of any comprehensive reform strategy), it will help to eliminate the concept of housing as a commodity to be bought and sold for a profit. Since coop members would agree to limit their asking price in the event of sale to whatever they paid plus a reasonable interest on the equity they have invested, a large scale movement in the direction of financing cooperatives by CHFA would help to retard Colorado's ever-growing real estate speculation, which in turn drives up the cost of housing. 40 -

PAGE 51

A broad-based citizen's group could also urge CHFA to follow the instincts of its Executive Director towards greater utilization of non-profit local public housing authorities and other non-profit sponsors. Such utilization would, again, not eliminate the Authority's dependence on the national capital markets to finance housing, but it would help to eliminate some of the unearned profits made by the "limited dividend" developers with their crews of syndicators, accountants, lawyers and wealthy investors. Even this short-range program of progressive reforms will require a much more broadly based, unified effort on the part of the majority of the people in this state than has ever been shown before. An alliance is needed amongst the various groups whose lives are most negatively impacted by skyrocketing housing costs such as the elderly, welfare recipients, the unemployed and others on fixed incomes, tenants and the young (who will have to pay the price) as well as those middle-income working people whose lives would stand to be enhanced by the program outlined by Hartman and Stone. The alliance which the Colorado Coalition for Full Employment attempted to begin with its conference on "The Urban Environment, Neighborhoods and Jobs" on November 13, 1978 and the alliance which the Colorado Civil Rights Commission attempted to begin with its "Metro Denver Housing Crisis Conference" on May 14-15, 1978 should be combined and e xp anded statewide with an additional emphasis on rural participation and rural issues. These conferences gathered together representatives from labor unions, neighborhood groups, environmental groups, anti-nuclear groups, community action programs, social welfare and housing organizations and single issue public interest groups who indicated an interest in an ongoing coalition. As Stone and Achtenburg so eloquently put it: The time has come to stop waging separate, isolated, and never very successful campaigns. Workingclass people and progressive groups need to join together--first, for a common defense against the growing assaults, and then to build a movement, a program, and strategy which will bring about the basic changes needed in our economic and social system.66 66 Stone and Achtenburg, op. cit., p. 46. 41 -

PAGE 52

.ME:-IORA.'\DUM November 15, 1978 TO: FROM: SUBJECT: Board of Directors . 1 AAJt Executive Director {IVY;t:J Architectural Checklist and Design Criteria Appendix A Working with Max Saul, Bill Montez and Paul Teague have developed the attached Preliminary Proposal Architectural Check List, which in the future will be presented to the Board with each Section 8 rental development proposal submitted for F easibility. The form will be submitted to you during the schematic phase and is most important in approving the project concepts. Also, attached is a Final Proposal Check List which will accompany future rental development packets presented to the Board for Firm Commitment. This list will be reviewed in the design development phase; it will be more technically detailed and will build upon the approved schematic concepts. As presently proposed the review process will be as follows: 1. Sponsor and O&SC meet with CHFA staff to discuss initial objectives. 2. Sponsor, O&SC and architect meet with CHFA staff and consulting architect regarding design criteria. 3. Preliminary proposal submitted to CHFA by O&SC. 4. Review of preliminary proposal by CHFA and consulting architect. 5. CHFA submits preliminary proposal to HUD, if OK. If not ap-proved by CHFA it is returned to O&SC for appropriate changes. 6. HUD reviews and approves preliminary proposal. 7. Loan package submitted to CHFA Board for Feasibility. 8. CHFA approval; rejection; or approval with conditions. 9. CHFA Letter of Feasibility to O&SC. 10. Sponsor's architect develops working drawings and plan specs, and submits via O&SC to FHA and CHFA. 11. Meetings regarding changes, modifications. 12. FHA issues Firm Commitment. 13. CHFA Board receives loan package for Firm Commitment. 14. CHFA issues Firm Commitment. 15. Closing -construction starts. The check list should provide the additional information re-quested by the Board as well as give a more comprehensive review by the consulting architect. DWH:rg Attachments

