helloprofits

On July 5th of this year, the Oakland City Council voted 7-to-1 to sell an acre of lakefront public land known as the E12th Street Remainder Parcel to luxury condo developer UrbanCore and nonprofit developer EBALDC. Community members fought the deal for over a year, arguing that using public land to build luxury condos, while the working poor of the City were quickly being displaced, was grossly irresponsible. During that fight, the E12th St Coalition which rallied around this issue demonstrated that they were in many ways, the ideal engaged citizenry.  With 100% volunteer labor, they had organized to put together an alternative vision for the parcel, including 100% affordable housing, an original architectural plan, and a thorough fiscal analysis.  Unfortunately, instead of working with the tremendous gifts of community engagement and talent the Coalition brought to the table, the City chose to snub the Coalition.  City Council had planned to vote on the sale of this land in early August, but at the last minute City Council rescheduled the vote to July 5th and snuck it through the council agenda while most of the activists who had been fighting this deal were still out of town for the holiday weekend.  The City also sold the land to UrbanCore and EBALDC for less money than had been discussed a year previously.

 

Another massive land grab orchestrated by the City of Oakland has surfaced.  This time, the city wants to give the nonprofit Hello Housing (HH) control of all the tax-defaulted lots in Oakland, which HH and its partners will ultimately use to profit off of the gentrification of low-income Oakland neighborhoods.  The first wave of this deal involves 26 vacant lots that total two acres of land, assessed to be worth at least $980K.  These lots are scattered all over Oakland.  Long-abandoned by their legal owners, these lots are saddled with years of unpaid property taxes, and often blighted with trash and weeds.

 

When a property in Alameda County accumulates 5 years of unpaid taxes, it becomes eligible for sale at the yearly County tax auction.  The starting bid at auction must equal the sum of all accumulated back-taxes, liens, and other encumbrances against the property.  Sometimes, the encumbrances exceed the value of the property itself. The most severely tax-defaulted vacant lot in Oakland, for example, is assessed to be worth $50K, but has accumulated $650K in encumbrances over the years.  Critically underwater properties like these go up for auction year after year without ever being sold, falling into a kind of tax-limbo.  Year after year, these abandoned properties continue to accumulate unpaid back taxes and turn into expensive maintenance burdens for the City.

 

Part 6, Chapter 8 of the the California Revenue and Taxation Code (informally referred to as “Ch.8 Sales”) could resolve this problem; it allows nonprofits to buy tax-defaulted property from the government without having to bid at auction, potentially at a steep discount.  The nonprofit, in turn, is required to “construct residential dwellings on the property and sell or rent the property to low-income persons, otherwise use the property to serve low-income persons, or dedicate the vacant property to public use.” (R&TC 3791.4 (a)(2)).

 

It all sounds promising until you examine the law’s definition of “low-income persons,” and “affordable.”  CA R&TC Sec. 3772.5(a) defines “Low-income persons” as “persons and families of low or moderate income, as defined by Section 50093 of the Health and Safety Code.” CA H&SC Sec. 50093 defines moderate income households to be households earning 120% Area Median Income (AMI) or less.  Also,  R&TC Sec.6 Ch.8 defines “Affordable Housing” as affordable for households earning at or below 120% of the Area Median Income.

 

Oakland’s vast income disparity, with swaths of wealthy households in the Oakland Hills, skews the Area Median Income dramatically towards the upper end of the spectrum; 120% of the Oakland-wide AMI comes out to $105k per year for the average sized household of 3. [1]  Meanwhile, the 26 properties named in HH’s initial land grab are all located in much poorer, flatland neighborhoods, where median household incomes range between $19,677 and $61,181. [2] Whoever buys the homes built on these lots will earn up to 147% to 535% the income of their neighbors — HH is exploiting the legal definition of “affordable” to push precisely the kind of development that makes Oakland neighborhoods unaffordable for long-term working class residents.

 

HH’s original proposal in 2014 stated that only 12 of the 34 lots would be developed for 120% AMI, while the remaining 22 would be designated 80% AMI. [3]  Along the way, HH dropped 8 lots from their list.  In 2016, HH amended their affordability goals so that all but 2 of HH’s remaining 26 lots will be developed for homebuyers who earn up to 120% AMI. [4]

 

There are many nonprofits and grassroots groups like the E12th Street Coalition that would gladly seize this opportunity to counter gentrification and displacement during an ever-worsening housing crisis. As the housing crisis continues to thrust people into dire instability and displacement, many organizations are rallying around housing rights.  The Oakland Community Land Trust, in particular, envisions a rental market in which low-income tenants become their own landlords by cooperatively managing their homes, assuring that their rent remains affordable in perpetuity.  This stands in sharp contrast to the way public housing administrations typically address low-income housing; with a management approach where power works from the top down, in a bureaucracy that is costly, inefficient, and disempowering to the those seeking homes.  There are many nonprofits that want to cut out the middlemen and create community controlled housing resources, and Ch.8 tax-sales could be key to their visions.

 

Unfortunately, the City of Oakland has already decided to give HH complete control of the Ch. 8  process.  In 2013, the City initiated a Community Buying Program “to transform abandoned and blighted properties into new affordable housing units to help address Oakland’s housing crisis,” [5] utilizing the Ch. 8 tax sale to forgive encumbrances on tax-neglected, abandoned empty lots.  They selected HH to administer the program. HH proudly describes themselves as a non-profit with a “private sector mentality.” [6]  Not only do they seek to financially benefit from the housing crisis while pretending to do something about it, but their ultimate vision actually exacerbates gentrification.

