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FOIA Number: 2013-0306-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Public Liaison
Series/Staff Member:
Deborah Fine
Subseries:
OA/ID Number:
5102
FolderID:
Folder Title:
AFL-CIO - Unions
Stack:
Row:
Section:
Shelf:
Position:
S
29
6
6
2
Union
:
AFL-CIO
AFL-CIO
HOUSING
BUILDING
INVESTMENT TRUST
INVESTMENT TRUST
Stephen Coyle
Chief Executive Officer
1717 K Street, N.W., Suite 707
Washington, DC 20006
(202) 331-8055
AFL-CIO
Stephen Coyle
Chief Executive Officer
HOUSING
William C. Tutt
INVESTMENT
Financial Manager
minutus
TRUST
Michael M. Arnold
Director of Investor Relations
2.9.93
Alexis,
Per our Discussion-
A copy OF The LABOL
Pension Investment
Intiative. ADVISE
ABout Next steps
Steve.
1717 K Street, N.W., Suite 707, Washington, D.C. 20006 202/331-8055
Telecopier: 202/331-8190
**
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NATIONAL PARTNERSHIPS FOR
COMMUNITY INVESTMENT
NATIONAL PARTNERSHIPS FOR COMMUNITY INVESTMENT
1. Introduction: Left Outside of the Social Contract
The widespread effects of sustained public and private disinvestment in
industry, infrastructure, education and human resources threaten the nation's
economic future. Nowhere is this reality more acute than in the low income
neighborhoods of America's cities. The outbreak of violence in Los Angeles in
April of last year was devastating. The extensive loss of life and damage to
property shocked the nation. But when the ashes settled a more disturbing
awareness emerged: In many American cities, there are large areas that have
become unlivable. Largely excluded from the surge of economic investment in
the 1980s, they enter this decade threatened by drugs, crime and near omnipresent
violence. Entire urban neighborhoods, once the starting point on the American
odyssey for many generations are now dead end streets for tens of millions of
Americans. These communities have been, as a street worker in Boston
observed, "Left outside of the social contract."
While President Clinton has proposed to reverse these trends with a multi-
billion dollar program to rebuild America's cities, the federal government's ability
to provide this level of investment will have to be reconciled with the constraints
imposed by the crippling federal deficit.
In fact, direct federal aid to cities fell from $44.2 billion in FY 1981 to
$23.4 billion in FY 1993. Revenue from the federal government as a percentage
of General Municipal Revenue fell from 11.7% in 1974 to 4.8% in 1990. At the
state and local levels, governments are reeling from recession-induced reductions
in tax revenues coupled with increasing demands for resources. The National
Association of State Budget Officers (NASBO) reported that 29 states were forced
to reduce their enacted FY 1991 budgets by more than $7.5 billion to remain in
balance. The impacts of public disinvestment are felt severely in areas of
employment and training, affordable housing, education and infrastructure.
Corporations too are retrenching in response to sustained losses. The
Congressional Budget Office reports that corporate profits as a percentage of
Gross National Product (GNP) fell from 6.9% in 1988 to 5.1% in 1991, and
perhaps because of declining profits, the top 500 U.S. industrial corporations
failed to add any net new American jobs between 1975 and 1990.
Nor are the private capital sources traditionally relied upon fit for the task.
Over the past few years private investment has declined steadily. Gross Private
Domestic Investment (GPDI) fell $112 billion or 15% between 1988 and 1991.
As a percentage of Gross Domestic Product (GDP), GPDI fell from a high of
18.3% in 1984 to 13.9% in 1991. The banking industry, just now regaining its
balance after a series of stunning failures, is favoring safe investments in
government securities while reducing their loans to business. In the first quarter
2
of 1992, the 3,735 national banks reported their sixth consecutive quarterly
decline in lending, providing $55 billion less credit than in the same period in
1991. The S&L's, once a great source of community-based investment, are all
but defunct.
Sustained disinvestment leads to decline and the physical and economic
effects of decline are self-fulfilling. As soon as a few businesses close down or
leave an area, others soon follow suit. Aging public schools incapable of
providing an adequate learning environment are viewed as sunk costs unworthy
of further public investment. Roads and other municipal systems in low income
areas are left in disrepair. Because of fear of violence, parks and public spaces
are abandoned. Poorer communities lose the competition for scarce tax payer
dollars and are unable to provide the basic services necessary to attract new job
creating investments. The effects of the decline are compounded and become the
rationale for continued disinvestment.
2. Renewing America's Cities
Renewing our urban neighborhoods will require new strategies for public
and private investment in housing, neighborhood businesses and schools, and
major investment in emerging, growth economies that have the potential to create
decent jobs for urban residents.
3
Yet as clear as the need is, it is as apparent that the capital needed to
reinvest in urban areas and emerging economies is not currently available through
traditional public and private channels. Any hope for success requires that we
identify new sources of capital and develop innovative strategies for reinvesting
in urban areas and building competitive economies. It will also require strategies
that enlist the creative capacities and perseverance of people in America's
communities. An ironic and unintended by-product of declining Federal and state
economic assistance and private sector disinvestment has been the emergence of
new partnerships between public and private groups across the country. Whether
it is Community Development Corporations, or CRA officials in banks, minority
entrepreneurs or local labor leaders - a diverse cast of new players has entered
the local economic development scene. Never before has so much economic
development capacity existed at the community level. Combining their talents
with new sources of capital must be the cornerstone of an effective urban
investment strategy.
3. The Search for New Capital Sources
Capital markets have undergone significant changes in recent years.
Pension funds have become a major new force in these markets. Today pension
funds total some $4 trillion. Pension funds now account for one third of the
securities market and 40% of the bond market. Pension funds have grown
remarkably in recent years and now represent 31% of total U.S. financial assets.
4
For 1993 pension funds will make about $1 trillion of new investment decisions.
It is worth noting that an increasing amount of these funds will be invested
overseas. A 1992 survey of Pension and Investments found that 66% of top 200
U.S. Pension Funds invested $93.5 billion in foreign securities. In fact, an
estimated $150 billion of U.S. Pension Funds are currently invested in foreign
securities. In the global competition for capital, the challenge we face is to
develop solid investment opportunities for pension funds in economically
distressed communities.
Because pension funds are growing while traditional sources of capital are
retrenching, it is not surprising that a number of plans have been put forth calling
on pension funds to finance everything from infrastructure to venture capital.
A word of caution is in order. U.S. Pension Funds are not simply
investment capital. They are the hard-earned retirement savings of 40 million
Americans. Because pension assets are held in trust funds exclusively to serve
participants and retirees, they are governed by strict fiduciary rules that require
prudent investment, both in the public and private sector. These standards must
form the solid foundation of any pension investment strategy.
4. The AFL-CIO's Pension Investment Program
In 1964, long before the potential role of pension funds in the national
economy was widely recognized, the AFL-CIO established a pension investment
program. The purpose of the program was to provide prudent and competitive
5
investment opportunities for the vast network of local, state, public and private
pension funds - while at the same time creating needed affordable housing and
jobs for the men and women of organized labor. The program now operates
through the Housing and Building Investment Trusts.
For 30 years the AFL-CIO Pension Investment Program has provided
investment opportunities that give safe and competitive returns for its investors.
The Housing Investment Trust has financed the construction of more than 30,000
housing units since its inception, including some 2,700 units in 1992. The
Building Investment Trust has financed nearly 2.6 million square feet of
commercial property since 1988 and made commitments of $95 million for eight
new projects in 1992. The combined program has more than $900 million in
assets, and some 350 investors nationwide, including most major Taft-Hartley
Funds and the California and Ohio Public Employee Funds. The AFL-CIO's
Pension Investment Program is expected to reach $1 billion in assets in 1993.
Over the next four years the Pension Investment Program hopes to invest between
$200 and $300 million annually in housing and economic development projects
in America's communities.
