It was December 8, 1993, still three weeks before Inauguration Day, when newly elected Mayor Rudolph Giuliani found himself in Bill Clinton's office, annoyed at having to use precious minutes of face time with the President trying to correct a gaffe committed by the New York City Housing Authority.

According to an embarrassing New York Post story the day before, NYCHA officials under former Mayor David Dinkins misread a grant application and applied for only $500,000 of some $50 million the city was eligible to receive under a new federal public housing improvement program called "HOPE VI." The mayor asked for a second crack, and Clinton, willing to do the mayor a favor, agreed. Giuliani later announced the city would get nearly $48 million from the Department of Housing and Urban Development for fixing up its most troubled projects.

"New York City," Giuliani's press secretary acidly told the Post, "now has a government that knows how to apply for grants." Yet three years later, the mayor is preparing for his re-election campaign and New York has not seen a dime.

To get HOPE VI, the mayor's housing officials eventually had to commit to destroying a number of public housing apartments, in keeping with the nationwide trend of tearing down troubled projects in order to save their tenants.

Unknowingly, Giuliani had fallen into the hidden trap of l990s federalism. In housing, the dictum of returning power to local governments seems to apply only if the locals are as conservative as Washington. If New York wants the money, it will have to follow the rules laid down for the HOPE VI program by Clinton housing strategists and the Congress. As it turns out, that means destroying at least 100 desperately needed public housing units in a Rockaways development.

"This is penalizing New York," concedes NYCHA Deputy General Manager John Martinez, who says the Giuliani administration has let Washington know it is not happy with the requirement. New York City has a relatively well maintained public housing stock, a low-income housing shortage of near-catastrophic proportions, and little need for the kind of demolition work that has become common in the notorious projects of other cities including Chicago, Atlanta and Baltimore.

And even just talking about gutting a few units of public housing is emotional dynamite to NYCHA tenants. Residents of the Rockaways' Beach 41st Street Houses, where NYCHA was initially going to spend the HOPE VI money, were so distrustful of the bureaucrats that they effectively stalled the project until HUD backed out in disgust.

Now, NYCHA's planners have moved their blueprints 10 blocks down Beach Channel Drive to the Edgemere and Arverne Houses. These complexes are slated to receive the $47 million as well as another $22 million in HOPE VI funds that HUD awarded NYCHA in a subsequent application. But tenants at Edgemere have already begun to look askance at the windfall, even though HUD is considering the suspension of demolition mandates in future years.

"We know we're not going to get the money if we say there's no demolition," tenant Yvonne Rodriguez told her neighbors at a tense tenant strategy meeting in mid-December. "The question is, are we willing to go for that?"

They will have to, Martinez tells City Limits. "Tenant input is invaluable," he says. "But we will finalize this plan. We will move forward."

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Funding from HOPE VI was to have been a beachhead for new development on the far end of the Rockaways Peninsula, which juts into the Atlantic from the eastern-most reaches of Queens. This community has always been isolated from the rest of the city. Once a picturesque resort, its fortunes began to sink in the l950s when cottage owners looked further afield for their summer holi-day retreats. Over the next two decades, city builders used some of the area's vast spaces, made vacant by bulldozers, to build new public housing.

In the 1980s and '90s, the neighborhood became a destination for some of the city's most impoverished families. Crime rates rose and the community's reputation sank. Working class tenants fled, leaving apartments to be filled by even poorer families from the city's homeless shelters. Eventually, the six complexes here became known as some of the most troubled in NYCHA's stock.

On the surface, this appeared to be exactly the kind of "distressed" community that HOPE VI was intended for.

The program is the latest incarnation of Bush administration HUD Secretary Jack Kemp's attempt to deal with the social and physical ills plaguing public housing. The first HOPE program was Kemp's abortive idea of selling off housing projects to their tenants. The new version is the work of Clinton's departing HUD Secretary Henry Cisneros. It is more like a Marshall Plan for particularly forlorn developments, razing bombed-out, abandoned buildings and saturating the ground with funding for new apartments--mostly low-density townhouses--as well as social services and commercial development.

HOPE VI is not a big program in terms of dollars. Since it began in 1993, it has received an average allocation of only $550 million a year in a HUD budget of about $20 billion. But it is a key Clinton administration policy for dealing with the deterioration, poor management, crime, poverty and abandonment that have come to symbolize the nation's public housing. HUD hopes to "reknit" the most isolated housing complexes back into the communities that surround them, explains Milan Ozdinec, director of the Office of Urban Revitalization, which manages HOPE VI.

HOPE VI gives local players, including housing authority officials, tenants and community leaders a role in designing a revitalization plan using a mix of strategies. In some cities, participants have opted to set up programs to help the chronically poor get jobs. Others are arranging low-income tax credit financing to encourage private housing development in the surrounding area. Housing authorities are also seeking new ways to market their developments to the working poor and lower middle class.

But HOPE VI's prime directive is razing and rebuild-ing. Eighty percent of all allocated funds must go to demolition, building and rehabilitation. In the first three years of the program, 40 cities, including Chicago, Atlanta, San Francisco and Houston, received funds to reconfigure a total of 28,000 units of housing nationwide. Some 21,000 of those apartments were slated for demolition, says Ozdinec. He emphasizes that more than a third of these are already vacant, and they will be replaced by 14,500 apartments in attractive new town homes--complete with landscaping, playgrounds and social amenities like schools, computer centers and health clinics.