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Financing Is The Root Of All Evil/Good

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By Lowell L. Kalapa

(Released on 7/13/08)

For many, numbers and balance sheets are like a foreign language and most of us tend to avoid having to deal with our checkbooks because it is not the most exciting thing to do.

For elected officials, issues like preventing child abuse, feeding the hungry or providing shelter for the homeless have a lot more constituent appeal than claims of balancing the state budget or figuring out how to finance capital improvement projects without breaking the state treasury.

After all, crunching numbers is not the favorite past time of many as evidenced by the large number of people who have accountants do their tax returns or head directly for the seasonal tax preparers to comply with their federal and state obligations. Thus, it should come as no surprise that when it comes to the hard decisions of setting policy for state government, it is easy for lawmakers and administration officials to set their sights on goals such as safe streets and a chicken in every pot, but when pressed on how they are going to achieve those goals, they stumble and grasp for straws because it all takes money.

Yes, voters and taxpayers, every single promise elected officials make to you will cost you, the taxpayer, money. Not that using money to achieve these goals is bad; it is whether or not those dollars that you, as taxpayers, give elected officials is used wisely and efficiently. Sure sometimes it is like a crap shoot because we often really can’t tell whether or not we are getting the biggest bang for our tax dollar. On the other hand, when we keep on paying more and more of our tax dollars and the situation is not getting any better, that’s when we all should start asking questions.

For example, the horror stories about living in public housing are legendary. Many of the complexes built nearly 60 years ago have fallen on hard times due in large part to neglect and deferred maintenance but also due to the fact that there is a lack of understanding of how to make these projects self-sustaining. Instead, administrators of the state’s public housing inventory obediently waited for handouts from the state legislature to repair and maintain the facilities. More often than not, repair of public housing facilities played second fiddle to those higher priorities like the repair and maintenance of school facilities or prisons or hospitals.

As a result, the public housing authority is drowning in a backlog of repairs and maintenance for which there will never be enough money in the state treasury. There is not enough money for the repair and maintenance of all the public schools and the University put together.

That’s why it comes as a surprise that the public housing authority has decided to hunker down and just do what they can with the money that has been doled out to them by the state legislature. There are countless examples of how other states and municipalities that were in the same situation have turned to other strategies and created partnerships with private developers to renovate and rehabilitate public housing stock.

For example, in New York nearly half of the remaining 49 state public housing projects have been rehabbed and recapitalized with federal low-income housing tax credits, tax-exempt bonds mortgages, and state public housing modernization grants. Many states and municipalities, like New York, are moving quickly because new federal regulations will required all HUD sponsored projects to be handled as an “asset-based management” model as of July 1st. This means each project will have to justify its HUD subsidy by proving that it can be self-sufficient with the federal subsidy. That means each project must generate a cash flow that is sufficient together with the federal subsidy to allow it to operate and provide decent facilities.

When the public housing facilities are so substandard as a result of the deterioration and benign neglect over the years, it is difficult to justify rents that will produce the kind of cash flow necessary to meet the asset- based management standard. As a result, public housing authorities around the country have reached out to private developers who have the financial expertise to put together a toolbox of strategies to accomplish the modernization and rehabilitation of many of these dilapidated projects.

It would be well for public housing officials to take the cue from other jurisdictions to seek partnerships with private developers to rehabilitate Hawaii’s public housing inventory before it is too late.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.

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