PDP Development Series – Blog 21 – Governance

Introduction

The book Toward Self-Sufficiency (Revised Edition) discusses Governance in a broad sense and that has to be clarified due to additional information provided by funding being available through tax laws for developments in Opportunity Zones.  This is described in Blog 14 – Financing Options.  There will be overlaying authorities governing the PDP and they will be described separately in order to have better clarification as to their structure and timing.  I will describe this in steps according to what will occur on the ground or in a concept format.

However, there may be conditions where the order has to change due to different circumstances causing changes in plans.  What I am suggesting to do is unorthodox to what normally happens in housing projects so there may be delays in getting the project approved.  For example, the site I have selected may not be the best one to consider for development.  This will probably be the case.  It may be necessary to present this concept to a city for concept approval prior to actual site selection.  This would make the approval faster and would prevent buying property that would not work.  This could be circumvented by obtaining a 3 or 4 month moratorium with the seller of the property (may include option payment) in order to (1) obtain approvals from the city or county authorities, (2) perform a proper site analysis for the site selected or (3) making financing arrangements.

Step 1: Preparation of Concept Plan – Review Financing

The concept planning for the Pilot Demonstration Program (PDP) has basically been completed as shown in the book and blogs. The next step would be to present this concept to people or firms for them to consider financing the project using the approach of Opportunity Zone funding from capital gains as well as other government programs. This may take some time because most people or firms may not know it is available. Once some funding is obtained an architect should be hired to complete the architectural plans.

To make the housing as economical as possible it would be advantageous to make the windows, doors, kitchens, cabinets (3), showers, bathtubs, toilets, kitchen appliances etc. the same in each unit if possible. There will be options in wall materials; paint colors light fixtures, roofing materials, and other items as needed. This will allow some of the cabinets and kitchens to be reused if changing from a 480 sf triplex to a duplex or single family.

In the purchase of a housing unit(s) the owner of a unit(s) will have the option of picking of an add-on unit at a later date. This will allow for plumbing, lighting and even flooring to be designed and added to this present unit to make this happen. The cost of doing this now would be minimal and would save a lot of money when the add-on is added. The extra cost could be reduced initially if wood or Hardie board siding was used in the area to be removed in order to put the add-on on the house.

If this concept is used then George Hunt or Greg Hunt is to be used initially, for a small consulting fee, in order for the user to understand all of the nuances or planning involved in getting this type of  project started.  This is especially important when talking with public agencies.  An example of how this could be a problem is found in the excellent book, Golden Gate – Fighting for Housing in America, by Conor Dougherty.  This is about trying to get low income (affordable) housing in San Francisco.  The rent on some luxury duplexes there is over $ 8,000 per month.

The units should have several different exterior elevations depending where it is located.  The question then becomes if all the elevations have the same theme or a mix of different styles.  An example of how different elevations and roof designs for the triplex plans is shown on the right.  Part of this depends where the project is located and what is accepted in the area.  A good idea would be to invite people in the area  of the project and see what is most acceptable to them.  This also would be a good marketing tool.  Additional information is in the book, Toward Self-Sufficiency – Revised and earlier blogs located on my website.

Financing will be discussed in detail in a separate blog. Some of the options are listed below.

Community Land Trusts (CLT’s) need funding to pay for a variety of functions related to land acquisition, construction, and subsidies. Sources of project funding include:

  • Federal Programs: CDBG and HOME Funds- may require special designation of CLT as a Community Housing Development Organization by Local Participating Jurisdiction. HUD Funds for organizational planning and development are also available.
  • Federal Tax Credits: Low Income Housing Tax Credits and Historic Preservation Tax Credits
  • Federal Home Loan Bank
  • Private Lending Institutions
  • State Housing Finance Agencies
  • Institute for Community Economics’ Revolving Loan Fund
  • Housing Trust Funds
  • Tax Increment Financing
  • Municipal Real Estate
  • Private Developer Exactions
  • Pension Funds
  • Private Foundations
  • Private Land Donations
  • Development Fees
  • Lease Fees
  • Add:  Opportunity Zones – Capital Gains Funding

Specially based tax Credits: New Market Tax Credits (NMTC) – Low Income Housing Tax Credits (LIHTC)

As noted in Blog 14 the main source of funds would be from the Opportunity Zone Funding. A simplified example is as follows:

But if you roll your capital gains into a special fund that invests in Opportunity Zones, you can defer the tax on those gains until the end of 2026. But the biggest benefit is that any additional gains you make from your Opportunity Zone investments will be tax-free forever, as long as you hold the investment for at least 10 years.

