much luck and we would be glad to contribute in any way we can
to the debate.

[The prepared statement of Ms. Severin follows:!



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TESTIMONY OF

CAROL SEVERIN, BA, M. DIV.

President and Chief Executive Officer

Satellite Senior Homes, Inc. and Affiiliate Corporations

360 22nd St.. Suite 700

Oakland CA 94612

(510) 451-8622

Representing
THE AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE AGING



Mr. Chairman and members of the Human Resources and Intergovernmental Affairs
Subcommittee of the House Government Reform and Oversight Committee. My name is Carol
Severin. I am the President and Chief Executive Officer of Satellite Senior Homes, a not-for-
profit development and management company of low-income elderly and disabled housing based
in the San Francisco East Bay Area in California. Over the last three decades, Satellite Senior
Homes has developed and manages 15 HUD-assisted facilities which serve approximately 1,200
very-low and low-income frail elderly and disabled persons. One of Satellite's projects is St.
Andrew's Manor in Oakland, California, which is one of the ten case studies undertaken by the
GAO to help Congress evaluate portfolio restructuring proposals. I am pleased to be here today
representing the American Association of Homes and Services for the Aging (AAHSA), where I
have served as a member of the Public Policy Committee.

I would also like to take this opportunity to commend the GAO on the honesty, integrity, and
fairness with which they undertook the study. We were particularly impressed with the
sensitivity and concern that they showed for Satellite's residents when visiting the facility. We
are also pleased with the concern for our projects exhibited by senior staff in our local HUD
office.

AAHSA is the largest national organization representing non-profit sponsors of senior housing.
AAHSA members own and manage over 200,000 units of federally assisted housing and include



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the largest number of sponsors of HUD Section 202 elderly housing facilities, and non-profit
sponsored Section 236, Section 231 and Section 221 (d)(3) elderly housing facilities. AAHSA is
pleased to have this opportunity to present our comments on the very serious and troubling issue
of restructuring the U.S. Department of Housing and Urban Development's (HUD) Section 8
portfolio.

In preparation of this testimony, a quick survey of our member database revealed that
approximately one quarter of our members receiving Section 8 assistance would meet HUD's
criteria for portfolio restructuring. We are particularly interested in contributing to the discussion
on restructuring and its affect on non-profit owned facilities and residing residents. Since our
member organizations are non-profits, whose Boards of Directors are comprised of volunteers
representing religious-based, community organizations, and low-income residents, we have no
profit or political motive in testifying other than to promote the well being of the population that
we serve, and to maintain the financial viability of the facilities in which they live. Our concern
about the portfolio restructuring is greatest for "special-needs" residents who require the service-
enriched housing that many of our facilities offer, as those needs would not be met under this
proposal.

We understand that Section 8 contract renewals place great stress on the HUD budget under the
present system, and that the problem must be addressed. HUD has proposed a radical approach
to problem - originally called Mark to Market, currently modified to portfolio re-engineering or
restructuring. We agree with the wisdom of addressing the very real threat to the financial
soimdness of the federal rental assistance programs. However, we believe that federally assisted
non-profit housing is a distinct part of the portfolio restructuring equation that should be dealt
with separately. We believe that our day-to-day experience in managing and owning projects
serving the low-income, frail elderly and disabled as a non-profit organization can shed light on
how portfolio restructuring will adversely affect our capacity to carry out our mission, and what
this initiative would mean for residents in federally assisted facilities.



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In this context, my testimony will focus on four major points:

I. A portrait of elderly residents in federally assisted elderly housing

II. The role of non-profits in providing elderly housing

III. The importance of project-based assistance for special needs populations

IV. The role of federally assisted housing in long-term care for the elderly



I. A Portrait of Elderly Residents in Federally Assisted Elderly Housing

HUD has earlier stated that Section 8 rental assistance is provided to nearly three million units of
rental housing through its tenant and project-based programs. Yet, this level of assistance does
not meet the desperate need for housing. A recent study by HUD shows that of 5.3 million
households with worst case housing needs, where residents were spending more than 50% of
their income on rent or living in severely substandard housing, almost 1 .2 million, are headed by
an elderly person.

"almost half (49 percent) of unassisted elderly renters with very low incomes have acute
housing needs. Federal housing assistance reaches over one-third of households headed by
eligible elderly, but another one third have unmet acute needs for housing assistance. Over
two thirds of the elderly with acute housing needs have incomes below 30 percent of the
median. "

Yet, the gap in affordable housing between need and supply is increasing. A recent study by the
Center on Budget and Policy Priorities indicates that the shortage of affordable housing has
reached 4.7 million units, the largest since the early 1970s. These very compelling issues of
affordability and scarcity of supply are of particular concern to non-profit housing sponsors.
Low and moderate income older persons have extremely limited options for safe, affordable
housing, especially when considering that most are living on low fixed incomes.

