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The Federal Reserve Bank of Chicago Profit Published by the Consumer and Community Affairs Division Volume 11 Issue 3/ Summer 2000 GET CHECKING Providing a Financial Foothold for Milwaukee’s “Unbanked” ALSO IN THIS ISSUE: Indiana’s Housing Finance Authority Using Tax Increment Financing Profit The Profitwise welcomes story ideas, suggestions, and letters from all bankers, community representatives and other subscribers in the Seventh Federal Reserve District. It is mailed at no charge to state member banks, bank holding companies and non-profit organizations throughout the Seventh Federal Reserve District. Other parties interested in neighborhood lending and community reinvestment may subscribe, free of charge, by writing to: In this Issue Profitwise Consumer & Community Affairs Division Federal Reserve Bank of Chicago P.O. Box 834 Chicago, IL 60690-0834 The material in Profitwise should not necessarily be interpreted as the official policy or endorsement of the Board of Governors of the Federal Reserve System, or the Federal Reserve Bank of Chicago. Advisor Alicia Williams Editor Michael V. Berry Associate Editor Jeremiah P. Boyle Design Recycled Paper Graphic Services 1 The Get Checking Program 5 Indiana Housing Finance Authority 12 Using Tax Increment Financing as an Affordable Housing Development Tool the GET CHECKING program THE FED’S COMMITMENT TO FINANCIAL LITERACY F inancial literacy is crucial to financial success and wealth accumulation for American households. The term “financial literacy” refers to the understanding and informed use of mainstream financial products and services such as bank accounts, credit cards, mortgages and insurance. Households that utilize check-cashing services, and pay bills in person or with money orders, pay significantly more for those products and services than they would at an ordinary bank. They also assume unnecessary risks, such as holding large sums of cash. These households are also at a distinct disadvantage when seeking to finance a major purchase, such as a home or tuition costs. The primary reason: they do not have an established relationship with an institution in a position to provide them those types of financing when the need arises. The Federal Reserve Bank of Chicago is committed to the goal of improving financial literacy within communities in its district, and is working on numerous fronts to support and promote relationships between insured depository institutions and households with no banking relationship. Profitwise will frequently highlight programs and initiatives designed to improve financial literacy, such as the “Get Checking” program described in this issue. 1 With the advent of electronic banking, financial institutions are challenged to find new ways to serve members of their communities who do not have a banking relationship. In Milwaukee, Wisconsin, an innovative partnership called “Get Checking” has been established to bring these new customers into financial institutions and to provide counseling on how to successfully manage their accounts, once established. For potential customers without an established financial institution account relationship, the Get Checking Program offers the opportunity to participate in a six-hour 0 0 00234 educational program to learn about account options and The Get Checking Partnership how to manage an account wisely once it is established. In 1998, several factors converged to create an interest in Participants learn “banking basics” from financial educators, developing an educational program for individuals outside financial institution representatives and from hands-on the mainstream banking system. Individual institutions, experience working with a checking account. Those who Norwest Bank in particular, were looking for ways to tap complete the classroom sessions and pass a competency this potential market. The City of Milwaukee provided a test are awarded a Certificate of Completion which is rec- forum for the discussion of rental housing issues called ognized by participating financial institutions when program the Rental Housing Task Force. Task Force members expressed participants apply for an account. concern about what welfare reform and Electronic Funds Get Checking offers a fresh start for individuals who Transfer 99 might mean for renters. Mayor John Norquist may have had a problem with an account in the past that then contacted the lending collaborative called New was reported to the Chex System – a national tracking Opportunities for Homeownership in Milwaukee (NOHIM). system banks use to assess new account applicants. If any There is a history in Milwaukee of financial institu- outstanding debt is satisfied and the prior account was not tions working together through NOHIM, which was cre- closed because of fraud, participating institutions agree to ated to increase homeownership opportunities for low-and open the account despite the Chex System notation. moderate-income families. NOHIM established a relationship between mortgage lenders and community-based housing counseling organizations. Financial institutions and community based homeownership counselors have identified credit issues as primary barriers for lower-income families to achieve homeownership. NOHIM’s participating lenders recognized the primary benefit of the Get Checking Program for their potential mortgage customers: the opportunity to establish a banking relationship as a first step in improving their credit records before pursuing homeownership. According to Pam