THE EVOLUTION OF HUD’S

PUBLIC-PRIVATE PARTNERSHIPS

A HUD 50TH ANNIVERSARY PUBLICATION

U.S. Department of Housing and Urban Development | Office of Policy Development and Research

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The Evolution of HUD’s

Public-Private Partnerships

A HUD 50th Anniversary Publication

October 2015

Acknowledgments

The author thanks Rachel e Levitt, David Hardiman, and John Robinson for their insightful comments throughout this article’s development, and Kwame Phipps for his very helpful research assistance.

Disclaimer

The contents of this publication are the views of the authors and do not necessarily reflect the views or policies of the U.S. Department of Housing and Urban Development or the U.S. government.

Contents

Introduction ............................................................................................................................................................................................................1

Public-Private Partnerships of the Great Society .........................................................................................................................................3

The Transition to Devolution ..............................................................................................................................................................................5

Housing and Urban Development Public-Private Partnerships Through Today ......................................................................................9

Conclusion ............................................................................................................................................................................................................13

References ...........................................................................................................................................................................................................14

iii

Introduction

The New York City Department of Housing Preservation

P3s were part of the political and housing policy toolbox

and Development, the New York City Housing Development

long before HUD’s creation. In the 1930s, the New

Corporation, and private developer Preservation Development Dealers incorporated public-private aspects at the advent Partners are teaming up to rehabilitate the North Shore

of the federal government’s intervention into housing

Plaza public housing complex. Through the U.S. Department

policy. The New Deal home loan programs provided for

of Housing and Urban Development’s (HUD’s) Rental

guarantees of loans and mortgages issued by private

Assistance Demonstration (RAD), the Staten Island complex

banks, enabling the Roosevelt Administration to temper

will shift from public housing to project-based voucher units.

commercial banks’ opposition to a federal role in home

Now, private investment and Low-Income Housing Tax

mortgage lending (Salamon, 2000). The Roosevelt

Credits (LIHTCs) will finance long-needed upgrades for the

Administration also attempted to develop housing in

project (Real Estate Weekly, 2014).

“slums” by providing subsidized federal loans to private

developers. The federal government adopted the typical

The City of Chicago, a nonprofit developer, and local

method of public housing construction—through funds

service agencies are partnering to transform the Woodlawn

directed to local housing authorities— only after that and

neighborhood into a “neighborhood of choice.” HUD’s

other strategies proved infeasible (Jackson, 1985). The

Choice Neighborhoods program supports the Woodlawn

Housing Act of 1954 1 authorized new FHA mortgage

project’s planning and implementation (Preservation of

insurance programs for affordable housing, including

Affordable Housing, Inc., n.d.).

lower cost housing for displaced families. In 1955, one

In July 2015, HUD launched the ConnectHome initiative,

commentator wrote in the Harvard Business Review that

which aims to provide free or highly subsidized broadband

the Eisenhower Administration deflected private opposition

access to hundreds of thousands of HUD-assisted tenants

to public housing by “al ocating to business interests the

(White House, 2015). ConnectHome is a partnership

share of responsibility for which they have long asked”

with Internet service providers, foundations, and local

(Phalan, 1955: 112). In 1959, President Eisenhower signed

governments across the country.

legislation creating the Section 202 Supportive Housing

for the Elderly Program, a P3 that has endured for more

Today, most HUD programs are structural y public-private

than 50 years (Caves, 1989). Section 202 provided direct

partnerships (P3s) or have some public-private aspects.

loans to nonprofit organizations at a below market interest

The nation’s foremost low-income tenant assistance

rates, introducing a model that the government would

subsidy can be viewed as a grand P3: housing choice

adopt in several other public-private programs in the 1960s

vouchers (HCVs) support more than 2 mil ion families in

(Listokin, 1991).

housing chosen from the private market, and each voucher

involves a contract between a local public housing authority

The involvement of public-private partnerships in housing

(PHA) and a private entity. For decades, Community

programs has grown steadily since HUD’s formation in

Development Block Grants (CDBGs) have financed local

1965. Depending on their goals, previous administrations

private services organizations. HUD has described the

have framed P3s as a means of either expanding or

Federal Housing Administration (FHA) single-family

reducing the federal government’s role in housing and

home mortgage insurance program as “one of the most

urban development. President Lyndon Johnson employed

successful public-private partnerships in history” (HUD,

P3s as an essential narrative tool as he sought to expand

n.d.a). Ginnie Mae, as described by its president, Ted

federal housing programs. Presidents Nixon through

Tozer, is “a perfect example of a public-private partnership”

George H.W. Bush, however, used P3s to devolve housing

(Ginnie Mae, 2013).

programs to local control, introducing voucher assistance

1 Public Law 83–560.

1

and making it permanent. Under Presidents Clinton

through Obama, HUD relied on P3s as a key policy tool

to promote mixed-finance affordable housing and place-

based development. Although this article is organized by

Presidential administrations, other key stakeholders—such

as HUD leadership, legislators, developers, and advocates—

have also used the public-private frame to further their

policy aims.

There are good reasons to use P3s. P3s enable

government to share risks with the private sector, leverage

investments for far greater effect, take advantage of

efficiencies outside government, and employ broader

knowledge and skil s. Evidence has shown, however,

that P3s can have drawbacks as well (Sagalyn, 2011).

For example, if incentives in the partnership’s structure

are not careful y designed, P3s can reduce access to

government programs and increase costs. P3s can

provide opportunity for corruption. P3s can make housing

policy more complicated to evaluate and understand as

new intermediaries spring up between government and

a program’s implementation (Erickson, 2006). Programs

throughout HUD’s history have demonstrated both the

benefits and downsides of P3s.