So let’s say you invested $100,000 in Apple several years ago, and you sell it today for $300,000. You’ll have capital gains of $200,000. If you invest that $200,000 in an Opportunity Zone fund, you won’t have to pay capital gains tax for the next several years… and anything extra you earn on that $200,000 will be tax free forever.

Your fund could invest in the next great startup that turns your $200,000 into $20 million. And you won’t pay a penny on that $20 million. Simon Black, Sovereign Man – 2-20-2020.

This is called place-based investment tax incentives and an abstract , “The Pro-Gentrification Origins of Place-Based Investment Tax Incentives and a Path Toward Community Oriented Reform,” by Michell D. Layser, (Working Draft) explains the history of Place-Based Incentives. However, very few of these incentives have been used to help the poor because the projects are used for gentrification and they help the rich get richer. Additional information can be found on the internet and Blog 14.

Community Land Trust

This was in the 2017 Tax Bill and it was designed for the rich in our society to make more money. Anything less would surprise people. Now the funding would be diverted to a Community Land Trust non-profit which will be one of the governing agencies for the PDP. One of the rules for the Community Land Trusts is that they have rules that the values of the housing will be limited so the houses only increase involve at a slower pace than normal market speculation. This applies to rentals also. A rental unit may be on the same lot as an ownership unit and this can go back and forth. This prevents gentrification from occurring and preserves the project for continual use for affordable housing.

CTs generally get their start from some sort of impetus initiated by one of the following four potential sponsors:

  • Individuals and institutions at the grassroots level (typically faith-based and community organizations).  Advantages of grassroots organizations include acceptance by the community being served, legitimacy in the eyes of lenders and funders, market insight, and a lack of baggage from other of organizations. Disadvantages include challenges in building staffing and financial capacity, credibility, competition with existing organizations, and difficulty in selecting beneficiaries.
  • Governmental officials at the local, regional, or state level (typically municipal government), Advantages include access to public community development funds, staff support, regulatory assistance, and a view f the entire housing non-profit local landscape to establish the appropriate niche for a CLT. Disadvantages include public distrust of government, political tainting, a top-down approach that may be perceived to be out of touch with community needs, and resistance to including community members in the CLT governance structure.
  • Other nonprofit organizations operating within the CLT’s service area (typically community development corporations, social service organizations or housing non-profits, which may convert, spin-off, adopt a CLT as a program, or establish an affiliate organization). Advantages can include foundational capacity form the existing nonprofit, increased productivity, credibility, compatibility within the nonprofit housing network, and diversification and renewal of an existing nonprofit.. Disadvantages can include political baggage attributed to the parent non-profit, difficulty in adjusting leadership and board structure to accommodate the need for a CLT to be accountable to leaseholders and the community, divided loyalties and lingering control.
  • Local businesses and banks (typically businesses concerned about the ability of lower-income employees to secure affordable housing).

Advantages can include early capacity and sponsorship, provision of starter homes for working families, and leveraging of private dollars for public funds. Disadvantages can include control and power concentrated at the business, failure to embrace the CLT model where it contrasts with traditional business models, and a tendency to target higher on the income scale (towards working families and above the structurally unemployed). (From internet)

The following information on the duties of the Community Land Trust was obtained from Wikipedia.

Nonprofit, tax-exempt corporation

A community land trust is an independent, nonprofit corporation that is legally chartered in the state in which it is located. Most CLTs are started from scratch, but some are grafted onto existing nonprofit corporations such as community development corporations. Most CLTs target their activities and resources toward charitable activities like providing housing for low-income people and redeveloping blighted neighborhoods, making them eligible to receive 501(c)(3) designation from the IRS.

