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Business plan
LHAs are adopting a corporate model to attract private investors, compete in capital markets, and become full-scale development agencies.
When Harrison Shannon joined the Housing Authority of the City of Charlotte, N.C., some 11 years ago, an executive director ran the agency. Today Shannon steers the ship, but with a new title: chief executive officer. Other changes rolled in when the chiefs title changed eight years ago. Tenants became clients. Housing projects became neighborhoods.
With HUD funding drying up and the local agency's role expanding far beyond the administration of public housing, the Charlotte Housing Authority for the past several years has tried to cast itself in a more entrepreneurial light, and the change in nomenclature reflects that effort. "Hopefully it helps us to be looked upon as a more attractive partner to the private sector," says Shannon. As CEO, he says, "People see you as being more business-minded, with an understanding of what the bottom line is all about."
The Charlotte agency is not alone. Around the nation, a small but growing number of housing authorities have tried to adopt more "corporate" profiles. It isn't simply a surface change of executive titles. LHAs are retooling their internal processes in order to be more efficient and effective in their work.
Entrepreneurial approach
The Bush administration has embraced the move toward a more corporate leadership structure in housing authorities, and the current HUD leadership has encouraged the trend. But what exactly does the change entail? In a global sense, it is about standing the system literally on its head: Putting the bottom on top.
"Local housing authorities are typically on the receiving end of something that someone else starts. Programs begin on the banks of the Potomac and then filter down through a number of bureaucrats to the local administrators," explains Rick Gentry, a past president of NAHRO, former chief of the Richmond, Va., and Austin, Teas, housing authorities, and currently a senior vice president at the private, nonprofit National Equity Fund in Chicago.
Compared with this traditional, trickle-down system, "the privatesector model has more of a focus on active, creative development. Rather than waiting for something to flow down, the private sector goes looking for opportunities," says Gentry. "By adopting a more entrepreneurial approach, housing authorities can be more effective at attracting private resources, and therefore can do more for the locality."
The strategy seems to be working.
"Half of our business today is outside of the HUD realm. We are actively involved with investment bankers in developing new mixedincome housing," explains Kurt Creager, CEO of the Vancouver (Wash.) Housing Authority, and NAHRO president. Those bankers by and large "don't understand our business, nor do they have the time to understand our business, and by adopting a private corporate model, it is more akin to their day-to-day business world, something they relate to more easily, If I want somebody to invest $20 million in my activities, we obviously need to develop a bankable, trustworthy relationship, and a lot of that has to do with vocabulary. I cannot infuse my language with 'HUD-speak' that they will never understand, and still hope to maintain their confidence."
Walking the walk
Talking the talk is not enough, however. Experts who follow both affordable-housing issues and the financial industries say that if these two teams are going to play together on the same field, housing authority leaders need more than just corporate-sounding titles and business-school vocabularies. They must also implement substantive changes in the way they do business.
"The most important thing is a strategic business plan, one that goes beyond the HUD template and really looks at every aspect of their operations. What are their short-, medium- and long-term goals? No organization can really change and grow without a strategic business plan, and the fact that a housing authority is willing to create and follow such a plan is going to be critically important" to winning the trust of bankers, according to Wendy Dolber, managing director and head of the public finance housing group at Standard & Poor's.
That business plan should lay out verifiable performance goals that encourage the agency to go beyond the mere completion of HUD paperwork. The plan also should consider the question of who is running the shop not just today, but tomorrow. "We see a lot of great directors, but there might not be anybody waiting in the wings to take their place," and this makes bankers nervous, Dolber said.
At housing authorities that have gone the corporate route, leaders say they are in fact trying to make more than merely cosmetic changes.