In the rush to find a solution to the mounting Section 8 renewal problem, more consideration is
needed to evaluate the impact of restructuring on residents and communities. It is critical that



44-695 97 - 5



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any restructuring proposal preserve long-term low-income rental housing affordability, and that it
protect tenants from rent increases beyond their means and from homelessness. Vouchers do not
automatically bestow protections to residents. In senior housing, vouchers ignore the value to
the supportive services crucial to allowing seniors to avoid institutional settings for as long as
possible and ignores the general lack of affordable housing. A wholesale changeover to tenant-
based subsidies is a simplistic approach to a multi-faceted problem, to say nothing of its impact
on the financial stability of a national asset: existing affordable housing.

The average income of residents in federally-assisted housing is around $8,000 a year, which is
equivalent to only 18% of the Area Median Income across the nation. The seniors and disabled
adults we serve are no exception. A portrait of the 1,200 residents who reside in our housing
projects reveals a population that can no longer work, and will not get younger, or "weller", to
pull themselves up by their bootstraps to get out of poverty. Many of our residents are in their
80s and 90s, some of whom are in wheelchairs or depend on walkers, and some are blind and
deaf. Most have worked at very low wages all their lives and are now destitute, often forced to
make the devastating choice between buying food or buying medicine after they pay their rent.
There is a need for a clear recognition of the distinction between elderly (and other special
populations) from family housing involved with portfolio restructuring . There are a number of
obvious considerations such as fixed income, functional impairments and frailty due to increased
age (e.g., the average age in many of our members facilities is now in the mid-80s) which affect
both revenues (rent) and design features (e.g., elevators), and the need for facility services
(coordinators, community space, services, etc.)-

Recommendation:

We recommend that portfolio restructuring proposals consider the consequences for communities
and residents, particularly for elderly and special-needs populations who do not have adequate
housing alternatives in the marketplace.



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II. The role of non-profits in providing affordable housing

During the last decade, the non-profit housing development industry has grown immensely in
numbers and in capacity, and has become the most efficient and responsive affordable housing
producer. For many non-profit housing organizations, production and management of low-
income housing has been part of a larger community development strategy. These organizations
are committed to addressing resident and community needs beyond housing, through providing
social services or collaborating with other social services organizations. For the senior and
disabled population, these services are critical for the residents to maintain productive,
independent lives.

Non-profit housing organizations develop housing in order to maintain long-term housing
affordability in the communities where they work. Non-profit housing organizations also
respond to community needs, often working in economically distressed neighborhoods,
developing solid, well-managed projects which contribute to community stability. This
commitment to the wider community and long-term affordable h using is qualitatively different
from profit-motivated owners, whose financial commitments to investors often lead to efforts to
maximize profits and terminate the affordability regulatory agreements as soon as possible.

HUD's position on portfolio restructuring fails to deal with adverse tax consequences for for-
profit owners of debt and rent writedowns. Transfer of ownership to non-profit sponsors prior to
debt restructuring could be a strategy to resolve this problem, and should be included as part of
any legislative proposal.

Recommendation:

When evaluating restructuring proposals, policy makers should careftiUy examine the quality of
housing and services provided by non-profit organizations, and consider how this type of
ownership could be expanded. As the terms of federal subsidies become less favorable, for-profit
developers of subsidized housing will be increasingly interested in exiting the low-income
housing field. Policy makers should design strategies to encourage non-profit acquisition of
debt-restructured properties. In this age of government cut-backs, support must be given to the



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non-profit sector which has taken on the responsibility of assisting the government to care for the
most impoverished groups in society.



III. The importance of retaining project-based subsidies for special needs populations

Much of the portfolio restructuring debate has centered around the HUD proposal to provide
individual tenant vouchers, forsaking the project-based Section 8 contracts which support the
projects. Although vouchers are an important component of federal housing policy, they can not
be the only strategy to address housing need. In many highly concentrated urban areas, vouchers
do not guarantee decent housing for residents. "Vouchering out" will not work in high-cost
markets, where it is difficult to locate affordable units.

For well-managed properties that serve special-needs populations, it is critical that the federal
subsidy remain project-based. Project-based subsidies are a federal commitment to long-term
affordability of housing, and represent a solid place-based development strategy which provides
social and economic stability for communities.

