(c) Housing Assistance Council, July 1998

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VI.   CASE STUDY: KENTUCKY

State Profile

According to the 1990 Census, Kentucky’s population was 3,685,296, and the state’s rural counties had a population of 1,632,962. Remote rural counties had 442,566 residents. Rural residents comprised 44.3 percent of Kentucky’s total population, and remote rural counties had 12.0 percent of the state’s residents. There were 1,379,782 occupied housing units statewide in 1990, and 604,687 in rural counties. Remote rural counties had 163,519 occupied housing units. Rural counties had 43.8 percent of the state’s occupied housing units, and remote rural counties accounted for 11.9 percent.

Kentucky’s 1990 distribution of persons living below poverty showed 59.5 percent of the state’s poverty population living in rural counties. Kentucky’s 1990 poverty rate was 18.5 percent. Rural counties experienced a poverty rate of 24.8 percent, while the poverty rate in remote rural counties was 29.4 percent. Although the statewide substandard housing rate was about 4.7 percent in 1990, rural and remote rural counties had substantially greater rates of substandard housing. Rural counties had a substandard housing rate of 6.9 percent, and in remote rural counties, 9.6 percent of the occupied housing stock was in substandard condition. Of the state’s substandard housing units, 65 percent were located in rural counties.

The Kentucky Housing Corporation (KHC) administers the state’s HOME program. Kentucky awarded a significant amount of its state HOME funds in rural areas between FY1992 and FY1995, and KHC is continually adjusting its administration of the program to better target rural housing need. Eastern Kentucky is part of Appalachia, and many of the eastern counties are among the poorest in the nation. Among Kentucky’s 48 Appalachian counties, 44 had poverty rates greater than 20 percent in 1990, and 26 had poverty rates greater than 30 percent.¹⁰ One rural Appalachian county, Owsley, had a 1990 poverty rate of 52.1 percent.

HOME program data indicate that KHC awarded over $23.7 million in HOME funds to rural counties from 1992 to 1995. This was 65 percent of all HOME awards in the state during that time period. Remote rural counties received more than $6.8 million in HOME awards, which was 18.7 percent of statewide awards and 28.8 percent of the funds awarded to rural areas. KHC supported 925 HOME-assisted units in rural counties, which was 65.6 percent of all HOME units statewide. Remote rural counties contained 252 HOME units, which constituted 17.9 percent of all HOME units in the state and 27.2 percent of rural HOME units.

KHC staff note that approximately 70 percent of Kentucky’s households are homeowners, and that rural areas continue to experience significant housing quality problems. Homeowner rehabilitation is thus a high priority for the state, and funding for this activity is most frequently requested in HOME applications. The CEO of KHC also believes that with many rural counties experiencing very high poverty rates, there is a need for development of small multifamily rental projects in rural areas to serve households with incomes too low to afford homeownership.

Program Design

Kentucky awarded between $12 million and $14 million in HOME funds each year FY1994 to FY1996. Kentucky has a competitive process for awarding HOME funds, with separate competitive categories for the CHDO setaside, a statewide nonprofit setaside of funds, and tenant based rental assistance applications. Each congressional district also receives a formula allocation. This formula allocation totals 5 percent of the state’s HOME funds, and is divided between congressional districts based on population and housing need. These allocations are granted to units of local government that are not PJs.

In each congressional district, priority is given to applications for homebuyer and homeowner rehabilitation projects seeking funding from the district formula allocation. In the statewide competition, KHC looks for projects which are financially sound and have adequate documentation of the housing need to be met through the project. Groups with proven housing development and rehabilitation experience receive additional points in the application process. Other areas where applications are ranked include development of partnerships, securing match and leverage funds, extending affordability beyond 20 years, having reasonable cost estimates per unit in the project, and demonstrating the capacity to complete the project.

Kentucky does not designate low-income rural residents as a special needs population. The elderly are, however, a designated special needs population. According to HUD data, projects serving elderly persons received $781,585 from 1992 through 1995. Family self-sufficiency is another special needs area that Kentucky has targeted with its HOME funds, amounting to $581,990 from 1992 to 1995.¹¹

KHC has a CHDO setaside of 15 percent of its HOME funds. CHDOs may compete for funding from the setaside, or compete for the remaining HOME funds. CHDOs that receive HOME awards also qualify for operating funds. In FY1994 and FY1995, the pool of operating funds was $250,000 for each year. In FY1996, the pool of operating funds was $350,000. CHDOs generally receive $25,000 for operating expenses the year in which they receive project funding, with an additional $12,500 in the second year of the project. Kentucky requires a local match of 5 percent of the HOME funds awarded.

KHC provides annual regional training sessions on the HOME application process. After funding awards have been made, KHC holds roundtables around the state which provide technical assistance on use of the HOME funds and project implementation. KHC staff are also available for technical assistance site visits with awardees, especially with organizations receiving their first HOME award.

