Twenty-seven Camden homes rehabilitated. A blighted Chester apartment building demolished. Financial assistance to troubled borrowers in Delaware's Sussex County. These and other activities are getting underway as part of the nearly $4 billion Neighborhood Stabilization Program (NSP) created by the Housing and Economic Recovery Act of 2008 (HERA) to aid communities hit by the foreclosure crisis. Funds are being distributed on the basis of a formula aimed at areas of greatest need, and the largest grants are going to California, Ohio, Texas, Michigan, and Florida. However, the Third Federal Reserve District also stands to gain from the program: A total of $56 million is headed for central and eastern Pennsylvania, $20 million is going to southern New Jersey, and nearly $20 million is targeted to Delaware.
The NSP is being called the most significant housing program since the Housing and Community Development Act of 1974.1 It aims to deal with foreclosures at the neighborhood level in order to mitigate the risk that vacant or foreclosed houses can pose to community stability. NSP funds may be used to "(A) establish financing mechanisms... including soft-seconds, loan loss reserves, and shared-equity loans... (B) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop... (C) establish land banks for homes that have been foreclosed upon, (D) demolish blighted structures, [and] (E) redevelop demolished or vacant properties."2
A crucial feature of the program is its emphasis on geographic targeting. Since resources are limited, the program is intended to stabilize neighborhoods in transition or on the verge of decline, not to revitalize entire cities. Income targeting is a requirement, with all funds aiding individuals and families at or below 120 percent of area median income and at least 25 percent of each grant directed toward households earning 50 percent or less of the area median income. The U.S. Department of Housing and Urban Development (HUD), charged with distributing NSP funds, urges grantees "not only to stabilize neighborhoods in the short-term, but to strategically incorporate modern, green building and energy-efficiency improvements in all NSP activities to provide for longterm affordability and increased sustainability and attractiveness of housing and neighborhoods."3
The NSP provides grants of at least $19.6 million to every state as well as direct assistance to municipalities based on a formula that considers high numbers or percentages of foreclosures, subprime mortgages, and mortgage defaults and delinquencies.
The HUD formula provided direct grants to three municipalities in the Third District: Philadelphia, Allentown, and York County.4
Philadelphia received nearly $17 million directly from HUD, which, along with an additional $3.8 million allocation from the state, will be used to acquire and rehabilitate approximately 215 properties. The Philadelphia Redevelopment Authority will use NSP funds only on blocks with a vacancy rate below 5 percent. Eighty percent of funds will be directed to nearly two dozen ZIP codes, including neighborhoods in lower Northeast Philadelphia, Olney, Oak Lane, and West, Southwest, and South Philadelphia.
The city of Allentown will spend most of its $2 million grant on acquisition and rehabilitation, while York County (excluding the city of York) will use its $2 million allotment on a mix of acquisition, rehabilitation, and demolition.
Each of the three Third District states used a competitive application process to distribute its federal grants.
Of Pennsylvania's $60 million grant, nearly $35 million will go to communities within the Third District. The Pennsylvania Department of Community and Economic Development (DCED) awarded funding based on applications from municipalities, redevelopment authorities, and nonprofits.
Delaware County, Pennsylvania, received a $6.7 million grant under the Neighborhood Stabilization Program to demolish the blighted Penn Hills apartment complex in Ridley Township. Pennrose Properties, LLC will develop 26 townhouses on the site for rent to low- and moderate-income households. (Photo provided by Pennrose Properties)
Pennsylvania used a data-driven approach to target funds, according to Ed Geiger, director of DCED's Center for Community Development. "We relied on the HUD risk scores5 but also heavily weighted the neighborhoods and communities that met the definition of middle markets, which directly corresponds to the 'tipping point' neighborhoods that were espoused...by Alan Mallach," 6 Geiger explained. "These are neighborhoods on the margin that could go either way, getting dramatically worse or better. These places are likely to be the most effective places to infuse public money. The Reinvestment Fund helped us better define those neighborhoods, which we began calling middle markets, as ones that had an average sales price between 50 and 130 percent of the county's median sales price."
The state's largest grant, for $6.7 million, will go to Ridley Township for the demolition of part of the blighted Penn Hills apartment complex, with some land to be redeveloped by Pennrose Properties as LEED Silver7 townhouses and the rest placed into a land bank. Other major recipients are Philadelphia ($3.8 million), Scranton ($3.0 million), and Cambria County ($3.0 million).
Pennsylvania expects that, statewide, the NSP will fund the acquisition and rehabilitation of 630 units, the demolition of 308 blighted units, limited land banking, and financial assistance for homeowners.
The New Jersey Department of Community Affairs divided up New Jersey's grant of $51.5 million based on a competitive application process open not only to municipalities and nonprofits but also to for-profit developers. The $20 million allocation to southern New Jersey includes grants of $2.5 million to each of four entities: the Cumberland County Empowerment Zone Corporation, Gloucester County, Trenton, and a Camden project of for-profit developer RPM Development LLC. Execution plans vary widely: The city of Burlington will act as its own developer, while several other localities have hired Triad Associates, a housing development consulting firm, to manage their programs. Statewide, the NSP will fund at least 200 acquisitions, 150 rehabilitations, 50 demolitions, and 20 new units.
Delaware received the minimum state grant of $19.6 million, distributed by the Delaware State Housing Authority (DSHA) to New Castle County ($7 million), Wilmington ($5.6 million), Kent County ($2.5 million), Sussex County ($2 million), and Dover ($1.5 million). The DSHA projects that funding will be available to acquire and rehabilitate 150 units in the state while also carrying out some demolition in older areas. Delaware's NSP recipients will team up with a wide range of partners, ranging from local housing authorities to nonprofits such as the Diamond State Community Land Trust, Habitat for Humanity, and United Cerebral Palsy of Delaware. Delaware has already launched a billboard, radio, and television campaign promoting homeownership and is focusing particularly on housing counseling.
The HERA requires NSP recipients to spend all funds within the next four years. Meanwhile, the American Recovery and Reinvestment Act of 2009 appropriates another $2 billion to the NSP to be awarded not by formula but by a national competitive application process. HUD is expected to release the results by December 1, 2009.
Community Affairs researchers across the Federal Reserve System are finalizing plans for a study of the planning and early implementation phases of the Neighborhood Stabilization Program (NSP). Data collection will begin in the near future. The study will include interviews with a sample of NSP directors throughout the country. Data from a number of sources, such as the census and Home Mortgage Disclosure Act, will provide background information on conditions in the communities where interviews are conducted.
General information on the NSP is available at www.hud.gov/nsp. For information on Pennsylvania, visit newpa.com or contact Ed Geiger of DCED at (717) 787-5327 or firstname.lastname@example.org; for New Jersey, visit www.state.nj.us/dca or contact Diane Kinnane of DCA at (609) 633-6182 or dkinnane@ dca.state.nj.us; for Delaware, visit destatehousing.com or contact Victoria Powers of DSHA at (302) 739-4263 or email@example.com.