Finding shelter for people who can't afford it is a problem that has always been with us. Until recently the federal government provided solutions with hard cash. With the advent of the Reagan administration's hands-off domestic policies, federal housing money has dwindled, and Illinois and the other states have begun to be pressed to step in with state dollars. Illinois' response, so far, has been minimal. Other major industrial states have developed and implemented housing programs backed by state subsidies. Massachusetts, the leader in the area, last year voted to spend $344 million on housing programs, and even Kentucky has set up a state housing trust fund similar to one pushed in Illinois by housing groups in the last legislative session. Illinois has begun to make moves in the housing direction. In July the board of directors of the state's 20-year-old Illinois Housing Development Authority (IHDA) voted to allow permanent use of $11 million in reserve funds as a revolving fund for loans made in "partnerships" with or to cities and community organizations for low-income housing. IHDA is not, as officials are quick to point out, a social service agency. Said IHDA spokesman Woody Mosgers, bluntly, "We are here for creating housing stock, not to help the mother and her children out on the street." By statute, IHDA acts as a lender to housing developers; it does not drain state general revenues with outlays of grants for subsidies.

In 20 years IHDA has created more than 38,000 apartment units, and about 80 percent of the units went to low-income renters, said IHDA Director James Kiley. From 1979 to 1986, IHDA turned dwindling federal money into an annual average of 1,950 units of low-income subsidized housing in Illinois, mostly by rehabilitation of existing rental apartment housing. Drastic federal cutbacks in what's called the "subsidized section 8" program have diminished low-income housing production here: Producing 1,300 units since 1984, the program is down to 193 units in 1987, according to IHDA figures.

Problem No. 1 for low-income housing is that the U.S. Department of Housing and Urban Development (HUD) took deeper budget cuts than any federal agency during the past five years, and the Reagan administration is expected to veto this year's housing bill, which attempts to freeze federal housing assistance at current levels. Observers agree that the era of generous federal spending in this area is at an end, and so into the void have stepped new players with whom the state has begun to work. These new player-partners include banks, corporations and nonprofit community groups.

Problem No. 2 is that 1986 federal tax law revisions have removed incentives for housing investment by individual investors, formerly the largest nongovernmental group in the low-income housing market. According to IHDA officials, the combination of volume caps for "private activity" tax-exempt bonds, stricter low-income unit targeting requirements for those tax-exempt bonds and the elimination of real estate tax writeoffs has almost completely drained the market of individual investors in low-income housing and, coincidentally, nearly eliminated IHDA's statutory role, which is to lure those investors with tax-exempt bonds. IHDA acts as a bank by putting together financial packages for these investors, using tax-exempt bonds and federal money when it was coming in. Said one IHDA official: "After the tax change we seriously discussed whether to keep the lights on here."

The lights are likely to stay on, illuminating different activities. There are indications that the governor's office, at least, is contemplating a new, expanded state housing role, possibly implemented through IHDA. Currently, IHDA's chief role remains one of increasing the stock of housing for those with moderate or low incomes.

One of the agency's most successful programs, a low-interest home mortgage project, has financed 12,000 mortgages since 1982. But agency statistics indicate that the program is being taken advantage of by mostly white (88 percent) young (median age 30) people. As one official said, "yuppies" are the primary beneficiaries. There may be advantages to the link to the middle class if Illinois expands its state housing role. Officials of Massachusetts' community development agency say that having a good housing relationship with the middle class made it politically more acceptable for the agency to move into the low-income and public housing markets.

This year, in response to the federal cutbacks, IHDA has proposed that it take over, for the first time, direct ownership of some new construction, which would exempt the developments from the strict low-income targeting requirements applied to tax-exempt bonds used for privately owned developments. Before the tax law change, 20 percent of the units funded by the tax-exempt bonds had to be offered to people at or below 80 percent of the median income level of the area. Now, 40 percent of the units must be offered to people at or below 60 percent of the median local income, or 20 percent of the units must be offered to people at or below 50 percent of the median income. As a result developers cannot make sufficient profit. Since IHDA does not have to make a profit, officials note that if the agency owned the developments it could place low-income units in them. "The only reason we are exploring the option of ownership is because of the radical changes in the tax act, which make it no longer realistic for developers to take a risk on low-income housing," IHDA director Kiley said. Preliminary legal research indicates that statutes do authorize direct IHDA ownership of developments, officials said.

Illinois Housing Development Authority director James Kiley cuts ribbon to officially open Bethel New Life's rehabbed apartments. From left: Mary Nelson, executive director of Bethel; Kiley; Bill Long, Talman Home Federal; Lorraine Steels, chair, Bethel; Bill Higginson, president, Chicago Equity Fund; Sal Ferrara, director, Metropolitan Housing and Development Corporation.