5. National Partnerships for Community Investment
In the context of economic decline in urban areas and the need for
innovative strategies to attract capital to emerging economies, the AFL-CIO
proposed the National Partnerships for Community Investment. The central
6
premise of the initiative is that properly secured, pension funds can play a major
role in the rebuilding of America's cities and nurturing new economies. Over the
next five years, through the National Partnerships initiative, the AFL-CIO
Pension Investment Program will target $500 million of new investments to
sixteen metropolitan areas across the country. These investments will leverage
a comparable amount of capital from public and private sources - tax syndication,
private equity contributions, secondary debt financing, operating subsidies and
service dollars - resulting in $900 million to $1 billion of total new investment.
Approximately 5,000 housing units, 750,000 square feet of commercial
investment, and 10,000 to 15,000 jobs will be created directly by the program.
The secondary economic effects will be equally dramatic.
Within designated metropolitan areas, National Partnerships will foster
relationships to identify investment opportunities and build community support.
These local partnerships will help integrate the complex variety of federal
resources necessary to increase the value of investments for both the community
and for pension fund investors. The program not only will increase local access
to public and private resources, but it will also lead to an increased local
awareness of federal resources that often are under-utilized.
National Partnerships builds upon the success of the AFL-CIO's earlier
pension investment programs. Whereas these programs succeeded on a project
by project basis, National Partnerships will be a framework to create a steady
7
and predictable pipeline of secure pension fund investment opportunities that also
promote economic development, rebuild communities, and create union jobs.
By providing a programmatic framework to foster pension fund
investments in government-assisted or insured housing and secured economic
development projects, and by doing so in distressed urban areas, the National
Partnership initiative offers a new model for economic development.
The program will begin in the Spring of 1993. The cities chosen for
inclusion in the initiative are:
Atlanta, GA
Dallas, TX
Miami, FL
Philadelphia, PA
Boston, MA
Detroit, MI
Milwaukee, WI
Portland, OR
Chicago, IL
Denver, CO
New York, NY
St. Louis, MO
Columbus, OH
Los Angeles, CA
Oakland, CA
Washington, DC
The cities were chosen based on a number of criteria including; the
strength of the local market, expected levels of commitment and experience of the
state and local governments in those areas, private sector capacity, local union-
initiatives and emerging community leadership.
8
The AFL-CIO Pension Investment Program will bring private pension
capital into a partnership with the federal government, local communities and the
private sector to help address three fundamental goals: create good quality jobs,
especially for residents of the designated communities; produce decent and
affordable housing opportunities; and build stable urban economies. These
objectives can be realized without subordinating the interests of the pension fund
investors or putting retirement dollars at risk.
6. The Critical Federal Role: Coordination of Resources and Guarantees
Virtually every project will require multiple layers of financing. Sources
of funding include conventional debt, subordinate debt, equity, tax based equity,
various state and Federal government grant and loan programs, and private
foundation grants. In addition, various forms of credit enhancement, guarantees,
reserves and escrows are typically required. To accomplish this "layering" the
participation and cooperation of numerous players is needed. These players
include the project sponsor, lenders, local and state political officials, agencies
of local, state and federal governments, local community organizations,
secondary-market institutions, equity partners, syndicators and possibly many
others. The complicated nature of these transactions require that a "partnership"
between parties be established for each and every deal. Because the Federal
resources are significant, coordination at the Federal level is critical. Too often
9
important local initiatives falter or die because of the halting and complex Federal
process.
For housing investment, a wide range of guarantees and coinsurance
vehicles are needed and are currently available. The principal sources are
Federal guarantees from FHA, tax credit equity through the Federal Low Income
Housing Tax credit program, credit enhancements from Fannie Mae and Freddie
Mac, bond financing from state housing finance agencies and direct Federal
subsidies including Community Development Block Grant and the HOME and
HOPE programs. For commercial projects, no established secondary market
mechanisms exist nor are there significant direct state or Federal subsidies. There
are, however, state and local agencies that provide revenue bond financing and
subordinated debt, and an emerging universe of special state and local
development funds for the equity components. The recent Congressional
decision to increase the Section 108 loan guarantee ceiling and the adoption of
new procedures, combined with recent innovative uses of the program allows
local sponsors to construct contractual equivalents of secondary market
enhancements or guarantees for commercial projects on a case basis.
In short, the tools exist to provide pension funds the necessary security
against loss of principle and interest and make investment in urban housing and
development prudent. Because of the multi-source nature of the project finance,
projects often end up with lower loan to value ratios when compared to
10
conventionally financed enterprises. Consequently, what would at first
impression appear to be a high risk investment - affordable housing, a new
biotech research or manufacturing facility, a homeless shelter, a repair program
for inner city residents - can be designed to provide the necessary financial
security to attract pension fund investment. Because debt finance is priced in
reference to comparable term Treasury instruments with mark-ups reflecting
market-determined risk, the yields provided pension investors for these
investments match the market place.
In sum, the National Partnership Program will not use pension funds to
provide rate advantage financing. Project sponsors can realize rate advantage
financing effects by blending pension funds with lower cost funds, grants and
cash flow mortgages. Furthermore, by investing through either the Housing
Investment Trust or the Building Investment Trust, the pension fund investor is
investing in a nationally pooled fund, not a particular project and is purchasing
a security, not a particular mortgage instrument. Using this approach allows the
investor to diversify the investment and achieve a competitive return in a way that
is consistent with ERISA rules while making needed capital available to distressed
communities and emerging economies.
7. The Extra Enhancement: Coordinated Social Service Investment
In addition to these various forms of guarantees, credit enhancements and
contractual mechanisms, the long-term security and viability of an investment can
11
be enhanced by the continued strength and stability of the residents or employees
and the local community. Investments in human resources, including child care,
job training, youth recreation and counseling, health care and drug rehabilitation
are essential to ensuring this strength and stability of the communities, which in
turn, protect the economic investment.
This extra level of enhancement, the critical investment in human capital
is seldom accomplished without extraordinary effort. Much of the difficulty is
due to the historic inability to appreciate the direct economic enhancement value
of social service investment. Much of the difficulty is bureaucratic in nature and
due to the failure of Federal agencies to coordinate their efforts around specific
economic objectives. Thus it is possible to create contractual financial
enhancements to finance a biotech research lab in Worcester, Massachusetts that
a number of banks declined to finance. But, the total beneficial impact of the
project would be increased if training programs could be instituted to help
unemployed residents of local housing projects quality for the new jobs. (This
was in fact accomplished at the Massachusetts General facility in the Charlestown
Navy Yard).
Similarly, it is possible to bring five different financial partners together
to transform a series of abandoned Federal housing projects in Florida into decent
affordable housing. The long-term viability of the project may depend, however,
12
on continuous financing of an on premise local police sub-station or an effective
child care center and employment training program for residents.
Using existing Federal health, social service and employment training
programs to enhance the particular project and host community will give pension
investors an extra measure of assurance about the Program's ultimate success and
the wisdom of the investment.
Summary
The AFL-CIO's National Partnerships for Community Investment is
designed to demonstrate that pension funds can be utilized in ways that provide
secure and competitive returns to investors while rebuilding American
communities. By enlisting the vast pool of talent and skill found in local
communities, the work of integrating and maximizing the value of scarce Federal
resources will start at the grass roots level. The coordination of the various
Federal partners - Cabinet Departments, Government sponsored enterprises, sub-
cabinet agencies - is a daunting task for local sponsors. Only leadership from the
new Administration will make the coordination occur in a systematic way.
It is our belief that the necessary resources exist, and sufficient examples
of success with these approaches have been realized to establish the National
Partnership program. The question that remains is whether success on a case
by case basis can be translated into a successful national program. If the
significant resources of U.S. pension funds can be brought to bear on the
13
economic problems of urban America, communities now excluded can be brought
within the boundaries of the social contract.
14
Partnerships for Community Investment
Milwaukee
New York
Detroit
Portland
Boston
Chicago
Columbus
Philadelphia
Oakland
Denver
Washington DC
St. Louis
Los Angeles
Atlanta
Dallas
Miami
TABS
TAB 1:
Federal and State Resources Available
TAB 2:
Three Case Studies
TAB 3:
Financing Offered
Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a tabbed divider. Given our
digitization capabilities, we are sometimes unable to adequately
scan such dividers. The title from the original document is
indicated below.
