Affordable housing advocates, analysts and policymakers were abuzz Monday with speculation about whom Mayor Michael Bloomberg would select to replace Department of Housing Preservation and Development (HPD) Commissioner Shaun Donovan, who is leaving for a new post in the Obama administration.

But while there were varied opinions on who’s on the short list, there was wide agreement that the next HPD boss will take office at a critical juncture for affordable housing in the city.

The announcement on Saturday that Donovan is nominated to serve as secretary of the Department of Housing and Urban Development was followed late Monday with news that Ricardo Morales, the New York City Housing Authority general counsel who took charge of NYCHA on an interim basis when Tino Hernandez stepped down December 12, had been appointed chairman.

Among the rumored candidates for the HPD job are: Housing Development Corporation (HDC) president Marc Jahr; Enterprise Community Partners vice president and former HPD official Raphael Cestero; Alicia Glen of Goldman Sachs’ Urban Investment Group, also a former HPD official; HDC and HPD veteran William Traylor of the Richman Group, a development company; Local Initiatives Support Corporation’s New York City managing director Denise Scott; Ford Foundation scholar and former JPMorgan community development guru Mark Willis, and former HPD first deputy commissioner John Warren.

Donovan was still in charge of HPD on Monday, and a department spokesperson declined to comment on the timeline for Donovan’s departure or plans for interim leadership if Donovan leaves before a permanent appointment is announced. It’s unclear if Donovan will bring any top HPD staff people with him to Washington and open vacancies in HPD’s key policymaking and operations posts.

Obama’s selection of Donovan was widely praised. Sheila Crowley, president of the National Low Income Housing Coalition, called it a “brilliant choice for HUD.” Mark Greenberg, executive director of the Interfaith Assembly on Homelessness and Housing, lauded Donovan’s “impressive results” in New York. “It will be a loss for the city but a great asset for our entire country,” said City Councilman Erik Martin Dilan, chair of the Council’s Committee on Housing and Buildings.

Donovan won praise for being a forceful spokesman for affordable housing with an interest in creative solutions involving private market forces. Advocates also say Donovan recognized the impact that the foreclosure crisis was going to have a year before it became a national story. And he recently convened a meeting of affordable housing stakeholders to brainstorm ways to respond to the challenges confronting the mayor’s plan. Bernard Carr, executive director of the New York State Association for Affordable Housing, praised Donovan for “taking advantage of the combined knowledge of the affordable housing community in New York City and New York State.”

Whoever gets the $162,800-a-year job to replace Donovan assumes responsibility for 2,700 employees, a $650 million budget and a portfolio of duties ranging from managing code enforcement operations, to overseeing anti-abandonment programs, to shepherding the mayor’s 10-year, $7.5 billion plan to build or preserve 165,000 units of affordable housing.

The allure of the job is enhanced by the distinct possibility that Bloomberg will serve a third term. Council’s vote to extend term limits means that what would have been a 12-month mop-up job at HPD is, instead, a probable five-year stint shaping housing policy.

Rocky road ahead

On the other hand, the challenges facing HPD are growing.

The mayor’s housing plan, which was supposed to run through 2013, always faced strict limits on how much it could offset the overall loss of affordable units in the city. For every affordable unit that HPD preserved or built, other units were leaving the Mitchell-Lama program or pricing out of rent stabilization.

Those constraints grew even tighter when construction costs rose amid a local and global building boom. Then, as HPD moved from a phase of the plan that emphasized preservation to one dominated by new construction, land costs began to bite. By late 2007, the Independent Budget Office was warning that the city’s capital contribution “is sufficient to fund slightly less than half – 49 percent – of the units needed to meet new construction targets.”

In fiscal year 2008, HPD hit its targets for housing starts, but while it launched 25 percent more “preservation starts” than expected, the number of “construction starts” missed the target by 22 percent. According to the Mayor’s Management Report, this was “due to limitations on available tax exempt financing and a tightening construction financing market, particularly in neighborhoods experiencing high rates of foreclosure.” The mayor recently hinted that the plan might take an extra year.

