Response to the Treasurers blog post this morning, 11/10/11 by Kevin Bunker, Developers Collaborative From the Waterville

Sentinel, 3/4/09: The economy may be in the tank, but developers are enthusiastic about an approximately $10 million project to turn the old Gilman Street School into 33 affordable apartments. "It's a good

project, so stay on it," Mayor Paul R. LePage told developers Kevin Bunker and Jim Hatch.

From the Treasurers blog: Another MSHA affordable housing project is the 34 mostly 1-2 bedroom apartments constructed within the old Waterville Junior High School. The Gilman Street project was completed in 2009. The cost per apartment was $292,000 for roughly 1,100 square feet. A quick search on Realtor.com finds a 3,328 sf singlefamily home on a 0.79 landscaped acre in neighboring Winslow: 3 bedrooms, 3 baths, hardwood floors, custom kitchen, stone fireplace, finished basement, and attached 2-car garage selling for $285,000. Whats wrong with this picture? Building, say, $100,000 instead of $300,000 affordable housing units would help three times as many low income Mainers. Public officials at all levels of government are fiduciaries of hard-earned taxpayer dollars. Everyone should be held accountable. I have some answers because in fact theres a fair amount wrong with this picture. I want to preface my comments by saying I am a supporter of what the Treasurer is trying to accomplish. I like his energy, his enthusiasm, I have great respect for his office, and I like and support many of his ideas, including the idea that affordable housing is too expensive and that we all need to work to cut costs where we can. There are definitely things we can do, and I am happy to support reform. Give me a set of rules, and I am happy to compete by them. Thats the spirit of private enterprise. Furthermore, how best to efficient use of scarce state resources is a dialog that is somewhat overdue, and it is great that were having it. As an independent, I think that it shouldnt have to be as politicized as it has been, but maybe that is inevitable. I come at these discussions from a slightly different angle: as a believer in smart growth as a long term path to our economic health and sustainability as a state, I understand that efficient use of what we have and building on our assets simply makes sense. However I have some real problems with blog post above, and I feel a response is warranted. If this reads a little disjointed, please forgive me, as it represents about 90 minutes of work this morning. Gilman Place did cost about 292,000 per unit. That was the projected cost from the very beginning, and we hit our number. There was no increase along the way. However, a comparison of this to a SF home is simply not accurate and belies a lack of understanding of tax credit projects, and historic tax credit projects in particular. I am going to ignore the former for now and concentrate on the latter in the spirit of a healthy, open public discourse, an idea the spirit of which runs throughout the Treasurers website and blog. Gilman Place, as many know, was an empty building in a great neighborhood in Waterville. Its condition was such a concern to the City that many public meetings had been held, plans created, and public dialog held on how to save the building, over many years. After the Hathaway project, it was probably the most prominent redevelopment site in the City and one of City Manager Mike Roys 3 Main redevelopment goals for his entire tenure. It was also the site of 3 previous failed redevelopment attempts.

When we (Developers Collaborative; www.developerscollaborative.com) came along we started a completely open public discourse about the project. One of the hallmarks of my company is that we work together with the community to create something everybody believes in. We believe in open book financial transparency, and often specify that in our legal agreements with partners and communities. I have in files over 30 newspaper articles which I would be happy to share with you, excerpts from which are attached at the end of this letter. We were always open that we had a $10.3 million project: the cost of the project was always in the public eye. That was never an issue, primarily because we educated everyone at the table as to exactly how these tax credits work and why they are important. The remainder of this letter will serve as a mini-case study; since the project has been thrown under the bus, I think it is absolutely appropriate to use the actual numbers from the project to illustrate two basic points. So, back to the question: Whats wrong with this picture? 2 main things are missing. One is a public policy fact and the other is a basic tenet of economics. First, the public policy: Historic affordable housing projects are not just housing projects. They have a twin public purpose, each one of which the federal and state governments have seen fit to support with separate tax credits. Please see the table below. These numbers are from the financing closing as opposed to the cost certification, but they paint an accurate picture of the point I am illustrating. They show the different sources that went into the project and which ones came in as a result of the public purpose of affordable housing, and which ones came in from the wholly separate public purpose of historic preservation:
Source State Historic Tax Credit Federal Historic Tax Credit Housing CDBG Grant Maine Housing Rental Loan Program Federal Stimulus Funds (TCAP) Housing Tax Credit Equity Deferred Developer Fee totals per unit 3,794,859 37% 108,425 Public Purpose Historic Housing 2,287,555 1,507,304 245,000 600,000 1,169,998 4,240,732 103,911 6,255,730 62% 178,735 103,911 1% 2,969 10,154,499 Developer