Perhaps the most innovative of IHDA's programs is its partnerships with local governments and community groups. In order to replace large chunks of federal money, IHDA in 1984 began to loan some of its reserve funds. Low-income housing is increasingly being created in the state using complex, layered financial plans involving dwindling federal money and administered by local governments, banks, corporations and nonprofit neighborhood development groups. Since 1984 IHDA has approved over $7 million in these partnership loans involving community groups, financial institutions and cities. According to IHDA, the loans will create the capital to rehabilitate 3,000 units of low- and moderate-income housing during the next three to five years. Projects approved to date are in Aurora, Chicago, East St. Louis, Elgin, Kankakee and Peoria.

IHDA has also taken on a new role as the agency officially designated by the Internal Revenue Service to award federal income tax credits. The new tax laws actually increased incentives for corporate investment by removing individual incentives and be providing tax credits to corporations that invest in low-income housing. Since April IHDA has issued them to developers for 253 new and rehabbed housing units, all for low-income families.

The Chicago Housing Partnership is an example of this new of layered financing concept using the new tax credit program.

The group consists of four players: the city of Chicago, which Contributes its share of federal money in the form of zero-interest loans; private lenders, primarily First National Bank, Northern Trust and the Harris Bank; nonprofit developers; and the Chicago Equity Fund, a recently created repository of corporate money.

The Partnership has generated $50 million for 1,000 units of housing restoration and is a model for the nation, partly because of the Chicago Equity Fund. The Equity Fund, begun in 1984, syndicates tax benefits for corporations investing in low-income housing.

Bill Higginson, president of the Chicago Equity Fund, said that 13 corporate investors were initially attracted to the fund, and that this year 25 investors are involved. The fund's goal is to raise $5 million a year, and Higginson had met this year's goal by the end of July. The fund is the first of its kind in the nation, but there are plans to create similar entities in eight cities as well as one nationwide. Said Higginson: "If I had $10 for every call from a major city asking how to set this up, I could raise equity that way."

Higginson said that the fund was put together to address the decline in federal spending on housing, and he gave credit to Larry Fuller, president of Amoco, for initially providing leadership in bringing other corporations to the fund. Higginson said he expects corporations to become increasingly interested in low-incorne housing investments as they begin to see endeavors such as the Equity Fund succeed. "It all depends on solid deals, having neighborhood developers who are reliable, lower development costs and federal money through the city's Department of Housing. As that [federal] money becomes less available, the state is one of the places we can utilize more. We want to work with IHDA more," Higginson said.

Everyone involved in the new "layer cake" approaches to financing housing creation agrees, however, that private money from corporations will not come close to providing for the state's need for affordable housing and that public money is crucial. IHDA has estimated that the growth in formation of new households, an increase in the elderly population, decreases in multifamily housing supplies and substantial rent increases will strain the state's housing stock and, in IHDA's words, "accentuate the problem of affordability of housing.'' Affordabillty of housing has been identified as the state's No. 1 housing problem in a University of Illinois study.

Andrew Ditton is vice president of the Local Initiatives Support Corporation (LISC), created by the Ford Foundation in 1980 as a "social investment banker." LISC helped design the Chicago Equity Fund and has worked with state and local housing groups in Illinois. Last year IHDA approved a $1 million low-interest loan from its reserve fund to assist LISC with its financing of low-income housing with community organizations.

Ditton may be a chief player in any new state housing policy. He explains "I know private resources will still be attracted, but they will not create low-income housing without government subsidies.'' Individual investors put $6 billion into tax syndicated offerings last year, with a significant amount of that going into housing and, primarily, low-income housing. This year, because of the new tax laws, "if there's a couple hundred million in syndicated shares people will be ecstatic," Ditton said.

October 1987/Illinois Issues/17

"I would like to see the state do something," Ditton said. "I would like to see them at least create a housing program, whether through the governor's office or through IHDA. Something that will at least begin focusing political attention on housing. People talk about the homeless, but they are just the most dramatically visible, the lowest rung, and government is not doing anything for any of the rungs." Ditton was asked by the governor's office to submit a proposal for a state housing program culled from ideas presented by housing groups at a May 20 state housing seminar. Officials are leery of admitting that the governor's office is actually planning an expanded housing role. According to the governor's deputy chief of staff Ellen Craig, a state housing program remains "inchoate" at this time. But, said Tom Berkshire on the governor's policy planning staff: "We're trying to figure out, with the decline in federal programs, what the state should be doing. My course is to put out some options for public discussion. In the governor's office, the idea may be that you put IHDA or the Department of Commerce and Community Affairs [which already runs a low-income housing weatherization program] in charge of a housing program, or you create a new agency. The question is, if you are going to fill in where the feds left off, how do you do it?" Berkshire said it is unlikely that the state can take over the enormous role the federal government was playing 10 years ago. All that planning was taking place when there was still a promise of increasing state funds via a tax increase.

Mary Nelson heads Bethel New Life, a Chicago nonprofit housing group that has rehabilitated 325 mostly west side units, $17 million worth of work, using money gathered from the city of Chicago, IHDA, charity, corporations and the federal government. She said the state "desperately needs" a housing program. "IHDA seems to have strayed from low-income housing and gotten into moderate-income, and has just now begun to take steps . . . into low-income," she said. "Now is the time to be creative."