PAGE 53

Architectural Review Checklist Preliminary REVIEW COHMENTS Page Two 1. The statement of program objectives is adequately addressed in the design concept. Yes No Comments: 2. The location seems to provide adequate access to community functions for the intended occupancy. Yes No Comments: 3. The site plan adequately addresses the following concerns. a. Exposure b. Orientation c. Open space and recreation Yes No Comments: d. Landscaping concepts e. Site grading and drainage 4. The streets, walks, drives, parking areas, patios, walls, garbage areas, and utilities are designed for use by tenants, maintenance personnel,and visitors. Yes No Comments:

PAGE 54

Architectural Checklist Preliminary Proposal/Schematic Page Three 5. The floor plans show that each building has been designed for tenant security, privacy, and efficient use of parking and project public facilities, and for efficient maintenance by the project management. Yes No Comments: 6. The typical floor and unit plans building elevations show efficient design for the intended occupancy. Yes No Comments: 7. The landscape plans show variety, interest, energy conservation, and minimum required maintenance. Yes No Comments: 8. Based upon review of the statement of qualifications and experience, as well as demonstrated past performance, the ability of the architect is acceptable. Yes No Comments:

PAGE 55

.'..rc i,;r, ctural RE=YiLW P r e ] iminary Proposal/Sch.:matic ?a'' Four 9 . CHFA Design criteria have g enerally been met. Yes No Comments: 10. Additional comments: Reviewer and date .

PAGE 56

ARCHITECTURAL REVIEW CHECK LIST FINAL PROPOSAL/DESIGN DEVELOPMENT 1. Site Plan Scale 1" to 50', minimum, wilh easements, H any. 2. Property lines and dimensions. 3. Contours, both existing and finished, with drainage. 4. Building locations, to scale. 5. Streets, walks, drives, patios, walls, garbage areas, utilties. 6. Landscape plans, showing trees, shrubs, recreation areas, etc. 7. Schedule showing number and size of uni_ts, by type. 8 . Floor plans of each building, or typical building. buildings must show plans of each differing floor. 1/8" = 1"-0". Multi-story Plans at 9. Typical unit plans of each type unit, including standard and handicapped at 1/4" = 1"-0". 10. All elevations of buildings, or typical building, showing materials proposed, at 1/8" = 1'-0". 11. Outline specifications. 12. Architect's name and Seal. 13. Perspective Rendering of final design if different from initial concept. REVIEW COMMENTS l, The design concept of the Final Proposal is consistent with the Preliminary Proposal. Yes No Comments: 2. The outline specifications are adequate and meet CHFA criteria. Yes No Comments: Reviewer and date

PAGE 57

Appena.1x B CHFA PROMOTION PIECE Envelope: What's the difference? Poster: HOUSE or HOME? we can make the difference -your ideas, our "I'd like to see some greenery from my living room window pot just parked cars and pickup trucks.'" "There's no safe place for the kids to play; except on the lawnand then the' neighbors get upset." "We feel like the neighborhood looks down on us because we live here." "It's just four walls and a roof-not much better than the place they moved us from." "I feel isolated-there's no place to meet other fo:lks my age informally." "This place has all the charm of an Army barracks!" "we're proud to be living here!" "I know the kids are safe when they go out to play." "The trees and flowers really give me a lift." "The community has benef.ited from the thoughtful design." "It seems so bright and sunny inside , . . and the view outside fs pleasant, too." "As Senior Citizens, it's important to have areas where we can get together to play cards and visit." Excellence of design, coupled with care in execution and advantageous financing, will create low income housing that brings pride to residents, is a credit to the community and a lasting endeavor to which all participants can point with satisfaction. For guidelines on design criteria, consult your CHFA representative. COLORADO HOUSING FINANCE AUTHORITY 115 Grant Street, Denver, Colorado 80203/(303) 861-8962