Smith-Anderson, Vice President of Firstar’s Community Development Division and former Chairperson of NOHIM, “Get Checking offers financial 23456 5566 “We have seen a tremendous demand from partici- pants and an increasing interest by financial institutions. We are registering participants for our sessions two months institutions the opportunity to reach new customers, in advance. Initially, all of our referrals came from our develop the banking relationship and be there when these participating financial institutions. We have seen an customers need a mortgage loan or other financial services.” increase in referrals from other agencies and through In early 1998, University of Wisconsin-Extension word-of-mouth from former participants. In some cases, (UW-Extension) facilitated a planning meeting to consid- entire families are re-establishing their banking relation- er the possibility of offering an educational program for ships,” said Kim Terry, Get Checking Coordinator and individuals that do not have a banking relationship. UW-Extension Educator. “Our goal for 2000 is to gener- Representatives from financial institutions, community ate support to allow for program expansion.” organizations, housing counseling groups, property management associations and W-2 providers (agencies respon- What is Get Checking? sible for implementing Wisconsin’s welfare reform pro- The Get Checking Certificate Program provides partici- gram) convened to plan the program. Consumer Credit pants with the information they need to: Counseling Services agreed to conduct the first class in August of 1998. The program was piloted between August and December of 1998 cooperatively with UW-Extension, Consumer Credit Counseling Services, Firstar Bank, ■ Learn about low cost account options ■ Make appropriate account choices ■ Learn how to use an account properly through hands- Norwest Bank and West Allis Savings Bank. By 1999, 14 on practice, writing checks, working with a checkbook sessions had been held and nine institutions and three register, and balancing the account with the bank corporate sponsors supported the program. By February statement 2000, another three institutions had joined the program. In 1999, 316 participants attended the program and ■ Develop an ongoing relationship with their financial institution to facilitate access to other financial services 119 established an account with a participating institution. In the first three sessions of 2000, 84 participants attended sessions. Sessions, held monthly, are filled quickly, and the Partnership has recognized the need to schedule additional sessions to meet demand. 3 The program is six hours long and is usually held knowledge they gain in the classes. It is clear that many over three evenings at a community location. Financial participants did not have the experience or knowledge of educators from UW-Extension or Consumer Credit banking practices before Get Checking.” Counseling Services are responsible for facilitating the sessions. Representatives from financial institutions are Role of Financial Institutions available to answer questions and provide assistance to The participating financial institutions are an essential participants. component of the program. Institutions make an annual According to Paul Haussman, an economist with the financial contribution to the program, provide representa- UW-Extension, Division of Outreach and Continuing tives for workshop sessions, train staff on making appro- Education, “The key to the success of the Get Checking priate referrals into the program, and open accounts for Program is the partnership. Participants receive the bene- graduates. “Financial institutions have the customer con- fits of an objective educational program with the ability tact and know who to refer to the program. Just as impor- to interact in an informal way with financial institutions. tant, to be credible to the consumer, financial institutions A cooperative program like this truly has the greatest need to know how the program works, and what to do impact.” when a graduate comes in with a certificate to open an account,” explained Kim Terry. Get Checking Participants Various studies have determined that up to 22% of the Future Goals Milwaukee area population does not have an account Get Checking has had inquiries from around the country relationship with a financial institution. These individu- from communities that would like to set up a similar pro- als are likely to be minority, low- or moderate-income, gram. In 2000, the Get Checking Program plans to devel- younger than 35 years old and renting. These individuals op a curriculum that could be replicated. The Milwaukee are the least able to afford the costly fees associated with collaborative anticipates the curriculum will be available check cashing establishments. Get Checking participants by fall of 2000 and that revenue from its sale can sustain reflect this market: 84% are minority, 79% have incomes the local effort. less than 50% of county median income and 63% are less than 35 years old. But as Kim Terry indicates, “Statistics do not tell “It is a win-win situation” says Kim Terry. “We have tried and tested the material and have learned by experience what works and what doesn’t. Other communities the whole story. A Get Checking participant is likely to will be able to take this experience and get their program be a young single mother, working and going to school started much more quickly. We have relied on our local and attending home buying classes to purchase her first financial institutions to get