 

In the fall of 2013, the City and County had decided to sell HH 34 tax-defaulted abandoned properties scattered across Oakland. [7] After conducting a feasibility study, HH dropped 8 lots from their list; now they are set to acquire 26 properties.  Hello’s plan, as cheerfully detailed on their website, is to “buy ‘em dirty, clean ‘em up, [and] sell ‘em high.” [8] The “dirty” properties are those saddled with too many  liens and back-taxes to sell at auction. The city of Oakland is giving HH the unprecedented opportunity to obtain these properties for a mere $13.5K each, free of liens, back-taxes, and other encumbrances, which means Hello will pay $351K for 26 properties assessed to be worth at least $980K.  

 

On top of this arrangement, in early 2014 the City paid Hello $25K, and in 2016 awarded them a $150K per year contract to administer the City’s Ch.8 Tax-Sale process, called the Community Buying Program (CBP) — a program that so far has only been used to give HH sweetheart deals on land.

 

HH’s final step is to sell their deeply-discounted real estate to private developers “at a marked-up price that covers [pre-development costs which will create] a flexible subsidy pool for the new homes that need it.”  The City has also resolved to allocate all profits from the CBP back to the CBP account in order to “continue funding such activities;” incidentally, this is the same account that HH gets paid out of. [9]  The City has also promised to earmark its share of the $351K sale price (prorated between City and County based on liens/backtaxes) to subsidize development on these lots. [10]  Thus, HH’s private developer partners not only gets to purchase the lots at well below market rate, but are effectively guaranteed additional subsidies from the City.  When these developers sell their completed projects to higher-income buyers, they achieve their regular profit margin on the entire deal.  As Liza Veale explains in an article published on the website Live Work Oakland, “non-profit developers are not required to build below-market-rate housing. The only thing that distinguishes a nonprofit from a for-profit, legally, is that the nonprofits cannot distribute income to shareholders and investors. They are required to reinvest all of their profits in the furtherance of their mission; although there are no requirements in the amount of income they can distribute to themselves.” [11]

 

Still, HH claims this entire exchange benefits the cause of affordable housing.  While their developer partners are under contract to observe affordability restrictions with the agencies to whom they will sell their completed projects, a closer look at Hello’s affordability standards reveals a twisted interpretation of affordability, especially when considering the neighborhoods their project will actually affect.

 

HH could have pinned the affordability restrictions to each neighborhood’s AMI.  They could have developed a plan giving priority to residents who have been displaced and wish to return.  They could have surveyed the affected neighborhoods to gain an understanding of what people living there actually desire.  Instead, HH is exploiting the legal definition of “affordable” to create housing stock for wealthier families — precisely the kind of development that makes Oakland neighborhoods unaffordable for long-term working class residents.

 

HH’s entire board is made up of Ivy-League graduates, and their website is full of self-congratulations for their perceptiveness, innovation, and creativity in regard to Oakland’s “problem.”  The Community Buying Program under HH will only give rise to expensive units inaccessible to the people around them.  HH is opening the door to affluent new residents, while long-term residents continue to grind through the burning anxiety of imminent displacement.   Meanwhile, HH receives a generous contract to ensure their administrators’ ample salaries, their developer partners gain subsidies to minimally deviate from business as usual, and the City of Oakland masks their sponsorship of gentrification with the rhetoric of “affordability.”

 

Imagine if the E12th St Coalition, who put together a socially responsible alternative to Urban Core’s luxury condo plan, received this kind of help from the City of Oakland.  Imagine if the City didn’t just hand over publicly-controlled land to profiteering middlemen, and instead invested in grassroots, community-controlled housing. We might see a real solution to the housing crisis, and a real end to the fracturing of deep-rooted working-class neighborhoods.

 

END NOTES

  1. http://www2.oaklandnet.com/oakca1/groups/ceda/documents/report/oak059734.pdf
  2. List of 26 affected lots: Attachment A, P.11 of City Resolution File #15-1022.  Neighborhood AMIs: http://www.city-data.com/income/income- Oakland-California.html
  3. Attachment A, P.10 of http://www.sfchronicle.com/file/143/6/1436-Lien%20removal%20combined.pdf
  4. Exhibit A, P.8 of http://www.acgov.org/board/bos_calendar/documents/DocsAgendaReg_01_26_16/GENERAL%20ADMINISTRATION/Regular%20Calendar/Treasurer_227903.pdf
  5. P.2 City Resolution File #15-1022 on agenda 6/7/16
  6. P.11 http://www2.oaklandnet.com/oakca1/groups/ceda/documents/report/oak048107.pdf
  7. “In fall 2013… Donald White, the Alameda County Treasurer-Tax Collector, entered into a negotiation with HH and agreed to sell the properties to HH at the price of $13,500 per property…” p.2,3 City Resolution File #15-1022 on agenda 6/7/16
  8. http://www.hellohousing.org/wp-content/uploads/2016/04/1- pager-on- Oakland-Tax- Default-Pilot- 1.pdf
  9. “any program income generated… from use of these funds shall be deposited and appropriated… into the Community Buying Program project that will be established to continue funding such activities; and be it FURTHER RESOLVED: That $150,000 be moved… to the new Community Buying Program project number be established to fund the professional services agreement with HH…” P.17,18 HH 150K Approval City Resolution File # 15-1022 on agenda 6/7/16
  10. P.19 of http://www.sfchronicle.com/file/143/6/1436-Lien%20removal%20combined.pdf
  11. http://liveworkoakland.com/2014/06/10/housing-developer- rick-holliday- says-the- nonprofit-housing- industry-deserves-stronger- scrutiny/
Nonprofiteering: City of Oakland grooms Non Profit to flip tax defaulted lots in pro-gentrification scheme