by Eric Shupin
Discriminatory government policies in zoning and land use over the last 50 years have intentionally created racially segregated communities with concentrated areas of poverty. More than a half-century since passage of the Fair Housing Act of 1968, “even as metropolitan areas diversify, white Americans still live in mostly white neighborhoods.” In the Boston area, residential racial segregation exceeds the national average significantly, with Black and Hispanic households overwhelmingly residing in communities with the greatest educational challenges, limited resources, and the poorest educational, economic, and health outcomes. Alarming emerging data from the COVID-19 pandemic suggests that in urban cores, “[b]lack and brown people are dying at rates more than twice their share of the population”—likely because high density urban areas are comprised disproportionately of racial minorities with higher prevalence of preexisting poor health-related conditions. The racial gap in COVID-19 deaths exposes the urgent need for bold government intervention to undo the legacy of decades of exclusionary zoning that continues to perpetuate residential segregation in the Commonwealth.
AFFORDABLE HOUSING SHORTAGE AND SEGREGATION
An adequate, affordable housing supply throughout Massachusetts is critically necessary to disrupt existing patterns of residential segregation. As of 2018, 32% of Black and 16% of Latinix/Hispanic residents of Massachusetts lived in Boston. This is compared to the state’s overall population breakdown of 7% Black and 12% Latinx/Hispanic.
Not nearly enough housing has been produced outside of Boston over the past 30 years. Between the 1960s and the 1990s, annual housing production in Greater Boston actually dropped by 52 percent, and, multifamily housing production dropped by more than 80 percent. Consequently, rents and home prices in the region have been perennially among the highest in the nation, placing an increasing and unsustainable burden on renters, especially lower-income residents who are disproportionately people of color. In 2017, with only about three new housing units permitted for every thousand residents, Greater Boston continued to rank among the top-five in average housing costs and ranked 18th in housing production among the nation’s 25 largest metropolitan areas.
An adequate housing supply can help stabilize prices and enhance affordability, but production alone will not address the Commonwealth’s persistent patterns of racial residential segregation. Legislation and land use policies that explicitly address the need for affordable housing to be equitably distributed throughout Massachusetts are needed. Since its enactment in 1967, Chapter 40B has been the main statutory means to incentivize affordable housing production statewide. It empowers local Zoning Boards of Appeals in jurisdictions that have not met the 10% Subsidized Housing Inventory (SHI) “safe harbor” threshold to approve “comprehensive permits” for denser, larger, and higher development projects than would otherwise be permitted under local rules if they contain 20–25% affordable units. In the past 50 years, Chapter 40B has helped create over 60,000 homes, but, after all those years, currently only 67 of Massachusetts’ 351 municipalities are at or above the 10% SHI threshold.
Although Chapter 40B has helped, the Commonwealth still faces serious challenges to combatting patterns of residential segregation. Massachusetts needs additional zoning tools and reforms to overcome our legacy of restrictive zoning.
RESTRICTIVE ZONING AND FAIR HOUSING
The Massachusetts’ Zoning Act, G.L. c. 40A (“Chapter 40A”), delegates to all municipalities (except Boston) the power to enact their own zoning codes to regulate the use of land, buildings, and structures for the purpose of protecting the “health, morals, safety and general welfare of the community.” While the Legislature retains the ultimate authority to set zoning policy for the Commonwealth, in practice, local zoning laws represent the piecemeal expression of their development preferences and local control over such externalities as population growth, traffic congestion, noise, aesthetics, and property values. Without reform, most Massachusetts’ communities will continue to restrict the development of all but the most expensive—and exclusive—type of housing: single-family homes on large lots.
According to Massachusetts’ 2019 Analysis of Impediments to Fair Housing, density-restrictive zoning raises serious civil rights concerns because low-density developments tend to exclude Black and Hispanic residents disproportionately, whereas multifamily rental options promote the inclusion of traditionally excluded minority households.
ZONING REFORM TOOLS
Statutory zoning reform, coupled with judicial development of a more restrictive doctrine on abutter standing, can complement existing incentives, such as Chapter 40B and the Housing Choice Designation.
Enacting Housing Choice
We can start by amending Chapter 40A to make it easier for communities to pass local zoning changes that encourage more housing and “smart growth” development. Currently, any zoning change requires a two-thirds vote by all members of Town Meeting or city council. G.L. c. 40A, § 5. Without amendment, this often insurmountable threshold will ensure the status quo of our exclusionary land use practices.