the program started and will home, or a recently married couple that wants to establish use the additional revenue to allow us to become self- a joint account where one partner had a problem account sustaining and expand the program.” in the past. These participants have great potential for income growth and asset accumulation. Establishing an account with a financial institution gives them the opportunity to accomplish their goals.” According to Patrick Vandenberg, Program Manager of Consumer Credit Counseling Services, a division of Family Services of Milwaukee, Inc, “it is great to teach these classes. You can see the light bulb go on as participants start to realize what they can accomplish with the 4 If you would like more information on the Get Checking Program, contact: Kim Terry Housing and Financial Management Educator UW-Extension 640 S. 84th Street Milwaukee, WI 53214 phone: 414.290.2422 fax: 414.290.2424 email: kim.terry@ces.uwex.edu INDIANA HOUSING Finance Authority Serving Indiana’s Affordable Housing Needs Jennifer Boehm Director of Marketing and Public Affairs Indiana Housing Finance Authority I t has been a century since housing advocates in Indiana and the nation began asking the government for funds and programs to deliver safe, decent and affordable housing. For much of this century, the federal government’s most visible response to these pleas was the spending of federal funds. Congress spent money for public housing and provided subsidies so Americans could find shelter in public housing or affordable units in private rental developments. Then, about 25 years ago, responsibility for managing affordable housing finance and development began a dramatic shift toward the states, especially during the 1980s. Congress assisted this effort by equipping the states with tools to attract private investment in affordable housing, rather than depending exclusively on direct federal funding. Direct private investment in affordable housing began to fill the gaps left by the decline in federal funding. State and local government housing agencies which had been dependent on federal grants and subsidies had to develop new strategies for providing safe, decent and affordable housing. The State of Indiana’s housing is a good example. In Indiana, several systems are now in place to increase the availability of affordable housing by increasing the number of private sector investment opportunities. 5 These systems are based on a growing network of PROMOTING HOMEOWNERSHIP IN INDIANA partnerships among the local, state, and federal agencies, IHFA began by selling tax-exempt Mortgage Revenue for-profit businesses and not-for-profit organizations. The Bonds (MRBs) to investors to finance low-interest mort- for-profit partners include investment banks, mortgage gages for first-time homebuyers. IHFA is now one of the lenders, commercial banks, corporate investment managers leading bond issuers in Indiana. and syndicates, apartment developers, homebuilders, and Realtors. The Indiana Housing Finance Authority (IHFA) was The Mortgage Revenue Bond Program attracts funds from investors nationwide who buy the Aaa-rated, taxexempt mortgage revenue bonds issued by IHFA. Since formed in 1978 by the Indiana General Assembly. The these bonds have the highest credit rating possible and Chairman of IHFA is the State of Indiana’s Lt. Governor, the interest earned on the bonds is not taxable, investors Joseph E. Kernan. The Board of Directors is comprised accept a lower interest rate. This allows IHFA to pass the of six representatives from both the State and private interest rate savings on to qualified homebuyers through businesses. mortgages with below-market interest rates. The people who benefit from IHFA’s programs are Each state is limited in the amount of bonds it can lower-income and middle-income residents of neighbor- issue each year under the Private Activity Bond Volume hoods throughout Indiana. Since housing development is Cap established by Congress. IHFA was the first housing a part of the total picture of economic and community finance authority in the country to facilitate financing development, the benefits extend well beyond the indi- needs over and above the state’s limit. When the taxable vidual recipients to whole communities. Housing devel- and tax-exempt bonds are blended, they still provide an opment creates jobs, improves quality of life and promotes attractive return for investors at below-market rates. community growth. Private investors also benefit since their investments earn solid financial returns. IHFA’s goal is to serve Indiana residents whose IHFA’s low interest rate mortgage and down payment assistance programs are primarily administered through lenders who participate in IHFAs Homeownership Lending housing needs are not currently being met by the private Programs. The Homeownership Lending Programs offer market. However, much like a bank, IHFA must also down payment assistance, affordable mortgage financing, maintain an attractive investment climate for affordable and tax credits for first-time homebuyers. housing; if performance of housing investments sags, investment capital will move elsewhere. The Indiana Housing Finance Authority’s strategy to The First Home program offers first-time homebuyers a below market interest rate loan through one of IHFA’s Participating Lenders. This program may be used help provide affordable housing where and to whom it is in conjunction with FHA/VA mortgage insurance, conven- most needed includes three basic elements: promotion of tional financing, or rural development. The interest rate homeownership opportunities, development of affordable varies from time to time but is usually rental units, and support for community development initiatives that include affordable housing programs. 