Basically, housing is only 62% of this project. So if you want to compare this project to that house in Winslow, the accurate metric is $178,735 per unit. Unless, of course, that is a historically rehabilitated house. We as a state have followed the lead of the country in deciding that our historic buildings matter. We have decided in a nearly unanimous and bi-partisan way, to pass the state credit in 2008 under Baldacci and reauthorize in 2011 under Governor LePage. As part of that latter dialog, those of us who believe in it showed the positive economic benefits, at multiple levels, of this investment. I will not take time to restate the entire

study (entitled The Economic and Fiscal Impact on Maine Of Historic Preservation and The State Historic Preservation Tax Credit) here but they can be found at: http://www.novoco.com/historic/resource_files/research/me_htc_impact_042111.pdf. The case is clear and I urge anyone who hasnt read it to do so and become informed. Anecdotally, and you can see this in the excerpts from the articles, that saving that building was huge for the community. I would say that it was in fact quite a bit more important to the citizens of Waterville than the provision of housing was. It is a great thing and it is a big deal. Go to Waterville and ask around. Or, read the article Ive attached in its entirety to the end of this letter. Here are some highlights from it, as published in the Waterville Sentinel, 5/12/11, entitled At Gilman Place, Schools Out, Housings InAnd so is Governor LePage:

apartment building that was once Waterville High School and has been restored to historic standards.

Gov. Paul LePage was back in his hometown Wednesday to help celebrate the opening of a $10 million affordable housing project that he supported while mayor. Gilman Place is a 35-unit

"Congratulations to the 35 families who will make this their home," LePage said. LePage said Waterville had struggled with housing needs and lacked affordable housing. He said he was proud to have been part of the project's debate and is happy to see it come to fruition. "It wasn't always easy, but we took each obstacle one at a time," he said. "That was Miss Clarke's room," said Judy Cabana, pointing to a large wood door next to where LePage spoke. Cabana, 72, graduated from the school in 1958, when it housed only three grades -- 10th, 11th and 12th. Her husband, Waterville Board of Education Chairman Lionel "Lee" Cabana, graduated in 1954, and their grandson attended kindergarten in the building years later. "I think it's super," Judy Cabana said of the building. "I would highly recommend it to everybody and anyone who needs this kind of a facility. I can't believe the transformation." Bill Bois, a 1957 graduate of the school and senior class president, was enjoying the memories as he toured the facility. "It's got a lot of character and yet, it's modern," he said. "They reclaimed the old wood floors beautifully." Bunker, of Developers Collaborative, said he and his partners shared a vision for transforming an important community building that already was located in the right place -- near downtown and using on existing infrastructure. It was a cultural landmark, historical touchstone and a means of providing quality workforce housing to those who might otherwise not be able to afford it, Bunker said. "The idea that sprawl is what people want is belied by the fact that we are literally buried in rental applications," he said. "This is what people want, so let's do more of it and create more sustainable. authentic communities by preserving what we have and doing development right, staying true to the principles of smart growth." My open challenge is to read the economic benefit report, read my letter, go to Waterville, and then lets talk about Gilman Place and historic preservation. Now, on to the second issue: basic economics. I am afraid that there is a dialog going around that suggests that those of us in affordable housing are ignorant of basic economic principles. Now, I hope my liberal non-profit colleagues are not offended, but I think