1
Divider Title:
FEDERAL AND STATE RESOURCES AVAILABLE
FEDERAL AGENCIES
The passage of the Cranston Gonzales Affordable Housing Act of 1990 is
the first major housing legislation in a decade which supports and broadens a
growing dimension in national housing policy - the integration of housing, public
welfare and human services at the national state and local levels. Promoting a
stable economic and living environment requires coordinating disparate programs
among the funding agencies. Below is a list of agencies and examples of housing
and community economic development service programs which need to be
coordinated with support services for families living in low and moderate income
housing. The programs provide loan guarantees, fill financial gaps, provide
equity, and enhance the liveability of a project - all requirements for pension
funds to make safe and sound investments.
DEPARTMENT OF HOUSING & URBAN DEVELOPMENT
Housing Programs
FHA-Multifamily
The current major HUD multifamily insurance programs are the Section
1
221(d)(4) and Section 232 program. The Section 221(d)(4) program insures
mortgages for new construction and substantial rehabilitation of multifamily rental
projects of five or more units. Single Room Occupancy (SRO) projects are also
eligible for mortgage insurance under Section 221(d)(4).
FHA-Single Family 203(k) Program
The 203(k) program is a mortgage financing plan that provides acquisition,
rehabilitation and permanent financing all in one package. Mortgage loans are
eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed
and a rehabilitation escrow account is established. The lender or investor (e.g.
the Trust) is protected with a fully insured loan.
HOME
The HOME Program was created under Title II of the National Affordable
Housing Act of 1990. Eligible activities include: tenant-based rental assistance,
assistance to first-time homebuyers and existing homeowners, property
acquisition, new construction, reconstruction, moderate or substantial
rehabilitation, site improvements, demolition, relocation expenses and other
reasonable and necessary expenses related to development of non-luxury housing.
HOPE Program
HOPE (Homeownership and Opportunity for People Everywhere) is a
group of three homeownership programs enacted in the Cranston-Gonzalez
National Affordable Housing Act of 1990.
2
HOPE 1. Programs to enable tenants of public housing or Indian
housing projects to buy their apartments.
HOPE 2. Programs to enable tenants to buy their apartments in
multifamily (5+ units) owned, financed, or insured by HUD,
Resolution Trust Corporation (RTC), Farmers Home
Adminstration (FmHA), or state or local governments.
HOPE 3. Programs to market HUD, Veterans Administration,
FmHA, or RTC-owned one - to four-family properties to first-time
buyers with incomes no higher than 80 percent of the area median.
Community & Economic Development Programs
Community Development Block Grants
The CDBG program provides funds on a formula basis to entitled
communities to carry out a wide range of community development activities
directed toward neighborhood revitalization, economic development, and
improved community facilities and services.
Section 108 Loan Guarantee Program
The Section 108 loan guarantee enables communities to finance large scale
housing rehabilitation, economic development and physical improvement projects
while conserving scarce CDBG money for other important eligible activities,
including additional loans. Under Section 108, cities or urban counties may
3
borrow up to 5 times their latest CDBG entitlement.
Support Services Programs
Youthbuild
Youthbuild programs combine job training with basic skills, including
bilingual and secondary education. Economically disadvantaged youth are trained
in construction trades and participate in rehabilitating housing for the homeless,
low-income families and transitional housing for disabled or other needy people.
DEPARTMENT OF HEALTH HUMAN SERVICES
Community Services Discretionary Authority
Grants are available to support program activities by community-based
organizations to alleviate the causes of poverty in distressed communities;
activities that result in direct benefits targeted toward low income people.
Center for Substance Abuse
The Center for Substance Abuse Prevention was created in 1986 to direct
the federal government's role in preventing substance abuse, especially amoung
youth and families in high risk environments.
DEPARTMENT OF LABOR
The Job Training Partnership Act provides funding by formula to states.
4
States then reallocate by formula funds to Private Industry Councils (PICs). PICs
are made up of local business, education, labor and government officials who
finance local job training activities in their communities.
TREASURY DEPARTMENT
The Low Income Housing Tax Credit (LIHTC) Program
The LIHTC program provides federal tax credits to owners of low-income
rental housing projects. To qualify for the Program, a project must include a
certain proporation of rent-restricted units to be occupied by tenant households
earning not more than 60 percent of the area median income. The amount of tax
credit a project can receive depends upon the percentage of its units that meet
these Program rent and income restrictions. The LIHTC Program plays a vital
role in helping obtain financing for projects in an atmosphere where financing is
otherwise near impossible.
FEDERAL HOME LOAN BANK
Created by the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA), the Affordable Housing Program (AHP) of the Federal
Home Loan Banks is a subsidy fund designed to encourage and assist housing
finance lenders in the development of affordable housing in their communities.
5
To facilitate such activities, the Bank provides subsidized advances (loans) or
direct subsidies to member institutions engaged in lending for long-term, very-
low, low-and moderate-income housing projects.
GOVERNMENT SPONSORED ENTERPRISES
Under its existing Declaration of Trust, the Housing Investment Trust has
authority to invest up to 50 percent of its assets in Fannie Mae and Freddie Mac
securities. Fannie Mae and Freddie Mac Securities are not explicitly federally
insured or guaranteed, but are generally considered the next safest type of
mortgage related obligations. Fannie Mae and Freddie Mac are federally
chartered corporations engaged principally in providing a secondary market for
mortgage obligations. The mortgages backing only Fannie Mae mortgage backed
securities or Freddie Mac participation certificates in which the Trust invests will
meet Fannie Mae or Freddie Mac standards, as applicable, and will carry
competitive yields. The Housing Investment Trust will work with these two
government sponsored enterprises as follows:
Fannie Mae
In October 1991, Fannie Mae in partnership with the AFL-CIO Housing
Investment Trust announced a $50 million financing plan to provide affordable
rental housing units for low and moderate-income families around the nation.
The initiative helps developers using union labor to build and rehabilitate
6
apartments for low and moderate income families apartments using Federal low-
income housing tax credits or other public subsidies. Fannie Mae has agreed to
purchase the permanent loans upon completion of construction.
Freddie Mac
In an effort to assist private lenders making affordable multifamily housing
loans, in June 1991, Freddie Mac entered into an agreement with LIMAC to
provide $100 million demonstrating program for the purchase and securitization
of multifamily permanent loans targeted at low income housing projects. The
program calls for risk sharing between LIMAC and Freddie Mac.
STATE HOUSING FINANCE AGENCIES
STATE INSURANCE FUNDS
With the federal government's lagging commitment to housing, the
pressures are mounting on state and local governments to become more active in
housing development. The Housing Investment Trust recognized that if it were
to remain active as a provider of housing capital, it must build new relationships
with states and cities. The Trust's charter was amended in 1991 to provide the
Trust greater latitude in working with state and local governments.
Specifically, the charter amendments permit investments in single- and
7
multi-family housing based on specific guarantees or insurance, or on delineated
commitments and project criteria.
Generally, the financing the Housing Investment Trust may provide falls
into two categories:
A.
State Housing Agencies
Allows the Trust to invest in mortgages or mortgage-backed
securities (relating to construction loans and permanent loans)
guaranteed by state housing finance agencies that are rated "top
tier" by at least one nationally recognized statistical rating service.
A "top tier" rating is currently held by only 12 agencies
nationwide.
B.
State - Backed Insurance and Guarantees
Allows the Trust to utilize state-sponsored insurance and guarantee
programs that do not carry the "full faith and credit" obligation of
the state but which have a previous track record of performance
and credit-worthiness, and have at least an "A" rating from either
Moody's or Standard and Poor.
8
Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a tabbed divider. Given our
digitization capabilities, we are sometimes unable to adequately
scan such dividers. The title from the original document is
indicated below.
2
Divider Title:
PARADISE at PARKSIDE
Washington, DC
The Challenge:
With a reputation as Washington DC's largest and most violent drug market, Paradise
Manor presented an unsavory investment opportunity. Investors were not willing to commit capital
until there was evidence that the neighborhood was safe and residents would care for their homes.