6 one-half to one point below the prevailing competitive on the mortgage each year, depending on the mortgage mortgage rate. loan amount. The maximum credit per year is $2,000. In IHFA’s First Home/One Down is another program 1999, 307 Mortgage Credit Certificates were issued. The that was the first of its kind in the country. It is a part- average home purchase price was $83,751, and the average nership with Fannie Mae, the nation’s largest source of household income of recipients was $35,305. financing for home mortgages. This program allows qualified first-time homebuyers to obtain mortgages with a RENTAL HOUSING DEVELOPMENT down payment of as little as one percent. Almost three-quarters of Indiana households own their Under First Home/One Down, applicants receive 5 own homes. Although many households, especially young or 10 percent down payment assistance (up to $5,000) in couples and senior citizens, are better served by apartment the form of a zero-interest forgivable loan. All applicants living, few Indiana communities offer privately-owned, must meet income guidelines established by the U.S. affordable rental housing. IHFA works with for-profit and Department of Housing and Urban Development (HUD), not-for-profit partners to create and preserve affordable whose funds are used to make the down payment. The rental housing opportunities that fulfill those needs. balance of the home purchase, up to 95 percent of the During the 1990s, IHFA’s principal multi-family price, is supported by an IHFA First Home loan. In 1999, 2,942 First Home loans were committed, housing tool was the Rental Housing Tax Credit. The tax credit is a federal resource allocated in Indiana by IHFA totaling more than $209 million. The average purchase with advice from local governments. Applicants for the price was $61,284 and the average household income was credit include for-profit and not-for-profit developers of $31,427. Of these loans, 1,027 were down payment assist- affordable rental housing. If a developer is successful in ed First Home Loans totaling more than $4.2 million. winning a credit allocation — the process is highly com- The Mortgage Credit Certificate program (also offered through Participating Lenders) offers first-time homebuyers a federal tax credit. The tax credit amount ranges between 20 percent and 35 percent of the interest paid petitive — they then use the credit to attract private investment to the proposed affordable housing development. Private investors purchase the tax credits at a discounted rate, but are then able to reduce their federal income taxes by the full amount of the credit over a specified number of years. It is not unusual for the housing credit to attract half the funds needed for an affordable housing development in the form of equity investment, meaning a sharp reduction in the amount of funds the developer must borrow. Reductions in borrowing mean an ability to charge less rent, which is the goal of the tax credit program. In 1999, IHFA approved competitive tax credit allocations for more than 1,400 units in 31 affordable rental housing developments across the state. IHFA facilitates investment in affordable multi-family housing by helping to make tax-exempt multi-family housing bonds available. Tax-exempt multi-family revenue bonds support debt needs of developers planning to develop or create affordable rental housing. In 1999, IHFA approved $35.3 million in multi-family tax-exempt bond issues to finance 1,008 units of affordable housing. Due to the impending expiration of HUD Section 8 contracts, three Indiana cities were at risk of losing a combined total of 652 affordable rental units. As Section 8 contracts expire, property owners are free to increase rents to market rates. In December 1999, IHFA issued its first tax exempt bond to preserve affordable housing units in the five at-risk developments. The tax exempt bonds enabled the sale of these properties to a not-forfor 20 more years. Also in 1999, IHFA was approved by HUD’s Office KATHY PRESNELL AND HER 4-YEAR OLD DAUGHTER, EVANGE of Multifamily Housing Assistance Restructuring their new two-bedroom home, located inTerre Haute, Indiana, in May. T (OMHAR) to be the Participating Administrative Entity Down program, Presnell moved in with only a $350 down payment on th (PAE) for the State with regard to Section 8 properties whose rents are above market. This enables IHFA to are $277.63 on the 30-year loan. Under the First Home/One Down progra administer HUD’s Mark-to-Market Program for the State with as little as one percent down. Home buyers receive five percent to of Indiana. The Mark-to-Market Program enables Section assistance in the form of a no-interest loan. If the buyer occupies the ho 8 properties to restructure their rents and/or debt in down payment may be forgiven. (Photos/Jim Avelis) order to bring rents more in line with market rates. IHFA has been assigned and is processing three full debt restructures and four rent restructures (“lites”). As of January 2000, two of the lites had been completed and submitted to OMHAR for approval. 