erin and leah in my staff have been working on this for a year, to organize the rental program and working with hud and our stakeholders at the housing authority. i want to take the opportunity to publicly thank them for getting us to this point. we are not over the start line but we are close to the start line. and it's a lot because of their dedication and hard work. and i want to thank sophie and kay who pulled together this powerpoint presentation and their efforts in our office. where do we start in terms of the questions of rad and why are we doing rad? it starts earlier, in terms of december of 2012, when the housing authority was declared troubled by the regional administrator and the secretary

of hud. and it was declared trouble for a variety of reasons. and at that point mayor lee called for a reenvisioning process to say, what are the problems with the housing authority? what are the problems with the housing stock? and what can the city do to ensure that we have affordable housing for extremely low-income people. so the mayor convened the big-10 process, and we sought out ideas on how we can solve some of the problems of the housing authority. so over a period of four months, and there are many organizations involved. many city departments involved and many public meetings. and one of the things that we learned in this process, is doing nothing is not an option. what we heard from the folks at

the housing authority is that they didn't have the resources to really take on some of the problems that related to the operational problems related to finding enough money to do the repairs. to do the capital improvements, and to really manage the housing authority. what we heard from the residents were, you know, what we really want in this process is we want a good place to live. like any other san franciscan, that we want to be able to press the button on the elevator and be able to get on the elevator and get down to the first floor. we want the bathtub to drain. we want the water heater to work. what we heard from the tenants is that we want decent housing like everybody else. doing nothing as it comes out of sort of re-envisioning process, doing nothing was not an option.

and the consequences of not doing anything was one, obviously the buildings continue to decline. as director smith talked about. even though she's putting $5 million a year in repairs, the deficit in terms of repairs is growing by $15 million a year. every year an additional $10 million gets added to the list of deferred improvements. and as we know from the recent discussions about the elevators, the mayor was successful in finding funds to try to address the elevators. that amount was greater than the entire repair and maintenance budget for the rest of the entire housing stock. so that's how bad things are now in terms of what the operations in terms of repair and maintenance of the buildings are. buildings continue to decline. so one of the things that hud

has the responsibility of ensuring that the monies they give to housing authorities is spent wisely. so there is this sort of joke. they give you 70 cents on the dollar, that's what they have done on section 9 funding for some housing authorities. and because of what they would say is, we estimated that the cost of operating public housing is $100 a year, and we will give you $70, and you have to do the best you can. and by the way, we will grade you as you got the $100, they are in the situation that the buildings continue to decline. and hud has retained their requirements as they should for the residents to have safe, decent, sanitary housing. the inspections have failed.

and what happens then? units are taken out of service, and we know as well, we have 200 units out of service because the housing authority doesn't have the money to turn the units over. and as they are taken out of the service, they are not providing housing for san francisco residents. and in many cases they are creating a blight. the units are vandalize and squatted and etc. what happens then? as the housing authority continues to fail their scores, they become troubled. they lose their funding. they go into receivership. and someone comes in and hopefully saves the day. puts a bandage on it. and makes it good for the next couple of years and waits for us to repeat the cycle over and over again. so that is part of the reason why the mayor's office said,

let's not do that. let's not just put a bandage on the problem and repeat the process. we have seen this before. the director prior to director smith, was not the first director we had that came and went in a short period of time. what can we do as a city to break this cycle? so we jumped on one of the solutions being presented by the secretary. so among the secretary's initiatives were the choice neighborhoods initiative as well as rad. these are two signature initiatives. and we figured out, if you can't beat them, join them. if the secretary has a new program to help public housing.

let's figure out a way to take advantage of it and use it for the benefit of san francisco. both mrs. vascal and barbara said, it's the simple way of looking at how to make this work. we are taking money, housing authorities get funded turned category called section 9. and this is where the funding for the annual contributions contracts get funded. and this is sort of a lump-sum payment to the housing authority. and the housing authority divvies among the various developments. we are moving the assistance from the section 9 bucket to the section 8 bucket. and why is that different? we talked earlier about how often the section 9 sort of bucket would give you $100 per

unit per year, or whatever. and only at the cost of operating. but only give you $70. so under the section 8 program. once you get a contract at an amount, that contract is generally fixed. you are more likely to get 100% of your section 8 amount than you would be of getting 100% of the amount eligible under section 9. the one big difference. the other big difference is the popularity or the supporters of section 9 versus section 8. the supporters of the section 9 are the residents of public housing and public housing authorities. the supporters of the section 8 program includes suburban jurisdictions and developers, and tenant advocates and a variety of other people that have more sway at the federal

government level. so those resources are more likely to be there in the long term than the resources based upon the section 9. and that is another huge, huge difference. in terms of taking advantage of the situation and the realities of the situation. it's not necessarily fair. it's not necessarily just. but for us to be able to move forward we need to take advantage of that situation. the other thing that section 9 doesn't do is it has not funded any new public housing forever. and it has not funded any new modernization for forever. so really what the secretary was doing was saying, here guys, i will give you this tool, and this tool unlocks the access to

