CITY OF TALLAHASSEE
CITY COMMISSION AGENDA ITEM
ACTION REQUESTED ON: July 1, 2009
SUBJECT/TITLE: Discussion of Agreement with State for Neighborhood Stabilization Programs (NSP) #1 and #2 Grant and Adoption of Property Acquisition Process to be used in Conjunction with all NSP Grants
TARGET ISSUE: Affordable Housing

STATEMENT OF ISSUE

On March 25, 2009 the City Commission authorized submittal of a grant application to the State Department of Community Affairs (DCA) for the City’s allocation of $2,945,470 in Neighborhood Stabilization Program-1 (NSP-1) (Attachment 1). The NSP funds are to be used primarily to acquire and rehabilitate residential property that is in foreclosure and owned by financial institutions. This housing, after rehabilitation, is to be made available to low-income households. This grant requires all funds to be expended by July 2010. At the time this agenda item was prepared, DCA had not yet presented a grant agreement to the City for execution. Because of the complications associated with purchasing properties in foreclosure and the demanding timelines for this grant program, we are requesting the City Commission authorize the City Manager to accept the grant award and execute all documents necessary to receive the grant award. We are also requesting the City Commission approve an interim property acquisition policy to be used for the acquisition of foreclosed properties using NSP Grant funds. The proposed policy (Attachment 2) would allow the City Manager or her designee to authorize property acquisitions using any NSP Grant funds. Additionally, staff is requesting authorization to complete and submit an application to the US Department of Housing and Urban Development for the Neighborhood Stabilization Program–2 (NSP-2), an initiative of the American Recovery and Reinvestment Act of 2009. NSP-2 is modeled after the Neighborhood Stabilization Program–1. NSP-2 is a competitive grant to acquire vacant, bank-owned foreclosed properties and rehabilitate them to re-enter the occupied-housing stock. Staff will request $10 million, which must be used to assist a minimum 100 units of foreclosed properties.

RECOMMENDED ACTION

Approve Options 1, 2 and 3: (1) Authorize the City Manager to accept the Neighborhood Stabilization Grant and execute any documents necessary to receive the grant award; (2) Approve the proposed Neighborhood Stabilization Program Acquisition Process; and (3) Authorize the City Manager to apply for Neighborhood Stabilization Program–2 funding and execute all documents necessary to receive those funds from HUD.

FISCAL IMPACT

The NSP-1 Grant will provide $2,945,470 to support affordable housing. The NSP-2 application to HUD could position the City to receive $10,000,000 for the Neighborhood Stabilization Program-2. The Office of Budget and Policy has reviewed and concurs with this agenda item.

Thomas H. Lewis, Director, Economic and Community Development

Anita Favors Thompson, City Manager

For information, please contact: Michael Parker, Assistant Director, 891-6457

SUPPLEMENTAL MATERIAL/ISSUE ANALYSIS
HISTORY/FACTS & ISSUES

The Neighborhood Stabilization Program-1 (NSP-1) is a formula based entitlement program that distributes funding to local governments to acquire vacant, bank-owned foreclosed properties and rehabilitate them to re-enter the occupied-housing stock. On March 25, 2009 the City Commission approved an application to DCA for $2,945,470 in NSP-1 Grant funding that was designated for Tallahassee. The funds must primarily be used to acquire and rehabilitate property that is in foreclosure. The grant stipulates that the funds must be expended by July 2010. The State will review grantee performance in January 2010 to determine that sufficient progress is being made to satisfy the July 2010 expenditure deadline. Jurisdictions that have not made sufficient progress could see their grant awards rescinded. For the NSP-1 program, property must be purchased for 85% or less of the appraised value. The benefit of the program is threefold: banks dispose of foreclosed properties; neighborhoods have fewer vacant houses; and income-eligible households benefit from newly renovated homes. The City anticipates entering into its contract with the Department of Community Affairs (DCA) in June or July 2009 and will begin implementing the program. To meet these grant deadlines City staff must move expeditiously to acquire eligible properties. To assist in NSP-1 and -2 programs, we are proposing a modified property acquisition process to be used in conjunction with the NSP Grants (Attachment 2). The proposed acquisition process would require review by the Real Estate Committee, and the City Manager or her designee who could approve the purchase of the property. This would allow the acquisition process to move more quickly and acquisitions to be undertaken during the summer when the Commission is in recess. This agenda item is also requesting City Commission authorization to allow the City Manager to accept the NSP-1 Grant and execute any agreements necessary to receive the grant funds.

