For tenants, a prospect unthinkable


IT'S LONG BEEN ROSE Gallucio's thinking that the whole world needn't know if the government subsidizes your rent.

The apartment manager's influence clearly shows at Hanover Square, a red brick high-rise for the elderly overlooking the Inner Harbor and Camden Yards. Nothing about the look of the place - with tree-shaded patios, quiet hallways in muted mauves, a tastefully done community lounge - says rental assistance.

But without the government paying all but 30 percent of their rent, the former housekeepers, cabdrivers and secretaries who are Gallucio's tenants could not have afforded such a home for their retirement years.

"I was glad to get this place," said Henrietta McDonald, 83, who worked for years cleaning houses, then grew afraid living alone in Liberty Heights. "I've got no plans in moving. They're going to carry me out."

McDonald and other tenants take obvious pride in an atmosphere they attribute to their manager. Gallucio, ever vigilant in keeping the building spotless and upholding house rules such as one banning bathrobes in the lobby, is still not satisfied. Next year, she says, she'll redecorate.

While Gallucio makes plans to paint and replace carpeting, the heads of programs enabling her tenants to live affordably in the 17-year-old, 198-unit private building are doing some redesigning their own.

With costs of subsidized housing out of control, Washington policy-makers are looking to fix a system most agree has broken down.

Over the next seven years, subsidy contracts will expire on more than 700,000 units in apartment buildings (housing more than 1 million tenants) that receive Section 8 rental assistance.

"Budget resources do not exist to renew these contracts at their current subsidy level" - especially as more than half the units have rents paid by the federal Department of Housing and Urban Development that are well above market-rate rents - HUD said in an April position paper on its stock of "assisted housing."

The Federal Housing Administration holds the mortgages on the Section 8 buildings. If apartment owners default on those mortgages after the subsidies are cut, the FHA would be obligated to pay insurance claims to private lenders. That could lead to apartment buildings deteriorating or shutting down. The FHA bailout could cost taxpayers billions of dollars.

"If contracts are not renewed, hundreds of thousands of low-income families will be adversely affected in many communities, and the federal government will be forced to pay insurance claims on up to $18 billion of privately held mortgages," HUD said.

In Maryland, subsidies are tied to 62,752 apartments, and more than a third are in complexes reserved for the elderly. Baltimore City has the greatest concentration, with 19,300 apartments, but another 11,579 are scattered throughout the suburban counties. The figures do not include portable vouchers.

"This is a very important housing resource for some of the poorest people in this state," among them low-income families, senior citizens and disabled people, some on the brink of homelessness, said Vicki Davis, deputy director of the Maryland Housing Fund, which insures mortgages on some of the state's subsidized rental housing. "It would be very difficult to do without it."

Under a proposal to reform Section 8, HUD proposes having local and state governments review individual properties before their contracts expire, to look at rents, subsidies, property condition, and the availability of affordable housing in the community. The states would recommend whether to link future assistance to the property - not in excess of the market rental rate - or to tenants in the form of vouchers.

Those properties that could not operate without the current subsidy would get help from HUD in restructuring debt to a level that could be supported by rents at market rate and still cover operating expenses and upgrades.

"We think it could work very well," said Patricia J. Payne, secretary of the Maryland Department of Housing and Community Development. "Everyone agrees that it would be ideal if projects could reflect the local market, and rents comparable for the local market.

"We'd be willing to work with [HUD] to restructure so we would continue to have the resources there. We would be dubious about getting involved if we were in a position to have problems dumped on us."

In Baltimore, the prospect of large-scale defaults and the fallout - buildings falling into disrepair, tenants out of homes - is the stuff of housing officials' nightmares.

"It's not the kind of thing we like to think about - that's why we're trying to get in front of it," said city Housing Commissioner Daniel P. Henson III.

The Housing Authority of Baltimore City could take a number of steps, such as selling tax-exempt bonds to investors as a source of low-interest financing, which would enable building owners to keep up properties and keep rents down. The city also could issue Section 8 certificates in conjunction with specific properties.

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