8 ▼ profit entity, guaranteeing that they will remain affordable BEND IN THE WOODS This is a 48-unit development located at 1801 Smith St., in Logansport, Indiana. A HOME grant in the amount of $500,000 assisted in the development of these units designed to serve elderly residents who need affordable housing. The development was also financed in part by using $243,548 in tax credits. (Photos/R. Van Marter) ▼ ▼ A “EVIE,” moved into CASE STUDIES Indiana Housing Finance Authority s to a First Home/One SHELBYVILLE HIGH 5,000 home. Payments APARTMENTS: ne can buy a home ercent down payment or five years, that This 49-unit development, located in Shelbyville, Indiana, was financed using $148, 319 in annual tax credits over a 10-year period. This development was a renovation of a historic high school into affordable apartments. The interior paintings show the spirit that was once Shelbyville High and is now Shelbyville Apartments. Total development cost was $2,248,913. (Photos/Melanie Reusze) 9 COMMUNITY DEVELOPMENT is primarily a revolving loan fund. It uses various State The Indiana Housing Finance Authority’s Community funding sources to provide additional financing options Development programs are designed to fill gaps in for projects that may not meet the guidelines of other Indiana’s affordable housing needs that are not met by federal or state programs. The Trust Fund may be used homeownership and rental housing programs. by not-for-profit housing developers to obtain financing IHFA’s “Housing from Shelters to Homeownership” for various kinds of housing development. Administration program utilizes federal Home Investment Partnerships of the Fund was delegated to IHFA. The Fund consists of program (HOME) and Community Development Block appropriations from the General Assembly, gifts and grants Grant (CDBG) funds. These funds help finance a variety to the Fund, investment income earned from the Fund’s of housing activities including the rehabilitation or devel- assets, funds borrowed from the Public Depositories opment of emergency shelters, youth shelters, transition- Insurance Fund and contributions from IHFA’s “dividend.” al housing, migrant farm worker housing, rental housing, IHFAs 1998 dividend was $1.455 million and in 1999 it homeownership counseling, down payment assistance was $1.1 million. and single-family homeownership. The program may be In 1999, the Low-Income Housing Trust Fund made used by local units of government, designated Community $4,721,200 in loans and $715,095 in grants to 28 develop- Housing Development Organizations (CHoDOs), and ments in 24 counties. This resulted in the creation of other not-for-profit organizations to meet the housing 606 housing units including emergency shelters, transi- needs of their particular communities. tional housing, rental housing and owner-occupied units. IHFA’s “Foundations” program utilizes HOME and In Indiana, IHFA is working with private investors CDBG funds to help fund pre-development activities and financial institutions to finance affordable rental and such as housing needs assessments and site-specific feasi- owner-occupied housing. Above all, Indiana’s success in bility studies. Local units of government can apply for affordable housing in recent years is owed to homebuyers, CDBG grants for housing needs assessments and site- bond investors, rental housing investors, mortgage lenders, specific feasibility studies while CHoDOs can apply for banks, neighborhood groups, not-for-profit organizations HOME loans for pre-development activities. In 1999, and federal and local governments. They have seen that IHFA granted $15.6 million in HOME and CDBG funds well-structured investments can serve the housing needs to 70 grantees in 40 counties across the state, impacting of Indiana’s residents and also produce reasonable finan- 864 housing units. cial returns for investors. Throughout Indiana, the challenge that communities This record holds much promise for meeting the face is to simultaneously increase capacity of, and preserve needs of those who, even after a century of housing access to safe, decent, and affordable housing. Fulfilling advocacy, still have unmet needs for safe, decent and this important community need is often difficult because affordable housing. of competition for resources, regulatory constraints, and unpredictable budget cycles. Recognizing that the need For more information on Indiana’s housing programs, call for affordable housing increasingly surpasses the supply, Jennifer Boehm, Director of Marketing and Communications, the Indiana General Assembly created the Low Income Indiana Housing Finance Authority at 317/232-7781. Housing Trust Fund. The Fund was established in 1989 to provide financing options to non-profit corporations for the development of safe, decent, and affordable housing in Indiana communities. The Indiana Low-Income Housing Trust Fund 10 USING TAX INCREMENT FINANCING AS AN AFFORDABLE HOUSING DEVELOPMENT TOOL Andrea Smith / Assistant Commissioner / Chicago Department of Housing A few years ago, many vital Chicago neigh- Equally significant is the fact that many long vacant borhoods were at a crossroad. Development parcels of City-owned land are being transformed through activities had stagnated, and run-down and the development of both affordable and market-rate abandoned buildings and blighted vacant new homes for individuals and families. lots were becoming all too common. Chicago’s Mayor, The City of Chicago’s Department of Housing has Richard M. Daley, and his policy advisors began search- successfully used Tax Increment Financing (TIF) to ing for innovative solutions to preserve the viability and redevelop blighted areas of the city and, among other stability of Chicago for future generations. things, provide needed affordable housing. Today, thanks to