This article describes programs and policies with significant

public-private aspects as “public-private partnerships,”

although they might not qualify under a strict interpretation

of that term. The National Council for Public-Private

Partnerships defines P3s as “contractual arrangement[s]”

between a “public agency and private company” (NCPPP,

n.d.). A toll road constructed and operated by a private

company on public land is a classic P3. Housing choice

vouchers, for example, do not fit that more strict definition

because the federal government does not choose individual

private partners. In addition, many distinctions fall within

this broad framework. The “private” in a public-private

partnership can refer to for-profit entities or nonprofit

organizations; developers or lenders; and industry groups,

private civic organizations, or individuals. These distinctions

have consequences for the design, implementation, and

evaluation of P3s.

2

Public-Private Partnerships

of the Great Society

President Johnson’s signing of the Housing and Urban

The Johnson Administration had also introduced housing

Development Act of 1968 2 constituted a major pivot

programs that engaged private industry. In 1966, HUD

toward P3s as both a political frame and a policy tool (von

Secretary Robert Weaver announced the Turnkey public

Hoffman, 2013). The act’s public-private elements helped

housing program, which enabled housing authorities

ensure its passage and provided for a landmark expansion

to contract with private developers to construct public

of federal housing programs, building on public-private

housing on private land (Burstein, 1967). When the project

initiatives established by Congress in 1965.

was complete, the developer turned over the keys to the

housing authority. The Turnkey II pilot, launched in 1967,

The Johnson Administration employed P3s across its Great

invited private management firms to manage public housing

Society agenda. Although Johnson would not use the

projects (Burstein, 1967). Turnkey III, also announced in

phrase “public-private partnership” until 1967—becoming

1967, provided for private ownership opportunities for

the first President to use the expression—early on he

residents of public housing (Burstein, 1967).

emphasized the necessity of public-private cooperation (von

Hoffman, 2013). For example, in his Special Message to

The 1968 act built on these initiatives and set an ambitious

the Congress Proposing a Nationwide War on the Sources

goal: to build 6 mil ion homes for low- and moderate-

of Poverty, Johnson (1964) cal ed for new public-private

income families within 10 years, at a cost of $5.3 bil ion

cooperation.

for the first 3 years and an eventual estimated cost of $50

bil ion (von Hoffman, 2013). Although several of the act’s

But poverty is not a simple or easy enemy.

… Nor can it be conquered by government

programs were soon canceled or transformed, they served

alone. For decades American labor and

as the foundation for many HUD programs today.

American business, private institutions and

private individuals have been engaged in

P3s as a Political Framing Tool

strengthening our economy and offering

new opportunity to those in need. We

Johnson touted the 1968 act as a vehicle for public-

need their help, their support, and their ful

private partnerships. He proposed the act to Congress as

participation. (Johnson, 1964)

a “new partnership between business and Government”

(Johnson, 1968) and heavily involved private industry in

Johnson (1964) also pointed to the need for local

the bill’s creation, while also enlisting supporters of public

decisionmaking as part of that strategy, commenting that

housing (von Hoffman, 2013). As Johnson noted in his

the Community Action program would involve “local plans

1968 address to Congress (Johnson, 1968), the legislation

cal ing upon all the resources available to the community:

was developed in part by the Kaiser Commission, a group

federal and state, local and private, human and material.”

of business leaders charged with developing plans for new

The Community Action Program, which continues today,

urban development (von Hoffman, 2013).

supports local nonprofit private and public organizations

to “fight America’s War on Poverty” (Community Action

By framing the act in this way, Johnson converted potential

Partnership, n.d.). Years later, as federal leaders

private-sector opponents into partners and beneficiaries.

embraced devolution, local decisionmakers would gain

For example, the National Association of Home Builders

greater autonomy in implementing housing and urban

gradual y became a stronger supporter of the bil ’s

development P3s.

initiatives, such as the Section 235 homeownership

2 Public Law 90–448.

program, which enabled new home construction and thus

3

new business (Hays, 2012). These programs also appealed

Some of the Great Society P3s survive intact. For example,

to moderate Republicans (Hays, 2012). In comparison, new

the 1968 act established Ginnie Mae as separate from

public housing programs would risk provoking instinctual

Fannie Mae. Ginnie Mae, which insures mortgage-backed

opposition from private industry (von Hoffman, 2013).

securities and in turn fosters investment in affordable

home mortgages, now issues a greater share of single-

Mainstream support for public housing had declined at this

family mortgage-backed securities than ever before (HUD,

point as public attention focused on troubled projects such

2014a). Since the 2007-to-2008 lending crisis, Ginnie Mae

as St. Louis’ Pruitt-Igoe. By 1968, advocates accepted

has played a countercyclical role in supporting the private

the idea of P3s as a vehicle for social welfare policy (von

mortgage market.

Hoffman, 2013). The backdrop of riots and upheaval led

both reformers and industry to share “a deep sense that

Subsequent programs with public-private aspects replaced

the urban crisis demanded a massive rebuilding effort,

other Great Society P3s. For example, the 1968 act

which current housing programs could not accomplish” (von

established the Section 236 rental housing program,

Hoffman, 2013: 185).

which subsidized private construction of rental housing

(Schwartz, 2010). President Nixon suspended Section 236

Johnson took the lead in framing the 1968 act, but

in 1973, and in 1974 Congress passed another subsidized

Congress also embraced the narrative of P3s. The House

production program, Section 8 New Construction. Section

Report for the act stated, “There must be a reaffirmation

236, in turn, had replaced the Section 221(d)(3) Below

of a federal commitment to provide decent and affordable

Market Interest Rate program, which had been established

shelter to lower income persons, as well as a recognition

only 7 years previously (Schwartz, 2010).6 During its 7-year

that private sector involvement with the government is

life, the Section 236 program produced about 544,000

necessary” (U.S. House of Representatives, 1968). The

units (Edson, 2011), whereas Section 221(d)(3) produced

House Report asserted, “Congress declares that in carrying

only about 184,000 units (Schwartz, 2010). Although short

out the programs . . . the ful est practicable utilization of the

lived, these programs have a lasting legacy. As of 2013,

resources and capabilities of private enterprise . . . should

about 126,000 Section 236 units remained in service and,

be employed” (1968). The act repeated that language and

as recently as 2012, HUD spent more than $400 mil ion on

stated, “it is the policy of the United States to encourage

subsidies for Section 236 housing (HUD, n.d.c).7

the widest possible participation by private enterprise in the

provision of housing for low or moderate income families.” 3

The 1968 act also established the National Corporation

for Housing Partnerships as a government-sponsored

Legacy of Great Society Housing P3s

enterprise. This corporation intended to serve as a vehicle

for consolidation for investors, builders, or other sponsors

Several enduring public-private housing and urban

who lacked the necessary expertise to initiate a housing

development strategies were first implemented under

construction program on their own (Bartlett, 1969).