H.4263, initially filed by Governor Baker, would enable municipalities to pass by a simple majority vote a narrow set of zoning changes related to multifamily housing, including mixed-use developments and accessory dwellings (or in-law apartments), and to approve special permits for certain affordable housing developments that are consistent with smart growth principles. Other zoning changes that might further restrict new and/or affordable housing, such as increasing dimensional requirements, would continue to require a super-majority vote. If sufficiently coupled with subsidies to build affordable housing, this measure would make a substantial impact by empowering the simple majority of the community to vote for such zoning amendments in favor of housing.
Curtailing Frivolous Abutter Challenges
Massachusetts’ jurisprudence on standing has accorded disproportionate power for abutters to challenge a project for the improper purpose of obstruction and delay. Abutter challenges—even without merit—can hold up affordable housing construction sufficiently to make the project financially unviable.
In Murchison v. Sherborn, a decision issued in less than 24 hours, the Supreme Judicial Court ruled that abutters must prove they would suffer some kind of demonstrable harm to have standing to bring a legal challenge to a project. While the claim that a proposed single-family home on a 3-acre neighboring lot would cause density-related harm may be an extreme case, the case exemplifies the frivolous type of challenges many affordable housing developers face. To promote the creation of more diverse housing types across Massachusetts, we must encourage a new jurisprudence or take legislative action on standing to deter frivolous abutter challenges of locally-supported affordable housing developments.
Each municipality can also adopt its own inclusionary zoning policy to require a certain portion of a housing development to be set aside as affordable. For example, Boston’s policy currently requires 13% to be set aside as affordable; Cambridge requires 20% to be income-restricted. The challenge for such policies is that sufficient density is required to make a mixed-income development economically feasible: if the required set aside for affordable units is too high, inclusionary zoning can have the unintended consequence of discouraging new development that can foster diversity in communities that are traditionally opposed to increased density. It is also dependent on a community approving projects large enough to trigger the policy in the first place. Even with these limitations, such policies are an important tool to combat exclusionary zoning.
Zoning is a powerful legal and public policy choice: it determines what gets built and where and who gets to live in a community, as well as who is excluded. Zoning reform is long overdue in Massachusetts to remediate our history of residential segregation. H. 4263 is a first step for Massachusetts to start building desperately needed diverse housing opportunities.
Eric Shupin is the Director of Public Policy at Citizens’ Housing and Planning Association. Shupin is the public policy co-chair of the Boston Bar Association’s Real Estate Section. Shupin holds a J.D. from The George Washington University Law School. The opinions expressed in this article are his own.
by Laticia Walker-Simpson
Homelessness in Greater Boston was rising even before the economic fallout from the COVID-19 pandemic. From 2008 to 2018, the region experienced a 26.7% increase in homeless families and a 42.5% increase in homeless individuals. As rents skyrocketed and the shortage of affordable housing worsened, the state’s Emergency Assistance (“EA”) shelter program has strained to meet the need of the growing number of eligible households. The public health emergency has laid bare the structural problems with the state’s housing safety net program all too familiar to those working directly with the vulnerable population.
To meet the statutory mandate to provide Shelter to impoverished households, the Commonwealth must substantially increase funding for the EA program, implement measures to create more housing affordable for extremely low income residents, and adopt initiatives to address the displacement crisis, such as right to counsel in eviction cases and rent control.
“Right to Shelter”
In 1983, Massachusetts enacted a “Right to Shelter” law, Chapter 450 of the Acts of 1983, and established the state’s first publicly-funded homeless Shelter for families while they search for more stable housing. Although referred to as a “right to Shelter” jurisdiction, the Commonwealth imposes strict threshold eligibility requirements for applicants to be eligible for EA Shelter: families must be Massachusetts residents; at least one person must have qualifying immigration status; the family must have a qualifying child under age 21, and the overall household income must be at or below 115% of the federal poverty level.
Additionally, the family’s homelessness must have been caused by one of four qualifying reasons: (1) domestic violence; (2) fire, flood, or natural disaster not caused by a household member; (3) a health and safety risk that is likely to result in harm; or, (4) eviction due to certain circumstances that are generally beyond the control of the tenant household, such as medical situations.
A household will be barred from EA Shelter for a variety of reasons, including “intentionally reducing” income to become eligible for benefits (i.e., EA shelter or a housing subsidy); receiving EA Shelter benefits in the last year; abandoning public or subsidized housing without good cause; or being evicted due to criminal activity, destruction of property, or non-payment of rent for public/subsidized housing.
Once admitted to an EA Shelter, the household must meet certain mandatory participation requirements, such as saving 30% of their income, spending 20 hours per week in housing search, job search, or in education or training programs like financial literacy classes. Participants are also required to complete chores in the Shelter, including cleaning the facilities’ kitchens and bathrooms.
A Perverse Cycle
The Commonwealth’s shortage of affordable housing for low and extremely low income families is driving the need for EA Shelter. At least three in ten low-income people in Massachusetts are either homeless or must pay over half of their income in rent.