the committed efforts of the city, along with its private-sector partners, there is another TAX INCREMENT FINANCING more positive story to tell. City neighborhoods are com- TIF is a popular and effective economic development ing alive with redevelopment. Growth is occurring in tool that allows local governments essentially to borrow virtually every community throughout Chicago. against anticipated increases in revenue from neighbor- In a diverse cross-section of areas, new industrial hood improvements. This innovative approach to fund- facilities are replacing abandoned factories and providing ing public improvements that support and encourage thousands of Chicagoans with high-paying employment. private development and investment (in areas that prob- Shopping centers are appearing in neighborhoods that have ably would not benefit from private investment without not seen new retail development in over a generation. Former public involvement) helps return vacant and underused brownfields are being converted to clean, usable land. property to the tax rolls. By maximizing the use of the land, the city is able to maximize the property tax revenue stream without raising local property tax rates. 11 TIF districts were established in Illinois in 1977. Edgewater community on Chicago’s North Side. Originally The Chicago City Council has approved 96 TIF districts built as upscale residential hotels, their fortunes had in Chicago, emphasizing their critical role in community changed dramatically by the 1990s. Badly neglected and revitalization. Today there are more than 400 TIF dis- falling into disrepair, they eventually were abandoned tricts in Illinois, including Chicago’s 96 districts. and slated for demolition. According to a recent city study, despite nearly 20 The City’s Department of Housing, with strong years of declining state and federal resources to urban community support, stepped in to save the landmark communities, Chicago is enjoying strong economic growth, structures. The City created the Bryn Mawr-Broadway due in part to the creative use of Tax Increment Financing. and Edgewater TIF Districts, which included a residen- The study demonstrates the success of TIF-funded tial TIF to breathe new life into these key sites and projects in terms of both job creation and leveraging ensure their long-term physical stability and beauty. private investment. Through 1998, TIF-funded projects in Chicago had “This multi-family rental development represents a major component of the City’s strategy of rebuilding created/retained 33,983 jobs, and every dollar of public neighborhoods by providing needed affordable housing, investment was matched by well over five dollars in without displacing the residents who have lived within a private investment. community for years,” Chicago Housing Commissioner Although TIF is most commonly perceived to be a John G. Markowski said. commercial and industrial development tool, it has gen- The redevelopment of the two landmark Chicago erated thousands of units of affordable rental housing in hotels, two separate development projects, cost a total Chicago. When Mayor Daley took office in 1989, the city of $26.4 million. Both hotels required extensive exterior made a far reaching commitment to revitalize communi- renovations designed to maintain the historical and ties and expand affordable housing opportunities in architectural significance of the buildings, and complete Chicago through a variety of innovations and initiatives interior rehabilitation. for individuals and families of various income levels. The city’s first TIF district established exclusively In 1999, these properties were recognized by the National Trust for Historic Places, and they were nomi- for the development of affordable housing was designat- nated in early 2000 as finalists in the annual “Good ed by the Chicago City Council in 1994. The develop- Neighbor Awards,” a prestigious honor that salutes those ment of Phase V of the Paul Stewart Apartments created residential and commercial buildings that have positively 96 units of needed affordable housing in Chicago’s South impacted the communities in which they are located. Side Grand Boulevard neighborhood. The “Good Neighbor Awards” are sponsored annually by The Bryn Mawr-Belle Shore and the 43rd & Cottage the Chicago Association of Realtors. Grove TIF districts illustrate the significant impact of TIF financing on affordable housing options. TIF SUPPORTS BRONZEVILLE’S REBIRTH It has been more than 20 years since the once-proud BRYN MAWR-BELLE SHORE TIF DISTRICT: Grand Boulevard community on Chicago’s South Side, Preservation of Two Landmarks Provides Affordable also known as “Bronzeville,” experienced any new com- Rental Housing mercial or residential construction. During the first half of the 20th century, the Bryn Mawr In the shadow of the Robert Taylor Homes–a public and Belle Shore Hotel Buildings were architectural jewels housing development–the years of disinvestment in the and an immense source of neighborhood pride to the neighborhood have caused severe economic, physical and social deterioration. 