Johnson. The 1968 act’s Section 235 homeownership

The Corporation raised substantial private capital, but

program was the first direct federal subsidy to support

developers were not as interested. The Corporation helped

homeownership (Schwartz, 2010). Only weeks before

develop only 40,000 units over 10 years, and in 1986 the

HUD was formal y established, the Housing and Urban

Development Act of 1965

Corporation’s directors sold its portfolio to focus on LIHTC

4 created the Rent Supplement

instead (von Hoffman, 2013). The Clinton and George W.

program, the first project-based rental assistance program

Bush administrations similarly formed broad partnerships

for tenants living in privately owned housing (Coan, 1969).5

with developers and investors, although their partnerships

were more informal.

3 At Section 2, the Declaration of Policy for the act, Congress declared,

“[A]nd in the carrying out of such programs there should be the ful est

practicable utilization of the resources and capabilities of private enterprise

6 The move to Section 236 also touched on another tension in housing

and of individual self-help techniques” (Public Law 90–448).

policy: What group should the programs target? Section 221(d)(3) was

4 Public Law 89–117.

intended to provide affordable housing for a higher income group than

5 Although Congress suspended the issuance of new contracts under the

public housing and was attacked for providing aid to those who did not need

program in 1973, a few thousand units continue to receive subsidies. These

it (Hays, 2012; Weicher, 2012).

units are now being converted under the Rental Assistance Demonstration

7 Section 236 contracts are quickly expiring, however, and in 2013, HUD

(HUD, n.d.b).

stopped requesting new funding for the program (HUD, n.d.d).

4

The Transition to Devolution

Beginning with the Nixon Administration, many of HUD’s

reinforced residential segregation (Lewis, 1993). Private

programs devolved to local control. Nixon had framed his

brokers enjoyed substantial autonomy in determining which

social programs as part of a new partnership with states

existing homes would be selected—and typical y steered

and local governments. According to Nixon, under this

low-income buyers into segregated areas (Lewis, 1993).

New Federalism, “power, funds, and responsibility will flow

Also, because White suburbs opposed construction of new

from Washington to the States and to the people” (Nixon,

units within their borders, many newly constructed Section

1969).8 These programs often involved P3s.

235 homes were in low-income, minority suburbs (Lewis,

1993). As Lewis (1993: 45) commented, Section 235’s

A Dramatic Shift Under Nixon and Ford

problems demonstrate that “in the absence of clear national

standards, rules, and priorities, private enrichment may

On January 8, 1973, HUD Secretary George Romney

emerge as the only unambiguous objective” for P3s.

announced that the Nixon Administration would place a

moratorium on al new housing-subsidy and community-

In 1973, HUD performed a lengthy study of federal

development spending, including under the mortgage and

housing programs, Housing in the Seventies, which favored

loan programs (Scruggs, 1995). In turn, this moratorium

rehabilitation and direct cash assistance to low-income

forced a major shift in subsidized housing policy—and many

tenants over supply-side programs (Foote, 1995; HUD,

public-private programs—in 1974.

1974). At the same time, affordable housing advocates

convinced Congress to reject the Nixon Administration’s

The Nixon Administration publicly justified the moratorium

most radical proposals toward devolution (Hays, 2009).10

by asserting that the subsidized housing programs were

inefficient and ineffective (Lamb, 2005).9 HUD had

Each of these factors contributed to the design of the

encountered chal enges in implementing the Johnson

Housing and Community Development Act of 1974,11 which

Administration’s supply-side P3s: Section 235 housing

passed with bipartisan support shortly after President Ford

“suffered from foreclosures, inefficiency, and high costs,”

took office (Caves, 1989). The 1974 act provided for three

and Section 236 had sparked wel -publicized corruption

major new HUD programs with public-private aspects: the

scandals (von Hoffman, 2000: 320). Concerning Section

CDBG program, Section 8 tenant-based rental assistance,

236 specifical y, the administration cited issues with costs,

and Section 8 New Construction and Substantial

inefficiency, ineffectiveness in providing affordability to

Rehabilitation (NC/SR).

lower income families, and the loans’ soundness (HUD,

1974). Nonetheless, the program had already produced

The CDBG program consolidated eight preexisting grant

more than 350,000 units—with more coming in the

programs into a single formula grant to municipalities and

pipeline—since its creation a few years beforehand. The

states (Schwartz, 2010). Recipients have broad discretion

mounting and ongoing cost of the programs was the major

to use CDBG funds for community development, so long as

consideration leading to the moratorium (Greenberg, Leven,

at least 70 percent of CDBG spending benefits low- and

and Little, 1979).

moderate-income people (Schwartz, 2010). Communities

often use CDBG funds to pursue P3s, which HUD has

Section 235, Johnson’s low-income homeownership

promoted. For example, in 1984, HUD sent CDBG grantees

program encompassing both new and existing homes,

a booklet titled “Public/Private Partnerships-Leveraging

had another major issue. Although the program spurred

Your CDBG” (HUD, 1984). In particular, the CDBG program

a substantial increase in housing production, it also

has fostered the growth of community development

8 Nixon did not mention private organizations in this speech.

corporations (CDCs; O’Regan and Quigley, 2000). CDCs

9 The moratorium also blocked Secretary Romney’s plan to integrate

communities through the Fair Housing Act, which Romney had launched

10 Congress passed the Budget and Impoundment Control Act of 1974 to

without the administration’s approval. In fact, Bonastia (2004) argued that

prevent future impoundments. To do so, Congress had to “invent a rational

the Nixon Administration used the struggles of FHA programs as a pretext

process to guide its own budget decisions” (Penner, 2002: 5).

to stop federally driven residential integration, without doing so explicitly.