perhaps we all could use a little more grounding in capitalism sometimes, and in that spirit, the spirit of Adam Smith, David Ricardo, and John Maynard Keynes, I offer the following (please bear with me): There are 2 main disciplines in economic theory: microeconomics, which is concerned with the theory of the individual firm and macroeconomics, which is concerned with how all those firms aggregate and contribute to the economic health (or lack thereof) of a region, state or nation. A basic concept of macroeconomics is the gross product of a region, which is basically the sum of all public and private spending in that region (consumption, investment, and government), plus money that flows into or out of that region from outside (exports, imports, transfers, and the like). Now, we cant all prosper if all we do is sell stuff to each other. Then we are simply bartering using money as an exchange mechanism. The reason we push manufacturing jobs, the reason we promote tourism, the reason we as a nation worry so much about our trade gap and our debt to China, is because the only real way to grow a regions economy, aside from increased productivity of land, labor, and capital, is to bring in dollars from outside that region. As a Maine taxpayer, I want my government officials to work on this as it is how our state always has, and always will, gain whatever measure of prosperity we have managed to realize. The Treasurer is right in his blog: public officials are fiduciaries, and they are accountable. So, what does this have to do with low-income housing? To explain, I have to ask you to forget about housing low-income people for a minute. We all agree that is a useful public purpose in any event. The Treasurer definitely has his heart in the right place when he states the goal of helping as many families as possible, so we need not debate that particular public policy here. The point is, that the way the tax credit programs are crafted, inefficient though they may be, is that most of the resources to build these admittedly very expensive projects come from federal sources. These are dollars from outside Maine, coming into Maine, not to paper the walls of affordable housing Taj Mahals, but rather to pay local businesses, contractors, and workers. See the list below, and consider whether you would tell them ( all but two of which are from Maine, and pay Maine taxes), their families, and the 289 workers who worked on the project that money from wealthy corporate investors outside Maine should not be going to feed them and their families because TDC (total development cost) is too high. They may beg to differ.
Subcontractor Abatement Professionals Quirion Construction Newman Concrete Hascall & Hall Standard Waterproofing LMC Light Iron Trico Millwork Glidden Roofing Hardware Consulants Town/City Westbrook Augusta Richmond Portland China Village Limerick Limington Scarborough South Portland Contract Amount 260,768 710,541 135,054 28,575 683,938 121,358 280,295 219,199 284,895

Jacob's Glass Cumberland Co. Glass Roland's Drywall Aceto Acoustics Peerless Painting Welch Architectural Signage E. Carrier Shelving All Season Window Stanley Elevator Seabee Electric Paul White Interiors Eastern Fire Protection Nelson & Small Damon Mechanical Solid Earth Technologies Engineered Products JD Heseltine Glass Pro New England Fireproofing Total

Winslow Bowdoinham Sabattus South Portland Falmouth Scarborough Sydney Portland Nashua, NH Scarborough Portland Auburn Portland Auburn Amherst, NH Portland Chesterville Saco Freeport

697,590 25,575 461,354 4,500 210,707 82,983 45,092 48,450 96,084 465,657 156,903 85,263 54,076 750,259 66,740 17,088 27,400 18,495 2,788 6,041,627

Here is another table, similar to the one used to illustrate Point #1, above, that breaks down where the money comes from.
Source State Historic Tax Credit Federal Historic Tax Credit Housing CDBG Grant Maine Housing Rental Loan Program Federal Stimulus Funds (TCAP) Housing Tax Credit Equity Deferred Developer Fee totals per unit State 2,287,555 Source Federal 1,507,304 245,000 600,000 1,169,998 4,240,732 103,911 2,887,555 28% 82,502 7,163,034 71% 204,658 103,911 1% 2,969 10,154,500 Developer

