States Slow to Distribute NSP Funds

While HUD announced the first round of Neighborhood Stabilization Program funding back in February, it has been a slow process getting those dollars into projects.  .

The Department of Housing and Urban Development announced plans to allocate $3.92 billion to buffet the mounting foreclosure crisis. NSP derives its monies from the Housing and Economic Recovery Act of 2008, through the Community Development Block Grant (CDBG) program. HUD announced a second round of NSP funding early this summer.  It is a smaller round, of approximately $2 billion.

Together, this $6 billion program is the most direct response by the government to stimulate the redevelopment of foreclosed properties.  In the context of federal spending, it is a drop in the bucket.  Six billion dollars is less than the sum of dollars spent in the Housing and Economic Recovery Act for rural broadband access

Spending the Money

HUD has allocated its funds.  That’s only the first step, though. Once HUD indicates how much each state (and some metro areas) receive, it is up to a state agency to award grant dollars to non-profits and governments for specific projects.  Time is significant – the language dictates that states have 18 months to put that money to work.

Some states are proceeding on pace.  North Carolina allocated approximately $55 million ($49 million from the state and another $4 million to Charlotte, with some set aside for administration)  in funds last spring.  New York state announced plans for grants to non-profits and government agencies totaling almost $60 million in April .

That said, awarding those NSP funds has not been easy in every state . Oregon did not complete the final allocations of its $19.6 million in funds until August.  California announced its allocations of $145 million in grants on August 27th.

Kansas still has not made its NSP 1 awards.  In fact, Kansas may actually allocate its NSP-2 dollars before it can clear the administrative hurdles within NSP-1.  The Kansas Department of Commerce has $20.9 billion to distribute in Kansas.  Some of the problems involve procedural rules associated with environmental review.

Other issues

There are other issues with the design of NSP.  The hurdles that are proving so difficult for some states are largely procedural, but there are other issues with NSP.  For one, the language of the NOFAs exclude rural communities from applying for funds.  This reflects a hope that concentrated re-development of foreclosed properties might create a peer effect that lifts housing values across entire neighborhoods.  In such a scenario, owners of homes that are current on their mortgages would see their homes appreciate in step with the new improvements to the foreclosed homes.

Rural America has been left to fend for itself.  The concentrated redevelopment scenario does not fit with the dispersed housing patterns within rural America.  In spite of those preferences, rural communities have been hit hard by the foreclosure crisis.  By some measures, they have been hurt even worse.

Perceptions seem to hold that urban areas are the primary victims, but that may owe to counting errors.  RealtyTrac does not record foreclosures in 900 counties in the United States.  Those are largely rural places.  For that reason, RealtyTrac differs with some of the data created by HUD.  According to HUD, rural states have more foreclosures than urban ones.  In North Carolina, while there are more urban foreclosures, there are a higher share of rural mortgages in foreclosure than urban ones.

HUD’s policy focus ignores rural areas.  Nonetheless, the dollars that are in the program are needed and they are being put through a decentralized process that probably makes sure that good projects get the money.  The hitch is that the process is difficult.  The inability of some states to get out their NSP dollars needs some attention.