11 Public Law 93–383.

5

are nonprofit organizations that focus on place-based

highlighted P3s alongside voluntarism and decentralization,

revitalization in low-income, underserved areas and usual y

focusing on leveraging of federal investment.

include community members on their boards (Community-

[A]s urban problems have intensified, more

Wealth.org, n.d.). CDCs often pursue multiple strategies local governments at all levels have looked

for community development, from affordable housing

increasingly to Washington for help. . . .

development to social services (Community-Wealth.org, n.d.).

President Carter’s policy seeks to gradual y

undo this dependency. For the first time,

The new Section 8 tenant-based rental assistance program

the federal government will be the catalyst

fol owed an experiment—in 1970, Congress had directed

– acting as the starting gun to set off a

HUD to design and implement the Experimental Housing

chain reaction of private and other public

Al owance Program (HUD, 2000a). Recipients of Section

investment in cities. One federal dol ar will

be used to encourage five or six dol ars

8 tenant-based rental assistance initial y paid 15 or 25

of private investment, making the impact

percent (later raised to 30 percent) of their income on rent

on cities so much greater. . . . The Carter

in privately owned units (HUD, 2000a). Recipients could

approach strengthens the flexibility offered

general y rent only units with costs up to the Fair Market

to local officials, but reintroduces stronger

Rent established by HUD for the local area (HUD, 2000a).

economic and social objectives to guide the

urban programs. (President’s Urban and

Section 8 NC/SR was the project-based component of

Regional Policy Group, 1978: 5–6)

Section 8. As a rental assistance program designed to

The Carter Administration institutionalized this attitude in

subsidize the ongoing annual maintenance and operating

a formal office of public-private partnerships within HUD

costs of housing, NC/SR could reach more lower income

(von Hoffman, 2013). Carter’s approach aligned with

families than Section 202, Section 221(d)(3), or Section

local activism for neighborhood-oriented planning and

236. Instead of paying an amount linked to the mortgage,

policy, described by Osman (2008) as “neighborhoodism.”

HUD subsidized the difference between an affordable

Neighborhoodism was bipartisan: Ford had declared 1976

rent paid by low-income tenants and the area Fair Market

the “Year of the Neighborhood” (Osman, 2008).

Rent (Schwartz, 2010). Participating owners also received

a federal tax break (Schwartz, 2010). NC/SR was very

The Carter Administration emphasized the concept of

expensive, because project rents increased each year

leverage in pursuit of this urban strategy (Lyal , 1986).

by an annual adjustment factor based on rental changes

The Urban Development Action Grant (UDAG), the Carter

in the entire metropolitan area—rents in the projects’

Administration’s premier urban program (Foote, 1995), was

neighborhoods, however, often increased at a much

the first federal economic development program to require

lower rate than rents in the metropolitan area as a whole

a prior guarantee of private-sector investment (Eisinger,

(Schwartz, 2010). Project-based Section 8 was soon

1988).13 UDAG provided flexible development grants

expanded to include the Loan Management Set-Aside

to help cities and urban counties recover from “severe

(LMSA),12 which provides annual operating subsidies for

economic distress” (24 CFR §570.450). The minimum

buildings developed under the older financing subsidy

leveraging ratio for UDAG was 2.5 private dol ars to each

programs.

UDAG dol ar. In total, the actual ratio far exceeded the

minimum: through 1985, $22.9 bil ion private dol ars had

Further Devolution Under Carter

been leveraged against $3.9 bil ion in UDAG funding, an

Like Johnson, President Carter sought to use P3s

aggregate leveraging ratio of about 5.9 to 1 (Eisinger,

as a means to increase federal support for American

1988). A 1982 HUD evaluation of the program found

communities and, like Nixon, Carter promoted devolution. In

UDAG to be “general y very successful,” and stated that,

1978, the Carter Administration released the United States’

“[a]s a development tool, UDAG is providing primary and

first comprehensive urban policy statement (Neumann,

secondary benefits to distressed localities that constitute

2014), A New Partnership to Conserve America’s

a net addition to their economies . . . with few adverse side

Communities: A National Urban Policy. A New Partnership

13 Local officials were required to secure a legal y binding commitment with

12 Also sometimes called “Older Assisted” properties.

a private organization before UDAG funds were released.

6

effects” (HUD, 1982: vi ). From 1977 until its demise in

E.S. Savas, advocated for the role of the private sector in

1988, UDAG helped create more than 500,000 permanent

housing policy (Savas, 1983).

new jobs at the relatively cheap rate of $8,068 in direct

UDAG dol ars per new job (Reed, 1989).

The fate of UDAG demonstrates the Reagan

Administration’s approach to P3s. UDAG, a highly flexible

The Carter Administration promoted nonprofit

grant program that required P3s, seemed like a good

organizations as key actors in community development.

fit—Berger, reviewing Reagan’s private-sector initiatives

NeighborWorks America, established in 1978, funds

in 1986, highlighted UDAG as a preexisting program

235 local organizations to promote reinvestment in

apparently aligned with the administration’s approach. In

their communities (HUD, n.d.e). Carter also created the

1988, however, the Reagan Administration eliminated the

Neighborhood Self-Help Development Program (NSHP),

UDAG program, consolidating it with the CDBG program.

which provided encouragement, grants, and technical

According to the Reagan Administration (1982), UDAG’s

assistance to community-based groups in neighborhoods

“excessive amount of federal intervention” rendered it

(Brophy, 2013). A prospective HUD analysis of NSHP

“incompatible with their block grant philosophy.” On the

stressed the importance of community development

other hand, the Housing and Urban-Rural Recovery

through local organizations, commenting, “Prospects

Act of 1983 14 created the Neighborhood Development

for substantial impact of self-help initiatives by making

Demonstration Program (NDDP). NDDP, a small program

assistance directly to individuals are limited; operation

funded at $7 mil ion from 1984 to 1989, sought to

through some kind of neighborhood organization (NORG)

increase the local fundraising capacity of community-based

would seem required” (HUD, 1979b: i). A subsequent

organizations and enable them to become more self-

Urban Institute evaluation of the program found NSHP

sufficient (Bratt, 1998).

had a positive effect (Bratt, 1998).

