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Whatever happened to the Low-Income Housing Trust Fund?



It seems like decades ago, but it was only a few years back that low-income-housing activists wielded influence in City Hall and "neighborhood linkage" was the rage. Harold Washington was mayor, and downtown was booming. It seemed exceedingly likely that the city would tax downtown commercial and residential construction and use the money to finance inner-city development for the poor.

But the influence of housing activists waned with Mayor Richard Daley's election, the downtown boom proved to be a mirage, and virtually no one--at least no one with power--talks about mandatory linkage anymore. "It's my understanding that the people who were once advocating linkage have not given up, but for the moment it doesn't seem like a realistic prospect," says Thomas McNulty, president of the board of the Low-Income Housing Trust Fund, a group created by the city to help finance housing for the poor. "For the most part, we're concentrating on voluntary contributions from developers, who will realize this is a good alternative to having something forced on them."

The competition for investment funds between downtown developers and neighborhood activists goes back to the 1940s, when city planners first realized they were losing the middle and upper classes to the suburbs. Then as now officials struggled over how to invest what little money they had. Construction of a new sidewalk might encourage retailers to remain in the inner city. But then a new sewer main might help transform deserted industrial land into an upscale community, as it did in the south Loop. As the federal government cut back its investment in the cities, Chicago leaders began concentrating their limited resources downtown. "It's clear that the city has long favored the downtown," says Francis Tobin, coordinator of the Statewide Housing Action Coalition, a low-income-housing organization. "Certainly the advocates for downtown investment have more influence than we do. They seem to have an easier time getting their projects funded."

By 1980, however, it seemed the city had gone too far. That's when Mayor Jane Byrne--at the height of a recession--offered the Hilton chain a multimillion-dollar tax break to build a hotel in the north Loop. The sheer audacity of the giveaway--coming at a time of so much inner-city poverty and despair--rallied low-income-housing activists. They started a campaign that torpedoed the plan.

But by then the subsidization of other upscale projects was well under way. In the last two decades the city has subsidized--through public improvements or tax breaks--construction of Water Tower Place, 900 N. Michigan, the Exchange Center, and Presidential Towers, according to a study by Ron Voss, a researcher at the University of Illinois at Chicago.

The Presidential Towers project--a series of high rises on the western fringe of the Loop--was the most controversial deal of all. Developers Daniel Levin and James McHugh promised that the subsidies and tax breaks they received would be a good investment, because their project would ignite more investment in the west loop. Activists said the city could ill afford to spend that kind of money unless the developers agreed to contribute some of their profits to help house the poor.

The project, started under Byrne, put Washington into a corner. As a mayoral candidate, he had promised more money for the neighborhoods, and many of the city's leading housing activists boasted that his election would lead to some kind of linkage program.

Once in office, however, Washington didn't want to offend the city's corporate community. Perhaps to buy time, he created a task force to study the problem. In the meantime, he supported more tax write-offs and other subsidies for downtown development, including a $24-million break for the so-called Block 37 project, a two-tower office complex at State and Randolph, which activists decried as corporate welfare for JMB Realty and Metropolitan Structures, two of the city's wealthiest real estate corporations.

The task-force report endorsed linkage--though a minority report, written by developers in the group, dissented. Washington compromised by proposing a low-income-housing trust fund to be stocked by donations from developers who received generous city assistance.

The first--and as it turned out, only--contributors were Levin and McHugh. Starting in 1987, they paid roughly $2 million to the trust fund. The fund has almost doubled through investment.

"Presidential Towers was the original source of money, but we figured there would be others as well," says Tobin. "We wanted to create a fund that would be independent of the city, not just an arm of the Department of Housing. We wanted to create a vehicle through which private money could be put into low-income housing. The point was to have a developer who got preferential treatment from the city--be it in the form of a zoning variance, a tax break, or infrastructure work--give something back."

Washington asked a coalition of low-income-housing activists to meet with city lawyers and write the trust fund's bylaws. After many months of haggling, they decided to have the fund administered by a 15-person board of directors, appointed by the mayor and approved by the City Council. The board would be divided equally between representatives of business, philanthropic, and low-income-housing groups. "There was a lot of wrangling during the negotiations," says Tobin. "But by the end of 1988 we thought we had settled on a package."

But then Eugene Sawyer was mayor, and he didn't have nearly as much control over the council as Washington had. As a result, the trust-fund proposal was not adopted. "The big issue was independence," says Tobin. "We didn't want the trust-fund board to have to receive City Council approval on who received its subsidies. We wanted total control. Obviously, the aldermen didn't like that idea. Sawyer told us he didn't have the votes, and that was pretty much it. [Alderman] David Orr called it up, but it was quashed."

That's where things stood until the summer of 1989, when Mayor Daley--recently elected and strongly backed by the city's corporate community--easily pushed the trust-fund package through the council.

The Tribune hailed Daley as a savior who had done more in a few months for the cause of low-income housing than Sawyer or Washington had done in years. Many activists, however, disagreed. True, the trust-fund board would be independent of the City Council. But Daley had appointed his own members, totally disregarding the recommendations of Tobin and other activists who had helped draft the bylaws. "That took us by surprise," says Tobin. "I guess the mayor didn't like the politics of the people we wanted on the board. Maybe he thought they were too neighborhood oriented."

To his credit, board president McNulty--a lawyer with the downtown firm of Keck, Mahin & Cate--has won praise from most observers. "We plan to invest only the interest from our earnings, not the principal," he explains. "Our approach is to make existing projects financially viable to low-income people. That means we take applications for subsidies from landlords who promise to use our money to cover expenses--like heating or maintenance--so they can keep rents affordable."

So far the trust-fund board has received roughly 14 applications for a total pool of $293,000. "We may make 116 units affordable," says McNulty. "I realize that's a drop in the bucket. But we want to do what we can to make housing available and help people get off the street."

There's really not much more the trust-fund board can do. The downtown real estate boom has subsided. At least a dozen highly touted skyscraper deals are on hold--"locked into a financing crunch in an overbuilt market," according to a recent expose by the Sun-Times. Among those stalled deals are the second phase of Presidential Towers and the Block 37 project, both of which are now nothing more than vacant land.

In a nutshell, the problem is that the boom stemmed from federal tax breaks that encouraged investment whether there was demand or not. With the tax breaks closed since 1987, developers can't find investors for their projects. "The easy money of the 1980s is not there," Sun-Times reporters M.W. Newman and Jerry Davis wrote. "That decade was a virtual free-for-all, with skyscrapers going up to shelter investor income whether the buildings were needed or not. A lot of the financing poured in from foreign investors seeking long- term paybacks, leaving the city and suburbs with millions of square feet of unused office space.

"Fearing a boom-bust cycle, major lenders nationwide and worldwide have done an about-face with a vengeance. They are backing off from projects that lack an advance guard of presigned tenants or a big wad of investor folding money."

The result could be disastrous for the low-income trust fund. Far from making donations, developers will be pleading for even more government aid.

As a result, the trust-fund board is looking for different sources of cash. "There's talk of increasing the real estate transfer tax for deeds and using that money for the trust fund," says Kim Kirn, a lawyer who advises the task force. "That could raise about $370,000 for low-income housing."

Aside from that, the trust fund will have to depend on the kindness of downtown developers. "We have a committee on fund-raising, and part of their job is to seek other sources of funding," says McNulty. "We will be trying to work with corporate Chicago and hope that they see us as a logical group for addressing the housing needs of the poor."

Art accompanying story in printed newspaper (not available in this archive): photo/Bruce Powell.

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