Here, youll see that nearly three quarters of the money comes from a source other than the State of Maine! Thats whats wrong with the picture. A dollar of state investment leverages $2.50 in outside dollars, dollars that help us grow our economy! And that is before you even: a) begin to calculate the other positive fiscal effects (sales and property taxes, etc.again, see the Economic Impact Report, and b) begin to assign a value to the public purposes these projects achieve. Bottom line, the most conservative analysis possible says these projects are a winner. Now, a true fiscal conservative might be quick to say: Federal or state, it doesnt matter! Its all the taxpayers money! After all, Mainers paid over $6.2 billion in federal taxes in 2007! (Source: Internal Revenue Service) True enough. However, as a Maine (and federal) taxpayer, and as an engaged passionate citizen who deeply cares about our state, I demand that our public officials be accountable to us and do what is best for Maine, just as the Treasurer states in his blog. As an independent, I dont want ideology, liberal or conservative. I want facts ad informed debate. And the fact is that of each 10 federal dollars collected, guess how much Maine kicks in? Just under a quarter! Thats twenty-four cents, or .24% of the $2,674 trillion in federal taxes received. (Source: Internal Revenue Service) So, of those $7,163,064 in federal dollars that came into Gilman Place, about $16,847 of it originally came from Maine! Now, as a taxpayer I am certainly not interested in having any of the employees of my state conflate the facts and say that this is bad for us. I get being opposed to government spending at an ideological level, and that is fine. But again, I demand, as a taxpayer and public official salary-payer, that our public officials promote things that are best for Maine, and this sounds like a pretty good deal to me, and I suspect, to those 289 workers and their families. I admit, in my darkest imaginings, I am a little concerned that my comments here may target my future projects for retribution. I hope that part of me that fears this is completely wrong, and I expect it probably is. However, at some point, regardless of the consequences, as free citizens we are at some level expected to give up our own self- interest and speak up. In that sense we are also fiduciaries and we are also accountable, and I have to stand up for what I believe in. I hope my comments are not construed as trying to be offensive. What I want is for the dialog to be informed. If we think that saving our beautiful old buildings that help define us as a state is wrong, lets talk about that. If we think accepting large amounts of dollars from taxes paid in California, New York, Texas, Florida, et al, to pay Maine workers to redevelop historic buildings into affordable housing, then lets talk about that. Otherwise, I would prefer that we work together to improve a program and a project that is already great for Maine. I stand ready to do so.

