'Huge drop' in funding for community development

The City Arts Apartments are full of artists who live and work in the Baltimore complex, built on what long had been a vacant lot in a very vacant neighborhood. But a sudden gap in its development financing almost kept the project from getting off the ground.

The $2.5 million hole was dug by the financial crisis, which pummeled the value of tax credits that many affordable-housing projects rely on. The post-crisis landscape for community development is shaping up to be even more challenging.


Government funding for work to revitalize neighborhoods is plummeting nationwide amid pressure to cut budgets, increasing the odds of gaps that cannot be overcome. It's a prospect that alarms practitioners in Baltimore, where the battle against vacant housing and blight has raged for decades.

The city got 30 percent less this year from the two major federal programs for revitalization — the Community Development Block Grant and HOME Investment Partnerships — than it received just before the recession. Compared with a decade ago, funding is down by nearly half. That's not even accounting for the value-sapping effect of inflation.


Baltimore Housing Commissioner Paul T. Graziano said he expects no more next year than this year's $21 million allotment, and he's concerned that further cuts will come.

"It's a huge drop," he said. "That's the new norm — at best."

His agency estimates that HOME reductions will slash the amount of housing construction the city can help fund from 300 to 350 units a year to 130 or 140. Community Development Block Grant cuts have squeezed nonprofits trying to strengthen neighborhoods with services such as literacy education as well as city programs that help residents buy homes, Graziano said.

But shrinking grants could be just the beginning. Community developers fear that federal income tax credits used to help pay for affordable housing and other construction efforts will be cut out of the tax code if increasing calls for tax overhaul bear fruit.

The best known is the 25-year-old Low Income Housing Tax Credit, which generates about $8 billion annually to build apartments and rental homes. States distribute their allocations of the credits to nonprofits and other developers, which in turn sell them to companies looking to offset profits. The cash helps fund construction.

Columbia-based Enterprise Community Partners, which pools investor capital for tax-credit purchases, is making the rounds in Congress to advocate for the programs' survival. The nonprofit group expects to see serious discussion of tax reform next year — no matter which presidential candidate wins the election in November.

"Those in the housing and community-development world should be on notice," said Peter Lawrence, Enterprise's senior director of public policy and government affairs.

Charles Duff, president of Jubilee Baltimore, one of three nonprofit groups that worked on the City Arts project in Station North, had a taste of what life might be like without the Low Income Housing Tax Credit when its value slumped in 2008. So many companies were losing money that the market to buy credits to offset profits all but collapsed.


An infusion of temporary stimulus money plugged City Arts' $2.5 million hole, Duff said, or the fully occupied apartment complex wouldn't have been built and couldn't have kicked off other development nearby. He doesn't want to see the credit shrink or disappear.

"Baltimore is literally at a crossroads," Duff said. "If the rest of the country will keep us in the game through the next boom, whenever that comes, we'll be OK and we won't need their help anymore. And if they back out and say, 'We're going to leave you to your own devices,' they're going to have to pay for our poverty for the rest of time."

Baltimoreans United in Leadership Development believes in the power of construction to turn a neighborhood around. It organized local congregations a dozen years ago to attack abandonment and crime in East Baltimore's Oliver neighborhood. Nearly 100 rowhomes have been reconstructed through a collaboration between BUILD and TRF Development Partners, an arm of neighborhood revitalization financier the Reinvestment Fund.

"It just means the community comes alive again, people come outside again, people believe in their community again," said Terrell Williams, a BUILD organizer, as he walked the neighborhood with its mix of homes waiting for construction, under way and redone.

The redeveloping area is called Preston Place, just north of Johns Hopkins Hospital, and will have 125 rebuilt homes in phase one. The goal is then to redo 100 more, dropping vacancy from 50 percent at the start of the project to 8 percent — a neighborhood housing market that could stand on its own. But finding funding will be tricky.

Money that helped launch the effort is from a federal program that no longer exists, said Sean Closkey, president of TRF Development Partners. The project was able to get stimulus funds aimed at foreclosure-heavy neighborhoods, but that money will run out in March. And HOME funds are scarce.


Twenty-seven percent of the project's budget comes from federal funds, Closkey said. About 13 percent comes from philanthropists. That bridges the gap between the cost to redevelop and current market values, the amount banks are willing to lend to buyers moving in. BUILD and TRF see that public and private financial help as the only way to pull the neighborhood out of a vicious cycle: Values are low because so many homes are in disrepair, and they're in disrepair because values are low.

"Someone must break that cycle," Closkey said.

Annapolis-based Homes for America, which builds affordable rental housing, was averaging five to six projects annually until three years ago. Now, with funding flowing less freely, the pace has dropped to two a year, said Trudy McFall, the nonprofit's chairman.

"We watch the future with great apprehension," she said.

Reductions in federal revitalization money for local governments is a particular problem for developers who need subsidies to build rental housing for lower-income Marylanders. The state requires a contribution of local government funds before developers can apply for other help, such as tax credits, McFall said. The local contribution can come from one of those federal grants — and often does.

"The whole project can go down for want of a community that doesn't have the [federal funds] for it," she said.


Community developers, financiers and local officials grappling with funding challenges met at the Federal Reserve Bank of Richmond's Baltimore office last week to talk about workarounds.

"Crowd funding," for instance — persuading a lot of residents to kick in a little bit of cash each. Or tapping into philanthropic investments, made with the expectation of both financial and social returns. Or figuring out ways to get equity funds to see community development as a good risk.

Graziano, the city's housing commissioner, warned that he doesn't think it's possible to do without public funding in community development. But with all the clouds on the funding horizon, everyone is looking for alternatives.

"We're really trying to figure out how to stack the capital in different ways to get the job done," said Terry Simonette, president and CEO of NCB Capital Impact in Arlington, Va., one of the forces behind the elder-care Green House Residences at Stadium Place in Baltimore.

The United States spent comparatively vast amounts on urban redevelopment in the 1960s and 1970s, said Duff, Jubilee Baltimore's president. The results were mixed: An emphasis on increasing housing rather than revitalizing neighborhoods did as much harm in Baltimore as good, he said.

Then federal funding started to dwindle. Eventually, local community developers began following a model that Duff thinks is much more effective: Focus on turning around the blocks where problems are commingled with strengths, such as proximity to big institutions and amenities, and push out from there.


But the new reductions and downward pressure don't strike him as another opportunity to do more with less.

"We need more," Duff said. "We don't have enough."