In addition, the project would not generate significant revenues until after the completion of the
multi-stage renovation.
The Response:
Community involvement in every aspect of the development created a comprehensive
program that blends private and public resources to address the safety, housing, education and
employment training needs of Paradise Manor residents. The successful rehabilitation of Paradise
depended on marshalling private and public resources to invest in the 653-unit development.
Federal and local agencies contributed a total of $7.6 million for rehabilitation of Paradise and
funded a job training program. Private partners included the developer and the AFL-CIO Housing
Investment Trust, which committed $9 million to a loan guaranteed by Fannie Mae.
Project Summary:
Unable to manage the site that had become famed as a drug market and crime center,
surrounded by barracks-style housing, the original owner of Paradise defaulted. A private
partnership, formed to renovate the property, acquired the site agreeing that it would be developed
for resident ownership. The project coordinator conceived of a multi-stage rehabilitation that
included a new design, investment from local businesses and support programs for residents.
The design changes highlight the project's transformation. In the midst of 90-unit clusters,
a courtyard was planted. Each courtyard group may eventually become a separate cooperative, as
residents become ready to own their homes. By providing community space, including day care
centers, a platform stage for performances, a basketball court, laundry facilities and opportunities
for retail enterprises, Paradise fosters the development of a healthy, involved neighborhood.
Given the distressed state of the property when the rehabilitation began, it was critical that
investors accept flexible repayment schedules. Public sector lenders agreed to allow Paradise to
defer some payments during the early stages of rehabilitation. Innovative financing terms
contributed to a comprehensive financial program that provides maximum security and a market
rate of return to investors and attainable performance by the developer. Fannie Mae, the Federal
National Mortgage Association, provided an unprecedented $1.8 million Venture Capital Fund loan
to the project.
2
Partners' Contributions:
AFL-CIO Housing Investment Trust:
The AFL-CIO Housing Investment Trust committed $9 million loan guaranteed by Fannie
Mae.
Fannie Mae:
Fannie Mae securitized the $9 million loan, guaranteeing payment to investors. Fannie
Mae also invested $1.8 million as a Venture Capital Fund loan, the first such commitment
of capital to an affordable housing project.
Patrician Financial Company:
A qualified Fannie Mae lender, Patrician structured the various financing components,
including negotiating the allocation of risk and repayment schedule. Patrician also services
the loan.
Washington DC Department of Housing and Community Development:
The Department of Housing and Community Development provided critical political and
financial support to Paradise. The Department committed $3 million in community
development block grant funds for rehabilitation. The District of Columbia also agreed to
3
defer collection of up to $2.4 million in delinquent taxes and water and sewer charges
throughout the renovation.
Department of Housing and Urban Development:
HUD holds the first mortgage on the property, because it insured the original loan under
Section 221(d)(3). HUD contributed additional resources to Paradise through numerous
programs, including a $4.5 million below market rate rehabilitation loan and $3 million in
community development block grants. 40% of Paradise tenants will receive Section 8 Rental
Assistance. In addition, HUD provided a HOPE 2 (Homeownership and Opportunity for
People Everywhere) planning grant to the Greater Washington Mutual Housing Association
to assist the Paradise Manor Cooperative develop an appropriate structure for home
ownership.
Department of Health and Human Services:
In order to enhance the livability of Paradise, HHS awarded a grant of $500,000 for the
Livelihood job training program and the construction of community space.
Greater Washington Mutual Housing Association:
This nonprofit organization provided technical assistance to the Paradise Manor Cooperative
through HUD's HOPE 2 program and operates the Livelihood Program. These efforts are
4
critical in building a viable enterprise that will address residents' long-term needs.
Paradise Manor Cooperative:
This residents organization is active in developing the structure for eventual resident
ownership. The cooperative structure encourages residents' investment in their
neighborhood.
Nation of Islam:
Creating a safe and decent living environment depended on eliminating crime and drug-
related conflicts. The Nation of Islam has served as security patrol throughout Paradise,
contributing to its remarkable transformation from a crime-infested project to an attractive
neighborhood.
Developer:
Telesis Corporation, a for-profit developer, served as project administrator. Telesis
coordinated the stage-by-stage rehabilitation of Paradise, from site acquisition to design,
obtaining financing, negotiating with the management company, construction manager,
professional consultants and residents.
5
Construction Manager:
TCM, an affiliate of Telesis Corporation, managed the construction process. Primarily
responsible for ensuring quality of the renovation, TCM negotiated with individual trades
throughout the renovation.
Management Agent:
CT Management, an experienced management agent of low-income housing, coordinated
the relocation and provision of services throughout the renovation.
Consumers United Insurance Company:
A minority and worker-owned company, CUIC has invested over $6 million in the Paradise-
Parkside neighborhood, including constructing a convenience store in the neighborhood and
supporting an academic, cultural and athletic program for youth.
Industrial Bank of Washington:
This minority-owned bank administers rehabilitation funds for the public and private
investors.
Building and Construction Trades:
Local unions affiliated with the Washington, DC Building and Construction Trades Council
6
are performing the renovation of Paradise at Parkside.
7
FOUR BIOTECH
Worcester, Massachusetts
The Challenge:
Four Biotech was a $14.1 million project, undertaken by a successful developer in a
recessionary climate. The early 1990s signalled failures in the savings and loan industry and the
collapse of the Massachusetts real estate market. The City had demonstrated its support for
biotechnology enterprises, and needed the employment opportunities the building would create.
Nonetheless, traditional investors refused to commit capital to Four Biotech.
The Response:
An innovative use of federal guarantees by the city enabled the AFL-CIO Building
Investment Trust to invest $11.7 million in Four Biotech, structured as a one-year construction
loan, which will convert into nine-year permanent financing.
Project Summary:
The Worcester Business Development Corporation (WBDC), a non-profit corporation
affiliated with the Worcester Chamber of Commerce, is dedicated to promoting economic growth
in the Worcester area. WBDC has developed the 75-acre Massachusetts Biotechnology Research
8
Park (MBRP) as a center of biotechnology research. Four buildings dedicated to biotechnology
research and development of commercial products, which house twelve for-profit companies and
seven non-profit enterprises, are located in the Park. In addition, BASF, the German chemical
conglomerate, recently completed construction of its 300,000 square foot North American research
headquarters there. The City of Worcester has supported the development of biotechnology
industry by enacting favorable zoning ordinances and providing additional support to new
businesses.
Four Biotech, a 93,000 square foot research facility, was developed by WBDC on behalf
of the City of Worcester. WBDC had pre-leased 71% of the building. WBDC estimated the
building would create 200 permanent jobs.
Even with the city's commitment to fostering growth in this area and WBDC's strong record
in developing successful facilities, WBDC was unable to secure investors for its fourth building.
Banks were unwilling to lend money for biotechnology facilities. Simultaneously, as WBDC
developed plans for Four Biotech, unemployment in the construction trades in the Worcester area
soared to 50%.
The AFL-CIO Building Investment Trust proposed an innovative use of HUD's Section 108
loan guarantee program. The City pledged HUD Title I funds to secure the loan. Throughout the
9
construction period, escrowed funds match the value of the loan. Following construction, the City
will maintain Section 108 funds in escrow to cover 60% of the loan's value. As the building's
operation generates additional income, the Section 108 reserve will be reduced, freeing those funds
for investment in other Worcester enterprises.
Partners' Contributions:
AFL-CIO Building Investment Trust:
In addition to investing $11.7 million in Four Biotech, the Trust committed itself to working
with the developer, the City and the federal government, to negotiate an effective financing
structure. Instead of declining to invest in this innovative enterprise, the Trust designed an
innovative security arrangement that enabled it to contribute to Worcester's economic
growth and provide a market rate of return to its investors.
City of Worcester:
The City's commitment to economic development, particularly in biotechnology, was critical
to the success of this financing. The City demonstrated its commitment by zoning
provisions to facilitate the establishment of genetic laboratories and by fostering the
development of nonprofit organizations to attract businesses to Worcester. The City Council
voted to approve the Section 108 application. An active Chamber of Commerce and
dedicated City Manager strengthened the Trust's assessment of the project's value as an
10
investment.