loan income housing tax credits and debt financing. and why does it do that? we are creating these sort of rental assistance vouchers. the lenders a s ans and investo used to project-based rental vouchers. in the 80s there was lots of projects with project-based rental assistance vouchers. and in san francisco after the 20-year cycle, the lenders and the investors are very familiar with this tool. they can underwrite with this and buy credits based on it, they couldn't do that with that section 9 financing. this is part of reason this is part of the solution. in terms why we are looking at rental assistance demonstration

program. and the other part, the rental assistance program comes with an obligation. we will talk a little about the rehab obligations and the tenant obligations. and one of the reasons, to take part of this program, you need to be obligated for 20 years. and we have to put more money and we have to increase the housing quality in these units. therefore a part of this, and i wanted to answer the question about whether this is a demalatide demoliti demolition. absolutely not. this is a rehab program. there is no demos. this is not like (inaudible) or choice neighborhoods. so we are going through and

rehabbing everything for the next 20 years. it doesn't mean that in 20 years from now or 15 years from now, we as a city decide we should improve this housing and utilize it to a higher level. but for now, this is a rehab. there is no intention for displacing anyone. and no issue of one for one replacement. all the units will be replaced. it does allow for minimal loss of units to create community rooms and property management space and things like that. but it's primarily a rehab program. >> mr. lee, can i ask a question about the units or the properties that we know we have to completely rehab, like west side cords or holly cords, they are not necessarily included in this rad program. >> they are absolutely included,

we will rehab them. >> we are not going to demolish them at all sign? >> this program is a rehab program. it doesn't mean in the future -- >> mr. washington, please, i am trying to conduct a hearing, if you need to have a conversation, if you can take it outside, thank you. >> this is a rehab program, and what it will do, it will provide for permanent affordable housing as it is rehabbed. if people in the future want to do something different to the site. perhaps to do more housing on the site. more affordable housing. different affordable housing. you can do that. but it has to be affordable housing. and this program is intended to rehab and permanently provide affordable housing. >> mr. lee, west side courts,

holly courts, those places were not meant to last this long. the plumbing issues, and the rodent issues. all the things we're trying deal with now, are things that no rehabilitation can address. i am trying to understand -- >> well, again. >> and this is -- i am very, as you can see, i am blown away by the fact that i have been aggressively working to get west side courts in particular on the priority list, because holly courts and west side courts are two of the oldest housing developments. and in desperate need of repair where we continue to have significant challenges.

i am trying to understand how realistically we can make a commitment for rehabilitation. i don't see it. >> we are in the process of getting the actual information about the scope of rehab for each development. we have done physical assistance assessme assessments. the developers that are responsible for the site will have to take those physical assistance assessments and work programs on them. you may be right. >> we are not as a city looking at the possibility of demolition. >> not under this rental assistance program. >> but before this we were. >> before this we were looking at a variety of things. and some developments, including potrero and sunnyvale are looked

at total rebuilds. >> just for clarity, if we decide to move in direction we won't have the option to demo these properties? >> you are right, we have 20-year obligations at minimum to provide as rental housing. and there is a 20-year renewal for the rental assistance project. but they have to meet the standards. >> that's not going to work for west side. >> with all due respect, i would say let's see what the rehab scope maybe. and we will have happily share that with you, to ensure that it does indeed meet the standards for 20-year livability. but one of the things we have to balance right now, we are trying

to do a variety of housing in the city overall. including we are working on hunter's view and alice griffith, and on pipeline units and a variety of things. instead of making one of these developments wait for 20 years, or 10 years for potentially a demolition and a rebuild. we will provide for better housing within two years. and that better housing the last at least 20 years, while we try to make up our minds which projects to address and make sure we have the funds to deliver on the promises. again this is about improving housing today as opposed to when we may have the funds. sort of accumulated to do a

significant demolition and rebuild. there is no concern about loss of units. it is about a rehab. it is definitely one-for-one replacement. moving on with this presentation, one thing we are layering with the rental assistance program is section 18 application. and this allows for additional resources from the federal government in the form of slightly higher rents coming from the federal government. as you asked the regional administrator. hud is not giving us the capital. what they are giving us is a flow of income. first based upon the rad. which is very similar to the income they gave us under section 19 -- section 9.