At the San Antonio Housing Authority in Tas, for example, President and CEO Melvin Braziel said his role in managing the agency's 6,000 public and 3,000 nonpublic housing units is very much akin to the role a privatesector CEO would play. "The president and CEO does not really get directly involved in the day-to-day operations, the actual running of the operations in a detailed way," he said. "I have hired a chief operations officer, and that person is responsible for looking after the daily operations. Then each major department has a vice president that reports to the COO, while my job is more of a representation role, dealing with the outside public: the business community, the politicians downtown."
Within that framework, Braziel said, the middle managers have more than just token authority. Just as in a corporate setting, "each one of my vice presidents can do their own work. They don't have to come running here for decisions. They make their own decisions, and I don't have a problem with that," he said.
(By the same token, Braziel's effort to delegate highlights one of the potential pitfalls facing the housing authority that wants to be more corporate. "It would be hard for an agency that did not have a lot of management depth to do this," Creager cautioned. "There just are not enough people to whom one can delegate the work.")
When Braziel joined the San Antonio agency in 1964, HUD was the only game in town. At that time "it was enough to have good administrators. Now I have to have good leaders," he said. In that regard, the corporate titles came online about seven years ago, "so that we can identify more closely with the private sector. We want to do that because HUD is forcing us to do that. They are forcing us to deal more with the private sector in our day-to-day operations: With contractors, developers and so on, including on the financial side, raising money and capital development and so on."
Observers laud the change. By reaching out to the private sector for financing opportunities, "housing authorities have recognized the potential to become more fullscale development agencies ... and that is all for the good," said Bill Apgar, a former federal housing commissioner who now teaches at the Kennedy School of Government's Joint Center for Housing Studies.
Retooling work processes
On the road to becoming more "corporate," some housing authorities have had to take a hard look at their internal processes, retooling them with an eye toward greater efficiency. In San Antonio, for example, the housing authority's architecture and engineering division uses HUD funding to undertake some $20 million to $30 million a year in major capital improvements. With 50 to 60 projects in the pipeline at any given moment, Braziel said, a traditional bureaucratic approach to contract administration just was not going to get the job done.
"HUD has us under the gun in terms of time," he explained. "We have to spend this money within a certain time frame, which means that my staff cannot go out and administrate all these different contracts. It's just too big. So we go out and hire architects to do that for us, and then all we need to do is keep track of what they are doing. You let the architects know exactly what you want done, but you leave them to the work of actually doing it."
Yet Apgar and others worry that the emphasis on entrepreneurial thinking could ultimately backfire on agencies that do not tread with due caution. "The fear is that they get so into the bottom line on the development side that they don't take care of business among the low-income units they already have," said Apgar. In order to avoid that trap, "you cannot forget your core operations. Public housing authorities are first and foremost the owners, operators, and managers of thousands of units of public housing-and you still need to do that job well."
If you cannot do the basic job, "taking on new business will only exacerbate those problems," he said. "If you don't have the capacity to run a grocery store, you clearly don't have the capacity to run a grocery-store development company. On the other hand, if you really have your act together on the public-housing side, taking on new ventures can only add to those strengths."
Competing effectively
The private sector, too, has raised concerns about the new "corporate" face of public housing. "If you want to use a term like becoming more entrepreneurial,' you have to be careful who you use that term around," says Shannon. "There are some who think that means you are trying to impinge on things the private sector wants to do, and they worry that as a public agency with federal funding and bonding capabilities, that might give you an unfair advantage."
Despite such concerns, both outside observers and housing authority professionals say the overall effort to think more like the private sector ultimately will be a good thing for the nation's housing authorities. "In order for housing authorities to take advantage of the flexibilities being afforded through public housing reform, in order for them to really create alternative income streams, they need to be able to compete more effectively in the capital markets, and taking a more corporate point of view is only going to help them," says Dolber.
Given those fiscal realities, and given too the more widespread bipartisan push to make government more responsive in recent years, those agencies not already moving in the direction of a more corporate structure would do well to begin thinking about the kinds of changes they could make, according to Gentry. "We are talking about effectiveness and efficiency. "This is a trend that has substance to it."
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