Developer:
The WBDC, with its strong track record in developing the Park and willingness to negotiate
innovative financing, demonstrated its flexibility in accommodating other participants
throughout the process. Strong support from the Worcester Chamber of Commerce's
membership provided additional comfort.
Department of Housing and Urban Development:
HUD's Section 108 program was established by the Housing and Community Development
Act of 1974. Amendments in 1990 expanded the program to increase the length of the
loans, the number of eligible entities and the amount of funds available. In FY93, Congress
appropriated $2 billion for Section 108 guarantees.
Building and Construction Trades:
Unions affiliated with the Worcester-Fitchburg Building and Construction Trades Council
will perform all the construction work on Four Biotech. In an economy of high construction
unemployment, Four Biotech will create significant employment opportunities.
11
Commonwealth of Massachusetts:
The Massachusetts General Assembly passed legislation enabling WBDC to incorporate as
an affiliate of the Worcester Chamber of Commerce.
12
GARDENS APARTMENTS
Opa-Locka, Florida
The Challenge:
In response to devastating rates of crime and drug activity at Gardens
Apartments, the City of Opa-Locka and HUD closed down the project. Soon
thereafter, all fixtures had been destroyed, leaving 378 deserted units in an area
of great need. The $20 million rehabilitation of Gardens Apartments was a
critical part of the City's plans to revitalize its housing stock and neighborhood,
but efforts to obtain conventional financing had failed.
The Response:
A coordinated effort by federal participants such as HUD and Freddie
Mac, state and local government entities, such as the Florida Housing Finance
Agency and the City and private parties, such as the developer, limited partner
and the AFL-CIO Housing Investment Trust resulted in financing the rebirth of
Gardens Apartments. The success of this endeavor turned on a new secondary
market program that is designed to create a liquid market for affordable rate
13
mortgages. In addition to providing the $10 million construction loan, the AFL-
CIO Housing Investment Trust invested $10 million in the permanent financing
guaranteed by Freddie Mac. Renovation of Gardens Apartments increased
affordable rental housing in Opa-Locka by 10%.
Project Summary:
The five buildings at Gardens Apartments were closed down in the late
1980s, when their presence as one of the worst drug havens in Dade County,
Florida threatened to endanger the community. In August 1991, the City
purchased the property from HUD. The City had undertaken two unsuccessful
efforts to rehabilitate the site. Investors' hesitancy to invest in an area that had
been plagued by poverty and crime had thwarted the City's efforts.
Renovating the Gardens Apartments was critical to reviving citizens' sense
of hope for Opa-Locka's future. The initial development included 378 rental
units. By returning 320 affordable rental units to productive use, this project
increased the city's available rental housing by 10%. Most of the units are
designed for families, which fostered the project's sense of community spirit.
Changes in the project's layout also reduced density, increased safety and created
community space and recreation areas.
14
In December 1991, the City conveyed the property to the developer. The
developer guaranteed that the property would be rented to low and moderate
income households for at least 15 years. In exchange, HUD agreed to provide
a 15-year Housing Assistance Payments (HAP) contract to the developer.
An innovative secondary market program provided the permanent
financing. The Local Initiatives Managed Assets Corporation (LIMAC) bought
the $10 million loan from First Housing Development Corporation, a consortium
of local banks. LIMAC then passed the loan to the Federal Home Loan
Mortgage Corporation (Freddie Mac) under a $100 million demonstration
program. Freddie Mac issued Participation Certificates, which securitized the
loan. The AFL-CIO Housing Investment Trust purchased the Participation
Certificates (PCs). The AFL-CIO Housing Investment Trust also provided the
construction financing. A private investor contributed $8 million through the
purchase of Low-Income Housing Tax Credits.
Partners' Contributions:
City of Opa-Locka:
Despite others' assessment of Gardens Apartments as a hopeless project,
the Mayor refused to abandon his vision of providing decent safe housing
15
at that location. After two unsuccessful attempts to finance the
rehabilitation, the City supported this innovative arrangement. As
evidence of its commitment to provide a livable environment, the City
donated additional land for open space and basketball courts. The City
also agreed to locate a police substation on site to enhance residents'
safety.
Department of Housing and Urban Development:
In order to make the project financially viable, HUD awarded a 15 year
Housing Assistance Program (Section 8) contract, valued at approximately
$30 million, to the developer. HUD also demonstrated its commitment
to ensuring the success of Gardens Apartments by pledging annual
appropriations for building security personnel.
Consortium of Local Banks:
A consortium of Florida banks established to meet Community
Reinvestment Act requirements, First Housing Development Corporation,
served as the loan originator. First Housing Development underwrote the
loan, which met criteria established by LIMAC and Freddie Mac. The
consortium then sold the permanent loan to LIMAC, retaining 20% of the
risk.
16
LIMAC:
LIMAC was created to establish a national secondary mortgage market for
low-income housing programs. The $100 million LIMAC-Freddie Mac
demonstration program provides highly rated securities to finance
affordable housing. LIMAC purchased the permanent loan from First
Housing Development Corporation and sold it to Freddie Mac. LIMAC
provided insurance on up to 16% of the value of the loan that it sold to
Freddie Mac.
Freddie Mac:
The Federal Home Loan Mortgage Corporation (Freddie Mac) purchased
the loan from LIMAC and issued guaranteed PCs. Although Freddie Mac
provided the guarantee to investors, if the loan were to fail to perform,
Freddie Mac would collect on guarantees from LIMAC and the local
banks.
AFL-CIO Housing Investment Trust:
The AFL-CIO Housing Investment Trust provided the construction
financing, which was secured by a letter of credit. The Trust also
purchased the $10 million PCs from Freddie Mac, representing the
17
permanent mortgage.
Developer:
Namisha Construction secured a letter of credit from a bank in order to
meet HUD's requirements that developers who purchase vacant housing
projects provide security until renovation is complete. Namisha also
contributed $2 million in equity.
Limited Partner:
As a limited partner in the project, Related Capital Corporation provided
$7.8 million from the purchase of Low-Income Housing Tax Credits.
Florida Housing Finance Agency:
The state housing finance agency appropriated $3 million in HOME funds
to Gardens Apartments.
Letter of Credit Bank:
Union Bank of Switzerland provided a Letter of Credit to guarantee the
construction period.
18
Building and Construction Trades Council:
The Miami Building and Construction Trades Council is coordinating the
participation of local unions in rehabilitating Opa-Locka.
19
Clinton Presidential Records
Digital Records Marker
This is not a presidential record. This is used as an administrative
marker by the William J. Clinton Presidential Library Staff.
This marker identifies the place of a tabbed divider. Given our
digitization capabilities, we are sometimes unable to adequately
scan such dividers. The title from the original document is
indicated below.
3
Divider Title:
PROGRAM FINANCING
Financing for projects sponsored under the National Partnerships for Community
Investment will be provided by the Investment Program's two funds: the Housing Investment
Trust (HIT) and the Building Investment Trust (BIT). These investment funds finance union-
built residential, commercial and industrial properties. The HIT provides debt financing and the
BIT finances both debt and equity.
The Housing Investment Trust
Through the National Partnerships for Community Investment, the HIT will provide
financing for seven types of housing activities, assisting communities to provide shelter for a
wide spectrum of their citizens.
1.
Single Room Occupancy (SRO) Housing. SROs provide very low-income,
single, often homeless individuals with decent, safe and sanitary housing. For such projects,
the HIT can provide permanent financing, secured by a FHA-insured mortgage on the project.
2.
Elderly Housing. The HIT provides construction and permanent financing for
nursing homes and intermediate care facilities. These loans must be insured by FHA under
Section 232 of the National Housing Act.
1
3.
Multifamily Rental Housing - Low and Moderate Income. The HIT provides
construction and permanent financing for low and moderate income, multifamily rental housing.
These loans can be placed using FHA insurance under Section 221(d)(3); securitization by
Fannie Mae or Freddie Mac under a special AFL-CIO Forward Commitment Program; by "top-
tier" state housing finance agencies; or, under very limited circumstances, direct placement in
conjunction with strong local government participation.