Dual ownership

A nonprofit corporation, the CLT, acquires multiple parcels of land throughout a targeted geographic area with the intention of retaining ownership of the parcels forever. Any building already located on the land or later constructed on the land can be held by the CLT or sold off to an individual homeowner, a cooperative housing corporation, a nonprofit developer of rental housing, or some other nonprofit, governmental, or for-profit entity.

Leased land

Although CLTs intend never to resell their land, they can provide for the exclusive use of their land by the owners of any buildings located thereon. Exclusive use of parcels of land can be conveyed to individual homeowners or to the owners of other types of residential or commercial structures by long-term ground leases. The two-party contract between the landowner (the CLT) and a building’s owner protects the owner’s interests in security, privacy, legacy, and equity and enforces the CLT’s interests in preserving the appropriate use, the structural integrity and the continuing affordability of any buildings on its land.

Perpetual affordability

The CLT retains an option to repurchase any residential (or commercial) structures on its land if their owners ever choose to sell. The resale price is set by a formula contained in the ground lease that is designed to give present homeowners a fair return on their investment but giving future homebuyers fair access to housing at an affordable price. By design and by intent, the CLT is committed to preserving the affordability of housing (and other structures), one owner after another, one generation after another, in perpetuity.

Perpetual responsibility

The CLT does not disappear once a building is sold. As owner of the underlying land and as owner of an option to repurchase any buildings located on its land, the CLT has an abiding interest in what happens to the structures and to the people who occupy them. The ground lease requires owner-occupancy and responsible use of the premises. Should buildings become a hazard, the ground lease gives the CLT the right to step in and force repairs. Should property owners default on their mortgages, the ground lease gives the CLT the right to step in and cure the default, forestalling foreclosure. The CLT remains a party to the deal, safeguarding the structural integrity of the buildings and the residential security of the occupants.

Community base

The CLT operates within the physical boundaries of a targeted locality. It is guided by and accountable to the people who call the locale their home. Most commonly, any adult who resides on the CLT’s land and any adult who resides within the area deemed by the CLT to be its community can become a voting member of the CLT. The community may encompass a single neighborhood, multiple neighborhoods, or, in some cases, an entire town, city, or county.

Governance

Typically, CLTs are run by a board of directors whose members include three groups of stakeholders: residents or leaseholders, people who reside within its targeted community but do not live on its land, and lastly the broader public interest. This third group is frequently represented by government officials, funders, housing agencies, and social service providers. Organization bylaws may designate each of these groups a specific and equal number of seats, and they may be elected separately by their constituent groups. Control of the CLT’s board is diffused and balanced to ensure that all interests are heard but that no interest predominates.

Expansionist acquisition

CLTs are not focused on a single project located on a single parcel of land. They are committed to an active acquisition and development program aimed at expanding the CLT’s holdings of land and increasing the supply of affordable housing (and other types of buildings) under the CLT’s stewardship. A CLT’s holdings are seldom concentrated in one corner of a community but tend to be scattered throughout its service area, indistinguishable from other owner-occupied housing in the same neighborhood.

Flexible development

There is enormous variability in the types of projects that CLTs pursue and in the roles they play in developing them. Many CLTs do development with their own staff. Others delegate development to nonprofit or for-profit partners, confining their own efforts to assembling land and preserving the affordability of any structures located upon it. Some CLTs focus on a single type and tenure of housing, like detached, owner-occupied houses. Others take full advantage of the model’s unique flexibility. They develop housing of many types and tenures or they focus more broadly on comprehensive community development, undertaking a diverse array of residential and commercial projects. CLTs around the country have constructed (or acquired, rehabilitated, and resold) single-family homes, duplexes, condos, co-ops, SROs, multi-unit apartment buildings, and mobile home parks. CLTs have created facilities for neighborhood businesses, nonprofit organizations, and social service agencies. CLTs have provided sites for community gardens, vest-pocket parks, and affordable working land for entry-level agriculturalists. Permanently affordable access to land is the common ingredient, linking them all. The CLT is the social thread, connecting them all.

The actual duties for structuring of the Community Land Trust will be determined by the Board of the CLT. The makeup of the board is noted in Blog 14.