The Reagan Administration doubled down on demand-side

Reagan Cuts and Pushes To Reduce the

rental assistance, ending the Section 8 NC/SR programs

Federal Role

and most new construction of public housing (Keyes et

al., 1996). In 1983, HUD proposed and Congress created

The Reagan Administration emphasized private-sector

a Section 8 voucher demonstration. Although Section 8

initiatives across policy areas. The administration created

tenant-based aid recipients were usual y limited to housing

formal structures to promote P3s, including an action plan

with rents up to the area Fair Market Rent, families with

for private-sector initiatives, a Presidential Task Force on

vouchers could rent more expensive housing if they paid

Private Sector Initiatives, and a White House Office of

more (HUD, 2000a). Voucher holders could also use their

Private Sector Initiatives (Berger, 1986).

vouchers in areas beyond the issuing PHA’s jurisdiction,

This approach aligned with the federal direction in urban

potential y enabling greater mobility (HUD, 2000a). In

policy during the previous 15 years. By the time President

the Housing and Community Development Act of 1987, 15

Reagan took office, P3s were established as a framework

Congress made the voucher experiment permanent (HUD,

through which government could devolve housing and

2000a). Signing the bil , Reagan (1988) commented, “A key

urban development policy to local communities. The

feature of this housing bill is the permanent authorization

Reagan Administration took one step further, aiming to

of the housing voucher program that we first proposed

use private-sector initiatives to replace federal funding

in 1982. The housing voucher program exemplifies our

and oversight in urban programs. In some instances, this

commitment to community development through public-

approach meant replacing the “public” in public-private

private partnerships.”

partnerships with full privatization. As the 1982 Report

The LIHTC program, authorized in the Tax Reform Act of

of the President’s Commission on Housing asserted,

1986, 16 has become the primary low-income rental housing

“The Commission seeks to create a housing sector that

production program for the federal government. The LIHTC

functions in an open environment—with minimal government program has financed more than 2.2 mil ion affordable participation. Government’s role should emphasize individual

freedom of choice” (President’s Commission on Housing,

14 Public Law 98–479.

15 Public Law 100–242.

1982). Leaders within HUD, such as Assistant Secretary

16 Public Law 99–514.

7

units since its creation (Furman Center, n.d.). According to

rent is put into an escrow account, and families can access

the Joint Committee on Taxation’s (1987) explanation of

it after completing an agreement with their PHA. P3s are

the act, Congress was concerned that previous tax-code

a core element of FSS. PHAs partner with community

provisions providing incentives for rental housing, such

organizations—businesses, nonprofit organizations, and

as accelerated depreciation, were inefficient. The Joint

other local agencies—to provide assisted families with

Committee’s (1987: 153) report noted several issues,

access to education and job training, helping families

including that previous incentives were not targeted to

become more economical y self-sufficient (Ficke and

“truly low-income” people, were not tied to the number of

Piesse, 2004).

low-income units produced, and failed to limit the rents that

could be charged to low-income people.

The HOME program, developed out of the Senate Banking

Committee, was created explicitly to foster P3s to develop

As compared with previous supply-side programs, the

affordable housing for low-income and very low-income

LIHTC program provides for a reduced federal role. State

families (42 U.S.C. § 12721; Jones, 2014). HOME funds

housing finance agencies al ocate federal tax credits to

can be used flexibly for a wide range of affordable

developers, who agree to maintain rent-capped housing for

housing activities, and grant recipients must provide

low-income residents on a long-term basis (HUD, 2014b).

matching funding.18 Since its establishment, HOME has

LIHTC has created a substantial secondary market for

financed more than 1 mil ion new affordable housing units

the tax credits, which developers typical y sell to private

(HUD, n.d.f).

investors (Schwartz, 2010). LIHTC is more decentralized

than previous supply-side programs and more clearly

HOME also provides a setaside for nonprofit private

tied to market forces, which could reduce the potential

organizations. The program earmarks 15 percent of funds

for corruption (Freeman, 2004). HUD plays a limited

for Community Housing Development Organizations

role in the LIHTC program, which the Internal Revenue

(CHDOs) to act as owners, developers, or sponsors

Service administers at the federal level (Schwartz, 2010).

of eligible projects. To qualify as a CHDO, nonprofit

Developers receive bonuses for developing in two types of

organizations must meet several requirements: staff with

areas, designated by HUD: Qualified Census Tracts, which

demonstrated capacity to develop affordable housing,

are high-poverty areas, or Difficult Development Areas,

experience serving the community, and a board with at

those with high development costs (Schwartz, 2010).

least one-third of its membership composed of low-income

community members (HUD, n.d.g).19 It appears that HOME

George H.W. Bush Emphasizes Volunteerism and

fostered significant growth in the number of nonprofit

Community Organizations

housing organizations. In the decade after HOME’s

establishment, the number of CHDOs grew from 229 in

The George H.W. Bush Administration continued to

1992 to 990 in 1998, far outstripping any growth in HOME

emphasize private organizations’ role in addressing social

funding and probably linked to state-level LIHTC al ocations

issues, with a focus on volunteerism and local community

to nonprofit organizations (O’Regan and Quigley, 2000).

organizations. In his inaugural address, President Bush

(1989) spoke of “a thousand points of light, of all the

community organizations that are spread like stars through

the Nation, doing good.”