and we are also applying for additional rental assistance under this section 18 program. and it's a combination of those two sources that allows us to leverage all the funds we are seeking. and to do all the rehab work that we are seeking to do. so again, it allows us to again get the loan tax credit equity, and allows us to borrow additional funds than under section 9. and the other part of this, it allows us to have higher operating costs. it allows us to do more at the development. so one of the things that hud did not allow the housing authority to do, is to establish operating replacement reserves. the lenders and the investors

will insist on operating reserves. the notion of who pays for the roof in year 15, or who replaces the water heater that breaks is not a question that goes to washington, d.c. but just goes to the property manager and says, i have actu actually set aside the money based on this income stream do that. and the goal and the last things on the question of operations. the other thing that this program will facilitate is a service connector on each property. which is something that the housing authority has not been able to afford. as mrs. vascal said, rad is a limited program. it's limited to 60,000 units under the current authorization. 172 units were applied for.

that means that obviously there are 112,000 units who are waiting to get access to this program. and unless hud does some things through the budget process and the president does something through the budget process to increase the cap. or through authorizations. it will be limited to 60,000. which is unfortunate, because if we are -- if we are successful in pulling all of this together, we will need more rad. for additional units in san francisco. but we will be behind the rest of the people who have applied today. the other thing about this where we are, san francisco portfolio, though we are not the largest to apply. we were the largest portfolio to

apply and be accepted. the chicago portfolio is awaiting. they are behind us. so again the central component of this is preservation. the $312 tenant rent is not sufficient by itself to even cover operating expenses. clearly there has to be an operating subsidy some place to cover operating expenses. to run the buildings in a manner that renters and investors would like, that level of support has to be higher. we talked about how we are converting this from section 9 funding to section 8 funding. it provides a more stable, long-term subsidy and provide

for that leveraging. again this is a combination of two different programs we are doing. we are doing rad, which we applied for and the house authority has applied for which they have received authorization. the housing authority is in the process of applying for section 18. and that process is underway. these developments will be using 4% lower tax credits and tax exempt bonds. one thing was whether a question from hud, whether that was a scarce resource in california. as for now it's not. in other states it indeed a scarce resource and they it were concerned about the 4% credit and the bonds it make the financing work. and the projects will be new ownership structure and property

management structure. and the tenant protections will be established and codified. so rad basically transfers the building to the developer and operator. and then the developers then seek the private equity and the lenders to finance the buildings. so it was really important in terms of this process, that we are involving the lender in that community in looking and bringing those resources to the housing authority. and those are resources that were not available. again the section 18 provides additional rental assistance in

helps to leverage debt. so what does this sort of rubic's cube puzzle produce? well, it produces over $200 million in tax credit equity. and produces approximately 240 in additional debt. the overall scope of the project financing is about somewhere in excess of half a billion dollars. and it produces over 3500 units that will meet health and safety standards and be affordable for at least 20 years. but under a 99-ground lease, hopefully forever. we have better units and better building management, and better housing services for the residents and preserved

long-term affordability under the approved land trust model. where are we now? >> on that, i might ask this later as well. you have project managers for different assets in the public housing portfolio, and is each one a stand-alone system so that you people are not transferred from one, should we call public housing sites but to another, the transfers now. is everything self-contained in those projects? in those assets? >> could i hold that question for a moment. >> sure. >> i will hold it too. >> okay, thank you. let me make a note of it to make sure i cover it. so where we are right now is

again the chap, which is the additional housing payment contract was approved by hud and accepted by the housing authority commission in january. the typical rad process says you have to be in construction by 12 months, because of the portfolio nature of this work. hud agreed to give san francisco 18 months to be basically underway with our construction. the housing authority released the developer rfu in january of 2014, and the housing authority completed the developer selection in april of this year. one of the things in terms of housing authority developer rfq, i think one of the goals in the process of utilizing rad is how can we create a san francisco centric solution?

what works in san francisco? in terms of building affordable housing, managing affordable housing. working with neighborhood organizations. working with residents. so the rfq was really tailored in a way to ensure that we had a san francisco centric sort of solution. and sort of if you read the rfq, if you have spare time late at night. it outlines a lot of san francisco principles in the rfq. it talks about the san francisco experience in building and owning and managing affordable housing. why is that important? it's important because san francisco based affordable housing developers are really the envy of the country. they have done a wonderful job of creating up to this point

somewhere between 12 and 15,000 units of affordable housing in san francisco. and when you compare that to the size of the housing authority portfol portfolio, it dwarfs the housing authority portfolio. they have had a long track record of working in san francisco and boards and with residents in san francisco. we want to award that through the rfq process. >> any other city or county like that? >> no, even in new york city. most cities have one or two nonprofit developers. even new york city has a few nonprofit developers. obviously their scale is greater and they rely much heavier for-profit developers. and we use for-profit developers

in the city too, but they have san francisco experience. and it's important whether through the planning process or the commission process or the board process or through the building department requires a knowledge of what it takes to get through that process. as opposed to coming and sort of saying, well, i did this in st. louis, i can do it anywhere; right. so we really wanted to sort of encourage those folks who have been working in the field, providing affordable housing to take on this responsibility. one reporter early in the process asked me, these developers will get paid millions of dollars, won't they.