Community Non-Profit for Local Governance

A separate non profit 501(c)(3) will be formed for use by individuals living in the PDP, Board members or any cooperatives that are formed. This non profit will be used to obtain grants and other funding. This non profit will be used as an arm of the CLT non profit for establishing the governance of the PDP. Community meetings will be held once a month to discuss problems, community suggestions or other community concerns. Other duties would be to obtain funding for students, new businesses in the PDP and needs of any cooperatives that are formed. One person will be hired to obtain grants from government agencies, individuals, businesses and foundations. This non profit will be in charge of establishing the type of community money that will be used. They will also be responsible in organizing farmer’s markets and community flea markets.

Cooperatives

Information about cooperatives can be found on the internet and YouTube. On Slideshare (https://www.slideshare.net/jobitonio/concepts-and-types of cooperatives), Jo Bitonio, professor/program coordinator at Private and State Universities, listed different forms of cooperatives, such as Tubao Credit Cooperatives, Consumers Cooperatives, Producers Cooperatives, Marketing Cooperatives, Service Advocacy Cooperatives, Agrarian Reform Cooperatives, Cooperative Banks, Dairy Cooperatives, Education Cooperative, Electric Cooperative, Financial Service Cooperative, Fishermen Cooperative, Health Services Cooperatives, Insurance Cooperatives, Transport Cooperatives, Water Services Cooperatives, Workers Cooperatives, and other types as determined by an authority.

The PDP will engage with local farmers in the area in order to form an agricultural cooperative. The farmers will work with the students to give them on site experience in marketing and management. The extent and duties of the cooperative will have to be determined. Local farmers markets will be encouraged.


PROUT – Progressive Utilization Theory

In terms of the philosophy of governance PROUT – The Progressive Utilization Theory, is the best that I have found that should establish the standard of what the PDP should be about. In order to understand the theory of PROUT the information about it is found on the internet under the heading, The Home of PROUT, www.prout.org. Due to copyright rules I can only note a few of their comments here.

These are the Chapters of their study guide that can be read to fully understand their theory. The goals they profess are peaceful in nature and now in the era of labels many people would call them socialism or communism, but they aren’t. It challenges our warlike approach, over consumption, destruction of our environment to mention a few. “The experience of contemporary history has exposed the fallacies of cherished social, political and economic ideas, classical as well as revolutionary. The world is full of opportunities – material, mental and spiritual – and so to build a better and freer society is a practical possibility. Yet we are observing a process of social decadence, moral degeneration and the collapse of values which is corroding the springs of human action and corrupting the ideals of a civilized life. Failure and disappointment are bound to follow from attempts to solve the problems of our time with the ideas of previous centuries. These ideas emphasized material progress and scientific development. However, the mental makeup and moral standard of the civilized community have not matched the level of material progress. In other words, the development of civilization – refined cultural progress – has proven far slower than scientific development.”

“In actuality, the social cycle does not always move smoothly forward, but rather moves in a systaltic manner. There are periods of social movement followed by periods of relative pause. When society is in a state of ultimate stagnation, having little vitality or positive momentum, it is termed “systaltic pause.” It is in this state, due to great suffering on the part of the people, that new inspiration and ideas emerge, ideas which are antithetical to the stagnant existing framework. When such an “antithesis” develops sufficient strength, the existing social structure is fundamentally changed by the dynamism of the new ideas. This initial stage of change and dynamism is referred to as “manifestative motion.” When a new synthesis is achieved by the strength of the manifestative movement, the state of “manifestative motionlessness” occurs. This pause is the apex of social movement, its golden era or the period of its greatest vitality. The strength of this synthesis rests upon the strength of the ideas upon which it is founded. Eventually it begins to deteriorate, however, because the dominant class is able to systematically exploit the other classes, leading to oppression and stagnation. This results in its decline. After some time, its downward motion culminates in its “systaltic motionlessness.” In this period new ideas incubate and pressure is created by the oppressed for a new order. The systaltic motionlessness of the old order is also the same period as the “retardative motionlessness” of the new order. (From PROUT Chapters)

Thus, every age of the social cycle will begin with a formative dynamic phase, in which new vitality is infused into the social structure. Society attains a sustained peak subsequently followed by decline and staticity, usually accompanied by rampant exploitation.