Newspaper article excerpts regarding Gilman Place 9/5/08: Claims against housing project signs of NIMBY proposed $10 million conversion of the historic Gilman Street School into 33 units of affordable housing. 9/17/08 Council, neighbors clash over Gilman Street project Councilor John O'Donnell, D-Ward 5, noted councilors represent all wards in the city and must listen to their constituents as well. "Personally, I have had a very high, very high percentage of people throughout the city support this project," he said. LePage concurred, saying he thinks the community as a whole wants to see something done with the school. 12/10/09 Gilman Place will increase local property values The current building is in a state of deterioration and becoming an eyesore and dangerous nuisance. There is no other economically viable plan. We are extremely fortunate that such a highly regarded developer has taken on this challenge and will transform the property into attractive, self-sufficient and well-managed housing. These are all reasons why it will increase local property values. 9/3/08 Gilman School conversion receives first go-ahead nod Developers Collaborative of Portland wants to acquire historic tax credits to restore the school, built in 1913, to historic standards. The estimated $10 million project would provide housing for people with an income range of $20,000 to $36,000. Kevin Bunker, who partners with Jim Hatch and Richard Berman in the project, says the building currently is valued at about $318,000 and when the project is complete, it would be worth about $1.5 million and would be a tax-paying entity. "I, for one, would be more than willing to work with you and members of the neighborhood to try to figure out a way that this could work," LePage said. 9/7/08 Gilman Street Project needs to move ahead I am writing my comments here to reach all residents in the Greater Gilman School neighborhood. I am a strong believer of historic preservation, preservation of neighborhoods and reuse of historic schools. I have served as the past neighborhood organizer of the Gilman School Neighborhood Association and have deep affection for my neighborhood and my neighbors and am respectful of public dialogue on this proposal. I support this current proposal. We need to restore this historic structure before it decays any more. We have been addressing the use/reuse of this building for years. We are lucky to have a solid proposal utilizing historic preservation funding incentives and adhering to such high standards before us. The issues and concerns of my neighbors are property management issues, not issues with the project. Let's not lose this project; Waterville needs quality affordable housing. Let's not let the clock run out this time. The city should convene a work group consisting of neighborhood representatives, the developer, the property management company and city officials to develop neighborhood assurances to promote quality management, traffic calming, buffering and safety. There are real time frames on these proposals to assure federal funding. Let's not stop the project, but let's develop a helpful dialogue to promote successful integration of the project into the neighborhood. 8/5/08 WATERVILLE CITY COUNCIL GILMAN STREET SCHOOL ON AGENDA Arena bought the building from the city in 2005 for $215,000 and planned to turn it into offices for doctors, lawyers and the like, but that did not occur. In the 1980s, a proposal to turn it into senior citizen housing

failed. A plan in 2004 by the Waterville Housing Authority to develop affordable housing for seniors also did not pan out. Bunker says his group plans to pursue state historic tax credits as part of the plan to develop the building. 11/20/09 Petition seeks to revoke TIF of housing plan Neighbors say they didn't know it was to aid low-income people The council approved the $10.3 million project last year. 8/6/08 Old school would get historic makeover

A man who wants to transform the old Gilman Street School into affordable family housing says he must rehabilitate it to historic standards. Kevin Bunker of Developers Collaborative, of Portland, told city councilors Tuesday that he plans to apply for historic tax credits as part of his project to develop the vacant facility. "The building has to look like it did in its heyday," Bunker said. The work will mean paying attention to historic standards such as leaving some chalkboards and original finishes in the building, among other things. "This historic tax credit is really driving what we can and cannot do with the building," Bunker said. "The gym has to remain a gym." 8/25/08 Gilman Street School project facing board The developers say they are seeking historic tax credits to restore the building, as they have done with other buildings in Maine. Hatch, Bunker and Berman told neighbors of the Gilman Street School at a public meeting Aug. 12 that they try to develop existing buildings as opposed to building new ones. As part of their projects, they garner community input and work with local, state and federal governments to rehabilitate buildings while maintaining their historic nature and character. 8/27/08 Planners recommend zone change for school project Vinick said he supports historic rehabilitation or readaptive use of historic buildings, particularly the Gilman Street School. He also supports the idea of fixing existing buildings as opposed to building new. 9/4/08 Panel to explore Gilman project's impact on area the Planning Board must review and OK a site plan for the $10 million project."I've had more e-mail on this subject than I have on any other issue we have faced on my three years on the council," he [Councilor Thomas Longstaff] said. 9/13/08 WATERVILLE Planners to review Gilman School project The board will consider the approximate $10 million plan by Developers Collaborative, of Portland, under the city's site plan review ordinance. 3/4/09 City to apply for Gilman project grant The economy may be in the tank, but developers are enthusiastic about an approximately $10 million project to turn the old Gilman Street School into 33 affordable apartments. "It's a good project, so stay on it," Mayor Paul R. LePage told developers Kevin Bunker and Jim Hatch. 10/20/09 Council gives Gilman project initial OK Meanwhile, Bunker said developers next week will go out to bid for work on the project. They are interested in having a lot of local subcontractors and suppliers work on the project. They should apply for pre qualification through Allied Cook Construction of Falmouth, he said.