The loss of well-managed affordable projects in economically distressed neighborhoods would
jeopardize community stability, and ignore the needs of long-term residents who would not wish
to leave the area where they have lived and worked all of their lives. St. Andrew's Manor, one of
the GAO case studies, is located in West Oakland, a neighborhood which has no comparable
housing units offering accessibility, security, and services targeted for seniors and the disabled.
West Oakland is an area that was built on and enjoyed thriving industry. It has suffered the mass
exodus of the economic industrial base over the last twenty five years, which has thrown much of
the region into economic distress. Much of the surrounding housing is sub-standard with fairly
low rents and is unsafe. Seniors that qualify for HUD housing would still not be able to afford
these rents. If St. Andrew's were unable to "compete" on the market without project-based
subsidies, the neighborhood would loose a very important source of affordable housing for
seniors. None of the "comparable housing facilities" examined by government-contracted
appraisers were appropriate for the resident population served by our buildings. All of the



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government identified "comparable housing units" were small multi-storied buildings with no
elevators. Most of the residents, due to frailty and disability, could not access a second floor
apartment without an elevator, nor could they maneuver around an inaccessible studio with a
wheelchair or walker. In addition, the "comparable housing units" lack effective security, and
are otherwise not appropriate buildings for seniors.

St. Andrew's has on-site staff who administer the building, assess resident needs, and coordinate
services for the residents. There is van service transportation to assist residents to shop and
attend medical appointments, and the building has a security system. Most importantly for the
residents, there is a sense of community within the building. Because of these amenities and the
complete lack of "comparable housing units", we do not believe that the majority of residents
would opt to leave if offered a Section 8 tenant voucher. Further, if they did, we know they
wouldn't find comparable housing within their community.

Vacancies resulting after project restructuring is one of the key issues in projecting the adverse
financial impact of taking away project-based subsidies. St. Andrew's, for example, is not
atypical with a 25% yearly household turnover due to death, hospitalization, or residents moving
to crowded conditions with family members to die in hospice. New vacancies in the building
would be difficult to fill unless St. Andrew's were able to recruit new tenants with vouchers.
However, new vouchers are scarce. With "market rents", St. Andrew's could not serve the same
population that it currently does. Project-based subsidies are critical to maintain affordable and
stable housing. According to the HUD-contracted Ernst & Young study, 26% of the projects
evaluated would not "perform" under restructuring. According to our own financial analysis of
Saint Andrew's Manor, the project would not be operable after only one year .

Government-contracted reports suggest that the building is not being used at its "highest and best
use" from a real estate perspective. If St. Andrew's is not the appropriate facility for fi-ail
elderly, what would happen to the commimity that it serves? The majority of our residents know



See "Mark to Market Initiative: Implications for St Andrew 's Manor " prepared by Satellite Senior Homes, 1 995



122



from life-long experience that in a for-profit competitive market, they face severe discrimination
based on age, disability, frailty, race, source of income, and accommodation needs. A private
landlord would have no incentive to rent to these tenants above others. Furthermore, private
market buildings do not meet the residents' needs.

Recommendation:

We recommend that portfolio restructuring retain project-based assistance for non-profit owned

housing; and in determining market-rate rent levels, portfolio restructuring should allow for

increased operating costs for the provision of services in elderly and special-needs housing

facilities.



IV. The role of federally assisted housing in long-term care for the elderly

Federally assisted elderly housing plays an important role in long-term care of this nation's
elderly. It has been documented that elderly persons prefer to remain in their own communities,
homes or home-like environments as long as possible. To make this possible, non-profit elderly
housing sponsors provide supportive services to frail elderly residents aging-in-place. Elderly
housing is a critical link in the integrated delivery system sfrengthening the linkage with long-
term care, promoting home-like service delivery environments, and promoting cost-effectiveness.
Our members do not simply provide a physical living environment for the residents that we serve
but they also provide services and linkages to the support systems necessary to enable their
residents to live independently within their communities safely and with dignity. As an
organization, AAHSA is unique in representing non-profit sponsors involved in the entire
spectrum of retirement facilities, including housing, assisted living, community services, and
nursing homes. Our members have extensive experience with the care of frail elderly in various
residential settings.

The elderly, disabled, and other special-needs populations require services to avoid costly
institutionalization or homelessness. By comparison, these subsidies are much less than federal
subsidies invested in other types of institutions, such as federally fiinded nursing homes. Past



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studies have suggested a significant cost savings per unit for supportive housing compared to
nursing homes. Though nursing homes provide an important service and are vitally necessary
for certain frail older persons, most experts recognize that institutional-based solutions to long-
term care problems are often over utilized because alternative housing options are unavailable.
The dramatic movement of managed care organizations into long term care is reflective of the
future trend of serving seniors and other vulnerable persons in the most cost-effective setting
possible, e.g., senior housing.

