Elorza’s $5 Million Housing Redevelopment Revolving Loan Pool Questioned by Advocates

Saturday, October 11, 2014

Kate Nagle, GoLocal Contributor

 

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Democratic Mayoral candidate Jorge Elorza's announcement this week that he would create a bonded $5 million revolving loan program to redevelop foreclosed and abandoned properties in Providence has been been met with questions from affordable housing advocates as to its impact both on the market, and neighborhood redevelopment.  

"The potential is there, there's very little regulation," said Providence City Councilman Luis Aponte.  "If you want to put your own money at risk, fine, but if the public's subsidizing this, what are the protections?"

"It should not be a replacement for sound housing policy," said Aponte.  "It becomes an issue of having a public fund to allow people to speculate on real estate futures.  If you want to risk your own dollars, but we shouldn't be subsidizing without any clear understanding of the public good at stake." 

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On Tuesday, Elorza announced that through "creative and innovate policies," which included the $5 million revolving loan pool, "there is no reason that vacant and derelict homes should continue to blight our city without an end in sight.”

In August, the City of Providence unveiled a receivership program to "compel the restoration of abandoned, blighted and nuisance properties in the wake of the nationwide foreclosure crisis" -- but members of the city's affordable housing and neighborhood redevelopment are raising issues with the requirements of of the program -- and whether there is a level playing field with developers in the receivership process moving forward.  

"This is a risky venture.  This is not a hand-holding process," said Carla DeStefano with Stop Wasting Abandoned Properties (SWAP) of receivership.  "It looks like probably more of an investor purchase program than an owner-occupant program.  These are big houses, which means there's a lot of upkeep.  When we turn over a house, part of what we do is make sure it can go a long time before putting more money in.   A lot of those safeguards aren't out there here.  This got rolled out very quickly -- and little input before they rolled out -- we're playing a bit of catch up here."

Larger Housing Picture  

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According to Elorza's announcement, "the centerpiece of the [improving neighborhoods and boosting homeownership] plan is the creation of a $5 million revolving loan pool so that redevelopment projects can move forward quickly. The benefit of this model of borrowing is that there is no annual debt service. The bonds will be repaid from the earning generated from the sale of redeveloped homes."

"With an average redevelopment cost of $100,000, the City can have around 50 projects under construction at any given time with a $5 million loan pool. Based on the duration of recent projects using the receivership process, it is estimated that homes can be redeveloped and sold within six months," said Elorza. 

Aponte, who said the city's efforts to build affordable housing options under the Taveras administration "haven't been helpful," viewed the revolving loan proposal for receiverships by Elorza as "DEFCON 5."

"It's the very last option," said Aponte.  "Certainly whoever comes in next [as Mayor] won't inherent an overarching vision for affordable housing.  There's no neighborhood agency involvement with receivership.  There's no safeguards against flipping.  If someone buys from a receiver, they can sell for whatever the market will bear."

SWAP's DeStefano, who's been at the South Providence agency for over 20 years, said the number of abandoned properties has "remained at the 650-700 level over the years." "Granted they've been different properties at different times," said DeStefano.  

"The receivership program will be used most often in low income neighborhoods," said DeStefano.  "How this tool in the box can help in the larger neighborhood revitalization efforts, we want to make sure that the community nonprofits have a seat at the table."

Equitable Treatment?

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"There are lots of questions here.  I'm not sure it's been completely vetted for a long term strategy.  You can't just fix a house and sell it, and cross your fingers and hope it works," said DeStefano.  "What this program needs to do is work within the greater context of neighborhood revitalization, and incorporate best practices from other states, and our knowledge." 

DeStefano noted that some of the terms of the receivership program as currently implemented by the city are not the same as those that nonprofits such as SWAP have to adhere to.  

"In this current receivership program, there's no compliance with First Source, the city's not collecting taxes during the process, or requiring owners pay for building permits, all the thing that we have to do," said DeStefano. "The reason why receivership hasn't taken off until now is that it's very risky, you don't immediately get the title to the property, you have to use private funds.  The question is, should the city be in the business of municipal bonds for a receivership program.  If there's minimal risk, that's fine, but if the house doesn't sell, that's a risk."