In 1990, Bush signed into law the Cranston-Gonzalez

National Affordable Housing Act. 17 The act established

two enduring public-private initiatives, the Family Self-

Sufficiency (FSS) program and HOME Investment

Partnerships Program. FSS provides participating HUD-

18 By comparison with the UDAG program, HOME’s leveraging amount is far

less. Whereas UDAG required 2.5 private dol ars per federal dol ar, HOME

assisted families with a greater incentive to work and earn

requires only that grant recipients match at least 25 percent of federal

funds.

more—their additional income that would otherwise go to

19 In 2013, HUD amended some of the regulations governing CHDOs,

including a stricter requirement for CHDOs’ demonstrated, internal

17 Public Law 101–625.

development capacity (24 CFR § 92.2).

8

Housing and Urban Development Public-

Private Partnerships Through Today

HUD has continued to use public-private programs as a

new projects included both public housing and nonpublic

key tool under the Clinton, George W. Bush, and Obama

housing units, although all units were required to include

Administrations to improve mobility and implement mixed-

the same amenities (HUD, 2001). More than 100,000

income, mixed-finance housing. Facing a loss of units in

public housing units were demolished through HOPE VI,

public housing and privately owned, publicly subsidized

with a portion—although, controversial y, not all—replaced

units, HUD has implemented new public-private programs

through vouchers or new mixed-income public housing

to attempt to maintain the existing affordable housing

(Sard and Staub, 2008).

stock.

HOPE VI also encouraged public housing authorities to

Clinton Focuses on Homeownership and Mixed-

implement linked, place-based community and supportive

Finance Housing

services such as childcare, health care, and job skil s

training (Holin et al., 2003). PHAs outlined community and

New P3s took center stage in urban policy during

supportive services plans in their initial grant applications,

the Clinton Administration, from public housing to

and a portion of their grants were set aside for that purpose

homeownership. As for existing P3s, financial support

(Holin et al., 2003). PHAs often partnered with private

varied. The relatively new HOME program was funded

organizations to fund and implement these programs

at more than $1 bil ion every year of the 1990s but one,

(Parkes and Wood, 2001). The effectiveness of these

including more than $300 mil ion per year for CHDOs

partnerships is difficult to assess because communities

(HUD, 2015a).20 Although Section 8 certificates and

used very different models (Popkin et al., 2004).

voucher appropriations stal ed after the 1994 election, at

the end of the decade the federal government committed

In 1998, Congress revisited the P3 for vouchers,

significant funding in renewing existing Section 8 contracts

among other structural changes to the program.23 The

(Bratt, 2002).

Quality Housing and Work Responsibility Act of 1998 24

permanently repealed the “take-one, take-al ” provision

HOPE VI, the $5 bil ion public housing redevelopment

for vouchers. Under the “take-one, take-al ” rule, enacted

program enacted in the fiscal year 1993 appropriations

in 1987, a multifamily landlord could not refuse potential

law, introduced new public-private elements (Popkin et

tenants because they were Section 8 recipients if the

al., 2004).21 Starting in 1995, HUD al owed PHAs to use

landlord already had a Section 8 tenant in the property.

mixed-finance development, enabling them to partner

Congress had intended the rule to increase the pool of

with private developers to leverage HOPE VI funding,

apartments open to Section 8 recipients. That requirement,

and many PHAs chose to participate (Turbov and Piper,

however, had backfired: many landlords now refused to

2005).22 Under HUD’s new terms, PHAs could lend or

take a single Section 8 tenant (Bernstein, 2010). The 1998

grant their federal public housing funds to development

repeal represented a concession to the private side of the

partners (HUD, 2001). Private partners supplemented this

public-private Section 8 partnership, as Congress sought to

funding with other forms of financing, most often Low-

Income Housing Tax Credits (Turbov and Piper, 2005). The

23 Congress merged Section 8’s certificate and voucher programs into a

single Housing Choice Voucher Program in 1998 as wel , with the intention

20 In FY 1993, HOME was funded at slightly less than $1 bil ion.

of expanding options for voucher holders and increasing the likelihood that

21 First named the “Urban Revitalization Demonstration,” HOPE VI emerged

voucher holders would find housing. Three-fourths of Section 8 households

from the findings of the National Commission on Severely Distressed Public

before the merger had certificates, which could only be used for units that

Housing, established by Congress in 1989.

rented for less than a set maximum rent. Households can use vouchers to

22 The change occurred after HUD’s general counsel ruled in 1994 that

rent higher cost units if they are wil ing to pay more than 30 percent of their

public housing could be privately owned if it was also operated as public

adjusted incomes (Lubel , 2001).

housing and subject to public housing rules and regulations.

24 Public Law 105–276, Title V.

9

make participating in the voucher program more palatable

It is not apparent, however, that the National

to landlords.

Homeownership Strategy—as opposed to broader

macroeconomic trends and unrelated developments in the

The 1990s also saw the passage of major reforms to

private mortgage industry—significantly affected the extent

maintain the project-based Section 8 rental assistance

of homeownership (Doms and Motika, 2006). The Strategy

program, saving the government money and keeping units

involved “100 major actions” implemented by public and

affordable in the long term. Known as “Mark to Market,”

private entities, not major new legislation (Weiss, 2002). A

the Multifamily Assisted Housing Reform and Affordability

1997 White House press release, for instance, notes that

Act of 1997 25 constituted a renegotiated partnership

HUD signed 141 Fair Housing Best Practices agreements

between the government and landlords. The program’s

with real estate leaders. Other touted programs were

basic structure stayed the same: private entities owned

relatively small in scale. For example, the Homeownership

and managed project-based affordable housing, and HUD

Zone demonstration program made competitive grants

provided subsidies to the owners through direct contracts

to fund large-scale, mixed-income homeownership

with the federal government. Under Mark to Market, project

developments in distressed neighborhoods—the program

rents were reduced to market levels, and owners could

in total created a few thousand additional units nationwide

refinance their HUD-insured or HUD-held mortgages with

(Exceed Corporation et al., 2007). On the other hand,

reduced debt service so long as they accepted new and

FHA initiatives may have helped expand homeownership

cheaper long-term Section 8 contracts (Schwartz, 2010).26

opportunities for low-income and minority families

Mark to Market also increased the role of state housing

specifical y (HUD, 2000b).

