By Mike Turner
Talk to Gary Heidel for any length of time about economic redevelopment efforts in Michigan, and you’ll hear him repeatedly use terms such as “teamwork,” “collaboration” and “partnerships.”
Heidel, executive director of the Michigan State Housing Development Authority since October 2010, says it’s going to take a variety of public and private entities working together to reshape the state’s economy.
“It’s collaboration and partnership, there’s just no doubt about it,” he said. “As a state entity and a private entity you can do what you want with your products, but in the challenges of the economy of today, you really have to do a lot of collaboration and partnerships.
“You’re seeing an awful lot of that going on around the state in a lot of our communities,” Heidel said. “The business community is coming together with the public sector along with the foundation communities and the nonprofits and really just looking at how do we make our communities and our regions important places. What we’re all about is improving the quality of life and having a strong economy.”
MSHDA, a quasi-state governmental agency, aims to fulfill its role in improving the quality of life in the state through a variety of approaches. Historically, MSHDA has focused on affordable housing. But its mission and vision have evolved and broadened over the years beyond individual housing projects to encompass what agency officials refer to as “quality of place.” Heidel traces the start of the evolution to Terrance Duvernay, who served as MSHDA executive director in the 1980s after a stint as city government’s chief administrative officer in his native New Orleans.
“Terry -¦ got his start in the community action agency movement,” Heidel said. “He just felt you can’t provide quality of life to a person only by giving them a decent place to live. That is also impacted by the neighborhood they live in. So we started doing a lot of neighborhood work. It was still housing based, but it was how do we then focus on the neighborhood around the projects that we finance or just neighborhoods in general, and how can we improve those neighborhoods and be more holistic? I remember one of our annual reports at that time said ‘More Than Housing,’ which meant we were becoming more than housing. That theme continued on.
“It’s more than just the neighborhood that the house is located in,” Heidel said. “It’s also the community that the neighborhood’s in. More recently, it’s the region that the community’s located in. What we’ve come to see is the impact of our work on a regional economic basis. It makes a lot of sense, because a state economy -¦ is made up of the regions in the state. How we work in a place like Lansing, Mich., and the small communities around Lansing - Mason, St. Johns, East Lansing - impact how that whole region comes together, at least from a residential development perspective.”
Much of that work involves focusing on the development of downtowns or the major corridors of communities, Heidel said. “These are very important to the future of the Michigan economy,” he said. “It’s how we start to link the communities within our region in a variety of ways to make them stronger.”
Helping to Stabilizethe State Housing Market
In the past couple of years, MSHDA added to its roster of duties by serving as the steward of federal funding earmarked to address the housing crisis in Michigan. Unemployment, ballooning house payments and shrinking home values have threatened the foundation of home ownership for tens of thousands of Michigan residents.
MSHDA developed Michigan’s Hardest Hit Fund plan together with the Michigan Bankers Association, the Michigan Credit Union League, the Michigan Association of Community Bankers, the Michigan Association of Realtors, the Michigan Foreclosure Task Force and a statewide network of homeownership counseling nonprofit agencies. The $498 million fund has helped homeowners who are unemployed, have fallen behind in their mortgage payments or taxes due to a temporary layoff or medical emergency, or who can no longer afford their mortgage payments due to lower income. It is anticipated the funds will assist 30,000 Michigan homeowners, including 24,000 temporarily unemployed residents.
“We’re actually helping people from moving into foreclosure or people who have been hit with unemployment,” Heidel said. “In one program, for people who have become unemployed, we will help pay part of their mortgage payments up to a year, and hopefully at that time they’ll get back on their feet. There’s another program where we help people who have a one-time problem that put them in arrears on their mortgage but because they were now current in their mortgage we could help them erase that arrears. We have another program in principal reduction that we’ve been working on, too. That’s been an incredible program in helping us deal with the mortgage foreclosure problem.”
MSHDA further put federal funding to use in creating its New Urban Neighborhood plan. Using $224 million in Neighborhood Stabilization Program 2 (NSP2) funds received from the U.S. Department of Housing and Urban Development in late 2009 - the largest amount awarded to any single governmental entity in the nation - MSHDA created a consortium of municipalities and land banks to target key neighborhoods in Detroit, Highland Park, Hamtramck, Wyandotte, Flint, Saginaw, Pontiac, Lansing, Battle Creek, Kalamazoo, Grand Rapids and Benton Harbor.
Under the plan, foreclosed and abandoned property has been rehabilitated for buyers and renters, blighted properties have been demolished and foreclosed, and vacant property has been acquired and reassembled into buildable lots and development parcels so it can be marketed to developers for future investment. The overriding goal is to prepare the neighborhoods for private investment.
“It allowed us to deal with some of the impacts of foreclosure and homes that just became deteriorated, but it also allowed us to work in neighborhoods which have been considered a blight on the overall perception of our major urban communities,” Heidel said.
Heidel praised the work of his staff in ensuring that the federal funding that has poured into the state in recent years has gone toward its intended use.
