The Alexandria Redevelopment and Housing Authority has proposed turning over to the City Council the approval process for Alexandria housing projects requesting tax-exempt financing, but city officials say they do not know if such an arrangement would be legal.

The housing authority, smarting from being characterized by several tenant groups recently as "insensitive" to social concerns, made the suggestion this week as part of an effort to lower its profile and let the city's elected politicians make the "tough" decisions on tax-exempt bond projects.

The Alexandria housing authority functions as a semi-independent board with the authority to issue tax-exempt bonds to financing housing projects. The housing authority also owns and operates the federally-subsidized housing in the city.

In the past, projects seeking tax-exempt financing were approved by the housing authority board, but a change in the federal tax laws several years ago gave final approval rights to the local governing body, which in Alexandria is the city council.

Since then the authority has reviewed the financial aspects of development proposals, held public hearings and voted on whether or not to forward each request for tax-exempt financing to the city council for final approval. As part of that process the authority has operated under federal and state guidelines for issuing the bonds, but has not imposed any additional restrictions for such projects, as have some other housing authorities in neighboring jurisdictions.

The authority's proposal to turn over its bond-approval authority to the city council came during a discussion between the city council and the authority on a series of more restrictive guidelines for issuing tax-exempt bonds to finance housing projects. The guidelines were recommended by the Alexandria Landlord-Tenant Relations Board and the city manager in an effort to pressure developers seeking such subsidies to keep rents as low as possible.

The housing authority has resisted imposition of additioal guidelines, and voted to reject the ones suggested by the landlord-tenant board several weeks ago. The authority earns fees from the bond issues that go toward helping pay the cost of carrying the subsidized housing in the city, and the authority has argued that additional restrictions would discourage developers from seeking tax-exempt financing.

According to the housing authority, it would be better for the council to take complete control of the approval process for such bond projects if the council wants to impose its own guidelines.

"We issue bonds for the city when they ask us to do the Torpedo Factory . . . or any other crazy scheme they come up with, but when the serious decisions come along they ask this appointed board to listen to the complaints but they skirt the hard issues on the subject," said Robert J. Test, the housing authority chairman.

There is some question, however, if such a shift of responsbility is legal and the council decided to wait on that issue until getting an opinion from the city attorney. The council also decided to solicit comments from developers and tenant groups before voting on the guidelines, after councilmember Carlyle C. Ring suggested the guidelines be changed so that they would "encourage" developers to stay within certain rent limits rather than require them to do so.

Test and other authority board members spoke out against the city council's approach towards tax-exempt bond financing for controversial housing projects during a public hearing this week, saying that the authority's role was that of "the banker, to determine if the deal is financially sound, not whether it is good or bad on social issues."

The hearing was on a proposal to float $11.5 million in tax-exempt bonds to finance the purchase and renovation of the Abingdon Apartments in north Alexandria.

The Abingdon, one of Alexandria's last affordable apartment complexes, has become something of a thorn in the side of the housing authority ever since The National Corp. for Housing Partnerships backed out of a carefully negotiated deal to buy and renovate the complex last month.

The city council had approved NHP's proposal, but it had not been easy, primarily because tenants protested that NHP's proposed rents were so high they would displace roughly 90 percent of the tenants.

Under the federal tax laws, a developer of a project financed through tax-exempt bonds must set aside 20 percent of the units for low- and moderate-income people. Low and moderate is defined as any family making 80 percent of the area median income.

In areas that have a high median income, such as Washington, developers can set rents for even the low- and moderate-income units at levels that are out of reach of many poor people. NHP was proposing rents for the set-aside units that started at $436 for a one-bedroom and $535 for a two-bedroom, but which climbed incrementally to $536 and $635 in four years. Rents at the Abingdon today are $375 and $400. The other 193 units would have rented for $625 and $725.

Some city council members questioned at that time whether Alexandria should approve tax-exempt financing for projects that might not actually help meet public policy goals. But city council members were unwilling to earmark any city funds to help lower the rental rates for the lower-income residents at the Abingdon.

In the final negotiation on NHP's Abingdon proposal, ARHA agreed to donate half the $100,000 fee it would make off the bond issue to help lower the rents for some of the units.

But NHP, chartered by Congress in 1968 to encourage private investment in low- and moderate-income housing, abandoned it's proposal when the seller failed to meet the terms of the settlement contract. Rep. Henry B. Gonzalez (D-Tex.), chairman of a House housing subcommittee, had also recently criticized NHP for proposing a project that would displace the individuals it was supposed to help.

When the NHP proposal fell through the housing authority quickly accepted a second proposal for the Abingdon from The Investment Group, a local development company that managed to negotiate a contract with the seller. The Investment Group's proposal was identical to NHP's, except that ARHA's fee donation was no longer part of the package.

Tenants from the Abingdon came to the hearing this week to ask the housing authority board to delay approval of the bond package for 90 days, "to give us time to try and work out another alternative," said tenant association vice president Magda Koetz. Since the project came to the attention of Rep. Gonzalez several weeks ago tenants have been working with the National Cooperative Bank and local housing groups to explore ways of buying the complex themselves.

"We feel we will have another alternative to present to the city council in 90 days," said Koetz. "We just wish to be treated equally."

But housing authority chairman Test said he "would not put pressure on the developer to do anything" or "interject myself into a private contractural arrangement" between the seller and the developer.

"That puts us in a tight spot," said Test. "What if we don't approve the tax-exempt bonds and you don't get anything put together?" Test also said the authority was required by law to act on the proposal within 60 days, and that they might be open to liabilty if they considered the project on anything other than the financial issues.

However, Angus S. Lamond Jr., vice president of Micah Housing Inc., a non-profit housing council in Alexandria, said that "it is not incumbent upon ARHA to float a loan so that [The Investment Group] can buy the Abingdon. We don't need to subsidize" a private developer.

The authority finally voted to forward the bond package for the Abingdon proposal to the city council, but included in the package a statement that the city council should consider a 90-day delay "as long as it will adversely affect the contract" between the seller and the developer. The council will hold a public hearing on the Abingdon proposal April 9.