finance agencies, which refinance FHA-insured mortgages

to reduce ongoing debt service and thereby lower Section 8 Final y, the Clinton-era HUD first implemented the Section contracts’ annual subsidy costs (Econometrica, Inc., and Abt 4 program, which seeks to increase CDCs’ and CHDOs’

Associates, 2006; Ray et al., 2015).

capacity to perform community development and affordable

housing work (HUD, n.d.h). Section 4 funds designated

P3s were a significant element of the Clinton

national organizations—initial y the National Community

Administration’s messaging on homeownership. As

Development Initiative and today Enterprise Community

President Clinton put it in June 1995, the administration’s

Partners, the Local Initiatives Support Corporation, and

National Homeownership Strategy aimed “to boost home

Habitat for Humanity—to provide technical and financial

ownership to 67.5 percent by the year 2000 . . . helping

assistance to local CDCs and CHDOs (HUD, n.d.h; Public

as many as 8 mil ion American families across that

Law 103–120). An independent qualitative evaluation

threshold” through an “al iance of the public and private

suggests that Section 4 has helped CDCs increase

sector” (Clinton, 1995). The Strategy’s key implementing

their revenues, staff, and programs (Social Compact and

group was a P3, the National Partners in Homeownership,

Weinheimer & Associates, 2011).

“representing every major national association involved

George W. Bush Prioritizes Cuts, Messaging on

in housing policy” (Weiss, 2002: 11). Secretary Henry

Homeownership

Cisneros and his successor, Secretary Andrew Cuomo,

oversaw the Strategy’s implementation (HUD, 1995).27 In

The Bush Administration sought major cuts to some

1997, the Clinton Administration declared that the nation

of HUD’s programs with public-private aspects. After

had achieved its al -time high homeownership rate (White

continuing HOPE VI for several years, the Bush

House, 1997).

Administration moved to end the program, asserting that

it had achieved its objective of demolishing 100,000 units

of severely distressed public housing (Sard and Staub,

25 Public Law 105–65.

26 The first mortgage was set at the value of the property with market-

2008). Congress in turn reduced HOPE VI’s annual funding

level rents. The second mortgage, held by HUD, was set at the difference

by more than 80 percent (Sard and Staub, 2008). The

between the first mortgage and the property’s outstanding debt; owners

only pay interest on this mortgage if the property generated more revenue

administration also cut funding for vouchers, project-based

than expected.

27 The Strategy had six prongs: (1) cutting housing production costs, (2)

assistance, and public housing (Sard and Rice, 2009).

expanding financing, (3) targeting assistance to underserved communities,

HOME, on the other hand, enjoyed increased funding

(4) opening the market to underserved populations, (5) raising awareness

of homeownership opportunities, and (6) expanding homeownership

throughout the decade (HUD, 2015a).

education and counseling.

10

President George W. Bush continued Clinton’s messaging

bil ion to state and local governments in formula funding.28

related to homeownership and P3s. In 2002, the Bush

The second round, which provided $2 bil ion in competitive

Administration launched America’s Homeownership

grants, was enacted under Obama in the American

Chal enge to encourage the private sector to increase

Recovery and Reinvestment Act of 2009.29 Nonprofit

minority homeownership (White House, 2004). As with

organizations and consortia of nonprofit organizations

the Clinton-era public-private homeownership initiatives,

could also apply for the second round of funding and could

however, it is unlikely that these initiatives had a significant

submit proposals in partnership with for-profit organizations

effect compared with other factors (HUD, 2010; Levitin and

(H.R. 1-104). Nonprofit organizations were added as

Wachter, 2013).

potential grantees for the second round because some

first round grantees lacked sufficient capacity, and HUD

The Bush Administration also encouraged local reform

encouraged partners to col aborate (Spader et al., 2015).

of zoning and land use restrictions through P3s. In

The third round provided an additional $1 bil ion in formula

2003, HUD created America’s Affordable Communities

funding to state and local governments (HUD, n.d.i).

Initiative to “encourage[ ] a public/private partnership

with state and local coalitions that addresses regulatory

NSP grantees used the funds primarily to acquire and

reform at state and local levels” (HUD, 2005: 14). As

rehabilitate properties (HUD, n.d.i). A HUD evaluation of

with the administration’s homeownership P3, this initiative

NSP’s second round, however, found that the program had

constituted political framing, not substantive policy change.

only a limited effect on local housing markets—possibly

HUD did not set aside funding specifical y for the project

because the investments were not sufficiently dense, at

(HUD, 2004).

only about seven properties per targeted census tract

(HUD, n.d.i). In at least one area, however, NSP funding

Obama Focuses on Inclusive Development and

appeared to significantly reduce property and violent crime

Stabilization

(HUD, n.d.i). Also, grantees typical y coordinated their NSP

When President Obama took office, the nation’s

funds with other community development activities and with

homeownership policy was in crisis. Other long-brewing

other partners, which could help revitalize neighborhoods

housing and urban development challenges, such as

over a longer timeframe (HUD, n.d.i).

the distressed state of public housing after decades

The Obama Administration is now attempting to address

of disinvestment, also came to the fore. The Obama

another looming chal enge, the enormous backlog of public

Administration used P3s as a means to address these

housing repair costs. A HUD analysis found that unmet

issues. On the other hand, existing P3s have experienced

public housing capital repairs totaled more than $26 bil ion

major cuts in the past few years. A hundred thousand

in 2010 (Finkel et al., 2010), and more than 200,000 public

vouchers were eliminated in the 2013 budget sequester

housing units have been lost since the mid-1990s (Fischer,

and have not yet been ful y restored (Rice, 2015), and

2014). The public housing operating fund is perpetual y

HOME’s budget was slashed in 2012 (HUD, 2015a).

underfunded (Fischer, 2014), and budget constraints and

The Neighborhood Stabilization Program (NSP), structured

public housing’s poor image mean the shortfall is unlikely to

as a part of the CDBG program, provided $6.9 bil ion in

be addressed soon.

three rounds of funding to acquire and redevelop foreclosed The Rental Assistance Demonstration, launched in 2012, properties. The program was intended to stabilize

enables public housing authorities to leverage public and

neighborhoods and prevent them from fal ing into blight,

private financing to reinvest in public housing developments

because foreclosures could have a ripple effect (Enterprise

(HUD, n.d.j). PHAs can manage RAD properties through

Community Partners, Inc., 2012). Many private organizations long-term contracts for either project-based vouchers or participated in NSP, and public recipients often used

project-based rental assistance (HUD, n.d.j). RAD adopts

their NSP grants as leverage to secure additional private

the mixed-financing approach that HUD introduced for

financing (National Housing Conference, n.d.). The first

28 Public Law 110–289. https://www.hudexchange.info/resources/

round of NSP, passed under Bush in 2008, provided $4

documents/DivisionB_TitleIII_HERA.pdf.