4.
Multifamily Rental Housing - Market. The HIT provides construction and
permanent financing for market rate, middle income multifamily rental housing, provided that
the loans are insured by FHA under Section 221(d)(4).
5.
Construction and Purchase of Single Family Housing. The HIT also
administers the highly successful ProLoan Program. The HIT's ProLoan Program provides
financing to eligible individuals to purchase new, union built homes. Under the program, HIT
provides fixed-rate mortgages to qualified applicants at a market rate of interest and locks the
interest rate for up to 180 days from the date of application to allow time for construction. HIT
will finance up to 95% of the purchase price. All ProLoan mortgages must meet Fannie Mae
or Freddie Mac underwriting standards. The loans are securitized and guaranteed by Fannie
Mae or Freddie Mac. The HIT has already lent over $125 million under the ProLoan program
in the St. Louis area alone. Nationally HIT has lent over $200 million under this program.
2
6.
Home Ownership Assistance for Union Workers. HIT has joined with Union
Privilege, an agency of the AFL-CIO, to create the Union Privilege Mortgage Program. This
program provides home purchasing assistance for the members of participating local unions,
including down payments of as low as 3%, no-point loans, and interest rates at or below the
national average. The HIT will provide mortgage financing for the program, and will lock-in
interest rates for up to 90 days for existing housing and up to 180 days for newly constructed
union built housing.
7.
Home Rehabilitation Loans. The HIT will also finance the rehabilitation of
existing housing under its Home Repair program. Under this program, the HIT will work with
local lending institutions and nonprofit groups to provide a source of capital, at competitive
interest rates, that will allow homeowners and prospective homeowners to rehabilitate the
housing stock in our urban areas. Loans are secured through programs such as HUD's 203(k)
or Fannie Mae's HomeStyle Program.
The Building Investment Trust
In addition to the residential programs sponsored by the HIT, the AFL-CIO Pension
Investment Program will also promote economic development by financing commercial projects
through its BIT fund. Under the National Partnerships for Community Investment, the BIT
will invest in commercial mortgages, including participating mortgages and construction loans.
The fund will also consider acquiring equity interests in improved or to be improved real estate.
The types of projects that can be financed under this fund include, office buildings, shopping
3
centers, hotels, mixed use residential properties, commercial/industrial warehouse and research
facilities and other income producing real estate that meet the Trust's strict underwriting criteria.
Under the National Partnerships for Community Investment, the BIT will work closely
with states and localities to fund inner city commercial projects secured by a combination of
solid tenants and local and federal guaranties and subsidies, such as Section 108 guaranties and
commercial developments in emerging industries, such as biotechnology, other medical research
facilities and telecommunications projects, which would be secured by a combination of
borrower and tenant credit and local and Federal guaranties and subsidies. In addition, the BIT
can finance other commercial projects secured by long term leases by creditworthy tenants.
4
ACKNOWLEDGEMENTS
Special thanks to Karen Ignagni, Director, and Meredith Miller, Associate Director of
the AFL-CIO Department of Employee Benefits, for information they supplied that appears in
Domestic and International Pension Investment Issues, A Report Prepared for the AFL-CIO
Pension Investment Committee, December 1992. Special thanks should also be given to Randy
Barber, Director of the Center for Economic Organizing, and Theresa Ghilarducci, University
of Notre Dame, for providing information that appears in Pension Funds, Capital Markets, and
the Economic Future, a soon-to-be published monograph, and to Al Bilik, President of the AFL-
CIO Public Employee Department, and Regina Markey, pension consultant for their assistance.
Of course, the staff of the AFL-CIO Pension Investment Program were essential to compiling
this report: Marcie Cohen, Director of Affordable Housing; James Campbell, Investment
Officer; ElChino Martin, General Counsel; and John Noone, Investment Officer. Also thanks
to Rebecca Plaut, a legal intern with the Program, Robin Campbell, and Carole Ridley,
consultants, for assistance in research and writing, and to all the Pension Investment Program
staff.
Stephen Coyle
THE
The
THE WHITE HOUSE
WASHINGTON
February 1, 1993
MEMORANDUM FOR ROBERT RUBIN
FROM:
Alexis Herman
SUBJECT: AFL-CIO Briefing
Per my conversation with Lane Kirkland this morning, Lane
informed me that he will be leaving for Ball Harbor on
February 4, not to return to Washington D.C. until February 23.
Lane recommended that we meet with Jim Baker, Executive Assistant
to the President, AFL-CIO and Dr. Rudolph (Rudy) Oswald, Director
of Economic Research, AFL-CIO for a background briefing on the
President's Economic package.
Lane and I also discussed the invitation that they extended to
President Clinton to join the AFL-CIO in Florida. I mentioned
the difficulty with scheduling a trip at this time, but indicated
that I will coordinate with Marsha Hale on the Presidential
schedule for a possible meeting before Kirkland departs on
February 4.
We can schedule a meeting for the week of February 8th before
Baker and Oswald depart for Ball Harbor or, as Howard's memo
indicates, have Gene do the briefing in Florida.
Please advise.
CC: Mack McLarty
Rahm Emanuel
Marsha Hale
Bernie Nussbaum
Howard Paster
John Podesta
Robert Reich
George Stephanopoulos
THE WHITE HOUSE
WASHINGTON
AMH
January 29, 1993
file
MEMORANDUM FOR ROBERT RUBIN
FROM:
Alexis Herman
SUBJECT: Labor Executive Orders
In background discussions with Lane Kirkland on our January 22,
1993 Executive Orders, Kirkland specifically asked that we follow
up on his memorandum dated November 20, 1992.
Per our conversation, I advised Lane Kirkland that we would do a
background briefing on the overall economic package. This
briefing needs to occur before Labor's annual meeting which is
scheduled for mid-February in Bell Harbor.
Please note, Kirkland had submitted a strong statement arguing
that Executive Order No. 12818, Executive Order No. 12800, and
the Proclamation suspending the David-Bacon Act be countermanded.
Secretary Reich has asked that action be taken on Executive
Orders 12818 and 12800. This has been approved by OMB and DOJ
Legal Counsel. There has been no mention of the Davis-Bacon Act,
however.
NEXT STEPS for OPL
:
Schedule meeting with Kirkland.
--
Clarifying with Reich our position on Davis-Bacon.
CC: Mack McLarty
John Podesta
Bernie Nussbaum
Rahm Emanuel
From the desk of
LANE KIRKLAND
PRESIDENT. AFL-CIO
January 22, 1993
Alexis,
Per our telephone conversation
of today.
All the best.
Lane
WH counsel serve
CE: Ratm Mclarry
American Federation of Labor and Congress of Industrial Organizations
EXECUTIVE COUNCIL
815 Sixteenth Street, N.W.
AMERICAN FEDERATION OF LABOR
LANE KIRKLAND PRESIDENT
Washington, D.C. 20006
THOMAS R. DONAHUE SECRETARY-TREASURER
(202) 637-5000
Albert Shanker
Edward T Hanley
Angelo Fosco
William H. Wynn
John DeConcini
Wayne E. Glenn
Joyce D Miller
John J. Sweeney
James E. Hatfield
Vincent R Sombrotto
Gerald W McEntee
CONGRESS AFL OF INDUSTRIAL
William H. Bywater
Marvin J Boede
Owen Bieber
John T. Joyce
Lynn R Williams
Morton Bahr
Robert A. Georgine
Gene Upshaw
Jay Mazur
Lenore Miller
Jack Sheinkman
John J. Barry
Sigurd Lucassen
Moe Biller
George J. Kourpias
John N. Sturdivant
Richard L Trumka
Frank Hanley
James J Norton
Joaquin F. Otero
Michael Sacco
Ron Carey
November 20, 1992
MEMORANDUM
To:
Vernon Jordan
From:
Lane Kirkland
SK
Enclosed is a more detailed explanation of the
hostile Executive Orders and actions directed against
labor, for egregious political reasons, by President
Bush during the Presidential campaign. We strongly
believe that they warrant early action to countermand
them by President-elect Clinton.