Since 2013, the average length of stay in EA Shelters across the state is 267 days. Only 12% of families exit the EA program within one month, 28% exit within three months, and 27% stay for more than a year and up to 5.6 years. Compared to an average of 247 days in 2008, in 2013 homeless families spent an average of 300 days in EA Shelters. The duration has been about 150 days longer in the Boston and Central regions than in the Southern and Western regions. This disparity is not surprising given the higher cost of housing in Boston where, for example, the rent for a two-bedroom leapt from $1,237 in 2010 to $1,758 in 2019.
With the lengthening duration of stay in EA Shelters due to lack of permanent affordable alternatives, more families are placed farther away from their home communities and face limited transportation options to their original places of employment, child care, medical care, education, and important networks of support. And case workers assigned to each EA family face increased caseloads, reducing the time they can spend assisting each family with housing search and accessing other resources necessary to transition out of homelessness.
The budget for the EA program has not kept pace with the expanded need for EA Shelter and increased cost of temporary EA housing. In fiscal year 2013, 39,436 homeless families were served by the EA budget of roughly $156.5M (adjusted for inflation). In fiscal year 2019, 43,392 families were served by the allocated EA budget of roughly $179.8M (exclusive of any supplemental budget).
To meet the increased demand, the EA program has placed many families in inexpensive private apartments. These private market EA placements have resulted in the unintended, albeit foreseeable, consequence of further shrinking the supply of “naturally occurring affordable housing” (“NOAH”) available as permanent housing options, including for EA participants. That is, by competing in the private rental market for EA temporary placements, the state’s efforts have had the perverse effect of further decreasing the supply of NOAHs available to low-income families, thereby pushing more vulnerable households into homelessness, and exacerbating the supply barriers to permanent housing for EA participants, thereby extending their time until exit from the EA program. It is a pernicious and inefficient cycle.
The related trends of longer EA stays and shrinking permanent affordable options has transformed the EA program from its original purpose as a short-term measure to help families get on their feet into a long-term housing placement system for those with limited prospects for transitioning to stable, affordable housing. This dynamic is unsustainable at current levels of EA appropriations.
The COVID-19 pandemic has also underscored the public health costs of a system operating beyond capacity. EA Shelters are primarily comprised of congregate housing, where each family has a private room but shares a kitchen, bathroom, and living space with other families. Congregate physical facilities make social distancing impossible and contributes to the spread of the virus. The reduction in on-site staffing due to the public health emergency also means cleaning and maintenance also has come under increased strain.
Creativity and determination are necessary, but not sufficient, to disrupt the current inefficient patterns and cycles in the operation of the EA Shelter system. A substantial increase in EA Shelter appropriations will also be necessary, along with expansion of staff trained to develop resources, capacity, and resilience within homeless families, and more systemic efforts to preserve NOAHs as permanent affordable housing options.
The most effective, preventative response to the homelessness crisis would be a form of rent control. A more immediately needed response in the face of the tsunami of evictions expected at the end of the temporary eviction and foreclosure moratorium, Chapter 65 of the Acts of 2020, is a Right to Counsel legislation that would reduce the number of low-income residents who are evicted and need EA shelter by providing attorneys to low-income tenants, the majority of whom presently go unrepresented.
The pandemic has exposed the need for systemic reform for the EA program to operate effectively to mitigate the traumatic human, medical, and social costs associated with homelessness and to transform the “Right to Shelter” from a paper promise into a sustainable reality for our Commonwealth’s neediest families.
Laticia Walker-Simpson is a Staff Attorney focusing on EA Family Shelter in the Housing Unit at Greater Boston Legal Services. She co-chairs the Mentor project at GBLS and is part of the Massachusetts Right to Counsel Coalition. She is an avid baker.
by City Councilor Lydia M. Edwards
Boston’s economy is thriving. Why then are so many residents of the City and Commonwealth struggling to find and afford housing, remain in the communities they love, become homeowners and build wealth? A shortage of housing that serves the needs of all economic classes and family structures is certainly part of the problem. But simply building across the region will not solve our state’s persistent housing affordability crisis. To house our diverse, growing population, we will need a multi-pronged approach that balances growth and prosperity with protection of all residents during both recession and economic booms and addresses the widening wealth gap that plagues our City and the Commonwealth. As Boston City Council Chair of the Housing and Community Development and Government Operations Committees, my view is that Boston can lead through housing policies that raise revenue for affordable housing, shape new inclusive neighborhoods through planning and zoning that affirmatively furthers fair housing, and stabilize communities through protections against involuntary displacement and equitable opportunities for home ownership.