12 Recently, however, a new era of affordable housing “The groundbreaking of Hearts United exemplifies has emerged, thanks to a committed public/private-sec- the positive transformation which can occur when a tor partnership between the City of Chicago, the Chicago committed partnership exists between the City of Housing Authority (CHA) and private-sector limited Chicago and the private sector,” said 4th Ward Alderman partners. These partners include Hearts United Toni Preckwinkle. “These affordable rental homes serve Development Corporation, a not-for-profit consortium as a model for the future integration of public housing of local churches and neighborhood organizations, and into larger residential neighborhoods, creating strong, the minority-owned, for-profit Bonheur Development mixed-income communities.” Corporation, headed by affordable housing specialist Fred Bonner. The Hearts United Apartments, currently under With $2.5 million in federal HOPE VI funds being provided to the project by the Chicago Housing Authority, 25% of the units will be reserved for public housing resi- construction, will consist of 116 low-rise, one- to four- dents, providing replacement housing for the Robert bedroom affordable rental apartments in three- to six- Taylor Housing project. The remainder of the develop- unit buildings in an area bounded by 39th and 47th ment will be a mix of market rate (30%) and affordable streets, between Cottage Grove and Vincennes Avenue. units, which will be available to, and rented by, families This development will return 39 city-owned vacant lots earning less than 60% of area median income. to the tax rolls, providing further economic benefits The establishment of the Hearts United project both to the neighborhood and the city. The Hearts will go a long way to turn around a neighborhood once United project is located within the 43rd Street and characterized by urban decay and blight into a healthy, Cottage Grove Redevelopment Area, a recently desig- stable mixed-income community with a diverse range nated TIF district. of affordable housing options for its residents. According to Fred Bonner, whose Bonheur Development Corporation has developed more than NEIGHBORHOOD IMPROVEMENT FUND: 3,000 government-assisted housing units in his 28-year Helping Moderate-Income Residents Repair Their Homes career, the goal is not only to create housing, but, as he In the Woodlawn neighborhood on Chicago’s Southeast puts it, to also rebuild communities. Side, Ms. Sadie Wilks lives in a working-class community “We are building quality, affordable housing that dotted with vacant lots, run-down but imposing turn-of- blends seamlessly into the existing area. It should not the-century graystones, as well as solid, single-family be readily identifiable as public housing, market-rate and two- and three-flat brick buildings. housing, or whatever. There’s no reason why people Woodlawn is a community of contrasts: on the eastern with lower incomes have to endure negative character border of the neighborhood, there are signs of modest judgements by others based on the type of housing they gentrification, as new and existing home owners work to live in,” said Bonner. restore the luster to the neighborhood by repairing and In 1994, Bonner developed 96 units of affordable renovating their solid, brick, single-family homes and rental housing in Chicago’s first residential TIF, the multifamily buildings. On the community’s western Paul G. Stewart Apartments, located at 41st & King edge, there are higher concentrations of lower-income Drive. Five years later, this well-maintained development residents. Redevelopment efforts, while more challeng- endures as a successful model of mixed-income rental ing than new construction, are attempting to move forward. housing developed through the use of TIF funds. 13 CASE STUDY TIF/NIP: A Multifamily Rehab Success Story Located in the middle of its block, 6437-41 South Kenwood was an eyesore. It had been vacant for more than three years, and it had been vandalized. The other buildings on the block had F or months, William Imberger and John O’Hara would walk up and down Chicago’s streets in search of a multifamily apart- ment building to buy. “We targeted certain undervalued areas with upturn potential and would stop people in front of buildings we were interested in and ask them if they knew anything about the building,” O’Hara said. One afternoon Imberger found himself in front of 6437-41 South Kenwood - a 22-unit, L-shaped building located in Woodlawn. A woman walking her dog strolled by, and Imberger asked her if she knew if the property was for sale. As it turned out, the woman was the owner of the building and was interested in selling. A deal was struck with the woman, and Imberger and O’Hara bought their first multifamily building. 14 been or were currently undergoing extensive rehabilitation, and new single-family homes were being built. The rehab of this 22-unit building would complete the revitalization of this Woodlawn block. Imberger and O’Hara were well-prepared for the job. Both are self-employed contractors who had partnered on several other projects over the last 16 years, including single-family homes, commercial new construction, office build-outs and masonry and concrete contracting. The partners planned to perform the bulk of the carpentry and all of the masonry, demolition and decoration on their new property. financing, but it also administered several city-funded programs, including the Tax Increment Financing/Neighborhood Improvement Program. The TIF/NIP program provides grants of up to $5,000 per unit, and a $50,000 maximum per building, to rehab multifamily buildings located within the Woodlawn and Bronzeville TIF areas. Grants must be matched, either through personal funds or loan proceeds. These funds are used primarily for exterior repairs, but up to 30% can be used for interior health and safety items. CIC provided Imberger and O’Hara with a $670,000 “Flex Loan” and a $50,000 TIF/NIP grant to rehab their 22-unit