The 1990 Housing Act "de-linked" the Section 202 program from Section 8 as part of a major
restructuring of the Section 202, by replacing it with a capital grant and Project Rental Assistance
Program (PRAC). Congress recognized that it was a more cost effective approach to provide an
"up ft-ont" grant for development costs, and provide a rent subsidy. As most AAHSA members
will attest, the revised Section 202/PRAC program works very well. Many non-profits
participated in such FHA programs as Section 236 and Section 221(d)(3), because the Section
202/PRAC was not in existence.
Recommendation:

It is our belief that regardless of federal funding source- whether developed under the Section
202, Section 236, Section 221(d), Section 231, or others—non-profit sponsored housing that is
designed and operated specifically for the elderly, should be treated similarly because of the
mission-oriented commitment of the sponsors, the commitment to affordability for the residents,
and the commitment of the non-profit sponsors to the long-term care of the residents. We
recommend that nonprofit sponsors of elderly housing be give the option to convert their existing
FHA/Section 8 program into the Section 202/PRAC. We believe that the Section 202/PRAC
program, as revised, will provide opportunities for mixed-financed, mixed-income, and mixed-
use (housing with assisted living, health clinics, and/or other services/business marketing to older
residents).

Conclusion

Thank you for this opportunity to share some concerns of the non-profit housing industry about

the restructuring proposals. The current system of Section 8 project-based contract renewals as



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we know it will undoubtedly change. It is critical that protections be put in place to ensure long-
term affordability of housing stock, that project-based assistance be continued for well-managed
properties, that residents not be forced to pay more than they can afford in rents, and that critical
social services which are included in special-needs housing be supported. Non-profit
organizations have played an increasingly important role in affordable housing provision and in
community development. With their experience and mission, non-profits should be included in
the overall strategy to transform federally assisted housing. The expiring Section 8 contract
crisis comes in part from the short-sighted housing policy of the past. We should not recreate
short-sighted policy which balances the federal budget at the expense of the poorest and most
vulnerable people of this country. If you have any additional questions, I will be happy to
answer them.



125



RESIDENTS.
FRIENDS

SAINT ANDREWS MANOR
SATELLITE SENIOR HOMES

OAKLAND. CALIFORNIA




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Prepared by Satellite Senior Homes
December, 1995



Mark to Market Initiative
Implications for St. Andrew's Manor



Mark to Market is a proposal to financially restructure Federally assisted housing to
lessen or remove Federal housing subsidies, and to introduce this housing stock to the
"efficiencies" of the market place One of the principal goals of the initiative is to restructure
FHA insured debts to levels that can be supported by "market rents", in order to phase out
project-based Section 8 assistance Section 8-like vouchers, that residents can take with them if
they move, are promised to accompany such an initiative to not jeopardize residents' immediate
access to housing in the transition period Projects in the Mark to Market model include Section
236 with LMSA, Section 8 NC/SR, other FHA insured with LMSA and Section 8 PD

Several of Satellite's buildings are federally insured 236s which fall into this category
Four of Satellite's buildings are among the 500 federally subsidized projects randomly selected
to be part of a national survey to analyze the impact of Mark to Market St Andrew's is one of
10 properties out of the 500 which was selected to be part of a more in-depth case study
analysis to present the Mark to Market model to Congress In this capacity, St Andrew's has
been subject to multiple visits from HUD-paid consultants, two visits from GAO officials, a real
estate appraisal, and a day of videotaping As Mark to Market is in its design phase, diverse
options are being considered, and no single scenario can be projected at this point However,
St Andrew's financial structuring, resident population and neighborhood indicate that such an
initiative has bleak implications for the building and its community

Under the Mark to Market proposal. Section 8 project-based assistance will not be
renewed as contracts expire St Andrew's has two Section 8 project-based assistance
contracts A contract for 37 units expires m August, 1996, and a contract for 22 units expires in
May, 1998 All residents would be offered vouchers which they could take with them if they
decided to move How long these private vouchers would be good for, however, is not clear
This issue is critical since one of the main objectives of the initiaiive is to reduce Section 8 costs

A substantial number of mongages in the Mark to Market ponfolio are anticipated to
default after Section 8 assistance payments stop Authors of the initiative say that debt
restructuring, possibly including a waiver of the mortgage, would occur for "good properties"



127



However, properties that could not survive on the market without continued project -based
Section 8 subsidies would be sold ofTTin "reflector sales" or mortgage partnerships If no
appropriate buyer emerged, the buildmgs would be demolished

St Andrew's receives two types of subsidies from HUD First, HUD pays 6% of the
interest on the mortgage, and Satellite only pays 1% of the interest Second, the project-based
Section 8 contracts provide a large subsidy for the building For example, in November, 1995,
residents paid $1 1,699 m tenant rents, while HUD paid $23,303 to Satellite to subsidize their
rents While the mitiative contemplates various ways of restructuring the mortgage, it aims to
completely take away the project-based Section 8 subsidy

Because of all of the services that are offered at St Andrew's and the sense of
community at the building, we do not suspect that the majority of residents would opt to leave if
offered a Section 8 tenant voucher St Andrew's offers a level of services and accessibility that
could not be found in the private for-profit sector It also provides a level of safety that could