Revenue for Affordable Housing
With the decades-long decline in federal funding, localities must look to other sources to finance the preservation and production of housing that is affordable to low- and moderate-income residents. Boston recently passed a home rule petition to collect a transfer fee of up to 2% on high-value real estate transactions that exceed $2 million dollars, subject to exemptions (“Transfer Fee Home Rule”). Enacted, the Transfer Fee Home Rule could generate as much as $169 million per year for affordable housing in Boston, vastly outstripping current resources at the City’s disposal. Municipalities as different as Somerville, Concord and Nantucket have also proposed transfer fees to fund their affordable housing, and 38 states and localities already have excise taxes on property sales.
Boston also has a pending home rule bill to authorize the City to update its existing Development Impact Program (“Linkage”) and Inclusionary Development Policy (“IDP”) which are each intended to mitigate the increased demands for affordable housing and job training attributable to large-scale developments. HB 4115. Enacted, HB 4115 would permit the City to make its own decisions to adjust the linkage fees to enable Boston to align more efficiently with changing market conditions and local needs without waiting for approval of the full General Court as currently required by statute; extend the IDP requirements (e.g., to create 13% of development as income-restricted units or contribute equivalent funds) which currently apply only to market-rate housing developments with 10 or more units and are in need of zoning relief, to all large projects regardless of whether zoning relief is needed; and codify the IDP into Boston’s Zoning Code.
Inclusive Zoning and Planning
Several “large projects” subject to Boston’s Article 80 Development Review and Approval process–including the former Suffolk Downs race tracks in East Boston, the Bunker Hill public housing in Charlestown, and the Mary Ellen McCormack public housing in South Boston–provide the City with unprecedented opportunities to shape entire new neighborhoods that provide an inclusive range of housing options to accommodate the City’s diverse population, while disrupting historic concentrations of poverty and patterns of racial and cultural segregation and providing access to employment and training opportunities for affected residents.
For public housing redevelopments, this may mean ensuring that income-restricted units are integrated with the market-rate units, whereas in purely private developments like Suffolk Downs, it may mean planning to ensure sufficient “affordable units” of the right bedroom size to house families and a community benefit agreement to mitigate meaningfully against adverse development impacts and hardships. I have proposed a zoning change for Boston to systematically ensure that all developers undertake deliberate and “meaningful actions, in addition to combating discrimination, that overcome patterns of segregation and foster inclusive communities free from barriers that restrict access to opportunity based on protected characteristics.” This change would amend the text of Boston’s Zoning Code to expressly incorporate our preexisting federal Affirmatively Furthering Fair Housing obligations. Seattle and Portland, for example, already review their plans with a lens for racial equity and displacement risk along with opportunities for economic growth, to inform their choices.
The City also recently strengthened its comprehensive planning under the Climate Ready Boston Initiative by passing an Ordinance Protecting Local Wetlands and Promoting Climate Change Adaptation in the City of Boston to ensure the equitable protection of all residents from the effects of climate change.
Boston has been taking aggressive steps to address the chronic housing crisis since October 2014 when the mayor’s Housing Advisory Task Force issued Housing a Changing City: Boston 2030, which was updated in 2018. The original Plan called for the production of 69,000 new housing units by 2030 with specific targets for different affordability levels in an effort to create a more equitable and inclusive City. Beyond production, the City also dedicates funds to support the acquisition and deed-restriction of properties as affordable housing, regulates and restricts short-term rentals, protects against condominium conversions, and supports a right to counsel in eviction proceedings––all measures intended to protect residents, especially long-time, low-income, elderly, and disabled tenants, against involuntary displacement. The City also created the Office of Housing Stability (“OHS”) in 2016, the first of its kind in the nation, to work across City departments and with external partners to promote policies, practices, and programs that are effective in achieving housing stability for tenants at risk of eviction, which is also critical to stabilizing communities like Boston where the majority of the population is renters.
Other high-cost cities also have passed right to counsel legislation, and some states such as Oregon, California and New York are moving towards rent stabilization policies which would allow rent increases but prohibit increases as high as those experienced by many Boston residents. These states, as well as Boston, have also looked to “just cause eviction” policies in efforts to protect tenants current with rent and who otherwise have not broken their lease agreements.
Additionally, to encourage home ownership, Boston has expanded the availability of low-interest loans to moderate-income families through the ONE+ Boston program and approved zoning to allow for accessory dwelling units. Other policies which support resident-controlled housing, such as cooperatives, cohousing and community land trusts; the co-ownership of such housing by residents; and a resident’s right of first refusal to purchase, would each promote community stability, as well as individual opportunity to gain equity and build wealth.
Boston’s housing affordability crisis is not abating, and our response has not scaled up to protect all residents. With bolder action, we can create lasting stability in neighborhoods and reverse historic patterns of discrimination and dispossession in our real estate market, as well as in zoning and planning decisions. To achieve community stability we need a multifaceted approach to the housing shortage that is responsive to the diverse needs of all residents and to historic inequities and barriers to enabling them to remain in place and housed in their communities of choice.
