Deconcentrating Poverty and Other Scams

How a growing number of Twin Cities neighborhoods are driving out the poor.

Julie and Bruce Khalilzadegan bought Phalen Place in 1989. The string of eight three-story walkups sat among dozens of similar structures on a "superblock" on St. Paul's East Side. Buildings there typically face parking lots instead of streets, and most are occupied by poor families, many of them immigrants. The Khalilzadegans renovated Phalen Place with a loan from the city of St. Paul.

A few years later, the Khalilzadegans went back to government officials, this time seeking a rehab loan from the Minnesota Housing Finance Agency for a couple buying another of their buildings. The process dragged on until they arranged a meeting with the agency's top underwriter, Jack Jenkins. He told them that the MHFA was no longer interested in investing in the superblock; the agency already had too many "problem properties" on the East Side.

Jenkins, since promoted to managing director of multifamily housing, confirms that the agency has put a temporary hold on projects in the area. The Khalilzadegans found financing in the private market and filed a discrimination complaint with the federal Department of Housing and Urban Development. They haven't heard a decision.

Despite the toll that negligent and absentee landlords have admittedly taken on the area, Julie Khalilzadegan maintains that most of the area's rental housing stock is structurally sound and could be rehabbed. But she doesn't believe officials are interested in that anymore. "I can't read people's minds," she says cautiously, "but from their actions I can't help feeling that they want to get rid of these low-income tenants."

She's not alone in that suspicion. The area surrounding the superblock is slated for a serious makeover in the years to come; plans include a new lake, a new road, a cozy little shopping center, and demolition of some current housing stock. Details are sketchy at present, but word is that in the long run, up to 25 percent of the superblock's rental housing units could be torn down.

It's part of a new consensus that seems to be emerging quietly among local policymakers. State Sen. Randy Kelly (DFL-St. Paul) generated some heat for himself this spring when a housing bill he introduced spelled out that new consensus in its preamble: "The Legislature finds that... the concentration of low-income rental housing in a few neighborhoods in the city has led to deteriorating property values and increased crime in those neighborhoods, to the detriment of their residents."

The language, as critics noted, doesn't refer to run-down problem properties, but low-income rental housing, period. By way of remedying this new form of blight, the bill would have all but prohibited new low-income housing construction in "concentrated" areas like the superblock. It also slated $5 million in state money for "acquiring, demolishing, and removing multiple-unit residential rental property."

Kelly didn't return phone calls for this story; the bill's author in the House, state Rep. Andy Dawkins (DFL-St. Paul), says Kelly told him he wrote the bill because, after years of watching the neighborhood try to "refortify, or regentrify, or whatever you want to call it," he found out that a complex for low-income elderly Native Americans was set to be built right across the street from the superblock. "He blew up at that point in time," Dawkins says. The preamble language was eventually deleted in committee, along with most of the bill's other provisions.

The general principle, though, is alive and well. Policy types call it "deconcentration of poverty," and its flagship is the Hollman decree--the 1995 discrimination lawsuit settlement that will remove at least 330 public-housing units from north Minneapolis. And other examples are popping up with increasing frequency. There's Concord Square Apartments, a 138-unit complex inhabited mostly by Hispanic families on St. Paul's West Side. HUD, which ended up owning the building after a mortgage default, is offering to sell it to the city of St. Paul, which presumably would recruit a private developer. Both the neighborhood group and the city have indicated that one, and perhaps two, of the complex's five buildings should be torn down under any rehab plan. At the other end of the Twin Cities, Brooklyn Park this spring won tax-increment financing authority from the Legislature for an ambitious project that could include removal of up to 500 low-income apartments--most of them worn at the edges but structurally sound.

Besides their implications for low-income tenants, the four projects have a few hallmarks in common. All of them proclaim lofty goals--rebuilding neighborhoods, creating green space, and fostering "diversity in housing types and housing ownership options." There's talk of turning small apartments into larger ones, and of creating jobs and shopping centers. Dotted with phrases like "defensible space," "neighborhood signature amenities," and "urban villages," all the plans bear the imprint of the so-called "New Urbanism" movement.

None of the four plans, however, contains convincing mechanisms to assure that the low-income housing that's torn down will ever be replaced--and this in a metro area where, according to HUD data, poor people are already shut out of the housing market at strikingly high rates. Only Hollman features any discussion of replacement, but under its terms new units don't have to be developed until 2001, and some "replacement housing" will likely consist of rental vouchers that area landlords are not obliged to accept.

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