CHICAGO -- Chicago Housing Authority chairman Vance Lane is on a mission to revolutionize public housing in Chicago with a $2.6 billion plan that could be partly financed by bonds.

Lane's relentless passion for his cause has put the plight of Chicago Housing Authority residents on the national agenda. President Clinton, who has mentioned Chicago public housing in several speeches, said he supports Lane's plan to tear down deteriorating high-rise housing projects that fester crime and poverty.

"It's a public policy mistake to stack people on top of each other," Lane said in an interview in his Chicago office. "It does not work. We've got three or four generations of reinforcing negative and antisocial behavior. We quite simply have to undo it."

To reverse the pattern, Lane has proposed an ambitious $2.6 billion plan to demolish 21,000 public housing units, including 10,000 high-rise apartments. The displaced residents would be relocated to new housing scattered throughout Chicago and its suburbs.

With a current' operating budget of $334 million, the authority oversees 40,000 units that provide housing for 86,547 people.

Lane said his goal is to break up the "concentration of poverty" by enabling poor people to live among middle- and upper-middle-income families that would serve as role models.

But the chairman acknowledged that implementing his plan will not be easy.

In fact, in April federal officials shot down a financing proposal to allow the Chicago Housing Authority to issue $1 billion to $2 billion of bonds backed by federal funds appropriated by Congress. A key part of the plan, however, relied on a federal guarantee that would ensure the payment stream for debt service on the bonds.

That grant money currently can be used only to rehabilitate existing structures, but under the HUD bill, the funds also could be used for demolition and rebuilding.

Lane has said that officials at the Office of Management and Budget and the Treasury Department believed that the bonding plan would lead to revenue losses for the U.S. Treasury.

As a result, the Department of Housing and Urban Development reauthorization bill unveiled by federal housing officials included provisions for the Treasury to grant housing authorities loans that would be paid back with federal modernization grants.

And the bonding could very well end up in the bill that Congress ultimately approves. The House and Senate housing bills could be sent to conference committee by midAugust, he said.

U.S. Rep. Bobby Rush, D-Ill. has proposed an amendment to the housing bill that would allow public housing authorities to borrow up to five years' worth of annual modernization grants and would allow an authority to set aside 50% of the loan to pay off the obligation, according to Robert Walsh, Rush's legislative director.

Both the House and Senate versions of the housing bill would allow the Chicago Housing Authority to borrow $750 million from the federal government.

But unlike the House bill, the Senate legislation does not specify that 50% of the loan proceeds could be pledged to pay off the loan, according to a Senate Banking Committee official. Under the Senate bill, the loan would be paid back with operating revenues from the housing projects, the official said.

To generate enough funds to implement his $2.6 billion redevelopment plan, Lane said that federal loan proceeds not used for repayment could be combined with tax credits and other sources of funding from private sources and quasi-public agencies, such as the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

While the House legislation does not mention bonding by housing authorities, it would not preclude the authorities from issuing debt to generate additional funds, Walsh said.

A Senate Banking Committee official said. that Senate members did not include the concept of bonding when they drafted their version of the housing bill.

The Chicago Housing Authority has not determined yet how the bonding would be structured if its use is approved by Congress and 'bonds are incorporated into his redevelopment plan,-Lane said.

Local government support for any authority financing redevelopment plan remains uncertain. Earlier this year Chicago Mayor Richard M. Haley and some Chicago city council members balked at Lane's idea to secure the federal loan with a guarantee by the city.

Lane said his redevelopment plan would not require any local government backing, and several safeguards would ensure that the federal loan would be repaid even if the grant appropriations by Congress decrease in the future.

For example, Lane said, if the House version of the housing bill becomes law, the authority would borrow only half of its expected modernization funds, which would ensure that the other half could be used as a backup to pay off the loan if necessary.

Because the federal loan funds would be combined with other sources of money, the investment risk would be spread among many entities, such as private investors or federal housing loan groups, Lane said.

"The Treasury then is in partnership with other people who have invested in this development, which should make them feel better," Lane said.

One of the first priorities for the redevelopment would be the 3,600unit Cabrini Green community on Chicago's north side. The project, which would be to.tear down the high-rise structures and build new units throughout the city and suburbs, would cost $350 million. Last year, the authority received a $50 million federal grant to begin the process.

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