Properties in foreclosure continued to be a problem across the country, prompting the U.S. Congress to add the Neighborhood Stabilization Program–2 (NSP-2) to the American Recovery and Reinvestment Act of 2009. NSP-2 is a competitive program rather than an entitlement program. NSP-2 regulations are virtually identical to NSP-1 with few exceptions: the number of eligible census tracts, the required acquisition discount, and the layers of regulation were all reduced.

NSP-2 has a different rating system for eligibility of census tracts than NSP-1. The U.S. Department of Housing and Urban Development (HUD) released new data in May 2009 related to the risk of foreclosure by census tract. The new data had a rating scale of 1 – 20 and scored both foreclosure risk and vacancy risk caused by foreclosure. To apply for funds, selected census tracts must score an average of 18 in one of the two categories. The result was fewer eligible census tracts for the NSP-2 program. Staff analyzed the eligible census tracts and the potential foreclosed properties for acquisition. Based on the analysis, staff proposes funding be concentrated to census tracts 19.00, 10.01, and 12.00 (See Attachment 3. map). Those census tracts qualified for the program under the vacancy risk category. The census tracts are located within the Southern Strategy Area and are at least partially within the Frenchtown-Southside Community Redevelopment Area (CRA). CRA funds may be used in conjunction with NSP-2 funds for greater impact.

NSP-2 funds may only be used to address bank-owned foreclosed properties. The minimum award that can be requested from HUD is $5 million to assist at least 100 units to return to the occupied housing stock. No more than 10% of the funds may be used for administrative costs. Households that occupy the rehabilitated or redeveloped housing shall not earn more than 120% of area median income (AMI) and at least 25% of the NSP-2 funds must be used to assist households earning less than 50% AMI. The NSP-2 application requires Tallahassee to select eligible NSP-2 activities that would address the highest priority local needs. Eligible activities through the NSP-2 program are as follows:

A. Housing Finance mechanisms for purchase of foreclosed homes.
B. Purchase and rehabilitate homes that have been foreclosed upon.
C. Land banking: must be built and occupied within 10 years.
D. Demolition of blighted structures (limited to 10% of award).
E. Redevelop demolished or vacant properties as housing.

To get feedback about proposed activities and to satisfy the citizen participation requirements, staff held an advertised public meeting and a meeting of the Community Improvement Advisory Council (CIAC). Because staff is not required to follow the City’s Citizen Participation Plan to complete an NSP-2 application, a second public hearing was not held. The public meeting was held June 9 and the CIAC meeting was held June 10. The public comment period was open from June 3 to June 30, 2009. The summary of the NSP-2 program was posted on the City of Tallahassee website during the comment period. Staff estimates the budget will be as follows:

Staff believes that $100,000 per unit would be needed to acquire and successfully rehabilitate vacant foreclosed housing units for re-occupation. Acquisition costs in Tallahassee are likely to be at least $50,000 per unit. The Housing Division operates several specialized rehabilitation programs using state and federal housing assistance funds to bring low-income owner-occupied housing up to code. Some homeowners take advantage of multiple rehabilitation programs to correct the health and safety issues within the homes. Some homes require $40,000 - $50,000 of repairs. In addition to bringing the housing units up to code, the City will use green building techniques and add energy efficiency improvements for improved long-term affordability. The energy efficiency improvements will add to the cost of rehabilitation.