Lydia Edwards has spent her entire career as an advocate, activist, and as a voice on behalf of society’s most vulnerable. She served as the deputy director within the Mayor’s Office of Housing Stability, as a public interest attorney with Greater Boston Legal Services focusing on labor issues, and she currently represents District One on the Boston City Council. For the 2020-2021 council session, she serves as Chair of the Committees on Housing and Community Development and Government Operations.
Anyone who owns, constructs, or finances a construction project involving public funds, public ownership, and/or public use must carefully consider whether the project may be classified as “public construction.” If so, the project will be strictly regulated under an array of local, state, and federal requirements, including competitive bidding and procurement requirements, prevailing wages, bonding, and affirmative action goals. Mistakenly treating a project with a strong public-private interdependence as exempt from the public construction laws can expose the hybrid project to bid disputes, financial penalties, unenforceable contracts, and costly delays in the permitting, acquisition, funding, rehabilitation, and construction of critically needed housing. But compliance with the Massachusetts system of procurement when not required to will also constrain the construction process, significantly increase project cost and time, and result in other inefficiencies. This article reviews two bid protests recently decided by the Massachusetts Office of Attorney General (“AG”) to illustrate the challenges inherent in determining when affordable housing projects undertaken through public-private partnerships (“P3”)[i] may be “public construction” for purposes of the competitive bidding requirements under G.L. c. 149, §§ 44A–44H (“statute”).
I. Background: Public-Private Partnerships for Affordable Housing
Greater Boston perennially ranks nationally among the top-five highest average in rents and home prices. But because of the lack of funding, most low-income people in Massachusetts do not receive rental assistance, and three in ten low-income people are either homeless or must pay over half of their income in rent. The need for affordable housing preservation and production is at a crisis level in Massachusetts and nationally.[ii]
As the supply of affordable housing in the private market has lagged, public housing has been dying a slow death of divestment for decades. Established under the United States Housing Act of 1937, the public housing program produced nearly 1.4 million units nationwide, but today, only about 1 million units remain with a combined $49 billion backlog in unaddressed repairs.[iii] This backlog will continue to rise even as more federal public housing units are lost permanently with the U.S. Housing and Urban Development’s (“HUD”) effort to “reposition” the public housing inventory through public-private partnerships under the Section 18 demolition and disposition, Rental Assistance Demonstration (“RAD”), and Moving to Work programs.
The trend favors increased P3 initiatives with an expectation of greater efficiencies through risk sharing, leveraging financing from both public and private sectors, and accessing broader innovations, knowledge and skills. Already, “most HUD programs are structurally public-private partnerships (P3s) or have some public-private aspects.” Yet the legal uncertainty and fact-specific scrutiny necessary to determine when P3 arrangements are subject to the competitive bidding requirements may inadvertently chill critically-needed private investments for affordable housing in Massachusetts.
II. Massachusetts Public Construction Law
A. Massachusetts Competitive Bidding Statute
The Massachusetts public construction bidding law mandates that “[e]very contract for the construction, reconstruction, installation, demolition, maintenance or repair of any building by a public agency estimated to cost more than $150,000 … shall be awarded to the lowest responsible and eligible general bidder on the basis of competitive bids in accordance with the procedure set forth in section 44A to 44H.” G.L. c. 149, § 44A(1)(D).[iv] The dual remedial purpose of the statute is to eliminate favoritism and corruption through “an honest and open procedure for competition for public contracts,” Interstate Engineering Corp. v. Fitchburg, 367 Mass. 751, 757 (1975), and to ensure that taxpayers dollars obtain the lowest price for competent construction by qualified bidders under uniform criteria. Fordyce v. Town of Hanover, 457 Mass. 248, 259-60 (2010).
The AG is “charged with investigating allegations of violations of the competitive bidding statute and enforcing its provisions” through “bid protests.” Brasi Development Corp. v. Attorney General, 456 Mass. 684, 691 (2010) (“Brasi”). Awards of contracts can also be challenged in Superior Court where “the potential class of plaintiffs … is not necessarily limited to the low bidder on each contract” because standing is interpreted liberally in furtherance of the statute’s remedial purpose.[v] Barr Inc. v. Town of Holliston, 462 Mass. 112, 119 (2012).
The AG may enforce her bid protest decision by filing an action in the Superior Court. See G. L. c. 149, §§ 27C (a), 44H. However, the AG’s bid protest decision is accorded no deference by the courts which construe the statute de novo. Brasi, 456 Mass. at 694. Accordingly, a bid protest decision cannot settle the legal uncertainty as to whether and under what circumstances the statute applies to P3s.