29 H.R. 1–104. https://www.hudexchange.info/resources/documents/

DivisionA_Title%20XII_ARRA.pdf.

11

HOPE VI, although HUD envisions that nearly all units

Choice Neighborhoods also demonstrates the Obama

involved would be rehabilitated, not demolished and rebuilt

Administration’s focus on P3s and local planning

(HUD, n.d.j). RAD was launched initial y as a demonstration

through place-based programs. The design of Choice

capped at 60,000 units, but significant interest led

Neighborhoods emphasizes coordination among different

Congress to raise the cap to 185,000 in the fiscal year

local systems—for example, health or education—among

2015 appropriations bill (HUD, 2014c). HUD expects the

public, for-profit, and nonprofit partners (Urban Institute,

program to be revenue-neutral for the federal government

2013). HUD rewarded these partnerships when scoring the

(HUD, n.d.k).

grant proposals (HUD, 2014d). Similarly, the Sustainable

Communities Regional Planning and Community Challenge

After HUD approves a housing authority to participate in

grants provided $240 mil ion for local planning, which was

RAD, the authority must secure financing and HUD must

matched with $253 mil ion in private investment and local

approve the financing plan (HUD, 2012). Many PHAs have

funds (Partnership for Sustainable Communities, 2014).

used Low-Income Housing Tax Credits, but financing varies

substantial y between properties and PHAs often use many

HUD has added institutional support for P3s through the

sources. One RAD property in Nevada, for example, draws

Office for International and Philanthropic Innovation (IPI;

financing from sources including LIHTC, FHA mortgage

Scheid, 2015). Since 2010, IPI has served as a dedicated

insurance, Federal Home Loan Bank funding, HOME funds,

portal for public-private engagement, helping to start

and a grant from Wel s Fargo (HUD, n.d.l).

partnerships and then institutionalize them in other offices in

HUD (Scheid, 2015). For example, IPI helped enable Rebuild

HUD expects that rent will not increase for most current

by Design, a resilient design competition funded by HUD, the

tenants in RAD units, who will not lose their housing

Rockefeller Foundation, and other philanthropic organizations

assistance or be rescreened (HUD, n.d.k). Most PHAs have

(HUD, 2014e). Subsequently, the Rockefel er Foundation has

not ful y privatized their public housing units under RAD, so

run a capacity building initiative that supports HUD’s National

tenants retain PHAs as their landlords (Fischer, 2014). Also,

Disaster Resilience Competition, a competitive $1 billion

tenants in RAD developments will gain the ability to move

grant program (HUD, 2014e). The Rockefel er Foundation

from public housing without losing their public assistance

has provided technical assistance and training workshops to

(Fischer, 2014). Some tenants’ groups and commentators,

help state and local applicants plan resiliently and apply for

however, are concerned that tenants need more substantial

the grants.

protections than are currently available (Smetak, 2014). A ful

evaluation of RAD is ongoing (Econometrica, Inc., 2014).

HUD has also aimed to revitalize HUD-subsidized

housing through Choice Neighborhoods, the Obama

Administration’s place-based successor to HOPE VI. As

with HOPE VI, Choice Neighborhoods encourages mixed

public and private financing. Whereas HOPE VI focused on

public housing, Choice Neighborhoods expanded eligibility

to privately owned, federally subsidized developments

(Urban Institute, 2013). Choice Neighborhoods also

responded to criticisms concerning tenants dislocated

by HOPE VI—grantees must construct at least one

replacement subsidized unit for every demolished assisted

unit (Urban Institute, 2013).

12

Conclusion

After 50 years of development, HUD’s P3s constitute

an essential part of its programs and policies, from

community development to fair housing enforcement. P3s

will likely continue to play a significant role in new HUD

initiatives, especial y in an era of severe restrictions on

new domestic spending.

The ConnectHome broadband pilot program, for instance,

commits no new federal funding from HUD and relies

on extensive private investment (HUD, 2015b). The

ongoing Rental Assistance Demonstration, if successful,

could reduce the nation’s public housing maintenance

backlog without substantial new federal investment.

Choice Neighborhoods enables local public and private

organizations to partner for systemic change, leveraging

public dollars to greater effect. Public-private partnerships

could also help administer HUD’s programs more

efficiently. As Katz and Turner argued, empowering public

and private organizations to administer vouchers at a

broader scale would be more efficient than the current

system, in which many PHAs serve relatively small areas

(Katz and Turner, 2001).

P3s provide both solutions and unique challenges

for HUD. At the same time, the ambiguity of “public-

private partnerships” renders them flexible for political

framing (Linder, 1999). If history is any indication, future

administrations will continue to use and describe P3s

to accommodate their housing and urban development

priorities.

13

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HUD Office of Policy Development and Research

Lynn M. Ross, AICP, Deputy Assistant Secretary for Policy Development

Rachelle L. Levitt, Director, Research Utilization Division

Chase Sackett, Author, Presidential Management Fel ow

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U.S. Department of Housing and Urban Development

Office of Policy Development and Research

Washington, DC 20410-6000

October 2015

Document Outline

Introduction

Public-Private Partnerships of the Great Society

The Transition to Devolution

Housing and Urban Development Public-Private Partnerships Through Today

Conclusion

References