Housing data for Tallahassee has shown that there is a shortage of rental housing units for very low-income households. The City Commission has expressed the desire to expend housing assistance funds on multi-family rental units. Annual allocations of federal, state, and local housing assistance funds have not sufficiently addressed the rental housing need because of program requirements and homeownership priorities. Staff believes focusing all NSP-2 funds on rental housing will result in needed housing units for very low-income households. Other strategies were not selected because they do not address the issues of removing vacant foreclosed structures while also providing needed affordable housing.

The NSP-2 requires that all housing units serve households earning less than 120% of area median income (AMI). Nearly all of the NSP-2-assisted housing units will be targeted for households earning less than 80% AMI and at least half the units rehabilitated will be targeted for households earning less than 50% AMI. The provision of different housing types and costs is a policy of the Southern Strategy Area Plan within Tallahassee’s Comprehensive Plan. The NSP-2 program is consistent with the goals of the Community Redevelopment Area.

The competitive NSP-2 awards leveraging of non-federal, non-NSP, and non-CDBG funds within the target area. Because the chosen target area is part of the Southern Strategy Area and contains portions of the CRA, the City is able to leverage $1.27 for each dollar of NSP-2 funds.

NSP-2 Leveraged funds identified in census tracts 12.00, 10.01 and 19.00

The City’s Real Estate Division and Housing Division will partner on the acquisition of foreclosed properties. The Housing Division will contract out services for rehabilitation work on the acquired properties. The City will partner with non-profit or for-profit agencies to manage the housing units.

As with the other economic stimulus funds, one of the federal objectives of the NSP-2 is to expend the funds quickly. Half of the NSP-2 funds must be spent within two years and 100% must be spent within three years of the City entering into a contract with HUD. Tallahassee must submit its application for funding to HUD by July 17, 2009. The Department of Economic and Community Development (ECD) will complete the application, but at the time of this last City Commission meeting, only the approach and outline of the program is available for review (Attachment 4). The Long Range Target Issue Committee reviewed the application proposal on June 17, 2009.

CHARITABLE CONTRIBUTIONS

N/A

OPTIONS:

Option 1: Authorize the City Manager to accept the Neighborhood Stabilization Grant and execute any documents necessary to receive the grant award.

Pro
o Allows the City to accept grant funds and move forward with grant activities.

Con
o None identified

Option 2: Approve the proposed Neighborhood Stabilization Program Acquisition Process.

Pro
o Allows for acquisitions to be completed more quickly, which assists staff in meeting the performance requirements in the NSP Grants.

Con
o City Commission does not have opportunity to review individual property purchases using the NSP Grant funds.

Option 3: Authorize the City Manager to apply for Neighborhood Stabilization Program–2 funding and execute all documents necessary to receive those funds from HUD.
.
Pro
o Directing ECD to complete and submit the Neighborhood Stabilization Program-2 application for submittal to HUD will make Tallahassee eligible to compete for $10 million in NSP-2 funds.
o NSP-2 funds will be used to reduce abandoned foreclosed properties in Tallahassee neighborhoods while assisting income-eligible households to have decent housing.

Con
o None identified.

Option 4: Do not direct staff to complete and submit the Neighborhood Stabilization Program-2 application with the City Manager’s signature to the U.S. Department of Housing and Urban Development before July 17. Give staff alternative direction.

Pro
o None identified.

Cons
o Not directing ECD to complete and submit the Neighborhood Stabilization Program-2 application for submittal to HUD will make Tallahassee ineligible to compete for $10 million in NSP-2 funds.
o NSP-2 funds will not be able to reduce abandoned foreclosed properties in Tallahassee.

ATTACHMENTS/REFERENCES

Attachment 1: March 25, 2009 NSP Grant Application Agenda item
Attachment 2: Proposed Neighborhood Stabilization Program Acquisition Process
Attachment 3: Map of Neighborhood Stabilization Program–2 Target Areas
Attachment 4: Neighborhood Stabilization Program–2 Application Proposal