Enclosure
November 19, 1992
RE:
Executive Order 12800; Executive Order 12818, The
Presidential Proclamation on the Davis-Bacon Act; and the
Presidential Directive to Conduct a Landrum-Griffin Act
Rulemaking
During the Presidential campaign, the National Right to Work
Committee and the Associated Builders and Contractors -- two anti-
union organizations that had previously supported President Bush -
used the threat of withholding their support to secure from the
President the unilateral imposition of a number of substantial
changes in national labor policy. Specifically, the National Right
to Work Committee and the Associated Builders and Contractors used
their political leverage to gain issuance of two Executive Orders
Executive Order 12800 (April 13, 1992) and Executive Order 12818
(October 23, 1992) - - one Presidential Proclamation under the
Davis-Bacon Act and a presidential directive to the Labor
Department to engage in a rulemaking under the Landrum-Griffin Act.
The contemporaneous record makes it plain beyond a reasoned
doubt that these Presidential initiatives were the product of pure
right-wing Republican politics and had nothing to do with the
faithful execution of the laws of the United States. At least
equally to the point from our perspective, the core agenda of the
Right to Work Committee and the ABC is to undermine the collective
bargaining system established by the federal labor laws and to
weaken the trade unions freely chosen by working people to
represent their interests in that system. Each of the four
Presidential actions just noted advances a critical part of the
2
Right to Work Committee/ABC agenda and in so doing adopts a
position repeatedly rejected by both Democratic and Republican
Administrations that overturns years of well-established, soundly-
based law and practice.
We believe that the Clinton Administration -- as part of its
announced program of clearing the books of unilateral executive
actions by the Bush Administration that are not in the public
interest -- should rescind both Executive Orders and the
Presidential Proclamation and should instruct the Labor Department
to extend the effective date of its proposed union reporting rules
from December 31, 1993, to December 31, 1994, to permit reasoned
review of those rules. Because all four of these measures are
having present adverse effects, we urge the President-elect to
announce his intent to take the actions outlined above as soon as
is practicable.
A. THE RIGHT TO WORK INITIATIVES
1. President Bush announced two Right to Work initiatives in
an April 13, 1992 Rose Garden ceremony.
First, the President issued Executive Order 12800, which
requires unionized government contractors to post one-sided notices
informing employees of their National Labor Relations Act ("NLRA")
right not to join or support a union without providing any
information on the employees' NLRA rights to join and support a
union.
Second, the President ordered the Labor Department to
promulgate rules that impose complex and onerous cost-accounting
3
requirements on virtually all private and federal sector unions.
2. The partisan right-wing political origins of these
actions are a matter of record.
Two months prior to their announcement, the New York Times
reported that President Bush had promised these initiatives to the
Right to Work Committee in an effort to prevent erosion on the
President's right during the New Hampshire primary. A. Rosenthal,
Trick for Bush Is to Run Against the Bush of 1980, N.Y. Times, Feb.
14, 1992. Two weeks prior to the announcement, the Washington
Times explained that the Right to Work Committee had formulated
these proposals and gained the Administration's support only by
threatening to disrupt the Bush reelection campaign operations
during the New Hampshire and Georgia primaries unless the proposals
were adopted. B. Pascoe, Muscling into Enforce Beck, Washington
Times, March 30, 1992.
3. These initiatives show their ideological anti-union
origins on their face.
(a) Executive Order 12800
A centerpiece of the April 13, 1992, Rose Garden ceremony was
an Executive Order requiring all unionized government contractors
to post a notice informing their employees of the right not to join
unions and of the right to opt out of paying full union dues.
Direct intervention by the Executive to enforce the National
Labor Relations Act is unheard of in the statute's fifty-seven year
history. Indeed, Congress' purpose in establishing an independent
National Labor Relations Board to administer the Act was to
4
insulate the development and application of the federal labor laws
from immediate political pressures. Against this background, the
Johnson Administration, after a full review, chose not to issue an
Executive Order debarring government contractors who were repeat
labor law violators.
It is, in addition, doubtful that even the NLRB could order
the sort of notice posting required by Executive Order 12800. In
Teamsters Local 357 V. NLRB, 365 U.S. 667 (1961), the Supreme Court
held that the Board lacks authority to impose such posting
requirements on unions that operate hiring halls. And the same
principle would seem to apply to notice-posting requirements
imposed on employers.
At the very least, then, any notice posting requirement
imposed directly by the President would have to be carefully
considered and evenly balanced. Executive Order 12800 is far from
that.
The NLRA guarantees employees rights to form and join unions,
to engage in concerted activity and to choose a collective
bargaining representative. None of these are mentioned in the
notice required by the Executive Order. Instead, employers are
required to inform employees of only one narrow right, i.e., to
refrain from paying full union dues.
A balanced notice requirement that informed all employees
both organized and unorganized -- of the full range of NLRA rights
would be a different matter. There is, however, no basis for
continuing the hastily imposed and one-sided notice requirement
5
imposed by Executive Order 12800.
(b) Department of Labor Regulations on Union Reporting.
The new Labor Department regulations radically alter the well-
understood financial reporting requirements that the Department has
administered for more than 30 years. These regulations -- which
were promulgated during a supposed regulatory moratorium by an
Administration supposedly dedicated to reducing regulatory
paperwork provide that unions must report all expenditures, not
only in the traditional "natural" categories (e.g., salaries,
loans, investments, asset purchases, contributions, etc.), but in
six novel and ill-defined functional categories as well. The rule,
as the Boston Globe observed, will "have [unions] bogged down in a
maze of regulations." Boston Globe, April 17, 1992.
Conservative estimates indicate that the new reporting
requirements will force a five-fold increase in the time and effort
entailed in making Labor Department filings. The information
contained in the LM-2/3 forms as presently filed is more than
sufficient to allow union members to exercise their rights in an
informed manner. To borrow the words uttered by Reagan-appointed
Federal Judge Richard Posner in like circumstances, by seeking more
detailed financial reporting, "the National Right to Work
Foundation [is] merely trying to hamstring the union." Gilpin V.
AFSCME, 875 F.2d 1310, 1316 (7th Cir. 1989). The Bush
Administration has cheerfully collaborated with the Right to Work
Committee in this illegitimate project. That collaboration between
the Executive and the Right to Work Committee should cease.
6
Both the contents and the drafting process that led to the
regulations have been denounced by the very Labor Department
official who was nominally in charge of the process, former
Assistant Secretary of Labor Robert Guttman. In an interview
shortly after his resignation, Mr. Guttman explained that, in a
rush to do the President's bidding, the Secretary had refused to
consult with anyone in the field of labor relations who had actual
knowledge of union reporting and accounting practices, instead
consulting only with the Right to Work Committee and an
unidentified accounting firm. The substance of the proposed rule
that resulted was, to use Mr. Guttman's words, "a lot of junk."
See "Departing DOL official Doubts Legality of Beck Changes to
Union Financial Forms,' BNA Daily Labor Report No. 125, pp. A-3-5
(June 29, 1992).
Of the many organizations and accounting firms filing comments
on DOL's newly proposed rule, only three supported the new cost-
accounting requirements - - the Right to Work Committee (along with
its Legal Foundation), the ABC (which has been closely cooperating
with the Right to Work Committee), and an heretofore unknown group
called "Citizens for a Sound Economy."
In announcing the rulemaking, the President pointed to the
Supreme Court's decision in Communications Workers V. Beck, 487
U.S. 735 (1988) -- which interpreted the obligations of unions to
nonmembers under the National Labor Relations Act - - as a
justifying circumstance. But the Labor Department itself
ultimately backed away from this justification and disclaimed any
7
reliance on Beck recognizing that it possesses no enforcement
authority under the NLRA and that its proposed requirements had
little to do with a union's obligations under Beck. See Statement
of October 28, 1992, Part II A1. The Labor Department stresses
instead that its new rules are justified from the standpoint of
internal union democracy. Id.
It is therefore very much to the point that no union member or
group of union members supported the Department's proposed rule.