PAGE 58

BIBLIOGRAPHY Aaron, Henry J . Shelter and Subsidies: Housing Policies?. Washington, D.C.: Who Benefits from Federal Brookings Institution, 1972. Achtenburg, Emily and Stone Michael, Organizing Guide to FHA Housing, ning Aid, 1974. Tenants First: A Research and Cambridge, Mass.: Urban Plan-Alcaly, Robert E. and Mermelst ein, David. The Fiscal Crisis of American Cities. New York: Vintage Books, 1976. Betnum, Nathan S. States and HUD. Housing Finance Agencies: A Comparison betwe e n New York: Praeger Publishers, 1976. Brilliant, Eleanor L. The Urban Development Corporation: Private Interests and Public Authority, Lexington, Mass.: D.C. Heath & Co., 1975. California Senate Select Committee on Investment Prioritie s and Objec tives. Creation of a California State Bank (hearings on). Los Angeles, 1977. Caro, Robert A. The Power Broker: Robert Moses and the Fall of New York. New York: Vintage Books, 1975. Center for Community Change. The Lifeblood of Housing: A Report to the Commonwealth of Pennsylvania on Housing Investment and Conservation. Washington, D.C.: Appalachian Regional Commission, 1976. Colorado Division of Housing, Department of Local Affairs. Housing Element Draft. Denver, 1978 . Colorado Division of Housing, Department of Local Affairs. Housing in Colorado: Estimates fo Housing Inventory and Household Characteristics for January 1, 1977, and Projections of Household Growth to January 1, 1982. Denver, 1978. Colorado Division of Housing, Department of Local Affairs and Colorado Housing Finance Authority. Colorado Households Needing and Qualifying for Housing Ass istance, January 1, 1977 to January 1, 1982. Denver, 1978. Colorado Housing Finance Authority. Annual Report, 1974, 1975, 1976, 1977. Community Ownership Organizing Project. The Cities' Wealt h : Programs for Community Economic Control in Berkeley, California. Washington, D.C.: Conference on Alternative State and Local Public Policies, 1976. Congressional Budget Office. Real Estate Tax Shelter Subsidies and Direct Subsidy Alternatives. Washington, D.C.: U.S. Government Printing Office, 1977.

PAGE 59

Crisis Reader Editorial Collective. U.S. Capitalism in Crisis, New Yorkr Union for Radical Political Economics , 1978. Dolbeare, Cushing N. Federal Tax Rip-Offs: Housing Subsidies for the Rich. Washington, D.C.: Rural Housing Alliance, 1972. Editors of Monthly Review. "The Long-Run Decline in Liquidity", Monthly Review, Sept. 1970. Editors of Monthly Review, "Keynesian Chickens Come Home to Roost", Monthly Review, Apr. 1974. Editors of Monthly Review, "Banks: Skating on Thin Ice", Monthly Review, Feb, 1975. Editors of Monthly Review. "Capital Shortage: Fact and Fancy", Monthly Review, Apr. 1976. Faux, Jeff and Lightfoot, Robert. Capital and Community: Notes on Financing a New Economy, Washington, D.C.: Exploratory Project for Economic Alternatives, 1976. Galbraith, John Kenneth. Economics and the Public Purpose, Boston: Houghton Mifflin Co., 1973. Gallegos, Mark D. Tax-Exem t Securities and Subsidized Housi University of Colorado, Denver, 1978. unpublished paper Gerckens, Laurence C. American City Planning Since 1900 A.D.: A Course Manual, Columbus, Ohio: The Ohio State University, 1978. Hartman, Chester and Stone, Michael', "Housing: A Socialist Alternative" in Marcus G. Raskin, ed, . The Federal Budget and Social Reconstruction. New Brunswick: Transaction, Inc. Hartman, Chester. Housing and Social Policy, Englewood Cliffs, N.J.: Prentice Hall, Inc., 1975, Harvey, David, "The Political Economy of Urbanization in Advanced Capitalist Countries: The Case of the United States", in Gary Gappert and Harold M. Rose, eds,, The Social Economy of Cities. Sage Urban Affairs Annual, Vol. 9, Beverly Hills: Sage Publications, 1975. Hawley, Peter K. Housing in the Public Domain: The Only Solution. New York: The Metropolitan Council on Housing, 1978. Housing and Community Research Groups. Community Housing Development Corporations: The Empty Promise. Cambridge, Mass.: Urban Plan ning Aid, 1973. International Independence Institute. The Community Land Trust: A Guide to a New Model for Land Tenure in America. Cambridge, Mass.: Center for Community Economic Development, 1972. Keith, Nathaniel. Politics and the Housing Crisis Since 1930. New York: Universe Books, 1973.