Many housing organizations in eastern Kentucky’s Appalachian counties are members of the Federation of Appalachian Housing Enterprises (FAHE). FAHE manages revolving loan funds usable by its member groups, and offers technical assistance and other housing development support services. KHC staff observe that FAHE member groups in Kentucky regularly present the strongest HOME applications in the state, and note that the support and expertise of FAHE has helped its member groups become more sophisticated housing organizations. With FAHE’s resources available, including CHDO technical assistance pass-through funds from HAC, Kentucky member groups have been able to develop a proven track record in housing work, which makes these organizations stronger competitors for HOME awards. FAHE also facilitates networking among its members, so groups throughout rural eastern Kentucky are able to share their experience and expertise.

Program Use

Demand for HOME awards has grown significantly between FY1994 and FY1996. In FY1994, KHC received 56 HOME applications, 19 of which did not receive funding. In FY1995, 99 applications were made, with 41 going unfunded. In FY 1996, KHC received 126 applications for HOME funding. Of these, 69 did not receive awards.

HOME data for Kentucky show that the state has supported the moderate rehabilitation of 227 units in rural areas, and the substantial rehabilitation of 360 units. Moderate and substantial rehabilitation account for 63.4 percent of the state’s rural HOME-assisted units. New construction is also a significant HOME activity in Kentucky’s rural counties, with 277 units funded through HOME. New construction accounts for 30 percent of the state’s rural HOME units. Rural moderate rehabilitation projects have received $3.5 million since 1992, and substantial rehabilitation projects have received $12.6 million. Rural new construction projects have received $6.5 million. Approximately half of the new construction units are single-family, detached units for new homebuyers, and half are multifamily rental units.

Most of the rural units assisted through Kentucky’s HOME program are owned by individuals, although nonprofits and partnerships also play a significant ownership role. Individuals own 72.1 percent of rural HOME units, nonprofits own 14.7 percent, and partnerships own 11.7 percent of HOME-assisted units. Nearly all of the HOME units owned by individuals in Kentucky’s rural areas are single-family homeownership units, and nearly all of the HOME-funded rental housing is owned by nonprofits and partnerships.

KHC staff observe that a variety of other affordable housing funding sources have been used as part of HOME projects. Some of the more common sources used in conjunction with HOME include CDBG, the LIHTC program, funding from Kentucky’s state housing trust fund, and corporate revenues of KHC.¹² In addition, a few multifamily rental projects have used the HUD Risk-Sharing pilot program in combination with HOME. With this program, HOME is used with bank financing for construction, and the risk-sharing funds are used for permanent financing on the projects, with HUD and KHC sharing the risk on the mortgage.

KHC has not implemented many significant changes to the HOME program since 1992, although KHC staff note that the program manual and regulations have gotten more complicated since the program began. In the early years of the program, KHC experienced problems with monitoring and compliance with program regulations, and addressed them by developing more detailed regulations governing monitoring requirements and program implementation. If an applicant is seeking funding from other state sources to use in a HOME project, such as the state housing trust fund, separate applications must be submitted. In FY1997, KHC was in the process of developing a uniform cover application for attachment to the program-specific applications of each state affordable housing program. The cover sheet will include basic program and organization information that currently must be supplied separately with each different funding application. KHC staff hope that this will reduce the paperwork burden on applicants, especially smaller rural housing organizations.

KHC staff feel that the FAHE network and KHC staff outreach have promoted the awarding of HOME funds to rural areas, particularly the high poverty Appalachian counties in the eastern part of the state. People’s Self-Help Housing, Inc. (PSHH) is a FAHE member organization and CHDO serving Lewis and Carter counties in Kentucky’s Appalachia region. PSHH has used HOME for rental rehabilitation, tenant based rental assistance, new construction of rental housing, and homebuyer assistance. PSHH is one of Kentucky’s most successful HOME applicants, and every one of its project proposals has been funded since 1992.

People’s Self-Help Housing, Inc.

PSHH was founded in 1982. PSHH has pursued a wide range of housing activity that reflects the organization’s commitment to providing housing meeting a continuum of needs. PSHH provides emergency shelter and transitional housing for the homeless. The group has also done new construction of single-family homeowner and multifamily rental housing. Rehabilitation and weatherization services are also offered by PSHH. The organization also administers tenant based rental assistance funds.

As of July 1997, PSHH had produced three emergency shelter units and eight units of transitional housing. The organization had constructed 28 rental units and 85 new single-family homes. In addition, PSHH had rehabilitated or weatherized 320 housing units.