“I have to admit, it was quite a challenge,” he said. “We received close to over a billion dollars in the course of a 24-month period, and it all had to be out based on certain time frames - Congress wanted to be sure the money was being spent. Our staff really rose to the occasion. I can’t tell you how they just really worked hard all the time in order to get that money out and really help people who were having housing problems but also to stimulate the economy. You’re talking about a business that employs contractors and builders. People purchase durable goods, so it’s important to stimulating the economy.”
Heidel said that while the governmental initiatives are not the solution to the housing crisis - jobs are required to resolve that issue, he said - they have had a measurable impact on the state economy.
“Because of this type of financing, and in the areas that it was targeted - rental development, homelessness, homeownership, neighborhood development - we’re really having a major impact on cities and their ability to be able to compete and attract residents and especially talented workers that are going to be key to the future of the Michigan economy,” he said.
“When you combine that financing with what’s being done in other areas - like in natural resources, transportation, business development, talent development - you can actually see how it starts to fit with a very, very aggressive strategy and how the state’s going to improve its economy and be a place where people are going to want to come and do business and want to live,” Heidel said. “We have an incredible state in Michigan. You can’t find many more natural amenities anywhere in the world than you can in Michigan. We’ve just gone through a change in our economy, just like the world is going through a change. But we’re very well positioned to come back, and these types of programs are a big part of that.”
Views From the Private Sector
Robert Filka, CEO of the Michigan Association of Homebuilders, agrees that MSHDA’s recent efforts to stabilize the state’s housing market have been important. Foreclosure assistance “helped push the recovery forward a little bit in Michigan,” he said. “I do think they’ve helped pushed things forward, although it’s hard to see some of that right now.”
But it’s in fulfilling the mission it was created for in 1966 - supporting the private sector’s development of affordable housing by filling funding gaps left by private lenders - that MSHDA will have the most impact in the future, Filka said.
The agency has, however, strayed in recent years from its primary role of leveraging private investment by instead focusing on partnering with nonprofit groups, Filka maintains. “They have drifted in the past to different functions,” he said.
However, in the past year or so, the agency has begun to return to its roots of serving mainly private developers and builders, he said. “They are going to be a very important partner in Michigan for the private sector to get back on track,” Filka said. “I view MSHDA as a heavy player in our state’s economy. But I think it all comes back to their mission of finance. Their overall mission as I see it is their leveraging of private investment.”
Heidel says the agency’s most important work does indeed involve housing development.
“We consider ourselves to be a community-development agency,” he said. “We are involved in a lot of different activities, but the base of all of that is housing development. A lot of it is for people with low and moderate incomes and addressing the needs of the homeless. But definitely housing is what we were created to do. It’s where our mission is and our vision of the future.”
Heidel suggests that housing’s role in economic development is not always fully understood.
“The right kind of housing is what attracts people to communities to live in,” he said. “It’s what makes them want to live there and makes them want to work there and makes them want to start businesses.
“What we’re seeing in this particular market is the unique kind of housing demand. Younger people want to live in rental places, in what we call walkable urban communities. A lot of the housing we’ve done in that is financing second-story rental development. So if you went to any urban community, whether it’s a big city like Detroit or a medium-size city like Lansing or Grand Rapids or a small city like Alpena or Sault Ste. Marie or Marquette, you will usually see in a downtown area second and third stories that aren’t always being used efficiently, and on the bottom you’ll see commercial. We work with the Michigan Economic Development Corp. in kind of a dual tandem where they’ll do a lot of the first-story faÃÂ§ade improvements - they’ve got a lot of programs to help small businesses - and then what we’ll do is second-story and third-story loft development for rent. That’s part of where the market is right now.”
The single-family mortgage market, however, remains in flux, Heidel said.
“We’re still making single-family mortgages, but because of the economy things are still tough and so people aren’t purchasing as many homes,” he said. “We’ve seen home-purchase levels drop in Michigan, and we’re a pretty big homeownership state. I think as the economy improves, you’ll see more homeownership being done. The big part of it is just the availability of financing, too. After the problems we had in 2008 with the credit crunch, you’re just not seeing financing as readily available as it used to be, and that’s because people are just being much more careful about what they’re doing.
“So we consider what we’re doing right now, especially doing as much development as we can in urban communities, as a pretty important part of our strategy. When I say urban, I mean places not just like Detroit, Lansing and Grand Rapids, but also Sault Ste. Marie, Marquette, Alpena, Traverse City, Gaylord and places like that, because they’re important to the transformation of the Michigan economy.”
Both sides of the legislative aisle have traditionally supported MSHDA’s housing finance mission, Filka said.
Not that the agency is without its critics. For example, the Mackinac Center for Public Policy, a Midland-based think tank that promotes free market principles, has recommended privatizing MSHDA operations, including its multifamily loaning programs.
MSHDA generally operates without any state funding. Instead, it sells bonds and notes to private investors and uses the proceeds to cover operating expenses and finance the loans it provides at below-market rates to rental housing developers and homeowners.
The Mackinac Center in 2010 raised the specter of a Fannie Mae-type meltdown at MSHDA, which was facing declining revenues and rising delinquencies on loans during the housing market collapse.