Frank Shea from Olneyville Housing Corporation pointed to the recent housing bust as a warning to proceed carefully moving forward. 

"You could get to a point where -- we're not that far out of it ourselves - where we could end up being at financial risk," said Shea.  "If it gets to the point where they're doing 50 properties at a time, if it's more than the market can afford, the city's on the hook.  It happened to us.  We're now selling them as we build them, but we were in that position not that long ago."

"You wonder if compromises are made on rehab, end sale," said Shea of questions surrounding the receivership program. "You would have to hope the city administration would have the capacity to expand to monitor this type of program."

DeStefano said, ultimately, a revolving loan fund iwould be needed to move the receivership program forward from her vantage point. 

"I wouldn't rule it out," said DeStefano of a lending funding pool.  "It probably is necessary to make [receivership] work on a large scale.  But in order to expand it, there should be some controls on the process to allow for homeownership, and the requirements we all have to adhere to.  If there are are no controls, if there's no cap on how much rent could be charged, the question is how much affordable housing will come out of this receivership program.  It says nothing about what you can charge for rent.  I'm not about rent control, but I know what people can afford, and HousingWorks RI's latest report reiterates how Rhode Islanders -- especially renters -- are tremendously cost burdened."         

 

Related Slideshow: Questions Jorge Elorza Must Answer to be Providence’s Next Mayor

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Experience Necessary?

Elorza's the quintessential Providence kid-made-good -- and clearly has the education success story of CCRI to Harvard Law going for him.  He's toiled in the legal trenches, and risen through academic ranks. 

But does that translate to a business acumen and know-how to turn the city around?  Brett Smiley counts starting a successful consulting company.  Although a double-edged sword, Michael Solomon's got the city council experience. 

Elorza's managed cases, and students.  Can he oversee a staff of hundreds -- go toe to toe with the unions?

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Money for Plans?

Opponent Brett Smiley might have dubbed himself the man with the plan, but Elorza's right up there with a litany of proposals for the capital city.  Schools, jobs, public safety, neighborhoods, transportation, diversity, arts and culture, ethics -- Elorza's got plans for it all.

And like Smiley's grand amibtions, the burning question is how will these be funded?  Elorza has a plan to double the city's exports in the next five years, with mentoring opportunities and trade missions as part of the strategy.  Those cost money.   Where will it come from?

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Fundraising prowess?

At the end of the first quarter of 2014, Elorza posted a small lead over Smiley in the cash balance department, with $217,082 in his campaign coffers as compared to Smiley's $191,000 and change.  Both, however, were a distant second and third to Solomon's war chest over over $600,000

As the Democratic candidates duke it out, second quarter filings due at the end of the month will show were the money race stands with less than eight weeks to the primary. 

Of course, whoever wins will have to face a Buddy Cianci waiting in the wings, who told GoLocal he raised over $200,000K in one week -- and expects to have $1 million by the time the primary arrives. 

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Primary Factor?

For the Democrats in the race, the primary is, in fact, the primary concern of the campaigns at the moment, with Harrop and Cianci waiting in the wings for the winner. 

Will Elorza's campaign, based strongly on his Cranston-street upbringing and focus on ethics, differentiate him from political operatives Smiley and Solomon? 

The first test on the path to the Mayor's office will be to best his two top adversaries in September.  Will Elorza's deep city ties and campaign aparatus translate into a get-out-the-vote effort enough to take the Democratic title?

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Final Hurdle?

All of the Providence Mayoral candidates, whether they like it or not, have to address to Buddy card. 

So far, Brett Smiley's been the most vocal -- publicly, at least -- in criticizing former Mayor Vincent "Buddy" Cianci, attacking him on his corruption charges and conviction.  Harrop and Elorza have been highly critical, but as aforementioned, the Democrats are focused primarily on the task at hand -- making it past the primary.

If Elorza does advance, can he count on the support of his former Democratic opponents and their backers -- or will there be a mass exodus of those who see Cianci as the more viable candidate?  Republican Dr. Daniel Harrop provides an X factor in the genera election, of course, but a three-way race is vastly different animal than a four-way one before Adrain dropped out.  The winner will need to secure a greater chunk of the electorate. 

 

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