PSHH has four professional housing staff. The executive director writes grant applications, oversees housing operations, and is a licensed plumber who assists on some of the projects. The rental administrator oversees management of rental units developed and owned by PSHH, the emergency shelter and transitional housing units, and the rental assistance program. The organization has a construction supervisor who oversees building and contracting, and a housing and finance specialist who helps draft applications, financing packages, does design work, and supervises rental inspections. There are also 12 full-time construction employees who are supervised by the construction supervisor.

HOME has supplied the largest source of funding for PSHH’s housing initiatives. PSHH has also received funding from the state housing trust fund, and other financing through KHC. McKinney Act homeless assistance funds have been used in the emergency shelter and transitional housing projects, and the group has also obtained some foundation support and private donations.

PSHH has received seven HOME awards from 1992 through 1996, three of which were for projects in progress as of July 1997. In 1992, PSHH was awarded $300,000 as a deferred forgivable loan for the rental rehabilitation of Lexington Avenue Apartments, a converted hardware store in downtown Vanceburg. In 1995, PSHH built rental new construction transitional housing with a $232,000 residual receipts loan through HOME. Payment on the loan is made from project cash flow over and above $1,000 annually. PSHH thus makes one yearly payment on the loan equal to the amount the income exceeds expenses, minus $1,000. In 1996, the group received another award for the transitional housing project, and a $176,000 grant for loans to homebuyers. PSHH projects for 1997 include the Carter County transitional housing project, funded at $366,000, and another grant of $236,000 to provide homebuyer loans. PSHH used a CHDO predevelopment loan of $10,000 from KHC to begin the transitional housing project in Carter County, which covered the cost of hiring a project consultant. PSHH has only recently extended its service area into Carter County, and sought local input through the consultant on housing needs and suggested projects. In 1993, 1995 and 1997, PSHH received HOME awards of approximately $102,000 for tenant based rental assistance. The rental assistance is primarily used by households in the organization’s transitional housing projects.

PSHH accepts help from approximately 400 volunteers each year on its projects, and it has used volunteer labor as a portion of its local match of HOME funds. PSHH has also received nonprofit support funds from KHC, which can also be counted towards the match requirement. PSHH also has funding for AmeriCorps volunteers, and this source of funding counts towards the state’s leverage requirement in addition to leveraged financing sources. While PSHH has received Federal Home Loan Bank Affordable Housing Program funds, it has not used this funding source together with HOME.

PSHH has been able to develop housing that serves the poorest clients in its service area. The organization has provided homeownership opportunities to households with annual incomes around $5,800.

PSHH staff note two challenges to using HOME in rural areas. Like many rural organizations, PSHH has been challenged by trying to serve a rural population scattered in small pockets in the remote open countryside. More specific to the HOME program is the organization’s effort to make rental assistance accessible to its clients. Few rental units in Lewis County meet HUD’s housing quality standards (HQS), but rental assistance can only be used in units that meet HQS. PSHH has applied for rental new construction funds through HOME so that very low-income households have units where the rental assistance may be used.

PSHH has not only received a large number of HOME awards, but it has also undertaken housing activities that serve a wide variety of housing needs in Lewis and Carter Counties. The organization has used HOME to support the rural homeless, to provide affordable rental housing, and to make homeownership accessible to households with very low incomes.

Rural Challenges and Improvements

PSHH staff feel that KHC staff have been extremely helpful to rural nonprofits using the HOME program. KHC staff will perform site visits to answer questions, and will review applications prior to submittal. PSHH staff have also found KHC’s regional training and roundtables very informative. These sessions are also run as a discussion, as opposed to a presentation, which allows local housing organizations the opportunity to provide KHC staff with feedback concerning the administration of the HOME program. Each year, KHC also convenes an advisory committee that includes representatives from local housing organizations. The advisory committee works to review program performance and make adjustments in the application process so that HOME better targets the housing needs of Kentucky’s low-income residents.

KHC’s CEO notes that rural areas face special challenges. Nonprofit rural housing organizations are more likely to be smaller, underfunded, and have less staff expertise than groups in larger urban areas. KHC has structured the state’s HOME program to provide a more "level playing field" so that HOME funds reach underserved rural counties.

As of 1997, KHC gave communities and local housing organizations a great deal of latitude concerning program documentation. However, KHC was considering development of standardized documents for monitoring and program compliance in order to streamline the paperwork required of its staff and standardize project underwriting criteria.

Two factors are cited by PSHH and KHC as promoting the success of HOME in serving the rural poor. First, PSHH staff appreciate the flexibility of the program and the personal attention to smaller rural areas given by KHC staff. KHC staff, on the other hand, note that rural housing organizations are well organized, and have worked hard to improve their expertise, especially groups taking advantage of membership in FAHE. The work of nonprofits and relationships developed between them and KHC have allowed Kentucky to target the most pressing rural housing problems through the HOME program.

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