Only by reading all the chapters can you fully appreciate its meaning for establishing a guide for us as to how we should conduct our lives.  We presently are entering the last stage of our present civilization unless we change many things that we are doing.  The following book also states what dilemma we are in regarding our future.

  • Immoderate Greatness – Why Civilizations Fail, William Ophius, 76 pages

Thus if preparations for collapse are made at all, they are likely be made too little, too late. Modern civilization is therefore bound for a worse fate than the Titanic. When it sinks, the lifeboats, if any, will be ill provisioned, and no one will come to the rescue. Humanity will undoubtedly survive. Civilization as we know it will not. Although it would be intellectually dishonest of me to suggest any other outcome-a tragic denouement followed by a lengthy time of troubles- I can vision an alternative to civilization as it is currently conceived and constituted. This alternative, which could not be imposed but would have to emerge slowly and organically, should allow humanity to thrive in reasonable numbers on a limited planet for millennia to come. But it would require a fundamental change in the ethos of civilization-to wit, the deliberate renunciation of greatness in favor of simplicity and frugality. For the pursuit of greatness is always a manifestation of hubris, and hubris is always punished by nemesis. Whether human beings are capable of such sagacity and self-restraint is a question only the future can answer . The laws of thermodynamics is controlling what will happen to us as well as exponential growth (a quantity grows exponentially when its increase is proportional to what is already there.). The First Law states that energy is always conserved. It can change form, but it can neither be created nor destroyed. The Second Law states that entropy tends to increase (where entropy is a measure of chaos, randomness, and disorder). This means that energy tends to decay into less and less useful forms. The idea that technology will allow us to do ever more with ever less is a delusion. The more humanity resorts to technology, the more it expedites entropy and generates other problems. One of these is excessive capacity. This leads to moral decay. Civilization then finds itself tied down by a series of vested interests- physical, social, economic, financial, political and psychological. William Playfair noted in general all nations are inclined to push to the extreme those means by which they have obtained wealth and power; [in consequence their ruin is thereby brought on with greater rapidity. Note: A must read before other books on the subject of sustainability. In a way it looks like the history of the United States.

Summary

The stages for obtaining funding funding is dependent on the Opportunity Zone funding or funding from other sources that could work like bridge funding. The following activities should occur with the first funding.

  1. Start marketing the project to obtain Opportunity Zone or Bridge funding. After funding is obtained form the Community Land Trust (CLT) and PDP non profits.
  2. The non profits determine scheduling of the following activities.
  3. Obtaining additional funding.
  4. Hire architect to complete architectural plans.
  5. Determine team members to visit site(s).
  6. Discuss outcome of site visits to determine if additional sites needs to be visited.
  7. Obtain estimate for the model homes that have been selected
  8. If the site is approved by the board and government agencies then a site plan for the site should be designed which includes the architect, landscape architects, civil engineer and CLT board members.
  9. Make trips to the site to obtain plan approvals.
  10. Review lists of possible funders and provide information to them to obtain funding.
  11. On approvals from government agencies start building the model homes, roads and necessary utilities.
  12. Develop marketing strategies and begin a pre-sales program.
  13. Start building the first homes after sales and rental costs have been decided.
  14. Determine what amenities to build at this time.
  15. Other steps as necessary including interviewing possible tenants.

This is just a partial list of activities and the order may have to be changed. During the entire process people near the site will be interviewed to obtain their opinions. One may be a central laundry facility for several units or have a laundry room in the house. Another example would be to have a building for child care.

It is understood that certain funders such as foundations, government agencies, businesses, individuals, etc. may want to be included in the decision making process that would involve their funding. This would be handled by the CLT non profit.

A special determination will have to be made involving county, school and city taxes because of the constant changing of ownerships and rentals.  The use of community money is another topic to be discussed.  This is noted in the book Toward Self Sufficiency- Revised.  Other blogs will be or already been made to answer these an other questions.

– George Hunt

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