building. The Flex Loan Program is a special CIC loan fund that places less emphasis on appraised value and instead focuses on a strong projected cash flow. The grant was matched with $50,000 of the loan funds. “A traditional loan would have only provided financing totaling 80% of after-rehab appraised value,” said Anthony Hawthorne, CIC loan officer. “This clearly would not cover the cost of a project of this scope. Aside from government financing, the use of Flex financing and the TIF/NIP grant was the only conventional and least expensive way to rehabilitate the building.” Before the rehab could take place, O’Hara and Imberger needed financing. The building required a complete gut rehab, “We were attracted to the convenience of CIC’s programs,” including restoring woodwork, replacing doors and crown mold- O’Hara said. “We were able to obtain a loan, a grant and match- ings and updating electrical systems and plumbing. “We wanted ing funds all at the same time and place, which allowed us to to make this vintage building fully functional as well as restore its close the transaction sooner and immediately start the rehab. charm,” O’Hara said. What’s more, the TIF/NIP grant allowed us to put $50,000 less of Low-cost financing and City of Chicago funds were neces- our own cash into the building.” sary to undertake this extensive rehab project. While researching their options, Imberger and O’Hara came across the Community Investment Corporation, a not-for-profit organization that provides below-market rate rehab loans for The rehab of 6437-41 South Kenwood will be completed in the fall of 2000 and will provide affordable rental units for Woodlawn’s low- and moderate-income residents. For more information, call CIC at (312) 258-0070. multifamily buildings in Chicago’s low- and moderate-income neighborhoods. They discovered that CIC not only provided 15 It is a community that has experienced its ups and To be eligible for this program, single-family appli- downs. Ms. Wilks, a retired widow, shares a plight com- cants must be owners and occupants who have lived in mon to many of her neighbors: they all need to make their homes for at least three years. Applicants under the extensive repairs on their homes, but they lack the finan- multifamily portion of the program must agree to speci- cial means to pay for the needed rehabilitation projects. fied limits on rent increases for their tenant over the Many are seniors living on fixed incomes. Others have next five years. All who participate in the program must credit and affordability issues that make securing a gen- be able to meet income guidelines, earning up to but eral consumer loan at reasonable interest rates a diffi- not more than 120% of the area’s median income. cult proposition. Until recently, there were few options The banks’ loans to the city will be repaid through for these homeowners, many of whom have owned their higher property tax revenues in the future. To repay the homes and lived in the community for decades. loans, property tax revenue will need to increase only That’s where the TIF-funded Neighborhood 1% per year. The eight participating financial institu- Improvement Program (NIP) comes in. Neighborhood tions are: Allstate Insurance, Bank One, Bank of Improvement Program is a pilot program designed by America, Cole Taylor Bank, Harris Bank, LaSalle Bank, the Chicago Department of Housing to utilize resources the Northern Trust Company and South Shore Bank. within TIF areas for housing-related projects that pro- The Neighborhood Improvement Program is unique mote neighborhood stability and renewal. In addition to because it is the first city program that uses tax increment the creative use of TIF funds, this program was made financing funds to help owners of existing homes improve possible through an innovative public/private partnership. their properties. Equally significant is the fact that A $2 million loan pool for NIP is being underwritten by the Local Initiatives Support Corporation these are grants, not loans, to homeowners. There is no additional financial burden. (LISC) Chicago office. It will draw on funding from eight Community response to NIP has been very posi- Chicago lending institutions to provide grants for exteri- tive. This program is one component of a $20 million or home improvements and repairs for single-family and package of affordable housing initiatives that Mayor small multifamily buildings in two targeted, low- to Daley announced during 1999 to help Chicago residents moderate-income communities in the city: Bronzeville and repair, maintain and improve existing homes. Woodlawn. “This is a tremendous opportunity for long-time, Bronzeville and Woodlawn were chosen as the first moderate-income Chicago residents to reap some of the sites for this pilot initiative because they have existing benefits of the revitalization efforts currently underway TIF districts that include large residential areas. in communities across the city,” said Chicago’s Housing The City of Chicago will distribute the grants through Commissioner, John Markowski. “The TIF Neighborhood two intermediaries: Neighborhood Housing Services of Improvement Program is a smart investment in our Chicago (NHS) and Community Investment Corporation neighborhoods.” (CIC). NHS will administer $1 million in grants to owners of buildings with one to four units; CIC will administer another $1 million in grants to owners of small, multi-family properties with five or more units. 16 Mark Your Calendar! QUESTIONS? 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