B. The Brasi “Totality of Circumstances” Test
In Brasi, the Supreme Judicial Court (“SJC”) held that the competitive bidding statute applied to a “build to lease” arrangement between a private developer, Brasi Development Corporation (“BDC”), and the University of Massachusetts at Lowell (“University”). In so deciding, the SJC adopted a totality of circumstances test to conclude that the so-called “lease back” scenario[vi] in Brasi was in fact “the functional equivalent of a construction contract.” Id. at 684. The SJC reasoned that “limiting the inquiry to the [Request for Proposal (‘RFP’) as has been done in other contexts] ignores relevant circumstances that have a direct bearing on the transaction that the parties contemplated,” and that the totality of circumstances indicated the creation of a project by “an agency for the agency’s use in carrying out its public purpose” which constitutes “construction of a building by a public agency” to which the statute applies. Id. at 697-699.
Specifically, the SJC concluded that where BDC was obligated to construct a dormitory and lease it back to the University for up to 30 years subject to the University’s option to purchase and automatic transfer of ownership at the end of the lease, the “character of the agreement was, in essence, a contract for construction by a public agency… rather than a lease.” Id. at 684. The SJC admonished that “[o]therwise, the parties could easily employ long-term leases to evade the ‘competitive bidding requirement’ of the procurement statute.” Id. at 695. Brasi underscores that in evaluating whether public bidding laws apply to a P3, (1) public ownership is not necessary or dispositive and, (2) the “totality of the circumstances” of all agreements focuses on whether there is a “creation of a project by the [public] agency” that is “for the agency’s use in carrying out its public purposes.” Id. at 697.
III. Recent Attorney General Decisions on P3 Projects
A. Holyoke Housing Authority Decision: Public Housing Conversion under RAD
On June 20, 2019, the AG issued a detailed decision in In re Holyoke Housing Authority Rehabilitation of Lyman Terrace (“Holyoke Housing”) methodically applying the Brasi factors to the P3 rehabilitation of Lyman Terrace (“Project”) and found that the project constituted a public construction subject to the statute. However, the AG expressly declared that the decision in Holyoke Housing was “prospective only and, therefore, does not apply to this specific project, but will serve as guidance to other awarding authorities.” Holyoke Housing, p. 2.
This Project involved the conveyance and rehabilitation of 167-units of distressed federal public housing built in 1939 and owned by the Holyoke Housing Authority (“HHA”) to The Community Builders, Inc. (“TCB”), a private developer, as part of HUD’s RAD program under a 75-year ground lease (“Ground Lease”).[vii] Largely consistent with HHA’s RFP, the Master Development Agreement (“MDA”) required TCB to “initiate, coordinate and administer all planning, design, development, financing, construction and management activities in connection with” the Project,[viii] subject to certain rights of HHA to approve the general contractor and to review the plans, and subject to procedures for the selection of the contractor to help ensure competitive pricing, payment of prevailing wages, and compliance with other contracting standards.
To implement the Project, TCB formed a separate private limited liability company (“Owner”) to own Phase 1 of the Project pursuant to G.L. c. 121A, and HHA obtained HUD’s approval for the disposition of the public housing units under the RAD program. The Owner paid a base rent of $2,710,000 to HHA, and obtained over $35 million of financing for Phase 1 (including a $1 million loan from HHA, eight other loans from different public and private lenders, and almost $16 million of private equity contribution from the allocation of low-income housing tax credits (“LIHTC”)).[ix] TCB provided all corporate construction completion guarantees required by financing sources.
In exchange, as required for the RAD conversion, HHA entered into new Housing Assistance Payment (“HAP”) contracts with HUD to ensure the Owner would receive subsidy payments for the continued operation of the rehabilitated units under the Section 8 program. HHA and HUD also retained regulatory and enforcement rights with respect to the Section 8 HAP contracts, and HHA retained a limited right of first refusal and the option to buy back the buildings in 15 years. Other agreements obligated the Owner to “maintain the public purpose of the housing development” by operating and managing the rehabilitated units as affordable for low-income residents. Holyoke Housing, at 12.
According to the AG, the RAD Project posed the question under Brasi: “whether the public bidding laws apply when a private entity undertakes construction on a housing project that was initially owned by a public housing authority, was initiated by the public housing authority, is funded by public money, serves a governmental purpose, with control over the design and construction process retained by the public housing authority which may revert to the public housing authority if the authority pays fair market value, within a relatively short amount of time.” Holyoke Housing, p. 11. Notably, absent from the Project is the “lease back” arrangement that troubled the SJC in Brasi.[x] Rather, Holyoke Housing reveals a complex and pervasively regulated set of transactions typical of RAD conversions, which is one of the limited options available to some housing authorities to preserve distressed public housing units as affordable housing.
