Posted on Sun, Jul. 24, 2011
Modesto city officials defend Neighborhood Stabilization Program

By Ken Carlsonkcarlson@modbee.com
last updated: July 24, 2011 01:26:36 AM

MODESTO -- ]
Modesto received $25 million in federal money from the second phase of the Neighborhood Stabilization Program and spent slightly more than half of it in two years revamping foreclosed homes.

But city officials will await the outcome of several audits and an FBI investigation before deciding whether to spend the remaining $12 million.

Investigators from the U.S. Department of Housing and Urban Development and Modesto's own auditor are reviewing whether the city provided proper oversight of the nonprofit Stanislaus Community Assistance Project, which received more than $8 million from the city. The FBI reportedly is looking into possible illegal use of taxpayer dollars.

In the meantime, city officials have made a concerted effort to deflect public outrage over problems with the program, known as NSP2, and show how its projects have benefited the community.

Modesto has until February 2013 to spend the money or return it to the federal government. It appears city leaders want to follow through with the effort.

"This funding has put people to work and addressed foreclosed units in our community," City Manager Greg Nyhoff said in a written statement Friday. "We believe that spending the remaining funds on jobs and rehabilitating homes locally is the right decision."

For the most part, Nyhoff said, the city-designed program has complied with federal rules for using the money. It's expected to take six to eight weeks for auditors with the city and HUD to finish their work.

Auditors are focused on the 46 dwellings developed by SCAP under NSP2, including the $2.5 million spent to buy and renovate a 31-unit apartment complex on Coolidge Avenue. SCAP also spent up to $160,000 in taxpayer funds on upgrades for homes and then placed employees or their family members in several dwellings.

Officials also are examining the projects of other developers and whether the city had procedures in place to prevent excessive spending.

Councilman Brad Hawn said he wants to wait for the audit results before deciding what to do.

"I am trying to stay open-minded about this instead of coming to conclusions without having the facts," he said. "If they say there are things that were done wrong, we have to correct them before we move ahead."

City officials could have a hard time convincing residents such as John Herhily that the program can be salvaged.

"What is going on is a travesty," he said. "It's nothing but greed. For a program that could have had great results it is tarnished and now people want it to stop."

The national program stirred controversy soon after $2 billion to expand it was included in the economic stimulus package signed by President Barack Obama in 2009.

Money welcomed

Cities like Modesto welcomed the money, which was used to buy and renovate foreclosed homes in blighted neighborhoods, providing jobs for construction workers. Skeptics countered that the program lacked oversight, was another bailout for banks and would mainly benefit well-connected developers.

The city worked with nonprofit and for-profit developers to spend the first $13 million of the NSP2 funds on the purchase and renovation of 130 housing units. Along with taking foreclosed homes off the market, the goal was to provide affordable housing to people with low to medium incomes.

HUD rules also allow for renting the dwellings to special-needs tenants, such as people with disabling illness, mental health or substance abuse problems, seniors, former prison inmates, or victims of domestic violence.

The city has plans for most of the remaining $12 million, including $6 million for the Stanislaus County Housing Authority to buy and renovate duplexes for young people coming out of foster care.

The city could allocate $2 million to developers for additional housing projects and another $2 million for administration. It has frozen $778,000 of unspent money for SCAP, pending results of the city probe.

Modesto plans to spend $3 million from the third phase of the Neighborhood Stabilization Program on improving properties in the airport neighborhood. It has more time for spending that money.

Stanislaus County has spent more than 90 percent of the $9.74 million initially received for neighborhood stabilization, spreading the benefits among Ceres, Oakdale, Newman, Patterson, Waterford and unincorporated areas, a staff member said. It was awarded almost $4.2 million in the third round of funding last year.


Lapses in oversight

Modesto officials believe the rush to spend the NSP funds for economic stimulus led to lapses in oversight. They stress that checks and balances recently have been strengthened.

Councilman Garrad Marsh said that the NSP homes were rented to SCAP employees in the past six months, before a standard audit was due. The program hasn't been perfect, he said, "but I think overall it has improved the situation in Modesto."

Bill Fagan, Housing Authority executive director, said he hopes the city follows through with tighter oversight because the agency wants to ensure that foster care graduates, ages 18 to 28, have stable housing.

The Housing Authority bought and fixed a dozen three-bedroom homes in Modesto in the program's first phase, with purchases ranging from $112,478 to $165,700 and renovations costing $5,400 to $41,000 per home.

The homes were rented for $700 a month to families who proved they were good tenants in another housing program, Fagan said.

Others contend the city program was flawed from the start.

Bill Zoslocki, a local builder running for mayor, would have preferred the city create a long-term rental program. After fixing up the homes with grant money, he said, developers could have been required to refinance the loans and make payments to a fund for improving other houses.

He recommends putting local experts on a committee to design a program for spending the rest of the money.


Long-term plans

The city is committed long term to the Neighborhood Stabilization Program because of covenants to use the properties for affordable housing for 15 to 25 years. The city has to keep tabs on the properties; continuing the program would increases its oversight responsibilities.

Ryan Swehla, a for-profit developer who converted 20 foreclosed properties, said that getting involved with more NSP projects is not worth the stress.

The co-owner of Trinity Ventures LLC has been peppered with questions about his role in the program because of his partnership in a commercial real estate firm with Councilman Joe Muratore.

Trinity Ventures got involved with the NSP before he went into business with Muratore, Swehla explained. Muratore has recused himself from council decisions regarding the program.

"I think there is a place for this program," Swehla said. "You can have all the checks and balances in place, but it comes down to finding the right partners who will do the right thing."

Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or (209) 578-2321.

AT A GLANCE

Modesto has received $36 million from the three phases of the federal Neighborhood Stabilization Program.

NSP 1: $8.2 million used to buy and upgrade 45 residential properties (60 units)

NSP 2: $25 million; $13 million spent to revamp 66 properties (130 units) for resale or rent.

NSP 3: $2.95 million targeted for improvements in the airport neighborhood

Eligibility: Households making between 50 and 120 percent of the median income. Some housing for seniors, the disabled and others with special needs.

Source: City of Modesto



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