The absence of any support for the rule among union members is not
surprising. For the past thirty years, labor unions have been
required to file detailed financial reports annually, showing the
compensation of officers and staff members, loans, investments,
asset purchases, and contributions. Union members are entitled by
law to inspect all of the financial records that back up these
reports. In addition, union members are protected by the federal
law in exercising their rights to adopt any additional reporting or
recordkeeping by their organizations that they find advisable.
Yet, during that 30 year period, not a single instance has been
reported in which a union member has demanded the kind of reporting
that the DOL is now requiring.
B. THE CONSTRUCTION INDUSTRY INITIATIVES
The Bush Administration's unilateral executive actions
affecting construction industry labor relations are as follows:
First, ten days prior to the election, President Bush issued
Executive Order 12818 prohibiting any employer from bidding on a
federal construction project if the employer has entered into a
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union contracting or subcontracting agreement with its unions,
despite the fact that this kind of agreement is commonplace in the
industry, and specifically authorized by the NLRA. See 29 U.S.C.
§158 (e)
Second, President Bush, at roughly the same time, issued a
Proclamation suspending the operation of the Davis-Bacon Act --
which requires that federal construction projects conform to
prevailing labor standards - - on all federal projects in the areas
of Florida, Louisiana and Hawaii that were affected by the recent
hurricane disasters, whether or not the project is hurricane-
related.
Again, the evolution and substance of these measures
demonstrate that both were last minute efforts aimed at gaining
President Bush the support of the Associated Builders and
Contractors by undermining the legal rights of construction
workers.
1. Executive Order 12818
President Bush's Executive Order prohibiting employers who
have entered into union contracting and subcontracting agreements
from bidding on federal projects, in essence, prohibits the system
of collective bargaining that exists throughout the construction
industry from operating where the work is federally financed.
Thus, the Order constitutes a major frontal attack on unionized
construction workers and employers, and a major threat to future
collective bargaining and labor relations stability in the
industry. A brief summary of the collective bargaining structure
9
in the construction industry, and the political background of this
Order, makes this clear.
(a) For many decades, construction industry collective
bargaining agreements have established labor standards for
construction work prior to the actual hiring of workers at a
particular project and prior to the determination of the particular
contractor or subcontractor who will do the particular work. By
following this pattern, collective bargaining is able to provide
for stable labor relations in an industry in which skilled workers
are employed for short terms by many employers and work is often
divided pursuant to complex and interdependent contracting and
subcontracting arrangements.
In essence, the pattern in unionized construction is that a
union and general contractor or construction manager agree that
union referred labor will staff the employer's project, that the
employer will respect the labor conditions of the agreement and
will recognize the union as representing the employees, and that
all subsequent contractors and subcontractors will adhere to the
same arrangement.
Congress, in enacting NLRA §§8(e) and (f), specifically
validated this collective bargaining pattern, finding that these
kinds of agreements often furthered the interests of all parties:
employees, employers, and developers alike. Employees gain the
benefits of union representation and stable employment terms in an
otherwise unstable labor market; employers gain continuous access
to stable supplies of skilled craft labor at predictable costs; and
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developers gain the assurance of labor peace and stability during
the course of their projects. Indeed, Congress noted that federal
agencies seeking stable and efficient construction work had often
encouraged these very arrangements on federal projects.
Despite all of this, President Bush's Order prohibits these
arrangements on all future federal projects. Although claiming to
protect workers' rights, the order eviscerates the right of
construction workers to protect their living standards through
effective collective bargaining. Although claiming that the Order
protects "free competition" on federal projects in order to further
efficiency, it actually protects one set of employers -- those who
refuse to recognize unions by assuring that they will be able to
gain federal work. Other employers - - those who have entered
certain lawful collective bargaining arrangements -- - - will now be
precluded from such work.
(b) The history of the Executive Order demonstrates the
purely partisan political motives for its adoption. Over the last
few years, the ABC brought numerous lawsuits urging that it was
unlawful for government purchasers of construction services
state or federal to utilize these kinds of collective bargaining
arrangements. The Justice Department, in successfully defending
against ABC challenges to agreements on federal projects asserted
that such agreements are fully lawful, are commonly used in federal
construction, and often serve legitimate government interests in
cost-efficient construction and stable labor relations.
See
Phoenix Engineering V. MK-Ferguson, Sixth Cir. No. 91-5227 (June
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11, 1992) (upholding use of project agreements on U.S. Dept. of
Energy nuclear project).
On October 15, 1991, the Supreme Court, in the course of
determining whether to review a lower court decision in favor of an
ABC challenge to the use of a project-wide agreement in the Boston
Harbor Project, formally asked for the views of the Solicitor
General. The Solicitor General, on April 15, 1992, filed a brief
urging the Court to review the case, reject the ABC position, and
validate the agreement as lawful. And the Solicitor General
explicitly recognized that such agreements often further legitimate
government interests in labor stability and cost-efficiency on
government projects. After the Court granted review, the Solicitor
General repeated this view in a more detailed brief as recently as
July 1992. See Building Trades Counsel V, ABC, Supreme Court No.
91-261 ("Boston Harbor Case").
The ABC responded to the Solicitor General's position with a
statement of "outrage" and a VOW not to endorse President Bush's
reelection "unless the Administration's position changes with
regard to Boston Harbor." BNA Daily Labor Report (July 28, 1992)
at A11-13. ABC also enlisted the support of the Right to Work
Committee, which filed a brief to the Supreme Court opposing the
Solicitor's view, and began a mail campaign to convince the White
House to change its position. In August, ABC demanded "an
executive order" prohibiting union contracting agreements on "all
federal procurement and federally assisted projects." BNA Const.
Labor Report (August 26, 1992).
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Ten days before the election, "the Administration's position"
changed: the President issued Executive Order 12818, which adopted
ABC's last demand; ABC immediately endorsed Bush for reelection;
and ABC pledged that the organization and its members would now
"throw their full support" behind the Bush campaign.
In the words of a Clinton Campaign Statement, this was "a
sharp reversal" of policy involving little more than the "use [of]
the power of government to [attempt to] buy an election." The
Executive Order should be withdrawn.
2. The Davis-Bacon Proclamation
In the last days of the campaign, the Bush Administration also
gave in to the ABC on another significant labor policy issue.
Claiming that the hurricane disasters in Florida, Louisiana, and
Hawaii justified his action, the President issued a Proclamation
suspending the operation of the Davis-Bacon Act -- which assures
that all federal construction projects will pay prevailing wages --
in all areas effected by the disasters. Through this action
which the ABC celebrated as a major victory -- the President opened
all federal projects in those areas to non-union employers paying
substandard wages and, indeed, gave such employers a competitive
advantage.
That the policy of the Proclamation is flawed is made clear by
the fact that, within the hurricane-effected areas, those
jurisdictions that have their own prevailing wage statutes took no
similar actions. For example, in Florida, despite the hurricane
and the Bush Proclamation, Dade and Broward Counties have not
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relaxed their enforcement of their own prevailing wage statutes.
Instead, out of recognition that substandard wages often lead to
substandard construction quality, as well as depressed living
standards, these jurisdictions have continued to demand that decent
wages be paid on their projects.
That the hurricane was more an excuse than a reason for the
Proclamation is also demonstrated by the fact that the President's
suspension of Davis-Bacon was not limited to federal disaster
relief projects. Rather, all federal projects in these areas, no
matter how unrelated to the disasters, will now be built under
substandard labor conditions.
This is only the third time in history that the Davis-Bacon
Act has been suspended by Presidential Proclamation, and it is the
first time this was done on less than a nationwide basis and in a
response to a situation of less than nationwide magnitude. (The
previous suspensions involved the efforts of Presidents Roosevelt
and Nixon to administer programs of nationwide wage and price
regulation during periods of national economic crisis.) Given that
the statute allows for suspension only in the case of a "national
emergency," 40 U.S.C. $276a-5, the legal basis of the Proclamation
is doubtful.
The Bush Administration has long supported the efforts of
groups like the ABC to compete on the basis of substandard wages,
and has, accordingly, long opposed the prevailing wage policies of
the Davis-Bacon Act. The recent Proclamation is but the latest
example of this benighted "low-wage" labor policy.