Nonetheless, the AG decided the Project was subject to the statute, applying the Brasi factors and following the SJC’s focus on whether the Project will “assist the public entity in ‘carrying out its public purposes.” Id. at 11-12. The AG also queried why a home-rule waiver from the statute had not been sought for the Project, as had been successfully done in other similar public housing redevelopments undertaken by TCB. See Holyoke Housing, p. 4.
B. Chestnut Park Preservation Decision: Privately-Owned, LIHTC Housing
On September 25, 2019, the AG decided In re MHFA, DHCD, and City of Springfield: Chestnut Park Apartments (“Chestnut Park”) finding that the P3 project there did not constitute public construction. Chestnut Park involved the occupied-rehabilitation of a privately-owned and privately-developed, 489-unit, LIHTC-financed, mixed-income rental housing development (“LIHTC Project”). In concluding that the LIHTC Project was not a “construction of a building by a public agency” subject to the statute, the AG recognized that there are “two separate legislative systems for creating and maintaining affordable housing…on both the state and federal levels”: a public housing system owned by public agencies that rely on grants and operating subsidies (as in Holyoke Housing), and a private affordable rental housing system developed, owned, and operated by private for-profit and non-profit entities relying on public and quasi-public loans, subsidies, and tax incentives. Chestnut Park, pp. 9-11. The AG then declared that nevertheless, even privately-owned affordable housing like the LIHTC Project is subject to the Brasi test. The AG also rejected a narrow interpretation of Brasi that the “totality of circumstances” test is “confined to cases involving leases.” Chestnut Park, p. 11. Finally, the AG distinguished Chestnut Park from the facts in Brasi and Holyoke Housing to conclude that because the public lenders, MHFA, DHCD, and the City of Springfield (collectively “Public Agencies”), “did not initiate or plan the design or construction of the Project; have never owned and will not own the Project land, buildings or improvements; do not have an absolute right to acquire the premises; and do not control the design or construction of the Project in any way other than as lenders, the public bidding laws do not apply” to the LIHTC Project. Id., p. 2 (italics added).
Applying Brasi to each indicia of public ownership, project control, use, purpose, and funding, the AG rejected the argument that Chestnut Park Apartments is a government agency-financed and controlled affordable housing facility subject to the statute, and determined that the conditions of financing in the Public Agencies’ regulatory agreements did not constitute “significant control over either the design or the construction of the Project” but were “programmatic” requirements for the operation of the LIHTC Project as affordable housing consistent with the Public Agencies’ public purpose and underwriting requirements.[xi] Id., pp. 12-15. The AG concluded that “public financing alone ‘does not render a private development … a public building or public work, or make [an owner] an agent or servant of a public instrumentality,” and noted that “[i]f that were the case, the private businesses that invest in low-income communities while benefiting from the New Markets Tax Credit Program … would become subject to laws governing public construction and prevailing wage,[xii] since they [likewise] advance the public purpose of serving low-income communities.” Chestnut Park, pp. 16-17 (quoting Salem Bldg. Supply Co. v. J.B.L. Constr. Co., 10 Mass. App. Ct. 360, 362 (1980)).
IV. More Challenges on the Horizon?
The AG’s recent bid protest decisions applying the Brasi totality of circumstances test underscore that in Massachusetts, all public and privately-owned P3 projects are well-advised to continue to consider carefully the applicability of the statute and all other public construction requirements [xiii] when one or more of the following “red flags” of potential challenge is present: (1) direct or indirect public ownership in part or all of the project, (2) public or quasi-public financing in the form of equity or debt, or assumption of risks or provision of guarantees, (3) significant public entity control over the construction, rehabilitation, or design of the project, and/or (4) construction to serve a specific public purpose or public use. By addressing the legal requirements for public construction early, P3 projects will be optimally positioned to provide badly needed affordable housing efficiently, with quality construction, within budget, and in a timely manner, and avoid costly public relations hiccups and litigation.
Lauren D. Song is a Senior Attorney at Greater Boston Legal Services where her practice focuses on affordable housing preservation and development through public-private partnerships, including under the federal “Section 18,” “RAD,” and state demonstration programs. Lauren is a current member of the Boston Bar Journal and the Citizens’ Housing and Planning Association.
Tyler Creighton is a law student at Boston University and former legal intern with Greater Boston Legal Services. Prior to law school, Tyler worked on election and voting policies with Common Cause Massachusetts and ReThink Media.
[i] The U.S. General Accounting Office defines “public-private partnerships” as joint efforts between the public and either the private for-profit or private nonprofit sectors.