But Heidel notes that bond agencies have determined MSHDA has a healthy balance sheet.
“We’re very strong,” he said. “We’ve just been recently reviewed by the rating agencies and we again came out as a AA with a stable outlook. That’s one of the highest ratings you have in the country for a housing finance agency. There may be one that’s a AAA. The ratings agencies are being much more tighter these days, ever since 2008. They’re really looking at us a lot stronger than we’ve been looked at before. They have some very good things to say about the work that we’re doing and the stability of the organization.”
MSHDA earned $6 million in 2011, $9.2 million in 2010 and $4 million in 2009, down from $32.2 million in 2007 and $28.1 million in 2008 before the housing crisis struck.
“The one thing that they (rating agencies) have said is that cash flow is a little weak and our profits are a little weak, which is understandable considering the economy,” Heidel said. “Like a lot of lending organizations, we’re not making as many loans as we used to, but we feel very good about where we’re at right now, especially as Congress will continue to work on tax reform and a new housing finance system that we’re paying a lot of attention to. Like any good organization, we’ll respond to the changes in regulation and the market in order to be able to produce more products, especially housing products.”
Heidel says he takes no offense to the Mackinac Center’s critiques of MSHDA.
“Every kind of organization has its own unique orientation to what they want to do,” he said. “I’ve talked to people at Mackinac before. We actually have someone who works with us as a developer who sits on their board. I appreciate when people bring different points of view to the public policy arena. This is the marketplace of ideas, and we all have them. The idea is we do bring them and we talk about them and what comes out of that are the things that benefit our state. The Mackinac Center is an organization that has different views on things. They’re going to say what they believe and we’re going to say what we believe. We both have the same end in mind, which is a strong Michigan.”
Creating a Sense of Place
Heidel said he’s also well aware of the anti-government feelings among a large segment of the electorate, as well as the skepticism over the effectiveness of government involvement in the economy.
“I think when you’ve gone through what we’ve gone through in the economy over the past 10 years, there’s always going to be a concern and a suspect by the public about what our institutions are doing to serve us and to help us,” he said. “And when people are hurting and having difficulty with their mortgage payments and losing jobs, they look to their leaders to help them through that. And I think there’s been some concern about where are our leaders? It’s been a difficult situation for all of us to get our hands around. I think we are doing that now. I think that confidence will continue to grow as we especially work with the private sector in coming up with the kinds of solutions that are going to again create jobs.”
But Heidel said he believes that the worst of the wrenching changes in the state’s manufacturing-based economy are in the past and that the right strategies are in place for a rebound.
“Anyone that has been around Michigan for a long time knows that we’ve had ups and downs in our economy as it’s related to our major industry, but we’ve always come back,” he said. “This one was much different than anything we’ve ever seen before. This was a true change in the economy. Manufacturing was not going to come back in terms of employment the way it was, because it’s changed. It’s more modernized, it’s more global and it had a lot of legacy costs. The idea is we’re starting to get on top of those, so we’re seeing the industry come back, but you’re also seeing other industries.
“The governor’s approach to economic gardening I think is a brilliant strategy because we’re saying we don’t know necessarily where our next industry is going to come from, but we want to give everybody an opportunity to be able to do that. So that combined with some of the things that we’re doing in talent development and what we call placemaking economic development are going to have a huge impact on our economy. We right now as a state corporation are looking to work in three major areas: business development, talent development and placemaking economic development. I think those three interacting together are going to be key to the state’s economy.”
Placemaking involves creating squares, plazas, streets, waterfronts and other public places that attract people to live, work and play in a community.
‘We’re All in This Together’
Heidel is a 25-year MSHDA veteran, having previously served as the authority’s director of program, policy and market research since 2002 and as its director of legislative and intergovernmental affairs since 1986. He oversees a staff of 337 people, which includes a number of temporary workers to help manage the recent influx of federal resources.
“It has been a lot of fun,” Heidel said of his first year in the top job. “People probably think I’m crazy for saying that, but it has been a lot of fun. I have been here for 25 years. I did not expect to be here for 25 years, but once I got into the job, it was one of those kinds of jobs where it changes daily, it’s always interesting, the work is wonderful, you really help people. You work with a lot of good people - developers, Realtors, builders, lenders, local government officials and nonprofits. They’re very caring people and really believe in Michigan.”
Despite shrinking resources because of the dwindling state tax base, government continues to have a role in economic development, Heidel said.
“We’re part of the team,” he said. “I don’t think we have all the answers. Only through collaboration and working together with others is that going to happen. Sometimes we’re the lead, sometimes we’re not. But I think it’s a realization that we’re all in this together. We have resources that we can use, but they’re probably not the level of resources that we’ve probably had in the past.”
Heidel praised state business leaders for their response to the economic crisis.
“I think the Michigan business community has been really standing up and playing an important leadership role,” he said. “I was just on a conference call with some key businesspeople who are really taking it to heart about how we improve the state’s economy, especially our regional economies and some of our major areas.
“That’s the kind of thing that I think has to happen. Their desire is so important in making this a better place to live, and their desire to stay in Michigan.”