This summer IHDA closed a $1.4 million loan with Bethel New Life for 42 low-income units for families. Another $200,000 state loan was approved for four townhouses for low-income west side families; IHDA staff helped build these town-houses as part of the agency's 20th anniversary celebration July 20-21.

IHDA has agreed to work with Bethel New Life to create 2,000 units of low-income housing in Chicago beginning in 1988. The plan, dubbed "Isiah" and modeled after a project in New York, involves interest-free money from the city and from church groups. IHDA is to provide $65 million in low-interest bond financing for the first 1,000 homes.

Hipolito Roldan, director of the Hispanic Housing Development Corporation in Chicago, said his 11-year-old organization was started with IHDA training assistance but no state money. Involved mostly in rehabilitation work, the group has begun to buy low-income housing and just purchased 150 units of housing in Danville in order to "salvage" it and keep it in the lower-income range. To make that project feasible, IHDA is providing $163,000 worth of tax credits. Roldan said that groups like his need to buy lower-income housing because such housing is not only not being built at its former rate but also is disappearing as well. He said studies predict that by the turn of the century, 3.5 million lower-income units will be lost nationally. There is a growing need for housing among "upper-low-income" people, Roldan said. "The clientele for this housing has gone from very low-income people to the working poor, and the very low-income aren't even being served anymore," Roldan said.

Roldan says the state should have created a housing program "a ways back." He said the state needs to step in where federal money, which now makes up 50 percent of most of the deals he is involved with, is eliminated. "Financing used to be one-stop shopping at HUD. Now it's like building snowflakes. Every one is different. What you managed to accomplish six months ago is impossible today. Now there are five or six pots of money in every deal, and one of the most substantial pots, the Community Development Block Grant, is way down.'' Roldan said that the presence of low- or zero-interest public money is crucial to the deals in order to meet banks' criteria for loans.

A bill in the legislature this year would have created a state housing trust fund administered by a board consisting of business, community and state officials. The board would oversee distribution of fund money to come either from IHDA reserves or from general revenue. The bill failed by only five votes in the House, a phenomenal success, given that it asked for state money and was a "radical idea," according to one of the bill's main backers, Larry Pusateri of the Statewide Housing Action Coalition (SHAC).

SHAC is a two-year-old network of nonprofit housing groups that either build low-income housing or hire contractors and manage low-income housing. Pusateri said that SHAC approached IHDA about giving some of its $71 million in reserve funds to low-income housing projects, but that IHDA said its funds were restricted. Pusateri contends that the agency is not prevented from contributing reserve money to projects. Nonetheless, Pusateri believes that IHDA supported the trust fund bill in the legislature because the governor's office is planning to implement a housing program using IHDA. "The governor's office is interested in low-income housing and is looking for a vehicle," Pusateri said. "Our position is that the whole ownership thing cuts out the community. But IHDA control is better than nothing." Pusateri said SHAC disapproves of IHDA control of a housing program because ''they have a poor track record as far as we're concerned." According to IHDA, the agency is providing assistance through loans to virtually all of SHAC's members that currently build or rehab apartments.

The Thompson administration has pledged money to housing outside the IHDA channel, said George Stone, first deputy commissioner of the Chicago Housing Department. It has not followed through, however. The only two state projects with the city of Chicago involved a promised $15 million interest-free loan through Build Illinois and several $10 million Illinois Development Action Grants (IDAG). The city received $5 million of the Build Illinois loan and only the first installment of IDAG money. "That in a sense was the state housing program," Stone said, adding that the city doesn't expect to see any more of the pledged money. The city has worked with IHDA, Stone said, but those projects have been the exception, not the rule. "

There is rumbling that the governor's office is thinking about state-funded low-income housing," Stone said. But embarking on a full-fledged state-subsidized housing program is a state- of-mind problem: Housing has never been on the typical legislator's agenda.

Stone is still optimistic: "Nowadays, more people are prepared to invest in [low-income housing]. If we had the same kind of public money now that we had 10 years ago, we could make it go very far. Investors are learning these aren't bad investments; they've been talked into doing a few and see that they don't work out badly. It sounds corny, but socially conscious CEO's have been responsible, partly. One would hope that the same thing would prevail upon state legislators someday. Other states already accept it as their role."

For the time being, IHDA's role remains basically what it has been throughout its 20-year existence: a state-run lender with a statutory role to increase the stock of low- and moderate-income housing in Illinois. The official attitude, at least for now, is that the agency is not about to begin using its reserve money to become a subsidy agency. Said Kiley: ''We think the authority has been very successful over the last 20 years doing what it's supposed to do: lend money. We would like to stay as close to that as possible." But, said Kiley, the state needs a housing agency in the era of less federal money and fewer developer incentives. "I would support creating a housing agency," Kiley said. ''A few years ago, the only apartment building in Cairo burned down. Twenty-four families were on the street. The mayor called me, and all I could tell him was that I'd find a developer and get an apartment building built there in three years. We have no ability to react to emergencies."

Nina Burleigh is a Chicago free-lance writer who has covered state and local issues in Chicago and Springfield for the wire services, the Chicago Daily Law Bulletin and WMAQ-TV.