[ii] All five Greater Boston counties rank nationally in the top 10 percent for income inequality. The median rent of $2,450 for a one bedroom apartment in Boston in 2019 is unaffordable for most lower-income and working-class households.
[iii] ”Public housing” refers to federal public housing in this article unless otherwise specified. Public housing is funded exclusively by Congressional appropriations. HUD administers the public housing operating and capital funds appropriated by Congress to approximately 3,300 public housing authorities (“PHAs”). However, Massachusetts (along with New York, Connecticut, and Hawaii) also has a state public housing program comprised of more than 240 local PHAs and overseen by the Massachusetts Department of Housing and Community Development (“DCHD”) which also faces a $2 billion capital funding shortfall.
[iv] In Massachusetts, “public construction” falls generally under two categories of either “vertical construction” of “public buildings” governed by G.L. c. 149, or “horizontal construction” of “public works” governed by G.L. c. 30, § 39M. Generally, the vertical projects are subject to more requirements than the horizontal projects. The AG has jurisdiction to investigate bid protests in both vertical and horizontal construction.
[v] See e.g., Andrews v. City of Springfield, 75 Mass. App. Ct. 678 (2009) (standing for group of city residents); Associated Subcontractors of Mass., Inc. v. Univ. of Mass. Bldg. Authority, 442 Mass. 159 (2004) (standing for subcontractors’ association); East Side Const. Co. v. Town of Adams, 329 Mass. 347 (1952) (standing for group of taxpayers).
[vi] Lease backs typically involve creative arrangements where a public entity leases land to a private developer (often for a de minimus amount) in exchange for the developer’s promise to build on the land and then enter into a [sub]lease-to-own agreement for the construction with the public entity. See, e.g., Andrews v. City of Springfield, 75 Mass. App. Ct. 678, 679 (2009) (invalidating lease and option to purchase because “Springfield’s request for proposal (RFP), while styled as a lease, was in reality a construction project subject to the bidding procedures set forth in c. 149” which Springfield did not follow).
[vii] RAD allows for significant PHA discretion in how the public-private interdependence is structured. At a minimum, RAD conversions of public housing to the more reliable Section 8 platform allow PHAs greater access to private financing and on better loan terms for renovations. See, e.g., Fischer, Will. 2014. “Expanding Rental Assistance Demonstration Would Help Low-Income Families, Seniors, and People with Disabilities.” Center on Budget and Policy Priorities. See also, Meryl Finkel, Ken Lam, Christopher Blaine, R.J. de la Cruz, Donna DeMarco, Melissa Vandawalker, Michelle Woodford. (Nov. 2010). Capital Needs in the Public Housing Program.
[viii] HHA separately undertook the “horizontal” improvement of the public works for Lyman Terrace through grants. HHA used a contractor selected through a competitive bid process but subsequently contracted with a TCB affiliate to complete the site improvement.
[ix] The Low-Income Housing Tax Credit (LIHTC), created by the Tax Reform Act of 1986, is now the most significant private incentive for affordable rental housing production in the United States, involving more than 3.13 million housing units placed in service between 1987 and 2017.
[x] Some have argued that the Brasi totality of circumstances test applies only in similar “build to lease” or “lease back” scenarios.
[xi] The Public Agency loans impose certain affordability, unit-mix, tenant-selection, and other use restrictions for 52 years, after which the units can be converted into market-rate housing under G.L. c. 40T, § 3.
[xii] While the AG is charged with enforcing the state’s prevailing wage statute, the Massachusetts Department of Labor Standards is tasked with issuing state prevailing wage schedules and making applicability determinations, Felix A. Marino Co. v. Comm’r of Labor and Indus., 426 Mass. 458, 460 (1998), and has adopted Brasi’s totality of the circumstances test for determining whether a project is a “public work” subject to the prevailing wage law. See e.g., Re: Construction of Leasehold Space in Private Buildings by Charter Schools for the Purpose of Use as a School, Prevailing Wage Program Opinion Letter (Feb. 22, 2012). Notably, projects that are covered by the state’s prevailing wage statute, G.L. c. 149, § 26–27 are not necessarily subject to the competitive bidding statute and vice versa. This is because, for example, there are amount thresholds in the Competitive Bidding Statute not applicable to the Prevailing Wage Statute, and whereas the bidding laws cover “buildings by a public agency,” the prevailing wage laws apply to “public works.”
[xiii] Other issues that may affect P3 projects in addition to competitive bidding requirements include whether it is federal, state or local, such as relates to: (1) prevailing wages, (2) work force policy mandates relating to DBE, WBE, LBE, etc. (3) procurement restrictions on materials and equipment, (4) bonding requirements, and (5) mechanics lien rights, and (6) even the timing of presentation of claims or commencing an action or the applicability of sovereign immunity or limits on damages.