PAGE 60

Liblit, Jerome (ed.). Housing--The Cooperative Way. New York : Twayne Publishers, Inc., 1964. Morris, Peter R. State Housing Finance Agencies: An Entreprenurial Approach to Subsidized Housing. Lexington, Mass.: D.C. Heath and Co., 1974. National Commission on Urban Problems. Building the American City. New York: Praeger Publishers, 1969. National Housing Policy Review. Housing in the Seventies. Washington, D.C.: U.S. Dept. of Housing and Urban Development, 1974. O ' Connor, James. The Fiscal Crisis of the State. New York : St. Martin's Press, 1973. Ott, David J. and Meltzer, Allan H. Federal Tax Treatment of State and Local Securities. Washington, D.C.: The Brookings Institutio n , 1963. Piven, Frances Fox and Cloward, Richard A . Regulating the Poor: The Functions of Public Welfare, New York: Pantheon Books, 1971. Raskin, Marcus G. (ed.). The Federal Budget and Social Reconstruction: The People and the State. New Brunswick, N.J. : Transaction, Inc. Rutgers Univ. (also available from Institute for Policy Studies, 1901 Que St., N.W., Washington, D.C. 20009 for $7.95), 1978. Ruskay, Joseph A. and Osserman, Richard A. Halfway to Tax Reform. Bloomington, Ind.: Indiana University Press, 1970. Schaaf, Michael. Cooperatives at the Crossroads: The Potential for a Major New Economic and Social Role. Washington, D.C.: Exploratory Project for Economic Alternatives, 1977. Schafer, Robert; Betnum, Nathan S., and Solomon, Arthur P. to Live: Housing Policy in the States. Lexington, Ky.: Council of State Governments, 1974. A Place The Solomon, Arthur P. Housing the Urban Poor: A Critical Evaluation of Federal Housing Policy. Cambridge, Mass.: The MIT Press, 1974. Starr, Roger. America's Housing Challenge: What It Is and How to Meet It. New York: Hill and Wang, 1974. Starr, Roger. Housing and the Money Market. New York : Basic Books, 1975. Sternlieb, George; Roistacher, Elizabeth and Hughes, J ames W . Tax Subsidies and Housing Investment: A Fisca l Cost-Be nefit A nalysis. New Brunswick, N.J.: The Center for Urban Policy Research, 1976 . Stone, Michael E. "Federal Housing Policy: A Political Economic Analysis", in Jon Pynoos, Robert Schafer, and Chester Hartman, eds. Housing Urban America. Chicago: Aldine, 1973.

PAGE 61

c: Stone, Michael E. "Gimme Shelter" in Crisis Reader Editorial Collec tive. U.S. Capitalism in Crisis, New York: Union for Radical Political Political Economics, 1978. Stone, Michael E. "Housing, Mortgage Lending and the Contradictions of Capitalism" in William K. Tabb and Larry Sawers, eds. Marxism and the Metropolis. New York: Oxford University Press, 1978. Stone, Michael E. "The Housing Crisis, Mortgage Lending, and Class Struggle" in Antipode, Sept. 1975. Stone, Michael and Achtenburg, Emily. Hostage! Housing and the Massachusetts Fiscal Crisis. Boston: Boston Community School, 1977. Tabb, William K. and Sawers, Larry, eds. Marxism and the Metropolis: New Perspectives in Urban Political Economy. New York: Oxford University Press, 1978. Sweet, Morris L. and Walters, S. George. Mandatory Housing Finance Programs: A Comparative International Analysis. New York: Praeger Publishers, 1975. Turner, John F .C. Environments . Housing by People: Towards Autonomy in Building New York: Pantheon Books, 1976. Zinsmeyer, Turnock, Judith and Mott, Andrew. Opportunities For Abuse: Private Profits, Public Losses and the Mortgage Banking Industry. Washington, D.C.: Neighborhood Revitalization Project, Center for Community Change, 1977.