According to Jerilyn Perine, executive director of the Citizens Housing and Planning Council and Donovan’s predecessor at HPD, the housing plan faces a perfect storm in which all three underpinnings of affordable housing development – government spending, private sector investment and bank lending – are all pulling back because of the economic crisis. “The challenge really is how to keep your housing program growing – how to potentially rethink some aspects of it,” Perine says. That means using government money strategically, and in a way to keep alive the vibrant and valuable affordable housing industry that New York has developed over the past 30 years. It also means bracing for criticism in how scarce dollars are allocated. “In troubled economic times, government money comes under greater scrutiny,” Perine adds. “I mean, the mayor’s closing firehouses. He’s making very tough choices.”

HPD could choose to shift money from construction projects to preservation efforts. The plan calls for 92,000 units of new construction and 73,000 units of preservation, which covers everything from physical rehabilitation of deteriorating affordable units to refinancing Mitchell-Lama developments to prevent their owners from leaving the program, which keeps rents low. HPD could decide that rather than spending on land and construction to build new units, it will focus solely on defending units that are already affordable.

Some advocates, however, would prefer to see HPD get more ambitious in the face of crisis—to take advantage of falling land prices to “recap some of what we’ve lost to the market in the past few years,” as one advocate put it, who did not want to be identified because of the delicate politics surrounding the HPD appointment.

Either approach faces challenges. Shifting to preservation can change the income groups that benefit from HPD programs, says Carr. But, he adds, continuing to fund construction means encountering land and materials costs that, so far, have stabilized but not fallen. In general, “It’s the best of times and the worst of times for affordable housing,” Carr says, because awareness of housing needs is high even as resources for housing are being squeezed. He cites a recent increase of state funding for housing that had to be used to shore up development projects outside New York City when private investors refused to back the deals.

And it’s not like the housing plan is the only part of HPD’s workload that involves tough choices. Community Service Society housing analyst Victor Bach says he hopes the next HPD boss also pays attention to tenant protections. But Bloomberg’s November round of cuts reduced funding for HPD’s tenant anti-harassment program by $300,000.

Public housing, urban policy

NYCHA, meanwhile, is struggling to deal with years of underfunding by the federal, state and city governments. Despite layoffs, the closure of community centers and a drastic plan to use Section 8 vouchers to pay for public housing, the authority is still facing nine-digit deficits this year and in future years, leading some critics to call for the privatization of some of NYCHA’s 179,000-unit portfolio. (The NYCHA funding crisis will be covered in depth in the January issue of City Limits Investigates.) It’s unclear what mark Morales will make on this situation. His appointment is technical in nature, as NYCHA continues its national search for a permanent leader, according to Reginald H. Bowman, chairman of the Citywide Council of Presidents of NYCHA residents’ associations.

Obama’s position papers and the Democratic platform called for a restoration of full federal funding for public housing, but it remains to be seen whether the incoming administration will deliver. Besides the HPD and NYCHA posts, housing advocates wonder who will be selected to run public housing under Donovan at HUD.

Also unclear is what role the new White House Office of Urban Policy will play in public housing and affordable housing policy. News reports indicate that Bronx Borough President Adolfo Carrion will be named to run that office, although neither Carrion’s office nor the Obama transition team would comment on the reported appointment.

If he does take the post, Carrion’s departure will have an immediate impact on local politics because a special election will be called to fill his seat until the 2009 general election in November. Councilman Joel Rivera, state Senator Jose Serrano and Assemblyman Ruben Diaz, Jr. have all displayed interest in the Beep job. Diaz’s father, state Senator Ruben Diaz, Sr., is one of the three senators withholding support for the Democratic caucus in Albany, raising the possibility that the borough-wide race will affect negotiations in the legislature’s upper chamber.

– Jarrett Murphy

This story has been updated with news of Ricardo Morales’ appointment. 12/16/08